<PAGE>
BEA Income Fund, Inc.
153 East 53rd Street
New York, NY 10022
---------------------------------------------
OFFICERS AND DIRECTORS
William W. Priest, Jr. Richard J. Lindquist
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF
Prof. Enrique R. Arzac INVESTMENT OFFICER
DIRECTOR Suzanne E. Moran
Lawrence J. Fox INVESTMENT OFFICER
DIRECTOR Hal Liebes
James S. Pasman, Jr. SENIOR VICE PRESIDENT
DIRECTOR Michael A. Pignataro
SECRETARY
--------------------------------------------------------
INVESTMENT ADVISER
Credit Suisse Asset Management
153 East 53rd Street
New York, New York 10022
Phone 1-800-293-1232
--------------------------------------------------------
ADMINISTRATOR
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
--------------------------------------------------------
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
--------------------------------------------------------
SHAREHOLDER SERVICING AGENT
BankBoston N.A.
P.O. Box 1865
Mailstop 45-02-62
Boston, Massachusetts 02105-1865
Phone 1-800-730-6001
--------------------------------------------------------
LEGAL COUNSEL
Willkie Farr & Gallagher
787 7th 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.
---------------------------------------------
ANNUAL REPORT
December 31, 1998
<PAGE>
BEA INCOME FUND, INC.
- ----------
Dear Shareholders: January 29, 1999
We are writing to report on the activities of the BEA Income Fund, Inc. ("the
Fund") for the quarter ended December 31, 1998 and to discuss our investment
strategy.
At December 31, 1998, the Fund's net asset value ("NAV") was $7.77, compared
to an NAV of $7.88 at September 30, 1998. The Fund's total return (based on NAV
and assuming reinvestment of dividends of $0.18 per share) for the quarter ended
December 31, 1998 was 0.9%. For 1998 as a whole, the Fund returned 0.47%.
At December 31, 1998, $226.7 million was invested in high yield debt
securities; $22.0 million in investment-grade debt securities; $16.9 million in
equity securities; and the balance of $1.2 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 (52.8%) was invested in B-rated
issues.
THE MARKET: HIGH YIELD UNDERPERFORMS
After suffering painful losses in the second and third quarters of 1998,
"Spread product"--debt securities whose market valuation is driven by the
difference, known as the "spread," between their yields and those of U.S.
Treasury debt--enjoyed a healthy rebound in the fourth quarter.
Investors' pronounced risk aversion began to soften in response to a number
of developments. These were the cumulative effect of over 60 monetary easings by
central banks, including three in the U.S. by the Federal Reserve within a
period of seven weeks; the announcement of a long-awaited fiscal aid package for
Brazil by the International Monetary Fund; and the relatively orderly
liquidation of large positions held by Long-Term Capital Management and other
ailing hedge funds.
Among spread product sectors, high yield's revival was most vigorous. The
2.7% return of the Credit Suisse First Boston High Yield Index was substantially
higher than that of most other spread product sectors.
The high yield market's outperformance appears even more noteworthy in light
of technical factors that served to moderate its returns during the quarter:
- - Trading liquidity continued to deteriorate in the aftermath of the "flight to
quality" rallies that bloodied anything other than major-nation sovereign
instruments earlier in the year, as brokerage firms sharply reduced their
willingness to make markets.
- - Swelling cash inflows into high yield mutual funds, which had helped to
absorb a booming new issue calendar in November, subsided in December even as
new issue activity remained buoyant. Investors continued to favor the
better-rated high yield issues, meaning that a large portion of the overall
high yield market spent much of the quarter fairly inactive.
PERFORMANCE: SECTOR ALLOCATIONS HELPED AND HURT
The same sector allocations that most affected the Fund's performance during
the third quarter continued to do so in the fourth quarter:
- - Bright spots included our overweighting in cable/media and gaming, both of
which performed much better than the overall benchmark; and underweighting in
finance and energy, which were the quarter's two worst-performing sectors in
the entire high yield market.
- - Our overweighting in telecommunications hurt returns, as it left the
portfolio more highly exposed than the benchmark to deferred-interest
instruments such as zero-coupon bonds. Zeros' returns generally were lower
than those of traditional cash-pay instruments, reflecting investors' ongoing
preference for higher-quality issues within the overall high yield universe.
- - We underweighted utilities, which performed well.
- - Our holdings in the transportation sector were mostly shipping companies,
which were hurt by a combination of falling oil prices and declining Asian
demand for oil.
OUTLOOK: CAUTIOUSLY OPTIMISTIC
In the near term, we are cautiously optimistic on the prospects for the high
yield market. There are a number of factors supporting our optimism, including
positive conditions for many sectors of the economy; minimal inflation, which
suggests little upward pressure on interest rates; and fairly wide yield spreads
relative to comparable-maturity U.S. Treasury bonds, which have ample scope to
narrow (and, thus, push bond prices higher). We thus expect investor cash flows
into high yield mutual funds to rise--which is already the case as we write.
To be sure, we see areas for meaningful concern, as well. Recent events in
Brazil underscore the fragility of the
2
<PAGE>
world's capital markets, for example, and may not have ended yet. The level of
market volatility that rose to extraordinary levels in 1998 shows few signs of
dissipating. And the U.S. equity market, to which activity in high yield is
closely correlated, is hitting new highs that may prove unsustainable.
Our outlook for interest rates is neutral. With the Federal Reserve having
cut rates three times between late September and mid-November, the U.S. economy
doing well and the strength in equities, we don't expect the Fed to ease
interest rates again in the near future. If the global economy slows down or
enters recession and market volatility becomes especially harsh, though, we see
room for the Fed to cut interest rates another 50-75 basis points in 1999.
The persistence of volatility reinforces our belief in the long-term
viability of our fundamental strategy. We are keeping the portfolio most heavily
weighted in telecommunications, cable/media and gaming, whose positive industry
and company fundamentals are unchanged. We also are avoiding meaningful exposure
to cyclical industries and those most vulnerable to the severe economic problems
in Asia. Should appropriate opportunities arise, we will probably add to our
holdings in cable/media and BB-rated bonds more generally.
As developments occur that we believe would be of interest to you, we will
keep you informed. Meanwhile, if you have any questions about your portfolio or
the capital markets generally, please feel free to call upon us at any time.
We appreciate your interest in the Fund and would be pleased to respond to
your questions or comments. Any questions regarding net asset value,
performance, dividends, portfolio management or allocations should be directed
to Credit Suisse Asset Management at (800) 293-1232 or (212) 238-5674. 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)
730-6001.
Sincerely yours,
/s/ Richard J. Lindquist
Richard J. Lindquist
PRESIDENT AND CHIEF INVESTMENT OFFICER*
/s/ William W. Priest, Jr.
William W. Priest, Jr.
CHAIRMAN OF THE BOARD*
FROM CREDIT SUISSE ASSET MANAGEMENT:
I. Effective January 12, 1999, the Fund's Investment adviser, BEA
Associates, changed its name to Credit Suisse Asset Management ("CSAM"). In
making the announcement, the firm said that it expected the new name to enhance
its recognition as a global asset manager. CSAM is the investment division of
Credit Suisse Group, one of the world's largest financial organizations, with
$600 billion in assets under management.
* Richard J. Lindquist, who is a Managing Director of Credit Suisse Asset
Management ("CSAM") formerly known as 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 CSAM on May 1,
1995 as a result of CSAM's acquisition of CS First Boston Investment Management
Corporation ("CSFBIM"). Prior to joining CSAM and beginning in July, 1989, he
held various offices at CSFBIM. Mr. Lindquist is also President and Chief
Investment Officer of BEA Strategic Global Income Fund, Inc.
* William W. Priest, Jr., who is a Managing Director and Chief Executive
Officer-Americas of Credit Suisse Asset Management ("CSAM") formerly known as
BEA Associates, joined CSAM in 1972. Mr. Priest is Director and President of The
Indonesia Fund, Inc. and Director and Chairman of the Board of BEA Strategic
Global Income Fund, Inc.; The Brazilian Equity Fund, Inc.; The Chile Fund, Inc.;
The Emerging Markets Infrastructure Fund, Inc.; The Emerging Markets
Telecommunications Fund, Inc.; The First Israel Fund, Inc.; The Latin America
Equity Fund, Inc.; The Latin America Investment Fund, Inc.; and The Portugal
Fund, Inc.
3
<PAGE>
PORTFOLIO OF INVESTMENTS
- ---------
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- -------------
DOMESTIC SECURITIES (97.3%)
- --------------------------------------------------------------------------------
- -------------
CORPORATE OBLIGATIONS (86.2%)
- --------------------------------------------------------------------------------
- -------------
AEROSPACE/DEFENSE (1.6%)
Canadian Airlines Corp.
Sr. Notes
12.25%, 8/1/06 Caa2 $ 1,950 $ 1,477,125
Collins & Aikman Products,
Corp.
Sr. Sub. Notes
11.50%, 4/15/06 B3 1,000 1,040,000
Decrane Aircraft Holdings
Sr. Sub. Notes
12.00%, 9/30/08 Caa1 800 812,000
Globalstar, L.P. / Globalstar
Capital Corp.:
Sr. Notes
11.25%, 6/15/04 B3 500 377,500
11.50%, 6/1/05 B3 200 149,500
(3) Sabreliner Corp.
Sr. Notes
11.00%, 6/15/08 B3 200 187,500
Wyman-Gordon Co.
Sr. Notes
8.00%, 12/15/07 Ba2 150 151,500
-------------
GROUP TOTAL 4,195,125
-------------
- --------------------------------------------------------------------------------
- -------------
AUTOMOTIVE (2.3%)
Aetna Industries, Inc.
Sr. Notes
11.875%, 10/1/06 B3 600 622,500
Autotote Corp.
Series B
10.875%, 8/1/04 B2 750 755,625
Cambridge Industries, Inc.
Series B,
Gtd. Sr. Sub. Notes
10.25%, 7/15/07 B3 500 431,250
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 1,752,563
Oxford Automotive Inc. Gtd.
Sr. Sub. Notes
(3) 10.125%, 6/15/07 Caa1 500 513,750
10.125%, 6/15/07 Caa1 1,025 1,053,188
Safety Components
International, Inc. Series B,
Gtd. Sr. Sub. Notes
10.125%, 7/15/07 B3 500 503,125
Stanadyne Automotive Series B,
Gtd. Sr. Sub. Notes
10.25%, 12/15/07 Caa1 400 407,000
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(3) Walbro Corp.
Series B,
Gtd. Sr. Sub. Notes
10.125%, 12/15/07 B2 $ 300 $ 293,250
-------------
GROUP TOTAL 6,332,251
-------------
- --------------------------------------------------------------------------------
- -------------
BROADCASTING (5.0%)
Australis Holdings Pty. Ltd.
Yankee Sr. Secured
Discount Notes
0.00%, 11/1/02 N/R 3,950 39,500
(2)(8) Australis Media Ltd.:
15.75%, 5/15/03 C 2,375 11,875
Yankee Units
15.75%, 5/15/03 C 37 185
(8) Capstar Broadcasting Partners,
Inc.
Sr. Discount Notes
0.00%, 2/1/09 N/R 2,000 1,645,000
(3) Chancellor Media Corp.
Sr. Sub. Notes
9.00%, 10/1/08 Ba3 500 530,000
Cumulus Media Inc.
Sr. Sub. Notes
10.375%, 7/1/08 B3 800 849,000
Digital Television Services,
L.L.C./DTS Capital, Inc.
Gtd. Sr. Sub. Notes
12.50%, 8/1/07 B3 750 813,750
(8) EchoStar Communications Corp.
Gtd. Sr. Discount Notes
0.00%, 6/1/04 B2 700 718,375
(3) Granite Broadcasting Corp.:
Series A, Sr. Sub. Notes
8.875%, 5/15/08 B3 900 848,250
Sr. Sub. Notes
9.375%, 12/1/05 B3 300 295,500
Pegasus Media &
Communications, Inc.
Series B, Notes
12.50%, 7/1/05 B2 250 274,375
SFX Broadcasting, Inc. Series
B,
Sr. Sub. Notes
10.75%, 5/15/06 B3 427 470,768
Sinclair Broadcast Group,
Inc.:
Gtd. Sr. Sub. Notes
8.75%, 12/15/07 B2 350 352,625
Sub. Notes
10.00%, 9/30/05 B2 900 954,000
Spanish Broadcasting System,
Inc.
Sr. Notes
12.50%, 6/15/02 B3 500 550,000
Time Warner Telecom LLC
Sr. Notes
9.75%, 7/15/08 B2 500 523,750
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Turner Broadcasting Systems,
Inc.
Sr. Notes
7.40%, 2/1/04 Ba1 $ 820 $ 871,250
(8) United International Holdings,
Inc.
Series B, Sr. Discount Notes
0.00%, 2/15/08 B3 1,700 913,750
Univision Network Holding L.P.
Sub Notes
Zero Coupon, 12/17/02 N/R 1,500 1,833,750
Young Broadcasting, Inc.:
Sr. Sub. Notes
8.75%, 6/15/07 B2 750 753,750
Series B,
Gtd. Sr. Sub. Notes
9.00%, 1/15/06 B2 300 303,750
-------------
GROUP TOTAL 13,553,203
-------------
- --------------------------------------------------------------------------------
- -------------
BUSINESS SERVICES (0.5%)
(3) General Binding Corp.
Gtd. Sr. Sub. Notes
9.375%, 6/1/08 B2 250 251,563
(3) Iron Mountain Inc.
Sr. Sub. Notes
8.75%, 9/30/09 B3 200 206,000
(3) Supercanal Holdings S.A.
Sr. Notes
11.50%, 5/15/05 B3 500 296,250
Skandinaviska Enskilda Banken
AB
Perpetual Sub. Notes
7.50%, 3/29/49 N/R 500 483,000
-------------
GROUP TOTAL 1,236,813
-------------
- --------------------------------------------------------------------
- -------------
CABLE (10.3%)
Avalon Cable Holdings, Inc.
Units
Zero Coupon, 12/1/08 Caa1 300 167,625
CSC Holdings, Inc.:
Sr. Sub. Debentures
9.875%, 2/15/13 B1 850 953,063
Sr. Sub. Notes
9.875%, 5/15/06 B1 400 424,500
Series B,
Sr. Sub. Debentures
8.125%, 8/15/09 Ba2 350 369,688
Century Communications Corp.:
Sr. Notes
8.75%, 10/1/07 Ba3 400 440,000
9.75%, 2/15/02 Ba3 500 537,500
Charter Communications
Southeast L.P.
Series B, Sr. Notes
11.25%, 3/15/06 B3 450 504,000
(3) Classic Cable Inc.
9.875%, 8/1/08 B3 700 728,000
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Comcast Corp.:
Sr. Sub. Notes
9.125%, 10/15/06 Ba3 $ 750 $ 802,500
9.375%, 5/15/05 Ba3 180 193,142
(3)(8) DIVA Systems Corp.
Units
0.00%, 3/1/08 N/R 2,775 1,162,031
(8) Diamond Cable Communications
plc
Yankee Discount Notes
0.00%, 12/15/05 Caa1 1,500 1,233,750
(3)(8) Falcon Holdings Group,
L.P./Falcon Funding Corp.:
Sr. Discount Debentures
0.00%, 4/15/10 B2 1,500 1,033,125
(3) Sr. Debentures
8.375%, 4/15/10 B2 500 513,750
Helicon Group L.P.
Series B, Sr. Secured Notes
11.00%, 11/1/03 B1 800 837,000
InterMedia Capital Partners IV
L.P./ InterMedia Partners
Capital Corp.
Sr. Notes
11.25%, 8/1/06 B2 650 731,250
James Cable Partners L.P.
Series B, Sr. Notes
10.75%, 8/15/04 N/R 1,550 1,617,813
Jones Intercable, Inc.
Sr. Notes
7.625%, 4/15/08 Ba2 1,150 1,204,625
(3) Lenfest Communications, Inc.:
Sr. Sub. Notes
8.25%, 2/15/08 B2 200 207,000
10.50%, 6/15/06 B2 900 1,053,000
Sr. Notes
8.375%, 11/1/05 Ba3 500 540,000
(8) Marcus Cable Co.
Sr. Discount Notes
0.00%, 12/15/05 B3 2,000 1,917,500
NTL, Inc.:
Series A, Sr. Deferred
Coupon Notes Zero Coupon,
4/15/05 B3 1,000 896,250
Series B, Sr. Deferred
Coupon Notes
0.00%, 2/1/06 B3 1,050 882,000
Series B, Sr. Notes
10.00%, 2/15/07 B3 500 503,750
(3)(8) Sr. Notes
0.00%, 10/1/08 B3 1,500 946,875
(3) Sr. Sub. Notes 11.50%, 10/1/08 B3 600 654,000
Northland Cable Television
Sr. Sub. Notes
10.25%, 11/15/07 N/R 500 526,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Olympus Communications, L.P./
Olympus Capital Corp.
Series B, Sr. Notes
10.625%, 11/15/06 B1 $ 1,000 $ 1,092,500
OpTel, Inc.:
Series B, Sr. Notes
11.50%, 7/1/08 B3 1,600 1,548,000
13.00%, 2/15/05 B3 500 511,250
(3)(8) Renaissance Media Group
Sr. Discount Notes
0.00%, 4/15/08 B3 1,000 658,750
Rogers Cablesystems Ltd.
10.00%, 12/1/07 Ba3 450 506,813
Tele-Communications, Inc.
Series C, Medium Term Notes
6.34%, 2/1/02 Ba1 220 225,500
(8) Telewest Communications plc
Yankee Sr. Sub. Discount
Debentures
0.00%, 10/1/07 B1 2,100 1,753,500
-------------
GROUP TOTAL 27,876,300
-------------
- --------------------------------------------------------------------------------
- -------------
CHEMICALS (1.4%)
Applied Extrusion Technologies
Series B, Sr. Notes
11.50%, 4/1/02 B2 1,500 1,569,375
Huntsman Polymers Corp.
Sr. Notes
11.75%, 12/1/04 B1 1,000 1,090,000
NL Industries Inc.
Sr. Secured Notes
11.75%, 10/15/03 B1 250 265,000
(8) Sterling Chemical Holdings,
Inc.
Sr. Secured Discount Notes
0.00%, 8/15/08 Caa1 1,000 400,000
Texas Petrochemical Corp.
Series B, Sr. Sub. Notes
11.125%, 7/1/06 N/R 350 343,000
-------------
GROUP TOTAL 3,667,375
-------------
- --------------------------------------------------------------------------------
- -------------
CONSTRUCTION & BUILDING MATERIALS (0.8%)
AFC Enterprises
Sr. Sub. Notes
10.25%, 5/15/07 N/R 400 417,000
American Architectural
Products Corp.
Gtd. Sr. Notes
11.75%, 12/1/07 Caa1 1,150 871,125
Collins & Aikman Floor
Coverings, Inc.
Series B, Sr. Sub. Notes
10.00%, 1/15/07 B3 550 574,063
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(8) Waxman Industries Inc.
Series B, Sr. Secured
Deferred Notes
0.00%, 6/1/04 Caa1 $ 600 $ 286,500
-------------
GROUP TOTAL 2,148,688
-------------
- --------------------------------------------------------------------------------
- -------------
CONSUMER PRODUCTS & SERVICES (2.5%)
(8) Coinstar, Inc.
Sr. Discount Notes
0.00%, 10/1/06 Caa1 1,700 1,459,875
Doskil Manufacturing Co., Inc.
Gtd. Sr. Sub. Notes
10.125%, 9/15/07 B3 500 473,750
Fort James Corp.
Notes
6.234%, 3/15/01 Baa3 155 155,194
Holmes Products Corp.
Gtd. Sr. Sub. Notes
9.875%, 11/15/07 B3 800 717,000
(3) Indesco International, Inc.
Gtd. Sr. Sub. Notes
9.75%, 4/15/08 B3 600 559,500
Jordan Industries, Inc.
Series B, Sr. Notes
10.375%, 8/1/07 B3 1,150 1,188,813
(3) Packaged Ice, Inc.
Gtd. Sr. Notes
9.75%, 2/1/05 B3 100 98,250
Playtex Products, Inc.
Series B, Gtd. Sr. Notes
8.875%, 7/15/04 B1 225 233,438
Revlon Consumer Products
Sr. Sub. Notes
8.625%, 2/1/08 B3 700 642,250
(3) Sealy Mattress Co.
Gtd. Sr. Sub. Notes
9.875%, 12/15/07 B3 200 187,750
(2)(4) Town & Country Corp.
Sr. Sub. Notes
13.00%, 5/31/98 N/R 878 349,076
(3) United Rentals, Inc.
Sr. Sub. Notes
9.25%, 1/15/09 B1 750 755,625
-------------
GROUP TOTAL 6,820,521
-------------
- --------------------------------------------------------------------------------
- -------------
ELECTRONICS (1.0%)
Details, Inc.
Series B. Sr. Sub Notes
10.00%, 11/15/05 B3 500 488,750
Unisys Corp.:
Sr. Notes
1.75%, 10/15/04 B1 225 261,000
7.875%, 4/1/08 B1 250 264,375
Series B, Sr. Notes
12.00%, 4/15/03 B1 1,000 1,120,000
Viasystems, Inc.:
Series B, Sr. Sub. Notes
9.75%, 6/1/07 B3 150 142,125
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Sr. Sub. Notes 9.75%, 6/1/07 B3 $ 300 $ 284,250
-------------
GROUP TOTAL 2,560,500
-------------
- --------------------------------------------------------------------
- -------------
ENERGY (4.1%)
Abraxas Petroleum Corp.
Series B, Sr. Notes
11.50%, 11/1/04 B2 1,550 1,189,625
Belden & Blake Energy Co.
Series B, Gtd. Sr. Sub. Notes
9.875%, 6/15/07 B3 200 163,500
Bellwether Exploration Co.
Gtd. Sr. Sub. Notes
10.875%, 4/1/07 B3 1,250 1,209,375
(3) Canadian Forest Oil Ltd.
Gtd. Sr. Sub. Notes
8.75%, 9/15/07 B2 450 406,125
Cliffs Drilling Co.
Series D,
Gtd. Sr. Notes
10.25%, 5/15/03 B1 1,100 1,156,375
(3) Cogentrix Energy, Inc.
Sr. Notes
8.75%, 10/15/08 Ba1 1,000 1,075,000
Continental Resources
Gtd. Sr. Notes
10.25%, 8/1/08 B3 250 214,375
First Wave Marine, Inc.
Gtd. Sr. Notes
11.00%, 2/1/08 B3 1,000 937,500
(3) Giant Industries, Inc.
Gtd. Sr. Sub. Notes
9.00%, 9/1/07 B2 500 488,750
(3) Gothic Production Corp.
Gtd. Sr. Secured Notes
11.125%, 5/1/05 B3 250 194,375
H.S. Resources, Inc.:
Sr. Sub. Notes
9.875%, 12/1/03 B2 500 491,250
Gtd. Sr. Sub. Notes
9.25%, 11/15/06 B2 600 562,500
Key Energy Group
11.50%, 9/15/99 N/R 1,500 1,440,000
Parker Drilling Co.
Series D, Gtd. Sr. Notes
9.75%, 11/15/06 B1 300 267,750
Plains Resources, Inc.
Series B, Gtd. Sr. Sub. Notes
10.25%, 3/15/06 B2 375 375,000
(3) Southwest Royalties, Inc.
Series B, Gtd. Sr. Notes
10.50%, 10/15/04 B3 500 218,750
TransAmerican Energy
Series B, Sr. Secured Notes
11.50%, 6/15/02 B3 450 171,000
(3) Valero Energy Bonds
6.75%, 12/15/02 Baa3 185 189,163
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Wiser Oil Co.
Gtd. Sr. Sub. Notes
9.50%, 5/15/07 B2 $ 450 $ 309,375
-------------
GROUP TOTAL 11,059,788
-------------
- --------------------------------------------------------------------
- -------------
ENTERTAINMENT (3.6%)
American Skiing Co.
Series B, Sr. Sub. Notes
12.00%, 7/15/06 B3 425 442,000
(3) Bally Total Fitness Holding
Corp.
Series B, Sr. Sub. Notes
9.875%, 10/15/07 B3 350 342,125
Booth Creek Ski Holdings, Inc.
Series B, Sr. Sub. Notes
12.50%, 3/15/07 Caa1 1,000 990,000
Cinemark U.S.A., Inc.
Series D, Sr. Sub. Notes
9.625%, 8/1/08 B2 250 261,875
Genmar Holdings, Inc.
Series A, Sr. Sub. Notes
13.50%, 7/15/01 Caa2 500 500,000
(3) Hollywood Theaters, Inc.
Gtd. Sr. Sub. Notes
10.625%, 8/1/07 B3 400 279,000
ICON Health & Fitness, Inc.
Series B, Sr. Sub. Notes
13.00%, 7/15/02 B3 500 304,375
(8) IHF Holdings, Inc.
Series B, Sr. Sec. Discount
Notes Zero Coupon, 11/15/04 Caa2 1,450 259,188
Loews Cineplex
Sr. Sub. Notes
8.875%, 8/1/08 B3 900 922,500
(3) Outboard Marine Corp.
Gtd. Sr. Notes
10.75%, 6/1/08 B3 500 488,750
(3) Premier Cruises, Ltd.
Gtd. Sr. Notes
11.00%, 3/15/08 B3 900 357,750
(3) Production Resource Group,
L.L.C./PRG Finance Group
Gtd. Sr. Sub. Notes
11.50%, 1/15/08 Caa2 750 736,875
Regal Cinemas, Inc.
Sr. Sub. Notes
9.50%, 6/1/08 B3 1,150 1,196,000
Silver Cinemas, Inc.
Sr. Sub. Notes
10.50%, 4/15/05 Caa1 1,900 1,401,250
Time Warner, Inc.: Debentures
9.125%, 1/15/13 Ba1 270 341,550
6.85%, 1/15/26 Ba1 720 769,500
-------------
GROUP TOTAL 9,592,738
-------------
- --------------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
FINANCIAL SERVICES (1.9%)
AT&T Capital Corp.
Series 4, Medium Term Notes:
6.92%, 4/29/99 Baa3 $ 600 $ 601,559
6.47%, 12/3/99 Baa3 60 60,215
6.26%, 2/18/99 Baa3 290 290,057
Associates Corp. of North
America
Sr. Debentures 5.96%, 5/15/37 Aa3 350 360,500
BellSouth Capital Funding
Corp.
Debentures
6.04%, 11/15/26 Aa1 500 520,325
DVI, Inc.
Sr. Notes 9.875%, 2/1/04 B1 750 720,000
Long Island Savings Bank
F.S.B.
Notes
7.00%, 6/13/02 Baa3 770 796,950
National Westminster Bank
Debentures
9.375%, 11/15/03 Aa3 95 108,870
Paribas NY
Sub Notes
6.95%, 7/22/13 N/R 160 156,000
(3) Prudential Insurance Co.
Sr. Notes
6.375%, 7/23/06 A2 100 101,375
(8) PTC International Finance B.V.
Gtd. Sr. Sub. Notes
0.00%, 7/1/07 B3 350 237,563
(2) Westfed Holdings
Sr. Debentures 15.50%,
9/15/99 N/R 1,750 1,295,000
-------------
GROUP TOTAL 5,248,414
-------------
- --------------------------------------------------------------------------------
- -------------
FOOD & BEVERAGES (1.8%)
AmeriServ Food Distribution,
Inc.
Gtd. Sr. Notes
8.875%, 10/15/06 B1 650 615,875
Archibald Candy Corp.
Gtd. Sr. Secured Notes
10.25%, 7/1/04 B2 1,000 1,012,500
(3) Eagle Family Foods
Series B,
Gtd. Sr. Notes
8.75%, 1/15/08 B3 450 425,250
(3) Fleming Companies, Inc.
Sr. Sub. Notes
10.50%, 12/1/04 B3 700 666,750
Hollinger International
Publishing
Gtd. Sr. Notes
9.25%, 3/15/07 B1 1,000 1,057,500
International Home Foods, Inc.
Gtd. Sr. Sub. Notes
10.375%, 11/1/06 B2 1,000 1,076,250
-------------
GROUP TOTAL 4,854,125
-------------
- --------------------------------------------------------------------
- -------------
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
HEALTH CARE (2.0%)
(3) ICN Pharmaceutical
Sr. Notes
8.75%, 11/15/08 Ba3 $ 500 $ 503,750
Integrated Health Services,
Inc.:
Sr. Sub. Notes
9.25%, 1/15/08 B2 100 95,000
Series A,
Sr. Sub. Notes
10.25%, 4/30/06 B2 400 403,000
Meditrust: Conv. Debentures
7.50%, 3/1/01 Baa3 2,000 1,950,000
Merck & Co.
Series B, Medium Term Notes
5.76%, 5/3/37 Aaa 500 520,000
(3) National Vision Associates
Sr. Notes
12.75%, 10/15/05 B2 250 264,375
(3) Oxford Health Plans
Sr. Notes
11.00%, 5/15/05 Caa1 590 541,325
Paracelsus Healthcare
Sr. Sub. Notes
10.00%, 8/15/06 B3 750 684,375
Vencor Operating Inc.
Gtd. Sr. Sub. Notes
9.875%, 5/1/05 B3 400 347,000
-------------
GROUP TOTAL 5,308,825
-------------
- --------------------------------------------------------------------------------
- -------------
INDUSTRIAL GOODS & MATERIALS (5.4%)
AMTROL Acquisition, Inc.
Sr. Sub. Notes
10.625%, 12/31/06 B3 400 389,000
APCOA Inc.
Gtd. Sr. Notes
9.25%, 3/15/08 Caa1 430 403,125
Atlantis Group, Inc.
Sr. Notes
11.00%, 2/15/03 B2 585 582,075
CLARK Material Handling Co.
Gtd. Sr. Notes
10.75%, 11/15/06 B1 550 565,125
Color Spot Nurseries
Sr. Sub. Notes
10.50%, 12/15/07 Caa1 1,000 547,500
(3) Diamond Triumph
Sr. Notes
9.25%, 4/1/08 B2 500 495,000
Delco Remy International, Inc.
Gtd. Sr. Sub. Notes
10.625%, 8/1/06 B2 600 630,750
(3) Golden Ocean Group, Ltd.
Gtd. Sr. Notes
10.00%, 8/31/01 B3 1,548 429,570
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(3) Hayes Lemmerz International,
Inc.
Gtd. Sr. Notes
8.25%, 12/15/08 B2 $ 750 $ 748,125
Haynes International, Inc.:
Sr. Notes
9.125%, 7/15/07 B2 500 518,750
11.625%, 9/1/04 B3 500 465,000
Interlake Corp.
Sr. Sub. Debentures 12.125%,
3/1/02 B3 800 808,000
International Knife & Saw,
Inc.
Sr. Sub. Notes
11.375%, 11/15/06 B3 750 769,688
MVE, Inc.
Sr. Secured Debentures
12.50%, 2/15/02 B3 850 819,188
Motors & Gears, Inc.
Series D, Sr. Notes
10.75%, 11/15/06 B3 1,500 1,576,875
Neenah Corp.
Series B, Sr. Sub. Notes
5.00%, 5/1/07 B3 500 516,250
(3) PSINET Inc.
Sr. Notes
11.50%, 11/1/08 B3 1,000 1,037,500
(3) 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 1,560,000
Seagate Technology, Inc.
Sr. Debentures 7.45%, 3/1/37 Baa3 230 223,388
(3)(8) Thermadyne Holdings Corp.
Sr. Discount Notes
0.00%, 6/1/08 Caa1 975 477,750
(3) Thermadyne Mfg. L.L.C./
Thermadyne Capital Corp.
Gtd. Sr. Sub.Notes
9.875%, 6/1/08 B3 300 278,250
Transwestern Public Co.
Sr. Sub. Notes
9.625%, 11/15/07 N/R 500 520,625
-------------
GROUP TOTAL 14,769,534
-------------
- --------------------------------------------------------------------------------
- -------------
METALS & MINING (3.3%)
AK Steel Corp.
Gtd. Sr. Notes
10.75%, 4/1/04 Ba2 1,200 1,248,000
Algoma Steel, Inc.
Yankee First Mortgage Notes
12.375%, 7/15/05 B1 1,000 750,000
(3) Bayou Steel Corp.
First Mortgage Notes
9.50%, 5/15/08 B1 500 470,000
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Gulf States Steel, Inc.
First Mortgage Notes
13.50%, 4/15/03 B1 $ 1,200 $ 489,000
Kaiser Aluminum & Chemical
Corp.
Series D, Sr. Notes
10.875%, 10/15/06 B1 675 680,063
(3) Lodestar Holdings Inc
Sr. Notes
11.50%, 5/15/05 Caa2 800 618,000
(3) Metallurg Inc.
Series B,
Gtd. Sr. Notes
11.00%, 12/1/07 B3 750 717,188
Republic Engineered Steel,
Inc.
First Mortgage Bonds
9.875%, 12/15/01 Caa1 1,135 1,146,350
(3) Sheffield Steel Corp.
Series B, First Mortgage
Bonds
11.50%, 12/1/05 Caa2 750 604,688
WCI Steel, Inc.
Series B,
Sr. Secured Notes
10.00%, 12/1/04 B2 925 920,375
Weirton Steel Corp.
Sr. Notes
11.375%, 7/1/04 B2 500 445,000
Wheeling-Pittsburg Corp.
Sr. Notes
9.25%, 11/15/07 B2 750 695,625
-------------
GROUP TOTAL 8,784,289
-------------
- --------------------------------------------------------------------------------
- -------------
PACKAGING/CONTAINERS (1.4%)
AEP Industries, Inc.
Sr. Sub. Notes
9.875%, 11/15/07 B2 250 251,875
BPC Holding Corp.
Series B,
Sr. Secured Notes
12.50%, 6/15/06 Caa3 900 940,500
Container Corp. of America
Gtd. Sr. Notes
9.75%, 4/1/03 B1 500 510,000
(8) Crown Packaging Enterprises
Ltd.
Yankee Sr. Secured Discount
Notes
0.00%, 8/1/06 Ca1 2,450 36,750
Four M Corp.
Series B,
Gtd. Sr. Secured Notes
12.00%, 6/1/06 B3 150 112,500
Gaylord Container Corp.
Series B, Sr. Notes
9.75%, 6/15/07 B3 700 593,250
(3) Radnor Holdings, Inc.
Series B,
Gtd. Sr. Notes
10.00%, 12/1/03 B2 250 251,875
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Riverwood International Corp.
Gtd. Sr. Sub. Notes
10.875%, 4/1/08 Caa1 $ 600 $ 547,500
(3) Stone Container Finance Co.
Yankee Gtd. Sr. Notes
11.50%, 8/15/06 B2 530 533,975
-------------
GROUP TOTAL 3,778,225
-------------
- --------------------------------------------------------------------------------
- -------------
PAPER & FOREST PRODUCTS (2.4%)
(3) Ainsworth Lumber Co. Ltd.
Yankee Sr. Secured Notes
12.50%, 7/15/07 B3 1,900 1,881,000
Crown Paper Co.
Sr. Sub. Notes
11.00%, 9/1/05 B3 550 489,500
Mail-Well Corp.
Sr. Sub. Notes
10.50%, 2/15/04 B2 1,500 1,575,000
Malette, Inc.
Yankee Sr. Secured Debentures
12.25%, 7/15/04 Ba3 555 598,013
QUNO Corp.
Yankee Sr. Notes
9.125%, 5/15/05 Baa3 315 331,144
Repap New Brunswick, Inc.
Sr. Secured Debentures
10.625%, 4/15/05 B3 700 467,250
SD Warren Co.
Series B, Sr. Sub. Notes
12.00%, 12/15/04 B1 1,000 1,090,000
-------------
GROUP TOTAL 6,431,907
-------------
- --------------------------------------------------------------------------------
- -------------
PUBLISHING & INFORMATION SERVICES (2.8%)
(3) American Lawyer Media
Holdings, Inc.
Gtd. Sr. Notes
9.75%, 12/15/07 B1 450 468,000
Ampex Corp.
Series B, Sr. Notes
12.00%, 3/15/03 N/R 750 772,500
Belo (A.H.) Corp.
Sr. Notes
6.875%, 6/1/02 Baa2 750 781,875
(8) InterAct Systems, Inc.
Sr. Discount Notes
0.00%, 8/1/03 N/R 950 285,000
Lamar Advertising Co.
Gtd. Sr. Sub. Notes
9.625%, 12/1/06 B1 250 270,313
Level 3 Communications, Inc.:
Sr. Notes
(3) 9.125%, 5/1/08 B3 1,350 1,339,875
0.00%, 12/1/08 B3 2,000 1,167,500
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(8) Liberty Group Publishing, Inc.
Sr. Discount Debentures
0.00%, 2/1/09 Caa1 $ 600 $ 321,000
(3) Mentus Media Corp.
Units
12.00%, 2/1/03 N/R 1,423 1,423,000
Tri-State Outdoor Media
Sr. Notes
11.00%, 5/15/08 N/R 850 837,250
-------------
GROUP TOTAL 7,666,313
-------------
- --------------------------------------------------------------------
- -------------
REAL ESTATE (0.2%)
EOP Operating L.P.
Sr. Notes
6.375%, 2/15/03 Baa1 500 498,750
-------------
- --------------------------------------------------------------------------------
- -------------
RESTAURANTS, HOTELS & GAMING (7.3%)
American Restaurant Group,
Inc.
Gtd. Sr. Secured Notes
11.50%, 2/15/03 B3 750 699,375
(3) Bluegreen Corp.
Gtd. Sr. Secured Notes
10.50%, 4/1/08 B3 1,000 907,500
(3) Boyd Gaming Corp.
Sr. Sub. Notes
9.50%, 7/15/07 B1 150 149,250
CapStar Hotel Co.
Sr. Sub. Notes
8.75%, 8/15/07 B1 375 366,095
Casino America, Inc.
Gtd. Sr. Notes
12.50%, 8/1/03 B1 1,250 1,387,500
Casino Magic of Louisiana,
Corp.
Series B, Gtd. First Mortgage
Notes
13.00%, 8/15/03 B3 1,300 1,379,625
(4) Colorado Gaming &
Entertainment, Co.
Gtd. Sr. Notes
12.00%, 6/1/03 N/R 1,480 1,595,099
Empress River Casino Finance
Corp.
Gtd. Sr. Notes
10.75%, 4/1/02 Ba3 500 533,750
Friendly Ice Cream Corp.
Gtd. Sr. Notes
10.50%, 12/1/07 B1 800 810,000
(3) Hard Rock Hotel, Inc.
Sr. Sub. Notes
9.25%, 4/1/05 B3 1,400 1,400,000
Hilton Hotels
Sr. Notes
7.95%, 4/15/07 Baa1 55 57,750
HMH Properties
Series B,
Gtd. Sr. Notes
7.875%, 8/1/08 Ba2 500 486,875
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(3) Hollywood Park, Inc.
Series B,
Gtd. Sr. Sub. Notes
9.50%, 8/1/07 B2 $ 675 $ 668,250
Horseshoe Gaming L.L.C.:
Series B, Sr. Sub. Notes
9.375%, 6/15/07 B3 1,350 1,387,125
Series B,
Gtd. Sr. Notes
12.75%, 9/30/00 B1 750 805,313
Majestic Star Casino L.L.C.
Sr. Exchange Secured Notes
12.75%, 5/15/03 B2 200 208,500
Mohegan Tribal Gaming
Authority
Series B,
Sr. Secured Notes
13.50%, 11/15/02 Ba1 900 1,083,375
Prime Hospitality Corp.
Secured First Mortgage Notes
9.25%, 1/15/06 Ba2 850 880,813
(3) Romacorp Inc.
Sr. Notes
12.00%, 7/1/06 B3 750 734,063
Red Roof Inns, Inc.
Sr. Exchange Notes
9.625%, 12/15/03 B2 700 707,000
Station Casinos
Sr. Sub. Notes
9.75%, 4/15/07 B2 1,400 1,419,250
Santa Fe Hotel, Inc.
Gtd. First Mortgage Notes
11.00%, 12/15/00 Caa2 354 343,823
Waterford Gaming L.L.C./
Waterford Gaming Finance
Corp.
Sr. Notes
12.75%, 11/15/03 N/R 1,514 1,629,421
-------------
GROUP TOTAL 19,639,753
-------------
- --------------------------------------------------------------------------------
- -------------
RETAIL (4.6%)
(3)(8) Advance Holdings Corp.
Series B,
Sr. Discount Debenture 0.00%,
4/15/09 Caa2 1,500 883,125
(3) Advance Stores Co.
Gtd. Sr. Sub. Notes
10.25%, 4/15/08 Caa1 2,000 2,025,000
(3) County Seat Stores, Inc.
Units
12.75%, 11/1/04 N/R 1,100 825,000
Dairy Mart Convenience Stores,
Inc.
Sr. Sub. Notes
10.25%, 3/15/04 B3 275 259,188
Finlay Enterprises, Inc.
Sr. Debentures 9.00%, 5/1/08 B2 400 372,500
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Finlay Fine Jewelry Corp.
Gtd. Sr. Notes
8.375%, 5/1/08 Ba3 $ 1,200 $ 1,101,000
Jitney-Jungle Stores of
America, Inc.:
Gtd. Sr. Sub. Notes
10.375%, 9/15/07 B3 300 309,000
Gtd. Sr. Notes
12.00%, 3/1/06 B2 750 832,500
K Mart Corp.
Debentures
7.75%, 10/1/12 Ba2 1,175 1,170,594
(8) Mrs. Fields Holding Co.
Units
0.00%, 12/1/05 Caa2 1,750 975,625
Mrs. Fields Original Cookies,
Inc.:
Gtd. Sr. Notes
10.125%, 12/1/04 N/R 1,800 1,723,500
(3) 10.125%, 12/1/04 B2 250 239,375
Pantry, Inc.
Sr. Sub. Notes
10.25%, 10/15/07 B3 750 780,000
Pathmark Stores, Inc.
Sr. Sub. Notes
9.625%, 5/1/03 Caa1 850 835,125
-------------
GROUP TOTAL 12,331,532
-------------
- --------------------------------------------------------------------------------
- -------------
TELECOMMUNICATIONS (16.5%)
Adelphia Communications Corp.
8.375%, 2/1/08 B3 800 828,000
Advanced Radio
Telecommunications Corp.
Sr. Notes
14.00%, 2/15/07 Caa2 900 583,875
(8) COLT Telecom Group plc Yankee
Units
0.00%, 12/15/06 N/R 400 352,000
Century Communications, Inc.
Series B
Zero Coupon, 1/15/08 Ba3 650 330,688
(8) Clearnet Communications, Inc.
Sr. Discount Notes
0.00%, 12/15/05 B3 800 689,000
(3) Coaxial Communications, Inc.
Gtd. Sr. Notes
10.00%, 8/15/06 B3 750 770,625
Comcast Cellular Holdings
Series B, Sr. Notes
9.50%, 5/1/07 Ba3 700 745,500
(3) Concentric Network Corp.
Units
12.75%, 12/15/07 N/R 750 755,625
Dobson Wireline Co.
Sr. Notes
12.25%, 6/15/08 N/R 1,000 922,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(3) Dobson/Sygnet Communications
Co.
Sr. Notes
12.25%, 12/15/08 N/R $ 1,300 $ 1,306,500
(3)(8) DTI Holdings, Inc.
Units
0.00%, 3/1/08 N/R 1,850 469,438
(3)(8) Dolphin Telecom plc
Sr. Discount Notes
0.00%, 6/1/08 Caa1 500 176,875
(8) E. Spire Communications, Inc.
Sr. Discount Notes. 0.00%,
11/1/05 N/R 2,950 2,227,250
(8) EchoStar Satellite
Broadcasting Corp.
Sr. Secured Discount Notes
0.00%, 3/15/04 B3 700 713,125
(3) Exodus Communications, Inc.
Sr. Notes
11.25%, 7/1/08 N/R 700 703,500
(3)(8) Focal Communications Corp.
Sr. Discount Notes
0.00%, 2/15/08 N/R 1,400 731,500
(3) Global Crossing Holdings Ltd.
Gtd. Sr. Notes
9.625%, 5/15/08 N/R 1,150 1,219,000
Globix Corp.
Sr. Notes
13.00%, 5/1/05 N/R 1,000 835,000
(8) GST USA, Inc.
Gtd. Sr. Discount Notes
0.00%, 12/15/05 N/R 1,800 1,311,750
Globalstar, L.P./Globalstar
Capital Corp.
Sr. Notes
10.75%, 11/1/04 B3 1,000 717,500
(8) Hyperion Telecommunications,
Inc.
Series B,
Sr. Discount Notes
0.00%, 4/15/03 B3 450 332,438
(8) ICG Holdings, Inc.:
Gtd. Sr. Exchange Discount
Notes
0.00%, 9/15/05 N/R 650 539,500
0.00%, 5/1/06 N/R 600 432,000
Gtd. Sr. Discount Notes
0.00%, 3/15/07 N/R 1,750 1,104,688
(3)(8) ICG Services, Inc.:
Sr. Discount Notes
0.00%, 2/15/08 N/R 500 266,875
0.00%, 5/1/08 N/R 1,350 727,313
ITC DeltaCom, Inc.
Sr. Notes
11.00%, 6/1/07 B2 259 276,159
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Intermedia Communications,
Inc.
Sr. Notes
8.875%, 11/1/07 B2 $ 200 $ 196,500
Iridium LLC / Iridium Capital
Corp.
Series B, Sr. Notes
14.00%, 7/15/05 B3 500 476,875
Iridium LLC/Capital Corp.:
10.875%, 7/15/05 B3 500 413,125
11.25%, 7/15/05 B3 100 84,125
Jacor Communications, Inc.
Gtd. Sr. Sub. Notes
8.00%, 2/15/10 B2 250 259,063
Jordan Telecommmunications
Products, Inc.
Series B, Sr. Notes. 9.875%,
8/1/07 N/R 270 272,025
(8) Series B,
Sr. Discount Notes
0.00%, 8/1/07 B3 425 326,719
(3) Long Distance International,
Inc.
Units
12.25%, 4/15/08 N/R 1,500 1,226,250
(8) McCaw International Ltd.
Sr. Discount Notes
0.00%, 4/15/07 Caa1 1,000 550,000
McLeod USA, Inc.:
Sr. Notes
0.00%, 3/1/07 B2 800 611,000
(3) 9.50%, 11/1/08 B2 1,000 1,055,000
(8) Sr. Discount Notes
9.25%, 7/15/07 B2 400 414,500
(3)(8) MetroNet Communications Corp.
Sr. Discount Notes
0.00%, 11/1/07 B 1,100 669,625
0.00%, 6/15/08 B3 1,000 616,250
(8) Microcell Telecommunications,
Inc.
Series B, Yankee
Sr. Discount Notes
0.00%, 6/1/06 B3 270 204,863
(3)(8) Nextel Communications, Inc.
Sr. Discount Notes
0.00%, 2/15/08 B2 1,700 1,024,250
NEXTLINK Communications, Inc.:
0.00%, 4/15/08 B3 1,700 971,125
(8) 10.75%, 11/15/08 B3 500 512,500
Sr. Notes
12.50%, 4/15/06 B3 350 381,500
Orion Network Systems, Inc.
Gtd. Sr. Notes
11.25%, 1/15/07 B2 500 481,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
PLD Telekom Inc.
Gtd. Sr. Notes
14.00%, 6/1/04 N/R $ 1,610 $ 966,000
Price Communications
Corp./Price Communications
Cellular Holdings, Inc.
Sr. Discount Notes
11.25%, 8/15/08 Caa1 700 665,000
(8) Pagemart Nationwide, Inc.
Sr. Discount Notes
0.00%, 2/1/05 B3 1,750 1,555,313
Pegasus Communications Corp.
Units 12.75%, 1/1/07 Caa 250 245,000
(3) Petersburg Long Distance, Inc.
Conv. Sub. Notes
9.00%, 6/1/06 N/R 230 84,238
(8) Qwest Communications
International, Inc.
Sr. Discount Notes
0.00%, 10/15/07 B2 1,100 856,625
(8) RCN Corp.
Series B,
Sr. Discount Notes
0.00%, 2/15/08 B3 900 484,875
(3)(8) Rhythms Netconnections
Units
0.00%, 5/15/08 N/R 1,500 673,125
RSL Communications plc:
Gtd. Sr. Notes
9.125%, 3/1/08 B3 250 233,750
(3) Sr. Notes
10.50%, 11/15/08 B3 250 242,500
Rogers Cablesystems Ltd.
Series B,
Yankee Sr. Secured 2nd
Priority Notes
10.00%, 3/15/05 Ba3 250 280,000
Rogers Cantel Inc.
Yankee Sr. Secured Debentures
9.375%, 6/1/08 Ba3 350 370,125
Star Choice Communications,
Inc.
Sr. Notes. 13.00%, 12/15/05 N/R 500 496,250
(3) Startec Global Communications
Corp.
Units
12.00%, 5/15/08 N/R 750 642,188
Sprint Spectrum L.P./ Sprint
Spectrum Finance Corp.
Sr. Notes
11.00%, 8/15/06 B2 1,500 1,736,250
(8) TCI Satellite Entertainment,
Inc.:
Sr. Discount Notes
0.00%, 2/15/07 B3 200 39,750
Sr. Sub. Notes
10.875%, 2/15/07 B3 700 257,250
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Talton Holdings, Inc.
Gtd. Sr. Notes
11.00%, 6/30/07 B2 $ 250 $ 237,188
Teligent, Inc.
Sr. Notes
11.50%, 12/1/07 Caa1 750 703,125
(8) USN Communications Inc.
Units
0.00%, 8/15/04 Caa1 660 249,150
(3) Viatel, Inc.
Sr. Notes
11.25%, 4/15/08 Caa1 850 845,750
Western Wireless Corp.
Sr. Sub. Notes
10.50%, 2/1/07 B3 350 365,750
(8) WinStar Communications, Inc.
Sr. Discount Notes
0.00%, 10/15/05 Caa1 2,100 1,551,375
-------------
GROUP TOTAL 44,595,815
-------------
- --------------------------------------------------------------------
- -------------
TEXTILES/APPAREL (1.3%)
(3) Iron Age Corp.
Sr. Sub. Notes
9.875%, 5/1/08 B3 250 227,500
Maxim Group, Inc.
Series B,
Gtd. Sr. Sub. Notes
9.25%, 10/15/07 B2 700 699,125
(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 500 538,750
Tropical Sportswear
International
Series A,
Gtd. Sr. Notes
11.00%, 6/15/08 B3 600 631,500
William Carter Co.
Series A, Sr. Sub. Notes
10.375%, 12/1/06 B3 500 545,625
-------------
GROUP TOTAL 3,443,500
-------------
- --------------------------------------------------------------------------------
- -------------
TRANSPORTATION (1.7%)
AirTran Airlines, Inc.
Sr. Notes
10.50%, 4/15/01 N/R 1,000 808,750
(3) Ermis Maritime Holdings, Ltd.
Units
12.50%, 3/15/06 B3 915 887,550
(3) Hermes Europe Railtel B.V.
Sr. Notes
11.50%, 8/15/07 B3 1,000 1,075,000
Norfolk Southern Corp. Notes
7.05%, 5/1/37 Baa1 200 217,750
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Pegasus Shipping (Hellas) Ltd.
Series A, First Preferred
Ship Mortgage Notes
11.875%, 11/15/04 B3 $ 300 $ 272,250
(3) Trans World Airlines, Inc.
Sr. Notes
11.375%, 3/1/06 Caa1 1,500 1,231,875
-------------
GROUP TOTAL 4,493,175
-------------
- --------------------------------------------------------------------------------
- -------------
WASTE MANAGEMENT (0.5%)
(3) Waste Systems International,
Inc.
Sub. Notes
7.00%, 5/13/05 N/R 1,500 1,447,500
-------------
- --------------------------------------------------------------------------------
- -------------
TOTAL CORPORATE OBLIGATIONS
(Cost $247,380,650) 232,334,489
-------------
- --------------------------------------------------------------------
- -------------
MUNICIPAL SECURITIES (0.5%)
--------------------------------------------------------------------------------
- -------------
New Jersey Economic
Development Authority
Series B, Revenue Bonds:
Zero Coupon, 2/15/03
(Cost $1,222,084) Aaa 1,605 1,290,484
-------------
- --------------------------------------------------------------------
- -------------
GOVERNMENT & AGENCY SECURITIES (1.8%)
- --------------------------------------------------------------------------------
- -------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (1.3%)
30YR TBA
6.00%, 1/1/29 Aaa 320 315,798
6.00%, 2/1/29 Aaa 2,420 2,388,225
STRIPS,
Series H, Class 2
11.50%, 5/1/09 Aaa 684 754,435
-------------
GROUP TOTAL 3,458,458
-------------
- --------------------------------------------------------------------
- -------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (0.1%)
Various Pools:
10.50%, 9/15/15 Aaa 99 108,598
10.50%, 12/15/15 Aaa 5 4,990
10.50%, 3/15/16 Aaa 26 28,696
10.50%, 8/15/16 Aaa 35 38,147
-------------
GROUP TOTAL 180,431
-------------
- --------------------------------------------------------------------------------
- -------------
TENNESSEE VALLEY AUTHORITY (0.0%)
Power Bonds, 1996
Series A
5.88%, 4/1/36 Aaa 125 132,656
-------------
- --------------------------------------------------------------------------------
- -------------
UNITED STATES TREASURY BOND (0.0%)
6.875%, 8/15/25 Aaa 50 60,602
-------------
- --------------------------------------------------------------------
- -------------
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
UNITED STATES TREASURY NOTE (0.4%)
6.25%, 2/15/07 Aaa $ 1,010 $ 1,107,839
-------------
- --------------------------------------------------------------------------------
- -------------
TOTAL GOVERNMENT & AGENCY SECURITIES
(Cost $4,889,728) 4,939,986
-------------
- --------------------------------------------------------------------------------
- -------------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.5%)
- --------------------------------------------------------------------
- -------------
Asset Securitization Corp.:
Series 1996-MD6, Class A6
7.11%, 11/13/26 Baa2 420 429,925
GMAC Commercial Mortgage
Securities Inc. 6.853%,
9/15/06 Aaa 80 84,454
Kidder Peabody Acceptance
Corp.
Series 1994-C1,
Class C1 B 6.85%, 2/1/06 N/R 910 931,831
-------------
- --------------------------------------------------------------------------------
- -------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $1,426,413) 1,446,210
-------------
- --------------------------------------------------------------------------------
- -------------
ASSET BACKED OBLIGATIONS (2.1%)
- --------------------------------------------------------------------
- -------------
Contimortgage Home Equity Loan
Trust 7.22%, 1/15/28 Aaa 125 128,743
Contimortgage Home Equity Loan
Trust
Series 1998-1, Class A5
6.43%, 4/15/16 Aaa 425 430,028
Fleetwood Credit Corp. Grantor
Trust
Series 1997-B, Class A 6.40%,
5/15/13 Aaa 659 671,815
Green Tree Financial Corp.
Manufactured Housing
Installment Sale Contracts:
Series 1993-4, Class B1
7.20%, 1/15/19 Baa3 2,000 1,958,120
Green Tree Recreational,
Equipment & Consumer Trust,
Consumer Products & Equipment
Retail Installment Sale
Contracts:
Series 1997-C, Class A-1,
6.49%, 2/15/18 N/R 703 703,549
IMC Home Equity Loan Trust
6.16%, 5/20/14 Aaa 165 165,371
Nationscredit Grantor Trust,
Boat Retail Installment Sale
Contracts,
Series 1996-1, Class A,
5.85%, 9/15/11 Aaa 573 570,421
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
New Century Home Equity Loan
Trust 6.73%, 7/25/22 Aaa $ 100 $ 97,598
Southern Pacific Secured
Assets Corp.
Series 1998- 1, Class A2,
6.27%, 2/25/18 Aaa 550 553,064
Trans World Airlines
Unsecured. Notes 9.80%,
12/14/02 N/R 250 245,000
UCFC Home Equity Loan,
Series 1996-B1, Class A7,
8.20%, 9/15/27 Aaa 110 117,716
-------------
- --------------------------------------------------------------------
- -------------
TOTAL ASSET BACKED OBLIGATIONS
(Cost $5,510,249) 5,641,425
-------------
- --------------------------------------------------------------------
- -------------
</TABLE>
<TABLE>
<CAPTION>
Shares/
Units
<C> <S> <C> <C>
- -------------------------------------------------------------------------
- ----------------
COMMON STOCKS (1.1%)
- -------------------------------------------------------------------------
- ----------------
CABLE (0.0%)
(1) OpTel, Inc. 500 5
-------------
- -------------------------------------------------------------------------
- ----------------
CONSUMER PRODUCTS & SERVICES (0.0%)
(1) Coinstar, Inc. 11,887 123,328
(1) Crown Packaging Enterprises
Ltd. 253,746 2,537
-------------
GROUP TOTAL 125,865
-------------
- --------------------------------------------------------------------
- -------------
FINANCIAL SERVICES (0.0%)
(1)(5) Westfed Holdings, Inc. Class B
(acquired 9/20/88, $127) 12,670 0
-------------
- --------------------------------------------------------------------
- -------------
FOOD & BEVERAGES (0.9%)
(1)(5) Dr. Pepper Bottling Holdings,
Inc. Class A (acquired
2/25/97, cost $1,181,250) 75,000 2,250,000
(1) Specialty Foods Corp. 30,000 1,500
-------------
GROUP TOTAL 2,251,500
-------------
- -------------------------------------------------------------------------
- ----------------
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%)
(1) Sheffield Steel Corp. 6,250 25,000
-------------
- -------------------------------------------------------------------------
- ----------------
PAPER & FOREST PRODUCTS (0.1%)
(1) Mail-Well, Inc. 7,102 81,229
(1) Mail-Well, Inc. 14,204 162,458
-------------
GROUP TOTAL 243,687
-------------
- --------------------------------------------------------------------
- -------------
<CAPTION>
Shares/ Value
Units (Note A-1)
<C> <S> <C> <C>
- --------------------------------------------------------------------
- -------------
RETAIL (0.0%)
(1)(5) Jewel Recovery L.P.
(acquired 7/30/93, cost $0) 49,559 $ 0
-------------
- -------------------------------------------------------------------------
- ----------------
RESTAURANTS, HOTELS & GAMING (0.0%)
(1) Elsinore Corp. 86,539 16,226
(1) Isle of Capri Casinos, Inc. 14,947 58,854
(1) Motels of America, Inc. 500 9,000
-------------
GROUP TOTAL 84,080
-------------
- -------------------------------------------------------------------------
- ----------------
TELECOMMUNICATIONS (0.0%)
(1) Intermedia Communications,
Inc. 2,425 41,831
(1) Nextel Communications, Inc.
Class A 310 7,324
(1) Pagemart Nationwide, Inc. 7,000 39,375
-------------
GROUP TOTAL 88,530
-------------
- -------------------------------------------------------------------------
- ----------------
TOTAL COMMON STOCKS
(Cost $3,026,732) 3,018,859
-------------
- --------------------------------------------------------------------
- -------------
PREFERRED STOCKS (4.2%)
- -------------------------------------------------------------------------
- ----------------
AEROSPACE/DEFENSE (0.4%)
(1) GPA Group plc
7% Second Preference Cum.
Conv. 2,125,000 1,105,000
-------------
- -------------------------------------------------------------------------
- ----------------
BROADCASTING (1.2%)
(1)(3) Benedek Communications Corp.
11.50% Sr. Exchangeable 150 148,500
(1) Pegasus Communications Corp.
12.75% Cum. Exchangeable,
Series A 49 46,675
(1)(3) Source Media, Inc.
13.5% Units 60,632 1,182,324
(1) Spanish Broadcasting System,
Inc. 14.25% Cum. Exchangeable 18,360 1,817,640
-------------
GROUP TOTAL 3,195,139
-------------
- --------------------------------------------------------------------
- -------------
CABLE (0.4%)
Adelphia Communications Corp.
13% Cum. Exchangeable, Series
B 5,000 592,500
(1) DIVA Systems Corp.
Series D 56,913 648,808
(1) NTL, Inc.
13% Exchangeable, Series B 1 583
-------------
GROUP TOTAL 1,241,891
-------------
- -------------------------------------------------------------------------
- ----------------
CONSUMER PRODUCTS & SERVICES (0.0%)
Renaissance Cosmetics, Inc.
14% Cumulative 2 0
-------------
- -------------------------------------------------------------------------
- ----------------
FINANCIAL SERVICES (0.2%)
Olympic Financial, Ltd.
Units
11.50%, 3/15/07 475 451,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
Shares/ Value
Units (Note A-1)
- --------------------------------------------------------------------
<C> <S> <C> <C>
- -------------
(7) West Fed Holdings, Inc.
Class A (acquired
9/20/88-6/18/93, cost
$3,611,992) 42,759 $ 42,759
-------------
GROUP TOTAL 494,009
-------------
- -------------------------------------------------------------------------
- ----------------
METALS & MINING (0.1%)
(3) International Utility
Structures, Inc.: 14% Units 9 855
13% Units 150 142,500
-------------
GROUP TOTAL 143,355
-------------
- -------------------------------------------------------------------------
- ----------------
MISCELLANEOUS (0.0%)
(1) TCR Holdings Corp.:
Series B 790 47
(1) Series C (non-voting) 434 24
(1) Series D (non-voting) 1,145 61
(1) Series E (non-voting) 2,370 149
-------------
GROUP TOTAL 281
-------------
- -------------------------------------------------------------------------
- ----------------
PAPER & FOREST PRODUCTS (0.4%)
(1) SD Warren Co.
14% Cum. Exchangeable, Series
B 21,459 1,094,409
-------------
- -------------------------------------------------------------------------
- ----------------
PUBLISHING & INFORMATION SERVICES (0.2%)
Primedia, Inc.
10% Cum. Exchangeable, Series
D 5,000 518,750
-------------
- -------------------------------------------------------------------------
- ----------------
RESTAURANTS, HOTELS & GAMING (0.2%)
(1) AmeriKing, Inc.
13% Cum. Exchangable 18,759 459,596
-------------
- -------------------------------------------------------------------------
- ----------------
TELECOMMUNICATIONS (1.1%)
(1) Intermedia Communications,
Inc.
13.5% Exchangeable, Series B 3,072 308,322
7% Jr. Convertable, Series E 44,000 814,000
(1) NEXTLINK Communications, Inc.
14% Cum. Exchangeable 12,087 670,829
(1) Nextel Communications, Inc.
13% Exchangeable, Series D 964 964,355
(3) Rural Cellular Corp.
11.375% Sr. Exchangeable 264 249,480
(1) Viatel, Inc.
Series A 432 47,477
-------------
GROUP TOTAL 3,054,463
-------------
- --------------------------------------------------------------------
- -------------
TOTAL PREFERRED STOCKS
(Cost $13,594,305) 11,306,893
-------------
- --------------------------------------------------------------------
- -------------
RIGHTS (0.0%)
- -------------------------------------------------------------------------
- ----------------
(1) Terex Corp.
expiring 5/15/02 (Cost $0) 6,000 84,000
-------------
- --------------------------------------------------------------------
- -------------
<CAPTION>
Shares/ Value
Units (Note A-1)
<C> <S> <C> <C>
- --------------------------------------------------------------------
- -------------
WARRANTS (0.9%)
- -------------------------------------------------------------------------
- ----------------
(1) Advanced Radio
Telecommunications Corp.
expiring 2/15/07 13,500 $ 86,400
(1) American Telecasting, Inc.
expiring 6/23/99 525 0
(1) Ampex Corp.
expiring 3/15/03 25,500 19,125
(1) Australis Holdings Pty Ltd.
expiring 10/30/01 2,250 14
(1) Bell Technology, Inc.
expiring 5/1/05 1,000 10
(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)(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 12/15/07 750 111,683
(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 1,925 423,500
expiring 3/1/01 8,325 83
(1) DTI Holdings, Ltd
expiring 3/1/08 9,250 463
(1) Dairy Mart Convenience Stores,
Inc.
expiring 12/1/01 11,665 3,243
(1) E. Spire Communications, Inc.
expiring 11/1/05 2,000 220,000
(1)(5) Elsinore Corp.
expiring 10/8/98 79,941 0
(1) Golden Ocean Group, Ltd.
expiring 8/31/01 1,032 1,032
(1) Great American Cookie Co.
expiring 1/30/00 225 0
(1) Hemmeter Enterprises, Inc.
expiring 12/15/99 9,000 0
(1) IHF Capital, Inc.
expiring 11/14/99 500 5
(1) Isle Capri Casinos, Inc.
expiring 5/3/01 2,646 26
(1) IntelCom Group, Inc.
expiring 9/1/05 2,145 30,030
(1) Interact Systems, Inc.
expiring 8/1/03 750 0
(1) Long Distance International
expiring 4/13/08 1,500 15
(1) Loral Orion Network Systems,
Inc.
expiring 1/31/07 500 5,250
(1) Mentus Media Corp.
expiring 2/1/08 227 2
expiring 2/1/08 3,757 38
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
Shares/ Value
Units (Note A-1)
- --------------------------------------------------------------------
<C> <S> <C> <C>
- -------------
(1) McCaw International Ltd.
expiring 4/15/07 1,000 $ 2,500
(1) Microcell Telecommunications
expiring 12/31/97 1,600 17,600
(1) Star Choice Communications,
Inc.
expiring 12/5/05 11,580 12,435
(1) NEXTLINK Communications, Inc.
expiring 2/1/09 9,500 0
(1) Nextel Communications, Inc.
expiring 4/25/99 750 8
(1) PLD Telekom, Inc.
expiring 6/1/06 1,610 16
(1) Price Communications Corp.
expiring 8/1/07 3,956 39,560
(1) Rhythms Netconnections
expiring 5/15/08 6,000 60
(1) SD Warren Co.
expiring 12/15/06 12,000 60,000
(1) Startec Global Communications
Corp.
expiring 5/15/08 750 8
(1) Source Media, Inc.
expiring 11/1/07 30,731 301,166
(1) Spanish Broadcasting System:
expiring 6/30/99 1,500 735,000
expiring 6/29/99 1,500 307,500
(1) USN Communications, Inc.
expiring 10/15/04 7,600 6,384
(1) United International Holdings
expiring 11/15/99 2,950 14,750
(1) Wright Medical Technology
expiring 6/30/03 618 6
-------------
- -------------------------------------------------------------------------
- ----------------
TOTAL WARRANTS
(Cost $1,779,100) 2,446,933
-------------
- -------------------------------------------------------------------------
- ----------------
TOTAL DOMESTIC SECURITIES
(Cost $278,829,261) 262,509,279
-------------
- --------------------------------------------------------------------
- -------------
<CAPTION>
Moody's Face
Ratings Amount
(Unaudited) (000)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
FOREIGN SECURITIES (1.2%)
--------------------------------------------------------------------------------
- ----------------
CORPORATE OBLIGATIONS (1.2%)
--------------------------------------------------------------------------------
- ----------------
COLOMBIA (0.0%)
Republic of Colombia 12.243%,
8/13/05 Baa3 USD 145 133,763
------------
- --------------------------------------------------------------------
- -------------
FINLAND (0.1%)
Okobank Perpetual Medium Term
Notes 5.739%, 9/29/49 A3 USD 300 282,000
- --------------------------------------------------------------------
- -------------
FRANCE (0.3%)
(9) Credit Lyonnais Paris 6.563%,
9/19/49 Baa2 USD 210 174,825
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
L'Auxiliare du Credit Foncier
de France
Gtd. Sub. Notes 5.00%,
10/22/02 Baa3 USD 680 $ 655,384
------------
830,209
------------
- --------------------------------------------------------------------
- -------------
JAPAN (0.2%)
Fuji Bank (Cayman) Ltd.:
Perpetual Gtd. Notes 7.30%,
3/29/49 Baa2 USD 370 240,500
Perpetual Sub. Notes 6.55%,
8/29/49 Baa1 USD 430 279,500
------------
520,000
------------
- --------------------------------------------------------------------
- -------------
POLAND (0.1%)
Republic of Poland
Past Due Interest Bonds
5.00%, 10/27/14 Baa3 USD 360 335,250
------------
- --------------------------------------------------------------------
- -------------
SWEDEN (0.4%)
ForeningsSparbanken AB:
Perpetual Jr. Sub. Medium
Term Notes 6.438%, 12/29/49 Baa2 USD 500 495,750
(3) Perpetual Sub. Notes 7.50%,
11/29/49 N/R USD 120 122,100
Skandinaviska Enskilda Banken
AB
Perpetual Sub. Notes 6.625%,
3/29/49 Baa1 USD 400 396,748
------------
1,014,598
------------
- --------------------------------------------------------------------------------
- ----------------
TOTAL CORPORATE OBLIGATIONS
(Cost $3,377,753) 3,115,820
------------
--------------------------------------------------------------------------------
- ----------------
TOTAL FOREIGN SECURITIES
(Cost $3,377,753) 3,115,820
------------
- --------------------------------------------------------------------
- -------------
<CAPTION>
Shares
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
SHORT-TERM INVESTMENTS (0.5%)
--------------------------------------------------------------------------------
- ----------------
Chase Vista Prime Money Market
Fund Institutional Shares N/R 51,909 51,909
Federal Home Loan Bank
Discount Notes
Zero Coupon, 1/4/99 N/R 1,164 1,163,583
------------
- --------------------------------------------------------------------
- -------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $1,215,492) 1,215,492
------------
- --------------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
Value
(Note A-1)
- --------------------------------------------------------------------
<C> <S> <C> <C> <C>
- -------------
TOTAL INVESTMENTS (99.0%)
(Cost $283,422,506) $266,840,591
------------
- --------------------------------------------------------------------
- -------------
OTHER ASSETS IN EXCESS OF LIABILITIES (1.0%)
2,666,695
------------
- --------------------------------------------------------------------
- -------------
NET ASSETS (100%)
Applicable to 34,698,013 issued and outstanding $.001
par value Shares (authorized 100,000,000 shares) $269,507,286
------------
------------
- --------------------------------------------------------------------
- -------------
</TABLE>
N/R--Not Rated.
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 December 31, 1998 aggregated $1,157,039. Total market value
of restricted securities owned at December 31, 1998 was $2,450,192 or
0.9% 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 December
31, 1998.
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES December 31, 1998
<S> <C>
- ---------------------------------------------------------------------------------------------------
ASSETS:
Investments at Value
(Cost $283,422,506) (Note A-1)............................................ $266,840,591
Interest Receivable (Note A-4).............................................. 5,194,988
Receivable for Investments Sold............................................. 3,491,612
Dividends Receivable (Note A-4)............................................. 3,100
Other Assets................................................................ 15,753
- ---------------------------------------------------------------------------------------------------
Total Assets............................................................ 275,546,044
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
Investments Purchased..................................................... 5,464,517
Investment Advisory Fees (Note B)......................................... 338,933
Shareholders' Reports..................................................... 74,539
Professional Fees......................................................... 63,135
Bank Overdraft............................................................ 36,977
Administrative Fees (Note C).............................................. 24,536
Shareholder Servicing Fees................................................ 13,467
Directors' Fees........................................................... 1,953
Miscellaneous Fees........................................................ 20,701
- ---------------------------------------------------------------------------------------------------
Total Liabilities....................................................... 6,038,758
- ---------------------------------------------------------------------------------------------------
NET ASSETS...................................................................... $269,507,286
-----------------
-----------------
NET ASSETS CONSIST OF:
Capital Shares at $.001 Par Value........................................... $ 34,698
Capital Paid in Excess of Par Value......................................... 293,629,015
Accumulated Net Investment Income........................................... 140,573
Accumulated Net Realized Loss............................................... (7,715,085)
Unrealized Depreciation on Investments...................................... (16,581,915)
NET ASSETS APPLICABLE TO 34,698,013 ISSUED AND OUTSTANDING SHARES (AUTHORIZED
100,000,000 SHARES)........................................................... $269,507,286
-----------------
-----------------
NET ASSET VALUE PER SHARE....................................................... $ 7.77
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS Year Ended
December 31, 1998
<S> <C>
- ---------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest (Note A-4)......................................................... $ 26,617,687
Dividends (Note A-4)........................................................ 119,544
- ---------------------------------------------------------------------------------------------------
Total Income.............................................................. 26,737,231
- ---------------------------------------------------------------------------------------------------
EXPENSES:
Investment Advisory Fees (Note B)........................................... 1,421,865
Administrative Fees (Note C)................................................ 325,115
Shareholders' Reports....................................................... 135,018
Shareholder Servicing Fees.................................................. 100,660
Custodian Fees.............................................................. 91,203
Professional Fees........................................................... 51,430
Directors' Fees and Expenses................................................ 49,671
Other....................................................................... 136,221
- ---------------------------------------------------------------------------------------------------
Total Expenses............................................................ 2,311,183
- ---------------------------------------------------------------------------------------------------
Expense Offset (Note A-4)................................................... (5,395)
- ---------------------------------------------------------------------------------------------------
Net Expenses.............................................................. 2,305,788
- ---------------------------------------------------------------------------------------------------
Net Investment Income..................................................... 24,431,443
- ---------------------------------------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS................................................ 1,562,674
- ---------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/ DEPRECIATION ON INVESTMENTS.................. (24,197,476)
- ---------------------------------------------------------------------------------------------------
Net Realized Loss and Change in Unrealized Appreciation/Depreciation............ (22,634,802)
- ---------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations............................ $ 1,796,641
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C>
Year Ended
December 31, Year Ended
1998 December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income....................................................... $ 24,431,443 $ 24,024,970
Net Realized Gain on Investments............................................ 1,562,674 381,883
Change in Unrealized Appreciation / Depreciaion on Investments.............. (24,197,476) 12,659,532
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ 1,796,641 37,066,385
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income....................................................... (24,942,259) (26,270,243)
- ----------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Common Stock Issued through Reinvestment of Distributions (86,170 and 65,906
shares, respectively)...................................................... 694,164 529,012
- ----------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Capital Share Transactions...... 694,164 529,012
- ----------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets................................... (22,451,454) 11,325,154
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Year........................................................... 291,958,740 280,633,586
- ----------------------------------------------------------------------------------------------------------------------
End of Year (Including undistributed net investment income of $140,573 and
$292,866, respectively).................................................... $269,507,286 $291,958,740
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
FINANCIAL HIGHLIGHTS ------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1998 1997 1996 1995 Section 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR................ $ 8.44 $ 8.12 $ 8.63 $ 8.05 $ 9.00
- ----------------------------------------------------------------------------------------------------------
Offering Costs.................................... -- -- (0.02) -- --
- ----------------------------------------------------------------------------------------------------------
Investment Activities:
Net Investment Income......................... 0.71 0.69 0.75 0.86 0.83
Net Realized and Unrealized Gain (Loss) on
Investments.................................. (0.66) 0.39 0.18 0.48 (1.06)
- ----------------------------------------------------------------------------------------------------------
Total from Investment Activities............ 0.05 1.08 0.93 1.34 (0.23)
- ----------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income......................... (0.72) (0.76) (0.90) (0.76) (0.72)
- ----------------------------------------------------------------------------------------------------------
Decrease in Net Asset Value due to Shares Issued
through Rights Offering.......................... -- -- (0.52) -- --
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR...................... $ 7.77 $ 8.44 $ 8.12 $ 8.63 $ 8.05
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF YEAR............... $ 7.56 $ 8.75 $ 7.63 $ 7.88 $ 7.00
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Net Asset Value (1)........................... 0.47% 14.03% 10.59%+ 17.41% 2.67%
Market Value.................................. (5.68)% 25.90% 10.05%+ 24.34% 9.48%
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Net Assets, End of Year (Thousands)............... $269,507 $291,959 $280,634 $210,441 $196,379
- ----------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets Including
Expense Offsets.................................. 0.81% 0.84% 0.94% 0.92% 0.83%
Ratio of Expenses to Average Net Assets........... 0.81% 0.84% 0.95% -- --
Ratio of Net Investment Income to Average Net
Assets........................................... 8.59% 8.47% 9.23% 10.22% 9.75%
Portfolio Turnover Rate........................... 84.7% 97.7% 81.0% 44.1% 70.6%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Section BEA Associates replaced CS First Boston Investment management as the
Fund's investment adviser effective June 13, 1995.
+ 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.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- ------------
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 restricted 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
0.10% of net assets) at December 31, 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") (excludes 144A 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 year ended December 31, 1998, custodian
fees and expense offsets were increased by $5,395. 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. Credit Suisse Asset Management, formerly known as BEA Associates (the
"Adviser") provides investment advisory services to the Fund under the terms of
an Advisory
21
<PAGE>
Agreement. Under the Advisory Agreement, the Adviser is paid a fee, computed
weekly and payable quarterly at an annual rate of .50% of average weekly net
assets.
C. The Chase Manhattan Bank ("Chase"), through its affiliate Chase Global Funds
Services Company ("CGFSC" or the "Administrator"), provides administrative
services to the Fund under the terms of an Administration Agreement. Under the
Agreement, the Administrator is paid a fee, computed weekly and payable monthly,
at an annual rate of .15% of the Fund's first $100 million of average weekly net
assets, .10% of the Fund's next $300 million of average weekly net assets and
.05% of the Fund's average weekly net assets in excess of $400 million. At May
1, 1998, the rate was reduced from .15% to .12% of the Fund's first 100 million
of average weekly net assets.
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.
CGFSC provides transfer agent services to the Fund. Under the Transfer Agent
Agreement, CGFSC 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 CGFSC.
Effective January 25, 1999, BankBoston N.A. replaced CGFSC as the Fund's
Transfer Agent. Effective March 1, 1999, Brown Brothers Harriman & Co. will
replace CGFSC as the Fund's Administrator and Custodian.
D. During the year ended December 31, 1998, the Fund made purchases of
$237,446,529 and sales of $246,626,573 of investment securities other than U.S.
Government securities and short term investments. At December 31, 1998, the cost
of investments for Federal income tax purposes was $282,432,587. Accordingly,
net unrealized depreciation for Federal income tax purposes aggregated
$15,591,996 of which $12,497,723 related to appreciated securities and
$29,089,719 related to depreciated securities.
At December 31, 1998 the Fund had a capital loss carryforward of $7,010,200
available to offset future capital gains of which $882,969, 3,865,851 and
2,261,380 will expire on December 31, 1999, 2000 and 2003, respectively. Net
capital losses incurred after October 31, and within the taxable year are deemed
to arise on the first business day of the Fund's next taxable year. For the
period from November 1, 1998 to December 31, 1998 the Fund incurred and elected
to defer until January 1, 1999 for U.S. Federal income tax purposes net losses
of approximately $695,000.
E. At December 31, 1998, 86.2% 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 year ended
December 31, 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.
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------
To the Shareholders and Board of Directors of
BEA Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of BEA Income Fund, Inc. (the "Fund")
at December 31, 1998, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of the securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 19, 1999
23
<PAGE>
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
THREE MONTHS ENDED
----------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
MARCH 31, 1998 JUNE 30, 1998 1998 1998
----------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income............. $ 6,624 $ 0.19 $ 6,580 $ 0.19 $ 6,687 $ 0.19 $ 6,846 $ 0.20
Net Investment Income......... 6,017 0.18 5,973 0.17 6,126 0.18 6,315 0.18
Net Realized Gain (Loss) and
Change in Unrealized
Appreciation/Depreciation on
Investments.................. 3,082 0.09 (3,392) (0.10) (18,973) (0.55) (3,351) (0.10)
Net Increase/Decrease in Net
Assets Resulting from
Operations................... 9,099 0.27 2,581 0.07 (11,680) (0.34) 1,797 0.05
<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 0.17
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 0.18
Net Increase in Net Assets
Resulting from Operations.... 4,058 0.12 12,097 0.35 9,023 0.26 11,886 0.34
</TABLE>
SUPPLEMENTAL PROXY INFORMATION
The Annual Meeting of the Stockholders of the BEA Income Fund, Inc. was held on
Thursday 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
PricewatehouseCoopers LLP as independent
public accountants of the Fund until the next
annual meeting. 30,820,561 228,873 299,727
</TABLE>
24
<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 BankBoston, N.A.
c/o EquiServe -- Boston, 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 EquiSere -- Boston,
Dividend Reinvestment Department, P.O. Box 9041, Boston, MA 02205-9041. 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 Bank Boston, N.A., c/o EquiServe --
Boston, P.O. Box 9041, Boston, MA 02205-9041. 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
25
<PAGE>
dividends or capital gains distributions payable either in 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 EquiServe -- Boston, c/ o The "Fund," P.O. Box 8040, Boston, MA
02266-8040, (800) 730-6001.
26
