January 6, 1997
Securities and Exchange Commission
Attn: Filing Desk, Stop 1-4
450 Fifth Street, N.W.
Washington, DC 20549
Re:Target Income Fund, Inc.
File No. 811-6542
CIK No. 883410
Dear Sir or Madam:
On behalf of the above Registrant and pursuant to Rule 30b-2 under the
Investment Company Act of 1940, I enclose for filing via EDGAR, a copy of the
Annual Report to shareholders of the Registrant for the fiscal year ended
October 31, 1996.
If you have any questions, please contact me at (818) 852-1033.
Sincerely yours,
/s/
Eric M. Banhazl
Enclosures
<PAGE>
TARGET INCOME FUND
Annual Report
October 31, 1996
<PAGE>
TARGET INCOME FUND
December 1, 1996
Dear Shareholder:
With four years of successful operation now behind it, the Target Income Fund
continues to provide consistent performance and attractive returns to its
shareholders.
As has been the case since inception, the net asset value of your shares has
remained constant at $10.00 per share. And as always, it is the on-going intent
of the Fund to attempt to maintain this fixed share price at all times, although
there can be no assurance that this will always be the case.
One of the potential benefits of the Target Income Fund is that it can
participate in changing interest rates. Since our last semi-annual report in the
spring of 1996, interest rates have remained relatively stable and unchanged.
Short-term money-market rates yield 4.91% as reported in the November 22, 1996
edition of the Wall Street Journal.
Through October 31, 1996 (the Fund's fiscal year end), the Target Income Fund
has recorded a 12-month average annualized total return of 8.17%. The Fund's
portfolio now holds approximately 45 short-term loans and credit-line
securities, as well as participations in two "ABS" (Asset-Backed Securities)
pools. Assets of the Fund now stand at $14 million in total.
We hope you have been satisfied with the performance of the Fund and will let us
know if there is anything we can do to be of further assistance. Thank you for
your continued confidence in and support of the Target Income Fund.
TARGET CAPITAL ADVISORS, INC.
<PAGE>
TARGET INCOME FUND
Schedule of Investments
October 31, 1996
<TABLE>
<CAPTION>
SENIOR COLLATERALIZED FLOATING RATE LOAN PARTICIPATIONS* - 102.90%
Principal Percent of
Amount Value* Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
MANUFACTURING
Commercial Printing - 4.17%
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
$24,502 Cal-Central Press, Inc., due 2/17/97........................... $ 24,502 0.21%
460,152 Paradise Printing, Inc., due 12/31/97.......................... 460,152 3.96%
------- ----
Total commercial printing...................................... 484,654
Computer Storage Devices - 2.96%
- ------------------------------------------------------------------------------------------------------------------------------------
344,449 Admor Memory, Ltd., due 12/22/96............................... 344,449 2.96%
Food Preparation - 7.36%
- ------------------------------------------------------------------------------------------------------------------------------------
419,964 Food Specialties Service Corp., due 12/30/96................... 419,964 3.61%
435,954 Western Commerce Corporation, due 6/20/97...................... 435,954 3.75%
------- ----
Total food preparation......................................... 855,918
Food Products - 6.29%
- ------------------------------------------------------------------------------------------------------------------------------------
731,800 Bond Food Products Company, Inc., due 6/24/97.................. 731,800 6.29%
General Industrial Machinery - 2.18%
- ------------------------------------------------------------------------------------------------------------------------------------
253,672 EWI Acquisition, Inc., due 4/30/97............................. 253,672 2.18%
Industrial Tools and Supplies - 0.68%
- ------------------------------------------------------------------------------------------------------------------------------------
79,634 Exchange Tool and Supply of Dallas, Inc., due 4/3/98........... 79,634 0.68%
Leather Products - 2.28%
- ------------------------------------------------------------------------------------------------------------------------------------
265,231 Leather Center Holdings, Inc., due 10/10/97.................... 265,231 2.28%
Plastic Products - 1.93%
- ------------------------------------------------------------------------------------------------------------------------------------
224,457 Precise Plastic Products, Inc., due 2/26/97.................... 224,457 1.93%
Room Cleaning Products - 2.19%
- ------------------------------------------------------------------------------------------------------------------------------------
254,568 Clean Room Products, Inc., due 12/22/97........................ 254,568 2.19%
Sporting and Athletic Goods - 2.76%
- ------------------------------------------------------------------------------------------------------------------------------------
320,562 Graman USA, Inc., due 4/16/97.................................. 320,562 2.76%
Stairs - 1.62%
- ------------------------------------------------------------------------------------------------------------------------------------
188,291 Carolina Hardwoods, L.L.C., due 3/28/97........................ 188,291 1.62%
Surgical and Medical Instruments - 2.31%
- ------------------------------------------------------------------------------------------------------------------------------------
268,582 Advanced Materials, Inc., due 11/1/96.......................... 268,582 2.31%
Wine - 1.29%
- ------------------------------------------------------------------------------------------------------------------------------------
150,000 Chateau Potelle, Inc., due 12/7/96............................. 150,000 1.29%
<PAGE>
Schedule of Investments, Continued
Principal Percent of
Amount Value* Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
SERVICES
Computer Hardware and Software Sales - 5.10%
- ------------------------------------------------------------------------------------------------------------------------------------
$593,086 Gateway Data Sciences Corporation, due 2/22/97................. $ 593,086 5.10%
Computer Repairs - 0.53%
- ------------------------------------------------------------------------------------------------------------------------------------
61,956 The Main Source Electronics, Inc., due 4/1/97.................. 61,956 0.53%
Employment Agencies - 12.90%
- ------------------------------------------------------------------------------------------------------------------------------------
1,500,000 Corporate Personnel Network, Inc., due 12/1/96 ................ 1,500,000 12.90%
Freight Transportation Arrangement - 6.75%
- ------------------------------------------------------------------------------------------------------------------------------------
785,558 Logistics Management, Inc., due 11/3/96 ...................... 785,558 6.75%
Motion Picture Production - 8.44%
- ------------------------------------------------------------------------------------------------------------------------------------
981,539 Beverly Hills Publishing Co., due 11/8/96...................... 981,539 8.44%
Reseller of Computer Graphic Designs - 3.57%
- ------------------------------------------------------------------------------------------------------------------------------------
415,378 Vast Tech, Inc., due 2/1/97.................................... 415,378 3.57%
WHOLESALE TRADE
Industrial Bearings - 1.92%
- ------------------------------------------------------------------------------------------------------------------------------------
223,771 Alliance Bearing Industries, Inc., due 2/23/97................. 223,771 1.92%
Jewelry and Metals - 0.54%
- ------------------------------------------------------------------------------------------------------------------------------------
62,705 Jupiter Imports, Inc., due 1/17/97............................. 62,705 0.54%
Meats and Meat Products - 15.48%
- ------------------------------------------------------------------------------------------------------------------------------------
1,800,000 Nikabar, Inc., due 1/17/97..................................... 1,800,000 15.48%
RETAIL TRADE
Carpet Stores - 1.62%
- ------------------------------------------------------------------------------------------------------------------------------------
188,229 Carpet Exchange of North Texas, Inc., due 5/30/97.............. 188,229 1.62%
Computer and Computer Stores - 8.03%
- ------------------------------------------------------------------------------------------------------------------------------------
933,573 First Source International, Inc., due 10/4/97.................. 933,573 8.03%
------- ----
Total investment in senior collateralized floating rate loan
participations (cost $11,967,613+) (Notes 1A and 3).......... 11,967,613 102.90%
---------- ------
<PAGE>
Schedule of Investments, Continued
Principal Percent of
Amount Value* Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
VARIABLE RATE LOANS - 10.32%
- ------------------------------------------------------------------------------------------------------------------------------------
$700,000 CFC Small Business Financing Master Trust Series B
Certificate, due 11/15/96.................................... $ 700,000 6.02%
500,000 CFC Small Business Financing Master Trust
Class A-3 Notes.............................................. 500,000 4.30%
------- ----
Total variable rate loans (cost $1,200,000)................ 1,200,000 10.32%
--------- -----
Total investments (cost $13,167,613+)...................... 13,167,613 113.22%
Liabilities less other assets, net............................. (1,537,198) (13.22)%
---------- ------
Total net assets........................................... $11,630,415 100.00%
=========== ======
<FN>
* Senior collateralized floating rate loan participations bear interest at rates
that float periodically at a margin above the LIBOR Rate as specified in the
participation agreement.
+ Cost for federal income tax purposes is the same.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TARGET INCOME FUND
Statement of Assets and Liabilities
October 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in Floating Rate Loans, at value (cost $11,967,613) (Note 1A and 3) ........... $11,967,613
Investments in Variable Rate Loans, at value (cost $1,200,000)............................. 1,200,000
Cash ...................................................................................... 251,125
Accrued interest receivable................................................................ 34,372
Prepaid expenses........................................................................... 2,937
Deferred organizational costs (Note 1C).................................................... 13,627
------
Total assets ........................................................................ 13,469,674
----------
LIABILITIES
Payables:
Redemptions.......................................................................... 544
Loans................................................................................ 1,700,000
Dividends............................................................................ 93,902
Accrued expenses .......................................................................... 44,813
------
Total liabilities.................................................................... 1,839,259
---------
NET ASSETS, consisting of:
Common stock, $.01 par value, 100,000,000 shares authorized................................ 11,630
Capital paid in excess of par value........................................................ 11,618,785
----------
Total net assets..................................................................... $11,630,415
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
$11,630,415/1,163,042 shares of $.01 par value outstanding................................. $10.00
======
COMPUTATION OF OFFERING PRICE PER SHARE
(Net asset value $10.00/.970).............................................................. $10.31
======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TARGET INCOME FUND
Statement of Operations
For the Year Ended October 31, 1996
<TABLE>
<CAPTION>
INCOME
<S> <C>
Interest income ........................................................................... $ 1,148,253
-----------
EXPENSES
Investment advisory fees (Note 2) ......................................................... 82,738
Administration fee (Note 2)................................................................ 30,000
Fund accounting fees (Note 2).............................................................. 24,000
Custodian fees ........................................................................... 2,641
Transfer agent fees........................................................................ 19,181
Shareholder services fees.................................................................. 2,765
Legal fees................................................................................. 50,239
Auditing fees.............................................................................. 19,151
Printing costs............................................................................. 2,529
Filing and
registration costs......................................................................... 2,063
Directors' fees ........................................................................... 17,322
Amortization of deferred organization costs (Note 1C)...................................... 12,631
Other ..................................................................................... 9,172
-----
Total expenses....................................................................... 274,432
Add: Reimbursement to Servicer............................................................. 34,455
Less: Fees waived by Advisor............................................................... (33,095)
-------
Net expenses......................................................................... 275,792
-------
NET INVESTMENT INCOME ................................................................... $ 872,461
=========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TARGET INCOME FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year EndedYear Ended
October 31, 1996 October 31, 1995
OPERATIONS:
<S> <C> <C>
Net investment income............................................... $ 872,461 $ 818,770
Distributions to shareholders:
Distributions from net investment income
($.79 and $.76 per share, respectively)............................. (872,461) (818,770)
Capital share transactions:
Increase in net assets derived from capital share transactions (a) 837,229 327,943
Net assets:
Beginning of year .................................................. 10,793,186 10,465,243
---------- ----------
End of year......................................................... $11,630,415 $10,793,186
=========== ===========
<FN>
(a) A summary of capital shares transactions is as follows:
Year Ended Year Ended
October 31, 1996 October 31, 1995
Shares Value Shares Value
Shares sold.............................. 108,222 $1,082,224 53,570 $ 535,699
Shares issued in connection with the
reinvestment of distributions......... 53,247 532,465 70,678 706,778
------ ------- ------ -------
161,469 1,614,689 124,248 1,242,477
Shares redeemed ......................... (77,746) (777,460) (91,453) (914,534)
------- -------- ------- --------
Net increase ............................ 83,723 $ 837,229 32,795 $ 327,943
------ - ------- ------ - -------
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TARGET INCOME FUND
Statement of Cash Flows
For the Year Ended October 31, 1996
<TABLE>
<CAPTION>
NCREASE (DECREASE) IN CASH
Cash flows from operating activities:
<S> <C>
Interest received.................................................................... $ 1,114,344
Operating expenses paid.............................................................. (243,086)
--------
Net cash provided by operating activities...................................... 871,258
-------
Cash flows from financing activities:
Proceeds from shares sold............................................................ 1,082,224
Proceeds from loan................................................................... 1,700,000
Payments on shares redeemed.......................................................... (1,043,196)
Distributions paid................................................................... (317,140)
--------
Net cash provided by financing activities...................................... 1,421,888
---------
Cash flows from investing activities:
Purchases of portfolio securities.................................................... (75,974,390)
Proceeds from disposition of portfolio securities.................................... 72,866,526
----------
Net cash used by investing activities.......................................... (3,107,864)
----------
Net decrease in cash....................................................................... (814,718)
Cash at beginning of year............................................................ 1,065,843
---------
Cash at end of year.................................................................. $ 251,125
=========
Reconciliation of net increase in net assets from operations to cash provided by
operating activities:
Net increase in net assets resulting from operations................................. $ 872,461
---------
Adjustments to reconcile the net increase in net assets from operations to net cash..
provided by operating activities:
Increase in interest receivable................................................ (33,909)
Decrease in receivable from advisor............................................ 6,833
Decrease in prepaid expenses................................................... 1,780
Decrease in deferred organization expenses..................................... 12,631
Increase in accrued expenses................................................... 11,462
------
Total adjustments.............................................................. (1,203)
------
Net cash provided by operating activities.............................. $ 871,258
=========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TARGET INCOME FUND
Financial Highlights
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended For the Period from
October 31, October 31, October 31, November 24, 1992*
1996 1995 1994 to October 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ....... $ 10.00 $ 10.00 $ 10.00 $10.00
Income from investment operations:
Net investment income................. 0.79 0.76 0.75 0.68
---- ---- ---- ----
Total from investment
operations.................... 0.79 0.76 0.75 0.68
---- ---- ---- ----
Less distributions:
Distributions from net investment
income.............................. (0.79) (0.76) (0.75) (0.68)
----- ----- ----- -----
Total distributions............. (0.79) (0.76) (0.75) (0.68)
----- ----- ----- -----
Net asset value, end of period ............. $ 10.00 $ 10.00 $ 10.00 $10.00
======= ======= ======= ======
Total return (a) ........................... 8.2% 7.9% 7.7% 7.0%+
Ratios/supplemental data:
Net assets, end of period (000's)........... $11,630 $10,793 $10,465 $6,288
Ratio of expenses to average net assets..... 2.5%(1) 2.5%(1) 2.5%(1) 2.5%(1)+
Ratio of net investment income to
average net assets........................ 7.9%(1) 7.6%(1) 7.5%(1) 7.7%(1)+
Debt outstanding - end of year.............. $1,700,000 - - -
Average debt outstanding - during year...... $ 353,279 - - -
Average shares outstanding - during year.... 1,099,372 - - -
Average debt per share - during year........ $ 0.32 - - -
<FN>
(a) Exclusive of deduction of a sales charge on investments.
(1) Prior to reimbursement and waiver of expenses, the annualized ratio of
expenses to average net assets was 2.5%, 2.8%, 2.9% and 4.4%, respectively, and
the annualized ratio of net investment income to average net assets was 7.9%,
7.3%, 6.9% and 3.1%, respectively.
*Commencement of operations.
+Annualized.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TARGET INCOME FUND
Notes to Financial Statements
October 31, 1996
1. Significant Accounting Policies
Target Income Fund, Inc. (the "Fund") was incorporated in Maryland on
December 27, 1991, and commenced operations on November 24, 1992. It is
registered under the Investment Company Act of 1940 (the "1940 Act") as a
non-diversified, closed-end management investment company. The following is a
summary of significant accounting policies consistently followed by the Fund in
preparation of its financial statements. The policies are in conformity with
generally accepted accounting principles:
A. Investment Valuation - The Fund's investments in senior
collateralized floating rate loan participations are valued at fair
value by the Fund's Advisor, Target Capital Advisors, Inc. (the
"Advisor"), under procedures established by the Directors. In valuing
senior collateralized floating rate loan participations, the Advisor
will consider relevant factors, data, and information, including: (i)
the characteristics of and fundamental analytical data relating to the
senior collateralized floating rate loan maturity and base lending rate
of the senior collateralized floating rate loan participations, the
terms and the position of the senior collateralized floating rate loan
participations in the borrower's debt structure; (ii) the nature,
adequacy and value of the collateral, including the Fund's rights,
remedies and interests with respect to the collateral; (iii) the
creditworthiness of the borrower, based on an evaluation of its
financial condition, financial statements and information about the
borrower's business, cash flows, capital structure and future
prospects; (iv) information relating to the market for the senior
collateralized floating rate loan participations (including price
quotation, if any, that are considered reliable), and trading in the
senior collateralized floating rate loan participations and interests
in similar loans and the market environment and investor attitudes
towards the senior collateralized floating rate loan participations and
similar loans; (v) the reputation and financial condition of any
lending agent or other intermediate participant; and (vi) general
economic and market conditions affecting the fair value of the senior
collateralized floating rate loan participations. Other portfolio
securities may be valued on the basis of (i) prices furnished by a
pricing service, (ii) at the last sales price on the exchange that is
the primary market for such securities, or (iii) at the last quoted bid
price for those securities, for which the over-the-counter market is
the primary market or, in the case of listed securities, for which
there were no sales during the day. Short-term obligations (which may
include senior collateralized floating rate loan participations)
maturing in sixty days or less are valued at fair value as determined
in good faith by the Board of Directors.
B. Federal Taxes - The Fund's policy is to comply with the
provisions of the Internal Revenue Code available to regulated
investment companies and to distribute to shareholders all of its
taxable income. Accordingly, no provision for federal income tax is
required.
C. Deferred Organization Costs - Cost incurred in connection
with the organization of the Fund are being amortized on a
straight-line basis through November, 1997.
D. Other - Investment transactions are accounted for on the
trade date. Interest income is recorded on the accrual basis. Dividends
to shareholders from net investment income are declared daily and paid
monthly.
<PAGE>
TARGET INCOME FUND
Notes to Financial Statements, Continued
October 31, 1996
2. Investment Advisory and Administration Fees
The Fund has entered into an investment advisory agreement with Target
Capital Advisors, Inc., (the "Advisor") effective November 1, 1995. The Advisor
receives a monthly fee at an annual rate of up to 0.75% of the Fund's average
net assets. The previous Investment Advisor had the same fee arrangement.
Investment Company Administration Corporation (the "Administrator") receives a
monthly fee at an annual rate of 0.25% of the Fund's average net assets, subject
to an annual minimum fee of $30,000, for providing certain administrative
services to the Fund. The Fund also pays the Administrator $24,000 per year for
maintaining the Fund's accounting records. Certain employees of the Advisor and
Administrator serve as officers of the Fund.
The Advisor has agreed to limit the Fund's expenses to 2.50% of the
Fund's average net assets and has waived advisory fees in the amount of $33,095
for the year ended October 31, 1996. The Fund has decided that the overall
operating expenses will not fall below the 2.50% limitation until Concord Growth
Corporation ("Concord"), the Fund's Master Servicer, has been fully reimbursed
for expenses paid by Concord in previous years under this agreement. The Fund
will also reimburse the Advisor in subsequent years for advisory fees waived
when operating expenses (before reimbursement) are less than the applicable
2.50% limitation.
<TABLE>
<CAPTION>
The cumulative unreimbursed operating expenses are as follows:
<S> <C>
Period ended October 31, 1993 $ 58,682
Year ended October 31, 1994 23,199
Year ended October 31, 1995 (2,797)
Year ended October 31, 1996 (34,455)
-------
$ 44,629
========
</TABLE>
3. Investments
For the year ended October 31, 1996, the cost of purchases and the
proceeds for repayments of senior collateralized floating rate loan
participations and variable rate loans aggregated $75,974,390 and $72,866,526,
respectively.
At October 31, 1996, the Fund held senior collateralized floating rate
loan participation interests and variable rate loans valued at $13,167,613,
representing 113.22% of its net assets. These participation interests and
variable rate loans, while exempt from registration under the Federal Securities
Act of 1933 (the "1933 Act"), contain certain restrictions on resale and cannot
be sold publicly. The fair value of these participations and variable rate loans
is determined daily as described in Note 1A. The cost of each senior
collateralized loan participation and variable rate loan was equal to the
principal amount of the loan on the dates of acquisition.
A substantial majority of the Fund's senior collateralized floating
rate loan participations are with issuers located in the State of California.
Such concentration may subject the Fund to economic changes occurring within
California.
<PAGE>
TARGET INCOME FUND
Notes to Financial Statements, Continued
October 31, 1996
The Fund may be the sole investor in a given senior collateralized
floating rate loan participation, or it may act as co-lender with other firms,
such as commercial banks, thrift institutions, insurance companies, finance
companies or other financial institutions. Issuers of senior collateralized
floating rate loan participations may use the services of financial institutions
as Lending Agents. Such Lending Agents perform administrative functions such as
computing outstanding loan balances, amounts of unfunded credit commitments,
issuer's compliance with the terms of such credit facilities including
collection of accounts receivable, and monitoring credit quality. For these
services, the issuers typically pay Lending Agents an administrative and
servicing fee. Before investing in a senior collateralized floating rate loan
participation where an issuer makes use of a Lending Agent, the Advisor will
evaluate the Lending Agent based on factors such as minimum asset size and
capacity, experience in administering revolving credit facilities, and default
rates on past loan experience. Also, the financial condition of co-lenders or
lending agents or other intermediaries may affect the ability of the Fund to
receive payments, inasmuch as they may be responsible for the administration and
enforcement of the senior collateralized floating rate loan participation and
its terms. Default of a co-lender or other intermediary could adversely affect
the Fund's ability to receive payments.
4. Commitments
As of October 31, 1996, the Fund had unfunded loan commitments pursuant
to the terms of the following loan participation agreements:
<TABLE>
<S> <C>
Admor Memory, Ltd.......................................................................... $ 157,164
Advanced Materials, Inc.................................................................... 269,813
Alliance Bearing Industries, Inc........................................................... 91,857
Beverly Hills Publishing Co................................................................ 530,672
Bond Food Products Company, Inc............................................................ 1,010,009
Cal-Central Press, Inc..................................................................... 606,751
Carolina Hardwoods, L.L.C.................................................................. 212,841
Carpet Exchange of North Texas, Inc........................................................ 338,299
Chateau Potelle, Inc....................................................................... 43,446
Clean Room Products, Inc................................................................... 259,145
Corporate Personnel Network, Inc........................................................... 381,671
EWI Acquisition, Inc....................................................................... 683,545
Exchange Tool & Supply of Dallas, Inc...................................................... 179,553
First Source International, Inc............................................................ 1,152,552
Food Specialties Service Corp.............................................................. 132,653
Gateway Data Sciences Corp................................................................. 14,481
Graman USA, Inc............................................................................ 282,396
Jupiter Imports, Inc....................................................................... 1,217,295
Leather Center Holdings, Inc............................................................... 461,045
Logistics Management, Inc.................................................................. 291,172
The Main Source Electronics, Inc........................................................... 138,030
<PAGE>
TARGET INCOME FUND
Notes to Financial Statements, Continued
October 31, 1996
Paradise Printing, Inc..................................................................... $ 504,704
Precise Plastic Products, Inc.............................................................. 184,460
Western Commerce Corp...................................................................... 148,547
-------
$ 9,292,101
===========
</TABLE>
5. Loans Payable
The Fund maintains an unsecured $3,000,000 bank line of credit;
borrowings under this arrangement bear interest at the bank's prime rate. No
compensating balances are required. Balance outstanding at October 31, 1996 was
$1,700,000.
6. Subsequent Event
Effective November 1, 1996 the Fund entered into a "Special Reserve
Account Agreement" with Concord Growth Corporation ("Concord"), the primary
originator of loans in which the Fund and Concord participates under this
agreement. Concord will fund the Account monthly, directly from its portion of
loan payments received at the rate of 1/12th of 1.5% per annum, based upon the
average outstanding principal balance of all participations and direct loans
held by the Fund as of the end of the immediately preceding month. The Account
shall be maintained and available for the purpose of reimbursing the Fund for
any defaults by the respective borrowers in principal and interest payments on
all participations and direct loans held by the Fund or loans which were
originated or arranged by Concord.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Target Income Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Target Income Fund, Inc., as of October 31, 1996, and the related statements of
operations and cash flows for the year then ended, and the statement of changes
in net assets for each of the two years in the period then ended and financial
highlights for each of the three years in the period then ended and for the
period November 24, 1992 (commencement of operations) to October 31, 1993. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian, lending agents and
borrowers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Target Income Fund, Inc. as of October 31, 1996 and the results of
its operations and its cash flows 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 three years in the period then ended and for the
period November 24, 1992 (commencement of operations) to October 31, 1993, in
conformity with generally accepted accounting principles.
As discussed in Note 1A and 3, the financial statements include senior
collateralized loan participation interests and variable rate loans valued at
$13,167,613 (113.22% of net assets), whose fair value is determined under
procedures approved by Target Income Fund, Inc.'s Board of Directors, in the
absence of readily ascertainable market values. We have reviewed the procedures
adopted by the Board of Directors in determining fair value and have inspected
underlying documentation, and in the circumstances we believe the procedures are
reasonable and the documentation appropriate. However, because the market value
of these securities can only be established by negotiation between parties in a
sales transaction, and because of the uncertainty inherent in the valuation
process, the fair values as determined may differ significantly from the values
that would have been used had a ready market for these securities existed.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
December 18, 1996
<PAGE>
This report is intended for the shareholders of
the Target Income Fund and should not be
used as sales literature unless accompanied
or preceded by the Fund's current prospectus.
