UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
Certified Shareholder Report of
Registered Management Investment Companies
Investment Company Act File Number: 811-1880
The Income Fund of America, Inc.
(Exact Name of Registrant as specified in charter)
P.O. Box 7650, One Market, Steuart Tower
San Francisco, California 94120
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 421-9360
Date of fiscal year end: July 31, 2003
Date of reporting period: July 31, 2003
Patrick F. Quan
Secretary
The Income Fund of America, Inc.
P.O. Box 7650, One Market, Steuart Tower
San Francisco, California 94120
(name and address of agent for service)
Copies to:
Robert E. Carlson, Esq.
Paul, Hastings, Janofsky & Walker LLP
515 South Flower Street
Los Angeles, California 90071
(Counsel for the Registrant)
ITEM 1 - Reports to Stockholders
[logo - American Funds(R)]
The right choice for the long term(R)
THE INCOME FUND OF AMERICA
[close-up photo of a wheat field]
Special report: The role of the fund's independent directors
Annual report for the year ended July 31, 2003
THE INCOME FUND OF AMERICA(R) seeks current income while secondarily striving
for capital growth through investments in stocks and fixed-income securities.
This fund is one of the 29 American Funds, the nation's third-largest mutual
fund family. For more than seven decades, Capital Research and Management
Company,SM the American Funds adviser, has invested with a long-term focus based
on thorough research and attention to risk.
Contents page
Letter to shareholders, with results at a glance 1
The value of a long-term perspective 6
Special report: A look at the role of the fund's
independent directors 8
Investment portfolio 15
Financial statements 47
Directors and officers 60
The American Funds family back cover
Fund results in this report were calculated for Class A shares at net asset
value (without a sales charge) unless otherwise indicated. Here are the average
annual total returns on a $1,000 investment with all distributions reinvested
for periods ended June 30, 2003 (the most recent calendar quarter):
CLASS A SHARES 1 year 5 years 10 years
Reflecting 5.75% maximum sales charge -0.28% +3.54% +8.91%
The fund's 30-day yield for Class A shares as of August 31, 2003, reflecting the
5.75% maximum sales charge and calculated in accordance with the Securities and
Exchange Commission formula, was 3.72%.
Other share class results and important information can be found on page 59. For
the most current investment results, please refer to americanfunds.com.
FIGURES SHOWN ARE PAST RESULTS AND ARE NOT PREDICTIVE OF FUTURE RESULTS. SHARE
PRICE AND RETURN WILL VARY, SO YOU MAY LOSE MONEY. INVESTING FOR SHORT PERIODS
MAKES LOSSES MORE LIKELY. INVESTMENTS ARE NOT FDIC-INSURED, NOR ARE THEY
DEPOSITS OF OR GUARANTEED BY A BANK OR ANY OTHER ENTITY. HIGH-YIELD BONDS ARE
SUBJECT TO GREATER FLUCTUATIONS IN VALUE AND RISK OF LOSS OF INCOME AND
PRINCIPAL. INVESTING OUTSIDE THE UNITED STATES INVOLVES ADDITIONAL RISKS, SUCH
AS CURRENCY FLUCTUATIONS AND POLITICAL INSTABILITY, WHICH ARE DETAILED IN THE
FUND'S PROSPECTUS.
[close-up photo of a wheat field]
FELLOW SHAREHOLDERS:
The Income Fund of America's 2003 fiscal year was marked by strong crosscurrents
throughout the financial markets. The fund capably negotiated these choppy
waters, delivering not only above-average income, but higher returns than both
the broader stock and bond market indexes for the year.
For the 12 months ended July 31, the fund paid dividends totaling 72.5 cents a
share and a capital gain distribution in December of 2.1 cents a share. Combined
with a 6.6% increase in the net asset value of your shares, The Income Fund of
America produced a total return of 12.2% for those of you who reinvested your
distributions.
During this same period, the unmanaged Standard & Poor's 500 Composite Index
returned 10.6%, while the fund's peer group, the 145 income funds tracked by
Lipper, provided an average total return of 8.4%. The fund also finished the
year comfortably ahead of the unmanaged Lehman Brothers Aggregate Bond Index,
which rose 5.4%, including reinvestment of interest.
At the same time, the fund continued to generate a high level of current income.
Its 12-month dividend rate as of July 31 was 4.7% -- better than the 1.7% rate
of the S&P 500 as well as the 3.1% average rate of the Lipper income funds. It
also exceeded the 4.0% yield on 10-year Treasury bonds, which is unusual for a
fund that emphasizes stocks.
RESULTS AT A GLANCE Average annual total returns for
periods ended July 31, 2003
(with dividends reinvested or
interest compounded) 1 year 5 years 10 years Lifetime(1)
THE INCOME FUND OF AMERICA +12.2% +5.1% +9.5% +12.6%
Standard & Poor's 500 Composite Index +10.6 -1.1 +10.3 +11.9
Lipper income funds average(2) +8.4 +2.8 +6.5 +12.0
Lehman Brothers Aggregate Bond Index(3) +5.4 +6.8 +6.8 +8.9
Credit Suisse First Boston High Yield Index +23.3 +3.5 +6.9 --
Consumer Price Index (inflation)(4) +2.1 +2.4 +2.4 +4.8
(1) Since December 1, 1973, when Capital Research and Management Company became
the fund's investment adviser.
(2) Source: Lipper. Figures do not reflect the effect of sales charges.
(3) From December 1, 1973, through December 31, 1975, the Lehman Brothers
Government/Credit Bond Index was used because the Aggregate Bond Index did
not yet exist.
(4) Computed from data supplied by the U.S. Department of Labor, Bureau of Labor
Statistics.
The indexes are unmanaged and do not reflect sales charges, commissions or
expenses. Fund returns do not include sales charges.
THE CLOUDS LIFT FOR STOCKS
The fiscal year began in August 2002, in an unsettling environment. Economic
uncertainty, compounded by the threat of war in Iraq, had investors on edge.
Stock prices dropped precipitously in September, touching a five-year low in
October, and despite a brief rally, pessimism prevailed well into the new year.
Investors chose to remain on the sidelines as capital spending languished,
unemployment inched up and war in the Middle East became a reality.
The gloom lifted in April. With major combat in Iraq concluded, stock investors
grew increasingly hopeful about resurgence in the U.S. economy. Encouraging
earnings reports began to trickle in, and the approval in Congress of a
reduction in the tax on dividends further increased the appeal of stocks. The
turnaround was dramatic. The S&P 500 rose 16.8% in the second half of the
reporting period, from February to July, more than offsetting losses in the
first. Technology-related issues, which did not stand to benefit from the
dividend tax cut, posted the strongest gains.
DIVERGENCE AMONG BONDS
Bond prices, meanwhile, traced a reverse pattern, rising through much of the
fiscal year before declining sharply in early summer.
In November, the Federal Reserve Board lowered its target for the federal funds
rate by half a percentage point, sending Treasury yields tumbling and bond
prices considerably higher. (Bond prices and yields move inversely to each
other.) By mid-June, 10-year Treasuries yielded slightly more than 3%. The
greatest benefits, however, went to corporate bonds, particularly lower rated
issues, which soared from earlier depressed levels as investors sought higher
yields.
The enthusiasm for bonds ended abruptly in early summer, despite a further
quarter-point rate reduction by the Federal Reserve. The improving economic
outlook, and technical factors associated with a sharp drop in mortgage
refinancings, pushed up long-term interest rates. The price of 10-year Treasury
bonds fell about 10% from their mid-June high through July -- their most rapid
selloff in some time. Although most fixed-income securities declined, lower
rated bonds managed to hold their ground; for the full 12 months ended July 31,
the Credit Suisse First Boston High Yield Index returned a remarkable 23.3%.
POSITIONING THE PORTFOLIO
Given the challenging conditions for both stocks and bonds during the year, the
fund's success was especially gratifying. Careful stock selection helped, but we
also took advantage of substantial inflows to the fund to realign the portfolio.
Shortly before the start of the fiscal year, we began to add aggressively to our
holdings in lower rated bonds, a sector that had declined badly through October.
That decision served the fund well as these bonds rallied shortly after.
[Begin Sidebar]
STRIKING A BALANCE BETWEEN RETURN AND RISK
The Income Fund of America takes a prudent path to yield. Looking back 10 years,
as shown at right, the fund has provided higher returns than bonds and lower
volatility than the broader stock market. It has grown faster than the average
income fund, without sacrificing steadiness.
[end sidebar]
For the 10-year period ended July 31, 2003
[begin quadrant graph]
Annual Return Volatility
More return, less risk quadrant IFA 9.52% 8.31
More return, more risk quadrant Stocks 10.27 15.67
Less return, less risk quadrant Bonds 6.79 3.91
Less return, less risk quadrant Income funds
average 6.50 8.52
Sources: Stocks -- S&P 500; bonds -- Lehman Aggregate Bond Index; income funds
average -- Lipper. Returns include reinvestment of all distributions. Volatility
is shown as standard deviation, a measure of how returns have varied from the
mean over time. All numbers calculated by Lipper.
[End quadrant graph]
Then in late winter, with interest rates hovering at historic lows, we once
again deployed a considerable portion of cash reserves, this time to acquire
attractively valued equities with strong dividend profiles. That increased stock
weighting positioned the fund to better participate in the rally that began in
April.
These realignments markedly shifted the fund's asset mix: As of July 31,
equities accounted for 63.4% of net assets, fixed-income securities for 31.9%
and cash and equivalents for 4.7%. (The charts on page 14 provide a detailed
comparison with the previous fiscal close.)
BROAD STRENGTH FROM STOCKS
Among stock holdings, banks and other financial companies generally did very
well, aided by the low interest rate environment and a modest improvement in
loan quality. J.P. Morgan Chase made the single largest contribution to overall
results. This has been a longtime fund holding and we had built up a large
position early in 2002, when the stock price was quite depressed; our patience
was rewarded this year with a total return of 46.6%.* Other notable gainers in
the sector included our largest holding, FleetBoston Financial (+24.4%), Societe
Generale (+23.8%) and Wachovia (+20.8%). Commercial banks remain the fund's
largest industry concentration, but we are choosing carefully in the current
interest rate environment -- favoring banks involved in capital and commercial
markets over those with large exposures to consumer debt.
Real estate investment trusts (REITs) likewise supported returns. These
investments -- which are required to distribute at least 90% of their income to
shareholders to maintain their tax status -- continued to attract investor
attention, thanks to yields ranging from 5% to 8%. Among the portfolio's largest
REITs, Weingarten, Kimco, and Boston Properties each provided a total return of
more than 20%.
A number of the fund's telecommunications stock holdings appreciated during the
year, as companies improved balance sheets and increased cash flow. In this
sector particularly, the fund benefited from its ability to invest up to 20% of
assets in equity securities based outside the U.S.; BCE of Canada (+42.3%),
Deutsche Telekom (+36.8%) and Telefonos de Mexico (+10.4%) all produced
excellent returns for the fund. SBC Communications, on the other hand, declined
in price by about 15% in the face of a difficult environment in the U.S.,
although losses were mitigated by a dividend yield of nearly 5%.
At the other end of the return spectrum, electric utility stocks fared poorly,
hurt by excess capacity, a flood of new stock issuance and residual mistrust
stemming from the Enron scandal. Decliners included Dominion Resources (-0.7%),
Consolidated Edison (-1.8%) and DTE Energy (-6.5%). We had lightened our
electric utility positions about a year ago in response to these concerns.
Recently, however, we have seen selective improvements among the industry, and
have increased investments in E.ON of Germany, American Electric Power and
Scottish Power.
*Returns to the fund reflect monthly changes in size of holdings and dividends
received, as well as price changes from the beginning to the end of the fiscal
year.
[Begin Sidebar]
A lifetime of high current income
The Income Fund of America's 12-month dividend rate versus benchmarks Years
ended July 31
[begin line chart]
YEAR-END IFA LIPPER INCOME FUND AVERAGE S&P 500
<s> <c> <c> <c>
1/31/1975 7.30 7.28 4.71
7/31/1975 7.24 7.07 4.18
1/31/1976 6.30 6.54 3.65
7/31/1976 7.06 6.53 3.66
1/31/1977 6.94 6.31 4.01
7/31/1977 6.15 6.29 4.47
1/31/1978 6.61 6.86 5.28
7/31/1978 6.70 6.73 4.92
1/31/1979 7.56 7.14 5.12
7/31/1979 7.38 7.12 5.19
1/31/1980 7.83 7.56 4.99
7/31/1980 7.63 7.54 4.95
1/31/1981 8.07 8.11 4.81
7/31/1981 8.16 8.56 4.91
1/31/1982 8.75 9.62 5.53
7/31/1982 9.81 10.44 6.37
1/31/1983 7.95 8.84 4.74
7/31/1983 7.95 8.55 4.28
1/31/1984 7.86 8.73 4.36
7/31/1984 8.60 9.63 4.87
1/31/1985 7.69 8.64 4.22
7/31/1985 7.45 8.40 4.07
1/31/1986 7.30 7.95 3.75
7/31/1986 7.27 7.55 3.45
1/31/1987 6.85 6.95 3.03
7/31/1987 7.02 7.09 2.69
1/31/1988 7.62 7.46 3.31
7/31/1988 6.96 7.26 3.27
1/31/1989 6.69 7.01 3.34
7/31/1989 6.67 6.76 3.04
1/31/1990 6.99 7.09 3.37
7/31/1990 7.07 7.09 3.31
1/31/1991 8.12 7.52 3.52
7/31/1991 7.09 6.84 3.11
1/31/1992 6.33 6.31 2.96
7/31/1992 6.05 6.10 2.89
1/31/1993 6.44 5.55 2.83
7/31/1993 6.19 5.04 2.79
1/31/1994 5.56 4.88 2.64
7/31/1994 6.06 4.60 2.80
1/31/1995 6.14 4.82 2.81
7/31/1995 5.55 4.49 2.41
1/31/1996 5.07 4.20 2.18
7/31/1996 5.19 4.40 2.28
1/31/1997 5.09 4.05 1.89
7/31/1997 4.74 3.91 1.61
1/31/1998 4.27 4.07 1.58
7/31/1998 4.32 3.96 1.43
1/31/1999 4.79 3.66 1.29
7/31/1999 4.86 3.83 1.24
1/31/2000 5.40 4.25 1.19
7/31/2000 5.49 4.35 1.15
1/31/2001 4.78 4.33 1.20
7/31/2001 4.80 4.18 1.30
1/31/2002 5.01 3.78 1.40
7/31/2002 5.49 3.67 1.75
1/31/2003 5.45 3.41 1.88
7/31/2003 4.69 3.11 1.66
[end chart]
All numbers calculated by Lipper.
[End Sidebar]
Lastly, retail holdings such as May Department Stores (-7.4%) and Albertson's
(-23.7%) detracted from returns, as did a number of oil and gas producers.
BOND HOLDINGS RALLY
In last year's report to shareholders we noted that The Income Fund of America's
returns had been held back somewhat by its relatively large corporate bond
exposure. These investments consisted of mostly high-quality companies -- such
as telecommunications giants Nextel, Sprint, AT&T Wireless and Deutsche Telekom
- -- that had fallen out of favor with the market. At the time, we felt they
offered attractive value with only moderate credit risk.
By the end of September 2002, 9.4% of assets were invested in BBB-rated bonds,
with another 8.8% in securities rated BB and below. As a result, the fund was
well-positioned to capture the rebound in higher yielding bonds, and avoided the
brunt of the declines among top-rated securities. Going forward, while we are
comfortable with the prospects for most of our bond holdings, we would not
expect to see a repeat of such substantial gains any time soon.
THE BENEFITS OF AN INCOME APPROACH
Looking ahead, the U.S. economy seems to be on track for recovery, albeit a more
muted one than many had anticipated. Manufacturing has begun to pick up,
unemployment may have leveled off and productivity gains have helped enhance
corporate profits. Inflation is likewise contained and the strong euro has made
American businesses more globally competitive, although it has weakened
considerably in recent weeks.
With cash flows improving, and the new dividend tax cut in place, companies are
increasingly choosing to share their earnings with investors. Thus far in
calendar 2003, 171 companies in the S&P 500 have initiated or raised dividends,
up from 113 for all of 2002. That trend not only broadens the fund's universe of
investment choices, but could eventually enhance the value of dividend-paying
stocks. Whatever the environment, of course, our focus remains on finding a high
yield we can prudently deliver -- a discipline that has proved rewarding for
shareholders over the long term.
We appreciate the confidence you have placed in us and look forward to helping
you meet your long-term financial goals.
Cordially,
/s/ Janet A. McKinley
Janet A. McKinley
CHAIRMAN OF THE BOARD
/s/ Darcy B. Kopcho
Darcy B. Kopcho
PRESIDENT
September 8, 2003
Beginning on September 15, The Income Fund of America will declare and accrue
dividends on a daily basis; it will continue to pay dividends quarterly. This
will make it easier for the fund to manage its dividend income, particularly as
our family of shareholders continues to grow. The change will affect only those
buying new fund shares during a dividend period; they will now receive a
dividend prorated for the days they are invested rather than the entire
quarterly dividend.
ABOUT YOUR FUND
The Income Fund of America
Resilience during stock declines versus the S&P 500 during market declines*
Dates of decline S&P IFA IFA advantage
total return total return (percentage points)
September 21, 1976 through March 6, 1978 -13.5% +1.9% +15.4
November 28, 1980 through August 12, 1982 -20.2 +19.0 +39.2
August 25 through December 4, 1987 -32.8 -13.6 +19.2
July 16 through October 11, 1990 -19.2 -10.2 +9.0
July 17 through August 31, 1998 -19.1 -9.5 +9.6
March 24, 2000 through October 9, 2002 -47.4 +0.7 +48.1
*Periods show S&P 500 price declines of 15% or greater. S&P 500 total returns,
which include reinvestment of all distributions, may be higher. There have
been times when the index, which is unmanaged, has done better.
[begin sidebar]
WITHDRAWING INCOME: THE DIVIDEND ADVANTAGE
Most fund shareholders reinvest their dividends, but some -- including many
non-profit organizations -- use dividends to meet current expenses. Over the
years, the fund's above-average income has allowed meaningful withdrawals to be
made without invading principal, helping to maximize growth potential better
than the broader stock market.
Higher dividends...
[bar chart]
dividends produced
IFA $774,262
S&P $165,976
[end chart]
....help keep the principal intact, letting compounding do its work.
[bar chart]
IFA S&P
Initial investment $100,000 $100,000
Value of account balance $1,012,777 $292,314
Amount withdrawn $441,838 $441,838
[end chart]
[End Sidebar]
Tables show hypothetical $100,000 investments in the fund and the S&P 500 on
January 1, 1974. It assumes a 6% withdrawal, increased 6% annually. The first
withdrawal, on December 15, 1974, was $6,000. Total withdrawals over the fund's
lifetime come to $441,838.
HIGHER INCOME
This chart shows one-year snapshots of the annual income produced by three
hypothetical $10,000 investments made on July 31, 1974, in each of The Income
Fund of America, the S&P 500, and three-month certificates of deposit (CDs).
Over the past 29 years, income from IFA has been substantially higher.
Years ended July 31
[begin bar chart]
IFA S&P CDS
7/31/78 $1,229 $728 $814
7/31/83 2,804 1,339 2,235
7/31/88 4,929 2,084 2,417
7/31/93 7,749 3,469 1,548
7/31/98 11,587 4,955 3,414
7/31/03 15,747 5,526 1,164
[end bar chart]
All results are calculated at net asset value with dividends and capital gains
(where applicable) reinvested. CD income assumes reinvestment of both principal
and interest at prevailing rates at the time of purchase. CDs are guaranteed;
the fund is not.
THE VALUE OF A LONG-TERM PERSPECTIVE
HOW A $10,000 INVESTMENT HAS GROWN
There have always been reasons not to invest. If you look beyond the negative
headlines, however, you will find that despite occasional stumbles, financial
markets have tended to reward investors over the long term. Active management
- --bolstered by experience and careful research -- can add even more value: As
the chart below shows, over its lifetime The Income Fund of America has
delivered higher returns than both the broader stock and bond markets.
Dividends, particularly when reinvested, have accounted for a large portion of
the fund's overall results.
EXPENSE RATIOS AND TURNOVER RATES*
Year ended July 31, 2003
THE INCOME FUND OF AMERICA INDUSTRY AVERAGE+
Expense ratio 0.61% 0.84%
Portfolio turnover rate 28% 64%
*The expense ratio is the annual percentage of net assets used to pay fund
expenses. The portfolio turnover rate is a measure of how often securities are
bought and sold by a fund.
+Front-end load income funds, as measured by Lipper.
[begin mountain chart]
Year Standard & Poor's IFA (2)(3) Lehman Bros. IFA(2)(5)
End 500 Composite Index(1) with dividends Aggregate Bond not including Original
July 31 with dividends reinvested Index(1)(4) with dividends Investment(2)
reinvested interest compounded
1974# 8,481 9,088 9,378 8,767 10,000
1975 9,951 11,391 10,580 10,141 10,000
1976 12,066 14,750 11,871 12,155 10,000
1977 12,042 16,392 13,189 12,701 10,000
1978 12,926 17,403 13,474 12,584 10,000
1979 14,069 18,921 14,373 12,693 10,000
1980 17,412 20,161 14,602 12,490 10,000
1981 19,675 22,484 13,871 12,818 10,000
1982 17,063 23,663 16,720 12,256 10,000
1983 27,174 33,683 20,383 16,112 10,000
1984 26,367 35,721 22,154 15,738 10,000
1985 34,914 47,674 27,452 19,443 10,000
1986 44,833 57,146 33,353 21,668 10,000
1987 62,449 66,671 34,859 23,568 10,000
1988 55,109 67,812 37,497 22,341 10,000
1989 72,685 83,698 43,200 25,644 10,000
1990 77,386 84,639 46,253 24,212 10,000
1991 87,239 95,046 51,204 25,226 10,000
1992 98,377 113,237 58,770 28,214 10,000
1993 106,947 126,680 64,746 29,759 10,000
1994 112,457 129,171 64,807 28,626 10,000
1995 141,775 150,378 71,358 31,571 10,000
1996 165,244 170,618 75,311 34,007 10,000
1997 251,353 220,576 83,417 41,731 10,000
1998 299,807 245,542 89,980 44,436 10,000
1999 360,395 264,664 92,220 45,588 10,000
2000 392,724 259,165 97,721 42,276 10,000
2001 336,476 299,416 110,124 46,460 10,000
2002 257,015 280,397 118,420 41,359 10,000
2003 284,354 314,550 124,835 44,136 10,000
<s> <c> <c> <c> <c> <c> <c>
YEAR ENDED JULY 31 1974(#) 1975 1976 1977 1978 1979
VALUE OF DIVIDENDS
Dividends in cash $343 734 859 781 843 937
Dividends reinvested $346 785 997 970 1,117 1,333
VALUE OF INVESTMENT
Dividends in cash(2),(5) $8,767 10,141 12,155 12,701 12,584 12,693
Dividends reinvested(2),(3) $9,088 11,391 14,750 16,392 17,403 18,921
IFA TOTAL RETURN (9.1)% 25.3 29.5 11.1 6.2 8.7
YEAR ENDED JULY 31 1980 1981 1982 1983 1984 1985
VALUE OF DIVIDENDS
Dividends in cash 952 1,046 1,202 1,280 1,344 1,438
Dividends reinvested 1,463 1,743 2,187 2,548 2,895 3,365
VALUE OF INVESTMENT
Dividends in cash(2),(5) 12,490 12,818 12,256 16,112 15,738 19,443
Dividends reinvested(2),(3) 20,161 22,484 23,663 33,683 35,721 47,674
IFA TOTAL RETURN 6.6 11.5 5.2 42.3 6.0 33.5
YEAR ENDED JULY 31 1986 1987 1988 1989 1990 1991
VALUE OF DIVIDENDS
Dividends in cash 1,550 1,636 1,542 1,710 1,716 1,789
Dividends reinvested 3,909 4,431 4,479 5,337 5,753 6,442
VALUE OF INVESTMENT
Dividends in cash(2),(5) 21,668 23,568 22,341 25,644 24,212 25,226
Dividends reinvested(2),(3) 57,146 66,671 67,812 83,698 84,639 95,046
IFA TOTAL RETURN 19.9 16.7 1.7 23.4 1.1 12.3
YEAR ENDED JULY 31 1992 1993 1994 1995 1996 1997
VALUE OF DIVIDENDS
Dividends in cash 1,706 1,716 1,731 1,590 1,766 1,968
Dividends reinvested 6,585 7,043 7,528 7,318 8,581 10,074
VALUE OF INVESTMENT
Dividends in cash(2),(5) 28,214 29,759 28,626 31,571 34,007 41,731
Dividends reinvested(2),(3) 113,237 126,680 129,171 150,378 170,618 220,576
IFA TOTAL RETURN 19.1 11.9 2.0 16.4 13.5 29.3
YEAR ENDED JULY 31 1998 1999 2000 2001 2002 2003
VALUE OF DIVIDENDS
Dividends in cash 1,959 2,210 2,320 2,226 2,272 2,071
Dividends reinvested 10,530 12,446 13,740 13,913 14,927 14,311
VALUE OF INVESTMENT
Dividends in cash(2),(5) 44,436 45,588 42,276 46,460 41,359 44,136
Dividends reinvested(2),(3) 245,542 264,664 259,165 299,416 280,397 314,550
IFA TOTAL RETURN 11.3 7.8 (2.1) 15.5 (6.4) 12.2
[end mountain chart]
AVERAGE ANNUAL COMPOUND RETURNS
(based on a $1,000 investment, with all distributions reinvested)
CLASS A SHARES* Period ended
reflecting 5.75% maximum sales charge July 31, 2003
One year 5.76%
Five years 3.84
Ten years 8.88
*Results for other share classes can be found on page 59.
AVERAGE ANNUAL COMPOUND RETURN FOR 29-2/3 YEARS: 12.3%(2),(3)
(#) For the period December 1, 1973 (when Capital Research and Management
Company became the fund's investment adviser), through July 31, 1974.
(1) The indexes are unmanaged and do not reflect sales charges, commissions or
expenses.
(2) These figures, unlike those shown earlier in this report, reflect payment of
the maximum sales charge of 5.75% on the $10,000 investment. Thus, the net
amount invested was $9,425. As outlined in the prospectus, the sales charge
is reduced for larger investments. There is no sales charge on dividends or
capital gains distributions that are reinvested in additional shares. No
adjustment has been made for income or capital gains taxes.
(3) Includes reinvested dividends of $177,101 and reinvested capital gain
distributions of $87,772. From April 1990 to September 1994 the fund paid
daily dividends; therefore, total values for this period were adjusted for
cumulative dividends accrued but not yet paid. After this period, quarterly
dividends were resumed.
(4) From December 1, 1973, through December 31, 1975, the Lehman Brothers
Government/Credit Bond Index was used because the Lehman Brothers Aggregate
Bond Index did not exist. From January 1, 1976, through July 31, 2003 the
Lehman Brothers Aggregate Bond Index has been used.
(5) Includes capital gain distributions of $18,735 but does not reflect income
dividends of $45,236 taken in cash.
Past results are not predictive of future results. The results shown are
before taxes on fund distributions and sale of fund shares.
BEST PRACTICE: A LOOK AT THE ROLE OF THE FUND'S INDEPENDENT DIRECTORS
[photo of a woman's hands holding a pair of reading glasses]
Mutual funds are among the most highly regulated financial products -- a level
of oversight that, along with high standards set by the industry itself, has
made them the investment of choice for half of all American households. Crucial
to that record is the careful attention of a group of dedicated individuals
charged with representing the interests of all shareholders: the independent
directors. These men and women, who are unaffiliated with the investment
adviser, are legally and ethically responsible for fulfilling a long list of
duties. These include evaluating fund returns, setting fund policies,
contracting service agreements and approving fees and expenses.
Directors' responsibilities have grown with the recent passage of the
Sarbanes-Oxley Act and other reforms initiated to prevent corporate misconduct.
In many respects, however, the new legislation extends to other corporate boards
the already-stringent requirements in place for mutual fund directors.
The Income Fund of America's seven independent directors are well up to their
task. Prominent in their respective fields, they draw on decades of professional
experience and a broad range of backgrounds and interests. They also work
closely with the fund's investment adviser to gather the information they need
and to set high standards for the fund's management and operations. Their goal:
to maintain -- and even help establish -- the industry's "best practices" in the
service of shareholders.
On the following pages, we invite you to hear from a few of your fund's
independent directors and learn about the responsibilities they and their
colleagues undertake on your behalf -- and the role they play in The Income Fund
of America's long-term success.
[Begin Sidebar]
THE INCOME FUND OF AMERICA'S SEVEN INDEPENDENT DIRECTORS ARE CHARGED WITH
REPRESENTING THE INTERESTS OF ALL SHAREHOLDERS. COLLECTIVELY, THEY HAVE DECADES
OF BUSINESS, INVESTMENT AND ACADEMIC EXPERTISE, AND A BROAD RANGE OF BACKGROUNDS
AND INTERESTS.
[End Sidebar]
[photo of Robert A. Fox]
[Begin Caption]
ROBERT A. FOX, DIRECTOR SINCE 1972
The fund's longest serving director, Bob brings to his role four decades of
corporate management experience, most recently as president and CEO of Foster
Farms. He is the managing general partner for Fox Investments LP and professor
at the University of California, Berkeley. He also taught at U.C. Davis, where
he was executive-in-residence.
[End Caption]
[Begin Sidebar]
"Fund directors are guided by an ethos of conscientiousness, in which we have to
combine a trust of management with an ongoing skepticism."
- -- Patricia Woolf
[End Sidebar]
FAR-REACHING RESPONSIBILITIES
The Securities and Exchange Commission requires that at least one half of every
fund board consist of independent, or "non-interested," directors. Of The Income
Fund of America's nine directors, seven are independent, while two are
"interested" directors affiliated with Capital Research and Management Company,
the fund's investment adviser.
Like corporate directors, fund directors declare dividends, review proxy
statements and financial reports, select independent auditors, serve on
committees and call shareholder meetings. In addition, directors annually
approve agreements with a range of service providers, such as investment
management, distribution and shareholder services. They also monitor fund
objectives, establish appropriate fees and expenses, and approve procedures for
security valuation, trading and proxy voting.
Communication is key in helping them execute their duties. Full board meetings
take place every quarter, and smaller committees convene separately throughout
the year. (Please see the article on page 13.) There is a regular exchange of
information with the fund's investment professionals, lawyers and accountants.
Several times a year, directors also hold "executive" sessions amongst
themselves or with expert counsel who are unaffiliated with Capital Research.
That level of attention demands a commitment of time from a group of people who
are already quite busy. "Our discussions can get quite intense, and given the
level of detail, meetings often last for many hours," notes director James
Peterson. "What's more, the first item on an agenda will frequently include
follow-ups from previous meetings." He jokes that with the increased regulation
over the past year, his stack of pre-meeting reading material has grown "by
several inches."
MAINTAINING A DIVIDEND DISCIPLINE
An essential part of the directors' job is evaluating fund returns -- taking
into account not only the current market environment but also the fund's
objective and long-term record. Given The Income Fund of America's dividend
focus, much attention is focused on the subject of yield. Directors look at how
much income the fund has generated versus its peers, as well as the yield's
relationship to risk. Because the directors must sign off on the fund's dividend
policy, they need to understand these issues clearly.
[photo of Leonade D. Jones]
[Begin Caption]
LEONADE D. JONES, DIRECTOR SINCE 1993
As former treasurer of The Washington Post Company, where she also served as an
executive in its television division, Leonade combines an expertise in media and
finance. She is the co-founder of two web-based ventures, Versura and
VentureThink, and a director of The Women's Foundation, among many other
affiliations.
[End Caption]
[photo of John G. McDonald]
[Begin Caption]
JOHN G. MCDONALD, DIRECTOR SINCE 1976
The IBJ professor of Finance at Stanford's Graduate School of Business, Jack has
lectured and taught around the world on a wide range of investment- and
business-related subjects. He is the author of numerous papers and case studies
covering public equities and private equity, entrepreneurial finance and venture
capital.
[End Caption]
In balancing these risk and return considerations, the board must ensure that
the fund hews closely to its mission. Staying the course can be a challenge in
certain market environments, such as the Internet boom of the late 1990s. Robert
Fox, the fund's longest serving director, has seen his share of market cycles.
"During `hot' periods," he explains, "most everyone looks strictly at returns,
without regard to volatility. In the most recent stock bubble, for example,
investors punished any stock that paid a dividend, putting income-oriented funds
decidedly out of step with the general market. In the late 1990s, in fact, a
number of funds chose to ease up on their income objectives to take advantage of
the high-growth environment."
The board has always felt strongly that, regardless of market conditions, it was
crucial for The Income Fund of America to maintain its dividend discipline. Bob
remembers that, as far back as the early 1990s, "we reviewed the charter of the
fund, but chose not to abandon the income objective. Instead, with dividend
yields and interest rates even then at relatively low levels, we explored
broadening the parameters for income instruments that could help the yield
without compromising stability. We questioned the fund's managers, creating a
dialogue with them to look at more alternatives. In the end, we decided to
increase the representation of higher yielding bonds in the portfolio, convinced
that Capital's research capabilities could mitigate the somewhat higher risks of
these investments."
Director Leonade Jones recalls another challenge during the heady period of the
Bubble: convincing shareholders to focus on the long term. "We were concerned
about investors leaving the fund at the wrong time," she says, "and talked a lot
about how to communicate to them the benefits of sticking with a dividend
approach in a hyper market. Since that time, of course, we have all learned a
lot about equity risk and also about the efficacy of the fund's strategy. That
long-term perspective is crucial."
VOTING PROXIES
As a shareholder in more than 150 companies, the fund votes on a wide range of
proxy issues, from the election of corporate directors to executive compensation
plans and anti-takeover measures (or "poison pills"). The Income Fund of America
is unusual in that each of the six directors who serves on the proxy committee
casts his or her own vote.
For each vote under consideration, directors receive a detailed summary of the
issues. The fund's research analysts likewise provide background data on the
company and its management, and describe the potential impact of various vote
outcomes. They also make recommendations, which directors may accept or reject.
Information flows both ways. Directors bring their own considerable skills as
board members and corporate executives to the table, providing yet another
perspective on complex issues.
[photo of Luis G. Nogales]
[Begin Caption]
LUIS G. NOGALES, DIRECTOR SINCE 2002
An industry leader in international media, Luis has held the top positions at
Univision and United Press International. He is managing partner of Nogales
Investors, a private equity firm. In addition to several corporate
directorships, he serves on many philanthropic boards, including the J. Paul
Getty Trust, the Ford Foundation and the Pacific Council on International
Policy.
[End Caption]
[photo of James K. Peterson]
[Begin Caption]
JAMES K. PETERSON, DIRECTOR SINCE 1999
In his former capacity as the director of investment management for IBM's
retirement fund, Jim has been a portfolio manager, research analyst and fund
administrator. He is a Chartered Financial Analyst and a Juris Doctor, and sits
on the board of his local chapter of the Association for Investment Management
and Research.
[End Caption]
Not every vote comes out the way the fund voted, of course, but director Henry
Riggs likens the process to "shouting at the umpire" at a baseball game. "You
don't necessarily expect to prevail on that call," he says, "but you hope to
have an impact on the next one. Similarly, even if you `lose' a vote, management
will notice, and the next time that issue comes up, they may decide to act
differently."
A CULTURE OF COMPLIANCE
Because most of the fund's directors have served on a number of corporate or
non-profit boards, they bring with them a solid grounding in good governance.
Legally, mutual fund directors are held to a high standard of fiduciary
behavior, meaning they must make a good-faith effort to exercise sound business
judgment in carrying out their duties. They are required to act honestly,
avoiding any conflicts of interests. The independent directors retain their own
counsel, in fact, who provides advice on a range of legal issues.
Directors demand that same level of trustworthiness from all of the
professionals who service the fund, and approve a code of ethics that they must
follow. Fund director Patricia Woolf teaches research ethics in Princeton
University's molecular biology department and is a member of the board of
governors of the Investment Company Institute, the national association of
mutual funds. She notes that, "fund directors are guided by an ethos of
conscientiousness, in which we have to combine a trust of management with an
ongoing skepticism." She believes that transparency of information is key to
striking this balance and building confidence. "At bottom, we need to ensure
that The Income Fund of America's investment adviser exhibits a high standard of
disclosure and a culture of compliance in every aspect of its business."
The need for trust has assumed a new urgency with the passage of the
Sarbanes-Oxley Act, which requires of directors even greater accountability for
the accuracy of the fund's financial statements. More than ever, directors must
ask tough questions of the investment adviser and accountants, get the right
information at the right time and ensure that they have the knowledge they need
to assess the fund's financial statements.
The fund's directors feel confident that they will be able to comply with the
new laws. "I don't feel that my responsibilities have changed," says Pat.
"Rather, while the standards of my fiduciary work are the same, I have been
given more tools to do my job."
CONSISTENTLY EFFECTIVE
Directors' roles, like the investment environment in which they operate, are
always evolving. Given their ever-growing duties, directors place great emphasis
on teamwork, capitalizing on their pool of experience and their multiple points
of view. "When I consider my role as director," Leonade Jones emphasizes, "it's
not just as an individual but as part of a group of committed professionals. We
grapple with these questions together so that, as a whole, we provide the
consistency to be effective over time. That improves the process and ultimately
improves the fund for shareholders."
[photo of Henry E. Riggs]
[Begin Caption]
HENRY E. RIGGS, DIRECTOR SINCE 1989
Hank is the founder, chairman and president emeritus of the Keck Graduate
Institute of Applied Life Sciences, the first U.S. graduate school to focus on
training professionals for careers in the biosciences. An engineer by training,
with a specialization in finance, he is the author of several books on managing
technology and engineering companies.
[End Caption]
[photo of Patricia K. Woolf]
[Begin Caption]
PATRICIA K. WOOLF, PH.D., DIRECTOR SINCE 1985
A specialist in ethics in scientific research, Pat is a lecturer in the
molecular biology department at Princeton University. She also sits on the board
of governors for the Investment Company Institute, the national association of
mutual funds, and is a director of several major U.S. corporations.
[End Caption]
UP FOR DISCUSSION
The Income Fund of America's independent directors meet on a regular basis to
discuss a range of issues concerning the operation and management of the fund.
[photo of the fund's independent directors]
[Begin Caption]
The fund's independent directors, during a recent meeting in San Francisco.
[End Caption]
The general board meeting takes place quarterly, usually at one of Capital
Research and Management Company's research offices. (The most recent one was
held on August 14th.) Participants cover a long list of topics, among them:
sales and redemptions; fund returns; declaration of the dividend; selection of
independent auditors; regulatory developments; valuation of portfolio
securities; investment outlook; the relative position of the portfolio; and
expenses. Often, research analysts provide an update on developments in their
industries.
The board will also hear reports from various committees, which likewise meet
regularly. Portions of these meetings are "open" sessions, and include Capital
representatives; others are "executive" sessions consisting of fund directors
alone or with their outside counsel.
The Income Fund of America has four committees:
o The AUDIT COMMITTEE, which oversees the fund's accounting and financial
reporting policies.
o The CONTRACTS COMMITTEE, which reviews and renews agreements between The
Income Fund of America and its service providers -- Capital Research,
American Funds Service Company and American Funds Distributors.
o The PROXY COMMITTEE, which votes on proxies of companies held in the
portfolio; it also establishes procedures and policies for voting of proxies.
o The NOMINATING COMMITTEE, which reviews the composition and responsibilities
of the board, as well as related issues such as compensation. It also selects
and evaluates candidates for independent directors as needed.
Over time, this continual flow of information helps directors build a
well-rounded perspective on the fund, enabling them to make appropriate
decisions on behalf of shareholders.
THE PORTFOLIO AT A GLANCE
7/31/2003
[begin pie chart]
Percent
of net
Investment portfolio assets
U.S. equity-type securities 46.4 %
Non-U.S. equity-type securities 17.0
U.S. Treasury & agency obligations 6.2
Other fixed-income securities 25.7
Cash & equivalents 4.7
[end pie chart]
Percent
of net
Five largest industries in equity-type holdings assets
Commercial banks 6.0 %
Oil & gas 4.6
Electric utilities 4.1
Real estate 3.8
Diversified Telecommunication services 3.7
Percent
of net
Ten largest equity-type holdings assets
FleetBoston Financial 1.7 %
Weyerhaeuser 1.3
Bristol-Myers Squibb 1.3
Dow Chemical 1.3
SBC Communications 1.3
J.P. Morgan Chase 1.1
Royal Dutch Petroleum/"Shell" Transport and Trading 1.1
Societe Generale 0.9
General Electric 0.9
General Motors 0.9
July 31, 2002
[begin pie chart]
Percent
of net
Investment portfolio assets
U.S. equity-type securities 44.1%
Non-U.S. equity-type securities 13.7
U.S. Treasury & agency obligations 4.9
Other fixed-income securities 22.7
Cash & equivalents 14.6
[end pie chart]
Percent
of net
FIVE LARGEST INDUSTRIES IN EQUITY-TYPE HOLDINGS assets
Banks 4.3%
Electric utilities 4.3
Real estate 4.2
Oil & gas 4.1
Diversified telecommunication services 3.5
Percent
of net
TEN LARGEST EQUITY-TYPE HOLDINGS assets
Ford Motor Co. Capital Trust 1.6%
Weyerhaeuser 1.3
J.P. Morgan Chase 1.1
R.J. Reynolds Tobacco Holdings 1.1
PACCAR 1.0
Royal Dutch Petroleum/
"Shell" Transport and Trading 1.0
Philip Morris 1.0
May Department Stores .9
Wachovia .9
General Motors .9
</table>
Investment portfolio
July 31, 2003
Shares Market Percent
or principal value of net
Equity securities amount (000) assets
COMMERCIAL BANKS - 5.97%
FleetBoston Financial Corp. 16,973,000 $ 527,691 1.73%
Societe Generale 4,116,600 288,420 .94
Wachovia Corp. 4,000,000 174,760 .57
Bank of America Corp. 1,978,500 163,365 .53
Comerica Inc. 2,240,000 108,595 .36
Bank of Nova Scotia 2,400,000 102,913 .34
Svenska Handelsbanken Group, Class A 5,400,000 86,555 .28
Westpac Banking Corp. 7,718,661 83,027 .27
Commonwealth Bank of Australia 4,190,090 80,998 .27
PNC Financial Services Group, Inc. 1,650,000 80,767 .26
ABN AMRO Holding NV 3,535,701 67,820 .22
Lloyds TSB Group PLC 4,425,000 34,333 .11
NB Capital Corp. 8.35% exchangeable preferred depositary shares 520,000 14,378 .05
HBOS PLC 920,000 11,454 .04
1,825,076 5.97
OIL & GAS - 4.57%
Royal Dutch Petroleum Co. (New York registered) 4,195,000 182,818
"Shell" Transport and Trading Co., PLC 17,475,000 109,340
"Shell" Transport and Trading Co., PLC (ADR) 763,900 28,944 1.05
ChevronTexaco Corp. 3,200,000 230,752 .76
Marathon Oil Corp. 8,735,000 224,839 .74
Sunoco, Inc. 3,800,000 140,600 .46
ConocoPhillips 2,300,000 120,382 .39
ENI SpA 6,910,000 101,773 .33
Unocal Corp. 3,200,000 93,728 .31
Exxon Mobil Corp. 2,080,000 74,006 .24
Occidental Petroleum Corp. 2,000,000 65,380 .21
Husky Energy Inc. 1,920,000 25,379 .08
1,397,941 4.57
ELECTRIC UTILITIES - 4.07%
Dominion Resources, Inc. 2,840,000 170,684
Dominion Resources, Inc. 9.50% PIES convertible preferred 2004 451,000 units 25,324 .64
Ameren Corp. 4,660,300 194,614 .64
E.ON AG 3,690,000 190,820 .63
Consolidated Edison, Inc. 4,250,000 168,767 .55
American Electric Power Co., Inc. 4,706,300 132,059
American Electric Power Co., Inc. 9.25% convertible preferred 2005 460,000 21,344 .50
Scottish Power PLC 22,513,600 131,282 .43
DTE Energy Co. 3,565,000 127,306 .42
Progress Energy, Inc. 911,924 37,152 .12
FPL Group, Inc. 405,000 24,976 .08
TXU Corp., Series C, 8.75% convertible preferred 2004 585,000 units 18,691 .06
1,243,019 4.07
REAL ESTATE - 3.75%
Equity Residential 5,135,000 143,266
Equity Residential, Series G, 7.25% convertible preferred depositary shares 600,000 15,516 .52
Health Care Property Investors, Inc. 2,492,900 109,264 .36
Boston Properties, Inc. 2,195,000 95,022 .31
Kimco Realty Corp. 2,280,000 93,320 .31
Developers Diversified Realty Corp. 3,100,000 92,070 .30
Weingarten Realty Investors 2,107,500 91,360 .30
Hang Lung Properties Ltd. 70,000,000 73,601 .24
Equity Office Properties Trust 2,475,000 68,656 .22
Sun Hung Kai Properties Ltd. 7,230,000 42,923 .14
Nationwide Health Properties, Inc. 2,000,000 34,240
Nationwide Health Properties, Inc., Series A, 7.677% preferred cumulative
step-up premium rate 50,000 3,658 .12
Plum Creek Timber Co., Inc. 1,370,000 37,209 .12
Regency Realty Corp. 800,000 29,104 .10
iStar Financial, Inc. 800,000 29,000 .09
ProLogis, Series D, 7.92% preferred 1,060,000 26,850 .09
AMB Property Corp. 895,000 25,149 .08
Unibail Holding 280,000 21,002 .07
Archstone-Smith Trust 777,000 20,085 .07
Hysan Development Co. Ltd. 21,001,854 17,908 .06
Hang Lung Group Ltd. 17,400,000 16,064 .05
CenterPoint Properties Corp. 240,000 15,264 .05
Duke Realty Corp., Series B, 7.99% preferred cumulative step-up premium rate 300,000 15,197 .05
Public Storage, Inc., Series V, 7.50%, cumulative preferred depositary shares 400,000 10,600 .04
Simon Property Group, Inc., Series G, 7.89% preferred cumulative step-up premium
rate 200,000 10,556 .03
New Plan Realty Trust, Series D, 7.80% preferred cumulative step-up premium rate 112,500 5,439 .02
FelCor Lodging Trust Inc. 450,000 4,027 .01
1,146,350 3.75
DIVERSIFIED TELECOMMUNICATION SERVICES - 3.69%
SBC Communications Inc. 16,300,000 380,768 1.25
AT&T Corp. 7,917,000 168,315 .55
BCE Inc. 5,736,706 127,125 .41
Telefonos de Mexico, SA de CV, Class L (ADR) 3,600,000 111,096 .36
ALLTEL Corp. 7.75% 2005 1,830,000 units 87,840 .29
Deutsche Telekom AG (1) 5,000,000 76,131 .25
Verizon Communications Inc. 2,000,000 69,720 .23
Swisscom AG 222,200 61,785 .20
CenturyTel, Inc. 6.875% ACES 2005 1,550,000 units 42,904 .14
Netia Holdings SA (1) 2,459,749 2,268 .01
NTL Inc. (1) 100 4 .00
Allegiance Telecom, Inc., warrants, expire 2008 (1) (2) (3) 20,000 2 .00
NTL Europe, Inc., Series A, 10.00% preferred 2023 100 0 .00
GT Group Telecom Inc., warrants, expire 2010 (1) (2) (3) 15,000 0 .00
XO Communications, Inc. 14.00% preferred 2009 (1) (4) 12 0 .00
1,127,958 3.69
FOOD PRODUCTS - 3.21%
Sara Lee Corp. 15,000,000 280,350 .92
H.J. Heinz Co. 5,175,000 176,260 .58
Unilever NV (New York registered) 2,780,000 157,014 .51
General Mills, Inc. 3,115,000 142,885 .47
Kellogg Co. 3,475,000 119,297 .39
ConAgra Foods, Inc. 4,550,000 102,511 .33
Unilever PLC 250,000 2,050 .01
980,367 3.21
PHARMACEUTICALS - 3.20%
Bristol-Myers Squibb Co. 15,250,000 399,550 1.31
Schering-Plough Corp. 10,400,000 176,592 .58
Eli Lilly and Co. 1,600,000 105,344 .34
Merck & Co., Inc. 1,585,000 87,619 .29
Sepracor Inc. 5.00% convertible subordinated debentures 2007 $ 31,000,000 28,559
Sepracor Inc. 5.75% convertible notes 2006 (2) $ 23,570,000 22,185
Sepracor Inc. 5.75% convertible notes 2006 $ 7,430,000 6,993 .19
AstraZeneca PLC 1,300,000 52,529 .17
UCB NV 1,638,913 40,111 .13
Wyeth 725,000 33,045 .11
Pfizer Inc 560,000 18,682 .06
Elan Finance Corp. Ltd. 0% convertible notes 2018 $ 12,000,000 6,660 .02
977,869 3.20
PAPER & FOREST PRODUCTS - 2.82%
Weyerhaeuser Co. 7,152,000 402,586 1.32
International Paper Co. 4,839,640 189,327
International Paper Co., Capital Trust 5.25% convertible preferred 2025 400,000 20,000 .68
UPM-Kymmene Corp. 8,600,000 140,319 .46
Stora Enso Oyj, Class R 3,864,275 48,547 .16
MeadWestvaco Corp. 1,400,000 33,894 .11
Holmen AB, Class B 942,900 27,009 .09
861,682 2.82
INSURANCE - 2.63%
St. Paul Companies, Inc. 2,707,400 95,219
St. Paul Companies, Inc., Series E, 9.00% 2005 600,000 units 39,528 .44
Allstate Corp. 3,035,000 115,421 .38
SAFECO Corp. 2,300,000 85,629 .28
XL Capital Ltd., Class A 1,015,000 80,692 .26
Chubb Corp. 7.00% convertible preferred 2005 1,800,000 units 48,834
Chubb Corp. 400,000 25,920 .25
UnumProvident Corp. 8.25%, ACES convertible 2006 2,075,000 units 63,080 .21
Lincoln National Corp. 1,500,000 56,010 .18
Arthur J. Gallagher & Co. 2,050,000 54,386 .18
American Financial Group, Inc. 1,742,300 39,899 .13
American International Group, Inc. 492,150 31,596 .10
Mercury General Corp. 500,000 23,300 .08
Irish Life & Permanent PLC 1,791,800 19,732 .06
Royal & Sun Alliance Insurance Group PLC 6,080,200 14,822 .05
ACE Ltd., Series C, preferred depositary shares 360,000 9,054 .03
803,122 2.63
CHEMICALS - 2.49%
Dow Chemical Co. 11,300,000 398,890 1.30
DSM NV 3,072,005 137,735 .45
E.I. du Pont de Nemours and Co. 2,700,000 118,638 .39
Lyondell Chemical Co. 7,050,000 105,538 .35
760,801 2.49
MACHINERY - 2.05%
Caterpillar Inc. 3,310,000 223,326 .73
Volvo AB, Class B 5,727,700 140,330 .46
Cummins Inc. 1,600,000 74,128
Cummins Capital Trust I 7.00% QUIPS convertible preferred 2031 244,000 14,731
Cummins Capital Trust I 7.00% QUIPS convertible preferred 2031 (2) 178,000 10,747 .33
Deere & Co. 1,590,000 80,740 .26
Pentair, Inc. 1,066,100 43,017 .14
Federal Signal Corp. 1,200,000 23,940 .08
Metso Oyj 1,779,998 16,962 .05
627,921 2.05
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.48%
Solectron Corp. 0% LYON convertible notes 2020 $ 243,600,000 137,025
Solectron Corp. 7.25% ACES convertible preferred 2004 2,180,000 units 32,940 .56
Sanmina Corp. 0% convertible subordinated debentures 2020 $ 161,000,000 78,085
SCI Systems, Inc. 3.00% convertible subordinated debentures 2007 $ 33,500,000 29,731 .35
Celestica Inc. 0% convertible debentures 2020 $ 181,000,000 94,120 .31
Agilent Technologies, Inc. 3.00% convertible debentures 2021 (5) $ 50,092,600 49,091
Agilent Technologies, Inc. 3.00% convertible debentures 2021 (2) (5) $ 30,185,000 29,581 .26
DDi Corp. 5.25% convertible subordinated notes 2008 (6) $ 10,000,000 500 .00
451,073 1.48
TOBACCO - 1.46%
Altria Group, Inc. 4,860,000 194,449 .64
R.J. Reynolds Tobacco Holdings, Inc. 3,411,600 121,180 .40
Gallaher Group PLC 7,911,186 71,867 .23
Imperial Tobacco Group PLC 2,765,839 43,453 .14
UST Inc. 500,000 16,625 .05
447,574 1.46
CAPITAL MARKETS - 1.44%
J.P. Morgan Chase & Co. 9,900,000 346,995 1.13
Allied Capital Corp. 3,476,099 81,862 .27
Bank of New York Co., Inc. 400,000 12,048 .04
440,905 1.44
AUTOMOBILES - 1.42%
General Motors Corp. 7,150,000 267,624
General Motors Corp., Series B, 5.25% convertible debentures 2032 $ 788,000 17,060 .93
Ford Motor Co. Capital Trust II 6.50% cumulative convertible trust preferred
2032 3,427,300 149,602 .49
434,286 1.42
MULTI-UTILITIES & UNREGULATED POWER - 1.37%
National Grid Transco PLC 32,400,000 200,903 .66
Duke Energy Corp. 3,484,000 61,144
Duke Energy Corp. 8.25% convertible preferred 2004 1,691,000 units 23,370 .28
MDU Resources Group, Inc. 2,002,400 63,516 .21
Williams Companies, Inc. 9.00% FELINE PACS convertible preferred 2005 3,960,000 units 40,669
Williams Companies, Inc. 3,222,600 20,464 .20
AES Trust VII 6.00% convertible preferred 2008 200,000 7,600 .02
417,666 1.37
INDUSTRIAL CONGLOMERATES - 1.35%
General Electric Co. 10,023,000 285,054 .93
3M Co. 400,000 56,080 .19
Tyco International Group SA, Series B, 3.125% convertible debentures 2023 (2) $ 50,000,000 52,813 .17
Smiths Group PLC 1,600,000 18,814 .06
412,761 1.35
GAS UTILITIES - 1.34%
Enbridge Inc. 6,153,211 219,477 .72
NiSource Inc. 7,777,565 150,107 .49
Kinder Morgan, Inc. 755,000 40,393 .13
409,977 1.34
ELECTRICAL EQUIPMENT - 1.08%
Emerson Electric Co. 2,660,000 142,842 .47
Hubbell Inc., Class B 2,893,100 99,233 .32
Cooper Industries, Inc., Class A 2,000,000 88,660 .29
330,735 1.08
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 1.00%
Analog Devices, Inc. 4.75% convertible subordinated notes 2005 $ 120,000,000 122,550 .40
ASM Lithography Holding NV 5.75% convertible notes 2006 (2) $ 57,500,000 63,181
ASM Lithography Holding NV 4.25% convertible debentures 2004 (2) $ 40,000,000 40,000
ASM Lithography Holding NV 4.25% convertible debentures 2004 $ 12,000,000 12,000 .38
Micron Technology, Inc. 2.50% convertible notes 2010 (2) $ 32,000,000 44,760 .14
Cypress Semiconductor Corp. 3.75% convertible subordinated notes 2005 $ 8,296,000 8,244 .03
RF Micro Devices, Inc. 3.75% convertible subordinated notes 2005 $ 8,330,000 8,205 .03
ZiLOG, Inc. (1) 910,000 3,504
ZiLOG, Inc. - MOD III Inc. (1) (3) 910 487 .01
LSI Logic Corp. 4.00% convertible notes 2006 $ 3,000,000 2,850 .01
305,781 1.00
DIVERSIFIED FINANCIAL SERVICES - 0.95%
ING Groep NV 6,026,206 121,822 .40
Brascan Corp., Class A 2,157,300 52,930 .17
Swire Pacific Capital Ltd. 8.84% cumulative guaranteed perpetual capital
securities (2) 1,125,000 28,582
Swire Pacific Offshore Financing Ltd. 9.33% cumulative guaranteed perpetual
preferred capital securities (2) 195,000 5,119 .11
GATX Corp. 1,500,000 32,880 .11
Fortis 1,700,000 30,966 .10
Wharf (Holdings) Ltd. 5,000,000 9,777 .03
Wilshire Financial Services Group Inc. (1) (7) 2,150,517 9,075 .03
291,151 .95
AEROSPACE & DEFENSE - 0.95%
Raytheon Co. 3,408,900 104,653
Raytheon Co. - RC Trust I 8.25% convertible preferred 2006 1,580,000 units 89,776 .64
Honeywell International Inc. 2,383,400 67,403 .22
Northrop Grumman Corp. 7.25% convertible preferred 2004 266,670 units 27,667 .09
289,499 .95
MULTILINE RETAIL - 0.85%
May Department Stores Co. 10,543,000 260,518 .85
FOOD & STAPLES RETAILING - 0.80%
Albertson's, Inc. 9,040,000 170,494 .56
Woolworths Ltd. 9,610,903 73,443 .24
243,937 .80
METALS & MINING - 0.76%
Alcoa Inc. 3,200,000 88,864 .29
Phelps Dodge Corp. (1) 875,000 36,916
Phelps Dodge Corp., Series A, 6.75% mandatory convertible preferred shares
(MEDS) 2005 200,000 21,150 .19
Cia. Vale do Rio Doce, ordinary nominative (ADR) 658,000 22,918
Cia. Vale do Rio Doce, Class A, preferred nominative 651,500 20,657 .14
Inco Ltd. 0% convertible notes LYON 2021 $ 26,000,000 17,973 .06
CONSOL Energy Inc. 553,800 10,328 .03
Freeport-McMoRan Copper & Gold Inc., Class B 300,000 8,037 .03
Massey Energy Co. 4.75% convertible note 2023 (2) $ 7,000,000 6,904 .02
233,747 .76
COMMUNICATIONS EQUIPMENT - 0.62%
Motorola, Inc. 7.00% convertible preferred 2004 2,390,000 units 79,229 .26
AT&T Corp. Liberty Media Group 3.50% convertible debentures 2031 (2) $ 55,000,000 37,400
Liberty Media Corp. 3.50% exchangeable debentures 2031 $ 5,000,000 3,400 .13
Nortel Networks Corp. 4.25% convertible notes 2008 (2) $ 40,000,000 33,650 .11
Juniper Networks, Inc. 4.75% convertible subordinated notes 2007 $ 20,000,000 19,100 .06
Corning Inc. 0% convertible debentures 2015 $ 22,256,000 16,942 .06
189,721 .62
IT SERVICES - 0.49%
Electronic Data Systems Corp. 5,550,000 123,599
Electronic Data Systems Corp. 7.625% FELINE PRIDES 2004 1,150,900 units 25,734 .49
149,333 .49
WIRELESS TELECOMMUNICATION SERVICES - 0.41%
American Tower Corp. 5.00% convertible debentures 2010 $ 38,100,000 34,576
American Tower Corp. 6.25% convertible notes 2009 $ 19,850,000 18,882
American Tower Corp., warrants, expire 2008 (1) (2) 3,000 338 .18
SpectraSite, Inc. (1) (3) 522,576 25,985 .08
Nextel Communications, Inc., Class A (1) (3) 945,920 17,272
Nextel Communications, Inc., Series E, 11.125% exchangeable preferred,
redeemable 2010 (4) 3,439 3,714 .07
Dobson Communications Corp. 13.00% senior exchangeable preferred 2009 (4) 11,603 11,719
Dobson Communications Corp. 12.25% senior exchangeable preferred 2008 (4) 4,558 4,604 .05
Sprint Corp. 7.125% convertible preferred 2004 1,000,000 units 7,900 .03
124,990 .41
CONTAINERS & PACKAGING - 0.39%
Temple-Inland Inc. 995,000 46,158
Temple-Inland Inc. 7.50% Upper DECS 2005 690,000 units 32,810 .26
Amcor Ltd. (2) 4,000,000 21,708
Amcor Ltd. 3,370,000 18,289 .13
118,965 .39
SPECIALTY RETAIL - 0.39%
Kingfisher PLC (1) 12,121,628 54,619 .18
Gap, Inc. 5.75% convertible notes 2009 (2) $ 28,000,000 36,540
Gap, Inc. 5.75% convertible notes 2009 $ 6,000,000 7,830 .15
Toys "R" Us, Inc. 6.25% 2005 500,000 units 18,700 .06
117,689 .39
BEVERAGES - 0.28%
Southcorp Ltd. 29,712,357 55,416 .18
Lion Nathan Ltd. 8,258,412 28,933 .10
84,349 .28
INTERNET & CATALOG RETAIL - 0.26%
Amazon.com, Inc. 4.75% convertible subordinated debentures 2009 $ 85,375,000 79,826 .26
CONSUMER FINANCE - 0.23%
Capital One Financial Corp. 6.25% Upper DECS 2005 940,000 units 37,638 .12
Providian Financial Corp. 3.25% convertible debentures 2005 $ 34,220,700 31,611 .11
69,249 .23
OTHER INDUSTRIES - 0.64%
Pitney Bowes Inc. 1,200,000 45,720 .15
Interpublic Group of Companies, Inc. 1,400,000 19,320
Interpublic Group of Companies, Inc. 1.87% convertible subordinated notes
2006 (2) $ 17,000,000 15,109 .11
Baxter International Inc. 7.00% convertible preferred 2006 675,000 34,351 .11
ImClone Systems Inc. 5.50% convertible notes 2005 $ 20,000,000 20,525 .07
Hewlett-Packard Co. 750,000 15,878 .05
Kimberly-Clark Corp. 309,000 14,956 .05
Fluor Corp. 350,300 12,481 .04
Kansas City Southern, 4.25% covertible preferred (2) 15,000 7,607 .03
Foster Wheeler Ltd. 6.50% convertible subordinated notes 2007 (2) $ 15,000,000 4,500 .02
Union Pacific Capital Trust 6.25% TIDES convertible preferred 2028 (2) 61,105 3,093 .01
UnitedGlobalCom, Inc., Class A (formerly United Pan-Europe Communications NV)
(1) (2) (3) 237,090 1,353 .00
Clarent Hospital Corp. (1) (7) 453,247 793 .00
AMF Bowling Worldwide, Inc. 0% convertible debentures 2018 (2) (3) (6) $ 26,391,000 3 .00
TI Automotive Ltd., Class A (1) (3) 7,000,000 0 .00
Protection One, Inc., warrants, expire 2005 (1) (2) (3) 57,600 0 .00
195,689 .64
Miscellaneous - 4.96%
Other equity securities in initial period of acquisition 1,515,856 4.96
Total equity securities (cost: $18,250,771,000) 19,367,383 63.37
Principal Market Percent
amount value of net
Bonds & notes (000) (000) assets
WIRELESS TELECOMMUNICATION SERVICES - 3.11%
Nextel Communications, Inc.:
9.75% 2007 $ 39,675 $ 41,064
9.95% 2008 107,375 112,207
12.00% 2008 4,000 4,300
7.375% 2015 5,000 4,900 .53
ACC Escrow Corp. 10.00% 2011 (2) 76,000 76,760
American Cellular Corp. 9.50% 2009 (6) 54,075 33,797
Dobson Communications Corp. 10.875% 2010 20,500 21,627
Dobson/Sygnet Communications Co. 12.25% 2008 15,250 16,241 .49
AT&T Wireless Services, Inc.:
7.50% 2007 34,250 38,611
7.875% 2011 8,305 9,366
8.125% 2012 31,630 36,196
8.75% 2031 5,000 5,782
TeleCorp PCS, Inc.:
0%/11.625% 2009 (8) 24,449 25,549
10.625% 2010 5,300 6,406
Tritel PCS, Inc.:
0%/12.75% 2009 (8) 2,975 3,153
10.375% 2011 13,776 16,927 .46
Nextel Partners, Inc.:
12.50% 2009 31,750 35,242
11.00% 2010 34,100 36,317
8.125% 2011 (2) 23,525 21,996 .31
Triton PCS, Inc.:
8.75% 2011 11,000 10,725
9.375% 2011 15,000 15,150
8.50% 2013 (2) 58,750 61,394 .29
Crown Castle International Corp.: (8)
0%/10.375% 2011 37,700 37,134
0%/11.25% 2011 45,000 43,875 .26
American Tower Corp. 9.375% 2009 51,225 52,506
American Towers, Inc. 0%/12.25% 2008 (8) 3,000 1,995 .18
Western Wireless Corp.:
10.50% 2006 2,000 2,050
9.25% 2013 (2) 48,475 46,294 .16
Cricket Communications, Inc.: (5) (6)
6.1875% 2007 21,070 8,217
6.1875% 2007 10,750 4,192
6.375% 2007 5,875 2,291
6.625% 2007 4,335 1,691
9.50% 2007 78,250 30,517 .15
Centennial Cellular Corp. 10.75% 2008 26,235 23,743
Centennial Communications Corp. and Centennial Cellular Operating Co.
LLC 10.125% 2013 (2) 16,000 15,720 .13
Vodafone Group PLC:
7.75% 2010 16,750 19,646
5.375% 2015 5,000 4,927 .08
AirGate PCS, Inc. 0%/13.50% 2009 (8) 20,350 11,294
iPCS, Inc. 0%/14.00% 2010 (6) (8) 12,590 692 .04
Verizon Wireless Capital LLC and Cellco Partnership 5.375% 2006 9,000 9,631 .03
PageMart Wireless, Inc.: (3) (6)
15.00% 2005 19,410 2
11.25% 2008 33,500 3 .00
950,130 3.11
DIVERSIFIED TELECOMMUNICATION SERVICES - 2.60%
Sprint Capital Corp.:
7.90% 2005 14,110 15,218
7.125% 2006 14,390 15,550
6.00% 2007 42,735 44,882
7.625% 2011 38,827 41,864
8.375% 2012 65,000 72,851
6.90% 2019 14,350 13,777
8.75% 2032 3,200 3,475 .68
AT&T Corp.: (5)
7.00% 2006 50,000 55,311
7.80% 2011 50,500 55,462 .36
Qwest Services Corp.: (2)
13.00% 2007 17,895 19,058
13.50% 2010 25,356 27,384
14.00% 2014 2,700 3,031
U S WEST, Inc. 7.20% 2004 25,000 25,062
Qwest Capital Funding, Inc.:
7.75% 2006 7,000 6,125
7.90% 2010 12,000 9,180
Qwest Corp. 8.875% 2012 (2) 12,400 12,772 .34
Deutsche Telekom International Finance BV:
8.25% 2005 (5) 10,000 11,003
3.875% 2008 3,000 2,932
8.50% 2010 (5) 41,170 48,589
5.25% 2013 17,630 16,919
9.25% 2032 (5) 10,000 12,606
VoiceStream Wireless Corp. 10.375% 2009 0 0 .30
France Telecom 9.25% 2011 (5) 37,100 44,166
Orange PLC 8.75% 2006 18,345 21,196 .21
TELUS Corp. 8.00% 2011 42,550 47,632 .16
Koninklijke KPN NV:
7.50% 2005 2,000 2,214
8.00% 2010 33,950 40,239 .14
British Telecommunications PLC: (5)
7.875% 2005 7,000 7,839
8.375% 2010 12,500 14,961 .07
Verizon Global Funding Corp. 6.125% 2007 12,000 13,123
Verizon New York Inc., Series A, 6.875% 2012 6,500 7,156 .07
PCCW-HKT Capital Ltd.:
7.75% 2011 (2) 17,000 18,833
7.75% 2011 750 831 .06
Telewest Communications PLC: (6)
9.875% 2010 9,325 3,497
0%/11.375% 2010 (8) 35,250 10,222
TeleWest PLC: (6)
9.625% 2006 450 171
11.00% 2007 5,325 2,030 .05
Comcast UK Cable Partners Ltd. 11.20% 2007 13,375 13,208 .04
Singapore Telecommunications Ltd.:
6.375% 2011 (2) 175 191
6.375% 2011 3,825 4,176
7.375% 2031 (2) 6,000 6,881 .04
Cincinnati Bell Inc. 7.25% 2013 (2) 8,375 7,977 .03
Telefonos de Mexico, SA 8.25% 2006 5,000 5,562 .02
COLT Telecom Group PLC 12.00% 2006 5,000 5,075 .02
CFW Communications Co. 13.00% 2010 (3) (6) 10,200 4,590 .01
GT Group Telecom Inc. 0%/13.25% 2010 (6) (8) 15,000 75 .00
794,896 2.60
MEDIA - 1.94%
Time Warner Inc.:
7.75% 2005 9,500 10,302
8.18% 2007 30,000 34,249
AOL Time Warner Inc.:
5.625% 2005 5,000 5,255
6.875% 2012 7,750 8,326
7.625% 2031 6,500 6,764
Time Warner Companies, Inc.:
9.125% 2013 5,000 6,026
7.25% 2017 8,000 8,513 .26
Comcast Cable Communications, Inc.:
8.375% 2007 6,750 7,773
6.20% 2008 14,000 15,119
6.875% 2009 7,000 7,733
TCI Communications, Inc. 8.00% 2005 15,000 16,459
Comcast Corp. 7.05% 2033 7,000 7,017
Lenfest Communications, Inc. 7.625% 2008 2,000 2,235 .19
Clear Channel Communications, Inc.:
7.25% 2003 12,400 12,477
6.00% 2006 5,000 5,389
4.625% 2008 17,125 17,494
5.75% 2013 3,500 3,546
Chancellor Media Corp. of Los Angeles 8.00% 2008 15,000 16,950 .18
CBS Corp. 7.15% 2005 26,500 28,803
Viacom Inc.:
6.40% 2006 3,000 3,275
5.625% 2007 5,000 5,385
7.70% 2010 10,000 11,760
6.625% 2011 5,000 5,543 .18
Liberty Media Corp.:
7.75% 2009 10,950 11,966
7.875% 2009 24,600 27,035
8.25% 2030 13,700 14,105 .17
British Sky Broadcasting Group PLC:
6.875% 2009 10,000 10,950
8.20% 2009 16,250 18,606 .10
News America Inc. 6.75% 2038 15,000 15,863
News America Holdings Inc. 7.75% 2045 10,347 11,147 .09
Adelphia Communications Corp.: (6)
10.25% 2006 13,975 9,416
10.25% 2011 14,650 10,255
Century Communications Corp. 0% 2003 (6) (9) 9,000 5,490 .08
Young Broadcasting Inc.:
Series B, 8.75% 2007 7,209 7,281
10.00% 2011 15,640 17,008 .08
Charter Communications Holdings, LLC:
8.25% 2007 11,150 8,948
10.75% 2009 6,250 5,047
0%/13.50% 2011 (8) 6,900 4,140 .06
PanAmSat Corp. 6.125% 2005 17,000 17,404 .06
Univision Communications Inc. 7.85% 2011 14,700 16,592 .06
CSC Holdings, Inc.:
7.25% 2008 8,000 7,860
8.125% 2009 8,000 7,960 .05
DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. 8.375% 2013 (2) 12,000 13,320 .04
Cox Communications, Inc.:
7.75% 2010 3,000 3,467
4.625% 2013 10,000 9,302 .04
RH Donnelley Inc.: (2)
8.875% 2010 10,500 11,419
10.875% 2012 1,000 1,130 .04
EchoStar DBS Corp. 9.125% 2009 11,375 12,541 .04
Regal Cinemas Corp., Series B, 9.375% 2012 7,250 8,047 .03
Cox Radio, Inc.:
6.375% 2005 2,000 2,126
6.625% 2006 4,550 4,889 .02
Hollinger Participation Trust 12.125% 2010 (2) (4) (5) 3,168 3,643
CanWest Media Inc., Series B, 10.625% 2011 3,000 3,360 .02
TransWestern Publishing Co. LLC, Series F, 9.625% 2007 6,250 6,516 .02
LBI Media, Inc. 10.125% 2012 5,500 5,981 .02
Emmis Communications Corp. 0%/12.50% 2011 (8) 6,379 5,486 .02
Gannett Co., Inc. 4.95% 2005 5,000 5,246 .02
Antenna TV SA 9.00% 2007 5,250 5,066 .02
Cinemark USA, Inc. 9.00% 2013 3,575 3,843 .01
Gray Communications Systems, Inc. 9.25% 2011 3,500 3,780 .01
Hearst-Argyle Television, Inc. 7.00% 2018 3,375 3,612 .01
Radio One, Inc., Series B, 8.875% 2011 3,250 3,510 .01
Carmike Cinemas, Inc., Series B, 10.375% 2009 1,550 1,627 .01
591,377 1.94
COMMERCIAL BANKS - 1.79%
SB Treasury Co. LLC, Series A, 9.40%/10.925% noncumulative preferred (undated)
(2) (5) 114,750 119,340
Sumitomo Mitsui Banking Corp. 8.00% 2012 10,000 11,547 .43
Fuji JGB Investment LLC, Series A, 9.87% noncumulative preferred (undated)(2)(5) 51,700 52,707
IBJ Preferred Capital Co. LLC, Series A, 8.79% noncumulative preferred (undated)
(2) (5) 13,800 13,766 .22
SocGen Real Estate Co. LLC, Series A, 7.64% (undated) (2) (5) 53,000 59,752
Societe Generale 7.85% (undated) (2) (5) 2,400 2,717 .20
HSBC Capital Funding LP: (2) (5)
Series 1, 9.547% noncumulative step-up perpetual preferred (undated) 10,000 12,528
Series 2, 10.176% noncumulative step-up perpetual preferred (undated) 11,500 16,301
Household Finance Corp.:
4.625% 2008 2,000 2,061
6.375% 2011 14,000 14,983
6.375% 2012 5,000 5,321
Midland Bank 1.375% Eurodollar note (undated) (5) 5,000 3,820
HSBC Holdings PLC 5.25% 2012 3,000 2,994 .19
Royal Bank of Scotland Group PLC:
5.00% 2014 2,000 1,938
7.648% (undated) (5) 12,000 13,717
Series 3, 7.816% (undated) 12,000 13,463
National Westminster Bank PLC 7.75% (undated) (5) 3,024 3,471
RBS Capital Trust I noncumulative trust preferred 4.709% (undated) 2,500 2,327 .11
J.P. Morgan Chase & Co.:
4.00% 2008 20,000 20,221
5.75% 2013 5,000 5,105
J.P. Morgan & Co. Inc.:
6.70% 2007 5,000 5,534
Series A, 6.00% 2009 2,500 2,690 .11
BNP Paribas Capital Trust 9.003% noncumulative trust preferred (undated) (2) 10,000 12,235
BNP U.S. Funding LLC, Series A, 7.738% noncumulative preferred (undated) (2)(5) 4,200 4,790
BNP Paribas 5.125% 2015 (2) 3,000 2,916 .07
Tokai Preferred Capital Co. LLC, Series A, 9.98%/11.091% noncumulative
preferred (undated) (2) (5) 19,000 19,525 .06
Development Bank of Singapore Ltd.: (2)
7.875% 2010 5,000 5,902
7.125% 2011 5,000 5,660
DBS Capital Funding Corp., Series A, 7.657% noncumulative guaranteed preference
shares (undated) (2) (5) 6,500 7,312 .06
Skandinaviska Enskilda Banken 7.50% (undated) (2) (5) 10,405 11,703 .04
Bank of America Corp. 5.125% 2014 10,000 9,664 .03
Bayerische Landesbank, Series F, 2.50% 2006 9,000 9,047 .03
Standard Chartered Bank 1.25% Eurodollar note (undated) (5) 15,000 8,843 .03
Credit Suisse First Boston (USA), Inc.:
4.625% 2008 5,000 5,158
6.50% 2012 3,000 3,239 .03
Bank of Scotland 7.00% (undated) (2) (5) 7,500 8,353 .03
Abbey National PLC:
6.69% 2005 2,000 2,186
7.35% (undated) (5) 5,000 5,599 .03
Canadian Imperial Bank of Commerce 1.50% Eurodollar note 2085 (5) 10,000 7,700 .02
Bank of Nova Scotia 1.50% Eurodollar note (undated) (5) 10,000 7,206 .02
BCI U.S. Funding Trust I 8.01% noncumulative preferred (undated) (2) (5) 5,000 5,626 .02
State Street Capital Trust II 1.79% 2008 (5) 5,000 5,005 .01
Chevy Chase Bank, FSB 9.25% 2005 4,000 4,030 .01
BANK ONE CORP. 4.90% 2015 3,000 2,856 .01
AB Spintab 7.50% (undated) (2) (5) 2,500 2,796 .01
Bayer Hypo-Vereinsbank 8.741% 2031 (2) 1,750 1,779 .01
Barclays Bank PLC 6.86% callable perpetual core tier one notes (undated) (2)(5) 1,650 1,731 .01
547,164 1.79
ELECTRIC UTILITIES - 0.99%
Southern California Edison 8.00% 2007 (2) 55,025 59,702
Edison Mission Energy:
10.00% 2008 11,250 8,944
7.73% 2009 15,720 11,869
9.875% 2011 15,280 11,995
Mission Energy Holding Co. 13.50% 2008 21,355 10,784
Homer City Funding LLC 8.734% 2026 (10) 10,000 9,825
Midwest Generation, LLC, Series B, 8.56% 2016 (10) 6,000 5,899 .39
Dominion Resources, Inc.:
Series 2002-D, 5.125% 2009 21,500 22,084
Series 2002-C, 5.70% 2012 (5) 3,300 3,359
Series E, 6.30% 2033 6,250 5,891
Virginia Electric and Power Co., Series 2002-A, 5.375% 2007 8,000 8,544 .13
Israel Electric Corp. Ltd.: (2)
7.70% 2018 22,500 21,266
8.10% 2096 14,405 11,807 .11
Progress Energy, Inc.:
6.75% 2006 5,000 5,461
6.05% 2007 7,500 8,044
5.85% 2008 7,500 7,949
7.10% 2011 2,500 2,737
7.00% 2031 2,500 2,497 .09
Alabama Power Co.:
Series U, 2.65% 2006 5,000 4,998
Series X, 3.125% 2008 3,750 3,655
Series R, 4.70% 2010 1,250 1,224
Series Q, 5.50% 2017 5,000 5,027
Southern Power Co., Series B, 6.25% 2012 9,000 9,566 .08
Cilcorp Inc.:
8.70% 2009 9,000 10,713
9.375% 2029 3,000 3,836 .05
Oncor Electric Delivery Co.:
6.375% 2012 8,615 9,265
6.375% 2015 (2) 5,000 5,257 .05
Exelon Generation Co., LLC 6.95% 2011 11,300 12,448
Exelon Corp. 6.75% 2011 1,000 1,103 .04
Constellation Energy Group, Inc. 6.125% 2009 12,000 12,847 .04
Appalachian Power Co., Series G, 3.60% 2008 3,000 2,931 .01
301,527 .99
AUTOMOBILES - 0.99%
General Motors Acceptance Corp.:
6.125% 2006 31,000 32,426
6.75% 2006 2,000 2,119
6.125% 2007 18,250 18,714
7.75% 2010 9,500 9,945
6.875% 2011 38,500 37,671
7.25% 2011 20,000 20,059
6.875% 2012 1,250 1,215
8.00% 2031 6,250 5,782
General Motors Corp.:
7.20% 2011 20,000 19,997
7.125% 2013 2,000 1,954 .49
Ford Motor Credit Co.:
7.50% 2005 1,000 1,058
6.875% 2006 10,000 10,507
6.50% 2007 43,000 44,193
5.80% 2009 4,000 3,832
7.375% 2009 5,000 5,111
7.25% 2011 13,000 12,888
7.375% 2011 20,750 20,602
Ford Motor Co. 7.45% 2031 5,000 4,281 .34
DaimlerChrysler North America Holding Corp.:
6.40% 2006 5,000 5,381
4.05% 2008 2,560 2,464
4.75% 2008 1,440 1,436
7.20% 2009 14,000 15,265
7.75% 2011 15,000 16,601
7.30% 2012 7,000 7,531 .16
301,032 .99
OIL & GAS - 0.84%
Premcor Refining Group Inc.:
9.25% 2010 13,875 14,916
9.50% 2013 54,465 59,095
7.50% 2015 (2) 19,500 18,915
Clark Refining & Marketing, Inc.:
8.375% 2007 3,460 3,495
8.875% 2007 2,890 2,919
8.625% 2008 1,725 1,759
Port Arthur Finance Corp. 12.50% 2009 (10) 601 709 .33
Western Oil Sands Inc. 8.375% 2012 27,150 30,001 .10
Valero Energy Corp.:
6.125% 2007 7,555 8,107
6.875% 2012 12,945 13,767 .07
Newfield Exploration Co.:
Series B, 7.45% 2007 6,000 6,450
7.625% 2011 1,500 1,642
8.375% 2012 11,400 12,369 .07
Devon Financing Corp., ULC 6.875% 2011 17,000 18,784 .06
XTO Energy Inc.:
7.50% 2012 8,850 9,602
6.25% 2013 4,500 4,545 .04
Pogo Producing Co. 10.375% 2009 10,000 10,800 .03
Oryx Energy Co. 8.125% 2005 8,500 9,381 .03
Pemex Project Funding Master Trust:
7.875% 2009 1,600 1,788
7.375% 2014 3,500 3,622
8.625% 2022 500 524 .02
OXYMAR 7.50% 2016 (2) 5,500 5,562 .02
ConocoPhillips 3.625% 2007 5,000 5,021 .02
Reliance Industries Ltd., Series B, 10.25% 2097 3,125 3,164 .01
Petrozuata Finance, Inc., Series B, 8.22% 2017 (2) (10) 3,620 3,122 .01
Teekay Shipping Corp. 8.875% 2011 2,625 2,901 .01
CNOOC Finance (2003) Ltd. 4.125% 2013 (2) 2,500 2,300 .01
PETRONAS Capital Ltd. 7.00% 2012 (2) 2,000 2,199 .01
257,459 .84
HOTELS, RESTAURANTS & LEISURE - 0.83%
MGM Mirage, Inc. 8.50% 2010 22,830 25,570
Mirage Resorts, Inc.:
6.625% 2005 3,000 3,124
7.25% 2006 4,960 5,307
6.75% 2008 10,500 11,182
MGM Grand, Inc. 6.875% 2008 1,159 1,231 .15
Starwood Hotels & Resorts Worldwide, Inc.:
7.375% 2007 12,350 12,844
7.875% 2012 10,250 10,916
ITT Corp.:
6.75% 2003 2,500 2,534
6.75% 2005 8,675 9,022 .12
Horseshoe Gaming Holding Corp., Series B, 8.625% 2009 21,500 22,897 .08
Royal Caribbean Cruises Ltd.:
7.00% 2007 3,000 3,052
8.00% 2010 2,250 2,334
8.75% 2011 15,400 16,459 .07
Premier Parks Inc. 9.75% 2007 13,750 13,097
Six Flags, Inc.:
9.50% 2009 1,875 1,744
8.875% 2010 2,500 2,275 .06
International Game Technology 7.875% 2004 16,000 16,707 .05
Mohegan Tribal Gaming Authority:
8.125% 2006 2,500 2,687
6.375 2009 (2) 10,000 9,875
8.375% 2011 1,400 1,515
8.00% 2012 2,100 2,257 .05
Hyatt Equities, LLC 6.875% 2007 (2) 13,000 13,201 .04
YUM Brands, Inc. 7.70% 2012 10,500 11,392 .04
Harrah's Operating Co., Inc.:
7.875% 2005 5,850 6,311
7.125% 2007 4,150 4,579 .04
Florida Panthers Holdings, Inc. 9.875% 2009 10,000 10,650 .04
Hilton Hotels Corp.:
7.625% 2008 2,950 3,097
7.20% 2009 1,850 1,933
8.25% 2011 2,450 2,683
7.625% 2012 2,350 2,479 .03
Boyd Gaming Corp. 9.25% 2009 8,500 9,392 .03
Extended Stay America, Inc. 9.875% 2011 4,500 4,815 .02
Carnival Corp. 6.15% 2008 2,480 2,639
Carnival Cruise Lines, Inc. 7.20% 2023 1,625 1,653 .01
Buffets, Inc. 11.25% 2010 900 902 .00
252,355 .83
CONSUMER FINANCE - 0.75%
Capital One Bank:
6.875% 2006 26,600 28,796
4.875% 2008 19,000 19,092
6.50% 2013 5,000 4,735
Capital One Financial Corp.:
7.25% 2003 11,250 11,405
7.25% 2006 3,000 3,180
8.75% 2007 5,750 6,295
7.125% 2008 25,850 26,968
Capital One Capital I 2.86% 2027 (2) (5) 13,500 10,155 .36
MBNA Corp.:
5.625% 2007 10,000 10,430
6.75% 2008 12,500 13,678
Series F, 7.50% 2012 600 677
Series F, 6.125% 2013 13,500 13,991
5.00% 2015 150 138
Series B, 2.11% 2027 (5) 32,000 25,761
MBNA America Bank, National Association:
5.375% 2008 14,600 15,187
6.625% 2012 4,250 4,510 .27
USA Education, Inc. 5.625% 2007 12,895 13,823
SLM Corp.:
3.95% 2008 3,000 2,978
Series A, 5.00% 2015 10,000 9,633 .09
Providian Financial Corp., Series A, 9.525% 2027 (2) 10,000 8,550 .03
229,982 .75
MULTI-UTILITIES & UNREGULATED POWER - 0.73%
Williams Companies, Inc.:
9.25% 2004 20,000 20,350
7.125% 2011 38,000 35,150
8.125% 2012 12,910 12,458
Transcontinental Gas Pipe Line Corp., Series B, 7.00% 2011 19,765 19,567
Williams Holdings of Delaware, Inc. 6.25% 2006 12,500 11,906
Northwest Pipeline Corporation 8.125% 2010 7,500 7,744 .35
AES Corp.:
10.00% 2005 (2) 2,500 2,562
9.50% 2009 15,965 15,167
9.375% 2010 6,066 5,793
8.75% 2013 (2) 63,350 62,558
9.00% 2015 (2) 4,750 4,714 .30
Southern Natural Gas Co. 8.00% 2032 14,135 14,135
El Paso Corp. 7.875% 2012 (2) 5,250 4,252 .06
Duke Capital Corp. 7.50% 2009 7,500 8,087 .02
224,443 .73
COMMERCIAL SERVICES & SUPPLIES - 0.73%
Allied Waste North America, Inc.:
Series B, 7.375% 2004 5,000 5,075
Series B, 7.625% 2006 22,840 23,525
8.50% 2008 1,500 1,590
Series B, 8.875% 2008 11,000 11,770
10.00% 2009 56,825 60,163
Browning-Ferris Industries, Inc. 7.875% 2005 3,000 3,090 .35
Cendant Corp.:
6.875% 2006 4,000 4,378
6.25% 2008 32,000 34,484
7.375% 2013 22,750 25,330
7.125% 2015 4,500 4,888
PHH Corp. 7.125% 2013 6,250 6,701 .25
Waste Management, Inc.:
7.00% 2006 7,000 7,768
6.50% 2008 5,000 5,487
WMX Technologies, Inc.:
6.375% 2003 1,005 1,019
7.10% 2026 10,125 10,524
USA Waste Services, Inc. 7.00% 2004 9,060 9,557 .11
KinderCare Learning Centers, Inc., Series B, 9.50% 2009 6,500 6,679 .02
Safety-Kleen Services, Inc. 9.25% 2008 (3) (6) 20,000 400
Safety-Kleen Corp. 9.25% 2009 (3) (6) 10,000 200 .00
222,628 .73
INSURANCE - 0.67%
Prudential Holdings, LLC, Series C, 8.695% 2023 (2) (10) 22,250 26,005
Prudential Funding, LLC 6.60% 2008 (2) 2,000 2,222 .09
Monumental Global Funding Trust II: (2)
2001-B, Series B, 6.05% 2006 6,500 7,058
2002-A, Series A, 5.20% 2007 16,750 17,854 .08
Allstate Financial Global Funding LLC 5.25% 2007 (2) 16,750 18,006
Allstate Financing II 7.83% 2045 5,000 5,324 .08
ReliaStar Financial Corp.:
8.00% 2006 8,000 9,130
6.50% 2008 3,000 3,267
ING Bank NV 5.125% 2015 (2) 10,000 9,657 .07
International Lease Finance Corp.:
4.50% 2008 4,000 4,042
5.875% 2013 5,000 5,062
ASIF Global Finance XVIII 3.85% 2007 (2) 8,500 8,525 .06
MetLife, Inc. 3.911% 2005 9,760 10,083
Metropolitan Life Insurance 7.00% 2005 (2) 5,000 5,461 .05
Nationwide Life Insurance Co. 5.35% 2007 (2) 8,500 8,993
Nationwide Mutual Insurance Co. 7.875% 2033 (2) 5,000 5,336 .05
CNA Financial Corp.:
6.75% 2006 4,370 4,513
6.45% 2008 2,500 2,541
6.60% 2008 4,630 4,714
7.25% 2023 2,750 2,547 .05
Mangrove Bay Pass Through Trust 6.102% 2033 (2) 13,000 12,287 .04
Lincoln National Corp.:
6.20% 2011 5,000 5,253
7.00% 2018 6,000 6,741 .04
ACE Capital Trust II 9.70% 2030 8,250 10,261 .03
Jackson National Life Global Funding, Series 2002-1, 5.25% 2007 (2) 4,000 4,205 .01
Travelers Property Casualty Corp. 3.75% 2008 3,000 2,988 .01
John Hancock Global Funding II, Series 2002-G, 5.00% 2007 (2) 2,500 2,627 .01
Hartford Financial Services Group, Inc. 2.375% 2006 1,500 1,477 .00
206,179 .67
PAPER & FOREST PRODUCTS - 0.62%
Abitibi-Consolidated Co. of Canada:
5.25% 2008 11,000 10,414
6.00% 2013 56,750 50,887
Abitibi-Consolidated Inc. 8.55% 2010 18,000 19,237 .26
Georgia-Pacific Corp.:
7.50% 2006 6,500 6,533
7.375% 2008 (2) 15,500 15,423
8.125% 2011 8,085 8,004
8.25% 2023 6,992 6,188
Fort James Corp.:
6.625% 2004 2,600 2,613
6.875% 2007 5,000 4,975 .14
Scotia Pacific Co. LLC, Series B:
Class A-2, 7.11% 2028 (10) 15,800 10,995
Class A-3, 7.71% 2028 20,125 12,276 .08
Weyerhaeuser Co.:
5.95% 2008 16,000 17,103
6.75% 2012 3,000 3,201 .07
Packaging Corp. of America: (2)
4.375% 2008 9,250 9,115
5.75% 2013 7,500 7,308 .05
SCA Coordination Center NV 4.50% 2015 (2) 5,000 4,565 .02
Pindo Deli Finance Mauritius Ltd. 10.25% 2002 (9) 4,000 1,050 .00
189,887 .62
SPECIALTY RETAIL - 0.60%
Gap, Inc.:
9.90% 2005 (5) 38,100 42,101
6.90% 2007 26,360 27,876
10.55% 2008 (5) 67,455 80,103 .49
Office Depot, Inc. 10.00% 2008 10,325 11,925 .04
Staples, Inc. 7.375% 2012 9,000 10,025 .03
Toys "R" Us, Inc.:
7.625% 2011 5,000 5,012
7.875% 2013 4,000 4,005 .03
Payless ShoeSource, Inc. 8.25% 2013 (2) 2,500 2,456 .01
183,503 .60
HEALTH CARE PROVIDERS & SERVICES - 0.60%
Columbia/HCA Healthcare Corp.:
6.87% 2003 10,575 10,624
7.15% 2004 5,000 5,112
6.91% 2005 33,085 34,663
7.00% 2007 6,250 6,571
8.85% 2007 12,500 13,892
7.25% 2008 1,000 1,059
8.70% 2010 9,500 10,276
HCA - The Healthcare Co.:
8.75% 2010 7,750 8,439
7.875% 2011 10,000 10,477
HCA Inc.:
7.125% 2006 4,750 5,053
6.95% 2012 5,000 4,991
6.25% 2013 2,900 2,750 .37
Aetna Inc.:
7.375% 2006 25,000 27,659
7.875% 2011 15,625 18,059 .15
Humana Inc.:
7.25% 2006 13,375 14,644
6.30% 2018 2,500 2,498 .06
Integrated Health Services, Inc.: (3) (6)
10.25% 2006 (5) 16,900 380
Series A, 9.50% 2007 87,095 1,960
Series A, 9.25% 2008 68,298 1,537 .01
Tenet Healthcare Corp. 5.00% 2007 2,000 1,860 .01
182,504 .60
FOOD & STAPLES RETAILING - 0.55%
Delhaize America, Inc.:
7.375% 2006 29,985 30,885
8.125% 2011 26,510 27,637
9.00% 2031 15,650 16,393 .25
Ahold Finance U.S.A., Inc.:
6.25% 2009 35,840 32,704
8.25% 2010 24,845 24,597
Ahold Lease Pass Through Trust: (10)
Series 2001-A-1, 7.82% 2020 2,955 2,750
Series 2001-A-2, 8.62% 2025 9,155 8,566 .22
SUPERVALU INC. 7.50% 2012 13,185 14,370 .05
Kroger Co. 6.20% 2012 5,000 5,223 .02
Pathmark Stores, Inc. 8.75% 2012 4,125 4,146 .01
167,271 .55
REAL ESTATE - 0.53%
Rouse Co.:
8.00% 2009 3,000 3,444
7.20% 2012 20,250 22,011 .08
EOP Operating LP:
7.75% 2007 5,000 5,721
8.10% 2010 6,500 7,691
7.00% 2011 5,000 5,548
6.75% 2012 4,750 5,177 .08
United Dominion Realty Trust, Series E, 4.50% 2008 20,000 19,708 .07
ProLogis Trust 7.05% 2006 12,000 13,454 .04
Simon Property Group, LP:
4.875% 2010 (2) 6,375 6,345
6.35% 2012 5,000 5,236 .04
FelCor Suites LP 7.375% 2004 10,750 10,965
FelCor Lodging LP 8.50% 2011 375 383 .04
Federal Realty Investment Trust 6.125% 2007 10,000 10,372 .03
Hospitality Properties Trust 6.75% 2013 9,950 9,892 .03
Duke Realty LP 4.625% 2013 10,000 9,288 .03
Host Marriott, LP:
Series E, 8.375% 2006 4,321 4,418
Series I, 9.50% 2007 1,500 1,598
HMH Properties, Inc., Series B, 7.875% 2008 1,350 1,353 .03
Developers Divers Realty 4.625% 2010 (2) 7,170 6,859 .02
Irvine Co., Class A, 7.46% 2006 (2) (3) 5,000 5,380 .02
Boston Properties, Inc. 6.25% 2013 4,000 4,114 .01
Kimco Realty Corp. 6.00% 2012 3,250 3,355 .01
162,312 .53
MULTILINE RETAIL - 0.44%
J.C. Penney Co., Inc.:
7.60% 2007 8,250 8,415
8.00% 2010 23,750 24,225
7.95% 2017 40,275 39,268
8.25% 2022 (10) 6,000 5,760
8.125% 2027 3,000 2,805
7.40% 2037 9,375 9,609
7.625% 2097 4,500 3,780 .31
Target Corp.:
3.375% 2008 2,500 2,474
5.375% 2009 14,000 14,876 .05
Mercantile Stores Company, Inc. 8.20% 2022 (10) 7,900 7,308
Dillard Department Stores, Inc.:
7.15% 2007 1,000 978
7.875% 2023 2,875 2,548
Dillard's, Inc.:
6.43% 2004 1,000 1,010
6.69% 2007 625 603
7.00% 2028 1,000 805 .04
Federated Department Stores, Inc. 6.30% 2009 5,000 5,407 .02
ShopKo Stores, Inc. 6.50% 2003 2,850 2,850 .01
Saks Inc. 7.375% 2019 2,650 2,478 .01
135,199 .44
COMMUNICATIONS EQUIPMENT - 0.38%
Motorola, Inc.:
6.75% 2006 19,000 20,378
8.00% 2011 51,485 58,435
7.50% 2025 5,000 5,163
6.50% 2028 655 617
5.22% 2097 14,506 10,771 .31
Nortel Networks Ltd. 6.125% 2006 21,000 20,160 .07
115,524 .38
INDUSTRIAL CONGLOMERATES - 0.37%
Tyco International Group SA:
6.375% 2005 5,750 5,951
6.125% 2008 15,000 15,000
6.125% 2009 1,000 1,000
6.375% 2011 36,430 36,248 .19
Hutchison Whampoa International Ltd.: (2)
7.00% 2011 5,000 5,315
6.50% 2013 21,000 20,970
Hutchison Whampoa Finance Ltd., Series B, 7.45% 2017 (2) 6,750 6,991 .11
General Electric Capital Corp., Series A:
5.375% 2007 8,000 8,586
6.00% 2012 8,000 8,430
General Electric Co. 5.00% 2013 5,000 4,902 .07
113,393 .37
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.36%
Sanmina-SCI Corp. 10.375% 2010 (2) 35,500 40,115 .13
Solectron Corp.:
Series B, 7.375% 2006 5,450 5,477
9.625% 2009 27,775 29,233 .12
Jabil Circuit, Inc. 5.875% 2010 22,500 22,114 .07
Flextronics International Ltd. 9.875% 2010 10,120 11,587 .04
108,526 .36
HOUSEHOLD DURABLES - 0.33%
MDC Holdings, Inc.:
7.00% 2012 10,975 11,592
5.50% 2013 19,375 18,410 .10
Pulte Homes, Inc.:
7.875% 2011 2,260 2,587
7.625% 2017 11,490 12,838 .05
Centex Corp. 4.75% 2008 11,575 11,805 .04
K. Hovnanian Enterprises, Inc.:
10.50% 2007 8,000 9,240
7.75% 2013 (2) 2,500 2,538 .04
Toll Brothers, Inc. 6.875% 2012 (2) 8,000 8,624 .03
D.R. Horton, Inc.:
7.50% 2007 5,000 5,300
8.00% 2009 2,600 2,808 .02
Boyds Collection, Ltd., Series B, 9.00% 2008 7,382 7,382 .02
Ryland Group, Inc. 8.00% 2006 5,000 5,375 .02
Lennar Corp., Series B, 9.95% 2010 2,331 2,714 .01
Salton/Maxim Housewares, Inc. 10.75% 2005 1,125 1,119 .00
102,332 .33
IT SERVICES - 0.33%
Electronic Data Systems Corp.:
7.125% 2009 2,905 3,069
6.00% 2013 (2) 102,500 96,073 .32
Iron Mountain Inc. 7.75% 2015 1,750 1,768 .01
100,910 .33
METALS & MINING - 0.28%
Oregon Steel Mills, Inc. 10.00% 2009 28,650 21,488 .07
AK Steel Corp.:
7.875% 2009 2,000 1,500
7.75% 2012 14,310 10,375 .04
BHP Finance Ltd. 6.75% 2013 10,000 11,219 .04
Corporacion Nacional del Cobre de Chile 6.375% 2012 (2) 10,500 10,975 .04
Allegheny Technologies, Inc. 8.375% 2011 10,500 10,133 .03
United States Steel Corp. 9.75% 2010 5,000 4,825 .02
Inco Ltd. 7.75% 2012 4,000 4,456 .01
Gerdau Ameristeel Corp. 10.375% 2011 (2) 3,500 3,378 .01
Freeport-McMoRan Copper & Gold Inc. 10.125% 2010 3,000 3,338 .01
Earle M. Jorgensen Co. 9.75% 2012 2,000 2,113 .01
Luscar Coal Ltd. 9.75% 2011 1,500 1,703 .00
Kaiser Aluminum & Chemical Corp. 12.75% 2003 (9) 9,500 760 .00
86,263 .28
CHEMICALS - 0.23%
Lyondell Chemical Co.:
9.50% 2008 (2) 44,675 42,665
10.875% 2009 6,860 6,346
11.125% 2012 8,935 9,002
10.50% 2013 (2) 6,125 6,033 .21
Dow Chemical Co. 5.00% 2007 5,000 5,152 .02
69,198 .23
CONTAINERS & PACKAGING - 0.18%
Owens-Brockway Glass Container Inc.:
8.875% 2009 14,975 15,724
7.75% 2011 (2) 8,500 8,628
8.75% 2012 6,000 6,360
Owens-Illinois, Inc.:
8.10% 2007 750 754
7.50% 2010 750 720 .11
Jefferson Smurfit Corp. (U.S.) 7.50% 2013 (2) 6,875 6,806
Stone Container Corp. 9.25% 2008 3,350 3,534 .03
Temple-Inland Inc. 7.875% 2012 5,000 5,599 .02
Smurfit Capital Funding PLC 6.75% 2005 3,175 3,262 .01
Ball Corp. 6.875% 2012 2,500 2,513 .01
53,900 .18
OFFICE ELECTRONICS - 0.17%
Xerox Capital (Europe) PLC 5.875% 2004 26,000 26,260
Xerox Corp.:
7.15% 2004 13,500 13,703
7.125% 2010 12,000 11,490 .17
51,453 .17
AUTO COMPONENTS - 0.16%
ArvinMeritor, Inc.:
6.625% 2007 8,750 8,553
8.75% 2012 4,225 4,373
Meritor Automotive, Inc. 6.80% 2009 11,500 11,098 .08
TRW Automotive Acquisition Corp.: (2)
9.375% 2013 11,750 12,866
11.00% 2013 625 697 .04
Lear Corp., Series B, 8.11% 2009 7,480 8,509 .03
Stoneridge, Inc. 11.50% 2012 2,825 3,178 .01
49,274 .16
THRIFTS & MORTGAGE FINANCE - 0.13%
Washington Mutual, Inc.:
5.625% 2007 6,500 7,027
4.375% 2008 20,500 20,966
Dime Capital Trust I, Dime Bancorp, Inc., Series A, 9.33% 2027 9,425 10,604 .13
38,597 .13
DIVERSIFIED FINANCIAL SERVICES - 0.11%
CIT Group Inc.:
5.50% 2007 2,885 3,048
5.75% 2007 3,500 3,726
6.875% 2009 16,500 18,191
7.75% 2012 4,000 4,566 .10
Citigroup Inc. 3.50% 2008 5,000 4,939 .01
34,470 .11
AEROSPACE & DEFENSE - 0.11%
BAE SYSTEMS 2001 Asset Trust, Series 2001: (2) (10)
Class B, 7.156% 2011 26,632 28,704
Class G, MBIA insured, 6.664% 2013 4,627 5,179 .11
33,883 .11
OTHER INDUSTRIES - 0.59%
Northwest Airlines, Inc.:
8.875% 2006 2,200 1,661
9.875% 2007 27,150 20,498
7.875% 2008 2,000 1,450 .08
NiSource Finance Corp.:
7.625% 2005 9,000 9,947
7.875% 2010 5,000 5,768
6.15% 2013 2,500 2,581 .06
American Standard Inc.:
7.375% 2008 4,935 5,391
8.25% 2009 3,169 3,613
7.625% 2010 4,976 5,536 .05
John Deere Capital Corp. 3.90% 2008 14,000 14,075 .05
Caterpillar Financial Services Corp.:
Series F, 2.35% 2006 5,000 4,947
2.70% 2008 4,000 3,814 .03
Nabisco, Inc. 7.55% 2015 6,595 7,596
Kraft Foods Inc. 6.25% 2012 945 991 .03
TFM, SA de CV:
10.25% 2007 1,150 1,187
11.75% 2009 2,675 2,735
12.50% 2012 4,165 4,571 .03
Burns Philp Capital Pty Ltd.: (2)
9.50% 2010 3,000 3,120
9.75% 2012 5,250 5,224 .03
TGT Pipeline, LLC 5.20% 2018 (2) 6,000 5,458
Texas Gas Transmission, LLC 4.60% 2015 (2) 2,480 2,277 .02
Levi Strauss & Co. 12.25% 2012 9,000 7,650 .02
Continental Airlines, Inc.:
8.00% 2005 5,010 4,509
MBIA insured, 2.158% 2009 (2) (5) 2,000 2,007 .02
Fairchild Semiconductor Corp. 10.50% 2009 5,600 6,188 .02
Kansas City Southern Railway Co. 7.50% 2009 5,750 5,980 .02
RailAmerica Transportation Corp. 12.875% 2010 5,000 5,575 .02
Technical Olympic USA, Inc. 9.00% 2010 5,000 5,325 .02
ON Semiconductor Corp. 13.00% 2008 (5) 5,000 5,175 .02
Kellogg Co.:
6.00% 2006 3,000 3,256
6.60% 2011 1,250 1,386 .01
State of California Dept. of Water Resources, Power Supply Revenue Bonds,
Series 2002-E, 4.33% 2006 4,500 4,621 .01
Hyundai Semiconductor America, Inc. 8.625% 2007 (2) 4,860 3,888 .01
AGCO Corp. 9.50% 2008 3,500 3,815 .01
Terex Corp.:
9.25% 2011 1,000 1,060
Class B, 10.375% 2011 2,000 2,170 .01
Del Monte Corp. 8.625% 2012 (2) 2,000 2,090 .01
Amkor Technology, Inc.:
9.25% 2008 235 250
7.75% 2013 (2) 1,765 1,708 .01
Micron Technology, Inc. 6.50% 2005 (2) 1,000 975 .00
United Air Lines, Inc. 9.00% 2003 (6) 8,000 650 .00
Jet Equipment Trust, Series 1995-B, 10.91% 2014 (2) (6) 4,750 48 .00
180,766 .59
COLLATERALIZED MORTGAGE-/ASSET-BACKED OBLIGATIONS (10) - 2.15%
Green Tree Financial Corp.:
Series 1993-2, Class B, 8.00% 2018 14,000 12,358
Series 1995-4, Class B-2, 7.70% 2025 (6) 1,900 893
Series 1995-3, Class B-2, 8.10% 2025 (6) 16,121 7,577
Series 1995-2, Class B-2, 8.80% 2026 (6) 11,457 5,385
Series 1996-2, Class B-2, 7.90% 2027 (6) 12,950 1,554
Series 1996-10, Class B-2, 7.74% 2028 (6) 8,369 1,004
Series 1997-8, Class B-2, 7.75% 2028 (6) 6,393 767
Series 1997-1, Class B-2, 7.76% 2028 (6) 9,781 1,174
Series 1997-2, Class B-2, 8.05% 2028 (6) 3,280 394
Series 1997-6, Class B-2, 7.75% 2029 (6) 10,611 1,273
Series 1998-3, Class B-2, 8.07% 2030 (6) 4,723 685
Series 1998-4, Class B-2, 8.11% 2030 (6) 6,470 938
Conseco Finance Home Loan Trust, Series 1999-G, Class B-2, 10.96% 2029 (6) 18,188 9,196
Conseco Finance Home Equity Loan Trust:
Series 2000-F, Class AF-4, 7.67% 2026 4,750 4,967
Series 2000-A, Class BV-2, 3.907% 2031 (5) 3,576 2,861 .17
CS First Boston Mortgage Securities Corp.:
Series 2001-CK6, Class A-1, 4.393% 2006 2,852 2,950
Series 2003-AR20, Class 2A2, 4.45% 2033 (5) 10,000 10,012
Series 2001-CF2, Class A-2, 5.935% 2034 8,635 9,253
Series 2001-CF2, Class A-3, 6.238% 2034 6,000 6,512
Series 1998-C1, Class A-1A, 6.26% 2040 7,551 7,981 .12
Metris Master Trust: (5)
Series 2001-1, Class A, 1.32% 2007 4,250 4,194
Series 2001-1, Class B, 1.90% 2007 6,000 5,953
Series 2001-4, Class B, 2.50% 2008 3,000 2,640
Series 2000-3, Class A, 1.36% 2009 14,428 13,683
Series 2001-2, Class A, 1.42% 2009 3,500 3,293 .10
WaMu Mortgage Pass-Through Certificates Trust: (5)
Series 2003-AR3, Class A-2, 2.828% 2033 3,500 3,514
Series 2003-AR8, Class A, 4.03% 2033 10,000 10,050
Series 2003-AR6, Class A-1, 4.39% 2033 9,719 9,615
Series 2003-AR1, Class A-6, 4.56% 2033 4,049 4,086 .09
MMCA Auto Owner Trust:
Series 2002-1, Class A-3, 4.15% 2006 3,828 3,846
Series 2001-4, Class B, 4.84% 2008 6,389 6,373
Series 2002-4, Class A-4, 3.05% 2009 5,000 4,902
Series 2002-4, Class B, 3.82% 2009 9,226 8,919 .08
Banc of America Mortgage Securities Trust, Inc., Class 2-A-1:
Series 2003-G, 4.088% 2033 (5) 10,000 10,013
Series 2003-D, 4.183% 2033 13,150 13,167 .08
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 2026 (2) 21,198 21,530 .07
GS Mortgage Securities Corp. II, Series 1998-C1, Class D, 7.209% 2030 (5) 20,000 21,262 .07
Merrill Lynch Mortgage Investors, Inc.:
Series 1995-C3, Class A-3, 7.121% 2025 (5) 5,393 5,583
Series 1999-C1, Class A-2, 7.56% 2031 11,750 13,292 .06
GMAC Commercial Mortgage Securities, Inc., Series 1997-C2, Class E, 7.624%
2029 (5) 20,750 17,841 .06
Bear Stearns Commercial Mortgage Securities Inc.:
Series 2002-HOME, Class A, 1.72% 2013 (2) (5) 4,420 4,410
Series 1999-C1, Class X, interest only, 1.037% 2031 (2) (5) 83,074 4,289
Series 2001-TOP2, Class A-2, 6.48% 2035 7,665 8,392 .06
AESOP Funding II LLC, Class A-1: (2)
Series 2002-A, AMBAC insured, 3.85% 2006 7,925 8,126
Series 2003-2, MBIA insured, 2.74% 2007 8,000 7,946 .05
CHL Mortgage Pass-Through Trust, Series 2003-27, Class A-1, 3.857% 2033 (5) 15,360 15,360 .05
AmSouth Auto Trust, Series 2000-1, Class C, 7.44% 2007 14,260 14,822 .05
First Union-Lehman Brothers-Bank of America Commercial Mortgage Trust, Series
1998-C2, Class A-1, 6.28% 2035 13,173 13,933 .04
CPS Auto Receivables Trust, Series 2002-C, Class A-2, XLCA insured, 3.52%
2009 (2) 12,373 12,485 .04
PRIME Capital Hurricane Ltd. 7.61% 2004 (2) (5) 12,500 12,349 .04
Delta Air Lines, Inc.:
Series 2003-1, Class G, AMBAC insured, 1.86% 2009 (2) (5) 3,217 3,238
Series 2001-1, Class A-2, 7.111% 2013 5,000 4,859
Series 1992-A2, 9.20% 2014 5,000 3,650 .04
Chase Commercial Mortgage Securities Corp., Series 1998-1:
Class A-1, 6.34% 2030 2,451 2,568
Class A-2, 6.56% 2030 8,000 8,821 .04
Residential Asset Securities Corp. Trust:
Series 2003-KS2, Class A-I-3, 2.66% 2028 1,400 1,385
Series 2003-KS6, Class A-2, 1.40% 2033 (5) 10,000 10,000 .04
MBNA Master Credit Card Trust II:
Series 1999-D, Class C, 6.95% 2008 (2) 4,700 5,115
Series 2000-H, Class B, 1.707% 2013 (5) 5,000 5,023 .03
Consumer Credit Reference Index Securities Program Trust, Series 2002-2A: (2)
6.148% 2007 (5) 5,000 4,937
Class FX, 10.421% 2007 5,000 5,137 .03
Morgan Stanley Capital I, Inc.:
Series 2003-KIDS, Class A, 1.78% 2016 (2) (5) 5,000 5,000
Series 1998-WF2, Class A-1, 6.34% 2030 4,280 4,553 .03
Mediterranean Re PLC 7.14% 2005 (2) (5) 9,000 9,090 .03
Ameriquest Mortgage Securities Inc., Asset-backed Pass-Through Certificates,
Series 2003-5, Class A-2, 2.43% 2033 9,000 9,004 .03
Banco Itau SA, Series 2002, XLCA insured, 1.94% 2007 (2) (5) 9,050 8,982 .03
First USA Credit Card Master Trust, Class C: (2)
Series 1997-4, 2.101% 2010 (5) 6,500 6,402
Series 1998-6, 6.16% 2011 2,000 2,095 .03
Financial Pacific Funding, Class A, FSA insured, 2.29% 2009 (2) 8,339 8,316 .03
WFS Financial Owner Trust, Series 2002-3, Class A-4, 3.50% 2010 8,000 8,159 .03
Continental Airlines, Inc.:
Series 2000-1, Class C-1, 8.499% 2012 4,428 3,100
Series 2001-1, Class B, 7.373% 2017 6,000 4,590 .03
California Infrastructure and Economic Development Bank, Special Purpose Trust,
PG&E-1, Series 1997-1, Class A-7, 6.42% 2008 6,500 6,972 .02
PNC Mortgage Securities Corp., Series 1998-10, Class 1-B1, 6.50% 2028 (2) 6,577 6,750 .02
Residential Reinsurance: (2) (5)
2001 Ltd. 6.27% 2004 6,000 6,021
2002 Ltd. 6.18% 2005 500 500 .02
Deutsche Mortgage & Asset Receiving Corp., Series 1998-C1, Class A-1, 6.22% 2031 6,168 6,271 .02
Bear Stearns ARM Trust, Series 2003-3, Class II-A-2, 4.238% 2033 (5) 6,069 6,095 .02
Morgan Stanley Dean Witter Capital I Trust, Class A-1:
Series 2002-HQ, 4.59% 2034 3,059 3,182
Series 2003-TOP9, 3.98% 2036 2,948 2,909 .02
Tobacco Settlement Financing Corp.,Tobacco Settlement Asset-Backed Bonds,
Series 2001-A, 6.36% 2025 6,326 6,058 .02
Pass-through Amortizing Credit Card Trusts, Series 2002-1: (2)
Class A-2FX, 4.685% 2012 3,589 3,631
Class A-3FX, 6.298% 2012 2,393 2,418 .02
PIONEER 2002 Ltd., Class D Series, 2.838% 2006 (2) (5) 6,000 6,000 .02
America West Airlines, Inc., Series 2000-1, Class G, AMBAC insured, 8.057% 2022 5,386 5,621 .02
Centex Home Equity Loan Trust, Series 2003-A, Class AF-3, 2.708% 2026 5,600 5,569 .02
SeaWest Securitization, LLC, Series 2002-A, XLCA insured: (2)
Class A-2, 2.58% 2008 2,500 2,512
Class A-3, 3.58% 2008 3,000 3,040 .02
Salomon Brothers Commercial Mortgage Trust, Series 2000-C1, Class A-1,
7.46% 2008 4,891 5,449 .02
GE Capital Commercial Mortgage Corp., Series 2001-1, Class A-1, 6.079% 2033 4,876 5,214 .02
Drivetime Auto Owner Trust, Series 2003-A, Class A-3, XLCA insured, 2.524%
2008 (2) 5,000 5,034 .02
AmeriCredit Automobile Receivables Trust, Series 2002-C, Class A-4, FSA
insured, 3.55% 2009 5,000 5,012 .02
SLM Private Credit Student Loan Trust, Series 2002-A, Class A-2, 1.669% 2030 (5) 5,000 4,988 .02
Rental Car Finance Corp.: (2)
Series 1997-1, Class C-2, 2.05% 2005 (5) 2,000 2,001
Series 1999-1A, Class D, 7.10% 2007 2,500 2,541 .01
Chevy Chase Auto Receivables Trust, Series 2001-2, Class B, 5.16% 2008 4,332 4,477 .01
Educational Enhancement Funding Corp. Tobacco Settlement Bonds, Series 2002-A,
6.72% 2025 4,752 4,408 .01
Structured Asset Securities Corp.: (2) (5)
Series 1998-RF2, Class A, 8.498% 2027 959 1,057
Series 1998-RF1, Class A, 8.688% 2027 759 837
Series 1999-BC1, Class M2, 2.40% 2029 2,296 2,302 .01
Metropolitan Asset Funding, Inc., Series 1998-A, Class B-1, 7.728% 2014 (2) 4,669 4,109 .01
Madison Avenue Manufactured Housing Contract Trust, Series 2002-A, Class M-1,
2.55% 2032 (5) 4,000 4,000 .01
Residential Funding Mortgage Securities I, Inc., Series 1998-S17, Class M-1,
6.75% 2028 3,764 3,762 .01
Providian Master Trust, Series 2000-1, Class C, 2.257% 2009 (2) (5) 4,000 3,735 .01
First Nationwide Trust, Series 1999-2, Class 1PA-1, 6.50% 2029 3,384 3,398 .01
Jet Equipment Trust: (2) (6)
Series 1995-B, Class A, 7.63% 2015 3,222 1,128
Series 1995-A, Class B, 8.64% 2015 7,790 1,013
Series 1995-B, Class C, 9.71% 2015 5,500 495
Series 1995-A, Class C, 10.69% 2015 5,000 500 .01
Capital One Master Trust, Series 1999-1, Class C, 6.60% 2007 (2) 2,500 2,576 .01
Santa Barbara Bank & Trust Automobile Loan Securitization Corp., Series 2001-A,
Class A, 6.13% 2007 (2) 2,507 2,541 .01
Amercan Airlines, Series 2003-1, AMBAC insured, 3.857% 2010 2,500 2,400 .01
Nebhelp Trust, Student Loan Interest Margin Securities, Series 1998-1, Class A,
MBIA insured, 6.68% 2016 (2) 2,245 2,335 .01
United Air Lines, Inc., Series 1996-A2, 7.87% 2019 (6) 5,000 1,847 .01
Security National Mortgage Loan Trust, Series 2001-3A, Class A-2, 5.37% 2014 (2) 1,680 1,726 .01
Financial Asset Securitization, Inc., Series 1997-NAM1, Class B-1, 7.75% 2027 1,626 1,626 .00
PECO Energy Transition Trust, Series 1999-A, Class A-7, 6.13% 2009 1,250 1,372 .00
Nextcard Credit Card Master Note Trust, Series 2001-1A, Class A, 1.407% 2007 (2)
(5) 1,029 967 .00
Northwest Airlines, Inc., Series 1999-3, Class G, 7.935% 2020 898 956 .00
NPF XII, Inc.: (2) (3) (6)
Series 1999-3, Class B, 2.39% 2003 (5) 3,000 30
Series 2001-1A, Class A, 1.99% 2004 (5) 5,000 600
Series 2001-3, Class A, 5.52% 2007 1,000 120 .00
655,731 2.15
FEDERAL AGENCY OBLIGATIONS: MORTGAGE PASS-THROUGHS (10) - 1.68%
Fannie Mae:
3.82% 2033 (5) 10,000 9,994
4.50% 2018 20,000 19,472
5.00% 2018 72,691 72,691
5.50% 2016 - 2033 53,935 54,744
6.00% 2016 - 2032 34,309 34,982
6.50% 2031 - 2032 25,711 26,516
7.00% 2016 - 2031 11,876 12,490
7.50% 2023 - 2031 2,894 3,080
8.00% 2024 704 765
9.00% 2010 880 958
9.50% 2022 1,098 1,233
10.00% 2018 - 2025 2,119 2,452 .78
Government National Mortgage Assn.:
5.00% 2033 90,860 86,672
5.50% 2017 10,890 11,215
7.00% 2022 - 2031 10,354 10,934
7.50% 2017 - 2030 23,968 25,567
8.00% 2017 - 2023 3,705 4,016
8.50% 2017 - 2021 1,103 1,206
9.00% 2016 186 207
9.50% 2009 - 2021 2,199 2,448
10.00% 2020 - 2025 14,672 17,073 .52
Freddie Mac:
5.00% 2018 - 2033 60,000 58,784
5.50% 2018 - 2033 40,692 40,640
6.00% 2032 11,977 12,137
8.50% 2008 - 2010 973 1,049
9.00% 2007 522 553
11.00% 2018 986 1,146 .38
513,024 1.68
FEDERAL AGENCY OBLIGATIONS: COLLATERALIZED MORTGAGE OBLIGATIONS (10) - 0.20%
Fannie Mae:
Series 2002-W7, Class A-2, 4.80% 2022 13,000 13,126
Series 2001-4, Class GA, 10.147% 2025 (5) 3,442 3,877
Series 2001-4, Class NA, 11.768% 2025 (5) 310 359
Series 2002-W3, Class A-5, 7.50% 2028 3,578 3,940
Series 2001-20, Class E, 9.60% 2031 (5) 3,584 3,932
Series 2001-50, Class BA, 7.00% 2041 6,881 7,264
Series 2001-T10, Class A-1, 7.00% 2041 4,331 4,694
Series 2002-W1, Class 2A, 7.50% 2042 7,997 8,806 .15
Freddie Mac:
Series SF2, Class GC, 2.64% 2009 5,000 4,838
Series 178, Class Z, 9.25% 2021 439 440
Series 2289, Class NB, 11.219% 2022 (5) 815 908
Series T-056, Class A-2A, 2.842% 2036 8,740 8,633 .05
60,817 .20
OTHER FEDERAL AGENCY OBLIGATIONS - 0.36%
Freddie Mac 4.25% 2005 75,000 78,164 .26
Federal Home Loan Bank 4.125% 2004 16,460 16,991 .05
Fannie Mae:
4.75% 2007 12,000 12,353
7.25% 2030 3,250 3,755 .05
111,263 .36
GOVERNMENT & GOVERNMENTAL AUTHORITIES (EXCLUDING U.S.) - 0.33%
United Mexican States Government Eurobonds, Global:
4.625% 2008 10,000 9,950
8.625% 2008 5,000 5,888
8.375% 2011 3,000 3,413
7.50% 2012 4,310 4,628
6.375% 2013 7,500 7,414
11.375% 2016 29,684 39,999
8.125% 2019 4,580 4,798
8.30% 2031 1,965 2,053 .26
State of Qatar 9.75% 2030 7,000 9,153 .03
Russian Federation 5.00% 2030 (5) 4,770 4,263 .01
Brazil (Federal Republic of), Debt Conversion Bond, Series L, Bearer, 2.188%
2012 (5) 5,000 3,825 .01
Dominican Republic 9.50% 2006 (2) 2,135 2,140 .01
Banque Centrale de Tunisie 7.375% 2012 1,500 1,646 .01
El Salvador (Republic of) 7.75% 2023 (2) 1,250 1,247 .00
Panama (Republic of) Interest Reduction Bond 1.938% 2014 (5) 49 44 .00
100,461 .33
DEVELOPMENT AUTHORITIES - 0.01%
Corporacion Andina de Fomento 6.875% 2012 4,000 4,294 .01
4,294 .01
U.S. TREASURY NOTES & BONDS - 3.99%
7.25% May 2004 150,000 157,055
6.75% May 2005 410,000 446,388
5.75% November 2005 239,500 259,632
3.375% January 2007 (11) 37,643 40,521
4.375% May 2007 50,000 52,797
3.25% August 2007 35,000 35,421
3.625% January 2008 (11) 124,949 136,521
6.00% August 2009 29,000 32,570
10.00% May 2010 20,000 22,866
3.50% January 2011 (11) 21,088 22,980
8.875% August 2017 10,025 13,852 3.99
1,220,603 3.99
MISCELLANEOUS - 0.14%
Other bonds & notes in initial period of acquisition 42,897 .14
Total bonds & notes (cost: $9,890,930,000) 9,747,427 31.90
Principal Market Percent
amount value of net
Short-term securities (000) (000) assets
CORPORATE SHORT-TERM NOTES - 2.45%
Edison Asset Securitization LLC 1.00%-1.14% due 8/8-9/8/2003 (2) $ 100,000 $ 99,938 .33
Ciesco LP 1.11% due 8/4/2003 (12) 45,000 44,995
Citicorp 1.01% due 9/17/2003 50,000 49,931 .31
E.I. DuPont de Nemours & Co. 0.96%-1.00% due 8/11-9/16/2003 (12) 75,000 74,926 .25
Triple-A One Funding Corp. 1.03%-1.23% due 8/1-8/27/2003 (2) 72,728 72,703 .24
Receivables Capital Corp. 1.02%-1.03% due 8/4-8/15/2003 (2) 70,000 69,980 .23
Pfizer Inc 0.98%-1.00% due 8/20-9/8/2003 (2) 61,700 61,650 .20
J.P. Morgan Chase & Co. 1.02% due 9/9/2003 50,000 49,942 .16
Verizon Network Funding Corp. 0.98% due 8/14/2003 49,000 48,981 .16
Preferred Receivables Funding Corp. 1.02%-1.03% due 8/11-8/14/2003 (2) 48,000 47,983 .16
Procter & Gamble Co. 0.99% due 8/5/2003 (2) 30,000 29,996 .10
Harvard University 1.19% due 8/6/2003 25,000 24,995 .08
Netjets Inc. 1.12% due 8/12/2003 (2) 25,000 24,991 .08
FCAR Owner Trust I 1.03% due 9/15/2003 25,000 24,966 .08
Merck & Co. Inc. 0.95% due 8/21/2003 22,000 21,988 .07
747,965 2.45
Federal agency discount notes - 1.57%
Federal Home Loan Bank 0.94%-1.14% due 8/5-10/3/2003 (12) 249,400 249,083 .81
Fannie Mae 0.94%-1.175% due 8/6-10/1/2003 (12) 201,172 200,962 .66
Freddie Mac 0.995% due 10/9/2003 30,000 29,938 .10
479,983 1.57
U.S. Treasuries - 0.72%
U.S. Treasury Bills 0.80%-1.00% due 9/4-11/6/2003 (12) 220,600 220,275 .72
220,275 .72
CERTIFICATES OF DEPOSIT - 0.23%
Wells Fargo & Co. 1.02%-1.03% due 9/2-9/15/2003 70,000 70,000 .23
70,000 .23
TOTAL SHORT-TERM SECURITIES (cost: $1,518,247,000) 1,518,223 4.97
TOTAL INVESTMENT SECURITIES (cost: $29,659,948,000) 30,633,033 100.24
New Taiwanese Dollar (cost: $3,006,000) NT$ 105,104 3,062 .01
Other assets less liabilities (77,526) (.25)
NET ASSETS $30,558,569 100.00%
(1) Security did not produce income during last 12 months.
(2) Purchased in a private placement transaction; resale may be
limited to qualified institutional buyers; resale to the public
may require registration.
(3) Valued under fair value procedures adopted by authority of the Board of
Directors.
(4) Payment in kind; the issuer has the option of paying additional
securities in lieu of cash.
(5) Coupon rate may change periodically.
(6) Company not making scheduled interest payments;
bankruptcy proceedings pending.
(7) The fund owns 11.56% and 7.37% of the outstanding voting securities of
Wilshire Financial Services Group Inc. and Clarent Hospital, respectively,
and thus is considered an affiliate of these companies under the Investment
Company Act of 1940.
(8) Step bond; coupon rate will increase at a later date.
(9) Company did not make principal payment upon scheduled maturity date;
reorganization pending.
(10) Pass-through securities backed by a pool of
mortgages or other loans on which principal payments are
periodically made. Therefore, the effective maturities
are shorter than the stated maturities.
(11) Index-linked bond whose principal amount moves with a government
retail price index.
(12) This security, or a portion of this security, has been segregated to cover
funding requirements on investment transactions settling in the future.
ADR = American Depositary Receipts
See Notes to Financial Statements
EQUITY SECURITIES ADDED EQUITY SECURITIES ELIMINATED
SINCE JANUARY 31, 2003 SINCE JANUARY 31, 2003
ACE Amkor Technologies
Alcoa Australian Stock Exchange
Arthur J. Gallagher BANK ONE
AstraZeneca British Airways
Baxter Burr-Brown
Brascan Gillette
Chubb Kerr-McGee
Cooper Industries Kinder Morgan Energy
Developers Diversified Realty Koninklijke Ahold
Elan National City
Emerson Electric NRG Energy
FleetBoston Financial OGE Energy
Fortis PACCAR
Hewlett-Packard Pharmacia
Irish Life & Permanent Qwest Trends
iStar Semtech
Kansas City Southern Thermo Electron
Kinder Morgan TriQuint Semiconductor
Lion Nathan Volkswagen
Lyondell Chemical Wells Fargo
Mercury General Xerox
Pentair
PNC Financial Services
Regency Realty
Smiths Group
SpectraSite
St. Paul Companies
Sunoco
UCB
UnumProvident
Volvo
FINANCIAL STATEMENTS
Statement of assets and liabilities
at July 31, 2003
(dollars and shares in thousands, except per-share amounts)
ASSETS:
Investment securities at market:
Unaffiliated issuers (cost: $29,632,436) $30,623,165
Affiliated issuers (cost: $27,512) 9,868 $30,633,033
Cash denominated in non-U.S. currencies
(cost: $3,006) 3,062
Cash 18,167
Receivables for:
Sales of investments 73,535
Sales of fund's shares 140,339
Dividends and interest 223,106 436,980
31,091,242
LIABILITIES:
Payables for:
Purchases of investments 493,187
Repurchases of fund's shares 18,744
Investment advisory services 6,646
Services provided by affiliates 12,781
Deferred Directors' compensation 1,160
Other fees and expenses 155 532,673
NET ASSETS AT JULY 31, 2003 $30,558,569
NET ASSETS CONSIST OF:
Capital paid in on shares of capital stock $29,711,062
Undistributed net investment income 202,562
Accumulated net realized loss (328,439)
Net unrealized appreciation 973,384
NET ASSETS AT JULY 31, 2003 $30,558,569
TOTAL AUTHORIZED CAPITAL STOCK - 3,000,000 SHARES, $.001 PAR VALUE
Share Net asset
Net assets outstanding value per share(1)
Class A $25,891,156 1,677,091 $15.44
Class B 2,014,550 131,173 15.36
Class C 1,849,724 120,580 15.34
Class F 471,191 30,555 15.42
Class 529-A 92,713 6,014 15.42
Class 529-B 27,596 1,796 15.36
Class 529-C 43,651 2,836 15.39
Class 529-E 5,190 337 15.40
Class 529-F 776 50 15.42
Class R-1 2,237 145 15.39
Class R-2 51,567 3,358 15.36
Class R-3 56,496 3,666 15.41
Class R-4 12,249 794 15.43
Class R-5 39,473 2,557 15.44
(1) Maximum offering price and redemption price per share were equal to the
net asset value per share for all share classes, except for classes A and 529-A,
for which the maximum offering prices per share were $16.38 and $16.36, respectively.
See Notes to Financial Statements
Statement of operations
for the year ended July 31, 2003 (dollars in thousands)
INVESTMENT INCOME:
Income:
Interest $768,369
Dividends (net of non-U.S. withholding
tax of $17,620; also includes
$680 from affiliates) 599,837 $1,368,206
Fees and expenses:
Investment advisory services 68,125
Distribution services 76,096
Transfer agent services 17,851
Administrative services 2,993
Reports to shareholders 757
Registration statement and prospectus 1,192
Postage, stationery and supplies 1,862
Directors' compensation 280
Auditing and legal 87
Custodian 1,391
State and local taxes 1
Other 119
Total expenses before reimbursement 170,754
Reimbursement of expenses 85 170,669
Net investment income 1,197,537
NET REALIZED LOSS AND UNREALIZED
APPRECIATION ON INVESTMENTS
AND NON-U.S. CURRENCY:
Net realized loss on:
Investments (317,245)
Non-U.S. currency transactions (1,059) (318,304)
Net unrealized appreciation (depreciation) on:
Investments 2,135,793
Non-U.S. currency translations (185) 2,135,608
Net realized loss and
unrealized appreciation
on investments and non-U.S. currency 1,817,304
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $3,014,841
See Notes to Financial Statements
Statement of changes in net assets (dollars in thousands)
Year ended July 31
2003 2002
OPERATIONS:
Net investment income $1,197,537 $974,829
Net realized (loss) gain on investments and
non-U.S. currency transactions (318,304) 29,524
Net unrealized appreciation (depreciation)
on investments and non-U.S. currency translations 2,135,608 (2,479,293)
Net increase (decrease) in net assets
resulting from operations 3,014,841 (1,474,940)
DIVIDENDS AND DISTRIBUTIONS PAID TO
SHAREHOLDERS:
Dividends from net investment income (1,188,421) (1,050,096)
Distributions from net realized gain
on investments (33,634) (198,717)
Total dividends and distributions paid
to shareholders (1,222,055) (1,248,813)
CAPITAL SHARE TRANSACTIONS 7,542,328 4,062,994
TOTAL INCREASE IN NET ASSETS 9,335,114 1,339,241
NET ASSETS:
Beginning of year 21,223,455 19,884,214
End of year (including
undistributed net investment
income: $202,562 and $195,610,
respectively) $30,558,569 $21,223,455
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - The Income Fund of America, Inc. (the "fund") is registered
under the Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks current income while secondarily striving
for capital growth through investments in stocks and fixed-income securities.
The fund offers 14 share classes consisting of four retail share classes, five
CollegeAmerica savings plan share classes and five retirement plan share
classes. The CollegeAmerica savings plan share classes (529-A, 529-B, 529-C,
529-E and 529-F) are sponsored by the Commonwealth of Virginia and can be
utilized to save for college education. The five retirement plan share classes
(R-1, R-2, R-3, R-4 and R-5) are sold without any sales charges and do not
carry any conversion rights. The fund's share classes are described below:
- ---------------------------------------------------------------------------------------------------------
Share class Initial sales charge Contingent deferred sales Conversion feature
charge upon redemption
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes A and 529-A Up to 5.75% None (except 1% for None
certain redemptions
within one year of
purchase without an
initial sales charge)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes B and 529-B None Declines from 5% to zero Classes B and 529-B convert to
for redemptions within classes A and 529-A,
six years of purchase respectively, after eight years
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class C None 1% for redemptions within Class C converts to Class F
one year of purchase after 10 years
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class 529-C None 1% for redemptions within None
one year of purchase
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class 529-E None None None
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes F and 529-F None None None
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes R-1, R-2, R-3, None None None
R-4 and R-5
- ---------------------------------------------------------------------------------------------------------
Holders of all share classes have equal pro rata rights to assets, dividends
and liquidation. Each share class has identical voting rights, except for the
exclusive right to vote on matters affecting only its class. Share classes have
different fees and expenses ("class-specific fees and expenses"), primarily due
to different arrangements for distribution, administrative and shareholder
services. Differences in class-specific fees and expenses will result in
differences in net investment income and, therefore, the payment of different
per-share dividends by each class.
SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared
to comply with accounting principles generally accepted in the United States of
America. These principles require management to make estimates and assumptions
that affect reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies followed by the fund:
SECURITY VALUATION - Equity securities are valued at the official
closing price of, or the last reported sale price on, the exchange or
market on which such securities are traded, as of the close of
business on the day the securities are being valued or, lacking any
sales, at the last available bid price. Prices for each security are
taken from the principal exchange or market in which the security
trades. Fixed-income securities are valued at prices obtained from an
independent pricing service, when such prices are available. However,
where the investment adviser deems it appropriate, such securities
will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type. Short-term
securities maturing within 60 days are valued at amortized cost, which
approximates market value. The ability of the issuers of the debt
securities held by the fund to meet their obligations may be affected
by economic developments in a specific industry, state or region.
Securities and other assets for which representative market quotations
are not readily available are valued at fair value as determined in
good faith by authority of the fund's Board of Directors.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security
transactions are recorded by the fund as of the date the trades are
executed with brokers. Realized gains and losses from security
transactions are determined based on the specific identified cost of
the securities. In the event a security is purchased with a delayed
payment date, the fund will segregate liquid assets sufficient to meet
its payment obligations. Dividend income is recognized on the
ex-dividend date and interest income is recognized on an accrual basis
Market discounts, premiums and original issue discounts on
fixed-income securities are amortized daily over the expected life of
the security.
CLASS ALLOCATIONS - Income, fees and expenses (other than
class-specific fees and expenses) and realized and unrealized gains
and losses are allocated daily among the various share classes based
on their relative net assets. Class-specific fees and expenses, such
as distribution, administrative and shareholder services, are charged
directly to the respective share class.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and
distributions to shareholders are recorded on the ex-dividend date.
Effective September 15, 2003, dividends to shareholders will be
declared daily from net investment income and will continue to be paid
quarterly. Distributions to shareholders from net realized capital
gains will continue to be recorded on the ex-dividend date.
NON-U.S. CURRENCY TRANSLATION - Assets and liabilities, including
investment securities, denominated in non-U.S. currencies are
translated into U.S. dollars at the exchange rates in effect at the
end of the reporting period. Purchases and sales of investment
securities and income and expenses are translated into U.S. dollars at
the exchange rates on the dates of such transactions. In the
accompanying financial statements, the effects of changes in non-U.S.
exchange rates on investment securities are included with the net
realized gain or loss and net unrealized appreciation or depreciation
on investments. The realized gain or loss and unrealized appreciation
or depreciation resulting from all other transactions denominated in
non-U.S. currencies are disclosed separately.
MORTGAGE DOLLAR ROLLS - The fund may enter into mortgage dollar roll
transactions in which the fund sells a mortgage-backed security to a
counterparty and simultaneously enters into an agreement with the same
counterparty to buy back a similar security on a specific future date
at a predetermined price. Each mortgage dollar roll is treated as a
financing transaction, therefore, any realized gain or loss is
deferred until the roll reaches completion. Risks may arise due to the
delayed payment date and the potential inability of counterparties to
complete the transaction. Income is generated as consideration for
entering into these transactions and is included in interest income
in the accompanying financial statements.
SECURITIES LENDING - The fund may lend portfolio securities from time
to time in order to earn additional income; however, it does not
currently intend to engage in an ongoing or regular securities lending
program. When the fund lends securities, it receives collateral in an
amount not less than 100% of the market value of the loaned securities
throughout the period of the loan. The market value of the loaned
securities is determined at the close of business of the fund and any
additional required collateral is delivered on the next business day.
If the borrower defaults on its obligation to return the securities
loaned, the fund could experience delays and costs in recovering the
securities loaned or in gaining access to the collateral. Income
earned is included in interest income in the accompanying financial
statements.
2. NON-U.S. INVESTMENTS
INVESTMENT RISK - The risks of investing in securities of non-U.S. issuers may
include, but are not limited to, investment and repatriation restrictions;
revaluation of currencies; adverse political, social and economic developments;
government involvement in the private sector; limited and less reliable
investor information; lack of liquidity; certain local tax law considerations;
and limited regulation of the securities markets.
TAXATION - Dividend and interest income is recorded net of non-U.S. taxes paid.
3. FEDERAL INCOME TAXATION AND DISTRIBUTIONS
The fund complies with the requirements under Subchapter M of the Internal
Revenue Code applicable to mutual funds and intends to distribute substantially
all of its net taxable income and net capital gains each year. The fund is not
subject to income taxes to the extent such distributions are made.
DISTRIBUTIONS - Distributions paid to shareholders are based on net investment
income and net realized gains determined on a tax basis, which may differ from
net investment income and net realized gains for financial reporting purposes.
These differences are due primarily to differing treatment for items such as
non-U.S. currency gains and losses; short-term capital gains and losses;
capital losses related to sales of securities within 30 days of purchase;
unrealized appreciation of certain investments in non-U.S. securities; deferred
expenses; net capital losses; and cost of investments sold. The fiscal year in
which amounts are distributed may differ from the year in which the net
investment income and net realized gains are recorded by the fund. As of
July 31, 2003, the cost of investment securities and cash denominated in
non-U.S. currencies for federal income tax purposes was $29,686,486,000.
During the year ended July 31, 2003, the fund reclassified $2,164,000 from
undistributed net investment income and $43,000 from additional paid-in capital
to accumulated net realized loss to align financial reporting with tax
reporting.
As of July 31, 2003, the components of distributable earnings on a tax basis
were as follows:
(dollars in thousands)
Undistributed net investment income and currency gains $210,538
Loss deferrals related to non-U.S. currency that were realized during the
period November 1, (1,615)
2002 through July 31, 2003
Short-term and long-term capital loss deferrals (320,408)
Gross unrealized appreciation on investment securities 2,710,183
Gross unrealized depreciation on investment securities (1,760,574)
Short-term and long-term capital loss deferrals above include a capital loss
carryforward of $119,093,000 expiring in 2011. The capital loss carryforward
will be used to offset any capital gains realized by the fund in future years
through the expiration date. The fund will not make distributions from capital
gains while a capital loss carryforward remains. Also included in short-term
and long-term capital loss deferrals above are capital losses of $201,315,000,
that were realized during the period November 1, 2002 through July 31, 2003.
The tax character of distributions paid to shareholders was as follows
(dollars in thousands):
Distributions from ordinary income Distributions
Net Short-term from long-term Total
Share class(1) investment income capital gains capital gains distributions paid
Year ended July 31, 2003
Class A $ 1,068,009 - $ 30,128 $ 1,098,137
Class B 53,967 - 1,620 55,587
Class C 44,868 - 1,346 46,214
Class F 13,361 - 340 13,701
Class 529-A 2,652 - 63 2,715
Class 529-B 680 - 18 698
Class 529-C 1,025 - 30 1,055
Class 529-E 127 - 3 130
Class 529-F 13 - -* 13
Class R-1 35 - 1 36
Class R-2 809 - 16 825
Class R-3 978 - 18 996
Class R-4 336 - 11 347
Class R-5 1,561 - 40 1,601
Total $ 1,188,421 - $ 33,634 $ 1,222,055
Year ended July 31, 2002
Class A $ 1,007,745 - $ 191,617 $ 1,199,362
Class B 23,194 - 4,250 27,444
Class C 14,345 - 2,257 16,602
Class F 4,225 - 593 4,818
Class 529-A 265 - - 265
Class 529-B 59 - - 59
Class 529-C 119 - - 119
Class 529-E 7 - - 7
Class R-1 - - - -
Class R-2 1 - - 1
Class R-3 1 - - 1
Class R-4 - - - -
Class R-5 135 - - 135
Total $ 1,050,096 - $ 198,717 $ 1,248,813
* Amount less than one thousand.
(1) Class 529-A, 529-B, 529-C, 529-E and 529-F shares were offered beginning
February 15, 2002. Class R-1, R-2, R-3, R-4 and R-5 shares were offered
beginning May 15, 2002.
4. FEES AND TRANSACTIONS WITH RELATED PARTIES
Capital Research and Management Company ("CRMC"), the fund's investment adviser
is the parent company of American Funds Service Company ("AFS"), the fund's
transfer agent, and American Funds Distributors, Inc. ("AFD"), the principal
underwriter of the fund's shares
INVESTMENT ADVISORY SERVICES - The Investment Advisory and Service Agreement
with CRMC provides for monthly fees accrued daily. These fees are based on a
declining series of annual rates beginning with 0.250% on the first $500
million of daily net assets and decreasing to 0.129% on such assets in excess
of $44 billion. The agreement also provides for monthly fees, accrued daily, of
2.25% of the fund's annual gross investment income. For the year ended July
31, 2003, the investment advisory services fee was equivalent to an annualized
rate of 0.278% of average daily net assets.
CLASS-SPECIFIC FEES AND EXPENSES - Expenses that are specific to individual
share classes are accrued directly to the respective share class. The principal
class-specific fees and expenses are described below:
DISTRIBUTION SERVICES - The fund has adopted plans of distribution for
all share classes, except Class R-5. Under the plans, the Board of
Directors approves certain categories of expenses that are used to
finance activities primarily intended to sell fund shares. The plans
provide for annual expenses, based on a percentage of average daily
net assets, ranging from 0.25% to 1.00% as noted below. In some cases,
the Board of Directors has approved expense amounts lower than plan
limits.
------------------------------------------------ ----------------------------- -----------------------------
Share class Currently approved limits Plan limits
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Class A 0.25% 0.25%
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Class 529-A 0.25 0.50
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes B and 529-B 1.00 1.00
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes C, 529-C and R-1 1.00 1.00
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Class R-2 0.75 1.00
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes 529-E and R-3 0.50 0.75
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes F, 529-F and R-4 0.25 0.50
------------------------------------------------ ----------------------------- -----------------------------
All share classes may use up to 0.25% of average daily net assets to
pay service fees, or to compensate AFD for paying service fees, to
firms that have entered into agreements with AFD for providing certain
shareholder services. Expenses in excess of these amounts, up to
approved limits, may be used to compensate dealers and wholesalers for
shares sold.
For classes A and 529-A, the Board of Directors has also approved the
reimbursement of dealer and wholesaler commissions paid by AFD for
certain shares sold without a sales charge. Each class reimburses AFD
for amounts billed within the prior 15 months but only to the extent
that the overall annual expense limit of 0.25% is not exceeded. As of
July 31, 2003, there were no unreimbursed expenses subject to
reimbursement for classes A or 529-A.
TRANSFER AGENT SERVICES - The fund has a transfer agent agreement with
AFS for classes A and B. Under this agreement, these share classes
compensate AFS for transfer agent services including shareholder
recordkeeping, communications and transaction processing. AFS is also
compensated for certain transfer agent services provided to all other
share classes from the administrative services fees paid to CRMC
described below.
ADMINISTRATIVE SERVICES - The fund has an administrative services
agreement with CRMC to provide transfer agent and other related
shareholder services for all classes of shares other than classes A
and B. Each relevant class pays CRMC annual fees of 0.15% (0.10% for
Class R-5) based on its respective average daily net assets. Each
relevant class also pays AFS additional amounts for certain transfer
agent services. CRMC and AFS may use these fees to compensate third
parties for performing these services. During the start-up period for
classes R-1, R-2, R-3 and R-4, CRMC has voluntarily agreed to pay a
portion of these fees. Each 529 share class is subject to an
additional annual administrative services fee of 0.10% of its
respective average daily net assets; this fee is payable to the
Commonwealth of Virginia for the maintenance of the CollegeAmerica
plan. Although these amounts are included with administrative services
fees in the accompanying financial statements, the Commonwealth of
Virginia is not considered a related party. Administrative services
fees are presented gross of any payments made by CRMC.
Expenses under the agreements described on the previous page for the
year ended July 31, 2003, were as follows (dollars in thousands):
- ---------------------------------------------------------------------------------------------------------------
Share class Distribution Transfer agent Administrative services
services services
-------------------------------------------------------------
CRMC Transfer agent Commonwealth of
administrative services Virginia
services administrative
services
- ---------------------------------------------------------------------------------------------------------------
Class A $50,667 $16,684 Not applicable Not applicable Not applicable
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class B 12,951 1,167 Not applicable Not applicable Not applicable
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class C 10,981 Included $1,647 $312 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class F 701 Included 421 58 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class 529-A 67 Included 83 6 $55
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class 529-B 160 Included 24 8 16
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class 529-C 259 Included 39 9 26
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class 529-E 14 Included 4 -* 3
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class 529-F 1 Included 1 -* -*
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class R-1 9 Included 1 4 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class R-2 150 Included 30 125 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class R-3 117 Included 35 42 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class R-4 19 Included 11 2 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class R-5 Not applicable Included 30 1 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Total $76,096 $17,851 $2,326 $567 $100
- ----------------===============================================================================================
*Amount less than one thousand.
DEFERRED DIRECTORS' COMPENSATION - Since the adoption of the deferred
compensation plan in 1993, Directors who are unaffiliated with CRMC may elect
to defer the cash payment of part or all of their compensation. These deferred
amounts, which remain as liabilities of the fund, are treated as if invested in
shares of the fund or other American Funds. These amounts represent general,
unsecured liabilities of the fund and vary according to the total returns of
the selected funds. Directors' compensation in the accompanying financial
statements includes $211,000 in current fees (either paid in cash or deferred)
and a net increase of $69,000 in the value of the deferred amounts.
AFFILIATED OFFICERS AND DIRECTORS - Officers and certain Directors of the fund
are or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated
officers or Directors received any compensation directly from the fund.
5. CAPITAL SHARE TRANSACTIONS
Capital share transactions in the fund were as follows (dollars and shares in
thousands):
Share class(1) Sales(2) Reinvestments of dividends
and distributions
Amount Shares Amount Shares
Year ended July 31, 2003
Class A $ 6,571,144 450,244 $ 961,227 66,589
Class B 1,181,221 81,388 48,083 3,329
Class C 1,234,072 84,783 39,653 2,745
Class F 348,617 23,837 11,323 780
Class 529-A 62,226 4,285 2,714 187
Class 529-B 19,159 1,322 698 48
Class 529-C 29,443 2,027 1,055 73
Class 529-E 3,845 265 130 9
Class 529-F 726 50 13 1
Class R-1 2,246 154 35 2
Class R-2 54,856 3,765 825 56
Class R-3 69,623 4,772 996 68
Class R-4 13,466 957 347 24
Class R-5 16,642 1,132 725 50
Total net increase
(decrease) $ 9,607,286 658,981 $ 1,067,824 73,961
Year ended July 31, 2002
Class A $ 4,014,525 254,045 $ 1,046,600 66,915
Class B 667,318 42,284 23,902 1,531
Class C 623,811 39,565 14,509 930
Class F 168,245 10,662 4,063 259
Class 529-A 26,537 1,683 265 17
Class 529-B 7,163 454 59 4
Class 529-C 13,275 838 119 8
Class 529-E 1,093 70 7 -*
Class R-1 176 12 - -
Class R-2 995 68 1 -*
Class R-3 1,090 73 1 -*
Class R-4 1 -* - -
Class R-5 23,743 1,540 135 9
Total net increase
(decrease) $ 5,547,972 351,294 $ 1,089,661 69,673
Share class(1) Repurchases(2) Net increase
Amount Shares Amount Shares
Year ended July 31, 2003
Class A $ (2,760,616) (191,744) $ 4,771,755 325,089
Class B (129,263) (9,017) 1,100,041 75,700
Class C (137,562) (9,593) 1,136,163 77,935
Class F (70,421) (4,829) 289,519 19,788
Class 529-A (2,178) (150) 62,762 4,322
Class 529-B (396) (28) 19,461 1,342
Class 529-C (1,486) (101) 29,012 1,999
Class 529-E (97) (7) 3,878 267
Class 529-F (3) (1) 736 50
Class R-1 (341) (23) 1,940 133
Class R-2 (7,638) (525) 48,043 3,296
Class R-3 (17,958) (1,245) 52,661 3,595
Class R-4 (2,651) (187) 11,162 794
Class R-5 (2,172) (148) 15,195 1,034
Total net increase
(decrease) $ (3,132,782) (217,598) $ 7,542,328 515,344
Year ended July 31, 2002
Class A $ (2,441,845) (156,045) $ 2,619,280 164,915
Class B (58,671) (3,834) 632,549 39,981
Class C (49,716) (3,273) 588,604 37,222
Class F (23,525) (1,521) 148,783 9,400
Class 529-A (136) (8) 26,666 1,692
Class 529-B (64) (4) 7,158 454
Class 529-C (130) (9) 13,264 837
Class 529-E (10) -* 1,090 70
Class R-1 (1) -* 175 12
Class R-2 (87) (6) 909 62
Class R-3 (30) (2) 1,061 71
Class R-4 - - 1 -*
Class R-5 (424) (26) 23,454 1,523
Total net increase
(decrease) $ (2,574,639) (164,728) $ 4,062,994 256,239
* Amount less than one thousand.
(1) Class 529-A, 529-B, 529-C, 529-E and 529-F shares were offered beginning
February 15, 2002. Class R-1, R-2, R-3, R-4 and R-5 shares were offered
beginning May 15, 2002.
(2) Includes exchanges between share classes of the fund.
6. RESTRICTED SECURITIES
The fund has invested in certain securities for which resale may be limited to
qualified buyers or which are otherwise restricted. These securities are
identified in the investment portfolio. As of July 31, 2003, the total value of
restricted securities was $2,567,017,000, which represents 8.40% of the net
assets of the fund.
7. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding
short-term securities, of $15,179,573,000 and $6,194,206,000, respectively,
during the year ended July 31, 2003.
The fund receives a reduction in its custodian fee equal to the amount of
interest calculated on certain cash balances held at the custodian bank. For
the year ended July 31, 2003, the custodian fee of $1,391,000 includes $93,000
that was offset by this reduction, rather than paid in cash.
Financial Highlights (1)
Income (loss)
from investment operations(2)
Net gains
(losses) on
Net asset securities
value, Net (both Total from
beginning investment realized and investment
of period income unrealized) operations
Class A:
Year ended 7/31/2003 $14.49 $.72 $.98 $1.70
Year ended 7/31/2002 16.44 .74 (1.73) (.99)
Year ended 7/31/2001 15.43 .83 1.46 2.29
Year ended 7/31/2000 17.51 .88 (1.28) (.40)
Year ended 7/31/1999 18.25 .88 .45 1.33
Class B:
Year ended 7/31/2003 14.42 .61 .97 1.58
Year ended 7/31/2002 16.39 .61 (1.73) (1.12)
Year ended 7/31/2001 15.39 .72 1.46 2.18
Period from 3/15/2000 to 7/31/2000 14.93 .24 .41 .65
Class C:
Year ended 7/31/2003 14.41 .59 .97 1.56
Year ended 7/31/2002 16.37 .59 (1.71) (1.12)
Period from 3/15/2001 to 7/31/2001 15.85 .21 .48 .69
Class F:
Year ended 7/31/2003 14.47 .71 .97 1.68
Year ended 7/31/2002 16.44 .71 (1.73) (1.02)
Period from 3/15/2001 to 7/31/2001 15.89 .27 .48 .75
Class 529-A:
Year ended 7/31/2003 14.48 .71 .97 1.68
Period from 2/15/2002 to 7/31/2002 15.76 .31 (1.20) (.89)
Class 529-B:
Year ended 7/31/2003 14.46 .58 .97 1.55
Period from 2/19/2002 to 7/31/2002 15.63 .25 (1.06) (.81)
Class 529-C:
Year ended 7/31/2003 14.46 .58 .97 1.55
Period from 2/19/2002 to 7/31/2002 15.63 .25 (1.06) (.81)
Class 529-E:
Year ended 7/31/2003 14.47 .66 .96 1.62
Period from 2/25/2002 to 7/31/2002 15.81 .27 (1.23) (.96)
Class 529-F:
Period from 9/17/2002 to 7/31/2003 14.11 .60 1.24 1.84
Class R-1:
Year ended 7/31/2003 14.47 .60 .96 1.56
Period from 6/17/2002 to 7/31/2002 15.65 .06 (1.24) (1.18)
Class R-2:
Year ended 7/31/2003 14.48 .59 .95 1.54
Period from 5/31/2002 to 7/31/2002 16.26 .09 (1.69) (1.60)
Class R-3:
Year ended 7/31/2003 14.48 .65 .98 1.63
Period from 6/4/2002 to 7/31/2002 16.09 .09 (1.51) (1.42)
Class R-4:
Year ended 7/31/2003 14.49 .70 .98 1.68
Period from 6/27/2002 to 7/31/2002 15.25 .08 (.84) (.76)
Class R-5:
Year ended 7/31/2003 14.49 .75 .98 1.73
Period from 5/15/2002 to 7/31/2002 16.31 .15 (1.77) (1.62)
Dividends(and distributions
Dividends
(from net Distributions Total Net asset
investment (from capital dividends and value, end
income) gains) distributions of period
Class A:
Year ended 7/31/2003 $(.73) $(.02) $(.75) $15.44
Year ended 7/31/2002 (.80) (.16) (.96) 14.49
Year ended 7/31/2001 (.80) (.48) (1.28) 16.44
Year ended 7/31/2000 (.87) (.81) (1.68) 15.43
Year ended 7/31/1999 (.88) (1.19) (2.07) 17.51
Class B:
Year ended 7/31/2003 (.62) (.02) (.64) 15.36
Year ended 7/31/2002 (.69) (.16) (.85) 14.42
Year ended 7/31/2001 (.70) (.48) (1.18) 16.39
Period from 3/15/2000 to 7/31/2000 (.19) - (.19) 15.39
Class C:
Year ended 7/31/2003 (.61) (.02) (.63) 15.34
Year ended 7/31/2002 (.68) (.16) (.84) 14.41
Period from 3/15/2001 to 7/31/2001 (.17) - (.17) 16.37
Class F:
Year ended 7/31/2003 (.71) (.02) (.73) 15.42
Year ended 7/31/2002 (.79) (.16) (.95) 14.47
Period from 3/15/2001 to 7/31/2001 (.20) - (.20) 16.44
Class 529-A:
Year ended 7/31/2003 (.72) (.02) (.74) 15.42
Period from 2/15/2002 to 7/31/2002 (.39) - (.39) 14.48
Class 529-B:
Year ended 7/31/2003 (.63) (.02) (.65) 15.36
Period from 2/19/2002 to 7/31/2002 (.36) - (.36) 14.46
Class 529-C:
Year ended 7/31/2003 (.60) (.02) (.62) 15.39
Period from 2/19/2002 to 7/31/2002 (.36) - (.36) 14.46
Class 529-E:
Year ended 7/31/2003 (.67) (.02) (.69) 15.40
Period from 2/25/2002 to 7/31/2002 (.38) - (.38) 14.47
Class 529-F:
Period from 9/17/2002 to 7/31/2003 (.51) (.02) (.53) 15.42
Class R-1:
Year ended 7/31/2003 (.62) (.02) (.64) 15.39
Period from 6/17/2002 to 7/31/2002 - - - 14.47
Class R-2:
Year ended 7/31/2003 (.64) (.02) (.66) 15.36
Period from 5/31/2002 to 7/31/2002 (.18) - (.18) 14.48
Class R-3:
Year ended 7/31/2003 (.68) (.02) (.70) 15.41
Period from 6/4/2002 to 7/31/2002 (.19) - (.19) 14.48
Class R-4:
Year ended 7/31/2003 (.72) (.02) (.74) 15.43
Period from 6/27/2002 to 7/31/2002 - - - 14.49
Class R-5:
Year ended 7/31/2003 (.76) (.02) (.78) 15.44
Period from 5/15/2002 to 7/31/2002 (.20) - (.20) 14.49
Net Ratio of Ratio of
assets, end expenses net income
Total of period to average to average
return(3) (in millions) net assets net assets
Class A:
Year ended 7/31/2003 12.18% $25,891 .61% 4.98%
Year ended 7/31/2002 (6.35) 19,585 .61 4.66
Year ended 7/31/2001 15.53 19,519 .62 5.18
Year ended 7/31/2000 (2.08) 18,102 .63 5.52
Year ended 7/31/1999 7.79 23,012 .59 4.99
Class B:
Year ended 7/31/2003 11.37 2,015 1.39 4.17
Year ended 7/31/2002 (7.14) 800 1.37 3.88
Year ended 7/31/2001 14.77 254 1.38 4.15
Period from 3/15/2000 to 7/31/2000 4.33 29 .52 1.73
Class C:
Year ended 7/31/2003 11.23 1,850 1.48 4.07
Year ended 7/31/2002 (7.17) 614 1.48 3.77
Period from 3/15/2001 to 7/31/2001 4.35 89 .62 1.28
Class F:
Year ended 7/31/2003 12.11 471 .72 4.83
Year ended 7/31/2002 (6.56) 156 .73 4.52
Period from 3/15/2001 to 7/31/2001 4.71 22 .31 1.58
Class 529-A:
Year ended 7/31/2003 12.10 93 .68 4.87
Period from 2/15/2002 to 7/31/2002 (5.83) 24 .37 2.02
Class 529-B:
Year ended 7/31/2003 11.10 28 1.60 3.95
Period from 2/19/2002 to 7/31/2002 (5.40) 7 .71 1.62
Class 529-C:
Year ended 7/31/2003 11.10 44 1.59 3.96
Period from 2/19/2002 to 7/31/2002 (5.40) 12 .70 1.63
Class 529-E:
Year ended 7/31/2003 11.66 5 1.06 4.48
Period from 2/25/2002 to 7/31/2002 (6.24) 1 .45 1.79
Class 529-F:
Period from 9/17/2002 to 7/31/2003 13.38 1 .81 (5) 4.68
Class R-1:
Year ended 7/31/2003 11.19 2 1.50 (6) 4.02
Period from 6/17/2002 to 7/31/2002 (7.54) - (4) .18 (6) .42
Class R-2:
Year ended 7/31/2003 11.12 52 1.46 (6) 4.02
Period from 5/31/2002 to 7/31/2002 (9.95) 1 .24 (6) .66
Class R-3:
Year ended 7/31/2003 11.68 56 1.08 (6) 4.42
Period from 6/4/2002 to 7/31/2002 (8.90) 1 .17 (6) .61
Class R-4:
Year ended 7/31/2003 12.07 12 .72 (6) 4.81
Period from 6/27/2002 to 7/31/2002 (4.98) - (4) .03 (6) .52
Class R-5:
Year ended 7/31/2003 12.43 39 .40 5.17
Period from 5/15/2002 to 7/31/2002 (9.99) 22 .09 .97
Year ended July 31
Supplemental data - all classes 2003 2002 2001 2000 1999
Portfolio turnover rate 28% 36% 44% 35% 44%
(1) Based on operations for the period shown (unless otherwise noted)
and, accordingly, may not be representative of a full year.
(2) Year ended 1999 is based on shares outstanding on the last day of
the year; all other periods are based on average shares outstanding.
(3) Total returns exclude all sales charges, including contingent
'deferred sales charges.
(4) Amount less than 1 million.
(5) Annualized.
(6) During the start-up period for this class, CRMC voluntarily agreed
to pay a portion of the fees relating to transfer agency services.
Had CRMC not paid such fees, expense ratios would have been 1.92%,
1.81% and 1.12% for classes R-1, R-2 and R-3,respectively, during
the year ended July 31, 2003, and .32%, .29%, .19% and 5.11% for
classes R-1, R-2, R-3 and R-4, respectively, during the period ended
July 31, 2002. The expense ratio for Class R-4 was not affected by
any payments made by CRMC during the year ended July 31, 2003.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
The Income Fund of America, Inc.:
We have audited the accompanying statement of assets and liabilities of The
Income Fund of America, Inc. (the "Fund"), including the investment portfolio,
as of July 31, 2003, and the related statement of operations for the year then
ended, the statement of changes in 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. 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 the auditing standards generally
accepted in the United States of America. 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 July 31, 2003, by correspondence with
the custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. 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 The
Income Fund of America, Inc. as of July 31, 2003, 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 accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Los Angeles, California
September 5, 2003
TAX INFORMATION (UNAUDITED)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of certain distributions received by
shareholders during such fiscal year.
During the fiscal year ended July 31, 2003, the fund paid a long-term capital
gain distribution of $33,634,000.
As a result of recent tax legislation, individual shareholders are now eligible
for reduced tax rates on qualified dividend income received during 2003. For
purposes of computing the dividends eligible for reduced tax rates, 33% of the
dividends paid by the fund from net investment income from January 1 through
the end of the fund's fiscal year are considered qualified dividend income.
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 26% of the dividends
paid by the fund from net investment income represent qualifying dividends.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 5% of the dividends
paid by the fund from net investment income were derived from interest on
direct U.S. Treasury obligations.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans and 403(b) plans need not be reported as taxable income.
However, many retirement plan trusts may need this information for their annual
information reporting.
Since the information above is reported for the fund's fiscal year and not the
calendar year, shareholders should refer to their Form 1099-DIV or other tax
information which will be mailed in January 2004 to determine the calendar year
amounts to be included on their 2003 tax returns. Shareholders should consult
their tax advisers.
OTHER SHARE CLASS RESULTS (UNAUDITED)
Class B, Class C, Class F and Class 529
Returns for periods ended June 30, 2003 (the most recent calendar quarter):
CLASS B SHARES 1 year Life of class
Reflecting applicable contingent deferred sales
charge (CDSC), maximum of 5%, payable
only if shares are sold within six years of purchase +0.03% +5.91%(1)
Not reflecting CDSC +5.03% +6.71%(1)
CLASS C SHARES
Reflecting CDSC, maximum of 1%, payable only if shares
are sold within one year of purchase +3.90% +3.31%(2)
Not reflecting CDSC +4.90% +3.31%(2)
CLASS F SHARES(3)
Not reflecting annual asset-based fee charged by sponsoring firm +5.68% +4.09%(2)
CLASS 529-A SHARES
Reflecting 5.75% maximum sales charge -0.36% - 0.41%(4)
Not reflecting maximum sales charge +5.75% +3.99%(4)
CLASS 529-B SHARES
Reflecting applicable CDSC, maximum of 5%,
payable only if shares are sold within six years of purchase - 0.28% +0.86%(5)
Not reflecting CDSC +4.72% +3.73%(5)
CLASS 529-C SHARES
Reflecting CDSC, maximum of 1%,
payable only if shares are sold within one year of purchase +3.73% +3.73%(5)
Not reflecting CDSC +4.73% +3.73%(5)
CLASS 529-E SHARES(3) +5.26% +3.43%(6)
CLASS 529-F SHARES(3)
Not reflecting annual asset-based fee charged by sponsoring firm -- +13.31%(7)
(1) Average annual total return from March 15, 2000, when Class B shares were
first sold.
(2) Average annual total return from March 15, 2001, when Class C and
Class F shares were first sold.
(3) These shares are sold without any initial or contingent deferred sales
charge.
(4) Average annual total return from February 15, 2002, when Class 529-A shares
were first sold.
(5) Average annual total return from February 19, 2002, when Class 529-B and
Class 529-C shares were first sold.
(6) Average annual total return from February 25, 2002, when Class 529-E shares
were first sold.
(7) Cumulative total return from September 17, 2002, when Class 529-F shares
were first sold.
There are several ways to invest in The Income Fund of America. Class A shares
are subject to a 5.75% maximum up-front sales charge that declines for accounts
of $25,000 or more. Other share classes, which are generally not available for
certain employer-sponsored retirement plans, have no up-front sales charges but
are subject to additional annual expenses and fees. Annual expenses for Class B
shares were 0.78 percentage points higher than for Class A shares; Class B
shares convert to Class A shares after eight years of ownership. If redeemed
within six years, Class B shares may also be subject to a contingent deferred
sales charge ("CDSC") of up to 5% that declines over time. Class C shares were
subject to annual expenses 0.87 percentage points higher than those for Class A
shares and a 1% CDSC if redeemed within the first year after purchase. Class C
shares convert to Class F shares after 10 years. Class F shares, which are
available only through certain fee-based programs offered by broker-dealer firms
and registered investment advisers, had higher annual expenses (by 0.11
percentage points) than did Class A shares, and an annual asset-based fee
charged by the sponsoring firm. Expenses are deducted from income earned by the
fund. As a result, dividends and investment results will differ for each share
class.
Board of Directors
"NON-INTERESTED" DIRECTORS
Year first
elected a
Director of
Name and age the fund(1) Principal occupation(s) during past five years
ROBERT A. FOX, 66 1972 Managing General Partner, Fox Investments LP;
Professor, University of California; retired
President and CEO, Foster Farms (poultry producer)
LEONADE D. JONES, 55 1993 Co-founder, VentureThink LLC (develops and manages
e-commerce businesses) and Versura Inc. (education
loan exchange); former Treasurer, The Washington
Post Company
JOHN M. LILLIE,* 66 2003 Business consultant; former president, Sequoia
Associates LLC (investment firm specializing in
medium-size buyouts); former Vice Chairman of the
Board, Gap Inc. (specialty apparel retailing);
former Chairman of the Board, The Epic Team
(premium bicycles and accessories under brand name
of Specialized)
JOHN G. MCDONALD, 66 1976 The IBJ Professor of Finance, Graduate
School of Business, Stanford University
LUIS G. NOGALES, 59 2002 President, Nogales Partners; Managing Director,
Nogales Investors Management LLC (private equity
fund)
JAMES K. PETERSON, 62 1999 Managing Director, Oak Glen Consultancy LLC
(consulting services to charitable organizations,
pension funds and other financial management companies)
HENRY E. RIGGS, 68 1989 Chairman of the Board and President Emeritus, Keck
Graduate Institute of Applied Life Sciences
PATRICIA K. WOOLF, PH.D., 69 1985 Private investor; corporate director; lecturer
Department of Molecular Biology, Princeton
University
"NON-INTERESTED" DIRECTORS
Number of
boards within the
fund complex(2)
on which
Name and age Director serves Other directorships(3) held by Director
ROBERT A. FOX, 66 7 Crompton Corporation
LEONADE D. JONES, 55 6 None
JOHN M. LILLIE,* 66 2 None
JOHN G. MCDONALD, 66 8 iStar Financial, Inc.; Plum Creek Timber Co.;
Scholastic Corporation; Varian, Inc.
LUIS G. NOGALES, 59 2 Arbitron, Inc.; Edison International; K-B Home;
Kaufman & Broad, S.A.
JAMES K. PETERSON, 62 2 None
HENRY E. RIGGS, 68 4 None
PATRICIA K. WOOLF, Ph.D., 69 6 Crompton Corporation; First Energy Corporation;
National Life Holding Co.
"INTERESTED" DIRECTORS(4)
Year first
elected a Principal occupation(s) during past five years
Name, age and Director or officer and positions held with affiliated entities or the
position with fund of the fund(1) principal underwriter of the fund
JANET A. MCKINLEY, 48 1994 Senior Vice President and Director, Capital
Chairman of the Board Research and Management Company; Senior
Vice President, Capital Research Company(5)
DARCY B. KOPCHO, 49 1997 Director, Capital Research and Management
President Company; President and Director, Capital Research
Company;(5) Director, Capital International, Inc.;(5)
Director, The Capital Group Companies, Inc.(5)
"Interested" Directors(4)
Number of
boards within the
fund complex(2)
Name, age and on which
position with fund Director serves Other directorships(3) held by Director
JANET A. MCKINLEY, 48 1 None
Chairman of the Board
DARCY B. KOPCHO, 49 1 None
President
*Elected effective August 15, 2003
THE STATEMENT OF ADDITIONAL INFORMATION INCLUDES ADDITIONAL INFORMATION ABOUT
FUND DIRECTORS AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST BY CALLING AMERICAN
FUNDS SERVICE COMPANY AT 800/421-0180. THE ADDRESS FOR ALL DIRECTORS AND
OFFICERS OF THE FUND IS 333 SOUTH HOPE STREET, LOS ANGELES, CA 90071, ATTENTION:
FUND SECRETARY.
(1) Directors and officers of the fund serve until their resignation, removal or
retirement.
(2) Capital Research and Management Company manages the American Funds,
consisting of 29 funds. Capital Research and Management Company also manages
American Funds Insurance Series(R) and Anchor Pathway Fund, which serve as
the underlying investment vehicles for certain variable insurance contracts;
and Endowments, whose shareholders are limited to certain nonprofit
organizations.
(3) This includes all directorships (other than those in the American Funds)
that are held by each Director as a director of a public company or a
registered investment company.
(4) "Interested persons" within the meaning of the 1940 Act on the basis of
their affiliation with the fund's investment adviser, Capital Research and
Management Company, or affiliated entities (including the fund's principal
underwriter).
(5) Company affiliated with Capital Research and Management Company
OTHER OFFICERS
Year first
elected an Principal occupation(s) during past five years and
Name, age and officer of positions held with affiliated entities or the principal
position with fund the fund(1) underwriter of the fund
STEPHEN E. BEPLER, 61 1993 Senior Vice President, Capital Research Company(5)
Senior Vice President
ABNER D. GOLDSTINE, 73 1993 Senior Vice President and Director, Capital
Senior Vice President Research and Management Company
PAUL G. HAAGA, JR., 54 1994 Executive Vice President and Director, Capital
Senior Vice President Research and Management Company;
Director, American Funds Distributors, Inc.(5)
DINA N. PERRY, 57 1994 Senior Vice President, Capital Research and
Senior Vice President Management Company
HILDA L. APPLBAUM, 42 1998 Senior Vice President, Capital Research Company(5)
Vice President
DAVID C. BARCLAY, 46 1998 Senior Vice President and Director, Capital
Vice President Research and Management Company
JOHN H. SMET, 47 1994 Senior Vice President, Capital Research and
Vice President Management Company
PATRICK F. QUAN, 45 1986 Vice President-- Fund Business Management
Secretary Group, Capital Research and Management Company
DAYNA G. YAMABE, 36 2000 Vice President-- Fund Business Management
Treasurer Group, Capital Research and Management Company
R. MARCIA GOULD, 49 1999 Vice President -- Fund Business Management
Assistant Treasurer Group, Capital Research and Management Company
OFFICE OF THE FUND
One Market
Steuart Tower, Suite 1800
Mailing address: P.O. Box 7650
San Francisco, CA 94120-7650
INVESTMENT ADVISER
Capital Research and
Management Company
333 South Hope Street
Los Angeles, CA 90071-1406
135 South State College Boulevard
Brea, CA 92821-5823
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 25065
Santa Ana, CA 92799-5065
P.O. Box 659522
San Antonio, TX 78265-9522
P.O. Box 6007
Indianapolis, IN 46206-6007
P.O. Box 2280
Norfolk, VA 23501-2280
CUSTODIAN OF ASSETS
JPMorgan Chase Bank
270 Park Avenue
New York, NY 10017-2070
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
515 South Flower Street
Los Angeles, CA 90071-2228
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two California Plaza
350 South Grand Avenue
Los Angeles, CA 90071-3462
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, CA 90071-1406
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, OR FOR A
PROSPECTUS FOR ANY OF THE AMERICAN FUNDS, PLEASE CONTACT YOUR FINANCIAL ADVISER.
YOU MAY ALSO CALL AMERICAN FUNDS SERVICE COMPANY AT 800/421-0180 OR VISIT US AT
AMERICANFUNDS.COM. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR
SEND MONEY.
THE AMERICAN FUNDS PROXY VOTING GUIDELINES -- USED TO DETERMINE HOW TO VOTE
PROXIES RELATING TO PORTFOLIO SECURITIES -- ARE AVAILABLE UPON REQUEST, FREE OF
CHARGE, BY CALLING AMERICAN FUNDS SERVICE COMPANY, VISITING THE AMERICAN FUNDS
WEBSITE OR ACCESSING THE U.S. SECURITIES AND EXCHANGE COMMISSION WEBSITE AT
WWW.SEC.GOV.
This report is for the information of shareholders of The Income Fund of
America, but it may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details about charges,
expenses, investment objectives and operating policies of the fund. If used as
sales material after September 30, 2003, this report must be accompanied by an
American Funds statistical update for the most recently completed calendar
quarter.
[logo - American Funds(R)]
The right choice for the long term(R)
WHAT MAKES AMERICAN FUNDS DIFFERENT?
For more than 70 years, we have followed a consistent philosophy that we firmly
believe is in our investors' best interests. The range of opportunities offered
by our family of just 29 carefully conceived, broadly diversified funds has
attracted over 20 million shareholder accounts.
Our unique combination of strengths includes these five factors:
o A LONG-TERM, VALUE-ORIENTED APPROACH
Rather than follow fads, we pursue a consistent strategy, focusing on each
investment's long-term potential.
o AN UNPARALLELED GLOBAL RESEARCH EFFORT
American Funds draws on one of the industry's most globally integrated
research networks.
o THE MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Every American Fund is divided among a number of portfolio counselors. Each
takes responsibility for a portion independently, within each fund's
objectives; in most cases, research analysts manage a portion as well. Over
time this method has contributed to a consistency of results and continuity
of management.
o EXPERIENCED INVESTMENT PROFESSIONALS
The recent market decline was not the first for most of the portfolio
counselors who serve the American Funds. Nearly 70% of them were in the
investment business before the sharp market decline of 1987.
o A COMMITMENT TO LOW OPERATING EXPENSES
American Funds' operating expenses are among the lowest in the mutual fund
industry. Our portfolio turnover rates are low as well, keeping transaction
costs and tax consequences contained.
29 mutual funds, consistent philosophy, consistent results
o GROWTH FUNDS
Emphasis on long-term growth through stocks
AMCAP Fund(R)
EuroPacific Growth Fund(R)
The Growth Fund of America(R)
The New Economy Fund(R)
New Perspective Fund(R)
New World Fund(SM)
SMALLCAP World Fund(R)
o GROWTH-AND-INCOME FUNDS
Emphasis on long-term growth and dividends through stocks
American Mutual Fund(R)
Capital World Growth and Income Fund(SM)
Fundamental Investors(SM)
The Investment Company of America(R)
Washington Mutual Investors Fund(SM)
o EQUITY-INCOME FUNDS
Emphasis on above-average income and growth through stocks and/or bonds
Capital Income Builder(R)
THE INCOME FUND OF AMERICA(R)
o BALANCED FUND
Emphasis on long-term growth and current income through stocks and bonds
American Balanced Fund(R)
o BOND FUNDS
Emphasis on current income through bonds
American High-Income Trust(SM)
The Bond Fund of America(SM)
Capital World Bond Fund(R)
Intermediate Bond Fund of America(R)
U.S. Government Securities Fund(SM)
o TAX-EXEMPT BOND FUNDS
Emphasis on tax-free current income through municipal bonds
American High-Income Municipal Bond Fund(R)
Limited Term Tax-Exempt Bond Fund of America(SM)
The Tax-Exempt Bond Fund of America(R)
STATE-SPECIFIC TAX-EXEMPT FUNDS
The Tax-Exempt Fund of California(R)
The Tax-Exempt Fund of Maryland(R)
The Tax-Exempt Fund of Virginia(R)
o MONEY MARKET FUNDS
Seeking stable monthly income through money market instruments
The Cash Management Trust of America(R)
The Tax-Exempt Money Fund of America(SM)
The U.S. Treasury Money Fund of America(SM)
THE CAPITAL GROUP COMPANIES
American Funds
Capital Research and Management
Capital International
Capital Guardian
Capital Bank and Trust
Lit. No. MFGEAR-906-0903
Litho in USA BAG/CG/8061
Printed on recycled paper
ITEM 2 - Code of Ethics
The Registrant has adopted a Code of Ethics that applies to its Principal
Executive Officer and Principal Financial Officer. The Registrant undertakes to
provide to any person without charge, upon request, a copy of the Code of
Ethics. Such request can be made to American Funds Service Company at
800/421-0180 or to the Secretary of the Registrant, P.O. Box 7650, San
Francisco, California 94120.
ITEM 3 - Audit Committee Financial Expert
The Registrant's Board has determined that James K. Peterson, a member of the
Registrant's Audit Committee, is an "audit committee financial expert" and
"independent," as such terms are defined in this Item. This designation will not
increase the designee's duties, obligations or liability as compared to his
duties, obligations and liability as a member of the Audit Committee and of the
Board; nor will it reduce the responsibility of the other Audit Committee
members. There may be other individuals who, through education or experience,
would qualify as "audit committee financial experts" if the Board had designated
them as such. Most importantly, the Board believes each member of the Audit
Committee contributes significantly to the effective oversight of the
Registrant's financial statements and condition.
ITEM 4 - Principal Accountant Fees and Services
Form N-CSR disclosure requirement not yet effective with respect to Registrant.
ITEM 5 - Audit Committee of Listed Registrants
Not applicable.
ITEM 6 - Reserved
ITEM 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end
management investment company.
ITEM 8 - Reserved
ITEM 9 - Controls and Procedures
(a) The officers providing the certifications in this report in accordance with
rule 30a-2 under the Investment Company Act of 1940 have concluded, based
on their evaluation of the Registrant's disclosure controls and procedures
(as such term is defined in such rule), that such controls and procedures
are adequate and reasonably designed to achieve the purposes described in
paragraph (c) of such rule.
(b) There were no changes in the Registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of
1940) that occurred during the Registrant's last fiscal half-year (the
Registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 10 - Exhibits
(a) The Code of Ethics that is the subject of the disclosure required by Item 2
is attached as an exhibit hereto.
(b) The certifications required by Rule 30a-2 of the Investment Company Act of
1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley Act of
2002 are attached as exhibits hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
THE INCOME FUND OF AMERICA, INC.
By /s/ Janet A. McKinley
Janet A. McKinley, Chairman and PEO
Date: October 1, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ Janet A. McKinley
Janet A. McKinley, Chairman and PEO
Date: October 1, 2003
By /s/ Dayna G. Yamabe
Dayna G. Yamabe, Treasurer
Date: October 1, 2003