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, 2004
Date of reporting period: January 31, 2004
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
[front cover: photo of wheat field]
Semi-annual report for the six months ended January 31, 2004
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.
Here are the average annual total returns on a $1,000 investment with all
distributions reinvested for periods ended December 31, 2003 (the most recent
calendar quarter):
CLASS A SHARES 1 YEAR 5 YEARS 10 YEARS
Reflecting 5.75% maximum sales charge +18.03% +5.64% +9.82%
The fund's 30-day yield for Class A shares as of February 29, 2004, calculated
in accordance with the Securities and Exchange Commission formula, was 3.20%.
The fund's distribution rate for Class A shares as of that date was 3.76%. Both
reflect the 5.75% maximum sales charge. The SEC yield reflects the rate at which
the fund is earning income on its current portfolio of securities, while the
distribution rate reflects the fund's past dividends paid to shareholders.
Accordingly, the fund's SEC yield and distribution rate may differ.
Results for other share classes can be found on page 56. Please see the inside
back cover for important information about other share classes.
FIGURES SHOWN ON THESE TWO PAGES ARE PAST RESULTS AND ARE NOT PREDICTIVE OF
FUTURE PERIODS. CURRENT AND FUTURE RESULTS MAY BE LOWER OR HIGHER THAN THOSE
SHOWN. SHARE PRICES AND RETURNS WILL VARY, SO INVESTORS MAY LOSE MONEY. FOR THE
MOST CURRENT INFORMATION AND MONTH-END RESULTS, VISIT AMERICANFUNDS.COM. FUND
RESULTS SHOWN, UNLESS OTHERWISE INDICATED, ARE AT NET ASSET VALUE. IF A SALES
CHARGE (MAXIMUM 5.75%) HAD BEEN DEDUCTED, THE RESULTS WOULD HAVE BEEN LOWER.
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.
[black & white photo of wheat field]
FELLOW SHAREHOLDERS:
A combination of factors worked in favor of The Income Fund of America during
the first half of its 2004 fiscal year. An improving U.S. economy, a weaker
dollar and stronger corporate balance sheets led to a sharp rebound in both
stock and corporate bond prices.
Due to its focus on cyclically sensitive stocks and on corporate bonds from more
highly leveraged issues, The Income Fund of America was particularly well
positioned in this environment. The fund's flexibility to invest outside the
United States was also notably beneficial.
If, like most shareholders, you reinvested your quarterly dividends, the fund
provided a total return of 14.8% for the six months ended January 31. Those who
elected to take their dividends in cash saw a 12.0% increase in the value of
their holdings, while also earning an income return of 2.7% for the period.
The fund's 14.8% total return compares favorably with a total return of 9.7% for
the Lipper income funds average and 4.5% for the unmanaged Lehman Brothers
Aggregate Bond Index; both returns include reinvestment of dividends or
interest. (Results for longer periods may be found on page 5.)
During a typical reporting period, The Income Fund of America's total return has
fallen between those of the broad U.S. stock and U.S. bond market averages. So
we would observe that although The Income Fund of America's total return of
14.8% nearly matched the 15.2% return of the unmanaged Standard & Poor's 500
Composite Index, this kind of short-term result should not be extrapolated into
the future -- particularly since this six-month gain exceeds the fund's lifetime
average annual total return of 12.8%.
MEETING THE INCOME CHALLENGE
Over its 30-year lifetime, The Income Fund of America has sought to provide
above-average yield without taking undue risk to the underlying value of your
investment. In keeping with its income mandate, the fund provided a 12-month
dividend rate of 4.0% as of January 31. However, as yields on both stocks and
bonds have remained near historic lows -- despite an acceleration in economic
recovery, and dramatically wider budget deficit projections for the U.S.
government -- it has become increasingly challenging for The Income Fund of
America to deliver a yield at this level.
To put this 4% rate in context, the Lipper income funds average yield fell to
2.7%, the S&P 500 provided only 1.5%, and the yield on the five-year Treasury
was about 3.1%. Throughout The Income Fund of America's history, it has seldom
provided a higher yield than three-year Treasuries, which offered 2.3%.
As a result, at the most recent board of directors meeting, the decision was
taken to reduce the fund's regular quarterly dividend rate to 15.5 cents from
17.5 cents. At the January 31 net asset value, this translates into a yield of
approximately 3.6%.
FOCUSED SECURITY SELECTION ADDS VALUE
The prevailing economic, interest rate and currency environment during the first
half of The Income Fund of America's 2004 fiscal year created a backdrop against
which several of the more highly represented industry groups within the equity
portfolio did especially well. Among these were commercial banks, oil and gas,
and real estate. Commercial banks, the largest sector among the equity holdings,
not only benefited from a pick-up in business activity, lower loan losses and a
continued steep yield curve environment, but also a re-emergence of merger and
acquisition activity. FleetBoston Financial, a large holding in the portfolio,
posted a total return of 43.2% (1) for the six-month period, due in large part
to the takeover bid from Bank of America; the latter returned 2.2%. Acceleration
of economic growth had a positive impact on cyclical industries. Dow Chemical,
the second largest equity holding in the fund, had a total return of 21.8%, and
General Motors, the fund's ninth largest equity exposure, posted a total return
of 34.2%. Among the 10 largest equity positions, Weyerhaeuser (+10.5%) and
Bristol-Myers Squibb (+8.3%) turned in more moderate gains. Meanwhile, the
profitability of real estate companies, and hence their equity returns, was
helped by a continuing low and even declining interest rate environment.
(1) 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 reporting period.
Perhaps less obvious, but of equal or greater import to the strong showing by
The Income Fund of America, was the contribution made by its non-U.S. equity
holdings, which accounted for 18.3% of the fund's net assets. Many of these
investments benefited from dividend yields exceeding those typically available
in the U.S., lower starting valuations, and currency appreciation. Among
noteworthy gainers during the six months were Canadian Oil Sands Trust (+39.0%),
HSBC (+27.5%), Societe Generale (+26.3%) and E.ON (+24.0%). By way of
comparison, the unmanaged MSCI EAFE(R) (Europe, Australasia, Far East) Index, a
broad measure of the non-U.S. equity market, had a return of 25.4%, including
reinvestment of dividends.
Credit research and security selection were likewise critical to providing
strong returns for our bond holdings over the period. Our specific company
knowledge provided portfolio counselors with the confidence to significantly
increase the fund's corporate credit exposure at a time when balance sheet and
liquidity concerns had, by historic standards, widened credit spreads. (Credit
spreads reflect the yield differences between U.S. Treasuries, which carry no
credit risk, and all other types of bonds.) In March of 2003, the fund's
corporate bond exposure was increased to a relatively high level of 28.1% of
assets. Over the ensuing months, as balance sheets were repaired and the
liquidity crisis subsided, particularly for lower rated bonds, credit spreads
dramatically narrowed. Since then, the fund has reduced its credit exposure;
corporate debt accounted for 23.3% of assets by January 31, 2004. Since the
beginning of the fiscal year in August of 2003, corporate bond holdings in the
fund had a total return of 15.4%.
PUTTING RESULTS IN PERSPECTIVE
Broadly speaking, both stock and bond markets have benefited from over 20 years
of mostly declining interest rates. Not only has this trend fueled rising
valuations for financial assets and real estate, but it has also created a
credit boom in the U.S. that represents an ever-higher percentage of our gross
national product. With interest rates near historic lows, it is hard to imagine
them falling much further.
[Begin Sidebar]
Figures shown on these two pages are past results and are not predictive of
future periods. Current and future results may be lower or higher than those
shown. Share prices and returns will vary, so investors may lose money. For the
most current information and month-end results, visit americanfunds.com. Fund
results shown are at net asset value. If a sales charge (maximum 5.75%) had been
deducted, the results would have been lower.
[End Sidebar]
Although interest rates could well remain low for a variety of reasons in the
near term, the next major move is most likely to be higher. At the moment, many
economic experts seem to be expecting a strong recovery accompanied by no
meaningful uptick in inflation. While this could happen, we are attempting to
position the portfolio more cautiously to account for the possibility of rising
interest rates. While we strive for high income, we must also be mindful of
preserving capital.
As assets have grown since last July, new cash flow has been directed to the
purchase of higher yielding stocks. The portfolio's bond exposure has declined
from about 32% at the start of the fiscal year to 27% at the close of the
reporting period. Cash and equivalents, accounting for 7% of the portfolio, are
expected to decline as resources are opportunistically put to work in both
stocks and bonds.
As we move forward in the fiscal year, it is our goal to maintain The Income
Fund of America's long-term record of delivering well-above-average income while
growing the value of our shareholders' investment.
Finally, we are pleased to announce the election of Hilda Applbaum as fund
president. She succeeds Darcy Kopcho, who has retired from our organization. We
thank Darcy for her many contributions to the fund and wish her the very best in
her future endeavors.
Cordially,
/s/ Janet A. McKinley /s/ Hilda L. Applbaum
Janet A. McKinley Hilda L. Applbaum
CHAIRMAN OF THE BOARD PRESIDENT
March 11, 2004
[Begin Sidebar]
Figures shown on these two pages are past results and are not predictive of
future periods. Current and future results may be lower or higher than those
shown. Share prices and returns will vary, so investors may lose money. For the
most current information and month-end results, visit americanfunds.com. Fund
results shown are at net asset value. If a sales charge (maximum 5.75%) had been
deducted, the results would have been lower.
[End Sidebar]
THE INCOME FUND OF AMERICA AT A GLANCE
RESULTS AT A GLANCE For periods ended January 31, 2004
Total returns Average annual total returns
6 months 1 year 5 years 10 years Lifetime (1)
THE INCOME FUND OF AMERICA +14.8% +27.8% +7.3% +10.3% +12.8%
Standard & Poor's 500 Composite Index +15.2 +34.5 -1.0 +10.9 +12.3
Lehman Brothers Aggregate Bond Index (2) +4.5 +4.9 +6.6 +6.9 +8.9
Credit Suisse First Boston High Yield Index +12.1 +27.0 +6.7 +7.3 --
Lipper income funds average (3) +9.7 +18.6 +3.9 +7.0 +12.2
Consumer Price Index (inflation) (4) +0.7 +1.9 +2.4 +2.4 +4.7
(1) Since December 1, 1973, when Capital Research and Management Company became
the fund's investment adviser.
(2) From December 1, 1973, through December 31, 1975, the Lehman Brothers
Government/Credit Bond Index was used because the Aggregate index did not
yet exist.
(3) Source: Lipper. Figures do not reflect the effect of sales charges.
(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.
A HISTORY OF HIGH CURRENT INCOME For the five years ended January 31, 2004
[begin line graph]
THE INCOME LIPPER INCOME
YEAR-END FUND OF FUNDS AVERAGE S&P 500
America
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 3.65 1.75
1/31/2003 5.45 3.39 1.88
7/31/2003 4.69 3.09 1.66
1/31/2004 4.05 2.67 1.54
[end line graph]
All numbers calculated by Lipper. The 12-month dividend rate is calculated by
taking the total of the trailing 12 months' dividends and dividing the month-end
net asset value adjusted for capital gains.
THE PORTFOLIO AT A GLANCE
January 31, 2004 (unaudited)
[begin pie chart]
PERCENT OF
INVESTMENT PORTFOLIO NET ASSETS
U.S. equity-type securities 47.5%
Non-U.S. equity-type securities 18.3
U. S. Treasury & agency obligations 3.5
Other fixed-income securities 23.6
Cash & equivalents 7.1
[end pie chart]
PERCENT OF
FIVE LARGEST INDUSTRIES IN EQUITY-TYPE HOLDINGS NET ASSETS
Commercial banks 8.4%
Diversified telecommunication services 5.4
Oil & gas 5.2
Electric utilities 4.5
Real estate 4.0
PERCENT OF
TEN LARGEST EQUITY-TYPE HOLDINGS NET ASSETS
SBC Communications 1.7%
Dow Chemical 1.5
FleetBoston Financial 1.5
Bristol-Myers Squibb 1.4
Verizon Communications 1.4
Royal Dutch Petroleum/"Shell" Transport and Trading 1.2
HSBC Holdings 1.1
Societe Generale 1.1
General Motors 1.1
Weyerhaeuser 1.1
July 31, 2003
[begin pie chart]
PERCENT OF
INVESTMENT PORTFOLIO NET 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
FIVE LARGEST INDUSTRIES IN EQUITY-TYPE HOLDINGS NET ASSETS
Commercial banks 6.0%
Oil & gas 4.6
Electric utilities 4.1
Real estate 3.8
Diversified telecommunication services 3.7
PERCENT OF
TEN LARGEST EQUITY-TYPE HOLDINGS NET 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
INVESTMENT PORTFOLIO, January 31, 2004 (unaudited)
SHARES OR MARKET PERCENT
PRINCIPAL VALUE OF NET
Equity securities - 65.81% AMOUNT (000) ASSETS
COMMERCIAL BANKS - 8.40%
FleetBoston Financial Corp. 13,573,000 $ 605,084 1.51%
HSBC Holdings PLC 18,655,567 287,654
HSBC Holdings PLC 9,264,821 144,774 1.08
Societe Generale 4,834,800 428,886 1.07
Bank of America Corp. 4,592,600 374,113 .93
Wells Fargo & Co. 3,575,000 205,241 .51
Commonwealth Bank of Australia 8,250,934 191,999 .48
KeyCorp 6,100,000 189,649 .47
Wachovia Corp. 4,000,000 184,960 .46
Westpac Banking Corp. 11,558,661 145,989 .36
ABN AMRO Holding NV 5,807,063 139,491 .35
Comerica Inc. 2,415,000 137,921 .34
Svenska Handelsbanken Group, Class A 6,000,000 116,168 .29
PNC Financial Services Group, Inc. 2,000,000 113,020 .28
Bank of Nova Scotia 1,800,000 91,622 .23
NB Capital Corp., Series A, 8.35% exchangeable preferred depositary shares 520,000 14,773 .04
3,371,344 8.40
DIVERSIFIED TELECOMMUNICATION SERVICES - 5.39%
SBC Communications Inc. 26,880,000 685,440 1.71
Verizon Communications Inc. 15,325,000 564,880 1.41
BellSouth Corp. 5,610,000 163,980 .41
Telefonica, SA (1) 9,900,000 154,427 .38
Telecom Italia SpA, nonvoting (1) 65,084,765 138,338 .34
Telefonos de Mexico, SA de CV, Class L (ADR) 3,100,000 106,671 .27
Deutsche Telekom AG (1) 5,000,000 99,734 .25
Swisscom AG 222,200 74,749 .19
BCE Inc. 1,867,106 41,605 .10
Telecom Corp. of New Zealand Ltd. 10,800,000 41,035 .10
CenturyTel, Inc. 6.875% ACES 2005 1,750,000 units 40,862 .10
AT&T Corp. 1,831,000 35,631 .09
NTELOS Inc. (1) (2) (3) 345,687 7,550
NTELOS Inc. 9.00% convertible bond 2013 (2) (3) $ 4,030,000 4,451 .03
Netia SA (formerly Netia Holdings SA) (1) 2,459,749 2,851 .01
XO Communications, Inc. (1) 6,837 50
XO Communications, Inc., Series A, warrants, expire 2010 (1) 13,674 48
XO Communications, Inc., Series B, warrants, expire 2010 (1) 10,256 31
XO Communications, Inc., Series C, warrants, expire 2010 (1) 10,256 27 .00
Allegiance Telecom, Inc., warrants, expire 2008 (1) (2) (3) 20,000 2 .00
PTV, Inc., Series A, 10.00% preferred 2023 (formerly NTL Europe, Inc.) 95 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
2,162,362 5.39
OIL & GAS - 5.22%
Royal Dutch Petroleum Co. (New York registered) 6,595,000 312,603
"Shell" Transport and Trading Company, PLC 17,875,000 117,936
"Shell" Transport and Trading Company, PLC (ADR) 913,900 36,830 1.17
ChevronTexaco Corp. 4,000,000 345,400 .86
Marathon Oil Corp. 8,735,000 283,713 .71
Sunoco, Inc. 3,800,000 210,710 .52
ConocoPhillips 2,550,000 167,994 .42
Canadian Oil Sands Trust (3) 3,272,518 116,109
Canadian Oil Sands Trust 1,005,394 35,671 .38
ENI SpA 6,910,000 128,707 .32
Unocal Corp. 3,200,000 117,824 .29
Occidental Petroleum Corp. 2,200,000 96,910 .24
Exxon Mobil Corp. 2,285,000 93,205 .23
Husky Energy Inc. 1,920,000 33,141 .08
2,096,753 5.22
ELECTRIC UTILITIES - 4.48%
E.ON AG 3,975,000 254,853 .64
Dominion Resources, Inc. 3,495,000 224,239
Dominion Resources, Inc. 9.50% PIES convertible preferred 2004 451,000 units 25,784 .62
Southern Co. 7,585,000 226,033 .56
Consolidated Edison, Inc. 4,669,100 204,647 .51
Ameren Corp. 4,060,300 196,072 .49
DTE Energy Co. 4,539,100 177,479 .44
American Electric Power Co., Inc. 4,706,300 153,661
American Electric Power Co., Inc. 9.25% convertible preferred 2005 460,000 22,315 .44
Scottish Power PLC 26,638,100 172,840 .43
Progress Energy, Inc. 2,086,924 93,452 .23
FPL Group, Inc. 405,000 26,629 .07
TXU Corp., Series C, 8.75% convertible preferred 2004 585,000 units 20,147 .05
1,798,151 4.48
REAL ESTATE - 4.04%
iStar Financial, Inc. 4,930,850 197,333
iStar Financial, Inc., Series F, 7.80% cummulative redeemable preferred 400,000 10,400 .52
Equity Residential 5,440,400 158,316 .39
Boston Properties, Inc. 3,020,000 151,091 .38
Health Care Property Investors, Inc. 2,492,900 140,176 .35
Developers Diversified Realty Corp. 4,025,000 138,379 .34
Kimco Realty Corp. 2,475,000 114,172 .28
Hang Lung Properties Ltd. 70,000,000 106,683 .27
Unibail Holding 925,000 87,817 .22
Weingarten Realty Investors 1,607,500 76,356 .19
Nationwide Health Properties, Inc. 2,675,000 58,315
Nationwide Health Properties, Inc., Series A, 7.677% preferred cumulative
step-up premium rate 50,000 4,764 .16
Regency Realty Corp. 1,500,000 62,550 .16
Equity Office Properties Trust 2,075,000 61,524 .15
AMB Property Corp. 1,595,000 55,745 .14
Plum Creek Timber Co., Inc. 1,370,000 41,374 .10
Hysan Development Co. Ltd. 21,230,135 40,956 .10
Hang Lung Group Ltd. 17,400,000 27,749 .07
Archstone-Smith Trust 777,000 21,313 .05
Sun Hung Kai Properties Ltd. 1,852,500 17,869 .04
Duke Realty Corp., Series B, 7.99% preferred cumulative step-up premium rate 300,000 16,087 .04
Simon Property Group, Inc., Series G, 7.89% preferred cumulative step-up
premium rate 200,000 11,100 .03
Public Storage, Inc., Series V, 7.50%, cumulative preferred depositary shares 400,000 10,876 .03
New Plan Excel Realty Trust, Inc., Series D, 7.80% preferred cumulative
step-up premium rate 112,500 6,128 .02
FelCor Lodging Trust Inc. (1) 450,000 5,287 .01
1,622,360 4.04
FOOD PRODUCTS - 3.06%
Sara Lee Corp. 16,250,000 346,450 .86
Unilever NV (New York registered) 2,930,000 197,716
Unilever NV 575,000 38,828 .59
H.J. Heinz Co. 5,930,000 209,803 .52
Kellogg Co. 3,940,000 148,971 .37
ConAgra Foods, Inc. 5,515,000 143,059 .36
General Mills, Inc. 3,115,000 141,514 .35
Unilever PLC 250,000 2,412 .01
1,228,753 3.06
PHARMACEUTICALS - 2.91%
Bristol-Myers Squibb Co. 20,270,000 568,573 1.42
Merck & Co., Inc. 3,800,000 180,880 .45
Schering-Plough Corp. 8,400,000 147,336 .37
Eli Lilly and Co. 1,600,000 108,864 .27
UCB NV 1,522,185 60,707 .15
Wyeth 1,431,500 58,620 .14
Sepracor Inc. 5.00% convertible subordinated debentures 2007 $ 44,000,000 42,680 .11
1,167,660 2.91
CHEMICALS - 2.62%
Dow Chemical Co. 14,723,000 617,630 1.54
DSM NV 3,072,005 143,145 .36
Lyondell Chemical Co. 7,050,000 120,837 .30
E.I. du Pont de Nemours and Co. 2,700,000 118,530 .30
Air Products and Chemicals, Inc. 1,000,000 49,910 .12
1,050,052 2.62
PAPER & FOREST PRODUCTS - 2.41%
Weyerhaeuser Co. 6,852,000 421,124 1.05
International Paper Co. 5,239,640 221,480
International Paper Co., Capital Trust 5.25% convertible preferred 2025 400,000 20,200 .60
UPM-Kymmene Corp. 8,600,000 159,650 .40
Stora Enso Oyj, Class R 3,864,275 50,312 .12
MeadWestvaco Corp. 1,400,000 37,758 .09
Holmen AB, Class B 942,900 31,486 .08
Georgia-Pacific Corp., Georgia-Pacific Group 949,860 26,691 .07
968,701 2.41
INSURANCE - 2.01%
St. Paul Companies, Inc. 2,107,400 88,785
St. Paul Companies, Inc., Series E, 9.00% 2005 600,000 units 46,260 .34
XL Capital Ltd., Class A 1,175,000 93,412 .23
Allstate Corp. 1,950,000 88,647 .22
SAFECO Corp. 2,000,000 87,060 .22
Chubb Corp. 7.00% convertible preferred 2005 1,800,000 units 52,470
Chubb Corp. 400,000 28,596 .20
UnumProvident Corp. 8.25%, ACES convertible 2006 2,100,000 units 71,673 .18
Lincoln National Corp. 1,500,000 66,225 .16
Arthur J. Gallagher & Co. 1,931,400 60,414 .15
American International Group, Inc. 492,150 34,180 .09
Irish Life & Permanent PLC 1,931,100 32,721 .08
Mercury General Corp. 500,000 23,845 .06
Ohio Casualty Corp. 5.00% convertible notes 2022 $ 20,000,000 21,100 .05
ACE Ltd., Series C, preferred depositary shares 360,000 10,026 .03
805,414 2.01
TOBACCO - 1.79%
Altria Group, Inc. 6,650,000 369,673 .92
R.J. Reynolds Tobacco Holdings, Inc. 3,231,600 190,858 .47
Gallaher Group PLC 7,911,186 87,090 .22
Imperial Tobacco Group PLC 2,765,839 54,544 .14
UST Inc. 500,000 17,855 .04
720,020 1.79
AUTOMOBILES - 1.66%
General Motors Corp. 8,125,000 403,650
General Motors Corp., Series B, 5.25% convertible debentures 2032 $ 788,000 20,724 1.06
Ford Motor Co. Capital Trust II 6.50% cumulative convertible trust preferred 2032 4,527,300 242,890 .60
667,264 1.66
MULTI-UTILITIES & UNREGULATED POWER - 1.43%
National Grid Transco PLC 43,940,000 313,933 .78
Duke Energy Corp. 7,827,000 170,081
Duke Energy Corp. 8.25% convertible preferred 2004 1,691,000 units 23,775 .48
Williams Companies, Inc. 9.00% FELINE PACS convertible preferred 2005 3,960,000 units 52,272 .13
AES Trust VII 6.00% convertible preferred 2008 283,800 13,480 .04
573,541 1.43
CAPITAL MARKETS - 1.35%
J.P. Morgan Chase & Co. 10,000,000 388,900 .97
Allied Capital Corp. 3,698,099 106,949 .26
Bank of New York Co., Inc. 1,500,000 47,625 .12
543,474 1.35
INDUSTRIAL CONGLOMERATES - 1.26%
General Electric Co. 11,150,000 374,975 .93
Tyco International Group SA, Series B, 3.125% convertible debentures 2023 (3) $ 50,000,000 68,938 .17
3M Co. 800,000 63,272 .16
507,185 1.26
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.24%
Solectron Corp. 0% LYON convertible notes 2020 $ 243,600,000 143,115
Solectron Corp. 7.25% ACES convertible preferred 2004 2,180,000 units 43,120 .46
Sanmina Corp. 0% convertible subordinated debentures 2020 $ 161,000,000 83,720
SCI Systems, Inc. 3.00% convertible subordinated debentures 2007 $ 33,500,000 32,034 .29
Agilent Technologies, Inc. 3.00% convertible debentures 2021 (5) $ 50,092,600 61,990
Agilent Technologies, Inc. 3.00% convertible debentures 2021 (3) (5) $ 30,185,000 37,354 .25
Celestica Inc. 0% convertible debentures 2020 $ 181,000,000 96,609 .24
497,942 1.24
ELECTRICAL EQUIPMENT - 1.16%
Emerson Electric Co. 3,405,000 217,580 .54
Hubbell Inc., Class B 3,213,100 129,006 .32
Cooper Industries, Inc., Class A 2,100,000 118,230 .30
464,816 1.16
METALS & MINING - 1.11%
Rio Tinto PLC 5,360,000 142,629 .35
Alcoa Inc. 3,200,000 109,376 .27
Cia. Vale do Rio Doce, ordinary nominative (ADR) 658,000 35,315
Cia. Vale do Rio Doce, Class A, preferred nominative 353,000 16,686 .13
Noranda Inc. (3) 1,888,300 27,468
Noranda Inc. 1,111,700 16,171 .11
Phelps Dodge Corp., Series A, 6.75% mandatory convertible preferred shares (MEDS) 2005 200,000 32,890 .08
Inco Ltd. 0% convertible notes LYON 2021 $ 26,000,000 26,845 .07
Massey Energy Co. 4.75% convertible notes 2023 (3) $ 7,000,000 9,179
Massey Energy Co. 4.75% convertible notes 2023 $ 5,000,000 6,556 .04
CONSOL Energy Inc. 553,800 12,793 .03
Freeport-McMoRan Copper & Gold Inc., Class B 300,000 11,058 .03
446,966 1.11
MULTILINE RETAIL - 0.98%
May Department Stores Co. 11,893,000 391,280 .98
391,280 .98
DIVERSIFIED FINANCIAL SERVICES - 0.96%
ING Groep NV 6,026,206 150,536 .38
Brascan Corp., Class A 2,157,300 68,928 .17
Citigroup Inc. 1,145,000 56,655 .14
GATX Corp. 2,450,000 55,370 .14
Fortis 1,700,000 37,892 .09
Wilshire Financial Services Group Inc. (1) (6) 2,150,517 15,054 .04
384,435 .96
AEROSPACE & DEFENSE - 0.95%
Raytheon Co. 3,978,900 121,396
Raytheon Co. - RC Trust I 8.25% convertible preferred 2006 1,682,800 units 91,292 .53
Honeywell International Inc. 2,893,400 104,510 .26
Northrop Grumman Corp. 7.25% convertible preferred 2004 566,670 units 59,019
Northrop Grumman Corp. 66,962 6,476 .16
382,693 .95
GAS UTILITIES - 0.95%
Enbridge Inc. 4,892,981 188,177 .47
NiSource Inc. 4,667,565 98,019 .24
Kinder Morgan, Inc. 1,620,000 95,580 .24
381,776 .95
MACHINERY - 0.92%
Volvo AB, Class B 4,252,200 137,978 .34
Caterpillar Inc. 1,339,200 104,632 .26
Cummins Inc. 800,000 40,584
Cummins Capital Trust I 7.00% QUIPS convertible preferred 2031 422,000 27,351
Cummins Capital Trust I 7.00% QUIPS convertible preferred 2031 (3) 178,000 11,537 .20
Pentair, Inc. 533,100 24,352 .06
Metso Oyj 1,779,998 22,731 .06
369,165 .92
FOOD & STAPLES RETAILING - 0.80%
Albertson's, Inc. 9,140,000 213,510 .53
Tesco PLC 12,860,000 55,901 .14
Woolworths Ltd. 5,610,117 50,234 .13
319,645 .80
COMMUNICATIONS EQUIPMENT - 0.65%
Motorola, Inc. 7.00% convertible preferred 2004 2,390,000 units 114,314 .29
Nortel Networks Corp. 4.25% convertible notes 2008 (3) $ 40,000,000 42,800
Nortel Networks Corp. 4.25% convertible notes 2008 $ 40,000,000 42,800 .21
AT&T Corp. Liberty Media Group 3.50% convertible debentures 2031 (3) $ 55,000,000 50,188
Liberty Media Corp. 3.50% exchangeable debentures 2031 $ 5,000,000 4,563 .14
Juniper Networks, Inc. 4.75% convertible subordinated notes 2007 $ 5,185,000 5,315 .01
259,980 .65
IT SERVICES - 0.45%
Electronic Data Systems Corp. 6,400,000 153,344
Electronic Data Systems Corp. 7.625% FELINE PRIDES 2004 1,150,900 units 25,170 .45
178,514 .45
WIRELESS TELECOMMUNICATION SERVICES - 0.44%
American Tower Corp. 5.00% convertible debentures 2010 $ 38,100,000 37,910
American Tower Corp. 6.25% convertible notes 2009 $ 19,850,000 20,346
American Tower Corp., warrants, expire 2008 (1) (3) 3,000 450 .15
Dobson Communications Corp., Class A (1) (3) 3,480,483 24,746
Dobson Communications Corp. 13.00% senior exchangeable preferred 2009 12,386 13,253
Dobson Communications Corp., Series F, 6.00% convertible preferred (3) 33,625 6,792 .11
Sprint Corp. 7.125% convertible preferred 2004 3,500,000 units 32,445 .08
SpectraSite, Inc. (1) (2) (3) 538,060 16,739
SpectraSite, Inc. (1) (2) (3) 200,729 6,612 .06
Nextel Communications, Inc., Class A (1) (3) 600,000 15,834 .04
175,127 .44
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 0.35%
ASM Lithography Holding NV 5.75% convertible notes 2006 (3) $ 57,500,000 72,237 .18
Micron Technology, Inc. 2.50% convertible notes 2010 (3) $ 32,000,000 47,880 .12
Cypress Semiconductor Corp. 3.75% convertible subordinated notes 2005 $ 8,296,000 8,337 .02
ZiLOG, Inc. (1) 910,000 6,598
ZiLOG, Inc. - MOD III Inc. (1) (2) 910 487 .01
LSI Logic Corp. 4.00% convertible notes 2006 $ 3,000,000 2,970 .01
Fairchild Semiconductor Corp. 5.00% convertible notes 2008 $ 2,500,000 2,728 .01
141,237 .35
SPECIALTY RETAIL - 0.35%
Kingfisher PLC 12,121,628 61,363 .15
Gap, Inc. 5.75% convertible notes 2009 (3) $ 28,000,000 36,435
Gap, Inc. 5.75% convertible notes 2009 $ 6,000,000 7,808 .11
Toys "R" Us, Inc. 6.25% 2005 805,000 units 34,213 .09
139,819 .35
CONTAINERS & PACKAGING - 0.30%
Temple-Inland Inc. 995,000 58,755
Temple-Inland Inc. 7.50% Upper DECS 2005 690,000 units 38,012 .24
Amcor Ltd. (3) 3,584,849 21,627 .06
118,394 .30
THRIFTS & MORTGAGE FINANCE - 0.25%
Fannie Mae 1,300,000 100,230 .25
100,230 .25
BEVERAGES - 0.20%
Lion Nathan Ltd. 17,700,000 80,189 .20
80,189 .20
OTHER INDUSTRIES - 0.84%
Amazon.com, Inc. 4.75% convertible subordinated debentures 2009 $ 68,985,000 70,796 .18
Mitchells & Butlers PLC 16,870,750 69,723 .17
Baxter International Inc. 7.00% convertible preferred 2006 925,000 units 47,776 .12
Capital One Financial Corp. 6.25% Upper DECS 2005 840,000 units 44,520 .11
Providian Financial Corp. 3.25% convertible debentures 2005 $ 34,500,000 32,991 .08
ImClone Systems Inc. 5.50% convertible notes 2005 $ 20,000,000 20,300 .05
Kimberly-Clark Corp. 309,000 18,250 .05
Fluor Corp. 350,300 12,982 .03
Kansas City Southern 4.25% convertible preferred (3) 15,000 8,918 .02
Foster Wheeler Ltd. 6.50% convertible subordinated notes 2007 (3) $ 15,000,000 8,850 .02
UnitedGlobalCom, Inc., Class A (1) (3) 237,090 2,252
UnitedGlobalCom, Inc., Class A, rights, expire 2004 (1) 66,385 222 .01
Clarent Hospital Corp. (1) (6) 484,684 788 .00
Protection One, Inc., warrants, expire 2005 (1) (2) (3) 57,600 12 .00
NTL Inc. (1) 100 7 .00
AMF Bowling Worldwide, Inc. 0% convertible debentures 2018 (2) (3) (7) $ 26,391,000 3 .00
TI Automotive Ltd., Class A (1) (2) 7,000,000 0 .00
338,390 .84
Miscellaneous - 4.88%
Other equity securities in initial period of acquisition 1,959,429 4.88
Total equity securities (cost: $22,038,589,000) 26,413,061 65.81
PRINCIPAL MARKET PERCENT
AMOUNT VALUE OF NET
Bonds & notes - 27.07% (000) (000) ASSETS
WIRELESS TELECOMMUNICATION SERVICES - 2.61%
Nextel Communications, Inc.:
6.875% 2013 $ 39,175 $ 41,721
7.375% 2015 99,450 107,282 .37
American Cellular Corp., Series B, 10.00% 2011 76,000 84,360
Dobson Communications Corp.:
10.875% 2010 26,675 29,209
8.875% 2013 17,500 18,156 .33
American Tower Corp.:
9.375% 2009 51,225 54,683
7.25% 2011 (3) 33,425 34,511
7.50% 2012 (3) 38,800 37,830
American Towers, Inc. 0% 2008 3,000 2,115 .32
AT&T Wireless Services, Inc.:
7.50% 2007 34,250 38,627
7.875% 2011 11,805 13,794
8.125% 2012 31,630 37,516
8.75% 2031 5,000 6,359
Tritel PCS, Inc. 10.375% 2011 13,776 16,433
TeleCorp PCS, Inc. 10.625% 2010 5,300 6,168 .30
Triton PCS, Inc.:
8.75% 2011 9,100 9,555
9.375% 2011 15,000 15,937
8.50% 2013 68,750 75,625 .25
Cricket Communications, Inc.: (5) (7)
6.1875% 2007 21,070 17,067
6.1875% 2007 10,750 8,707
6.375% 2007 5,875 4,759
6.625% 2007 4,335 3,511
9.50% 2007 78,250 63,382 .24
Crown Castle International Corp.:
9.375% 2011 4,250 4,739
7.50% 2013 (3) 43,125 44,311
Series B, 7.50% 2013 (3) 26,875 27,614 .19
Nextel Partners, Inc.:
12.50% 2009 18,734 21,544
11.00% 2010 24,000 26,400
8.125% 2011 23,525 24,936 .18
Western Wireless Corp. 9.25% 2013 51,475 55,464 .14
Centennial Cellular Corp.:
10.75% 2008 26,235 27,416
8.125% 2014 (3) 9,500 9,310
Centennial Communications Corp. and Centennial Cellular Operating Co. LLC 10.125% 2013 16,000 17,360 .14
Vodafone Group PLC:
7.75% 2010 16,750 19,852
5.375% 2015 5,000 5,133 .06
AirGate PCS, Inc. 0%/13.50% 2009 (8) 20,350 19,231 .05
Verizon Wireless Capital LLC and Cellco Partnership 5.375% 2006 11,000 11,766 .03
Millicom International Cellular SA 10.00% 2013 (3) 3,500 3,675 .01
1,046,058 2.61
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.90%
Sprint Capital Corp.:
6.00% 2007 30,451 32,568
6.375% 2009 24,969 26,946
7.625% 2011 38,827 44,198
8.375% 2012 70,550 83,392
6.90% 2019 8,800 9,201
6.875% 2028 5,000 5,035 .50
Qwest Services Corp.: (3)
13.00% 2007 17,895 21,116
13.50% 2010 25,356 30,681
14.00% 2014 2,700 3,415
Qwest Capital Funding, Inc.:
7.75% 2006 12,500 12,812
7.90% 2010 12,000 12,060
U S WEST, Inc. 7.20% 2004 20,000 20,700
Qwest Corp. 8.875% 2012 (3) 12,400 14,539 .29
AT&T Corp.:(5)
7.25% 2006 58,500 65,055
8.05% 2011 42,500 49,321 .28
Deutsche Telekom International Finance BV:
8.25% 2005 (5) 10,000 10,824
3.875% 2008 3,000 3,010
8.50% 2010 (5) 18,420 22,282
5.25% 2013 20,630 20,897
9.25% 2032 (5) 10,000 13,729
VoiceStream Wireless Corp. 10.375% 2009 0 0 .18
France Telecom 9.00% 2011 (5) 34,500 41,595
Orange PLC 8.75% 2006 18,345 20,632 .15
TELUS Corp. 8.00% 2011 42,550 50,277 .13
Koninklijke KPN NV:
7.50% 2005 2,000 2,165
8.00% 2010 22,850 27,429 .07
British Telecommunications PLC:
7.00% 2007 7,000 7,809
8.375% 2010 (5) 12,500 15,172 .06
Telecom Italia SpA: (3)
Series A, 4.00% 2008 3,000 2,996
Series B, 5.25% 2013 16,000 15,991 .05
PCCW-HKT Capital Ltd. 7.75% 2011 (3) 13,000 15,484 .04
Singapore Telecommunications Ltd.:
6.375% 2011 6,825 7,604
6.375% 2011 (3) 175 195
7.375% 2031 (3) 6,000 7,174 .04
Verizon Global Funding Corp. 6.125% 2007 7,000 7,674
Verizon New York Inc., Series A, 6.875% 2012 6,500 7,240 .04
Telewest Communications PLC 0%/11.375% 2010 (7) (8) 23,250 13,427 .03
Cincinnati Bell Inc. 7.25% 2013 11,375 12,114 .03
Telefonos de Mexico, SA de CV 8.25% 2006 5,000 5,537 .01
GT Group Telecom Inc. 0%/13.25% 2010 (7) (8) 15,000 31 .00
762,327 1.90
MEDIA - 1.63%
Time Warner Inc.:
7.75% 2005 9,500 10,218
8.18% 2007 30,000 34,679
AOL Time Warner Inc.:
5.625% 2005 5,000 5,226
6.875% 2012 14,750 16,592
7.625% 2031 6,500 7,496
Time Warner Companies, Inc.:
9.125% 2013 5,000 6,395
7.25% 2017 8,000 9,146 .22
Liberty Media Corp.:
2.67% 2006 (5) 15,000 15,191
3.50% 2006 15,000 15,088
7.75% 2009 10,950 12,557
7.875% 2009 24,600 28,356
5.70% 2013 5,000 5,073
8.25% 2030 3,700 4,435 .20
Comcast Cable Communications, Inc.:
8.375% 2007 6,750 7,817
6.20% 2008 14,000 15,396
6.875% 2009 7,000 7,929
TCI Communications, Inc. 8.00% 2005 10,000 10,851
Comcast Corp. 7.05% 2033 7,000 7,711
Lenfest Communications, Inc. 7.625% 2008 2,000 2,255 .13
Viacom Inc.:
6.40% 2006 3,000 3,245
5.625% 2007 5,000 5,430
7.70% 2010 10,000 12,046
6.625% 2011 5,000 5,700
CBS Corp. 7.15% 2005 21,500 22,955 .12
Clear Channel Communications, Inc.:
6.00% 2006 5,000 5,411
4.625% 2008 14,000 14,548
5.75% 2013 3,500 3,686
Chancellor Media Corp. of Los Angeles 8.00% 2008 15,000 17,437 .10
British Sky Broadcasting Group PLC:
6.875% 2009 10,000 11,277
8.20% 2009 16,250 19,409 .08
News America, Inc. 6.75% 2038 15,000 17,169
News America Holdings Inc. 7.75% 2045 10,347 12,380 .07
EchoStar DBS Corp. 9.125% 2009 25,884 29,184 .07
Univision Communications Inc. 7.85% 2011 19,685 23,455 .06
Adelphia Communications Corp.: (7)
10.25% 2006 13,975 13,905
10.25% 2011 6,100 6,283 .05
CSC Holdings, Inc.:
7.25% 2008 8,000 8,580
Series B, 8.125% 2009 8,000 8,800 .04
PanAmSat Corp. 6.125% 2005 17,000 17,297 .04
Young Broadcasting Inc. 10.00% 2011 15,640 17,126 .04
Charter Communications Holdings, LLC:
8.25% 2007 6,150 5,796
10.25% 2010 (3) 2,500 2,662
0%/13.50% 2011 (8) 4,375 3,347
CCO Holdings, LLC and CCO Holdings Capital Corp. 8.75% 2013 (3) 4,300 4,472 .04
DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. 8.375% 2013 12,000 13,650 .03
Comcast UK Cable Partners Ltd. 11.20% 2007 13,375 13,442 .03
RH Donnelley Inc.: (3)
8.875% 2010 10,500 11,839
10.875% 2012 1,000 1,197 .03
Cox Communications, Inc. 4.625% 2013 10,000 9,733 .03
Cinemark USA, Inc. 9.00% 2013 8,575 9,733 .03
Videotron Ltee 6.875% 2014 (3) 8,500 8,882 .02
Regal Cinemas Corp., Series B, 9.375% 2012 7,250 8,265 .02
Hollinger Participation Trust 12.125% 2010 (3) (4) (5) 3,358 4,114
CanWest Media Inc., Series B, 10.625% 2011 3,000 3,465 .02
Cox Radio, Inc.:
6.375% 2005 2,000 2,097
6.625% 2006 4,300 4,645 .02
LBI Media, Inc. 10.125% 2012 5,750 6,641 .02
TransWestern Publishing Co. LLC, Series F, 9.625% 2007 6,250 6,484 .02
Telenet Group Holding NV 0%/11.50% 2014 (3) (8) 9,950 6,368 .02
Emmis Communications Corp. 0%/12.50% 2011 (8) 6,379 6,060 .02
Antenna TV SA 9.00% 2007 5,250 5,355 .01
Gannett Co., Inc. 4.95% 2005 5,000 5,185 .01
Gray Communications Systems, Inc. 9.25% 2011 3,500 3,920 .01
Quebecor Media Inc.:
11.125% 2011 1,750 2,017
0%/13.75% 2011 (8) 2,000 1,800 .01
Radio One, Inc., Series B, 8.875% 2011 3,250 3,607 .01
Carmike Cinemas, Inc., Series B, 10.375% 2009 1,550 1,631 .01
654,141 1.63
COMMERCIAL BANKS - 1.56%
SB Treasury Co. LLC, Series A, 9.40% noncumulative preferred (undated) (3) (5) 114,750 132,249
Sumitomo Mitsui Banking Corp. 8.00% 2012 10,000 11,870 .36
Fuji JGB Investment LLC, Series A, 9.87% noncumulative preferred (undated) (3) (5) 51,700 58,333
IBJ Preferred Capital Co. LLC, Series A, 8.79% noncumulative preferred (undated) (3) (5) 13,800 15,180 .18
HSBC Capital Funding LP: (5) (3)
Series 1, 9.547% noncumulative step-up perpetual preferred (undated) 10,000 12,805
Series 2, 10.176% noncumulative step-up perpetual preferred (undated) 11,500 17,108
Household Finance Corp.:
7.875% 2007 1,500 1,714
4.625% 2008 2,000 2,091
6.375% 2011 14,000 15,612
6.375% 2012 7,000 7,776
Midland Bank 1.50% Eurodollar note (undated) 5,000 4,299
HSBC Holdings PLC 5.25% 2012 3,000 3,101 .16
SocGen Real Estate Co. LLC, Series A, 7.64% (undated) (3) (5) 53,000 60,385
Societe Generale 7.85% (undated) (3) (5) 2,400 2,688 .16
J.P. Morgan Chase & Co.:
4.00% 2008 20,000 20,508
4.50% 2010 5,000 5,086
5.75% 2013 5,000 5,365
J.P. Morgan & Co. Inc.:
6.70% 2007 5,000 5,587
Series A, 6.00% 2009 2,500 2,743 .10
Royal Bank of Scotland Group PLC:
5.00% 2014 2,000 2,007
7.648% (undated) (5) 12,000 14,587
Series 3, 7.816% (undated) 12,000 13,164
National Westminster Bank PLC 7.75% (undated) (5) 3,024 3,460
RBS Capital Trust I noncumulative trust preferred 4.709% (undated) 2,500 2,419 .09
Tokai Preferred Capital Co. LLC, Series A, 9.98% noncumulative preferred (undated) (3) (5) 19,000 21,634 .05
BNP Paribas Capital Trust 9.003% noncumulative trust preferred (undated) (3) 10,000 12,621
BNP U.S. Funding LLC, Series A, 7.738% noncumulative preferred (undated) (3) (5) 4,200 4,811
BNP Paribas 5.125% 2015 (3) 3,000 3,030 .05
Development Bank of Singapore Ltd.: (3)
7.875% 2010 5,000 5,969
7.125% 2011 5,000 5,787
DBS Capital Funding Corp., Series A, 7.657% noncumulative guaranteed preference
shares (undated) (3) (5) 6,500 7,550 .05
HBOS Treasury Services PLC 3.75% 2008 (3) 14,500 14,572
Scotland International Finance No. 2 4.25% 2013 (3) 1,500 1,441
HBOS PLC 5.375% (undated) (3) 500 509 .04
HVB Funding Trust III 9.00% 2031 (3) 6,500 8,267
Bayer Hypo-Vereinsbank 8.741% 2031 (3) 6,550 8,134 .04
Skandinaviska Enskilda Banken 7.50% (undated) (3) (5) 10,405 12,009 .03
Standard Chartered Bank 1.29% Eurodollar note (undated) (5) 15,000 11,362 .03
Bank of America Corp.:
4.375% 2010 5,000 5,048
5.125% 2014 5,000 5,064
5.25% 2015 150 152 .03
Popular North America, Inc., Series E, 3.875% 2008 10,000 10,042 .03
Zions Bancorp. 6.00% 2015 9,000 9,600 .02
Bayerische Landesbank, Series F, 2.50% 2006 9,000 9,129 .02
Credit Suisse First Boston (USA), Inc.:
4.625% 2008 5,000 5,237
6.50% 2012 3,000 3,363 .02
Canadian Imperial Bank of Commerce 1.375% Eurodollar note 2085 (5) 10,000 8,300 .02
Bank of Nova Scotia 1.375% Eurodollar note (undated) (5) 10,000 8,071 .02
Abbey National PLC:
Series 1-B, 6.69% 2005 2,000 2,160
7.35% (undated) (5) 5,000 5,537 .02
BCI U.S. Funding Trust I 8.01% noncumulative preferred (undated) (3) (5) 5,000 5,782 .01
State Street Capital Trust II 1.68% 2008 (5) 5,000 5,040 .01
AB Spintab 7.50% (undated) (3) (5) 2,500 2,773 .01
Barclays Bank PLC 6.86% callable perpetual core tier one notes (undated) (3) (5) 1,650 1,834 .01
Kazkommerts International BV 8.50% 2013 (3) 1,500 1,586 .00
626,551 1.56
AUTOMOBILES - 0.87%
General Motors Acceptance Corp.:
6.125% 2006 31,000 33,056
6.75% 2006 2,000 2,143
6.125% 2007 18,250 19,466
7.75% 2010 9,500 10,828
6.875% 2011 40,500 43,669
7.25% 2011 20,000 22,069
6.875% 2012 1,250 1,343
8.00% 2031 7,000 7,699
General Motors Corp. 7.20% 2011 34,000 37,249 .44
Ford Motor Credit Co.:
6.50% 2007 1,000 1,068
5.80% 2009 4,000 4,127
7.375% 2009 47,000 51,734
7.25% 2011 13,000 14,145
7.375% 2011 38,500 42,235
Ford Motor Co. 7.45% 2031 6,000 6,109 .30
DaimlerChrysler North America Holding Corp.:
6.40% 2006 5,000 5,376
4.05% 2008 2,560 2,551
4.75% 2008 1,440 1,480
7.20% 2009 14,000 15,791
7.75% 2011 15,000 17,212
7.30% 2012 10,250 11,536 .13
350,886 .87
ELECTRIC UTILITIES - 0.78%
Southern California Edison, First and Refunding Mortgage Bonds, 8.00% 2007 47,775 54,941
Edison Mission Energy:
10.00% 2008 11,250 11,981
7.73% 2009 15,720 15,602
9.875% 2011 15,280 16,407
Mission Energy Holding Co. 13.50% 2008 21,355 22,743
Homer City Funding LLC 8.734% 2026 (9) 10,000 11,350
Midwest Generation, LLC, Series B, 8.56% 2016 (9) 6,000 6,484 .35
Dominion Resources, Inc.:
Series 2002-D, 5.125% 2009 22,500 23,491
Series 2002-C, 5.70% 2012 (5) 3,300 3,494
Series E, 6.30% 2033 6,250 6,372
Virginia Electric and Power Co., Series 2002-A, 5.375% 2007 8,000 8,557 .10
Israel Electric Corp. Ltd.: (3)
7.70% 2018 22,500 24,991
8.10% 2096 14,405 14,519 .10
Alabama Power Co.:
Series U, 2.65% 2006 5,000 5,039
Series X, 3.125% 2008 3,750 3,707
Series R, 4.70% 2010 1,250 1,288
Series Q, 5.50% 2017 5,000 5,250
Southern Power Co., Series B, 6.25% 2012 9,000 9,880 .06
Progress Energy, Inc.:
6.75% 2006 5,000 5,420
6.05% 2007 7,500 8,112
5.85% 2008 7,500 8,079
7.10% 2011 2,500 2,844 .06
Cilcorp Inc.:
8.70% 2009 9,000 10,897
9.375% 2029 3,000 4,101 .04
Exelon Generation Co., LLC 6.95% 2011 11,300 12,915
Exelon Corp. 6.75% 2011 1,000 1,129 .04
Oncor Electric Delivery Co. 6.375% 2015 5,000 5,479 .01
Tri-State Generation Pass Through Trust, Series 2003-A, 6.04% 2018 (3) (9) 2,965 3,077 .01
Appalachian Power Co., Series G, 3.60% 2008 3,000 2,982 .01
311,131 .78
HOTELS, RESTAURANTS & LEISURE - 0.74%
MGM Mirage, Inc.:
6.00% 2009 23,000 24,035
8.50% 2010 22,830 26,597
Mirage Resorts, Inc.:
6.625% 2005 3,000 3,120
7.25% 2006 4,960 5,369
6.75% 2008 10,500 11,235
MGM Grand, Inc. 6.875% 2008 1,159 1,246 .18
Starwood Hotels & Resorts Worldwide, Inc.:
7.375% 2007 12,350 13,307
7.875% 2012 12,000 13,440
ITT Corp. 6.75% 2005 8,675 9,109 .09
Hilton Hotels Corp.:
7.625% 2008 2,950 3,271
7.20% 2009 5,250 5,867
8.25% 2011 10,743 12,408
7.625% 2012 2,975 3,347 .06
Royal Caribbean Cruises Ltd.:
7.00% 2007 3,000 3,202
8.00% 2010 2,250 2,509
8.75% 2011 15,900 18,205 .06
Boyd Gaming Corp.:
9.25% 2009 8,500 9,499
7.75% 2012 10,000 10,812 .05
Mohegan Tribal Gaming Authority:
8.125% 2006 2,500 2,687
6.375% 2009 11,580 12,130
8.00% 2012 2,100 2,307 .04
International Game Technology 7.875% 2004 16,000 16,262 .04
Horseshoe Gaming Holding Corp., Series B, 8.625% 2009 14,000 14,805 .04
Hyatt Equities, LLC 6.875% 2007 (3) 13,000 13,993 .04
YUM Brands, Inc. 7.70% 2012 10,500 12,127 .03
Harrah's Operating Co., Inc.:
7.875% 2005 5,850 6,369
7.125% 2007 4,150 4,634 .03
Six Flags, Inc.:
9.50% 2009 1,875 1,973
8.875% 2010 2,500 2,606
9.625% 2014 (3) 5,725 6,126 .03
Florida Panthers Holdings, Inc. 9.875% 2009 9,000 9,596 .02
Carnival Corp.:
3.75% 2007 (3) 5,000 5,052
6.15% 2008 2,480 2,712 .02
Extended Stay America, Inc. 9.875% 2011 4,500 4,995 .01
CKE Restaurants, Inc. 9.125% 2009 1,000 1,025 .00
295,977 .74
SPECIALTY RETAIL - 0.71%
Gap, Inc.:
9.90% 2005 (5) 34,450 38,842
6.90% 2007 26,360 28,996
10.55% 2008 (5) 79,195 97,806 .41
Toys "R" Us, Inc.:
7.625% 2011 7,500 8,081
7.875% 2013 9,770 10,593
7.375% 2018 28,440 28,586 .12
Boise Cascade Corp.:
9.45% 2009 18,720 22,277
6.50% 2010 13,250 14,003 .09
Office Depot, Inc.:
10.00% 2008 12,500 15,062
6.25% 2013 2,875 3,074 .05
Staples, Inc. 7.375% 2012 9,000 10,490 .03
Payless ShoeSource, Inc. 8.25% 2013 5,500 5,500 .01
283,310 .71
MULTI-UTILITIES & UNREGULATED POWER - 0.70%
AES Corp.:
10.00% 2005 (3) (9) 2,909 2,981
9.50% 2009 12,915 14,594
9.375% 2010 5,752 6,500
8.75% 2013 (3) 59,700 68,058
9.00% 2015 (3) 4,750 5,462
AES Red Oak, LLC, Series B, 9.20% 2029 (9) 2,000 2,240 .25
Williams Companies, Inc.:
7.125% 2011 38,000 39,710
8.125% 2012 12,910 14,007
Transcontinental Gas Pipe Line Corp., Series B, 7.00% 2011 19,765 21,223
Williams Holdings of Delaware, Inc. 6.25% 2006 12,500 12,812
Northwest Pipeline Corporation 8.125% 2010 7,500 8,437 .24
Dynegy Holdings Inc.: (3)
9.875% 2010 11,750 13,042
10.125% 2013 12,900 14,512 .07
Duke Capital Corp.:
7.50% 2009 7,500 8,542
6.25% 2013 7,500 7,887 .04
Southern Natural Gas Co. 8.00% 2032 14,135 14,524 .04
Nevada Power Co. 9.00% 2013 (3) 12,000 13,380 .03
Constellation Energy Group, Inc. 6.125% 2009 12,000 13,127 .03
281,038 .70
OIL & GAS - 0.65%
Premcor Refining Group Inc.:
9.25% 2010 13,875 15,887
6.75% 2011 (3) 15,650 16,824
7.75% 2012 (3) 3,000 3,270
9.50% 2013 56,215 66,896
7.50% 2015 22,000 24,090
Port Arthur Finance Corp. 12.50% 2009 (9) 575 684 .32
Western Oil Sands Inc. 8.375% 2012 27,150 32,037 .08
Newfield Exploration Co.:
Series B, 7.45% 2007 6,000 6,600
7.625% 2011 1,500 1,687
8.375% 2012 11,400 12,939 .05
Devon Financing Corp., ULC 6.875% 2011 17,000 19,418 .05
Pogo Producing Co. 10.375% 2009 10,000 10,575 .03
XTO Energy Inc. 7.50% 2012 8,850 10,354 .02
Oryx Energy Co. 8.125% 2005 8,500 9,234 .02
Pemex Project Funding Master Trust:
7.875% 2009 1,600 1,816
7.375% 2014 3,500 3,762
8.625% 2022 500 555 .02
OXYMAR 7.50% 2016 (3) 5,500 6,016 .01
ConocoPhillips 3.625% 2007 5,000 5,149 .01
Reliance Industries Ltd., Series B, 10.25% 2097 3,125 3,470 .01
Teekay Shipping Corp. 8.875% 2011 2,625 3,025 .01
CNOOC Finance (2003) Ltd. 4.125% 2013 (3) 2,500 2,355 .01
PETRONAS Capital Ltd. 7.00% 2012 (3) 2,000 2,289 .01
General Maritime Corp. 10.00% 2013 1,000 1,152 .00
260,084 .65
COMMERCIAL SERVICES & SUPPLIES - 0.62%
Allied Waste North America, Inc.:
Series B, 7.625% 2006 22,840 24,325
8.50% 2008 1,500 1,682
Series B, 8.875% 2008 11,000 12,361
10.00% 2009 44,875 48,577
6.50% 2010 (3) 16,000 16,560
5.75% 2011 (3) 8,000 7,860
6.125% 2014 (3) 7,925 7,747
Browning-Ferris Industries, Inc. 7.875% 2005 3,000 3,165 .30
Cendant Corp.:
6.875% 2006 4,000 4,384
6.25% 2008 29,000 31,756
7.375% 2013 22,750 26,366
7.125% 2015 4,500 5,140
PHH Corp. 7.125% 2013 6,250 7,084 .19
Waste Management, Inc.:
7.00% 2006 7,000 7,707
6.50% 2008 5,000 5,595
WMX Technologies, Inc. 7.10% 2026 10,125 11,203
USA Waste Services, Inc. 7.00% 2004 9,060 9,347 .08
Worldspan LP 9.625% 2011 (3) 12,375 13,241 .03
KinderCare Learning Centers, Inc., Series B, 9.50% 2009 6,500 6,630 .02
250,730 .62
HEALTH CARE PROVIDERS & SERVICES - 0.59%
Columbia/HCA Healthcare Corp.:
7.15% 2004 5,000 5,032
6.91% 2005 33,085 34,869
7.00% 2007 6,250 6,893
8.85% 2007 12,500 14,212
7.25% 2008 1,000 1,107
8.70% 2010 9,500 11,409
HCA - The Healthcare Co.:
8.75% 2010 7,750 9,369
7.875% 2011 10,000 11,552
HCA Inc.:
7.125% 2006 7,785 8,438
6.95% 2012 5,000 5,480
6.25% 2013 4,900 5,146 .28
Aetna Inc.:
7.375% 2006 25,000 27,507
7.875% 2011 15,625 18,629 .12
Tenet Healthcare Corp.:
5.375% 2006 500 480
5.00% 2007 20,543 19,208
6.375% 2011 17,300 15,916 .09
Humana Inc.:
7.25% 2006 13,375 14,577
6.30% 2018 2,500 2,668 .04
Quintiles Transnational Corp. 10.00% 2013 (3) 9,550 10,457 .03
Concentra Operating Corp.:
Series A, 13.00% 2009 1,350 1,490
9.50% 2010 4,000 4,420 .01
Triad Hospitals, Inc. 7.00% 2013 (3) 5,000 5,200 .01
Universal Hospital Services, Inc. 10.125% 2011 (3) 4,000 4,320 .01
238,379 .59
PAPER & FOREST PRODUCTS - 0.58%
Abitibi-Consolidated Co. of Canada:
6.95% 2006 500 526
5.25% 2008 11,000 10,829
6.00% 2013 56,250 54,308
Abitibi-Consolidated Inc.:
7.875% 2009 5,000 5,424
8.55% 2010 18,500 20,686 .23
Georgia-Pacific Corp.:
7.50% 2006 6,500 6,825
7.375% 2008 15,500 16,566
8.875% 2010 1,500 1,699
8.125% 2011 8,085 8,833
9.50% 2011 1,000 1,165
9.375% 2013 250 283
8.25% 2023 6,992 7,202
Fort James Corp.:
6.625% 2004 2,600 2,671
6.875% 2007 5,000 5,275 .13
Weyerhaeuser Co.:
5.95% 2008 16,000 17,314
5.25% 2009 3,000 3,181
6.75% 2012 12,000 13,330 .08
Scotia Pacific Co. LLC, Series B:
Class A-2, 7.11% 2028 (9) 15,800 12,318
Class A-3, 7.71% 2028 20,125 12,880 .06
Packaging Corp. of America:
4.375% 2008 9,500 9,596
5.75% 2013 9,750 9,990 .05
Norske Skogindustrier ASA 6.125% 2015 (3) 7,500 7,700 .02
SCA Coordination Center NV 4.50% 2015 (3) 5,000 4,731 .01
Pindo Deli Finance Mauritius Ltd. 10.25% 2002 (10) 4,000 950 .00
234,282 .58
INSURANCE - 0.55%
Prudential Holdings, LLC, Series C, 8.695% 2023 (3) (9) 22,250 27,827
Prudential Funding LLC 6.60% 2008 (3) 2,000 2,234 .07
Allstate Financial Global Funding LLC 5.25% 2007 (3) 16,750 18,035
Allstate Financing II 7.83% 2045 5,000 5,683 .06
Monumental Global Funding Trust II: (3)
2001-B, Series B, 6.05% 2006 5,000 5,370
2002-A, Series A, 5.20% 2007 16,750 17,872 .06
International Lease Finance Corp.:
4.50% 2008 4,000 4,156
Series O, 4.55% 2009 4,700 4,801
5.875% 2013 5,000 5,353
ASIF Global Financing XVIII 3.85% 2007 (3) 8,500 8,695 .06
ReliaStar Financial Corp.:
8.00% 2006 8,000 9,097
6.50% 2008 3,000 3,328
International Nederland Bank NV 5.125% 2015 (3) 10,000 10,093 .06
Mangrove Bay Pass Through Trust 6.102% 2033 (3) (5) 18,000 18,256 .04
CNA Financial Corp.:
6.75% 2006 4,370 4,666
6.45% 2008 2,406 2,556
6.60% 2008 7,130 7,551
7.25% 2023 2,750 2,751 .04
MetLife, Inc. 3.911% 2005 9,760 10,024
Metropolitan Life Insurance Co. 7.00% 2005 (3) 5,000 5,390 .04
Nationwide Life Insurance Co. 5.35% 2007 (3) 8,500 9,116
Nationwide Mutual Insurance Co. 7.875% 2033 (3) 5,000 5,972 .04
ACE Capital Trust II 9.70% 2030 8,250 11,226 .03
Lincoln National Corp. 6.20% 2011 5,000 5,525 .01
Jackson National Life Global Funding, Series 2002-1, 5.25% 2007 (3) 4,000 4,309 .01
Principal Life Global Funding I 4.40% 2010 (3) 3,000 3,047 .01
Travelers Property Casualty Corp. 3.75% 2008 3,000 3,029 .01
John Hancock Global Funding II, Series 2002-G, 5.00% 2007 (3) 2,500 2,665 .01
Hartford Financial Services Group, Inc. 2.375% 2006 1,500 1,498 .00
220,125 .55
CONSUMER FINANCE - 0.54%
Capital One Financial Corp.:
7.25% 2006 3,000 3,260
8.75% 2007 5,750 6,581
7.125% 2008 25,850 28,787
6.25% 2013 20,000 21,207
Capital One Bank:
6.875% 2006 21,600 23,416
4.875% 2008 10,000 10,440
6.50% 2013 11,000 11,919
Capital One Capital I 2.713% 2027 (3) (5) 10,500 10,200 .29
MBNA Corp.:
5.625% 2007 10,000 10,758
Series F, 7.50% 2012 600 704
Series F, 6.125% 2013 13,500 14,686
Series B, 1.963% 2027 (5) 32,000 30,277
MBNA America Bank, National Association:
5.375% 2008 2,000 2,140
6.625% 2012 4,250 4,784 .16
USA Education, Inc. 5.625% 2007 12,895 13,930
SLM Corp., Series A:
3.95% 2008 3,000 3,044
4.00% 2009 2,000 2,026
5.00% 2015 7,500 7,469 .07
Providian Financial Corp., Series A, 9.525% 2027 (3) 10,000 10,000 .02
215,628 .54
FOOD & STAPLES RETAILING - 0.53%
Ahold Finance U.S.A., Inc.:
6.25% 2009 40,840 42,065
8.25% 2010 31,670 35,312
Ahold Lease Pass Through Trust: (9)
Series 2001-A-1, 7.82% 2020 4,847 5,044
Series 2001-A-2, 8.62% 2025 12,005 12,665 .24
Delhaize America, Inc.:
7.375% 2006 29,985 32,234
8.125% 2011 26,510 30,486
9.00% 2031 15,650 19,406 .20
SUPERVALU INC 7.50% 2012 13,185 15,211 .04
CVS Corp. 5.789% 2026 (3) (9) 7,500 7,605 .02
Pathmark Stores, Inc. 8.75% 2012 6,125 6,247 .02
Albertson's, Inc. 7.50% 2011 5,000 5,765 .01
212,040 .53
REAL ESTATE - 0.53%
Hospitality Properties Trust:
7.00% 2008 1,210 1,295
6.75% 2013 24,320 25,754 .07
Host Marriott, LP:
Series E, 8.375% 2006 4,321 4,623
Series G, 9.25% 2007 775 866
Series I, 9.50% 2007 1,500 1,676
Series J, 7.125% 2013 (3) 15,750 16,183
HMH Properties, Inc., Series B, 7.875% 2008 1,350 1,401 .06
EOP Operating LP:
7.75% 2007 5,000 5,765
8.10% 2010 6,500 7,716
7.00% 2011 5,000 5,720
6.75% 2012 4,750 5,346 .06
Rouse Co.:
8.00% 2009 3,000 3,540
7.20% 2012 18,250 20,799 .06
United Dominion Realty Trust, Inc., Series E, 4.50% 2008 20,000 20,467 .05
ProLogis Trust 7.05% 2006 12,000 13,355 .03
iStar Financial, Inc.:
7.00% 2008 6,525 7,129
8.75% 2008 1,500 1,721
6.00% 2010 3,750 3,928 .03
Simon Property Group, LP:
4.875% 2010 6,375 6,611
6.35% 2012 5,000 5,511 .03
FelCor Suites LP 7.375% 2004 10,750 10,992
FelCor Lodging LP 9.00% 2011 (5) 500 547 .03
Federal Realty Investment Trust 6.125% 2007 10,000 10,753 .03
Duke Realty LP 4.625% 2013 10,000 9,775 .03
Developers Diversified Realty Corp. 4.625% 2010 7,170 7,186 .02
Irvine Co., Class A, 7.46% 2006 (2) (3) 5,000 5,409 .01
Boston Properties LP 6.25% 2013 4,000 4,369 .01
Kimco Realty Corp. 6.00% 2012 3,250 3,506 .01
211,943 .53
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.35%
Jabil Circuit, Inc. 5.875% 2010 39,710 42,214 .11
Sanmina-SCI Corp. 10.375% 2010 35,500 41,624 .10
Solectron Corp.:
Series B, 7.375% 2006 5,450 5,682
9.625% 2009 27,775 30,969 .09
Flextronics International Ltd. 6.50% 2013 21,000 21,892 .05
142,381 .35
INDUSTRIAL CONGLOMERATES - 0.32%
Tyco International Group SA:
6.125% 2008 15,000 16,092
6.125% 2009 1,000 1,073
6.375% 2011 37,415 40,274
6.00% 2013 (3) 2,500 2,604 .15
Hutchison Whampoa International Ltd.: (3)
7.00% 2011 5,000 5,541
6.50% 2013 21,000 22,057
6.25% 2014 10,000 10,188
Hutchison Whampoa Finance Ltd., Series B, 7.45% 2017 (3) 6,750 7,445 .11
General Electric Capital Corp., Series A:
5.375% 2007 8,000 8,603
6.00% 2012 8,000 8,764
General Electric Co. 5.00% 2013 5,000 5,129 .06
127,770 .32
COMMUNICATIONS EQUIPMENT - 0.31%
Motorola, Inc.:
6.75% 2006 19,000 20,439
8.00% 2011 52,985 63,622
7.50% 2025 5,000 5,675
5.22% 2097 14,506 11,593 .25
Nortel Networks Ltd. 6.125% 2006 21,000 21,998 .06
123,327 .31
MULTILINE RETAIL - 0.31%
J.C. Penney Co., Inc.:
7.60% 2007 8,250 9,157
8.00% 2010 31,875 36,736
7.95% 2017 40,275 46,115
8.25% 2022 (9) 5,099 5,309
8.125% 2027 3,000 3,277
7.625% 2097 4,500 4,657 .26
Mercantile Stores Company, Inc. 8.20% 2022 (9) 7,900 7,801
Dillard Department Stores, Inc. 7.875% 2023 2,875 2,932
Dillard's, Inc.:
6.43% 2004 1,000 1,010
6.69% 2007 625 637 .03
Saks Inc. 7.375% 2019 2,650 2,716 .01
Target Corp. 3.375% 2008 2,500 2,512 .01
122,859 .31
IT SERVICES - 0.30%
Electronic Data Systems Corp.:
7.125% 2009 2,905 3,196
Series B, 6.00% 2013 (5) 115,000 115,776 .30
Iron Mountain Inc. 7.75% 2015 1,750 1,837 .00
120,809 .30
AIRLINES - 0.29%
Northwest Airlines, Inc.:
7.625% 2005 10,000 9,825
8.875% 2006 2,200 2,079
9.875% 2007 37,400 35,530
7.875% 2008 22,000 19,360
10.00% 2009 (3) 35,750 33,605 .25
Delta Air Lines, Inc. 7.70% 2005 9,000 8,438 .02
Continental Airlines, Inc.:
8.00% 2005 5,010 4,860
MBIA insured, 2.08% 2009 (5) 2,000 2,017 .02
United Air Lines, Inc. 9.00% 2003 (10) 8,000 1,240 .00
Jet Equipment Trust, Series 1995-B, 10.91% 2014 (3) (7) 4,750 48 .00
117,002 .29
HOUSEHOLD DURABLES - 0.27%
MDC Holdings, Inc.:
7.00% 2012 8,975 10,055
5.50% 2013 15,750 15,960 .07
D.R. Horton, Inc.:
7.50% 2007 3,500 3,815
5.00% 2009 3,000 3,008
8.00% 2009 10,600 11,978
7.875% 2011 550 622
6.875% 2013 2,000 2,150 .05
K. Hovnanian Enterprises, Inc.:
10.50% 2007 8,000 9,240
7.75% 2013 2,500 2,638 .03
Toll Brothers, Inc. 6.875% 2012 8,000 8,955 .02
Standard Pacific Corp.:
6.50% 2008 2,000 2,090
6.875% 2011 6,500 6,793 .02
Centex Corp. 4.75% 2008 8,075 8,377 .02
Boyds Collection, Ltd., Series B, 9.00% 2008 7,382 7,493 .02
NVR, Inc. 5.00% 2010 6,500 6,435 .02
Pulte Homes, Inc. 7.625% 2017 5,000 5,850 .01
Ryland Group, Inc. 8.00% 2006 3,000 3,300 .01
108,759 .27
CONTAINERS & PACKAGING - 0.21%
Owens-Brockway Glass Container Inc.:
8.875% 2009 14,975 16,248
7.75% 2011 8,500 9,095
8.75% 2012 6,000 6,630
Owens-Illinois, Inc.:
8.10% 2007 750 788
7.50% 2010 750 776 .08
Stone Container Corp.:
9.25% 2008 8,375 9,275
9.75% 2011 875 969
8.375% 2012 3,000 3,270
Jefferson Smurfit Corp. (U.S.):
8.25% 2012 2,250 2,453
7.50% 2013 6,000 6,300 .05
Temple-Inland Inc. 7.875% 2012 10,000 11,689 .03
Graphic Packaging International, Inc. 8.50% 2011 (3) 8,500 9,371 .02
Smurfit Capital Funding PLC 6.75% 2005 3,425 3,545 .01
Norampac Inc. 6.75% 2013 3,250 3,453 .01
Ball Corp. 6.875% 2012 2,500 2,688 .01
86,550 .21
METALS & MINING - 0.21%
Oregon Steel Mills, Inc. 10.00% 2009 28,650 27,504 .07
Freeport-McMoRan Copper & Gold Inc. 10.125% 2010 10,195 11,661 .03
Allegheny Technologies, Inc. 8.375% 2011 10,500 10,238 .03
AK Steel Corp. 7.75% 2012 7,810 6,873 .02
Corporacion Nacional del Cobre de Chile: (3)
6.375% 2012 5,500 6,071
5.50% 2013 750 775 .02
United States Steel Corp. 9.75% 2010 5,000 5,700 .01
Inco Ltd. 7.75% 2012 4,000 4,794 .01
Gerdau Ameristeel Corp. 10.375% 2011 3,500 3,903 .01
Earle M. Jorgensen Co. 9.75% 2012 2,000 2,250 .01
Kaiser Aluminum & Chemical Corp. 12.75% 2003 (10) 9,500 1,805 .00
Luscar Coal Ltd. 9.75% 2011 1,500 1,710 .00
83,284 .21
CHEMICALS - 0.18%
Lyondell Chemical Co.:
9.50% 2008 34,905 36,127
10.875% 2009 5,275 5,301
11.125% 2012 6,200 6,789
10.50% 2013 6,125 6,646
Equistar Chemicals, LP and Equistar Funding Corp.:
10.625% 2011 (3) 1,000 1,090
10.625% 2011 425 463
Equistar Chemicals, LP 10.125% 2008 150 164 .14
Dow Chemical Co.:
5.00% 2007 5,000 5,299
5.75% 2009 2,500 2,711 .02
ICI Wilmington, Inc. 5.625% 2013 3,000 3,091 .01
Nalco Co. 7.75% 2011 (3) 2,400 2,544 .01
70,225 .18
AUTO COMPONENTS - 0.17%
ArvinMeritor, Inc.:
6.625% 2007 8,750 9,144
8.75% 2012 4,225 4,774
Meritor Automotive, Inc. 6.80% 2009 9,500 9,999 .06
TRW Automotive Acquisition Corp.:
9.375% 2013 11,750 13,366
11.00% 2013 2,625 3,045 .04
Lear Corp., Series B, 8.11% 2009 9,710 11,361 .03
Delphi Trust II, trust preferred securities, 6.197% 2033 (5) 6,000 6,090
Delphi Corp. 6.50% 2013 4,000 4,307 .03
Stoneridge, Inc. 11.50% 2012 2,825 3,376 .01
Tenneco Automotive Inc. 10.25% 2013 1,775 2,068 .00
67,530 .17
OFFICE ELECTRONICS - 0.14%
Xerox Corp.:
7.15% 2004 13,500 13,838
7.125% 2010 16,500 17,655
Xerox Capital (Europe) PLC 5.875% 2004 26,000 26,325 .14
57,818 .14
AEROSPACE & DEFENSE - 0.10%
BAE SYSTEMS 2001 Asset Trust, Series 2001: (3) (9)
Class B, 7.156% 2011 27,308 29,976
Class G, MBIA insured, 6.664% 2013 7,414 8,218 .09
General Dynamics Corp. 4.50% 2010 3,000 3,078 .01
41,272 .10
THRIFTS & MORTGAGE FINANCE - 0.10%
Washington Mutual, Inc.:
5.625% 2007 6,500 6,995
4.375% 2008 20,500 21,235
Dime Capital Trust I, Dime Bancorp, Inc., Series A, 9.33% 2027 9,425 11,729 .10
39,959 .10
OTHER INDUSTRIES - 0.62%
American Standard Inc.:
7.375% 2008 5,935 6,618
8.25% 2009 2,124 2,474
7.625% 2010 22,601 25,709 .09
CIT Group Inc.:
5.50% 2007 2,885 3,101
5.75% 2007 3,500 3,787
6.875% 2009 16,500 18,666
7.75% 2012 4,000 4,780 .08
State of California, Golden State Tobacco Securitization Corp., Tobacco
Settlement Asset-backed Bonds, Series 2003-A1, 6.25% 20033 19,750 19,269 .05
Burns Philp Capital Pty Ltd.: (3)
9.50% 2010 3,000 3,300
10.75% 2011 8,675 9,629
9.75% 2012 5,250 5,723 .05
NiSource Finance Corp.:
7.625% 2005 6,500 7,099
7.875% 2010 5,000 6,004
6.15% 2013 2,500 2,718 .04
John Deere Capital Corp. 3.90% 2008 14,000 14,322 .04
ON Semiconductor Corp. 13.00% 2008 (5) 8,350 9,770
ON Semiconductor Corp. and Semiconductor Components Industries, LLC 12.00% 2010 675 807 .03
Nabisco, Inc. 7.55% 2015 6,595 7,997
Kraft Foods Inc. 6.25% 2012 945 1,042 .02
Caterpillar Financial Services Corp.:
Series F, 2.35% 2006 5,000 4,979
2.70% 2008 4,000 3,893 .02
TFM, SA de CV:
10.25% 2007 1,150 1,208
11.75% 2009 2,675 2,729
12.50% 2012 4,165 4,790 .02
Amkor Technology, Inc.:
9.25% 2008 235 265
7.75% 2013 7,765 8,309 .02
Terex Corp.:
9.25% 2011 1,000 1,118
Class B, 10.375% 2011 2,000 2,290
7.375% 2014 (3) 3,500 3,658 .02
Kansas City Southern Railway Co. 7.50% 2009 5,750 5,973 .02
Cadbury Schweppes US Finance LLC 5.125% 2013 (3) 5,900 5,967 .01
RailAmerica Transportation Corp. 12.875% 2010 5,000 5,838 .01
TGT Pipeline, LLC 5.20% 2018 6,000 5,728 .01
Technical Olympic USA, Inc. 9.00% 2010 5,000 5,488 .01
Wyeth 5.50% 2014 5,000 5,144 .01
Citigroup Inc. 3.50% 2008 5,000 5,051 .01
State of California Dept. of Water Resources, Power Supply Revenue Bonds,
Series 2002-E, 4.33% 2006 4,500 4,630 .01
Schering-Plough Corp. 5.30% 2013 4,500 4,626 .01
Kellogg Co.:
6.00% 2006 3,000 3,211
6.60% 2011 1,250 1,412 .01
Hyundai Semiconductor America, Inc. 8.625% 2007 (3) 4,860 4,539 .01
AGCO Corp. 9.50% 2008 3,500 3,841 .01
Fairchild Semiconductor Corp. 10.50% 2009 1,815 2,015 .01
Micron Technology, Inc. 6.50% 2005 (3) 1,000 995 .00
250,512 .62
COLLATERALIZED MORTGAGE-/ASSET-BACKED OBLIGATIONS (9) - 3.28%
CHL Mortgage Pass-Through Trust: (5)
Series 2003-27, Class A-1, 3.838% 2033 12,942 12,921
Series 2003-56, Class 3-A-6, 4.956% 2033 52,695 53,020
Series 2003-58, Class 2-A-2, 4.732% 2034 84,115 85,602 .38
Banc of America Mortgage Securities Trust: (5)
Series 2003-G, Class 2-A-1, 4.088% 2033 8,858 8,952
Series 2003-D, Class 2-A-1, 4.183% 2033 9,051 9,097
Series 2003-J, Class 2-A-2, 4.533% 2033 73,632 74,375
Series 2004-A, Class 2-A-2, 4.184% 2034 35,000 35,235 .32
CS First Boston Mortgage Securities Corp.:
Series 2001-CK6, Class A-1, 4.393% 2006 2,047 2,101
Series 2003-AR20, Class II-A-2, 4.025% 2033 (5) 8,458 8,503
Series 2003-AR26, Class 6-A-1, 4.333% 2033 (5) 75,836 76,405
Series 2001-CF2, Class A-2, 5.935% 2034 8,635 9,174
Series 2001-CF2, Class A-3, 6.238% 2034 6,000 6,605
Series 1998-C1, Class A-1A, 6.26% 2040 5,004 5,228 .27
Merrill Lynch Mortgage Investors, Inc.:
Series 1995-C3, Class A-3, 7.117% 2025 (5) 2,985 3,048
Series 1999-C1, Class A-2, 7.56% 2031 11,750 13,398
Series 2003-A6, Class IIA, 4.309% 2033 (5) 73,342 73,590
Series 2004-A1, Class 2A, 4.67% 2034 (5) 9,000 9,146 .25
Bear Stearns ARM Trust: (5)
Series 2003-3, Class II-A-2, 4.208% 2033 3,856 3,883
Series 2003-9, Class III-A-3, 4.457% 2034 1,981 1,995
Series 2003-8, Class II-A-1, 4.948% 2034 73,152 74,410
Series 2003-9, Class III-A-2, 5.082% 2034 4,877 4,932 .21
WaMu Mortgage Pass-Through Certificates Trust:
Series 2003-AR3, Class A-2, 2.83% 2033 (5) 443 442
Series 2003-AR10, Class A-3-B, 3.89% 2033 (5) 14,000 14,158
Series 2003-AR8, Class A, 4.03% 2033 (5) 9,170 9,254
Series 2003-AR5, Class A-7, 4.21% 2033 (5) 20,762 20,933
Series 2003-AR6, Class A-1, 4.38% 2033 (5) 7,940 7,935
Series 2003-AR1, Class A-6, 4.534% 2033 (5) 2,643 2,675
Series 2004-AR1, Class A, 4.229% 2034 27,125 27,290 .21
First Horizon Mortgage Pass-Through Trust, Series 2004-AR1, Class II-A-1,
4.95% 2034 (5) 55,000 56,084 .14
Green Tree Financial Corp.:
Series 1993-2, Class B, 8.00% 2018 14,000 13,725
Series 1995-4, Class B-2, 7.70% 2025 (7) 1,900 874
Series 1995-3, Class B-2, 8.10% 2025 (7) 16,121 7,416
Series 1995-2, Class B-2, 8.80% 2026 (7) 11,457 5,270
Series 1996-2, Class B-2, 7.90% 2027 (7) 12,950 2,590
Series 1996-10, Class B-2, 7.74% 2028 (7) 8,369 1,590
Series 1997-8, Class B-2, 7.75% 2028 (7) 6,393 1,279
Series 1997-1, Class B-2, 7.76% 2028 (7) 9,781 1,956
Series 1997-2, Class B-2, 8.05% 2028 (7) 3,280 656
Series 1997-6, Class B-2, 7.75% 2029 (7) 10,611 2,122
Series 1998-3, Class B-2, 8.07% 2030 (7) 4,723 945
Series 1998-4, Class B-2, 8.11% 2030 (7) 6,470 1,294
Conseco Finance Home Loan Trust, Series 1999-G, Class B-2, 10.96% 2029 (7) 18,188 10,947
Conseco Finance Home Equity Loan Trust:
Series 2000-F, Class AF-4, 7.67% 2026 1,628 1,720
Series 2000-A, Class BV-2, 3.90% 2031 (5) 2,133 1,496 .13
Vita Capital Ltd., Series 2003-I, 2.56% 2007 (3) (5) 24,000 24,146 .06
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 2026 (3) 22,511 23,573 .06
Metris Master Trust: (5)
Series 2001-1, Class B, 1.90% 2007 6,000 6,005
Series 2000-3, Class A, 1.36% 2009 14,428 13,938
Series 2001-2, Class A, 1.42% 2009 3,500 3,350 .06
GS Mortgage Securities Corp. II, Series 1998-C1, Class D, 7.421% 2030 (5) 20,000 22,100 .05
Residential Asset Securities Corp. Trust:
Series 2003-KS2, Class A-I-3, 2.66% 2028 1,400 1,397
Series 2001-KS3, Class A-I-6, 5.96% 2031 9,500 10,061
Series 2003-KS6, Class A-2, 1.40% 2033 (5) 9,263 9,261 .05
GMAC Commercial Mortgage Securities, Inc., Series 1997-C2, Class E, 7.624% 2029 (5) 20,750 19,644 .05
Delta Air Lines, Inc.:
Series 2003-1, Class G, AMBAC insured, 1.87% 2008 (5) 3,149 3,169
Series 2001-1, Class A-2, 7.111% 2013 10,000 10,243
Series 1992-A2, 9.20% 2014 5,000 3,600 .04
MMCA Auto Owner Trust:
Series 2002-1, Class A-3, 4.15% 2006 28 28
Series 2001-4, Class B, 4.84% 2008 4,657 4,670
Series 2002-4, Class A-4, 3.05% 2009 5,000 5,038
Series 2002-4, Class B, 3.82% 2009 6,922 6,879 .04
AESOP Funding II LLC: (3)
Series 2002-A, Class A-1, AMBAC insured, 3.85% 2006 7,925 8,111
Series 2003-2, Class A-1, MBIA insured, 2.74% 2007 8,000 8,011 .04
AmSouth Auto Trust, Series 2000-1, Class C, 7.44% 2007 14,260 14,609 .04
AmeriCredit Automobile Receivables Trust, FSA insured:
Series 2002-C, Class A-4, 3.55% 2009 5,000 5,110
Series 2003-CF, Class A-4, 3.48% 2010 9,000 9,183 .04
Wells Fargo Mortgage Backed Securities Trust:
Series 2003-13, Class A-1, 4.5% 2018 4,915 4,966
Series 2003-B, Class A-1, 4.15% 2033 (5) 1,963 1,976
Series 2003-K, Class I-A-1, 4.522% 2033 (5) 7,420 7,321 .04
Continental Airlines, Inc., Series 2001-1:
Class B, 7.373% 2017 9,447 8,774
Class A-1, 6.703% 2021 4,354 4,414 .03
Bear Stearns Commercial Mortgage Securities Inc.:
Series 1999-C1, Class X, interest only, 1.271% 2031 (3) (5) 82,304 4,081
Series 2001-TOP2, Class A-2, 6.48% 2035 7,665 8,657 .03
Host Marriott Pool Trust, Series 1999-HMTA, Class D, 7.97% 2015 (3) 10,990 12,262 .03
Chase Credit Card Owner Trust, Series 2003-4, Class C, 2.35% 2016 (5) 11,500 11,538 .03
First Union-Lehman Brothers-Bank of America Commercial Mortgage Trust,
Series 1998-C2, Class A-1, 6.28% 2035 10,996 11,524 .03
MBNA Master Credit Card Trust II:
Series 1999-G, Class C, 1.90% 2006 (3) (5) 700 700
Series 1999-D, Class C, 6.95% 2008 (3) 4,700 5,129
Series 2000-H, Class B, 1.70% 2013 (5) 5,000 5,030 .03
Consumer Credit Reference Index Securities Program Trust, Series 2002-2A: (3)
6.29% 2007 (5) 5,000 4,946
Class FX, 10.421% 2007 5,000 5,266 .03
Chase Commercial Mortgage Securities Corp., Series 1998-1:
Class A-1, 6.34% 2030 694 706
Class A-2, 6.56% 2030 8,000 8,907 .02
CPS Auto Receivables Trust, Series 2002-C, Class A-2, XLCA insured, 3.52% 2009 (3) 9,385 9,465 .02
Mediterranean Re PLC 7.021% 2005 (3) (5) 9,000 9,225 .02
Ameriquest Mortgage Securities Inc., Asset-backed Pass-Through Certificates,
Series 2003-5, Class A-2, 2.43% 2033 9,000 9,025 .02
Banco Itau SA, Series 2002, XLCA insured, 1.878% 2007 (3) (5) 9,050 9,005 .02
Morgan Stanley Capital I, Inc.:
Series 2003-KIDS, Class A, 1.78% 2016 (3) (5) 4,945 4,946
Series 1998-WF2, Class A-1, 6.34% 2030 3,730 3,931 .02
First USA Credit Card Master Trust: (3)
Series 1997-4, Class C, 2.12% 2010 (5) 6,500 6,468
Series 1998-6, Class C, 6.16% 2011 2,000 2,128 .02
WFS Financial Owner Trust, Series 2002-3, Class A-4, 3.50% 2010 8,000 8,201 .02
SeaWest Securitization, LLC, XLCA insured: (3)
Series 2002-A, Class A-2, 2.58% 2008 646 647
Series 2002-A, Class A-3, 3.58% 2008 3,000 3,039
Series 2003-A, Class A-2, 2.84% 2009 3,739 3,784 .02
Residential Asset Mortgage Products Trust, Series 2003-RZ4, Class A-7, 4.79% 2033 7,000 7,011 .02
Northwest Airlines, Inc.:
Series 1999-2, Class A, 7.575% 2020 989 1,052
Series 1999-3, Class G, 7.935% 2020 898 1,002
Series 2001-1, Class A-1, 7.041% 2023 4,633 4,733 .02
Financial Pacific Funding II, LLC, Series 2003-A, Class A, FSA insured, 2.29% 2009 (3) 6,874 6,875 .02
Residential Reinsurance: (3) (5)
2001 Ltd. 6.163% 2004 6,000 6,069
2002 Ltd. 6.073% 2005 500 509 .02
CitiFinancial Mortgage Securities Inc., Series 2003-3, Class AF-5, 4.553% 2033 6,500 6,457 .02
Home Equity Asset Trust, Series 2003-5, Class A-2, 1.45% 2033 (5) 6,221 6,224 .02
PNC Mortgage Securities Corp., Series 1998-10, Class 1-B1, 6.50% 2028 6,104 6,223 .02
Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds,
Series 2001-A, Class A, 6.36% 2025 6,262 6,129 .02
California Infrastructure and Economic Development Bank, Special Purpose Trust,
PG&E-1, Series 1997-1, Class A-7, 6.42% 2008 5,707 6,061 .01
PIONEER 2002-1 Ltd., Class D Series, 2.92% 2006 (3) (5) 6,000 6,049 .01
America West Airlines, Inc., Series 2000-1, Class G, AMBAC insured, 8.057% 2022 5,251 5,798 .01
Centex Home Equity Loan Trust, Series 2003-A, Class AF-3, 2.708% 2026 5,600 5,605 .01
Morgan Stanley Dean Witter Capital I Trust:
Series 2002-HQ, Class A-1, 4.59% 2034 2,494 2,585
Series 2003-TOP9, Class A-1, 3.98% 2036 2,888 2,920 .01
GE Capital Commercial Mortgage Corp., Series 2001-1, Class A-1, 6.079% 2033 4,695 5,087 .01
SLM Private Credit Student Loan Trust, Series 2002-A, Class A-2, 1.713% 2030 (5) 5,000 5,045 .01
Salomon Brothers Commercial Mortgage Trust, Series 2000-C1, Class A-1, 7.46% 2008 4,497 5,042 .01
Drivetime Auto Owner Trust, Series 2003-A, Class A-3, XLCA insured, 2.524% 2008 (3) (5) 5,000 5,042 .01
Chase Funding Trust, Series 2003-5, Class IA-2, 2.451% 2018 5,000 4,996 .01
Chevy Chase Auto Receivables Trust, Series 2001-2, Class B, 5.16% 2008 4,332 4,514 .01
Educational Enhancement Funding Corp. Tobacco Settlement Bonds, Series 2002-A,
Class A, 6.72% 2025 4,715 4,493 .01
Pass-through Amortizing Credit Card Trusts, Series 2002-1A: (3)
Class A-2FX, 4.685% 2012 2,386 2,410
Class A-3FX, 6.298% 2012 1,591 1,612 .01
Providian Master Trust, Series 2000-1, Class C, 2.25% 2009 (3) (5) 4,000 3,947 .01
Metropolitan Asset Funding, Inc., Series 1998-A, Class B-1, 7.728% 2014 (3) 4,669 3,863 .01
Madison Avenue Manufactured Housing Contract Trust, Series 2002-A, Class M-1,
2.55% 2032 (5) 4,000 3,665 .01
Deutsche Mortgage & Asset Receiving Corp., Series 1998-C1, Class A-1, 6.22% 2031 3,609 3,659 .01
Structured Asset Securities Corp.: (5)
Series 1998-RF2, Class A, 8.542% 2027 (3) 794 880
Series 1998-RF1, Class A, 8.706% 2027 (3) 626 693
Series 1999-BC1, Class M2, 2.40% 2029 1,707 1,719 .01
Jet Equipment Trust: (3) (7)
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 5,500 333
Series 1995-A, Class C, 10.69% 2015 5,000 500 .01
Opryland Hotel Trust, Series 2001-OPRA, Class C, 2.06% 2011 (3) (5) 3,000 2,946 .01
Rental Car Finance Corp., Series 1999-1A, Class D, 7.10% 2007 (3) 2,500 2,541 .01
Capital One Master Trust, Series 1999-1, Class C, 6.60% 2007 (3) 2,500 2,533 .01
First Nationwide Trust, Series 1999-2, Class 1PA-1, 6.50% 2029 2,426 2,518 .01
American Airlines, Inc., Series 2003-1, Class G, AMBAC insured, 3.857% 2010 2,442 2,457 .01
Nebhelp Trust, Student Loan Interest Margin Securities, Series 1, Class A,
MBIA insured, 6.68% 2016 (3) 2,003 2,153 .01
United Air Lines, Inc., Series 1996-A2, 7.87% 2019 (7) 5,000 1,848 .00
Security National Mortgage Loan Trust, Series 2001-3A, Class A-2, 5.37% 2014 (3) 1,575 1,605 .00
Santa Barbara Bank & Trust Automobile Loan Securitization Corp., Series 2001-A,
Class A, 6.13% 2007 (3) 1,421 1,424 .00
PECO Energy Transition Trust, Series 1999-A, Class A-7, 6.13% 2009 1,250 1,384 .00
Financial Asset Securitization, Inc., Series 1997-NAM1, Class B-1, 7.75% 2027 1,150 1,149 .00
NPF XII, Inc.: (2) (3)
Series 1999-3, Class B, 2.39% 2003 (5) (10) 3,000 30
Series 2001-1A, Class A, 1.99% 2004 (5) (7) 5,000 600
Series 2001-3A, Class A, 5.52% 2007 (7) 1,000 120 .00
NextCard Credit Card Master Note Trust, Series 2001-1A, Class A,
1.40% 2007 (3) (5) (7) 102 102 .00
1,316,811 3.28
FEDERAL AGENCY OBLIGATIONS: MORTGAGE PASS-THROUGHS (9) - 1.12%
Fannie Mae:
3.814% 2033 (5) 9,821 9,880
4.50% 2018 20,187 20,287
5.00% 2018 31,993 32,739
5.50% 2016 - 2033 91,173 93,684
6.00% 2016 - 2032 22,234 23,187
6.50% 2031 - 2032 16,168 17,027
7.00% 2016 - 2031 6,740 7,180
7.50% 2023 - 2031 1,903 2,047
8.00% 2024 481 521
9.00% 2010 736 798
9.50% 2022 888 999
10.00% 2018 - 2025 1,559 1,806 .52
Government National Mortgage Assn.:
5.50% 2017 8,347 8,726
6.00% 2034 90,040 93,335
7.00% 2022 - 2031 6,494 6,958
7.50% 2017 - 2030 14,474 15,632
8.00% 2017 - 2023 2,631 2,855
8.50% 2017 - 2021 830 918
9.00% 2016 151 168
9.50% 2009 - 2021 1,345 1,489
10.00% 2020 - 2025 9,310 10,872 .35
Freddie Mac:
5.00% 2018 - 2033 40,674 41,010
5.50% 2018 11,124 11,582
6.00% 2032 - 2034 41,448 42,853
8.50% 2008 - 2010 719 773
9.00% 2007 348 366
11.00% 2018 805 937 .25
448,629 1.12
FEDERAL AGENCY OBLIGATIONS: COLLATERALIZED MORTGAGE OBLIGATIONS (9) - 0.13%
Fannie Mae:
Series 2002-W7, Class A-2, 4.80% 2022 10,553 10,587
Series 2001-4, Class GA, 10.211% 2025 (5) 2,755 3,145
Series 2001-4, Class NA, 11.787% 2025 (5) 261 310
Series 2002-W3, Class A-5, 7.50% 2028 2,947 3,220
Series 2001-20, Class E, 9.589% 2031 (5) 2,721 3,081
Series 2001-50, Class BA, 7.00% 2041 5,497 5,865
Series 2001-T10, Class A-1, 7.00% 2041 3,547 3,837
Series 2002-W1, Class 2A, 7.50% 2042 6,470 7,070 .09
Freddie Mac:
Series SF02, Class GC, 2.64% 2009 5,000 4,773
Series 178, Class Z, 9.25% 2021 364 365
Series 2289, Class NB, 11.279% 2022 (5) 635 744
Series T-056, Class A-2A, 2.842% 2036 8,740 8,714 .04
51,711 .13
OTHER FEDERAL AGENCY OBLIATIONS - 0.24%
Freddie Mac 4.25% 2005 75,000 77,744 .19
Federal Home Loan Bank 4.125% 2004 16,460 16,819 .04
Fannie Mae 7.25% 2030 3,250 4,046 .01
98,609 .24
GOVERNMENT & GOVERNMENTAL AUTHORITIES (EXCLUDING U.S.) - 0.26%
United Mexican States Government Eurobonds, Global:
4.625% 2008 10,000 10,150
8.625% 2008 5,000 5,875
8.375% 2011 3,000 3,555
7.50% 2012 6,310 7,115
6.375% 2013 7,500 7,868
11.375% 2016 29,684 42,300
8.125% 2019 4,580 5,164
8.30% 2031 1,965 2,223 .21
State of Qatar 9.75% 2030 7,000 9,923 .03
Russian Federation 5.00% 2030 (8) 4,770 4,684 .01
Banque Centrale de Tunisie 7.375% 2012 3,500 3,981 .01
El Salvador (Republic of) 7.75% 2023 (3) 1,250 1,350 .00
104,188 .26
DEVELOPMENT AUTHORITIES - 0.01%
Corporacion Andina de Fomento 6.875% 2012 4,000 4,512 .01
4,512 .01
U.S. TREASURY NOTES & BONDS - 1.98%
7.25% May 2004 150,000 152,649
5.75% November 2005 239,500 256,564
3.375% January 2007 (11) 37,853 41,168
4.375% May 2007 50,000 52,961
3.25% August 2007 35,000 35,766
3.625% January 2008 (11) 119,934 133,392
2.625% May 2008 5,000 4,944
6.00% August 2009 29,000 32,933
5.75% August 2010 5,000 5,632
3.50% January 2011 (11) 15,904 18,081
Principal Strip 0% August 2011 5,660 4,200
Principal Strip 0% November 2013 11,585 7,510
Principal Strip 0% November 2015 13,850 7,926
8.875% August 2017 10,025 14,340
8.750% August 2020 6,905 9,991
6.875% August 2025 15,000 18,623 1.98
796,680 1.98
MISCELLANEOUS - 0.08%
Other bonds & notes in initial period of acquisition 30,247 .08
Total bonds & notes (cost: $10,295,532,000) 10,866,074 27.07
PRINCIPAL MARKET PERCENT
AMOUNT VALUE OF NET
Short-term securities - 7.91% (000) (000) ASSETS
Corporate short-term notes - 5.19%
Bank of America Corp. 1.03%-1.07% due 4/5-5/3/2004 (12) $ 77,300 $ 77,116
Receivables Capital Corp. 1.02%-1.07% due 2/4-3/15/2004 (3) 65,000 64,944 .35
Edison Asset Securitization LLC 1.03%-1.09% due 2/2-4/23/2004 (3) 130,000 129,860 .32
Park Avenue Receivables Corp. 1.02%-1.04% due 2/11-3/4/2004 (3) 125,000 124,929 .31
Pfizer Inc 0.98%-0.99% due 3/1-3/10/2004 (3) 125,000 124,886 .31
CAFCO, LLC 1.03%-1.09% due 2/10-3/3/2004 (3) 69,500 69,461
Ciesco LLP 1.04% due 4/6/2004 (3) (12) 50,000 49,905 .30
Wal-Mart Stores Inc. 0.98%-0.99% due 3/9-3/30/2004 (3) 100,000 99,865 .25
Coca-Cola Co. 1.00%-1.02% due 3/9-3/29/2004 (12) 100,000 99,864 .25
Private Export Funding Corp. 1.01%-1.10% due 2/26-6/30/2004 (3) 85,000 84,831 .21
Triple-A One Funding Corp. 1.02%-1.04% due 2/20-3/8/2004 (3) 80,000 79,927 .20
Preferred Receivables Funding Corp. 1.02%-1.05% due 2/5-3/22/2004 (3) 75,000 74,958 .19
Variable Funding Capital Corp. 1.02%-1.03% due 2/20-4/12/2004 (3) 75,000 74,920 .19
New Center Asset Trust 1.02%-1.04% due 3/12-3/23/2004 75,000 74,896 .19
Household Finance Corp. 1.00%-1.02% due 3/16-4/23/2004 75,000 74,846 .19
Netjets Inc. 1.04%-1.06% due 2/13-2/19/2004 (3) (12) 74,800 74,761 .19
Clipper Receivables Corp. 1.03% due 2/2-4/16/2004 (3) 74,700 74,589 .19
FCAR Owner Trust I 1.04%-1.10% due 2/3-4/27/2004 70,000 69,927 .17
SBC Communications Inc. 1.00% due 2/13-2/25/2004 (3) 60,000 59,966 .15
Verizon Network Funding Corp. 0.99%-1.03% due 2/6-3/11/2004 55,000 54,963 .14
USAA Capital Corp. 0.99%-1.05% due 2/2-2/17/2004 50,000 49,991 .13
Exxon Project Investment Corp. 0.98% due 2/24/2004 (3) 50,000 49,967 .12
Three Pillars Funding Corp. 1.03% due 2/25/2004 (3) 50,000 49,964 .12
DuPont (E.I.) de Nemours & Co. 1.00%-1.01% due 3/10/2004 50,000 49,945 .12
American Express Credit Corp. 1.04%-1.05% due 2/17-4/5/2004 (12) 50,000 49,941 .12
Procter & Gamble Co. 0.99%-1.00% due 4/12-4/20/2004 (3) 37,200 37,119 .09
Caterpillar Financial Services Corp. 0.98%-1.00% due 3/2-4/13/2004 35,000 34,947 .09
Archer Daniels Midland Co. 1.01%-1.03% due 4/27-5/18/2004 (3) 30,000 29,917 .08
Anheuser-Busch Cos. Inc. 1.01% due 2/3/2004 (3) 25,000 24,998 .06
BellSouth Corp. 0.99% due 2/12/2004 (3) (12) 25,000 24,992 .06
Harley-Davidson Funding Corp. 0.99%-1.02% due 2/18-3/5/2004 (3) 25,000 24,981 .06
PepsiCo Inc. 0.98% due 2/13/2004 (3) 15,000 14,995 .04
2,081,171 5.19
U.S. Treasuries - 1.22%
U.S. Treasury Bills 0.825%-1.02% due 2/5-6/24/2004 492,600 491,629 1.22
Federal agency discount notes - 1.15%
Federal Farm Credit Banks 0.97%-1.06% due 2/12-6/28/2004 138,000 137,798 .34
International Bank for Reconstruction and Development 0.96%-1.01%
due 2/4-4/7/2004 (12) 107,500 107,425 .27
Federal Home Loan Bank 0.97%-0.99% due 2/4-2/6/2004 75,000 74,989 .19
Fannie Mae 0.97%-0.99% due 3/3-3/31/2004 50,000 49,944 .12
Freddie Mac 0.995%-1.00% due 4/13-4/20/2004 50,000 49,890 .12
Student Loan Marketing Assn. 0.963%-0.947% due 6/17-7/15/2004 (5) 43,500 43,500 .11
463,546 1.15
Certificates of deposit - 0.35%
Wells Fargo & Co. 1.02%-1.04% due 2/10-4/20/2004 90,000 89,998 .22
State Street Bank & Trust 1.04% due 3/3/2004 50,000 50,000 .13
139,998 .35
Total short-term securities (cost: $3,176,280,000) 3,176,344 7.91
Total investment securities (cost: $35,510,401,000) 40,455,479 100.79
New Taiwanese Dollar (cost: $3,008,000) NT$ 105,163 3,160 .01
Other assets less liabilities (322,116) (.80)
Net assets $40,136,523 100.00%
(1) Security did not produce income during the last 12 months.
(2) Valued under fair value procedures adopted by authority of the Board of
Directors.
(3) Purchased in a private placement transaction; resale may be limited to
qualified institutional buyers; resale to the public may require
registration.
(4) Payment in kind; the issuer has the option of paying additional securities
in lieu of cash.
(5) Coupon rate may change periodically.
(6) The fund owns 11.54% and 7.94% of the outstanding voting securities of
Wilshire Financial Services Group Inc. and Clarent Hospital Corp.,
respectively, and thus is considered an affiliate of these companies under
the Investment Company Act of 1940.
(7) Company not making scheduled interest payments; bankruptcy proceedings
pending.
(8) Step bond; coupon rate will increase at a later date.
(9) 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.
(10) Company did not make principal payment upon scheduled maturity date;
reorganization pending.
(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
FINANCIAL STATEMENTS unaudited
STATEMENT OF ASSETS AND LIABILITIES
at January 31, 2004
(dollars and shares in thousands, except per-share amounts)
ASSETS:
Investment securities at market:
Unaffiliated issuers (cost: $35,482,838) $40,439,637
Affiliated issuers (cost: $27,563) 15,842 $40,455,479
Cash denominated in non-U.S. currencies
(cost: $3,008) 3,160
Cash 18,313
Receivables for:
Sales of investments 237,640
Sales of fund's shares 197,228
Dividends and interest 231,793 666,661
41,143,613
LIABILITIES:
Payables for:
Purchases of investments 817,997
Repurchases of fund's shares 23,126
Dividends on fund's shares 139,210
Investment advisory services 7,469
Services provided by affiliates 17,442
Deferred Directors' compensation 1,416
Other fees and expenses 430 1,007,090
NET ASSETS AT JANUARY 31, 2004 $40,136,523
NET ASSETS CONSIST OF:
Capital paid in on shares of capital stock $35,274,632
Undistributed net investment income 39,967
Accumulated net realized loss (123,584)
Net unrealized appreciation 4,945,508
NET ASSETS AT JANUARY 31, 2004 $40,136,523
TOTAL AUTHORIZED CAPITAL STOCK - 3,000,000 SHARES, $.001 PAR VALUE
SHARES NET ASSET
NET ASSETS OUTSTANDING VALUE PER SHARE (1)
CLASS A $32,854,585 1,899,667 $17.29
CLASS B 2,841,585 165,088 17.21
CLASS C 3,081,323 179,234 17.19
CLASS F 799,877 46,298 17.28
CLASS 529-A 152,968 8,852 17.28
CLASS 529-B 42,102 2,441 17.25
CLASS 529-C 74,596 4,323 17.25
CLASS 529-E 8,383 486 17.26
CLASS 529-F 1,872 108 17.28
CLASS R-1 5,120 297 17.25
CLASS R-2 91,121 5,295 17.21
CLASS R-3 117,806 6,822 17.27
CLASS R-4 16,184 936 17.29
CLASS R-5 49,001 2,834 17.29
(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 $18.34 and
$18.33, respectively.
See Notes to Financial Statements
STATEMENT OF OPERATIONS unaudited
for the six months ended January 31, 2004 (dollars in thousands)
INVESTMENT INCOME:
Income:
Dividends (net of non-U.S. withholding
tax of $10,095) $428,371
Interest (net of non-U.S. withholding
tax of $44) 381,372 $809,743
Fees and expenses:
Investment advisory services 43,952
Distribution services 59,362
Transfer agent services 10,730
Administrative services 3,228
Reports to shareholders 445
Registration statement and prospectus 1,055
Postage, stationery and supplies 1,603
Directors' compensation 302
Auditing and legal 86
Custodian 1,132
State and local taxes 1
Other 7
Total expenses before reimbursement 121,903
Reimbursement of expenses 66 121,837
Net investment income 687,906
NET REALIZED GAIN AND UNREALIZED
APPRECIATION ON INVESTMENTS
AND NON-U.S. CURRENCY:
Net realized gain (loss) on:
Investments 206,097
Non-U.S. currency transactions (1,242) 204,855
Net unrealized appreciation on:
Investments 3,972,089
Non-U.S. currency translations 35 3,972,124
Net realized gain and
unrealized appreciation
on investments and non-U.S. currency 4,176,979
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $4,864,885
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands)
SIX MONTHS YEAR ENDED
ENDED JANUARY 31, JULY 31,
2004* 2003
OPERATIONS:
Net investment income $687,906 $1,197,537
Net realized gain (loss) on investments and
non-U.S. currency transactions 204,855 (318,304)
Net unrealized appreciation
on investments and non-U.S. currency translations 3,972,124 2,135,608
Net increase in net assets
resulting from operations 4,864,885 3,014,841
DIVIDENDS AND DISTRIBUTIONS PAID OR ACCRUED TO
SHAREHOLDERS:
Dividends from net investment income (850,501) (1,188,421)
Distributions from net realized gain
on investments - (33,634)
Total dividends and distributions paid or accrued
to shareholders (850,501) (1,222,055)
CAPITAL SHARE TRANSACTIONS 5,563,570 7,542,328
TOTAL INCREASE IN NET ASSETS 9,577,954 9,335,114
NET ASSETS:
Beginning of period 30,558,569 21,223,455
End of period (including undistributed
net investment income: $39,967 and $202,562, respectively) $40,136,523 $30,558,569
*Unaudited
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS (unaudited)
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 CONTINGENT DEFERRED SALES CONVERSION FEATURE
CHARGE CHARGE UPON REDEMPTION
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Classes A and 529-A Up to 5.75% None (except 1% for certain None
redemptions within one year
of purchase without an
initial sales charge)
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Classes B and 529-B None Declines from 5% to zero for Classes B and 529-B
redemptions within six years convert to classes A
of purchase and 529-A, respectively,
after eight years
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Class C None 1% for redemptions within one Class C converts to
year of purchase Class F after 10 years
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Class 529-C None 1% for redemptions within one 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 fair valued as determined in good faith by
authority of the fund's Board of Directors. Various factors may be reviewed
in order to make a good faith determination of a security's fair value.
These factors include, but are not limited to, the type and cost of the
security; contractual or legal restrictions on resale of the security;
relevant financial or business developments of the issuer; actively traded
similar or related securities; conversion or exchange rights on the
security; related corporate actions; significant events occurring after the
close of trading in the security; and changes in overall market conditions.
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 - Effective September 15, 2003,
the fund began declaring dividends to shareholders from net investment
income daily and continues to pay such dividends quarterly. Distributions
paid to shareholders are 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 gain or loss is considered unrealized 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.
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;
cost of investments sold; paydowns on investments; and net capital losses. 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
January 31, 2004, the cost of investment securities and cash denominated in
non-U.S. currencies for federal income tax purposes was $35,543,782,000.
As of January 31, 2004, the components of distributable earnings on a tax basis
were as follows:
(dollars in thousands)
Undistributed net investment income and currency gains $210,773
Accumulated short-term capital losses (87,916)
Accumulated long-term capital losses (34,432)
Gross unrealized appreciation on investment securities 5,510,958
Gross unrealized depreciation on investment securities (596,101)
Accumulated short-term capital losses 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 the current year or in
subsequent years through the expiration date. The fund will not make
distributions from capital gains while a capital loss carryforward remains. Also
included in accumulated short-term capital losses 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 or accrued to shareholders was as
follows (dollars in thousands):
SIX MONTHS ENDED JANUARY 31, 2004
DISTRIBUTIONS DISTRIBUTIONS TOTAL
FROM ORDINARY FROM LONG-TERM DISTRIBUTIONS
SHARE CLASS INCOME CAPITAL GAINS PAID OR ACCRUED
Class A $ 728,661 - $ 728,661
Class B 49,889 - 49,889
Class C 47,727 - 47,727
Class F 14,756 - 14,756
Class 529-A 2,803 - 2,803
Class 529-B 611 - 611
Class 529-C 1,095 - 1,095
Class 529-E 145 - 145
Class 529-F 27 - 27
Class R-1 70 - 70
Class R-2 1,396 - 1,396
Class R-3 1,823 - 1,823
Class R-4 337 - 337
Class R-5 1,161 - 1,161
TOTAL $ 850,501 - $ 850,501
YEAR ENDED JULY 31, 2003
DISTRIBUTIONS DISTRIBUTIONS TOTAL
FROM ORDINARY FROM LONG-TERM DISTRIBUTIONS
SHARE CLASS INCOME CAPITAL GAINS PAID
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
* Amount less than one thousand.
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 monthly gross investment income. For the six months ended January
31, 2004, the investment advisory services fee was $43,952,000, which was
equivalent to an annualized rate of 0.251% 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 January 31, 2004,
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 and R-3, 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 above for the six months ended
January 31, 2004, were as follows (dollars in thousands):
--------------------------------------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES
------------------------------------------------------------
COMMONWEALTH OF
CRMC VIRGINIA
DISTRIBUTION TRANSFER AGENT ADMINISTRATIVE TRANSFER AGENT ADMINISTRATIVE
SHARE CLASS SERVICES SERVICES SERVICES SERVICES SERVICES
--------------------------------------------------------------------------------------------------------------
Class A $33,318 $9,840 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class B 12,131 890 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class C 12,080 Included $1,812 $229 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class F 775 Included 465 55 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-A 73 Included 89 7 $59
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-B 171 Included 26 7 17
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-C 287 Included 43 9 29
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-E 16 Included 5 -* 1
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-F 2 Included 1 -* 3
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-1 17 Included 3 3 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-2 264 Included 53 158 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-3 211 Included 63 57 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-4 17 Included 10 1 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-5 Not applicable Included 22 1 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Total $59,362 $10,730 $2,592 $527 $109
==============================================================================================================
* 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 $122,000 in current fees (either paid in cash or deferred) and a net
increase of $180,000 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 SALES(1) REINVESTMENTS OF
DIVIDENDS AND DISTRIBUTIONS
AMOUNT SHARES AMOUNT SHARES
SIX MONTHS ENDED JANUARY 31, 2004
Class A $4,493,343 275,217 $ 534,739 33,057
Class B 594,754 36,828 35,725 2,221
Class C 1,020,265 62,868 33,048 2,057
Class F 292,583 17,903 9,595 593
Class 529-A 46,671 2,847 2,278 140
Class 529-B 10,621 651 496 31
Class 529-C 25,100 1,535 892 55
Class 529-E 2,596 158 118 7
Class 529-F 1,012 62 21 1
Class R-1 2,838 174 56 4
Class R-2 37,685 2,328 1,138 71
Class R-3 72,724 4,481 1,455 90
Class R-4 7,884 487 278 17
Class R-5 7,227 449 532 33
TOTAL NET INCREASE
(DECREASE) $6,615,303 405,988 $ 620,371 38,377
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
SHARE CLASS REPURCHASES(1) NET INCREASE
AMOUNT SHARES AMOUNT SHARES
SIX MONTHS ENDED JANUARY 31, 2004
Class A $ (1,396,969) (85,698) $ 3,631,113 222,576
Class B (83,505) (5,134) 546,974 33,915
Class C (101,782) (6,271) 951,531 58,654
Class F (45,075) (2,753) 257,103 15,743
Class 529-A (2,468) (149) 46,481 2,838
Class 529-B (608) (37) 10,509 645
Class 529-C (1,700) (103) 24,292 1,487
Class 529-E (278) (16) 2,436 149
Class 529-F (80) (5) 953 58
Class R-1 (424) (26) 2,470 152
Class R-2 (7,489) (462) 31,334 1,937
Class R-3 (22,693) (1,415) 51,486 3,156
Class R-4 (5,756) (362) 2,406 142
Class R-5 (3,277) (205) 4,482 277
TOTAL NET INCREASE
(DECREASE) $ (1,672,104) (102,636) $ 5,563,570 341,729
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
(1) 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 January 31, 2004, the total value
of restricted securities was $3,671,775,000, which represented 9.15% 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 $8,616,763,000 and $4,658,921,000, respectively, during the six
months ended January 31, 2004.
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
six months ended January 31, 2004, the custodian fee of $1,132,000 included
$38,000 that was offset by this reduction, rather than paid in cash.
FINANCIAL HIGHLIGHTS (1)
INCOME (LOSS) FROM INVESTMENT OPERATIONS(3)
NET
NET ASSET GAINS(LOSSES)
VALUE, NET ON SECURITIES TOTAL FROM
BEGINNING INVESTMENT (BOTH REALIZED INVESTMENT
OF PERIOD INCOME AND UNREALIZED) OPERATIONS
CLASS A:
Six months ended 1/31/2004 (2) $15.44 $.33 $1.93 $2.26
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:
Six months ended 1/31/2004 (2) 15.36 .27 1.92 2.19
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:
Six months ended 1/31/2004 (2) 15.34 .26 1.92 2.18
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:
Six months ended 1/31/2004 (2) 15.42 .32 1.94 2.26
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:
Six months ended 1/31/2004 (2) 15.42 .32 1.94 2.26
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:
Six months ended 1/31/2004 (2) 15.36 .25 1.94 2.19
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:
Six months ended 1/31/2004 (2) 15.39 .25 1.93 2.18
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:
Six months ended 1/31/2004 (2) 15.40 .29 1.94 2.23
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:
Six months ended 1/31/2004 (2) 15.42 .31 1.94 2.25
Period from 9/17/2002 to 7/31/2003 14.11 .60 1.24 1.84
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS TOTAL NET ASSET
(FROM NET DISTRIBUTIONS DIVIDENDS VALUE,
INVESTMENT (FROM AND END OF TOTAL
INCOME) CAPITAL GAINS) DISTRIBUTIONS PERIOD RETURN(4)
CLASS A:
Six months ended 1/31/2004 (2) $(.41) $ - $(.41) $17.29 14.84%
Year ended 7/31/2003 (.73) (.02) (.75) 15.44 12.18
Year ended 7/31/2002 (.80) (.16) (.96) 14.49 (6.35)
Year ended 7/31/2001 (.80) (.48) (1.28) 16.44 15.53
Year ended 7/31/2000 (.87) (.81) (1.68) 15.43 (2.08)
Year ended 7/31/1999 (.88) (1.19) (2.07) 17.51 7.79
CLASS B:
Six months ended 1/31/2004 (2) (.34) - (.34) 17.21 14.42
Year ended 7/31/2003 (.62) (.02) (.64) 15.36 11.37
Year ended 7/31/2002 (.69) (.16) (.85) 14.42 (7.14)
Year ended 7/31/2001 (.70) (.48) (1.18) 16.39 14.77
Period from 3/15/2000 to 7/31/2000 (.19) - (.19) 15.39 4.33
CLASS C:
Six months ended 1/31/2004 (2) (.33) - (.33) 17.19 14.38
Year ended 7/31/2003 (.61) (.02) (.63) 15.34 11.23
Year ended 7/31/2002 (.68) (.16) (.84) 14.41 (7.17)
Period from 3/15/2001 to 7/31/2001 (.17) - (.17) 16.37 4.35
CLASS F:
Six months ended 1/31/2004 (2) (.40) - (.40) 17.28 14.85
Year ended 7/31/2003 (.71) (.02) (.73) 15.42 12.11
Year ended 7/31/2002 (.79) (.16) (.95) 14.47 (6.56)
Period from 3/15/2001 to 7/31/2001 (.20) - (.20) 16.44 4.71
CLASS 529-A:
Six months ended 1/31/2004 (2) (.40) - (.40) 17.28 14.81
Year ended 7/31/2003 (.72) (.02) (.74) 15.42 12.10
Period from 2/15/2002 to 7/31/2002 (.39) - (.39) 14.48 (5.83)
CLASS 529-B:
Six months ended 1/31/2004 (2) (.30) - (.30) 17.25 14.37
Year ended 7/31/2003 (.63) (.02) (.65) 15.36 11.10
Period from 2/19/2002 to 7/31/2002 (.36) - (.36) 14.46 (5.40)
CLASS 529-C:
Six months ended 1/31/2004 (2) (.32) - (.32) 17.25 14.33
Year ended 7/31/2003 (.60) (.02) (.62) 15.39 11.10
Period from 2/19/2002 to 7/31/2002 (.36) - (.36) 14.46 (5.40)
CLASS 529-E:
Six months ended 1/31/2004 (2) (.37) - (.37) 17.26 14.65
Year ended 7/31/2003 (.67) (.02) (.69) 15.40 11.66
Period from 2/25/2002 to 7/31/2002 (.38) - (.38) 14.47 (6.24)
CLASS 529-F:
Six months ended 1/31/2004 (2) (.39) - (.39) 17.28 14.79
Period from 9/17/2002 to 7/31/2003 (.51) (.02) (.53) 15.42 13.38
NET ASSETS, RATIO OF RATIO OF
END OF EXPENSES NET INCOME
PERIOD (IN TO AVERAGE TO AVERAGE
MILLIONS) NET ASSETS NET ASSETS
CLASS A:
Six months ended 1/31/2004 (2) $32,855 .57% (5) 4.05% (5)
Year ended 7/31/2003 25,891 .61 4.98
Year ended 7/31/2002 19,585 .61 4.66
Year ended 7/31/2001 19,519 .62 5.18
Year ended 7/31/2000 18,102 .63 5.52
Year ended 7/31/1999 23,012 .59 4.99
CLASS B:
Six months ended 1/31/2004 (2) 2,842 1.35 (5) 3.26 (5)
Year ended 7/31/2003 2,015 1.39 4.17
Year ended 7/31/2002 800 1.37 3.88
Year ended 7/31/2001 254 1.38 4.15
Period from 3/15/2000 to 7/31/2000 29 .52 1.73
CLASS C:
Six months ended 1/31/2004 (2) 3,081 1.44 (5) 3.13 (5)
Year ended 7/31/2003 1,850 1.48 4.07
Year ended 7/31/2002 614 1.48 3.77
Period from 3/15/2001 to 7/31/2001 89 .62 1.28
CLASS F:
Six months ended 1/31/2004 (2) 800 .69 (5) 3.88 (5)
Year ended 7/31/2003 471 .72 4.83
Year ended 7/31/2002 156 .73 4.52
Period from 3/15/2001 to 7/31/2001 22 .31 1.58
CLASS 529-A:
Six months ended 1/31/2004 (2) 153 .66 (5) 3.94 (5)
Year ended 7/31/2003 93 .68 4.87
Period from 2/15/2002 to 7/31/2002 24 .37 2.02
CLASS 529-B:
Six months ended 1/31/2004 (2) 42 1.57 (5) 3.04 (5)
Year ended 7/31/2003 28 1.60 3.95
Period from 2/19/2002 to 7/31/2002 7 .71 1.62
CLASS 529-C:
Six months ended 1/31/2004 (2) 75 1.56 (5) 3.04 (5)
Year ended 7/31/2003 44 1.59 3.96
Period from 2/19/2002 to 7/31/2002 12 .70 1.63
CLASS 529-E:
Six months ended 1/31/2004 (2) 8 1.04 (5) 3.56 (5)
Year ended 7/31/2003 5 1.06 4.48
Period from 2/25/2002 to 7/31/2002 1 .45 1.79
CLASS 529-F:
Six months ended 1/31/2004 (2) 2 .79 (5) 3.75 (5)
Period from 9/17/2002 to 7/31/2003 1 .81 (5) 4.68 (5)
(1) Based on operations for the period shown (unless otherwise noted) and,
accordingly, may not be representative of a full year.
(2) Unaudited.
(3) Year ended 1999 is based on shares outstanding on the last day of the year;
all other periods are based on average shares outstanding.
(4) Total returns exclude all sales charges, including contingent deferred
sales charges.
(5) Annualized.
See Notes to Financial Statements
FINANCIAL HIGHLIGHTS (1) (continued)
INCOME (LOSS) FROM INVESTMENT OPERATIONS(3)
NET
NET ASSET GAINS(LOSSES)
VALUE, NET ON SECURITIES TOTAL FROM
BEGINNING INVESTMENT (BOTH REALIZED INVESTMENT
OF PERIOD INCOME AND UNREALIZED) OPERATIONS
CLASS R-1:
Six months ended 1/31/2004 (2) 15.39 .25 1.94 2.19
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:
Six months ended 1/31/2004 (2) 15.36 .26 1.93 2.19
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:
Six months ended 1/31/2004 (2) 15.41 .29 1.94 2.23
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:
Six months ended 1/31/2004 (2) 15.43 .32 1.94 2.26
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:
Six months ended 1/31/2004 (2) 15.44 .35 1.93 2.28
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 TOTAL NET ASSET
(FROM NET DISTRIBUTIONS DIVIDENDS VALUE,
INVESTMENT (FROM AND END OF TOTAL
INCOME) CAPITAL GAINS) DISTRIBUTIONS PERIOD RETURN
CLASS R-1:
Six months ended 1/31/2004 (2) (.33) - (.33) 17.25 14.40
Year ended 7/31/2003 (.62) (.02) (.64) 15.39 11.19
Period from 6/17/2002 to 7/31/2002 - - - 14.47 (7.54)
CLASS R-2:
Six months ended 1/31/2004 (2) (.34) - (.34) 17.21 14.38
Year ended 7/31/2003 (.64) (.02) (.66) 15.36 11.12
Period from 5/31/2002 to 7/31/2002 (.18) - (.18) 14.48 (9.95)
CLASS R-3:
Six months ended 1/31/2004 (2) (.37) - (.37) 17.27 14.64
Year ended 7/31/2003 (.68) (.02) (.70) 15.41 11.68
Period from 6/4/2002 to 7/31/2002 (.19) - (.19) 14.48 (8.90)
CLASS R-4:
Six months ended 1/31/2004 (2) (.40) - (.40) 17.29 14.77
Year ended 7/31/2003 (.72) (.02) (.74) 15.43 12.07
Period from 6/27/2002 to 7/31/2002 - - - 14.49 (4.98)
CLASS R-5:
Six months ended 1/31/2004 (2) (.43) - (.43) 17.29 14.96
Year ended 7/31/2003 (.76) (.02) (.78) 15.44 12.43
Period from 5/15/2002 to 7/31/2002 (.20) - (.20) 14.49 (9.99)
NET ASSETS, RATIO OF RATIO OF
END OF EXPENSES NET INCOME
PERIOD (IN TO AVERAGE TO AVERAGE
MILLIONS) NET ASSETS NET ASSETS
CLASS R-1:
Six months ended 1/31/2004 (2) $5 1.47% (5,6) 3.09% (5)
Year ended 7/31/2003 2 1.50 (6) 4.02
Period from 6/17/2002 to 7/31/2002 - (4) .18 (6) .42
CLASS R-2:
Six months ended 1/31/2004 (2) 91 1.44 (5,6) 3.16 (5)
Year ended 7/31/2003 52 1.46 (6) 4.02
Period from 5/31/2002 to 7/31/2002 1 .24 (6) .66
CLASS R-3:
Six months ended 1/31/2004 (2) 118 1.05 (5,6) 3.52 (5)
Year ended 7/31/2003 56 1.08 (6) 4.42
Period from 6/4/2002 to 7/31/2002 1 .17 (6) .61
CLASS R-4:
Six months ended 1/31/2004 (2) 16 .69 (5) 3.94 (5)
Year ended 7/31/2003 12 .72 (6) 4.81
Period from 6/27/2002 to 7/31/2002 - (4) .03 (6) .52
CLASS R-5:
Six months ended 1/31/2004 (2) 49 .38 (5) 4.26 (5)
Year ended 7/31/2003 39 .40 5.17
Period from 5/15/2002 to 7/31/2002 22 .09 .97
Six months ended
January 31, Year ended July 31
2004 (2) 2003 2002 2001 2000 1999
Portfolio turnover rate
for all classes of shares 14% 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) Unaudited.
(3) Based on average shares outstanding.
(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 agent services. Had CRMC not paid
such fees, expense ratios would have been 1.58%, 1.62% and 1.06% for
classes R-1, R-2 and R-3, respectively, during the six months ended January
31, 2004, 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 during the year ended July 31,
2003, was not affected by any payments made by CRMC.
See Notes to Financial Statements
OTHER SHARE CLASS RESULTS unaudited
Class B, Class C, Class F and Class 529
Returns for periods ended December 31, 2003 (the most recent calendar quarter):
1 YEAR LIFE OF CLASS
CLASS B SHARES
Reflecting applicable contingent deferred sales charge
(CDSC), maximum of 5%, payable only if shares are sold
within six years of purchase +19.33% +8.72% (1)
Not reflecting CDSC +24.33% +9.34% (1)
CLASS C SHARES
Reflecting CDSC, maximum of 1%, payable only if shares
are sold within one year of purchase +23.27% +7.40% (2)
Not reflecting CDSC +24.27% +7.40% (2)
CLASS F SHARES (3)
Not reflecting annual asset-based fee
charged by sponsoring firm +25.19% +8.20% (2)
CLASS 529-A SHARES
Reflecting 5.75% maximum sales charge +18.08% +6.80% (4)
Not reflecting maximum sales charge +25.24% +10.22% (4)
CLASS 529-B SHARES
Reflecting applicable CDSC, maximum of 5%, payable only
if shares are sold within six years of purchase +19.15% +7.84% (5)
Not reflecting CDSC +24.15% +9.84% (5)
CLASS 529-C SHARES
Reflecting CDSC, maximum of 1%, payable only if shares
are sold within one year of purchase +23.12% +9.82% (5)
Not reflecting CDSC +24.12% +9.82% (5)
CLASS 529-E SHARES (3)
Total return +24.72% +9.78% (6)
CLASS 529-F SHARES (3)
Total return +25.10% +21.77% (7)
Figures shown on this page are past results and are not predictive of future
periods. Current and future results may be lower or higher than those shown.
Share prices and returns will vary, so investors may lose money. For the most
current information and month-end results, visit americanfunds.com.
(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) From September 17, 2002, when Class 529-F shares were first sold.
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
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
(and aggregated investments) 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.
Annualized 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 annualized 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
annualized expenses (by 0.12 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.
INVESTORS SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES
OF THE INCOME FUND OF AMERICA AND COLLEGEAMERICA CAREFULLY. THIS AND OTHER
IMPORTANT INFORMATION IS CONTAINED IN THE PROSPECTUS, WHICH CAN BE OBTAINED FROM
YOUR FINANCIAL ADVISER AND SHOULD BE READ CAREFULLY BEFORE INVESTING. YOU MAY
ALSO CALL AMERICAN FUNDS SERVICE COMPANY AT 800/421-0180 OR VISIT THE AMERICAN
FUNDS WEBSITE AT AMERICANFUNDS.COM.
"AMERICAN FUNDS PROXY VOTING GUIDELINES" -- WHICH DESCRIBES HOW WE VOTE PROXIES
RELATING TO PORTFOLIO SECURITIES -- IS 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 March 31, 2004, 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 25 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
AMCAP Fund(R)
EuroPacific Growth Fund(R)
The Growth Fund of America(R)
The New Economy Fund(R)
New Perspective Fund(R)
New World FundSM
SMALLCAP World Fund(R)
o GROWTH-AND-INCOME FUNDS
American Mutual Fund(R)
Capital World Growth and Income FundSM
Fundamental InvestorsSM
The Investment Company of America(R)
Washington Mutual Investors FundSM
o EQUITY-INCOME FUNDS
Capital Income Builder(R)
> THE INCOME FUND OF AMERICA(R)
o BALANCED FUND
American Balanced Fund(R)
o BOND FUNDS
American High-Income TrustSM
The Bond Fund of AmericaSM
Capital World Bond Fund(R)
Intermediate Bond Fund of America(R)
U.S. Government Securities FundSM
o TAX-EXEMPT BOND FUNDS
American High-Income Municipal Bond Fund(R)
Limited Term Tax-Exempt Bond Fund of AmericaSM
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
The Cash Management Trust of America(R)
The Tax-Exempt Money Fund of AmericaSM
The U.S. Treasury Money Fund of AmericaSM
THE CAPITAL GROUP COMPANIES
American Funds
Capital Research and Management
Capital International
Capital Guardian
Capital Bank and Trust
Lit. No. MFGESR-906-0304
Litho in USA BAG/CG/8088
Printed on recycled paper
ITEM 2 - Code of Ethics
Not applicable for filing of Semiannual Reports to Shareholders.
ITEM 3 - Audit Committee Financial Expert
Not applicable for filing of Semiannual Reports to Shareholders.
ITEM 4 - Principal Accountant Fees and Services
Not applicable for filing of Semiannual Reports to Shareholders.
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 - Submission of Matters to a Vote of Security Holders
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's Board of Directors since the registrant
last submitted a proxy statement to its shareholders. The procedures are as
follows. The registrant has a nominating committee comprised solely of persons
who are not considered "interested persons" of the registrant within the meaning
of the Investment Company Act of 1940. The committee periodically reviews such
issues as the Board's composition, responsibilities, committees, compensation
and other relevant issues, and recommends any appropriate changes to the full
Board of Directors. While the committee normally is able to identify from its
own resources an ample number of qualified candidates, it will consider
shareholder suggestions of persons to be considered as nominees to fill future
vacancies on the Board. Such suggestions must be sent in writing to the
nominating committee of the registrant, c/o the registrant's Secretary, and must
be accompanied by complete biographical and occupational data on the prospective
nominee, along with a written consent of the prospective nominee for
consideration of his or her name by the nominating committee.
ITEM 10 - 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 11 - Exhibits
(a) The Code of Ethics - not applicable for filing of Semiannual Reports to
Shareholders.
(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: April 8, 2004
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: April 8, 2004
By /s/ Dayna G. Yamabe
- --------------------------------------------------
Dayna G. Yamabe, Treasurer
Date: April 8, 2004