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: July 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:
Michael Glazer
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
Navigating your fund through a rising-rate environment
[photo of the tip of a boat on a lake - trees in the distance]
Annual report for the year ended July 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.
CONTENTS page
Letter to shareholders, with results at a glance 1
The value of a long-term perspective 4
Navigating your fund through a rising-rate environment 6
About your fund 11
The portfolio at a glance 12
Investment portfolio 13
Financial statements 18
Directors and officers 32
The American Funds family back cover
FIGURES SHOWN ARE PAST RESULTS FOR CLASS A SHARES AND ARE NOT PREDICTIVE OF
RESULTS IN 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.
Here are the average annual total returns on a $1,000 investment with all
distributions reinvested for periods ended June 30, 2004 (the most recent
calendar quarter):
Class A shares 1 year 5 years 10 years
Reflecting 5.75% maximum sales charge +9.55% +5.21% +10.48%
The fund's 30-day yield for Class A shares as of August 31, 2004, reflecting the
5.75% maximum sales charge and calculated in accordance with the Securities and
Exchange Commission formula, was 3.57%.
Other share class results and important information can be found on page 29.
The return of principal for the bond holdings in The Income Fund of America is
not guaranteed. Fund shares are subject to the same interest rate, inflation and
credit risks associated with the underlying bond holdings.
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.
FELLOW SHAREHOLDERS:
[photo of the tip of a boat on a lake - trees in the distance]
Two distinct environments characterized fiscal 2004 for The Income Fund of
America. For the first seven months, a stronger corporate America and continued
low interest rates strengthened the U.S. economy and fueled a market rebound.
During this time, the bond market, as measured by the Lehman Brothers Aggregate
Bond Index, rose 5.6%, while Standard & Poor's 500 Composite Index generated a
return of 16.8%. During the last five months, however, fears of a slowing
economy, higher oil prices and interest rates, as well as growing federal and
trade deficits caused the bond market to decline 0.7% and the S&P 500 to fall
3.1%.
A STRONG SHOWING
The fund generated above-market returns for the full 12 months ended July 31.
Shareholders who reinvested their dividends had a 12-month total return of
15.8%. In comparison, the Lehman Aggregate Bond Index's total return was 4.8%
while the S&P 500 had a total rate of return, including dividends, of 13.2%. The
fund also outpaced the Lipper income funds average total return of 9.1%.
A CONTINUED COMMITMENT TO ABOVE-AVERAGE INCOME
As the chart on page 3 shows, over the last decade the fund has had a higher
dividend rate than both its income-fund peers and the S&P 500. With stock and
bond yields hovering at historic lows, however, we reduced our quarterly
dividend from 17.5 cents to 15.5 cents a share, effective this past June.
Despite this reduction, the fund's 12-month dividend yield of 4.0% on July 31
was more than twice that of the S&P 500 (1.7%) and significantly higher than
that of the Lipper income funds average (2.6%).
[Begin Sidebar]
Results at a glance (with dividends reinvested or interest compounded)
Average annual total returns
for periods ended July 31, 2004
1 year 5 years 10 years Lifetime(1)
The Income Fund of America +15.8% +6.6% +10.9% +12.7%
Standard & Poor's 500 Composite Index +13.2 - 2.2 +11.1 +12.0
Lipper income funds average(2) +9.1 +3.4 +7.5 +11.8
Lehman Brothers Aggregate Bond Index(3) +4.8 +7.3 +7.3 +8.7
Credit Suisse First Boston High Yield Index +14.1 +6.6 +7.9 --
Consumer Price Index (inflation)(4) + 3.0 +2.6 +2.5 +4.7
(1) Since December 1, 1973, when Capital Research and Management Company
became the fund's investment adviser.
(2) Source: Lipper. Figures do not reflect the effect of sales charges.
(3) From December 1, 1973, through December 31, 1975, the Lehman Brothers
Government/Credit Bond Index was used because the Aggregate Bond Index
did not yet exist.
(4) Computed from data supplied by the U.S. Department of Labor, Bureau of
Labor Statistics.
The market indexes are unmanaged and do not reflect sales charges, commissions
or expenses. Fund returns do not include sales charges.
[End Sidebar]
While interest rates remained low, increasing corporate cash flows and a lower
federal tax rate on corporate dividends led many companies to initiate or
increase dividends during the year, which should enhance the fund's future
income-producing potential. Among the fund's largest holdings in its top
industry grouping, Bank of America and Wells Fargo each increased their
dividends by 64 cents during the fund's fiscal year: Bank of America from $2.56
to $3.20 a share (includes FleetBoston, which Bank of America acquired last
year) and Wells Fargo from $1.16 to $1.80. This trend combined with higher
yields on cash due to the two already announced Federal Funds rate increases
should allow the fund to pay a modest special dividend in December.
THE STRENGTH BEHIND THE NUMBERS
In a year when the overall investment environment has been volatile, careful
stock and bond selection was a driving force behind the fund's strong returns.
The fund's substantial investments in two industry groupings -- financials and
telecommunication services -- were contributors to its positive results, both in
terms of capital appreciation and income. Historically, banks were a local
business tied to the local economy as well as the market and interest rate
cycles. Over the last decade, banks have strengthened their operations by
lowering credit costs, improving credit quality and expanding into non-lending
sources of revenue that are less sensitive to market and interest-rate
movements. Industry consolidation has also reduced risk by creating greater
geographic diversification and more stable sources of revenue. As earnings
improved, so did the willingness of managers to increase dividends. The dividend
payout ratio for the top 10 banks has increased from 39% of earnings in 1995 to
47% in 2004. Contributing to this trend, banks were among the first companies to
increase dividends after the U.S. government lowered the tax rate on dividends
last year.
Telecommunication service companies continued to improve their balance sheets,
increase cash flows and increase dividends during the year. We expect this trend
to continue as companies continue to strengthen their financial positions and
competitiveness.
Among the fund's large holdings in other industry groupings, this year was
challenging for pharmaceutical company Bristol-Myers Squibb, which faced
increased competition as a number of its patents expired. However, Bristol-Myers
continues to pay a generous dividend that, when coupled with the expected
release of new products over the next couple of years, leaves us encouraged
about the company's prospects and its future return potential for the fund.
During the first six months of the fiscal year, the fund also benefited from its
high-yield bond holdings as credit spreads on corporate bonds tightened. (Credit
spreads reflect the yield differences between U.S. Treasury securities, which
carry no credit risk, and all other types of bonds.) Since the beginning of
2004, the fund has also benefited from its holdings in mortgage-backed
securities, one of the strongest performing sectors in the bond market.
[Begin Sidebar]
STRIKING A BALANCE BETWEEN RETURN AND RISK
The Income Fund of America takes a prudent path to yield. Looking back 10 years,
as shown at right, the fund has provided higher returns than bonds and lower
volatility than the broader stock market. It has grown faster than the average
income fund, without sacrificing steadiness.
For the 10-year period ended July 31, 2004
[begin quadrant graph]
Average annual
total returns Volatility
More return, less risk quadrant IFA 10.92% 8.28
More return, more risk quadrant Stocks 11.09 15.66
Less return, less risk quadrant Bonds 7.28 3.84
Less return, less risk quadrant Income funds
average 7.51 8.27
Sources: Stocks -- S&P 500; bonds -- Lehman Aggregate Bond Index; income funds
average -- Lipper. Returns include reinvestment of all distributions. Volatility
is shown as standard deviation, a measure of how returns have varied from the
mean over time. All numbers calculated by Lipper.
[End quadrant graph]
[End Sidebar]
THE CHALLENGES AHEAD
Year in and year out, our goal remains the same: To provide above-average income
as well as appreciation while paying close attention to risk. The Federal
Reserve recently announced its first two federal funds rate increases in four
years. To better navigate this environment, we gradually lowered our bond
holdings throughout the year -- from 32% to 24% -- by investing new cash flows
in stocks. (For more information about how interest rate changes may affect your
investments, see "Navigating your fund through a rising-rate environment" on
page 6.) In recent months, growing concerns about the pace of economic growth,
rising fuel costs and geopolitical uncertainty have steered us toward higher
yielding stocks in defensive sectors, like food, pharmaceuticals and
telecommunications.
Earlier this year, Janet McKinley, the fund's chairman of the board, and Darcy
Kopcho, the fund's president, retired. We'd like to thank both Janet and Darcy
for their many contributions and wish them the very best.
Cordially,
/s/ Stephen E. Bepler
Stephen E. Bepler
CHAIRMAN OF THE BOARD
/s/ Hilda L. Applbaum
Hilda L. Applbaum
PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER
September 13, 2004
For current information about the fund, visit americanfunds.com
The Income Fund of America's Board of Directors is pleased to announce the
election of Stephen E. Bepler as chairman of the board and Hilda L. Applbaum as
president and principal executive officer. Both Steve and Hilda bring with them
a wealth of investment experience, including managing shareholder assets for The
Income Fund of America.
[Begin Sidebar]
A LIFETIME OF HIGH CURRENT INCOME
The Income Fund of America's 12-month dividend yield versus benchmarks
[begin line chart]
YEAR-END IFA LIPPER INCOME FUND AVERAGE S&P 500
<s> <c> <c> <c>
1/31/1975 7.30 7.28 4.71
7/31/1975 7.24 7.07 4.18
1/31/1976 6.30 6.55 3.65
7/31/1976 7.06 6.53 3.66
1/31/1977 6.94 6.31 4.01
7/31/1977 6.15 6.29 4.47
1/31/1978 6.61 6.86 5.28
7/31/1978 6.70 6.73 4.92
1/31/1979 7.56 7.14 5.12
7/31/1979 7.38 7.12 5.19
1/31/1980 7.83 7.56 4.99
7/31/1980 7.63 7.54 4.95
1/31/1981 8.07 8.11 4.81
7/31/1981 8.16 8.56 4.91
1/31/1982 8.75 9.62 5.53
7/31/1982 9.81 10.44 6.37
1/31/1983 7.95 8.84 4.74
7/31/1983 7.95 8.55 4.28
1/31/1984 7.86 8.73 4.36
7/31/1984 8.60 9.64 4.87
1/31/1985 7.69 8.64 4.22
7/31/1985 7.45 8.40 4.07
1/31/1986 7.30 7.95 3.75
7/31/1986 7.27 7.55 3.45
1/31/1987 6.85 6.95 3.03
7/31/1987 7.02 7.09 2.69
1/31/1988 7.62 7.46 3.31
7/31/1988 6.96 7.26 3.27
1/31/1989 6.69 7.01 3.34
7/31/1989 6.67 6.76 3.04
1/31/1990 6.99 7.09 3.37
7/31/1990 7.07 7.09 3.31
1/31/1991 8.12 7.52 3.52
7/31/1991 7.09 6.84 3.11
1/31/1992 6.33 6.31 2.96
7/31/1992 6.05 6.10 2.89
1/31/1993 6.44 5.55 2.83
7/31/1993 6.19 5.04 2.79
1/31/1994 5.56 4.88 2.64
7/31/1994 6.06 4.60 2.80
1/31/1995 6.14 4.82 2.81
7/31/1995 5.55 4.49 2.41
1/31/1996 5.07 4.20 2.18
7/31/1996 5.19 4.40 2.28
1/31/1997 5.09 4.05 1.89
7/31/1997 4.74 3.91 1.61
1/31/1998 4.27 4.07 1.58
7/31/1998 4.32 3.96 1.43
1/31/1999 4.79 3.66 1.29
7/31/1999 4.86 3.83 1.24
1/31/2000 5.40 4.22 1.19
7/31/2000 5.49 4.32 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 3.79 1.40
7/31/2002 5.49 3.66 1.75
1/31/2003 5.45 3.39 1.88
7/31/2003 4.69 3.05 1.66
1/31/2004 4.05 2.62 1.54
7/31/2004 3.98 2.59 1.69
[end chart]
All numbers calculated by Lipper.
[End Sidebar]
THE VALUE OF A LONG-TERM PERSPECTIVE
HOW A $10,000 INVESTMENT HAS GROWN
There have always been reasons not to invest. If you look beyond the negative
headlines, however, you will find that despite occasional stumbles, financial
markets have tended to reward investors over the long term. Active management --
bolstered by experience and careful research -- can add even more value: As the
chart below shows, over its lifetime The Income Fund of America (IFA) has
delivered higher returns than both the broader stock and bond markets.
Dividends, particularly when reinvested, have accounted for a large portion of
the fund's overall results. Fund figures reflect deduction of the maximum sales
charge of 5.75% on the $10,000 investment.(1) Thus the net amount invested was
$9,425.
EXPENSE RATIOS AND TURNOVER RATES*
Year ended July 31, 2004
THE INCOME FUND OF AMERICA INDUSTRY AVERAGE+
Expense ratio 0.57% 0.79%
Portfolio turnover rate 27% 54%
*The expense ratio is the annual percentage of net assets used to pay fund
expenses. The portfolio turnover rate is a measure of how often securities are
bought and sold by a fund.
+Front-end load income funds, as measured by Lipper.
[begin mountain chart]
Year Standard & Poor's IFA (2)(3) Lehman Bros. IFA(3)(6)
End 500 Composite Index(4) with dividends Aggregate Bond not including Original
July 31 with dividends reinvested Index(4)(5) with dividends Investment
reinvested interest compounded
1974# 8,481 9,088 9,378 8,767 10,000
1975 9,951 11,391 10,580 10,141 10,000
1976 12,066 14,750 11,871 12,155 10,000
1977 12,042 16,392 13,189 12,701 10,000
1978 12,926 17,403 13,474 12,584 10,000
1979 14,069 18,921 14,373 12,693 10,000
1980 17,412 20,161 14,602 12,490 10,000
1981 19,675 22,484 13,871 12,818 10,000
1982 17,063 23,663 16,720 12,256 10,000
1983 27,174 33,683 20,383 16,112 10,000
1984 26,367 35,721 22,154 15,738 10,000
1985 34,914 47,674 27,452 19,443 10,000
1986 44,833 57,146 33,353 21,668 10,000
1987 62,449 66,671 34,859 23,568 10,000
1988 55,109 67,812 37,497 22,341 10,000
1989 72,685 83,698 43,200 25,644 10,000
1990 77,386 84,639 46,253 24,351 10,000
1991 87,239 95,046 51,204 25,390 10,000
1992 98,377 113,237 58,770 28,370 10,000
1993 106,947 126,680 64,746 29,917 10,000
1994 112,457 129,171 64,807 28,788 10,000
1995 141,775 150,378 71,358 31,571 10,000
1996 165,244 170,618 75,311 34,007 10,000
1997 251,353 220,576 83,417 41,731 10,000
1998 299,807 245,542 89,980 44,436 10,000
1999 360,395 264,664 92,220 45,588 10,000
2000 392,724 259,165 97,721 42,276 10,000
2001 336,476 299,416 110,124 46,460 10,000
2002 257,015 280,397 118,420 41,359 10,000
2003 284,354 314,550 124,835 44,136 10,000
2004 321,781 364,136 130,876 49,057 10,000
YEAR ENDED JULY 31 1974# 1975 1976 1977 1978 1979 1980
VALUE OF DIVIDENDS
Dividends in cash(3) $343 734 859 781 843 937 952
Dividends reinvested(3) $346 785 997 970 1,117 1,333 1,463
VALUE OF INVESTMENT
Dividends in cash(3),(6) $8,767 10,141 12,155 12,701 12,584 12,693 12,490
Dividends reinvested(2),(3) $9,088 11,391 14,750 16,392 17,403 18,921 20,161
IFA TOTAL RETURN (9.1)% 25.3 29.5 11.1 6.2 8.7 6.6
YEAR ENDED JULY 31 1981 1982 1983 1984 1985 1986 1987
VALUE OF DIVIDENDS
Dividends in cash(3) 1,046 1,202 1,280 1,344 1,438 1,550 1,636
Dividends reinvested(3) 1,743 2,187 2,548 2,895 3,365 3,909 4,431
VALUE OF INVESTMENT
Dividends in cash(3),(6) 12,818 12,256 16,112 15,738 19,443 21,668 23,568
Dividends reinvested(2),(3) 22,484 23,663 33,683 35,721 47,674 57,146 66,671
IFA TOTAL RETURN 11.5 5.2 42.3 6.0 33.5 19.9 16.7
YEAR ENDED JULY 31 1988 1989 1990 1991 1992 1993 1994
VALUE OF DIVIDENDS
Dividends in cash(3) 1,542 1,710 1,577 1,764 1,715 1,713 1,727
Dividends reinvested(3) 4,479 5,337 5,269 6,311 6,579 6,995 7,471
VALUE OF INVESTMENT
Dividends in cash(3),(6) 22,341 25,644 24,351 25,390 28,370 29,917 28,788
Dividends reinvested(2),(3) 67,812 83,698 84,639 95,046 113,237 126,680 129,171
IFA TOTAL RETURN 1.7 23.4 1.1 12.3 19.1 11.9 2.0
YEAR ENDED JULY 31 1995 1996 1997 1998 1999 2000 2001
VALUE OF DIVIDENDS
Dividends in cash(3) 1,752 1,766 1,968 1,959 2,210 2,320 2,226
Dividends reinvested(3) 8,046 8,581 10,074 10,530 12,446 13,740 13,913
VALUE OF INVESTMENT
Dividends in cash(3),(6) 31,571 34,007 41,731 44,436 45,588 42,276 46,460
Dividends reinvested(2),(3) 150,378 170,618 220,576 245,542 264,664 259,165 299,416
IFA TOTAL RETURN 16.4 13.5 29.3 11.3 7.8 (2.1) 15.5
YEAR ENDED JULY 31 2002 2003 2004
VALUE OF DIVIDENDS
Dividends in cash(3) 2,272 2,071 1,994
Dividends reinvested(3) 14,927 14,311 14,072
VALUE OF INVESTMENT
Dividends in cash(3),(6) 41,359 44,136 49,057
Dividends reinvested(2),(3) 280,397 314,550 364,136
IFA TOTAL RETURN (6.4) 12.2 15.8
[end mountain chart]
AVERAGE ANNUAL TOTAL RETURNS
(based on a $1,000 investment, with all distributions reinvested)
CLASS A SHARES* Period ended
reflecting 5.75% maximum sales charge July 31, 2004
One year 9.12%
Five years 5.33
Ten years 10.26
*Results for other share classes can be found on page 29.
AVERAGE ANNUAL TOTAL RETURN FOR 30-2/3 YEARS: 12.4%(2)
(#) For the period December 1, 1973 (when Capital Research and Management
Company became the fund's investment adviser), through July 31, 1974.
(1) As outlined in the prospectus, the sales charge is reduced for accounts
(and aggregated investments) of $25,000 or more. There is no sales charge
on dividends or capital gain distributions that are reinvested in additional
shares.
(2) Includes reinvested dividends of $191,173 and reinvested capital gain
distributions of $87,772.
(3) From April 1990 to September 1994 and from September 2003 to the present,
the fund accrued dividends daily but paid quarterly. Dividends reflect
quarterly dividends actually paid during the period, while year-end values
are adjusted for cumulative dividends accrued but not yet paid.
(4) The indexes are unmanaged and do not reflect sales charges, commissions, or
expenses.
(5) From December 1, 1973, through December 31, 1975, the Lehman Brothers
Government/Credit Bond Index was used because the Lehman Brothers Aggregate
Bond Index did not exist. From January 1, 1976, through July 31, 2004 the
Lehman Brothers Aggregate Bond Index was used.
(6) Includes capital gain distributions of $18,735 but does not reflect income
dividends of $47,180 taken in cash.
Past results are not predictive of future results. The results shown are before
taxes on fund distributions and sale of fund shares.
NAVIGATING YOUR FUND THROUGH A RISING-RATE ENVIRONMENT
[photo of a man sitting in a canoe rowing with a paddle]
For the first time in years, interest rates look more likely to rise than to
decline. The managers of The Income Fund of America discuss what a rising-rate
environment means for shareholders.
[photo of a pier on a lake]
In recent years, declining interest rates have helped the U.S. economy flourish
and the stock and bond markets to prosper. From October 1981, when the federal
funds target rate began a gradual decline from a high of 20% to the recent low
through June 2004 of 1%, the U.S. economy grew an average 3.1% per year. The
stock market, as measured by Standard & Poor's 500 Composite Index, produced an
average annual total return of 13.6% and bonds, as measured by the Lehman
Brothers Aggregate Bond Index, earned an average annual total return of 10.2%.
It's important to note the stock and bond market results over this period are
higher than their long-term average returns.
In June, the Federal Reserve raised the federal funds rate by one-quarter of a
percentage point, marking the Fed's first rate hike in four years. That was
followed by another quarter-percentage-point increase in August, with more
expected in the months ahead.
For the first time in years, it seems as if interest rates are more likely to
rise than to decline. A shift in the direction of interest rates is significant
because of the effect it can have on the overall economy. When rates are low,
they help to stimulate growth because money is easier to come by, which
encourages consumers and businesses to borrow money. When they're high, growth
may slow because money is tighter.
"Rising interest rates are challenging for an income fund," says Hilda Applbaum,
president of The Income Fund of America. "Prices on higher yielding investments
such as bonds and higher dividend-paying stocks are particularly sensitive to
moves in interest rates."
On the following pages, we will look at the effect a rising-interest-rate
environment may have on the stock and bond markets and how that could affect The
Income Fund of America's portfolio. As with any shift in market forces,
portfolio counselors will seek out opportunities while trying to protect against
negative effects. "Rising rates are generally a headwind," says Hilda, "but
there are ways for us to manage and, in certain cases, benefit from rising
rates."
[photo of the front of a canoe on a lake]
[Begin Sidebar]
Figures shown are past results for Class A shares and are not predictive of
results in 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.
THE INCOME FUND OF AMERICA (IFA) AND S&P 500 cumulative total returns following
past troughs in the federal funds rate
Trough 12 months before trough(1) 12 months after trough(2) 24 months after trough(3)
IFA S&P 500 IFA S&P 500 IFA S&P 500
January 1977 +18.3% +5.3% -1.9% -8.1% +11.1% +8.5%
February 1983 +40.1 +38.4 +10.3 +10.8 +36.7 +33.9
October 1986 +22.6 +33.2 +1.1 +6.4 +16.3 +22.1
December 1993 +14.0 +10.1 -2.5 +1.3 +25.8 +39.3
January 1999 +8.6 +32.5 -1.4 +10.3 +13.7 +9.4
Average +20.7% +23.9% +1.1% +4.1% +20.7% +22.6%
(1) As of the 12 months ended January 31, 1977; February 28, 1983; October 31,
1986; December 31, 1993; and January 31, 1999, respectively.
(2) As of the 12 months ended January 31, 1978; February 29, 1984; October 31,
1987; December 31, 1994; and January 31, 2000, respectively.
(3) As of the 24 months ended January 31, 1979; February 28, 1985; October 31,
1988; December 31, 1995; and January 31, 2001, respectively.
[End Sidebar]
HOW RISING RATES AFFECT THE BONDS IN YOUR FUND
Interest rates have an inverse relationship to the value of bonds. In general,
when interest rates rise, bond prices decline; when interest rates fall, bond
prices rise. Thus, any change in interest rates causes a revaluation of all
bonds outstanding. The effects vary depending on the bond's maturity, its credit
characteristics and the provisions of its loan agreement.
"A rise in rates will lower the value of our existing bond portfolio," says
Steve Bepler, chairman of the fund. To help protect the portfolio, managers have
reduced the fund's bond exposure over the last 12 months. At the start of the
fiscal year, bonds made up 32% of the portfolio, while at its July 31 close,
bonds constituted 24% of the portfolio.
"We have reduced our bond exposure in favor of stocks," says Hilda. "But we
remain invested in bonds because the income from bonds, particularly high-yield
bonds, remains above that generally available for stocks."
Portfolio counselors have several options to cushion the bond portfolio from the
effects of rising rates. One strategy is to shorten maturities. During periods
of rising interest rates, bonds with shorter maturities tend to experience less
price erosion than bonds with longer maturities. As of July 31, 2004, the
average life of the portfolio's holdings was 5.9 years versus 7.4 years for the
Lehman Brothers Aggregate Bond Index.
Another option is to "roll the proceeds" from maturing bonds into newer bonds
with higher yields. While the market price for existing bonds may decline,
yields on newly purchased bonds may be higher if rates are rising. Over the long
term, the addition of higher yielding bonds may result in higher income for
shareholders.
[Begin Sidebar]
In THE INCOME FUND OF AMERICA, portfolio counselors are able to navigate through
changing interest-rate environments by recognizing that different stocks behave
differently at various points in a rising-rate environment.
[End Sidebar]
Generally, rising rates tend to have a greater impact on higher quality bonds,
making them less attractive to investors. As a result, fund managers have
reduced their stake in U.S. Treasuries and agency obligations from about 6% of
total assets a year ago to just under 3% as of the fiscal year end.
Investment-grade bonds have been reduced from just over 15% to almost 12% of the
overall portfolio.
In contrast, lower quality bonds tend to fare better in a rising-rate
environment. They currently make up about 9% of total assets and 39% of the bond
portion of the portfolio. Although lower quality bonds can be affected by a rise
in rates, often the impact is mitigated by the very conditions that lead to
higher rates. "If interest rates go up because the economic environment is
improving, the issuing companies' ability to service debt tends to improve,"
says David Barclay, a portfolio counselor with the fund.
In fact, an upturn in equity prices, economic activity and earnings could
benefit the high-yield market more than a gradual rise in interest rates might
hurt it. That's because companies with below-investment-grade bonds have a much
easier time improving their balance sheets when business is thriving. Under the
right conditions, certain bonds may even be upgraded. Research helps the fund's
portfolio counselors identify those issuers most likely to improve their
fundamentals.
During this particular cycle, improvements in the high-yield bond segment came
early. "This time, there seemed to be a significant tightening in corporate
spreads before the rate increase," says David, "which allowed us to benefit
earlier in the cycle but eliminates some of that cushion going forward."
RISING RATES LIFT SOME STOCKS, NOT OTHERS
When it comes to the economy and stock markets, rising interest rates could
temper economic growth, depending on the pace and level of rate increases. In
the case of The Income Fund of America, portfolio counselors are able to
navigate through changing interest-rate environments by recognizing that
different stocks behave differently at various points in a rising-rate
environment. "That allows us to invest in those companies that tend to do well
during the early phase of the interest-rate cycle and then shift to others that
may do well after growth begins to moderate," says Hilda.
For example, pharmaceutical companies tend to do well before the economy starts
to grow because demand for their products is less dependent on economic
conditions. "People tend not to stop buying the medications they need," says
Hilda. As the economy strengthens, however, pharmaceuticals tend to experience
less growth relative to the cyclical sector, which typically benefits from an
increase in demand during periods of economic expansion.
Another challenge for the fund's managers is that rising rates may reduce the
value of a company's future cash flows and corporate earnings, which can cause
overall price-to-earnings multiples to drop. At the same time, it's important to
keep in perspective the reason for higher rates. If interest rates rise
moderately and are accompanied by a slight increase in inflation, they may not
pose much of a problem for the stock market or overall economy because companies
could gain pricing power, which many have lacked in recent years.
Sectors that might benefit from greater pricing power include industrials and
basic materials companies that provide the raw materials used to produce goods.
Better pricing power at the consumer level can help industries that have been
hit with rising materials costs, such as consumer goods companies.
[photo of rowing paddles on a deck]
[Begin Sidebar]
A WEALTH OF EXPERIENCE
Years of Years with
investment American
Portfolio counselors experience Funds
Abner Goldstine 52 37
Stephen Bepler 38 32
Dina Perry 27 13
John Smet 22 21
David Barclay 23 16
Hilda Applbaum 18 10
Mark Macdonald 19 10
Andrew Suzman 11 11
During volatile periods, it is important not to underestimate the value of
experience. In The Income Fund of America, the eight portfolio counselors have
investment experience ranging from 11 to 52 years. "Having lived through a range
of market environments provides insight as to how different industries or
sectors may react and offers perspective on relative value and attractiveness,"
says Hilda Applbaum, president of the fund.
Experience in past rising-rate environments also helps the counselors stay
focused on their long-term investment goals. "Every trend eventually ends," says
Hilda. "Experience provides the perspective that whatever is happening in the
market will eventually be supplanted by the next trend."
[End Sidebar]
"The question is whether earnings will increase enough to make up for declining
price-to-earnings ratios," says Steve.
RESEARCH CHARTS OUR COURSE
Research plays a vital role in the fund's ability to adapt to interest-rate
fluctuations and pursue those strategies that are best suited to a particular
environment. The fund's portfolio counselors work with a team of research
analysts who help identify securities and industries most likely to do
relatively well in a given interest-rate environment.
"We don't ignore macro trends," says Hilda. "We look at history and draw general
conclusions. Yet, we also realize that every cycle is different. We use our
analytical resources and fundamental research to determine what might be
different this time and where different opportunities and challenges may exist.
Over the long term, we make shifts but we don't time the market." In fact, the
fund's managers build the portfolio from the bottom up, investing in those
companies and sectors which they believe represent the greatest value at
reasonable prices with above-average yields.
The fund's conservative approach, which emphasizes income as well as capital
appreciation, helps serve as a cushion during changing market cycles. Although
interest-rate changes may roil stock and bond prices in the near term, dividends
- -- particularly when reinvested -- can have a stabilizing effect on total return
over the long term. Since December 1, 1973, when Capital Research and Management
Company became the fund's investment adviser, The Income Fund of America has
produced an average annual total return of 12.7%, compared to a 12.0% return for
the S&P 500 and an 8.7% return for the Lehman Brothers Aggregate Bond Index1.
"On a relative basis, the fund has tended to do better in declining and flat
markets, and has tended to trail the leading market indices during rapidly
rising periods," says Steve. "But over long periods of time, we have provided
investors with higher income, less volatility in principal and equivalent
long-term total returns compared with the S&P 500."
(1) From December 1, 1973, through December 31, 1975, the Lehman Brothers
Government/Credit Bond Index was used because the Aggregate Bond Index did not
yet exist.
ABOUT YOUR FUND
Figures shown are past results for Class A shares and are not predictive of
results in 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.
The Income Fund of America (IFA)
RESILIENCE DURING STOCK DECLINES versus the S&P 500 during market declines*
S&P 500 IFA IFA advantage
cumulative cumulative (percentage
Dates of decline total return total return points)
September 21, 1976 through March 6, 1978 -13.5% +1.9% +15.4
November 28, 1980 through August 12, 1982 -20.2 +19.0 +39.2
August 25 through December 4, 1987 -32.8 -13.6 +19.2
July 16 through October 11, 1990 -19.2 -10.2 +9.0
July 17 through August 31, 1998 -19.1 -9.5 +9.6
March 24, 2000 through October 9, 2002 -47.4 +0.7 +48.1
*Periods show S&P 500 price declines of 15% or greater. S&P 500 total returns,
which include reinvestment of all distributions, may be higher. There have
been times when the index, which is unmanaged, has done better.
WITHDRAWING INCOME: THE DIVIDEND ADVANTAGE
Most fund shareholders reinvest their dividends, but some -- including many
non-profit organizations -- use dividends to meet current expenses. Over the
years, the fund's above-average income has allowed meaningful withdrawals to be
made without invading principal, helping to maximize growth potential better
than the broader stock market.
[begin sidebar]
Higher dividends...
[bar chart]
dividends produced
IFA $818,925
S&P $171,129
[end chart]
....have helped to keep principal intact, letting compounding do its work.
[bar chart]
IFA S&P
Initial investment $100,000 $100,000
Value of account balance $1,038,314 $196,883
Amount withdrawn $474,348 $474,348
[end chart]
[End Sidebar]
Tables show hypothetical $100,000 investments in the fund (at net asset value)
and the S&P 500 from January 1, 1974 to July 31, 2004. It assumes a 6%
withdrawal, increased 6% annually. The first withdrawal, on December 15, 1974,
was $6,000. Total withdrawals over the fund's lifetime come to $474,348.
HIGHER INCOME
This chart shows one-year snapshots of the annual income produced by three
hypothetical $10,000 investments made on July 31, 1974, in each of The Income
Fund of America, the S&P 500, and three-month certificates of deposit (CDs).
Over the past 30 years, income from IFA has been substantially higher.
Years ended July 31
[begin bar chart]
IFA S&P CDS
7/31/79 $1,467 $838 $1,283
7/31/84 3,186 1,477 2,376
7/31/89 5,673 2,555 3,240
7/31/94 8,220 3,658 1,680
7/31/99 13,694 5,236 3,313
7/31/04 15,484 6,344 837
[end bar chart]
All results are calculated at net asset value with dividends and capital gains
(where applicable) reinvested. Source for CDs is the Federal Reserve. CD income
assumes reinvestment of both principal and interest at prevailing rates at the
time of purchase. CDs are guaranteed; the fund is not.
[End Sidebar]
THE PORTFOLIO AT A GLANCE
Beginning with this report, a summary portfolio, now approved under rules
adopted by the Securities and Exchange Commission this year, will replace the
complete listing of portfolio holdings used in previous shareholder reports.
This summary portfolio is designed to streamline the report and help investors
better focus on a fund's principal holdings. The schedule includes each of the
fund's 50 largest holdings and investments of any issuer for which the total
value of all holdings in that issuer exceeds 1% of the fund's net assets. A
complete schedule of portfolio holdings is available upon request, free of
charge, by calling American Funds Service Company at 800/421-0180 or accessing
the U.S. Securities and Exchange Commission website at www.sec.gov.
JULY 31,2004
[begin pie chart]
Percent
of net
Investment portfolio assets
U.S. equity-type securities 49.8 %
Non-U.S. equity-type securities 18.7
U.S. Treasury & agency obligations 2.9
Other fixed-income securities 21.0
Cash & equivalents 7.6
[end pie chart]
Percent
of net
FIVE LARGEST SECTORS IN COMMON STOCK HOLDINGS assets
Financials 17.2 %
Telecommunication services 7.8
Utilities 7.7
Consumer staples 6.8
Materials 6.6
Percent
of net
TEN LARGEST COMMON STOCK HOLDINGS assets
Bank of America 2.2 %
Royal Dutch Petroleum/"Shell" Transport and Trading 1.8
SBC Communications 1.8
Verizon Communications 1.7
Dow Chemical 1.4
Bristol-Myers Squibb 1.3
General Motors 1.2
General Electric 1.0
Altria Group 1.0
Weyerhaeuser 1.0
JULY 31, 2003
[begin pie chart]
Percent
of net
Investment portfolio assets
U.S. equity-type securities 46.4 %
Non-U.S. equity-type securities 17.0
U.S. Treasury & agency obligations 6.2
Other fixed-income securities 25.7
Cash & equivalents 4.7
[end pie chart]
Percent
of net
FIVE LARGEST SECTORS IN COMMON STOCK HOLDINGS assets
Financials 13.8 %
Utilities 6.3
Materials 6.1
Consumer staples 5.8
Industrials 5.0
Percent
of net
TEN LARGEST COMMON STOCK HOLDINGS assets
FleetBoston Financial 1.7 %
Weyerhaeuser 1.3
Bristol-Myers Squibb 1.3
Dow Chemical 1.3
SBC Communications 1.3
J.P. Morgan Chase 1.1
Royal Dutch Petroleum/"Shell" Transport and Trading 1.1
Societe Generale 0.9
General Electric 0.9
General Motors 0.9
INVESTMENT PORTFOLIO
July 31, 2004
Shares Market Percent
value of net
COMMON STOCKS - 62.21% (000) assets
FINANCIALS - 17.21%
Bank of America Corp. 11,689,487 $ 993,723 2.21%
J.P. Morgan Chase & Co. 11,850,000 442,360 .99
HSBC Holdings PLC (United Kingdom) 18,905,567 277,311
HSBC Holdings PLC (Hong Kong) 9,264,821 136,611 .92
Societe Generale 5,044,800 412,970 .92
Washington Mutual, Inc. 8,265,000 320,682 .71
Boston Properties, Inc. 4,955,000 262,119 .58
U.S. Bancorp 9,250,000 261,775 .58
Wells Fargo & Co. 4,335,000 248,872 .55
Fannie Mae 3,195,000 226,717 .50
Lloyds TSB Group PLC 29,500,000 220,911 .49
Equity Residential 7,387,700 218,307 .49
Other securities 3,711,168 8.27
7,733,526 17.21
TELECOMMUNICATION SERVICES - 7.78%
SBC Communications Inc. 31,705,000 803,405 1.79
Verizon Communications Inc. 19,560,000 753,842 1.68
BellSouth Corp. 14,845,000 402,151 .90
AT&T Corp. 21,131,000 319,078 .71
BT Group PLC 71,285,000 244,411 .54
Other securities 969,179 2.16
3,492,066 7.78
UTILITIES - 7.71%
National Grid Transco PLC 47,470,000 375,313 .84
Southern Co. 9,760,000 285,773 .64
E.ON AG 3,975,000 282,121 .63
Dominion Resources, Inc. 3,850,000 244,321 .54
Consolidated Edison, Inc. 5,815,700 238,269 .53
Duke Energy Corp. 10,811,607 232,450 .52
Ameren Corp. 4,640,300 207,375 .46
Other securities 1,594,497 3.55
3,460,119 7.71
CONSUMER STAPLES - 6.75%
Altria Group, Inc. 9,817,500 467,313 1.04
Sara Lee Corp. 16,050,000 352,458 .78
H.J. Heinz Co. 7,210,000 265,977 .59
ConAgra Foods, Inc. 9,885,000 257,010 .57
Diageo PLC 20,600,000 255,017 .57
Albertson's, Inc. 9,690,000 236,339 .53
R.J. Reynolds Tobacco Holdings, Inc. 3,231,600 232,514 .52
Other securities 963,822 2.15
3,030,450 6.75
MATERIALS - 6.57%
Dow Chemical Co. 15,923,000 635,168 1.42
Weyerhaeuser Co. 7,342,000 455,204 1.01
E.I. du Pont de Nemours and Co. 10,265,000 440,061 .98
International Paper Co. 5,239,640 226,510 .50
Other securities 1,193,165 2.66
2,950,108 6.57
ENERGY - 6.20%
Royal Dutch Petroleum Co. (New York registered) 9,595,000 482,629
"Shell" Transport and Trading Company, PLC 26,685,402 193,169
"Shell" Transport and Trading Company, PLC (ADR) (New York registered) 3,210,000 140,598 1.82
ChevronTexaco Corp. 4,000,000 382,600 .85
Marathon Oil Corp. 10,135,000 381,785 .85
Kinder Morgan, Inc. 3,870,000 232,239 .52
Sunoco, Inc. 3,100,000 211,327 .47
ENI SpA 10,120,000 207,739 .46
Other securities 549,739 1.23
2,781,825 6.20
INDUSTRIALS - 4.14%
General Electric Co. 14,105,000 468,991 1.04
Emerson Electric Co. 4,425,000 268,598 .60
Other securities 1,121,314 2.50
1,858,903 4.14
CONSUMER DISCRETIONARY - 2.64%
General Motors Corp. 12,350,000 532,779 1.19
May Department Stores Co. 11,823,000 313,664 .70
Other securities 337,888 .75
1,184,331 2.64
HEALTH CARE - 2.58%
Bristol-Myers Squibb Co. 24,560,000 562,424 1.25
Merck & Co., Inc. 7,810,000 354,184 .79
Other securities 243,706 .54
1,160,314 2.58
OTHER - 0.63% 282,074 .63
TOTAL COMMON STOCKS (cost: $24,398,755,000) 27,933,716 62.21
Shares or principal Market Percent
amount value of net
PREFERRED STOCKS - 0.99% (000) assets
FINANCIALS - 0.97%
HSBC Capital Funding LP, Series 1, 9.547% noncumulative step-up perpetual
preferred (undated) (1) (2) $37,500,000 $ 46,175
HSBC Capital Funding LP, Series 2, 10.176% noncumulative step-up perpetual
preferred (undated) (1) (2) $10,000,000 14,197 .13%
Other securities 375,181 .84
435,553 .97
OTHER - 0.02% 10,129 .02
TOTAL PREFERRED STOCKS (cost: $386,438,000) 445,682 .99
Shares Market Percent
value of net
RIGHTS AND WARRANTS - 0.00% (000) assets
TOTAL RIGHTS AND WARRANTS (cost: $1,020,000) $ 603 .00%
Shares or principal Market Percent
amount value of net
CONVERTIBLE SECURITIES - 5.33% (000) assets
CONSUMER DISCRETIONARY - 1.02%
Ford Motor Co. Capital Trust II 6.50% cumulative convertible trust preferred
2032 4,807,300 $ 256,950 .57%
General Motors Corp., Series B, 5.25% convertible debentures 2032 $19,700,000 19,156 .04
Other securities 184,689 .41
460,795 1.02
OTHER - 4.31% 1,934,186 4.31
TOTAL CONVERTIBLE SECURITIES (cost: $2,279,784,000) 2,394,981 5.33
Principal Market Percent
amount value of net
BONDS AND NOTES - 23.91% (000) (000) assets
CONSUMER DISCRETIONARY - 4.57%
General Motors Acceptance Corp. 6.125%-8.00% due 2006-2031 $161,500 $ 169,986
General Motors Corp. 7.20% 2011 38,500 40,296 .47%
Ford Motor Credit Co. 5.80%-7.875% due 2007-2011 177,500 190,157
Ford Motor Co. 7.45% 2031 6,000 5,723 .44
Other securities 1,641,855 3.66
2,048,017 4.57
TELECOMMUNICATION SERVICES - 3.27%
Verizon Global Funding Corp. 6.125% 2007 7,000 7,486
Verizon New York Inc., Series A, 6.875% 2012 6,500 7,064 .03
Other securities 1,455,869 3.24
1,470,419 3.27
MORTGAGE-BACKED OBLIGATIONS - 2.52%
Fannie Mae 3.803%-11.803% due 2010-2042 (2) (3) 313,136 321,671 .72
Other securities 807,832 1.80
1,129,503 2.52
FINANCIALS - 2.51%
SocGen Real Estate Co. LLC, Series A, 7.64% (undated) (1) (2) 45,700 50,657
Societe Generale 7.85% (undated) (1) (2) 11,200 12,340 .14
Household Finance Corp. 6.375% due 2011 - 2012 26,000 28,023
HSBC Bank USA 4.625% 2014 (1) 5,000 4,740
Midland Bank 2.125% Eurodollar note (undated) (2) 5,000 4,275
HSBC Holdings PLC 5.25% 2012 3,000 3,025 .09
J.P. Morgan Chase & Co. 4.00%-5.75% due 2008-2013 30,000 30,137
J.P. Morgan & Co. Inc. 6.70% 2007 5,000 5,473 .08
Bank of America Corp. 4.375% 2010 5,000 4,935 .01
Other securities 982,042 2.19
1,125,647 2.51
GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 2.07%
U.S. Treasury Obligations:
5.75% 2005 239,500 250,016
0%-8.875% due 2007-2025 (4) 432,748 466,089 1.59
Fannie Mae 7.25% 2030 3,250 3,902 .01
Other securities 213,094 .47
933,101 2.07
INDUSTRIALS - 1.65%
General Electric Capital Corp. 5.00%-6.00% due 2007-2013 16,000 16,974
General Electric Co. 5.00% 2013 5,000 5,000 .05
Other securities 719,887 1.60
741,861 1.65
MATERIALS - 1.23%
Weyerhaeuser Co. 5.25%-6.75% due 2008-2012 31,000 33,280 .07
Dow Chemical Co. 6.00% 2012 9,000 9,439 .02
Other securities 511,346 1.14
554,065 1.23
OTHER - 6.09% 2,732,737 6.09
TOTAL BONDS AND NOTES (cost: $10,599,625,000) 10,735,350 23.91
Principal Market Percent
amount value of net
SHORT-TERM SECURITIES - 7.76% (000) (000) assets
SHORT-TERM SECURITIES - 7.76%
U.S. Treasury Bills 0.98%-1.435% due 8/5-10/28/2004 $341,200 $ 340,639 .76%
Receivables Capital Co., LLC 1.25%-1.37% due 8/9-9/1/2004 (1) 75,000 74,935
Bank of America Corp. 1.30%-1.49% due 8/17-10/4/2004 (5) 75,000 74,877 .33
New Center Asset Trust 1.23%-1.44% due 8/16-10/13/2004 127,900 127,728 .28
J.P. Morgan Chase & Co. 1.20%-1.30% due 8/11-8/25/2004 97,100 97,024
Park Avenue Receivables Co., LLC 1.48% due 9/24/2004 (1) 30,000 29,932 .28
DuPont (E.I.) de Nemours & Co. 1.30% -1.33% due 8/25-9/10/2004 (5) 125,000 124,829 .28
General Electric Capital Services Inc. 1.21%-1.44% due 8/2-9/22/2004 125,000 124,805 .28
ChevronTexaco Funding Corp. 1.19%-1.25% due 8/10-8/18/2004 (5) 100,000 99,943 .22
Fannie Mae 1.16% due 8/10/2004 80,000 79,973 .18
FCAR Owner Trust I 1.14%-1.31% due 8/6-8/24/2004 56,800 56,772 .13
Household Finance Corp. 1.29%-1.40% due 8/16-9/14/2004 50,000 49,935 .11
Other securities 2,203,501 4.91
TOTAL SHORT-TERM SECURITIES (cost: $3,484,991,000) 3,484,893 7.76
TOTAL INVESTMENT SECURITIES (cost: $41,150,613,000) 44,995,225 100.20
New Taiwanese Dollar (cost: $3,000,000) NT$104,905 3,091 .01
Other assets less liabilities (95,270) (.21)
NET ASSETS $44,903,046 100.00%
Other securities includes all issues that are not required to be disclosed in
the summary schedule of investments.
INVESTMENTS IN AFFILIATES
A company is considered to be an affiliate of the fund under the Investment
Company Act of 1940 if the fund's holdings in that company represent 5% or more
of the outstanding voting shares of that company. The fund's holdings in
affiliated companies are included in Other securities in their respective
industries in the preceding summary portfolio schedule. Details on these
holdings and related transactions during the year ended July 31, 2004, were as
follows:
Beginning
Company shares or principal Purchases Sales
amount
Clarent Hospital (6) 453,247 31,437 -
iStar Financial 800,000 6,085,000 -
iStar Financial, Series F, 7.80% cumulative redeemable preferred - 400,000 -
iStar Financial 7.00% 2008 $- $ 6,525,000 $-
iStar Financial 8.75% 2008 $- $ 1,500,000 $ 472,000
iStar Financial, Series B, 4.875% 2009 $- $ 5,000,000 $-
iStar Financial 6.00% 2010 $- $ 3,750,000 $-
iStar Financial 5.125% 2011 (1) $- $ 10,000,000 $-
iStar Financial, Series B, 5.70% 2014 $- $ 1,000,000 $-
Wilshire Financial Services Group 2,150,517 - -
Market
Ending Dividend or value of
Company shares or principal interest income affiliates
amount (000) (000)
Clarent Hospital (6) 484,684 $- $ 606
iStar Financial 6,885,000 11,748 261,630
iStar Financial, Series F, 7.80% cumulative redeemable preferred 400,000 557 10,000
iStar Financial 7.00% 2008 $ 6,525,000 338 7,070
iStar Financial 8.75% 2008 $ 1,028,000 87 1,169
iStar Financial, Series B, 4.875% 2009 $ 5,000,000 22 4,947
iStar Financial 6.00% 2010 $ 3,750,000 142 3,815
iStar Financial 5.125% 2011 (1) $ 10,000,000 139 9,726
iStar Financial, Series B, 5.70% 2014 $ 1,000,000 -* 967
Wilshire Financial Services Group 2,150,517 269 20,043
$13,302 $319,973
The following footnotes to the portfolio apply to either the individual
securities noted or one or more of the securities aggregated and listed as a
single item.
(1) Purchased in a private placement transaction; resale may be limited to
qualified institutional buyers; resale to the public may require
registration. The total value of all such restricted securities, including
those included in the "Other securities" in the summary portfolio,
was $3,864,013,000, which represented 8.61% of the net assets fo the fund.
(2) Coupon rate may change periodically.
(3) 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.
(4) Index-linked bond whose principal amount moves with a government
retail price index.
(5) This security, or a portion of this security, has been segregated to cover
funding requirements on investment transactions settling in the future.
(6) Securities did not produce income during the last 12 months.
* Amount less than one thousand.
ADR = American Depositary Receipts
See Notes to Financial Statements
FINANCIAL STATEMENTS
Statement of assets and liabilities (dollars and shares in thousands,
at July 31, 2004 except per-share amounts)
ASSETS:
Investment securities at market:
Unaffiliated issuers (cost: $40,823,100) $44,675,252
Affiliated issuers (cost: $327,513) 319,973 $44,995,225
Cash denominated in non-U.S. currencies (cost: $3,000) 3,091
Cash 21,558
Receivables for:
Sales of investments 74,972
Sales of fund's shares 121,810
Dividends and interest 301,251 498,033
45,517,907
LIABILITIES:
Payables for:
Purchases of investments 400,712
Repurchases of fund's shares 28,464
Dividends on fund's shares 153,250
Investment advisory services 9,223
Services provided by affiliates 21,381
Deferred Directors' compensation 1,517
Other fees and expenses 314 614,861
NET ASSETS AT JULY 31, 2004 $44,903,046
NET ASSETS CONSIST OF:
Capital paid in on shares of capital stock $40,530,138
Undistributed net investment income 154,465
Undistributed net realized gain 373,904
Net unrealized appreciation 3,844,539
NET ASSETS AT JULY 31, 2004 $44,903,046
Total authorized capital stock - 5,500,000 shares, $.001 par value
(2,628,680 total shares outstanding)
Net asset value
Net assets Shares outstanding per share (1)
Class A $36,074,944 2,109,894 $17.10
Class B 3,231,201 189,907 17.01
Class C 3,832,413 225,523 16.99
Class F 999,588 58,525 17.08
Class 529-A 195,202 11,426 17.08
Class 529-B 51,163 3,001 17.05
Class 529-C 95,159 5,579 17.06
Class 529-E 10,338 606 17.06
Class 529-F 2,882 169 17.08
Class R-1 8,062 473 17.05
Class R-2 138,826 8,161 17.01
Class R-3 176,350 10,331 17.07
Class R-4 29,546 1,729 17.09
Class R-5 57,372 3,356 17.10
(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 $18.14 and
$18.12, respectively.
See Notes to Financial Statements
STATEMENT OF OPERATIONS
for the year ended July 31, 2004 (dollars in thousands)
INVESTMENT INCOME:
Income:
Dividends (net of non-U.S. withholding
tax of $38,537; also includes
$12,574 from affiliates) $1,051,741
Interest (net of non-U.S. withholding
tax of $42; also includes
$728 from affiliates) 778,546 $1,830,287
Fees and expenses:
Investment advisory services 97,491
Distribution services 134,930
Transfer agent services 23,036
Administrative services 8,013
Reports to shareholders 1,424
Registration statement and prospectus 1,985
Postage, stationery and supplies 2,770
Directors' compensation 458
Auditing and legal 199
Custodian 2,224
State and local taxes 1
Other 99
Total expenses before reimbursement 272,630
Reimbursement of expenses 287 272,343
Net investment income 1,557,944
NET REALIZED GAIN AND UNREALIZED
APPRECIATION ON INVESTMENTS
AND NON-U.S. CURRENCY:
Net realized gain (loss) on:
Investments (including $18 net loss from affiliates) 735,199
Non-U.S. currency transactions (2,954) 732,245
Net unrealized appreciation (depreciation) on:
Investments 2,871,562
Non-U.S. currency translations (407) 2,871,155
Net realized gain and
unrealized appreciation
on investments and non-U.S. currency 3,603,400
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $5,161,344
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands)
Year ended July 31
2004 2003
OPERATIONS:
Net investment income $1,557,944 $1,197,537
Net realized gain (loss) on investments and
non-U.S. currency transactions 732,245 (318,304)
Net unrealized appreciation
on investments and non-U.S. currency translations 2,871,155 2,135,608
Net increase in net assets
resulting from operations 5,161,344 3,014,841
DIVIDENDS AND DISTRIBUTIONS PAID OR ACCRUED TO
SHAREHOLDERS:
Dividends from net investment income (1,635,840) (1,188,421)
Distributions from net realized gain
on investments - (33,634)
Total dividends and distributions paid or accrued
to shareholders (1,635,840) (1,222,055)
CAPITAL SHARE TRANSACTIONS 10,818,973 7,542,328
TOTAL INCREASE IN NET ASSETS 14,344,477 9,335,114
NET ASSETS:
Beginning of year 30,558,569 21,223,455
End of year (including undistributed net investment income:
$154,465 and $202,562, respectively) $44,903,046 $30,558,569
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - The Income Fund of America, Inc. (the "fund") is registered under
the Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks current income while secondarily striving for
capital growth through investments in stocks and fixed-income securities.
The fund offers 14 share classes consisting of four retail share classes, five
CollegeAmerica savings plan share classes and five retirement plan share
classes. The CollegeAmerica savings plan share classes (529-A, 529-B, 529-C,
529-E and 529-F) are sponsored by the Commonwealth of Virginia and can be
utilized to save for college education. The five retirement plan share classes
(R-1, R-2, R-3, R-4 and R-5) are sold without any sales charges and do not carry
any conversion rights. The fund's share classes are described below:
- ---------------------------------------------------------------------------------------------------------
Share class Initial sales charge Contingent deferred sales Conversion feature
charge upon redemption
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes A and 529-A Up to 5.75% None (except 1% for None
certain redemptions
within one year of
purchase without an
initial sales charge)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes B and 529-B None Declines from 5% to zero Classes B and 529-B convert to
for redemptions within classes A and 529-A,
six years of purchase respectively, after eight years
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class C None 1% for redemptions within Class C converts to Class F
one year of purchase after 10 years
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class 529-C None 1% for redemptions within None
one year of purchase
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class 529-E None None None
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes F and 529-F None None None
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes R-1, R-2, R-3, None None None
R-4 and R-5
- ---------------------------------------------------------------------------------------------------------
Holders of all share classes have equal pro rata rights to assets, dividends and
liquidation proceeds. 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) are allocated daily among the
various share classes based on the relative value of their settled
shares. 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 from net realized gain on
investments 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 certain 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. The fund may also designate a portion of the amount paid to redeeming
shareholders as a distribution for tax purposes. As of July 31, 2004, the cost
of investment securities and cash denominated in non-U.S. currencies for federal
income tax purposes was $41,155,201,000.
During the year ended July 31, 2004, the fund reclassified $29,902,000 from
undistributed net realized gains to undistributed net investment income and
$103,000 from undistributed net investment income to additional paid-in capital
to align financial reporting with tax reporting.
As of July 31, 2004, the components of distributable earnings on a tax basis
were as follows:
(dollars in thousands)
Undistributed net investment income and currency gains $299,139
Loss deferrals related to non-U.S. currency that were realized during the period November 1, (2,755)
2003 through July 31, 2004
Undistributed long-term capital gains 375,160
Gross unrealized appreciation on investment securities 4,732,477
Gross unrealized depreciation on investment securities (889,362)
Net unrealized appreciation on investment securities 3,843,115
Undistributed net investment income and currency gains above include currency
losses of $1,615,000, that were realized during the period November 1, 2002
through July 31, 2003. At the beginning of the period, the fund had a capital
loss carryforward of $119,093,000 expiring in 2011. Undistributed long-term
capital gains above reflect the utilization of this capital loss carryforward to
offset capital gains realized by the fund. Also included are capital losses of
$201,315,000 that were realized during the period November 1, 2002 through July
31, 2003. During the year ended July 31, 2004, the fund realized, on a tax
basis, a net capital gain of $695,568,000.
The tax character of distributions paid or accrued to shareholders was as
follows (dollars in thousands):
Year ended July 31, 2004
Distributions from Distributions from Total distributions
ordinary income long-term capital gains paid or accrued
Share class
Class A $ 1,387,880 - $ 1,387,880
Class B 96,494 - 96,494
Class C 99,411 - 99,411
Class F 31,594 - 31,594
Class 529-A 6,046 - 6,046
Class 529-B 1,278 - 1,278
Class 529-C 2,318 - 2,318
Class 529-E 303 - 303
Class 529-F 72 - 72
Class R-1 166 - 166
Class R-2 3,089 - 3,089
Class R-3 4,239 - 4,239
Class R-4 738 - 738
Class R-5 2,212 - 2,212
Total $ 1,635,840 - $ 1,635,840
Year ended July 31, 2003
Distributions from Distributions from Total
ordinary income long-term capital gains distributions paid
Share class
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 income. For the year ended July 31, 2004, the
investment advisory services fee was $97,491,000, 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. All share classes may use up to 0.25% of average daily net
assets to pay service fees, or to compensate AFD for paying service
fees, to firms that have entered into agreements with AFD for
providing certain shareholder services. Expenses in excess of these
amounts, up to approved limits, may be used to compensate dealers and
wholesalers for shares sold.
For classes A and 529-A, the Board of Directors has also approved the
reimbursement of dealer and wholesaler commissions paid by AFD for
certain shares sold without a sales charge. Each class reimburses AFD
for amounts billed within the prior 15 months but only to the extent
that the overall annual expense limit of 0.25% is not exceeded. As of
July 31, 2004, there were no unreimbursed expenses subject to
reimbursement for classes A or 529-A.
------------------------------------------------ ----------------------------- -----------------------------
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
------------------------------------------------ ----------------------------- -----------------------------
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 year ended July 31,
2004, CRMC voluntarily agreed to pay a portion of these fees for
classes R-1, R-2 and R-3. 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 year ended July
31, 2004, were as follows (dollars in thousands):
--------------------------------------------------------------------------------------------------------------
Share class Distribution Transfer agent Administrative services
services services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
CRMC Transfer agent Commonwealth of
administrative services Virginia
services administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class A $73,497 $21,011 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class B 27,311 2,025 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class C 29,497 Included $4,424 $543 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class F 1,912 Included 1,147 125 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-A 199 Included 220 17 $147
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-B 404 Included 61 17 40
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-C 715 Included 107 22 71
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-E 40 Included 12 1 2
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-F 5 Included 3 -* 8
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-1 50 Included 7 7 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-2 690 Included 138 528 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-3 566 Included 170 116 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-4 44 Included 27 3 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-5 Not applicable Included 48 2 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Total $134,930 $23,036 $6,364 $1,381 $268
--------------------------------------------------------------------------------------------------------------
* 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 $240,000 in current fees (either paid in cash or deferred) and a net
increase of $218,000 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):
Reinvestments of
Share class Sales(1) dividends and distributions
Amount Shares Amount Shares
Year ended July 31, 2004
Class A $ 9,206,376 549,512 $ 1,103,176 66,213
Class B 1,101,061 66,441 75,097 4,529
Class C 1,949,484 117,251 74,955 4,517
Class F 574,424 34,311 22,212 1,330
Class 529-A 92,062 5,493 5,362 321
Class 529-B 20,391 1,222 1,143 68
Class 529-C 48,073 2,875 2,065 124
Class 529-E 4,740 283 270 16
Class 529-F 2,187 130 62 4
Class R-1 6,192 371 144 9
Class R-2 94,869 5,672 2,697 162
Class R-3 144,994 8,700 3,667 219
Class R-4 23,901 1,420 638 38
Class R-5 18,243 1,090 1,123 67
Total net increase
(decrease) $ 13,286,997 794,771 $ 1,292,611 77,617
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
Year ended July 31, 2004
Class A Repurchases(1) Net increase
Class B Amount Shares Amount Shares
Class C
Class F $ (3,062,800) (182,922) $ 7,246,752 432,803
Class 529-A (204,546) (12,236) 971,612 58,734
Class 529-B (281,356) (16,825) 1,743,083 104,943
Class 529-C (129,030) (7,671) 467,606 27,970
Class 529-E (6,789) (402) 90,635 5,412
Class 529-F (1,439) (85) 20,095 1,205
Class R-1 (4,315) (256) 45,823 2,743
Class R-2 (516) (30) 4,494 269
Class R-3 (258) (15) 1,991 119
Class R-4 (874) (52) 5,462 328
Class R-5 (17,214) (1,031) 80,352 4,803
Total net increase (37,073) (2,254) 111,588 6,665
(decrease) (8,520) (523) 16,019 935
(5,905) (358) 13,461 799
Year ended July 31, 2003
Class A $ (3,760,635) (224,660) $ 10,818,973 647,728
Class B
Class C
Class F $ (2,760,616) (191,744) $ 4,771,755 325,089
Class 529-A (129,263) (9,017) 1,100,041 75,700
Class 529-B (137,562) (9,593) 1,136,163 77,935
Class 529-C (70,421) (4,829) 289,519 19,788
Class 529-E (2,178) (150) 62,762 4,322
Class 529-F (396) (28) 19,461 1,342
Class R-1 (1,486) (101) 29,012 1,999
Class R-2 (97) (7) 3,878 267
Class R-3 (3) (1) 736 50
Class R-4 (341) (23) 1,940 133
Class R-5 (7,638) (525) 48,043 3,296
Total net increase (17,958) (1,245) 52,661 3,595
(decrease) (2,651) (187) 11,162 794
(2,172) (148) 15,195 1,034
$ (3,132,782) (217,598) $ 7,542,328 515,344
(1) Includes exchanges between share classes of the fund.
6. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding short-term
securities, of $18,642,155,000 and $9,875,757,000, respectively, during the year
ended July 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
year ended July 31, 2004, the custodian fee of $2,224,000 included $148,000 that
was offset by this reduction, rather than paid in cash.
FINANCIAL HIGHLIGHTS (1)
Income (loss) from investment operations(2)
Net
Net asset gains (losses)
value, Net on securities Total from
beginning investment (both realized investment
of period income and unrealized) operations
CLASS A:
Year ended 7/31/2004 $15.44 $.70 $1.70 $2.40
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)
CLASS B:
Year ended 7/31/2004 15.36 .56 1.69 2.25
Year ended 7/31/2003 14.42 .61 .97 1.58
Year ended 7/31/2002 16.39 .61 (1.73) (1.12)
Year ended 7/31/2001 15.39 .72 1.46 2.18
Period from 3/15/2000 to 7/31/2000 14.93 .24 .41 .65
CLASS C:
Year ended 7/31/2004 15.34 .55 1.69 2.24
Year ended 7/31/2003 14.41 .59 .97 1.56
Year ended 7/31/2002 16.37 .59 (1.71) (1.12)
Period from 3/15/2001 to 7/31/2001 15.85 .21 .48 .69
CLASS F:
Year ended 7/31/2004 15.42 .67 1.71 2.38
Year ended 7/31/2003 14.47 .71 .97 1.68
Year ended 7/31/2002 16.44 .71 (1.73) (1.02)
Period from 3/15/2001 to 7/31/2001 15.89 .27 .48 .75
CLASS 529-A:
Year ended 7/31/2004 15.42 .68 1.70 2.38
Year ended 7/31/2003 14.48 .71 .97 1.68
Period from 2/15/2002 to 7/31/2002 15.76 .31 (1.20) (.89)
CLASS 529-B:
Year ended 7/31/2004 15.36 .53 1.70 2.23
Year ended 7/31/2003 14.46 .58 .97 1.55
Period from 2/19/2002 to 7/31/2002 15.63 .25 (1.06) (.81)
CLASS 529-C:
Year ended 7/31/2004 15.39 .53 1.71 2.24
Year ended 7/31/2003 14.46 .58 .97 1.55
Period from 2/19/2002 to 7/31/2002 15.63 .25 (1.06) (.81)
CLASS 529-E:
Year ended 7/31/2004 15.40 .62 1.70 2.32
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:
Year ended 7/31/2004 15.42 .67 1.69 2.36
Period from 9/17/2002 to 7/31/2003 14.11 .60 1.24 1.84
CLASS R-1:
Year ended 7/31/2004 15.39 .55 1.70 2.25
Year ended 7/31/2003 14.47 .60 .96 1.56
Period from 6/17/2002 to 7/31/2002 15.65 .06 (1.24) (1.18)
CLASS R-2:
Year ended 7/31/2004 15.36 .55 1.69 2.24
Year ended 7/31/2003 14.48 .59 .95 1.54
Period from 5/31/2002 to 7/31/2002 16.26 .09 (1.69) (1.60)
CLASS R-3:
Year ended 7/31/2004 15.41 .62 1.70 2.32
Year ended 7/31/2003 14.48 .65 .98 1.63
Period from 6/4/2002 to 7/31/2002 16.09 .09 (1.51) (1.42)
CLASS R-4:
Year ended 7/31/2004 15.43 .68 1.70 2.38
Year ended 7/31/2003 14.49 .70 .98 1.68
Period from 6/27/2002 to 7/31/2002 15.25 .08 (.84) (.76)
CLASS R-5:
Year ended 7/31/2004 15.44 .73 1.71 2.44
Year ended 7/31/2003 14.49 .75 .98 1.73
Period from 5/15/2002 to 7/31/2002 16.31 .15 (1.77) (1.62)
Dividends and distributions
Dividends
(from net Distributions Total Net asset
investment (from capital dividends and value, end
income) gains) distributions of period
CLASS A:
Year ended 7/31/2004 $(.74) $ - $(.74) $17.10
Year ended 7/31/2003 (.73) (.02) (.75) 15.44
Year ended 7/31/2002 (.80) (.16) (.96) 14.49
Year ended 7/31/2001 (.80) (.48) (1.28) 16.44
Year ended 7/31/2000 (.87) (.81) (1.68) 15.43
CLASS B:
Year ended 7/31/2004 (.60) - (.60) 17.01
Year ended 7/31/2003 (.62) (.02) (.64) 15.36
Year ended 7/31/2002 (.69) (.16) (.85) 14.42
Year ended 7/31/2001 (.70) (.48) (1.18) 16.39
Period from 3/15/2000 to 7/31/2000 (.19) - (.19) 15.39
CLASS C:
Year ended 7/31/2004 (.59) - (.59) 16.99
Year ended 7/31/2003 (.61) (.02) (.63) 15.34
Year ended 7/31/2002 (.68) (.16) (.84) 14.41
Period from 3/15/2001 to 7/31/2001 (.17) - (.17) 16.37
CLASS F:
Year ended 7/31/2004 (.72) - (.72) 17.08
Year ended 7/31/2003 (.71) (.02) (.73) 15.42
Year ended 7/31/2002 (.79) (.16) (.95) 14.47
Period from 3/15/2001 to 7/31/2001 (.20) - (.20) 16.44
CLASS 529-A:
Year ended 7/31/2004 (.72) - (.72) 17.08
Year ended 7/31/2003 (.72) (.02) (.74) 15.42
Period from 2/15/2002 to 7/31/2002 (.39) - (.39) 14.48
CLASS 529-B:
Year ended 7/31/2004 (.54) - (.54) 17.05
Year ended 7/31/2003 (.63) (.02) (.65) 15.36
Period from 2/19/2002 to 7/31/2002 (.36) - (.36) 14.46
CLASS 529-C:
Year ended 7/31/2004 (.57) - (.57) 17.06
Year ended 7/31/2003 (.60) (.02) (.62) 15.39
Period from 2/19/2002 to 7/31/2002 (.36) - (.36) 14.46
CLASS 529-E:
Year ended 7/31/2004 (.66) - (.66) 17.06
Year ended 7/31/2003 (.67) (.02) (.69) 15.40
Period from 2/25/2002 to 7/31/2002 (.38) - (.38) 14.47
CLASS 529-F:
Year ended 7/31/2004 (.70) - (.70) 17.08
Period from 9/17/2002 to 7/31/2003 (.51) (.02) (.53) 15.42
CLASS R-1:
Year ended 7/31/2004 (.59) .00 (.59) 17.05
Year ended 7/31/2003 (.62) (.02) (.64) 15.39
Period from 6/17/2002 to 7/31/2002 - - - 14.47
CLASS R-2:
Year ended 7/31/2004 (.59) - (.59) 17.01
Year ended 7/31/2003 (.64) (.02) (.66) 15.36
Period from 5/31/2002 to 7/31/2002 (.18) - (.18) 14.48
CLASS R-3:
Year ended 7/31/2004 (.66) - (.66) 17.07
Year ended 7/31/2003 (.68) (.02) (.70) 15.41
Period from 6/4/2002 to 7/31/2002 (.19) - (.19) 14.48
CLASS R-4:
Year ended 7/31/2004 (.72) - (.72) 17.09
Year ended 7/31/2003 (.72) (.02) (.74) 15.43
Period from 6/27/2002 to 7/31/2002 - - - 14.49
CLASS R-5:
Year ended 7/31/2004 (.78) - (.78) 17.10
Year ended 7/31/2003 (.76) (.02) (.78) 15.44
Period from 5/15/2002 to 7/31/2002 (.20) - (.20) 14.49
Ratio of Ratio of
expenses to expenses to Ratio of
Net assets, average net average net net income
Total end of period assets before assets after to average
return (3) (in millions) reimbursement reimbursement (4) net assets
CLASS A:
Year ended 7/31/2004 15.76% $36,075 .57% .57% 4.15%
Year ended 7/31/2003 12.18 25,891 .61 .61 4.98
Year ended 7/31/2002 (6.35) 19,585 .61 .61 4.66
Year ended 7/31/2001 15.53 19,519 .62 .62 5.18
Year ended 7/31/2000 (2.08) 18,102 .63 .63 5.52
CLASS B:
Year ended 7/31/2004 14.84 3,231 1.35 1.35 3.37
Year ended 7/31/2003 11.37 2,015 1.39 1.39 4.17
Year ended 7/31/2002 (7.14) 800 1.37 1.37 3.88
Year ended 7/31/2001 14.77 254 1.38 1.38 4.15
Period from 3/15/2000 to 7/31/2000 4.33 29 .52 .52 1.73
CLASS C:
Year ended 7/31/2004 14.75 3,833 1.44 1.44 3.26
Year ended 7/31/2003 11.23 1,850 1.48 1.48 4.07
Year ended 7/31/2002 (7.17) 614 1.48 1.48 3.77
Period from 3/15/2001 to 7/31/2001 4.35 89 .62 .62 1.28
CLASS F:
Year ended 7/31/2004 15.65 1,000 .69 .69 4.02
Year ended 7/31/2003 12.11 471 .72 .72 4.83
Year ended 7/31/2002 (6.56) 156 .73 .73 4.52
Period from 3/15/2001 to 7/31/2001 4.71 22 .31 .31 1.58
CLASS 529-A:
Year ended 7/31/2004 15.61 195 .67 .67 4.06
Year ended 7/31/2003 12.10 93 .68 .68 4.87
Period from 2/15/2002 to 7/31/2002 (5.83) 24 .37 .37 2.02
CLASS 529-B:
Year ended 7/31/2004 14.67 51 1.57 1.57 3.16
Year ended 7/31/2003 11.10 28 1.60 1.60 3.95
Period from 2/19/2002 to 7/31/2002 (5.40) 7 .71 .71 1.62
CLASS 529-C:
Year ended 7/31/2004 14.69 95 1.56 1.56 3.17
Year ended 7/31/2003 11.10 44 1.59 1.59 3.96
Period from 2/19/2002 to 7/31/2002 (5.40) 12 .70 .70 1.63
CLASS 529-E:
Year ended 7/31/2004 15.24 10 1.04 1.04 3.69
Year ended 7/31/2003 11.66 5 1.06 1.06 4.48
Period from 2/25/2002 to 7/31/2002 (6.24) 1 .45 .45 1.79
CLASS 529-F:
Year ended 7/31/2004 15.53 3 .79 .79 3.95
Period from 9/17/2002 to 7/31/2003 13.38 1 .81 (5) .81 (5) 4.68 (5)
CLASS R-1:
Year ended 7/31/2004 .15 8 .02 .01 .03
Year ended 7/31/2003 11.19 2 1.92 1.50 4.02
Period from 6/17/2002 to 7/31/2002 (7.54) - (6) .32 .18 .42
CLASS R-2:
Year ended 7/31/2004 14.75 139 1.75 1.44 3.30
Year ended 7/31/2003 11.12 52 1.81 1.46 4.02
Period from 5/31/2002 to 7/31/2002 (9.95) 1 .29 .24 .66
CLASS R-3:
Year ended 7/31/2004 15.25 176 1.02 1.02 3.70
Year ended 7/31/2003 11.68 56 1.12 1.08 4.42
Period from 6/4/2002 to 7/31/2002 (8.90) 1 .19 .17 .61
CLASS R-4:
Year ended 7/31/2004 15.64 30 .69 .69 4.05
Year ended 7/31/2003 12.07 12 .72 .72 4.81
Period from 6/27/2002 to 7/31/2002 (4.98) - (6) 5.11 .03 .52
CLASS R-5:
Year ended 7/31/2004 16.01 57 .37 .37 4.35
Year ended 7/31/2003 12.43 39 .40 .40 5.17
Period from 5/15/2002 to 7/31/2002 (9.99) 22 .09 .09 .97
Year ended July 31
2004 2003 2002 2001 2000
Portfolio turnover rate for all classes of shares 27% 28% 36% 44% 35%
(1) Based on operations for the period shown (unless otherwise noted)
and, accordingly, may not be representative of a full year.
(2) Based on average shares outstanding.
(3) Total returns exclude all sales charges, including contingent deferred
sales charges.
(4) The ratios in this column reflect the impact, if any, of certain
reimbursements and payments from CRMC. During the start-up period
for the retirement plan share classes (except Class R-5), CRMC
voluntarily agreed to pay a portion of the fees related to transfer
agent services.
(5) Annualized.
(6) Amount less than 1 million.
See Notes to Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
The Income Fund of America, Inc.:
We have audited the accompanying statement of assets and liabilities of The
Income Fund of America, Inc. (the "Fund"), including the investment portfolio,
as of July 31, 2004, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2004, by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Income Fund of America, Inc. as of July 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Los Angeles, California
September 14, 2004
TAX INFORMATION (unaudited)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of certain distributions received by
shareholders during such fiscal year. The information below is provided for the
fund's fiscal year ending July 31, 2004.
Individual shareholders are eligible for reduced tax rates on qualified dividend
income. For purposes of computing the dividends eligible for reduced tax rates,
$981,895,000 of the dividends paid by the fund from ordinary income earned
during the fiscal year are considered qualified dividend income. In addition,
all of the dividends paid by the fund from ordinary income earned during the
prior fiscal year are considered qualified dividend income.
Corporate shareholders may exclude up to 70% of qualifying dividends. For
purposes of computing this exclusion, $614,569,000 of the dividends paid by the
fund from ordinary income earned during the fiscal year represent qualifying
dividends.
Certain states may exempt from income taxation that portion of dividends paid by
the fund from ordinary income that was derived from direct U.S. government
obligations. For purposes of computing this exclusion, $34,964,000 of the
dividends paid by the fund from ordinary income earned during the fiscal year
were derived from interest on direct U.S. government obligations.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans and 403(b) plans need not be reported as taxable income.
However, many retirement plan trusts may need this information for their annual
information reporting.
Since the information above is reported for the fund's fiscal year and not the
calendar year, shareholders should refer to their Form 1099-DIV or other tax
information which will be mailed in January 2005 to determine the calendar year
amounts to be included on their 2004 tax returns. Shareholders should consult
their tax advisers.
OTHER SHARE CLASS RESULTS (unaudited)
Figures shown are past results and are not predictive of results in 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.
CLASS B, CLASS C, CLASS F AND CLASS 529
Returns for periods ended June 30, 2004 (the most recent calendar quarter):
CLASS B SHARES 1 year Life of class
Reflecting applicable contingent deferred sales charge
(CDSC), maximum of 5%, payable only if shares are
sold within six years of purchase +10.37% +8.31%(1)
Not reflecting CDSC +15.37% +8.66%(1)
CLASS C SHARES
Reflecting CDSC, maximum of 1%, payable only if shares
are sold within one year of purchase +14.29% +6.81%(2)
Not reflecting CDSC +15.29% +6.81%(2)
CLASS F SHARES(3)
Not reflecting annual asset-based fee charged by sponsoring firm +16.19% +7.62%(2)
CLASS 529-A SHARES
Reflecting 5.75% maximum sales charge +9.47% +6.27%(4)
Not reflecting maximum sales charge +16.15% +8.95%(4)
CLASS 529-B SHARES
Reflecting applicable CDSC, maximum of 5%, payable
only if shares are sold within six years of purchase +10.21% +6.92%(5)
Not reflecting CDSC +15.21% +8.45%(5)
CLASS 529-C SHARES
Reflecting CDSC, maximum of 1%, payable only if shares
are sold within one year of purchase +14.18% +8.44%(5)
Not reflecting CDSC +15.18% +8.44%(5)
CLASS 529-E SHARES(3) +15.82% +8.55%(6)
CLASS 529-F SHARES(3)
Not reflecting annual asset-based fee charged by sponsoring firm +16.08% +16.61%(7)
(1) Average annual total return from March 15, 2000, when Class B shares were
first sold.
(2) Average annual total return from March 15, 2001, when Class C and Class F
shares were first sold.
(3) These shares are sold without any initial or contingent deferred sales
charge.
(4) Average annual total return from February 15, 2002, when Class 529-A shares
were first sold.
(5) Average annual total return from February 19, 2002, when Class 529-B and
Class 529-C shares were first sold.
(6) Average annual total return from February 25, 2002, when Class 529-E shares
were first sold.
(7) Average annual total return from September 17, 2002, when Class 529-F
shares were first sold.
There are several ways to invest in The Income Fund of America. Class A shares
are subject to a 5.75% maximum up-front sales charge that declines for accounts
(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.
Annual expenses for Class B shares were 0.78 percentage points higher than for
Class A shares; Class B shares convert to Class A shares after eight years of
ownership. If redeemed within six years, Class B shares may also be subject to a
contingent deferred sales charge ("CDSC") of up to 5% that declines over time.
Class C shares were subject to annual expenses 0.87 percentage points higher
than those for Class A shares and a 1% CDSC if redeemed within the first year
after purchase. Class C shares convert to Class F shares after 10 years. Class F
shares, which are available only through certain fee-based programs offered by
broker-dealer firms and registered investment advisers, had higher annual
expenses (by 0.12 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.
EXPENSE EXAMPLE (unaudited)
As a shareholder of the fund, you incur two types of costs: (1) transaction
costs such as initial sales charges on purchase payments and contingent deferred
sales charges on redemptions (loads); and (2) ongoing costs, including
management fees; distribution and service (12b-1) fees; and other expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the fund so you can compare these costs with the ongoing costs of
investing in other mutual funds. The example is based on an investment of $1,000
invested at the beginning of the period and held for the entire period (February
1, 2004 through July 31, 2004).
ACTUAL EXPENSES:
The first line of each share class in the table on the next page provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the first line under the heading entitled
"Expenses paid during period" to estimate the expenses you paid on your account
during this period. There are some account fees that are charged to certain
types of accounts, such as Individual Retirement Accounts and CollegeAmerica
Accounts (generally, a $10 fee is charged to set up the account and an
additional $10 fee is charged to the account annually) that would increase the
amount of expenses paid on your account. In addition, retirement plan
participants may be subject to certain fees charged by the plan sponsor, and
Class F and Class 529-F shareholders may be subject to fees charged by financial
intermediaries, typically ranging from 0.50% to 3.00% of assets annually
depending on services offered. You may use the information in the table below to
estimate the impact of these fees by adding the amount of the fees to the number
in the first line for your share class under the heading entitled "Expenses paid
during period," and subtracting the amount of the fees from the number in that
first line under the heading entitled "Ending account value."
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES:
The second line of each share class in the table on the next page provides
information about hypothetical account values and hypothetical expenses based on
the actual expense ratio for the share class and an assumed rate of return of
5.00% per year before expenses, which is not the actual return of the share
class. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5.00% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
There are some account fees that are charged to certain shareholders, such as
Individual Retirement Accounts and CollegeAmerica Accounts (generally, a $10 fee
is charged to set up the account and an additional $10 fee is charged to the
account annually) that would increase the amount of expenses paid on your
account. In addition, retirement plan participants may be subject to certain
fees charged by the plan sponsor, and Class F shareholders may be subject to
fees charged by financial intermediaries, typically ranging from 0.50% to 3.00%
of assets annually depending on services offered. You may use the information in
the table on the next page to estimate the impact of these fees by adding the
amount of the fees to the number in the second line for your share class under
the heading entitled "Expenses paid during period," and subtracting the amount
of the fees from the number in that second line under the heading entitled
"Ending account value."
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of each share class in the table is
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these
transactional costs were included, your costs would have been higher.
Beginning Account Ending Account Expenses Paid Annualized*
Value 2/1/2004 Value 7/31/2004 during period(1) Expense Ratio
Class A -- actual return $ 1,000.00 $ 1,008.07 $ 2.85 .57%
Class A -- assumed 5% return 1,000.00 1,022.03 2.87 .57
Class B -- actual return 1,000.00 1,003.67 6.73 1.35
Class B -- assumed 5% return 1,000.00 1,018.15 6.77 1.35
Class C -- actual return 1,000.00 1,003.18 7.17 1.44
Class C -- assumed 5% return 1,000.00 1,017.70 7.22 1.44
Class F -- actual return 1,000.00 1,006.92 3.39 .68
Class F -- assumed 5% return 1,000.00 1,021.48 3.42 .68
Class 529-A -- actual return 1,000.00 1,006.95 3.39 .68
Class 529-A -- assumed 5% return 1,000.00 1,021.48 3.42 .68
Class 529-B -- actual return 1,000.00 1,002.59 7.82 1.57
Class 529-B -- assumed 5% return 1,000.00 1,017.06 7.87 1.57
Class 529-C -- actual return 1,000.00 1,003.20 7.77 1.56
Class 529-C -- assumed 5% return 1,000.00 1,017.11 7.82 1.56
Class 529-E -- actual return 1,000.00 1,005.20 5.19 1.04
Class 529-E -- assumed 5% return 1,000.00 1,019.69 5.22 1.04
Class 529-F -- actual return 1,000.00 1,006.41 3.94 .79
Class 529-F -- assumed 5% return 1,000.00 1,020.93 3.97 .79
Class R-1 -- actual return 1,000.00 1,003.04 7.37 1.48
Class R-1 -- assumed 5% return 1,000.00 1,017.50 7.42 1.48
Class R-2 -- actual return 1,000.00 1,003.24 7.17 1.44
Class R-2 -- assumed 5% return 1,000.00 1,017.70 7.22 1.44
Class R-3 -- actual return 1,000.00 1,005.32 4.99 1.00
Class R-3 -- assumed 5% return 1,000.00 1,019.89 5.02 1.00
Class R-4 -- actual return 1,000.00 1,007.50 3.44 .69
Class R-4 -- assumed 5% return 1,000.00 1,021.43 3.47 .69
Class R-5 -- actual return 1,000.00 1,009.08 1.85 .37
Class R-5 -- assumed 5% return 1,000.00 1,023.02 1.86 .37
(1) Expenses are equal to the annualized expense ratio, multiplied by the
average account value over the period, multiplied by the number of days in
the period (182), and divided by 366 (to reflect the one-half year period).
BOARD OF DIRECTORS
"NON-INTERESTED" DIRECTORS
YEAR FIRST
ELECTED
A DIRECTOR
NAME AND AGE OF THE FUND(1) PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
ROBERT A. FOX, 67 1972 Managing General Partner, Fox Investments LP; former Professor,
University of California; retired
President and CEO, Foster Farms (poultry producer)
LEONADE D. JONES, 56 1993 Co-founder, VentureThink LLC (developed and managed e-commerce
businesses) and Versura Inc. (education loan exchange); former
Treasurer, The Washington Post Company
JOHN M. LILLIE, 67 2003 Business consultant; former President, Sequoia Associates LLC
(investment firm specializing in medium-size buyouts); former Vice
Chairman of the Board, Gap Inc. (specialty apparel retailing)
JOHN G. MCDONALD, 67 1976 The IBJ Professor of Finance, Graduate School of Business, Stanford
University
JAMES K. PETERSON, 63 1999 Managing Director, Oak Glen Consultancy LLC (consulting services to
charitable organizations, pension funds and other financial management
companies)
HENRY E. RIGGS, 69 1989 President Emeritus, Keck Graduate Institute of Applied Life Sciences
ISAAC STEIN, 57 2004 President, Waverly Associates (private investment fund); Managing
Director, Technogen Associates L.P. (venture capital partnership);
Chairman of the Board of Trustees, Stanford University
PATRICIA K. WOOLF, PH.D., 70 1985 Private investor; corporate director; lecturer, Department of
Molecular Biology, Princeton University
"NON-INTERESTED" DIRECTORS
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX(2)
OVERSEEN BY
NAME AND AGE DIRECTOR OTHER DIRECTORSHIPS(3) HELD BY DIRECTOR
ROBERT A. FOX, 67 7 Crompton Corporation
LEONADE D. JONES, 56 6 None
JOHN M. LILLIE, 67 2 None
JOHN G. MCDONALD, 67 8 iStar Financial, Inc.; Plum Creek Timber Co.; Scholastic Corporation;
Varian, Inc.
JAMES K. PETERSON, 63 2 None
HENRY E. RIGGS, 69 4 None
ISAAC STEIN, 57 2 Maxygen, Inc.
PATRICIA K. WOOLF, Ph.D., 70 6 Crompton Corporation; First Energy Corporation; National Life Holding
Co.
"INTERESTED" DIRECTORS(4)
YEAR FIRST
ELECTED A
DIRECTOR OR PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
NAME, AGE AND OFFICER AND POSITIONS HELD WITH AFFILIATED ENTITIES OR THE
POSITION WITH FUND OF THE FUND(1) PRINCIPAL UNDERWRITER OF THE FUND
STEPHEN E. BEPLER, 62 1993 Senior Vice President, Capital Research Company(5)
Chairman of the Board
"INTERESTED" DIRECTORS(4)
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX(2)
NAME, AGE AND OVERSEEN BY
POSITION WITH FUND DIRECTOR OTHER DIRECTORSHIPS3 HELD BY DIRECTOR
STEPHEN E. BEPLER, 62 1 None
Chairman of the Board
THE STATEMENT OF ADDITIONAL INFORMATION INCLUDES ADDITIONAL INFORMATION ABOUT
FUND DIRECTORS AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST BY CALLING AMERICAN
FUNDS SERVICE COMPANY AT 800/421-0180. THE ADDRESS FOR ALL DIRECTORS AND
OFFICERS OF THE FUND IS 333 SOUTH HOPE STREET, LOS ANGELES, CA 90071, ATTENTION:
FUND SECRETARY.
(1) Directors and officers of the fund serve until their resignation, removal
or retirement.
(2) Capital Research and Management Company manages the American Funds,
consisting of 29 funds. Capital Research and Management Company also
manages American Funds Insurance Series,(R) which serves as the underlying
investment vehicle for certain variable insurance contracts; and Endowments,
whose shareholders are limited to certain nonprofit organizations.
(3) This includes all directorships (other than those in the American Funds)
that are held by each Director as a director of a public company or a
registered investment company.
(4) "Interested persons" within the meaning of the 1940 Act, on the basis of
their affiliation with the fund's investment adviser, Capital Research and
Management Company, or affiliated entities (including the fund's principal
underwriter).
(5) Company affiliated with Capital Research and Management Company.
OTHER OFFICERS
YEAR FIRST
ELECTED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
NAME, AGE AND AN OFFICER AND POSITIONS HELD WITH AFFILIATED ENTITIES OR
POSITION WITH FUND OF THE FUND(1) THE PRINCIPAL UNDERWRITER OF THE FUND
HILDA L. APPLBAUM, 43 1998 Senior Vice President, Capital Research Company(5)
President and Principal
Executive Officer
ABNER D. GOLDSTINE, 74 1993 Senior Vice President and Director, Capital
Senior Vice President Research and Management Company
PAUL G. HAAGA, JR., 55 1994 Executive Vice President and Director, Capital
Senior Vice President Research and Management Company; Director, The Capital Group
Companies, Inc.;(5) Director, American Funds Distributors, Inc.(5)
DINA N. PERRY, 58 1994 Senior Vice President, Capital Research and
Senior Vice President Management Company; Director, Capital Research Company(5)
DAVID C. BARCLAY, 47 1998 Senior Vice President and Director, Capital
Vice President Research and Management Company
MARK R. MACDONALD, 45 2004 Senior Vice President, Capital Research and
Vice President Management Company
MARY E. SHERIDAN, 54 2004 Vice President, Capital Research Company(5)
Vice President
JOHN H. SMET, 48 1994 Senior Vice President, Capital Research and
Vice President Management Company
ANDREW B. SUZMAN, 37 2004 Executive Vice President and Director, Capital
Vice President Research Company;(5) Director, Capital International
Research, Inc.(5)
PATRICK F. QUAN, 46 1986 Vice President -- Fund Business Management
Secretary Group, Capital Research and Management Company
DAYNA G. YAMABE, 37 2000 Vice President -- Fund Business Management
Treasurer Group, Capital Research and Management Company
R. MARCIA GOULD, 50 1999 Vice President -- Fund Business Management
Assistant Treasurer Group, Capital Research and Management Company
OFFICE OF THE FUND
One Market
Steuart Tower, Suite 1800
Mailing address: P.O. Box 7650
San Francisco, CA 94120-7650
INVESTMENT ADVISER
Capital Research and
Management Company
333 South Hope Street
Los Angeles, CA 90071-1406
135 South State College Boulevard
Brea, CA 92821-5823
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 25065
Santa Ana, CA 92799-5065
P.O. Box 659522
San Antonio, TX 78265-9522
P.O. Box 6007
Indianapolis, IN 46206-6007
P.O. Box 2280
Norfolk, VA 23501-2280
CUSTODIAN OF ASSETS
JPMorgan Chase Bank
270 Park Avenue
New York, NY 10017-2070
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
515 South Flower Street
Los Angeles, CA 90071-2228
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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
INVESTORS SHOULD CAREFULLY CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES
AND EXPENSES OF THE AMERICAN FUNDS AND COLLEGEAMERICA. THIS AND OTHER IMPORTANT
INFORMATION IS CONTAINED IN THE FUND'S 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.
THE FUND'S PROXY VOTING RECORD FOR THE 12 MONTHS ENDED JUNE 30, 2004, IS ALSO
AVAILABLE ON THE AMERICAN FUNDS AND SEC WEBSITES.
A complete portfolio of The Income Fund of America's investments is available
upon request, free of charge, by calling American Funds Service Company or
accessing the U.S. Securities and Exchange Commission website.
The Income Fund of America files a complete list of its portfolio holdings with
the U.S. Securities and Exchange Commission for the first and third quarters of
each fiscal year on Form N-Q. Forms N-Q are available free of charge, upon
request, by accessing the U.S. Securities and Exchange Commission website or by
calling American Funds Service Company. You may also review or, for a fee, copy
the forms at the Commission's Public Reference Room in Washington, D.C.
(202/942-8090).
This report is for the information of shareholders of The Income Fund of
America, but it may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details about charges,
expenses, investment objectives and operating policies of the fund. If used as
sales material after September 30, 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. More than half of them were in the
investment business before the sharp market decline of 1987.
o A COMMITMENT TO LOW OPERATING EXPENSES
American Funds' operating expenses are among the lowest in the mutual fund
industry. Our portfolio turnover rates are low as well, keeping transaction
costs and tax consequences contained.
29 MUTUAL FUNDS, CONSISTENT PHILOSOPHY, CONSISTENT RESULTS
o GROWTH FUNDS
Emphasis on long-term growth through stocks
AMCAP Fund(R)
EuroPacific Growth Fund(R)
The Growth Fund of America(R)
The New Economy Fund(R)
New Perspective Fund(R)
New World Fund(SM)
SMALLCAP World Fund(R)
o GROWTH-AND-INCOME FUNDS
Emphasis on long-term growth and dividends through stocks
American Mutual Fund(R)
Capital World Growth and Income Fund(SM)
Fundamental Investors(SM)
The Investment Company of America(R)
Washington Mutual Investors Fund(SM)
o EQUITY-INCOME FUNDS
Emphasis on above-average income and growth through stocks and/or bonds
Capital Income Builder(R)
> THE INCOME FUND OF AMERICA(R)
o BALANCED FUND
Emphasis on long-term growth and current income through stocks and bonds
American Balanced Fund(R)
o BOND FUNDS
Emphasis on current income through bonds
American High-Income Trust(SM)
The Bond Fund of America(SM)
Capital World Bond Fund(R)
Intermediate Bond Fund of America(R)
U.S. Government Securities Fund(SM)
o TAX-EXEMPT BOND FUNDS
Emphasis on tax-free current income through municipal bonds
American High-Income Municipal Bond Fund(R)
Limited Term Tax-Exempt Bond Fund of America(SM)
The Tax-Exempt Bond Fund of America(R)
STATE-SPECIFIC TAX-EXEMPT FUNDS
The Tax-Exempt Fund of California(R)
The Tax-Exempt Fund of Maryland(R)
The Tax-Exempt Fund of Virginia(R)
o MONEY MARKET FUNDS
The Cash Management Trust of America(R)
The Tax-Exempt Money Fund of America(SM)
The U.S. Treasury Money Fund of America(SM)
THE CAPITAL GROUP COMPANIES
American Funds
Capital Research and Management
Capital International
Capital Guardian
Capital Bank and Trust
Lit. No. MFGEAR-906-0904P
Litho in USA BAG/LPT/8061-S1913
Printed on recycled paper
ITEM 2 - Code of Ethics
The Registrant has adopted a Code of Ethics that applies to its Principal
Executive Officer and Principal Financial Officer. The Registrant undertakes to
provide to any person without charge, upon request, a copy of the Code of
Ethics. Such request can be made to American Funds Service Company at
800/421-0180 or to the Secretary of the Registrant, P.O. Box 7650, San
Francisco, California 94120.
ITEM 3 - Audit Committee Financial Expert
The Registrant's Board has determined that James K. Peterson, a member of the
Registrant's Audit Committee, is an "audit committee financial expert" and
"independent," as such terms are defined in this Item. This designation will not
increase the designee's duties, obligations or liability as compared to his
duties, obligations and liability as a member of the Audit Committee and of the
Board; nor will it reduce the responsibility of the other Audit Committee
members. There may be other individuals who, through education or experience,
would qualify as "audit committee financial experts" if the Board had designated
them as such. Most importantly, the Board believes each member of the Audit
Committee contributes significantly to the effective oversight of the
Registrant's financial statements and condition.
ITEM 4 - Principal Accountant Fees and Services
Fees billed by the Registrant's auditors for each of the last two fiscal years,
including fees for non-audit services billed to the adviser and affiliates for
engagements that relate directly to the operations and financial reporting of
the Registrant, and a description of the nature of the services comprising the
fees, are listed below:
Registrant:
a) Audit Fees:
2003 $74,000
2004 $83,000
b) Audit- Related Fees:
2003 none
2004 $6,000
The audit-related fees consist of assurance
and related services relating to the
examination of the Registrant's investment
adviser conducted in accordance with
Statement on Auditing Standards Number 70
issued by the American Institute of
Certified Public Accountants.
c) Tax Fees:
2003 $5,000
2004 $6,000
The tax fees consist of professional
services relating to the preparation of the
Registrant's tax returns.
d)
All Other Fees:
2003 none
2004 none
Adviser and affiliates (includes only fees for non-audit
services billed to the adviser and affiliates for engagements
that relate directly to the operations and financial reporting
of the Registrant and were subject to the pre-approval
policies described below):
b) Audit- Related Fees:
2003 $358,000
2004 $212,000
The audit-related fees consist of assurance
and related services relating to the
examination of the Registrant's transfer
agency and investment adviser conducted in
accordance with Statement on Auditing
Standards Number 70 issued by the American
Institute of Certified Public Accountants.
c) Tax Fees:
2003 none
2004 none
d) All Other Fees:
2003 none
2004 none
The Registrant's Audit Committee will pre-approve all audit and permissible
non-audit services that the Committee considers compatible with maintaining the
auditors' independence. The pre-approval requirement will extend to all
non-audit services provided to the Registrant, the investment adviser, and any
entity controlling, controlled by, or under common control with the investment
adviser that provides ongoing services to the Registrant, if the engagement
relates directly to the operations and financial reporting of the Registrant.
The Committee will not delegate its responsibility to pre-approve these services
to the investment adviser. The Committee may delegate to one or more Committee
members the authority to review and pre-approve audit and permissible non-audit
services. Actions taken under any such delegation will be reported to the full
Committee at its next meeting. The pre-approval requirement is waived with
respect to non-audit services if certain conditions are met. The pre-approval
requirement was not waived for any of the services listed above under paragraphs
b, c and d.
Aggregate non-audit fees paid to the Registrant's auditors, including fees for
all services billed to the Registrant and the adviser and affiliates that
provide ongoing services to the Registrant were $371,000 for fiscal year 2003
and $255,000 for fiscal year 2004. The non-audit services represented by these
amounts were brought to the attention of the Committee and considered to be
compatible with maintaining the auditors' independence.
ITEM 5 - Audit Committee of Listed Registrants
Not applicable.
ITEM 6 - Schedule of Investments
[logo - American Funds (r)]
INCOME FUND OF AMERICA
INVESTMENT PORTFOLIO
July 31, 2004
Market value
COMMON STOCKS -- 62.21% Shares (000)
FINANCIALS -- 16.78%
Bank of America Corp. 11,689,487 $993,723
J.P. Morgan Chase & Co. 11,850,000 442,360
HSBC Holdings PLC (United Kingdom) 18,905,567 277,311
HSBC Holdings PLC (Hong Kong) 9,264,821 136,611
Societez Generale 5,044,800 412,970
Washington Mutual, Inc. 8,265,000 320,682
Boston Properties, Inc. 4,955,000 262,119
U.S. Bancorp 9,250,000 261,775
iStar Financial, Inc.(1) 6,885,000 261,630
Wells Fargo & Co. 4,335,000 248,872
Fannie Mae 3,195,000 226,717
Lloyds TSB Group PLC 29,500,000 220,911
Equity Residential 7,387,700 218,307
Wachovia Corp. 4,250,000 188,317
Commonwealth Bank of Australia 8,251,183 180,502
Kimco Realty Corp. 3,290,000 158,249
Developers Diversified Realty Corp. 4,270,000 153,208
ING Groep NV 6,189,076 143,226
Westpac Banking Corp. 11,558,661 136,471
Health Care Property Investors, Inc. 4,863,800 121,400
ABN AMRO Holding NV 5,807,063 121,282
Fortis 4,880,000 106,079
PNC Financial Services Group, Inc. 2,000,000 101,200
Bank of Nova Scotia 3,600,000 99,187
Arthur J. Gallagher & Co. 3,131,400 96,979
Unibail Holding 925,000 96,705
Hang Lung Properties Ltd. 70,000,000 96,484
Allied Capital Corp. 3,848,020 94,854
Equity Office Properties Trust 3,425,000 88,879
XL Capital Ltd., Class A 1,175,000 83,049
Montpelier Re Holdings Ltd. 2,290,000 81,020
AMB Property Corp. 2,295,000 80,646
Weingarten Realty Investors 2,411,250 74,266
Regency Realty Centers Corp. 1,650,000 70,125
Allstate Corp. 1,475,000 69,443
Lincoln National Corp. 1,500,000 65,550
Westfield Group(2) 5,530,000 58,704
Svenska Handelsbanken Group, Class A 2,946,800 54,837
Archstone-Smith Trust 1,852,000 54,504
St. George Bank Ltd. 3,565,000 53,082
Hospitality Properties Trust 1,275,000 50,847
Citigroup Inc. 1,145,000 50,483
Maguire Properties, Inc. 1,850,000 45,788
St. Paul Travelers Companies, Inc. 1,167,400 43,276
Bank of New York Co., Inc. 1,500,000 $ 43,095
Newcastle Investment Corp. 1,496,900 42,347
Hysan Development Co. Ltd. 21,702,509 39,096
GATX Corp. 1,450,000 36,946
American International Group, Inc. 492,150 34,770
Comerica Inc. 500,000 29,235
Irish Life & Permanent PLC 1,931,100 29,136
Chubb Corp. 400,000 27,512
Hang Lung Group Ltd. 17,400,000 24,876
Wilshire Financial Services Group Inc.(1) 2,150,517 20,043
Mercury General Corp. 214,800 10,124
7,539,810
TELECOMMUNICATION SERVICES -- 7.69%
SBC Communications Inc. 31,705,000 803,405
Verizon Communications Inc. 19,560,000 753,842
BellSouth Corp. 14,845,000 402,151
AT&T Corp. 21,131,000 319,078
BT Group PLC 71,285,000 244,411
Chunghwa Telecom Co., Ltd. (ADR) 8,400,000 135,072
Chunghwa Telecom Co., Ltd. 23,782,000 37,488
Telecom Italia SpA, nonvoting 77,419,765 165,782
TDC A/S 4,645,757 150,778
Telefonica, SA 9,900,000 143,903
Telefonos de Mexico, SA de CV, Class L (ADR) 3,100,000 95,728
Swisscom AG 222,200 72,069
Eircom Group PLC(2) 27,940,000 48,292
BCE Inc. 1,867,106 39,327
NTELOS Inc.(2),(3),(4) 345,687 9,296
Dobson Communications Corp., Class A(2),(3) 3,480,483 9,293
Telecom Corp. of New Zealand Ltd. 1,957,771 7,608
AirGate PCS, Inc.(2),(3) 448,263 6,894
Netia SA(2) 2,459,749 2,745
XO Communications, Inc.(2) 6,837 27
3,447,189
UTILITIES -- 7.32%
National Grid Transco PLC 47,470,000 375,313
Southern Co. 9,760,000 285,773
E.ON AG 3,975,000 282,121
Dominion Resources, Inc. 3,850,000 244,321
Consolidated Edison, Inc. 5,815,700 238,269
Duke Energy Corp. 10,811,607 232,450
Ameren Corp. 4,640,300 207,375
Scottish Power PLC 26,638,100 190,649
DTE Energy Co. 4,539,100 182,336
Equitable Resources, Inc. 2,735,000 140,251
Progress Energy, Inc. 3,086,924 130,083
American Electric Power Co., Inc. 3,986,300 124,014
Xcel Energy Inc. 7,180,000 122,778
Energy East Corp. 4,883,300 118,957
Public Service Enterprise Group Inc. 3,010,000 117,390
Exelon Corp. 3,000,000 104,700
FPL Group, Inc. 1,155,000 77,766
NiSource Inc. 2,750,000 56,925
FirstEnergy Corp. 1,406,450 54,992
3,286,463
CONSUMER STAPLES -- 6.75%
Altria Group, Inc. 9,817,500 $ 467,313
Sara Lee Corp. 16,050,000 352,458
H.J. Heinz Co. 7,210,000 265,977
ConAgra Foods, Inc. 9,885,000 257,010
Diageo PLC 20,600,000 255,017
Albertson's, Inc. 9,690,000 236,339
R.J. Reynolds Tobacco Holdings, Inc. 3,231,600 232,514
Unilever NV (New York registered) 2,930,000 179,697
Unilever NV 575,000 35,302
Kellogg Co. 3,850,000 160,391
General Mills, Inc. 2,650,000 118,985
Lion Nathan Ltd. 22,742,756 111,073
Gallaher Group PLC 7,911,186 94,056
Tesco PLC 13,103,469 60,577
Imperial Tobacco Group PLC 2,765,839 60,089
SABMiller PLC 4,311,000 54,895
UST Inc. 1,000,000 37,950
Woolworths Ltd. 3,510,482 28,804
Kimberly-Clark Corp. 309,000 19,798
Unilever PLC 250,000 2,205
3,030,450
MATERIALS -- 6.57%
Dow Chemical Co. 15,923,000 635,168
Weyerhaeuser Co. 7,342,000 455,204
E.I. du Pont de Nemours and Co. 10,265,000 440,061
International Paper Co. 5,239,640 226,510
UPM-Kymmene Corp. 8,900,000 172,418
DSM NV 3,072,005 153,762
Eastman Chemical Co. 2,908,200 129,938
Lyondell Chemical Co. 6,470,000 117,625
Rio Tinto PLC 4,510,000 117,397
Alcoa Inc. 3,200,000 102,496
MeadWestvaco Corp. 2,800,000 83,608
Temple-Inland Inc. 995,000 67,909
Worthington Industries, Inc. 2,976,900 60,967
Stora Enso Oyj, Class R 3,864,275 53,526
Noranda Inc.(3) 1,888,300 31,884
Noranda Inc. 1,111,700 18,771
Cia. Vale do Rio Doce, ordinary nominative (ADR) 658,000 35,466
Cia. Vale do Rio Doce, Class A, preferred nominative 225,000 9,949
Holmen AB, Class B 942,900 26,994
Freeport-McMoRan Copper & Gold Inc., Class B 300,000 10,455
2,950,108
ENERGY -- 6.13%
Royal Dutch Petroleum Co. (New York registered) 9,595,000 482,629
"Shell" Transport and Trading Company, PLC 26,685,402 193,169
"Shell" Transport and Trading Company, PLC (ADR) (New York registered) 3,210,000 140,598
ChevronTexaco Corp. 4,000,000 382,600
Marathon Oil Corp. 10,135,000 381,785
Kinder Morgan, Inc. 3,870,000 232,239
Sunoco, Inc. 3,100,000 211,327
ENI SpA 10,120,000 207,739
ConocoPhillips 1,800,000 141,786
Occidental Petroleum Corp. 2,200,000 108,394
Exxon Mobil Corp. 2,285,000 105,796
TOTAL SA (ADR) 645,000 62,791
Enbridge Inc. 1,550,000 58,458
Husky Energy Inc. 1,920,000 41,698
2,751,009
INDUSTRIALS -- 3.57%
General Electric Co. 14,105,000 468,991
Emerson Electric Co. 4,425,000 268,598
Hubbell Inc., Class B 3,213,100 145,232
Raytheon Co. 4,269,284 143,234
Volvo AB, Class B 3,934,100 140,787
Cooper Industries, Ltd., Class A 2,100,000 119,427
ServiceMaster Co. 7,952,650 92,887
Caterpillar Inc. 1,200,000 88,188
Sandvik AB 2,000,000 68,580
3M Co. 800,000 65,888
1,601,812
CONSUMER DISCRETIONARY -- 2.59%
General Motors Corp. 12,350,000 532,779
May Department Stores Co. 11,823,000 313,664
Kingfisher PLC 16,471,629 84,975
DaimlerChrysler AG 1,804,500 80,378
Kesa Electricals PLC 13,644,958 69,649
Mitchells & Butlers PLC 8,875,790 43,491
John Fairfax Holdings Ltd. 13,688,917 36,161
NTL Inc.(2) 100 5
TI Automotive Ltd., Class A (2),(4) 7,000,000 0
1,161,102
HEALTH CARE -- 2.53%
Bristol-Myers Squibb Co. 24,560,000 562,424
Merck & Co., Inc. 7,810,000 354,184
Eli Lilly and Co. 1,600,000 101,952
Schering-Plough Corp. 3,550,000 69,083
Wyeth 1,431,500 50,675
Clarent Hospital Corp. (1),(2) 484,684 606
1,138,924
INFORMATION TECHNOLOGY -- 0.27%
Electronic Data Systems Corp. 6,416,044 118,568
ZiLOG, Inc.(2) 455,000 3,458
122,026
MISCELLANEOUS -- 2.01%
Other common stocks in initial period of acquisition 904,823
TOTAL COMMON STOCKS (cost: $24,398,755,000) 27,933,716
Shares or Market value
PREFERRED STOCKS -- 0.99% principal amount (000)
FINANCIALS -- 0.97%
SB Treasury Co. LLC, Series A, 9.40% noncumulative preferred(3),(5) $ 122,070,000 $141,668
Fuji JGB Investment LLC, Series A, 9.87% noncumulative preferred(3),(5) $ 51,700,000 59,802
IBJ Preferred Capital Co. LLC, Series A, 8.79% noncumulative preferred(3),(5) $ 24,300,000 27,429
HSBC Capital Funding LP, Series 1, 9.547% noncumulative step-up perpetual
preferred(3),(5) $ 37,500,000 46,175
HSBC Capital Funding LP, Series 2, 10.176% noncumulative step-up perpetual
preferred(3),(5) $ 10,000,000 14,197
Tokai Preferred Capital Co. LLC, Series A, 9.98% noncumulative preferred(3),(5) $ 28,500,000 33,239
BNP Paribas Capital Trust 9.003% noncumulative trust preferred(3),(5) $ 11,750,000 14,301
BNP U.S. Funding LLC, Series A, 7.738% noncumulative preferred(3),(5) $ 4,200,000 4,675
Duke Realty Corp., Series B, 7.99% preferred cumulative step-up premium rate 300,000 16,359
NB Capital Corp., Series A, 8.35% exchangeable preferred depositary shares 520,000 14,300
Simon Property Group, Inc., Series G, 7.89% preferred cumulative step-up
premium rate 200,000 10,688
Public Storage, Inc., Series V, 7.50%, cumulative preferred depositary shares 400,000 10,480
iStar Financial, Inc., Series F, 7.80% cumulative redeemable preferred1 400,000 10,000
ACE Ltd., Series C, 7.80% preferred depositary shares 360,000 9,580
DBS Capital Funding Corp., Series A, 7.657% noncumulative guaranteed preference
shares(3),(5) 6,500,000 7,345
New Plan Excel Realty Trust, Inc., Series D, 7.80% preferred cumulative step-up
premium rate 112,500 5,927
Nationwide Health Properties, Inc., Series A, 7.677% preferred cumulative
step-up premium rate 50,000 5,147
RBS Capital Trust I noncumulative trust preferred 4.709%(5) $4,550,000 4,241
435,553
TELECOMMUNICATION SERVICES -- 0.02%
Dobson Communications Corp. 13.00% senior exchangeable preferred 2009(6) 12,788 9,463
XO Communications, Inc. 14.00% preferred 2009(2),(6) 12 0
9,463
INFORMATION TECHNOLOGY -- 0.00%
ZiLOG, Inc. -- MOD III Inc., units(2),(4) 910 666
TOTAL PREFERRED STOCKS (cost: $386,438,000) 445,682
RIGHTS AND WARRANTS - 0.00%
TELECOMMUNICATION SERVICES -- 0.00%
American Tower Corp., warrants, expire 2008(2),(3) 3,000 570
XO Communications, Inc., Series A, warrants, expire 2010(2) 13,674 16
XO Communications, Inc., Series B, warrants, expire 2010(2) 10,256 8
XO Communications, Inc., Series C, warrants, expire 2010(2) 10,256 6
Allegiance Telecom, Inc., warrants, expire 2008(2),(3),(4) 20,000 --
GT Group Telecom Inc., warrants, expire 2010(2),(3),(4) 15,000 --
600
INDUSTRIALS -- 0.00%
Protection One, Inc., warrants, expire 2005(2),(3),(4) 57,600 3
TOTAL RIGHTS AND WARRANTS (cost: $1,020,000) 603
Shares or Market value
CONVERTIBLE SECURITIES -- 5.33% principal amount (000)
INFORMATION TECHNOLOGY -- 1.69%
Sanmina Corp. 0% convertible subordinated debentures 2020 $ 161,000,000 $ 84,927
SCI Systems, Inc.3.00% convertible subordinated debentures 2007 $ 33,500,000 31,448
Motorola, Inc. 7.00% convertible preferred 2004 2,390,000 units 109,773
Celestica Inc. 0% convertible debentures 2020 $ 181,000,000 100,229
Nortel Networks Corp. 4.25% convertible notes 2008 $ 50,580,000 48,241
Nortel Networks Corp. 4.25% convertible notes 2008(3) $ 40,000,000 38,150
Agilent Technologies, Inc. 3.00% convertible debentures 2021(5) $ 50,092,600 51,220
Agilent Technologies, Inc. 3.00% convertible debentures 2021(3),(5) $ 30,185,000 30,864
ASM Lithography Holding NV 5.75% convertible notes 2006(3) $ 57,500,000 63,016
Liberty Media Corp. 3.50% exchangeable debentures 2031 $ 5,000,000 4,344
AT&T Corp. Liberty Media Group 3.50% convertible debentures 2031(3) $ 55,000,000 47,781
Advanced Micro Devices, Inc. 4.75% convertible debentures 2022(5) $ 50,000,000 47,625
International Rectifier Corp. 4.25% convertible notes 2007 $ 47,000,000 46,354
Micron Technology, Inc. 2.50% convertible notes 2010(3) $ 32,000,000 42,120
Cypress Semiconductor Corp. 3.75% convertible subordinated notes 2005 $ 8,296,000 8,234
LSI Logic Corp. 4.00% convertible notes 2006 $ 3,000,000 2,951
Fairchild Semiconductor Corp. 5.00% convertible notes 2008 $ 2,500,000 2,494
759,771
CONSUMER DISCRETIONARY -- 1.02%
Ford Motor Co. Capital Trust II 6.50% cumulative convertible trust
preferred 2032 4,807,300 256,950
Amazon.com, Inc. 4.75% convertible subordinated debentures 2009 $ 59,137,000 58,915
Gap, Inc. 5.75% convertible notes 2009(3) $ 28,000,000 40,915
Gap, Inc. 5.75% convertible notes 2009 $ 6,000,000 8,767
Toys "R" Us, Inc. 6.25% 2005 805,000 units
36,780
Interpublic Group of Companies, Inc., Series A, 5.375% convertible
preferred 2006 647,000 31,308
General Motors Corp., Series B, 5.25% convertible debentures 2032 $ 19,700,000 19,156
Six Flags, Inc. 7.25% PIERS convertible preferred 2009 400,000 8,004
460,795
FINANCIALS -- 0.82%
Chubb Corp. 7.00% convertible preferred 2005 1,800,000 units 49,482
Chubb Corp. 7.00% convertible preferred 2006 1,600,000 units 44,144
UnumProvident Corp. 8.25%, ACES convertible 2006 2,100,000 units 70,455
Genworth Financial, Inc. 6.00% convertible preferred 2007 2,400,000 units 67,776
Capital One Financial Corp. 6.25% Upper DECS 2005 840,000 units 43,193
St. Paul Companies, Inc., Series E, 9.00% 2005 600,000 units 40,248
Providian Financial Corp. 3.25% convertible debentures 2005 $34,500,000 33,982
Ohio Casualty Corp. 5.00% convertible notes 2022 $20,000,000 20,800
370,080
INDUSTRIALS -- 0.43%
Tyco International Group SA, Series B, 3.125% convertible debentures 2023(3) $50,000,000 76,750
Northrop Grumman Corp. 7.25% convertible preferred 2004 566,670 units 59,546
Cummins Capital Trust I 7.00% QUIPS convertible preferred 2031 422,000 33,022
Cummins Capital Trust I 7.00% QUIPS convertible preferred 2031(3) 178,000 13,928
Kansas City Southern 4.25% convertible preferred(3) 15,000 8,606
191,852
MATERIALS -- 0.36%
Freeport-McMoRan Copper & Gold Inc. 5.50% convertible preferred(3) 50,000 46,441
Temple-Inland Inc. 7.50% Upper DECS 2005 690,000 units 40,082
Phelps Dodge Corp., Series A, 6.75% mandatory convertible preferred shares
(MEDS) 2005 200,000 31,654
Inco Ltd. 0% convertible notes LYON 2021 $26,000,000 24,213
International Paper Co., Capital Trust 5.25% convertible preferred 2025 400,000 19,950
162,340
TELECOMMUNICATION SERVICES -- 0.27%
CenturyTel, Inc. 6.875% ACES 2005 1,750,000 units $ 43,575
American Tower Corp. 5.00% convertible debentures 2010 $38,100,000 37,767
Sprint Corp. 7.125% convertible preferred 2004 3,500,000 units 33,250
NTELOS Inc. 9.00% convertible bond 2013(3),(4) $4,030,000 5,481
Dobson Communications Corp., Series F, 6.00% convertible preferred(3) 33,625 2,959
123,032
HEALTH CARE -- 0.24%
Baxter International Inc. 7.00% convertible preferred 2006 925,000 units 47,591
Sepracor Inc. 5.00% convertible subordinated debentures 2007 $46,000,000 46,575
Incyte Corp. 3.50% convertible notes 2011(3) $15,000,000 12,375
106,541
UTILITIES -- 0.19%
TXU Corp., Series C, 8.75% convertible preferred 2004 585,000 units 27,033
Dominion Resources, Inc. 9.50% PIES convertible preferred 2004 451,000 units 24,543
American Electric Power Co., Inc. 9.25% convertible preferred 2005 460,000 19,757
AES Trust VII 6.00% convertible preferred 2008 325,000 14,625
85,958
ENERGY -- 0.12%
Williams Companies, Inc. 9.00% FELINE PACS convertible preferred 2005 3,960,000 units 53,381
CONSUMER STAPLES -- 0.09%
Albertson's, Inc. 7.25% convertible preferred 2007 1,500,000 units 38,775
MISCELLANEOUS -- 0.10%
Other convertible securities in initial period of acquisition 42,456
TOTAL CONVERTIBLE SECURITIES (cost: $2,279,784,000) 2,394,981
Principal amount
BONDS AND NOTES -- 23.91% (000)
CONSUMER DISCRETIONARY -- 4.57%
General Motors Acceptance Corp. 6.125% 2006 $ 31,000 32,342
General Motors Acceptance Corp. 6.75% 2006 2,000 2,095
General Motors Acceptance Corp. 6.125% 2007 18,250 19,142
General Motors Acceptance Corp. 7.75% 2010 41,500 45,308
General Motors Acceptance Corp. 6.875% 2011 40,500 41,634
General Motors Corp. 7.20% 2011 38,500 40,296
General Motors Acceptance Corp. 7.25% 2011 20,000 21,063
General Motors Acceptance Corp. 6.875% 2012 1,250 1,274
General Motors Acceptance Corp. 8.00% 2031 7,000 7,128
Ford Motor Credit Co. 6.50% 2007 1,000 1,055
Ford Motor Credit Co. 5.80% 2009 4,000 4,075
Ford Motor Credit Co. 7.375% 2009 105,000 112,776
Ford Motor Credit Co. 7.875% 2010 20,000 21,861
Ford Motor Credit Co. 7.25% 2011 9,000 9,478
Ford Motor Credit Co. 7.375% 2011 38,500 40,912
Ford Motor Co. 7.45% 2031 6,000 5,723
J.C. Penney Co., Inc. 8.00% 2010 25,205 28,419
J.C. Penney Co., Inc. 7.95% 2017 40,275 45,712
J.C. Penney Co., Inc. 8.125% 2027 3,000 3,308
J.C. Penney Co., Inc. 7.625% 2097 $ 4,000 $ 4,200
DaimlerChrysler North America Holding Corp. 6.40% 2006 5,000 5,270
DaimlerChrysler North America Holding Corp. 4.05% 2008 2,560 2,539
DaimlerChrysler North America Holding Corp. 4.75% 2008 1,440 1,466
DaimlerChrysler North America Holding Corp. 7.20% 2009 14,000 15,399
DaimlerChrysler North America Holding Corp. 8.00% 2010 15,000 17,060
DaimlerChrysler North America Holding Corp. 7.75% 2011 25,000 28,240
DaimlerChrysler North America Holding Corp. 7.30% 2012 10,250 11,313
AOL Time Warner Inc. 5.625% 2005 5,000 5,113
Time Warner Inc. 7.75% 2005 9,500 9,873
Time Warner Inc. 8.18% 2007 20,000 22,387
AOL Time Warner Inc. 6.875% 2012 15,750 17,191
Time Warner Companies, Inc. 9.125% 2013 5,000 6,158
Time Warner Companies, Inc. 7.25% 2017 8,000 8,793
AOL Time Warner Inc. 7.625% 2031 9,750 10,759
Toys "R" Us, Inc. 7.625% 2011 12,000 12,300
Toys "R" Us, Inc. 7.875% 2013 37,640 38,675
Toys "R" Us, Inc. 7.375% 2018 22,500 21,487
Liberty Media Corp. 7.75% 2009 10,950 12,196
Liberty Media Corp. 7.875% 2009 40,350 45,254
Liberty Media Corp. 5.70% 2013 5,000 4,928
Mirage Resorts, Inc. 7.25% 2006 4,960 5,233
MGM Grand, Inc. 6.875% 2008 1,159 1,240
MGM Mirage, Inc. 6.00% 2009 23,000 22,942
MGM Mirage, Inc. 8.50% 2010 22,830 25,341
Harrah's Operating Co., Inc. 7.875% 2005 5,850 6,194
Harrah's Operating Co., Inc. 7.125% 2007 4,150 4,467
Horseshoe Gaming Holding Corp., Series B, 8.625% 2009 14,000 14,682
Harrah's Operating Co., Inc. 5.50% 20103 26,375 26,422
Visteon Corp. 8.25% 2010 26,000 27,527
Visteon Corp. 7.00% 2014 21,150 20,251
TCI Communications, Inc. 8.00% 2005 10,000 10,499
Lenfest Communications, Inc. 7.625% 2008 2,000 2,199
Comcast Cable Communications, Inc. 8.375% 2007 6,750 7,552
Comcast Cable Communications, Inc. 6.20% 2008 14,000 14,992
Comcast Cable Communications, Inc. 6.875% 2009 8,000 8,786
Boise Cascade Corp. 9.45% 2009 18,720 22,886
Boise Cascade Corp. 6.50% 2010 15,700 17,074
ITT Corp. 6.75% 2005 8,675 9,033
Starwood Hotels & Resorts Worldwide, Inc. 7.375% 2007 12,350 13,091
Starwood Hotels & Resorts Worldwide, Inc. 7.875% 2012 15,100 16,346
Charter Communications, Inc. 8.25% 2007 6,150 5,443
CCH II, LLC and CCH II Capital Corp. 10.25% 2010 3,000 3,037
Charter Communications Holdings, LLC and Charter Communications Holdings
Capital Corp. 0%/13.50% 2011(7) 4,375 2,997
Charter Communications Operating, LLC and Charter Communications Operating
Capital Corp. 8.00% 2012(3) 19,150 18,575
CCO Holdings, LLC and CCO Holdings Capital Corp. 8.75% 2013 5,650 5,452
D.R. Horton, Inc. 7.50% 2007 3,500 3,832
D.R. Horton, Inc. 5.00% 2009 3,000 3,000
D.R. Horton, Inc. 8.00% 2009 19,900 22,288
D.R. Horton, Inc. 9.75% 2010 3,000 3,547
D.R. Horton, Inc. 7.875% 2011 550 616
D.R. Horton, Inc. 6.875% 2013 2,000 2,100
Royal Caribbean Cruises Ltd. 7.00% 2007 3,000 3,180
Royal Caribbean Cruises Ltd. 8.00% 2010 2,250 2,452
Royal Caribbean Cruises Ltd. 8.75% 2011 22,075 24,945
Royal Caribbean Cruises Ltd. 6.875% 2013 4,500 4,562
Standard Pacific Corp. 6.50% 2008 5,000 5,062
Standard Pacific Corp. 5.125% 2009 18,825 17,978
Standard Pacific Corp. 6.875% 2011 6,500 6,565
Standard Pacific Corp. 6.25% 2014 $ 5,500 $ 5,101
Clear Channel Communications, Inc. 4.625% 2008 14,000 14,150
Clear Channel Communications, Inc. 5.75% 2013 3,500 3,539
Chancellor Media Corp. of Los Angeles 8.00% 2008 15,000 16,932
Viacom Inc. 6.40% 2006 3,000 3,156
Viacom Inc. 5.625% 2007 5,000 5,269
CBS Corp. 7.15% 2005 21,500 22,291
British Sky Broadcasting Group PLC 6.875% 2009 10,000 10,974
British Sky Broadcasting Group PLC 8.20% 2009 16,250 18,822
Hilton Hotels Corp. 7.625% 2008 2,950 3,223
Hilton Hotels Corp. 7.20% 2009 5,250 5,683
Hilton Hotels Corp. 8.25% 2011 11,968 13,584
Hilton Hotels Corp. 7.625% 2012 5,875 6,514
DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. 8.375% 2013 25,475 28,659
K. Hovnanian Enterprises, Inc. 10.50% 2007 16,275 19,082
K. Hovnanian Enterprises, Inc. 8.00% 2012 3,000 3,240
K. Hovnanian Enterprises, Inc. 7.75% 2013 2,500 2,575
K. Hovnanian Enterprises, Inc. 6.375% 2014 2,000 1,880
EchoStar DBS Corp. 9.125% 2009 22,509 24,816
Univision Communications Inc. 7.85% 2011 19,685 22,922
Office Depot, Inc. 10.00% 2008 12,500 14,562
Office Depot, Inc. 6.25% 2013 7,875 8,220
Cox Communications, Inc. 7.75% 2006 6,000 6,519
Cox Communications, Inc. 7.75% 2010 10,000 11,425
Cox Communications, Inc. 4.625% 2013 5,000 4,662
MDC Holdings, Inc. 7.00% 2012 5,000 5,424
MDC Holdings, Inc. 5.50% 2013 15,750 15,464
Mohegan Tribal Gaming Authority 8.125% 2006 2,500 2,694
Mohegan Tribal Gaming Authority 6.375% 2009 14,780 14,946
Mohegan Tribal Gaming Authority 8.00% 2012 2,100 2,286
Delphi Corp. 6.50% 2013 4,000 4,083
Delphi Trust II, trust preferred securities, 6.197% 2033(5) 15,500 15,632
Boyd Gaming Corp. 9.25% 2009 8,500 9,350
Boyd Gaming Corp. 7.75% 2012 10,000 10,350
Radio One, Inc., Series B, 8.875% 2011 16,750 18,592
Adelphia Communications Corp. 10.25% 2006(8) 13,975 12,088
Adelphia Communications Corp. 10.25% 2011(8) 6,100 5,459
PanAmSat Corp. 6.125% 2005 17,000 17,340
RH Donnelley Inc. 8.875% 2010(3) 10,500 11,602
RH Donnelley Inc. 8.875% 2010 3,800 4,199
RH Donnelley Inc. 10.875% 2012(3) 1,000 1,175
Kabel Deutschland GmbH 10.625% 2014(3) 16,150 16,634
CSC Holdings, Inc. 7.25% 2008 8,000 8,160
CSC Holdings, Inc., Series B, 8.125% 2009 8,000 8,360
News America Inc. 6.75% 2038 15,000 16,498
Young Broadcasting Inc. 10.00% 2011 15,640 15,875
TRW Automotive Acquisition Corp. 9.375% 2013 11,984 13,722
TRW Automotive Acquisition Corp. 11.00% 2013 1,704 2,053
Six Flags, Inc. 9.50% 2009 2,875 2,825
Six Flags, Inc. 8.875% 2010 2,500 2,331
Six Flags, Inc. 9.625% 2014 10,725 10,001
KB Home 6.375% 2011(3) 15,000 15,037
Hyatt Equities, LLC 6.875% 2007(3) 14,000 14,926
Toll Brothers, Inc. 6.875% 2012 9,000 9,736
Toll Brothers, Inc. 4.95% 2014 5,000 4,699
Technical Olympic USA, Inc. 9.00% 2010 7,000 7,245
Technical Olympic USA, Inc. 7.50% 2011 7,250 6,779
Dana Corp. 6.50% 2009 3,175 3,350
Dana Corp. 9.00% 2011 8,825 10,458
Argosy Gaming Co. 7.00% 2014(3) 13,250 13,267
Telenet Group Holding NV 0%/11.50% 2014(3),(7) 20,050 13,083
NTL Cable PLC 8.75% 2014(3),(5) 12,119 12,634
YUM! Brands, Inc. 7.70% 2012 10,500 12,132
Mercantile Stores Company, Inc. 8.20% 2022(9) 7,900 7,781
Dillard's, Inc. 6.69% 2007 625 639
Dillard Department Stores, Inc. 7.875% 2023 2,875 2,875
Videotron Ltee 6.875% 2014 11,500 11,212
Lear Corp., Series B, 8.11% 2009 9,710 11,128
Meritor Automotive, Inc. 6.80% 2009 8,500 8,585
ArvinMeritor, Inc. 8.75% 2012 2,000 2,170
Staples, Inc. 7.375% 2012 9,000 10,252
NVR, Inc. 5.00% 2010 10,000 9,650
Stoneridge, Inc. 11.50% 2012 8,075 9,589
Florida Panthers Holdings, Inc. 9.875% 2009 9,000 9,529
Cinemark USA, Inc. 9.00% 2013 8,575 9,454
Tenneco Automotive Inc., Series B, 10.25% 2013 8,125 9,303
LBI Media, Inc. 10.125% 2012 7,500 8,325
Centex Corp. 4.75% 2008 8,075 8,200
Saks Inc. 8.25% 2008 5,000 5,437
Saks Inc. 7.375% 2019 2,650 2,557
Regal Cinemas Corp., Series B, 9.375% 2012(4) 7,250 7,980
CanWest Media Inc., Series B, 10.625% 2011 3,000 3,412
Hollinger Participation Trust 12.125% 2010(3),(5),(6) 3,563 4,187
Boyds Collection, Ltd., Series B, 9.00% 2008 7,382 7,124
AMC Entertainment Inc. 8.00% 2014(3) 7,500 6,956
Pulte Homes, Inc. 7.625% 2017 5,000 5,565
Payless ShoeSource, Inc. 8.25% 2013 5,500 5,418
NextMedia Operating, Inc. 10.75% 2011 4,580 5,135
Gannett Co., Inc. 4.95% 2005 5,000 5,084
Carnival Corp. 3.75% 2007 5,000 4,970
Quebecor Media Inc. 11.125% 2011 1,750 2,015
Quebecor Media Inc. 0%/13.75% 2011(7) 2,000 1,885
Antenna TV SA 9.00% 2007 3,732 3,788
Warnaco, Inc. 8.875% 2013 3,425 3,742
WCI Communities, Inc. 10.625% 2011 1,850 2,058
WCI Communities, Inc. 9.125% 2012 1,150 1,248
Gray Communications Systems, Inc. 9.25% 2011 2,000 2,220
Cox Radio, Inc. 6.375% 2005 2,000 2,048
Reader's Digest Association, Inc. 6.50% 2011 1,625 1,617
2,048,017
TELECOMMUNICATION SERVICES -- 3.27%
Sprint Capital Corp. 4.78% 2006 11,725 12,004
Sprint Capital Corp. 6.00% 2007 37,450 39,410
Sprint Capital Corp. 6.375% 2009 27,970 29,919
Sprint Capital Corp. 7.625% 2011 34,195 38,450
Sprint Capital Corp. 8.375% 2012 60,225 70,664
Sprint Capital Corp. 6.90% 2019 4,800 4,989
Sprint Capital Corp. 6.875% 2028 5,000 4,991
American Tower Corp. 9.375% 2009 52,225 56,011
American Towers, Inc. 7.25% 2011 49,175 49,790
American Tower Corp. 7.50% 2012(3) 43,300 42,759
Nextel Communications, Inc. 6.875% 2013 20,000 20,400
Nextel Communications, Inc. 5.95% 2014 3,000 2,858
Nextel Communications, Inc. 7.375% 2015 104,450 110,195
Dobson Communications Corp. 10.875% 2010 55,930 48,939
American Cellular Corp., Series B, 10.00% 2011 74,000 64,750
Dobson Communications Corp. 8.875% 2013 17,500 13,300
U S WEST, Inc. 7.20% 2004 20,000 20,300
Qwest Capital Funding, Inc. 7.75% 2006 9,475 9,499
Qwest Services Corp. 13.50% 2007(3) 15,551 17,845
Qwest Capital Funding, Inc. 7.90% 2010 12,000 10,740
Qwest Services Corp. 14.00% 2010(3) 25,181 29,619
Qwest Corp. 9.125% 2012(3) 12,400 13,702
Qwest Services Corp. 14.50% 2014(3) 2,700 3,254
Triton PCS, Inc. 8.75% 2011 14,100 10,963
Triton PCS, Inc. 9.375% 2011 23,500 19,035
Triton PCS, Inc. 8.50% 2013 57,000 53,295
AT&T Wireless Services, Inc. 7.50% 2007 34,250 37,666
Tritel PCS, Inc. 10.375% 2011 7,935 9,139
AT&T Wireless Services, Inc. 8.125% 2012 29,935 35,076
Crown Castle International Corp. 9.375% 2011 4,250 4,813
Crown Castle International Corp. 7.50% 2013 43,375 43,483
Crown Castle International Corp., Series B, 7.50% 2013 30,375 30,451
AT&T Corp. 6.00% 2009 2,320 2,211
AT&T Corp. 8.05% 2011(5) 46,500 48,133
AT&T Corp. 8.35% 2025 9,000 8,323
Deutsche Telekom International Finance BV 8.50% 2010(5) 24,900 29,403
Deutsche Telekom International Finance BV 5.25% 2013 15,000 14,882
Deutsche Telekom International Finance BV 9.25% 2032(5) 10,000 13,451
Western Wireless Corp. 9.25% 2013 51,475 52,891
Centennial Cellular Corp. 10.75% 2008 23,505 24,328
Centennial Communications Corp. and Centennial Cellular Operating Co.
LLC 10.125% 2013 16,000 16,560
Centennial Communications Corp., Centennial Cellular Operating Co. LLC and
Centennial Puerto Rico Operating Corp. 8.125% 2014(3) 9,500 8,859
Nextel Partners, Inc. 12.50% 2009 16,234 18,913
Nextel Partners, Inc. 8.125% 2011 23,525 24,348
Nextel Partners, Inc. 8.125% 2011(3) 5,000 5,175
France Telecom 8.75% 2011(5) 34,500 40,305
TELUS Corp. 8.00% 2011 25,150 28,760
British Telecommunications PLC 7.00% 2007 7,000 7,578
British Telecommunications PLC 8.375% 2010(5) 14,750 17,406
Telecom Italia SpA, Series A, 4.00% 2008(3) 3,000 2,968
Telecom Italia SpA, Series B, 5.25% 2013(3) 19,300 18,991
Koninklijke KPN NV 8.00% 2010 16,000 18,635
Vodafone Group PLC 7.75% 2010 15,050 17,376
Cincinnati Bell Inc. 7.25% 2013 17,775 16,664
PCCW-HKT Capital Ltd. 8.00% 2011(3) 13,000 14,613
Verizon Global Funding Corp. 6.125% 2007 7,000 7,486
Verizon New York Inc., Series A, 6.875% 2012 6,500 7,064
Singapore Telecommunications Ltd. 6.375% 2011 4,825 5,201
Singapore Telecommunications Ltd. 7.375% 2031(3) 6,000 6,771
Verizon Wireless Capital LLC and Cellco Partnership 5.375% 2006 11,000 11,495
AirGate PCS, Inc. 9.375% 2009(3) 10,853 10,582
Telefonos de Mexico, SA de CV 8.25% 2006 5,000 5,355
UbiquiTel Operating Co. 9.875% 2011 3,875 3,865
Millicom International Cellular SA 10.00% 2013(3) 3,500 3,518
GT Group Telecom Inc. 0%/13.25% 2010(4),(7),(8) 15,000 0
1,470,419
MORTGAGE-BACKED OBLIGATIONS9 -- 2.52%
Fannie Mae 9.00% 2010 $ 623 $ 664
Fannie Mae 6.00% 2016 2,505 2,620
Fannie Mae 6.00% 2016 1,517 1,587
Fannie Mae 7.00% 2016 563 598
Fannie Mae 4.50% 2018 18,395 18,148
Fannie Mae 5.00% 2018 27,219 27,502
Fannie Mae 10.00% 2018 751 854
Fannie Mae 5.50% 2019 24,955 25,538
Fannie Mae, Series 2002-W7, Class A-2, 4.80% 2022 3,023 3,027
Fannie Mae 9.50% 2022 741 820
Fannie Mae 7.50% 2023 407 440
Fannie Mae 7.50% 2023 39 42
Fannie Mae 8.00% 2024 441 477
Fannie Mae 10.00% 2025 506 576
Fannie Mae, Series 2001-4, Class GA, 10.218% 2025(5) 2,264 2,567
Fannie Mae, Series 2001-4, Class NA, 11.803% 2025(5) 222 257
Fannie Mae, Series 2002-W3, Class A-5, 7.50% 2028 2,342 2,529
Fannie Mae 6.50% 2031 1,258 1,316
Fannie Mae 7.00% 2031 2,178 2,304
Fannie Mae 7.00% 2031 1,355 1,434
Fannie Mae 7.00% 2031 963 1,019
Fannie Mae 7.50% 2031 1,050 1,127
Fannie Mae, Series 2001-20, Class E, 9.594% 2031(5) 2,231 2,485
Fannie Mae 6.00% 2032 13,178 13,537
Fannie Mae 6.50% 2032 6,380 6,667
Fannie Mae 6.50% 2032 3,441 3,599
Fannie Mae 3.803% 2033(5) 8,950 8,868
Fannie Mae 6.50% 2033 8,076 8,447
Fannie Mae 6.00% 2034 85,025 86,885
Fannie Mae 6.00% 2034 63,000 64,629
Fannie Mae 6.50% 2034 21,472 22,458
Fannie Mae, Series 2001-50, Class BA, 7.00% 2041 4,432 4,716
Fannie Mae, Series 2001-T10, Class A-1, 7.00% 2041 2,927 3,102
Fannie Mae, Series 2002-W1, Class 2-A, 7.50% 2042 5,139 5,548
CHL Mortgage Pass-Through Trust, Series 2003-27, Class A-1, 3.801% 2033(5) 9,601 9,549
CHL Mortgage Pass-Through Trust, Series 2003-56, Class 6-A-1, 4.908% 2033(5) 38,981 39,334
CHL Mortgage Pass-Through Trust, Series 2003-58, Class 2-A-2, 4.696% 2034(5) 66,787 66,792
Freddie Mac 9.00% 2007 205 214
Freddie Mac 8.50% 2008 33 35
Freddie Mac, Series SF02, Class GC, 2.64% 2009 5,000 4,780
Freddie Mac 8.50% 2009 215 228
Freddie Mac 8.50% 2010 307 327
Freddie Mac 5.00% 2018 18,319 18,492
Freddie Mac 5.50% 2018 9,269 9,534
Freddie Mac 11.00% 2018 663 757
Freddie Mac, Series 178, Class Z, 9.25% 2021 275 276
Freddie Mac, Series 2289, Class NB, 11.443% 2022(5) 520 597
Freddie Mac 5.00% 2033 19,486 19,027
Freddie Mac 6.00% 2034 33,750 34,478
Freddie Mac, Series T-056, Class A-2A, 2.842% 2036 8,740 8,680
CS First Boston Mortgage Securities Corp., Series 2001-CK6, Class A-1,
4.393% 2006 1,132 1,144
CS First Boston Mortgage Securities Corp., Series 2003-AR20, Class II-A-2,
4.027% 2033(5) 5,743 5,748
CS First Boston Mortgage Securities Corp., Series 2003-AR26, Class 6-A-1,
4.284% 2033(5) 65,118 65,070
CS First Boston Mortgage Securities Corp., Series 2001-CF2, Class A-2,
5.935% 2034 8,635 8,956
CS First Boston Mortgage Securities Corp., Series 2001-CF2, Class A-3, 6.238%
2034 6,000 6,418
CS First Boston Mortgage Securities Corp., Series 1998-C1, Class A-1A,
6.26% 2040 3,707 3,803
Merrill Lynch Mortgage Investors, Inc., Series 1999-C1, Class A-2, 7.56% 2031 11,750 13,210
Merrill Lynch Mortgage Investors, Inc., Series 2003-A6, Class II-A, 4.28%
2033(5) 62,416 62,109
Merrill Lynch Mortgage Investors, Inc., Series 2004-A1, Class II-A-1, 4.67%
2034(5) 7,830 7,802
Banc of America Mortgage Securities Trust, Series 2003-G, Class 2-A-1, 4.088%
2033(5) $ 6,068 $ 6,063
Banc of America Mortgage Securities Trust, Series 2003-D, Class 2-A-1, 4.183%
2033(5) 5,709 5,727
Banc of America Mortgage Securities Trust, Series 2003-J, Class 2-A-2, 4.484%
2033(5) 61,074 61,309
Bear Stearns ARM Trust, Series 2003-3, Class II-A-2, 4.173% 2033(5) 2,513 2,503
Bear Stearns ARM Trust, Series 2003-9, Class III-A-3, 4.443% 2034(5) 1,664 1,648
Bear Stearns ARM Trust, Series 2003-8, Class II-A-1, 4.92% 2034(5) 54,728 55,167
Bear Stearns ARM Trust, Series 2003-9, Class III-A-2, 5.068% 2034(5) 4,097 4,102
Government National Mortgage Assn. 9.50% 2009 796 861
Government National Mortgage Assn. 9.00% 2016 110 121
Government National Mortgage Assn. 5.50% 2017 6,844 7,088
Government National Mortgage Assn. 7.50% 2017 119 128
Government National Mortgage Assn. 7.50% 2017 52 56
Government National Mortgage Assn. 8.00% 2017 164 179
Government National Mortgage Assn. 8.00% 2017 90 98
Government National Mortgage Assn. 8.00% 2017 63 69
Government National Mortgage Assn. 8.00% 2017 43 47
Government National Mortgage Assn. 8.00% 2017 42 46
Government National Mortgage Assn. 8.00% 2017 40 44
Government National Mortgage Assn. 8.00% 2017 36 39
Government National Mortgage Assn. 8.00% 2017 28 31
Government National Mortgage Assn. 8.00% 2017 25 27
Government National Mortgage Assn. 8.00% 2017 16 17
Government National Mortgage Assn. 8.00% 2017 15 17
Government National Mortgage Assn. 8.50% 2017 42 46
Government National Mortgage Assn. 8.50% 2017 13 14
Government National Mortgage Assn. 8.50% 2017 10 10
Government National Mortgage Assn. 10.00% 2020 1,939 2,224
Government National Mortgage Assn. 8.50% 2021 496 546
Government National Mortgage Assn. 8.50% 2021 120 132
Government National Mortgage Assn. 8.50% 2021 8 8
Government National Mortgage Assn. 9.50% 2021 306 342
Government National Mortgage Assn. 10.00% 2021 3,026 3,472
Government National Mortgage Assn. 7.00% 2022 123 131
Government National Mortgage Assn. 7.00% 2022 76 81
Government National Mortgage Assn. 7.50% 2022 885 953
Government National Mortgage Assn. 7.50% 2022 101 109
Government National Mortgage Assn. 7.50% 2023 197 213
Government National Mortgage Assn. 7.50% 2023 193 208
Government National Mortgage Assn. 7.50% 2023 117 126
Government National Mortgage Assn. 7.50% 2023 115 124
Government National Mortgage Assn. 7.50% 2023 109 117
Government National Mortgage Assn. 7.50% 2023 88 95
Government National Mortgage Assn. 7.50% 2023 71 78
Government National Mortgage Assn. 7.50% 2023 69 74
Government National Mortgage Assn. 7.50% 2023 67 72
Government National Mortgage Assn. 7.50% 2023 34 36
Government National Mortgage Assn. 7.50% 2023 26 28
Government National Mortgage Assn. 8.00% 2023 936 1,022
Government National Mortgage Assn. 8.00% 2023 588 642
Government National Mortgage Assn. 7.50% 2024 704 764
Government National Mortgage Assn. 10.00% 2025 2,828 3,238
Government National Mortgage Assn. 7.00% 2026 42 45
Government National Mortgage Assn. 7.50% 2026 244 265
Government National Mortgage Assn. 7.00% 2027 261 279
Government National Mortgage Assn. 7.00% 2028 591 631
Government National Mortgage Assn. 7.00% 2029 3,037 3,241
Government National Mortgage Assn. 7.50% 2029 3,721 4,020
Government National Mortgage Assn. 7.50% 2029 1,653 1,785
Government National Mortgage Assn. 7.50% 2029 1,120 1,210
Government National Mortgage Assn. 7.50% 2029 $ 447 $ 483
Government National Mortgage Assn. 7.50% 2030 772 833
Government National Mortgage Assn. 7.00% 2031 352 375
Government National Mortgage Assn. 6.00% 2033 12,506 12,886
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR10, Class A-3-B,
3.89% 2033(5) 14,000 14,017
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR8, Class A, 4.03%
2033(5) 6,745 6,713
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR5, Class A-7,
4.21% 2033(5) 13,997 14,028
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR6, Class A-1,
4.37% 2033(5) 5,200 5,207
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR1, Class A-6,
4.51% 2033(5) 1,726 1,737
WaMu Mortgage Pass-Through Certificates Trust, Series 2004-AR1, Class A, 4.23%
2034(5) 7,072 6,984
Chase Commercial Mortgage Securities Corp., Series 1998-1, Class A-2, 6.56% 2030 7,802 8,440
Chase Commercial Mortgage Securities Corp., Series 2000-1, Class A-2, 7.757%
2032 15,675 17,909
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 2026(3) 22,511 23,418
GS Mortgage Securities Corp. II, Series 1998-C1, Class D, 7.209% 2030(5) 20,000 21,775
Bear Stearns Commercial Mortgage Securities Inc., Series 2004-HS2, Class J,
3.48% 2016(3),(5) 4,500 4,532
Bear Stearns Commercial Mortgage Securities Inc., Series 1999-C1, Class X,
interest only, 1.035% 2031(3),(5) 81,473 3,739
Bear Stearns Commercial Mortgage Securities Inc., Series 2001-TOP2, Class A-2,
6.48% 2035 7,665 8,391
Morgan Stanley Mortgage Trust, Series 2004-3, Class 4-A, 5.733% 2034(5) 15,622 16,068
GE Capital Commercial Mortgage Corp., Series 2001-1, Class A-1, 6.079% 2033 4,492 4,758
GE Capital Commerical Mortgage Corp., Series 2002-3, Class A-1, 4.229% 2037 9,495 9,485
Host Marriott Pool Trust, Series 1999-HMTA, Class D, 7.97% 2015(3) 10,990 11,905
Banc of America Commercial Mortgage Inc., Series 2001-1, Class A-2, 6.503% 2036 10,000 10,931
Morgan Stanley Capital I, Inc., Series 2003-KIDS, Class A, 2.06% 2016(3),(5) 4,888 4,898
Morgan Stanley Capital I, Inc., Series 1998-WF2, Class A-1, 6.34% 2030 2,585 2,667
First Union-Lehman Brothers-Bank of America Commercial Mortgage Trust, Series
1998-C2, Class A-1, 6.28% 2035 7,102 7,242
PNC Mortgage Securities Corp., Series 1998-10, Class 1-B1, 6.50% 2028 5,284 5,315
Salomon Brothers Commercial Mortgage Trust, Series 2000-C1, Class A-1, 7.46%
2008 4,053 4,427
Metropolitan Asset Funding, Inc., Series 1998-A, Class B-1, 7.728% 2014(3) 4,669 4,391
Opryland Hotel Trust, Series 2001-OPRY, Class C, 2.53% 2011(3),(5) 3,000 3,009
Morgan Stanley Dean Witter Capital I Trust, Series 2002-HQ, Class A-1,
4.59% 2034 2,227 2,271
Wells Fargo Mortgage Backed Securities Trust, Series 2003-B, Class A-1, 4.15%
2033(5) 1,338 1,337
Structured Asset Securities Corp., Series 1998-RF2, Class A, 8.523% 2027(3),(5) 677 731
Structured Asset Securities Corp., Series 1998-RF1, Class A, 8.736% 2027(3),(5) 520 560
Financial Asset Securitization, Inc., Series 1997-NAM1, Class B-1, 7.75% 2027 1,026 1,026
Security National Mortgage Loan Trust, Series 2001-3A, Class A-2, 5.37% 2014(3) 617 623
First Nationwide Trust, Series 1999-2, Class 1PA-1, 6.50% 2029 501 504
Deutsche Mortgage & Asset Receiving Corp., Series 1998-C1, Class A-1, 6.22% 2031 372 373
1,129,503
FINANCIALS -- 2.51%
Capital One Bank 6.875% 2006 21,600 22,788
Capital One Financial Corp. 7.25% 2006 3,000 3,186
Capital One Financial Corp. 8.75% 2007 13,500 15,013
Capital One Bank 4.875% 2008 20,000 20,388
Capital One Financial Corp. 7.125% 2008 22,100 23,991
Capital One Financial Corp. 6.25% 2013 20,000 20,513
Capital One Capital I 2.729% 2027(3),(5) 20,500 20,177
MBNA Corp. 5.625% 2007 10,000 10,501
MBNA Corp., Series F, 7.50% 2012 10,000 11,329
MBNA Corp., Series F, 6.125% 2013 10,000 10,440
MBNA Corp., Series B, 1.979% 2027(5) 42,000 39,766
Societe Generale 7.85% (undated)(3),(5) 11,200 12,340
SocGen Real Estate Co. LLC, Series A, 7.64% (undated)(3),(5) 45,700 50,657
International Lease Finance Corp. 4.50% 2008 4,000 4,093
International Lease Finance Corp. 3.50% 2009 10,000 9,590
International Lease Finance Corp. 4.75% 2009 10,000 10,100
International Lease Finance Corp. 5.875% 2013 5,000 5,187
ASIF Global Financing XVIII 3.85% 2007(3) 8,500 8,516
Household Finance Corp. 6.375% 2011 16,000 17,270
HSBC Holdings PLC 5.25% 2012 3,000 3,025
Household Finance Corp. 6.375% 2012 10,000 10,753
HSBC Bank USA 4.625% 2014(3) 5,000 4,740
J.P. Morgan & Co. Inc. 6.70% 2007 5,000 5,473
J.P. Morgan Chase & Co. 4.00% 2008 20,000 20,077
J.P. Morgan Chase & Co. 4.50% 2010 5,000 4,910
J.P. Morgan Chase & Co. 5.75% 2013 5,000 5,150
PRICOA Global Funding I, Series 2004-4, 4.35% 2008(3) 8,000 8,087
Prudential Holdings, LLC, Series C, 8.695% 2023(3),(9) 22,250 27,331
Host Marriott, LP, Series E, 8.375% 2006 4,321 4,591
Host Marriott, LP, Series G, 9.25% 2007 775 858
Host Marriott, LP, Series I, 9.50% 2007 750 823
HMH Properties, Inc., Series B, 7.875% 2008 719 742
Host Marriott, LP 7.00% 2012(3) 16,750 16,624
Host Marriott, LP, Series K, 7.125% 2013 10,000 10,000
CIT Group Inc. 6.875% 2009 16,500 18,279
CIT Group Inc. 4.75% 2010 10,000 9,941
CIT Group Inc. 7.75% 2012 4,000 4,601
Washington Mutual, Inc. 4.375% 2008 17,000 17,264
Dime Capital Trust I, Dime Bancorp, Inc., Series A, 9.33% 2027 9,425 11,040
iStar Financial, Inc. 7.00% 2008(1) 6,525 7,070
iStar Financial, Inc. 8.75% 2008(1) 1,028 1,169
iStar Financial, Inc., Series B, 4.875% 2009(1) 5,000 4,947
iStar Financial, Inc. 6.00% 2010(1) 3,750 3,815
iStar Financial, Inc. 5.125% 2011(1),(3) 10,000 9,726
iStar Financial, Inc., Series B, 5.70% 2014(1) 1,000 967
Allstate Financial Global Funding LLC 5.25% 2007(3) 16,750 17,536
Allstate Global Funding Trust, Series 2004-1, 4.50% 2009 10,000 10,130
Hospitality Properties Trust 7.00% 2008 1,210 1,295
Hospitality Properties Trust 6.75% 2013 24,320 25,525
EOP Operating LP 7.75% 2007 5,000 5,567
EOP Operating LP 8.10% 2010 6,500 7,472
EOP Operating LP 7.00% 2011 5,000 5,505
EOP Operating LP 6.75% 2012 4,750 5,157
Monumental Global Funding Trust II-2001-B, Series B, 6.05% 2006(3) 5,000 5,270
Monumental Global Funding Trust II-2002-A, Series A, 5.20% 2007(3) 16,750 17,567
USA Education, Inc. 5.625% 2007 12,895 13,583
SLM Corp., Series A, 4.00% 2009 2,000 1,979
SLM Corp., Series A, 5.375% 2013 7,000 7,067
United Dominion Realty Trust, Inc., Series E, 4.50% 2008 20,000 20,356
National Westminster Bank PLC 7.75% (undated)(5) 3,024 3,355
Royal Bank of Scotland Group PLC, Series 3 Preference Shares, 7.816% (undated) 12,000 12,752
Rouse Co. 7.20% 2012 18,250 20,304
CNA Financial Corp. 6.75% 2006 4,370 4,627
CNA Financial Corp. 6.45% 2008 2,406 2,544
CNA Financial Corp. 6.60% 2008 8,630 9,167
CNA Financial Corp. 7.25% 2023 2,750 2,803
ACE INA Holdings Inc. 5.875% 2014 7,000 7,176
ACE Capital Trust II 9.70% 2030 8,250 11,034
Mangrove Bay Pass Through Trust 6.102% 2033(3),(5) 18,000 17,952
Development Bank of Singapore Ltd. 7.875% 2010(3) 10,000 11,564
Development Bank of Singapore Ltd. 7.125% 2011(3) 5,000 5,605
HBOS Treasury Services PLC 3.75% 2008(3) 14,500 14,386
Scotland International Finance No. 2 BV 4.25% 2013(3) 1,500 1,403
HBOS PLC 5.375% (undated)(3),(5) 500 489
Downey Financial Corp. 6.50% 2014 15,500 15,887
MetLife, Inc. 3.911% 2005 9,760 9,888
Metropolitan Life Insurance Co. 7.00% 2005(3) 5,000 5,247
Nationwide Life Insurance Co. 5.35% 2007(3) 8,500 8,878
Nationwide Mutual Insurance Co. 7.875% 2033(3) 5,000 5,761
ReliaStar Financial Corp. 8.00% 2006 8,000 8,835
ReliaStar Financial Corp. 6.50% 2008 3,000 3,244
International Nederland Bank NV 5.125% 2015(3) 2,500 2,437
LaBranche and Co., Inc. 9.50% 2009(3) 14,000 13,930
ProLogis Trust 7.05% 2006 12,000 12,955
Colonial Realty LP 6.25% 2014 12,025 12,165
Assurant, Inc. 5.625% 2014 12,000 11,968
Simon Property Group, LP 4.875% 2010 6,375 6,365
Simon Property Group, LP 6.35% 2012 5,000 5,324
Standard Chartered Bank 1.995% Eurodollar note (undated) (5) 15,000 11,625
Skandinaviska Enskilda Banken 7.50% (undated)(3),(5) 10,405 11,617
Kazkommerts International BV 8.50% 2013(3) 1,500 1,504
Kazkommerts International BV 7.875% 2014(3) 10,000 9,525
Federal Realty Investment Trust 6.125% 2007 10,000 10,632
Providian Financial Corp., Series A, 9.525% 2027(3) 10,000 10,050
Developers Diversified Realty Corp. 4.625% 2010 10,140 9,901
Popular North America, Inc., Series E, 3.875% 2008 10,000 9,847
Independence Community Bank 3.75% 2014(5) 10,000 9,580
Duke Realty LP 4.625% 2013 10,000 9,451
Zions Bancorporation 6.00% 2015 9,000 9,271
Abbey National PLC, Series 1-B, 6.69% 2005 2,000 2,092
Abbey National PLC 6.70% (undated)(5) 1,580 1,707
Abbey National PLC 7.35% (undated)(5) 5,000 5,387
Bayerische Landesbank, Series F, 2.50% 2006 9,000 8,966
Bank of Nova Scotia 1.313% Eurodollar note (undated)(5) 10,000 8,311
Canadian Imperial Bank of Commerce 1.313% Eurodollar note 2085(5) 10,000 8,213
Mizuho Financial Group (Cayman) Ltd. 5.79% 2014(3) 7,000 6,996
Midland Bank 2.125% Eurodollar note (undated)(5) 5,000 4,275
Sumitomo Mitsui Banking Corp. 8.00% 2012 5,000 5,893
BCI U.S. Funding Trust I 8.01% noncumulative preferred (undated)(3),(5) 5,000 5,619
Lincoln National Corp. 6.20% 2011 5,000 5,367
Irvine Co., Class A, 7.46% 2006(3),(4) 5,000 5,274
Credit Suisse First Boston, Inc. 4.625% 2008 5,000 5,118
Woori Bank 5.75% 2014(3),(5) 5,000 5,042
Bank of America Corp. 4.375% 2010 5,000 4,935
Boston Properties LP 6.25% 2013 4,000 4,233
Jackson National Life Global Funding, Series 2002-1, 5.25% 2007(3) 4,000 4,213
Kimco Realty Corp. 6.00% 2012 3,250 3,417
Principal Life Global Funding I 4.40% 2010(3) 3,000 2,984
BNP Paribas 5.125% 2015(3) 3,000 2,963
Barclays Bank PLC 6.86% callable perpetual core tier one notes (undated)(3),(5) 1,650 1,737
1,125,647
GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS -- 2.07%
U.S. Treasury Obligations 5.75% 2005 239,500 250,016
U.S. Treasury Obligations 3.25% 2007 35,000 35,142
U.S. Treasury Obligations 3.375% 2007(10) 38,776 41,561
U.S. Treasury Obligations 4.375% 2007 50,000 51,789
U.S. Treasury Obligations 2.625% 2008 5,000 4,869
U.S. Treasury Obligations 3.625% 2008(10) 111,156 121,686
U.S. Treasury Obligations 6.00% 2009 50,750 56,039
U.S. Treasury Obligations Principal Strip 0% 2011 5,660 4,198
U.S. Treasury Obligations 3.50% 2011(10) 16,291 18,168
U.S. Treasury Obligations Principal Strip 0% 2013 11,585 7,513
U.S. Treasury Obligations Principal Strip 0% 2015 13,850 7,925
U.S. Treasury Obligations 8.875% 2017 10,025 13,886
U.S. Treasury Obligations 8.75% 2020 6,905 9,672
U.S. Treasury Obligations 6.875% 2025 77,750 93,641
United Mexican States Government Global 4.625% 2008 10,000 9,973
United Mexican States Government Global 8.625% 2008 5,000 5,690
United Mexican States Government Eurobonds, Global 8.375% 2011 3,000 3,443
United Mexican States Government Eurobonds, Global 7.50% 2012 6,310 6,957
United Mexican States Government Eurobonds, Global 6.375% 2013 7,500 7,673
United Mexican States Government Eurobonds 11.375% 2016 29,684 42,151
United Mexican States Government Global 8.125% 2019 2,061 2,277
United Mexican States Government Global 8.30% 2031 1,965 2,127
United Mexican States Government Global 7.50% 2033 2,833 2,836
Freddie Mac 4.25% 2005 75,000 76,275
Russian Federation 8.25% 2010 12,250 13,199
Russian Federation 5.00% 2030 9,770 9,013
Federal Home Loan Bank 4.125% 2004 16,460 16,571
State of Qatar 9.75% 2030 7,000 9,739
Fannie Mae 7.25% 2030 3,250 3,902
Banque Centrale de Tunisie 7.375% 2012 3,500 3,859
El Salvador (Republic of) 7.75% 2023(3) 1,250 1,311
933,101
INDUSTRIALS -- 1.65%
Browning-Ferris Industries, Inc. 7.875% 2005 3,000 3,083
Allied Waste North America, Inc., Series B, 7.625% 2006 29,840 31,257
Allied Waste North America, Inc. 8.50% 2008 1,500 1,639
Allied Waste North America, Inc., Series B, 8.875% 2008 38,750 42,431
Allied Waste North America, Inc., Series B, 6.50% 2010 16,000 15,920
Allied Waste North America, Inc., Series B, 5.75% 2011 8,000 7,580
Allied Waste North America, Inc., Series B, 6.125% 2014 7,925 7,271
Allied Waste North America, Inc., Series B, 7.375% 2014 4,500 4,331
Northwest Airlines, Inc. 7.625% 2005 10,000 9,750
Northwest Airlines, Inc. 8.875% 2006 2,200 1,793
Northwest Airlines, Inc. 9.875% 2007 37,400 28,237
Northwest Airlines, Inc. 7.875% 2008 22,000 14,850
Northwest Airlines, Inc. 10.00% 2009 62,750 43,611
Northwest Airlines, Inc., Series 1999-2, Class A, 7.575% 2020(9) 2,572 2,575
Northwest Airlines, Inc., Series 2001-1, Class A-1, 7.041% 2023(9) 4,476 4,341
Cendant Corp. 6.25% 2008 28,000 30,065
PHH Corp. 7.125% 2013 5,000 5,607
Cendant Corp. 7.375% 2013 23,250 26,373
Tyco International Group SA 6.125% 2008 15,000 16,095
Tyco International Group SA 6.125% 2009 1,000 1,072
Tyco International Group SA 6.375% 2011 34,415 37,034
Delta Air Lines, Inc. 7.70% 2005 62,396 35,878
Delta Air Lines, Inc., Series 2001-1, Class A-2, 7.111% 2013(9) 10,000 9,099
Delta Air Lines, Inc., Series 1992-A2, 9.20% 2014(9) 5,000 2,350
Delta Air Lines, Inc. 10.375% 2022 3,000 1,140
USA Waste Services, Inc. 7.00% 2004 9,060 9,125
Waste Management, Inc. 7.00% 2006 7,000 7,531
Waste Management, Inc. 6.50% 2008 5,000 5,429
Waste Management, Inc. 5.00% 2014 7,000 6,774
WMX Technologies, Inc. 7.10% 2026 10,125 10,880
Bombardier Capital Inc., Series A, 6.125% 2006(3) 8,300 8,280
Bombardier Inc. 6.30% 2014(3) 35,500 30,695
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class B, 7.156% 2011(3),(9) 26,653 28,508
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class G, MBIA insured, 6.664%
2013(3),(9) 7,009 7,592
American Standard Inc. 7.375% 2008 5,935 6,499
American Standard Inc. 8.25% 2009 2,124 2,432
American Standard Inc. 7.625% 2010 22,601 25,257
Hutchison Whampoa International Ltd. 7.00% 2011(3) 5,000 5,366
Hutchison Whampoa International Ltd. 6.50% 2013(3) 21,000 21,251
Hutchison Whampoa Finance Ltd., Series B, 7.45% 2017(3) 6,750 7,091
General Electric Capital Corp., Series A, 5.375% 2007 8,000 8,420
General Electric Capital Corp., Series A, 6.00% 2012 8,000 8,554
General Electric Co. 5.00% 2013 5,000 5,000
Raytheon Co. -- RC Trust I 7.00% trust preferred 2006 18,000 19,800
Nortek, Inc. 4.87% 2010(3),(5) 17,050 17,604
Continental Airlines, Inc. 8.00% 2005 5,010 4,409
Continental Airlines, Inc., Series 2001-1, Class B, 7.373% 2017(9) 8,542 6,781
Continental Airlines, Inc., Series 2001-1, Class A-1, 6.703% 2021(9) 4,339 4,032
John Deere Capital Corp. 3.90% 2008 14,000 14,062
Jacuzzi Brands, Inc. 9.625% 2010 10,441 11,328
Horizon Lines, LLC and Horizon Lines Holding Corp. 9.00% 2012(3) 10,740 11,196
Caterpillar Financial Services Corp. 4.50% 2009 10,000 10,131
TFM, SA de CV 10.25% 2007 1,150 1,162
TFM, SA de CV 11.75% 2009 2,675 2,675
TFM, SA de CV 12.50% 2012 4,165 4,488
Worldspan, LP and WS Financing Corp. 9.625% 2011 7,530 7,605
RailAmerica Transportation Corp. 12.875% 2010 6,450 7,393
Kansas City Southern Railway Co. 7.50% 2009 5,750 5,815
Terex Corp., Class B, 10.375% 2011 2,000 2,245
Terex Corp. 7.375% 2014 3,500 3,544
America West Airlines, Inc., Series 2000-1, Class G, AMBAC insured, 8.057%
2022(9) 5,081 5,558
KinderCare Learning Centers, Inc., Series B, 9.50% 2009 4,990 5,102
AGCO Corp. 9.50% 2008 3,500 3,815
United Air Lines, Inc. 9.00% 2003(11) 8,000 640
United Air Lines, Inc., Series 1996-A2, 7.87% 2019(8),(9) 5,000 1,954
American Airlines, Inc., Series 2003-1, Class G, AMBAC insured, 3.857% 2010(9) 2,301 2,225
Jet Equipment Trust, Series 1995-B, 10.91% 2014(3),(8) 4,750 48
Jet Equipment Trust, Series 1995-A, Class B, 8.64% 2015(3),(8),(9) 7,790 78
Jet Equipment Trust, Series 1995-B, Class C, 9.71% 2015(3),(8),(9) 5,500 55
Jet Equipment Trust, Series 1995-A, Class C, 10.69% 2015(3),(8),(9) 5,000 50
741,861
UTILITIES -- 1.37%
Southern California Edison, First and Ref. Mortgage Bonds, 8.00% 2007 47,775 52,881
Edison Mission Energy 10.00% 2008 11,250 12,825
Mission Energy Holding Co. 13.50% 2008 22,230 27,676
Edison Mission Energy 7.73% 2009 15,720 16,310
Edison Mission Energy 9.875% 2011 15,280 17,190
Midwest Generation, LLC, Series B, 8.56% 2016(9) 6,000 6,244
Homer City Funding LLC 8.734% 2026(9) 9,995 10,894
Midwest Generation, LLC and Midwest Finance Corp. 8.75% 2034(3) 24,675 26,279
AES Corp. 10.00% 2005(3),(9) 2,338 2,402
AES Corp. 9.50% 2009 16,915 18,437
AES Corp. 9.375% 2010 5,752 6,270
AES Corp. 8.75% 2013(3) 59,700 65,521
AES Corp. 9.00% 2015(3) 4,750 5,213
AES Red Oak, LLC, Series B, 9.20% 2029(9) 2,000 2,110
Nevada Power Co., Series A, 8.25% 2011 6,000 6,525
Nevada Power Co., Series I, 6.50% 2012(3) 4,250 4,229
Nevada Power Co., General and Ref. Mortgage Notes, Series G, 9.00% 2013 24,025 26,908
Sierra Pacific Resources 8.625% 2014(3) 2,725 2,834
Israel Electric Corp. Ltd. 7.70% 2018(3) 22,500 24,839
Israel Electric Corp. Ltd. 8.10% 2096(3) 14,405 14,438
Dynegy Holdings Inc. 9.875% 2010(3) 11,750 12,896
Dynegy Holdings Inc. 10.125% 2013(3) 20,900 23,147
Dominion Resources, Inc., Series 2002-D, 5.125% 2009 22,500 22,930
Virginia Electric and Power Co., Series 2002-A, 5.375% 2007 8,000 8,356
Duke Capital Corp. 7.50% 2009 14,500 16,271
Duke Capital Corp. 6.25% 2013 4,500 4,706
Duke Capital Corp. 5.50% 2014 8,000 7,903
PSEG Energy Holdings Inc. 8.625% 2008 8,800 9,592
PSEG Power LLC 7.75% 2011 7,500 8,555
PSEG Power LLC 5.00% 2014 10,000 9,463
NiSource Finance Corp. 7.625% 2005 9,000 9,524
NiSource Finance Corp. 7.875% 2010 15,000 17,394
Alabama Power Co., Series U, 2.65% 2006 5,000 4,987
Alabama Power Co., Series X, 3.125% 2008 3,750 3,651
Alabama Power Co., Series R, 4.70% 2010 1,250 1,256
Southern Power Co., Series B, 6.25% 2012 9,000 9,548
Alabama Power Co., Series Q, 5.50% 2017 5,000 5,032
Progress Energy, Inc. 6.75% 2006 5,000 5,261
Progress Energy, Inc. 6.05% 2007 7,500 7,924
Progress Energy, Inc. 5.85% 2008 2,500 2,629
Progress Energy, Inc. 7.10% 2011 2,500 2,760
Cilcorp Inc. 8.70% 2009 9,000 10,579
Cilcorp Inc. 9.375% 2029 3,000 4,024
Exelon Corp. 6.75% 2011 1,000 1,095
Exelon Generation Co., LLC 6.95% 2011 11,300 12,496
Constellation Energy Group, Inc. 6.125% 2009 12,000 12,810
Reliant Energy Resources Corp. 7.75% 2011 10,000 11,414
Appalachian Power Co., Series G, 3.60% 2008 6,770 6,632
Oncor Electric Delivery Co. 6.375% 2015 5,000 5,376
Pacific Gas and Electric Co., First Mortgage Bonds, 6.05% 2034 4,000 3,866
Tri-State Generation and Transmission Assn., Inc., Pass Through Trust, Series
2003-A, 6.04% 2018(3),(9) 2,965 3,001
615,103
INFORMATION TECHNOLOGY -- 1.24%
Electronic Data Systems Corp. 6.334% 2006 10,000 10,242
Electronic Data Systems Corp. 7.125% 2009 48,905 51,134
Electronic Data Systems Corp., Series B, 6.00% 2013(5) 123,000 118,779
Motorola, Inc. 6.75% 2006 33,200 35,119
Motorola, Inc. 8.00% 2011 52,985 61,590
Motorola, Inc. 5.22% 2097 14,506 10,807
Jabil Circuit, Inc. 5.875% 2010 53,450 55,388
Flextronics International Ltd. 6.50% 2013 48,625 48,017
Sanmina-SCI Corp. 10.375% 2010 35,500 40,381
Solectron Corp., Series B, 7.375% 2006 5,450 5,668
Solectron Corp. 9.625% 2009 27,775 30,553
Xerox Corp. 7.15% 2004 13,500 13,500
Xerox Corp. 7.125% 2010 21,000 21,630
Nortel Networks Ltd. 6.125% 2006 21,000 21,079
Freescale Semiconductor, Inc. 6.875% 2011(3) 15,000 15,188
ON Semiconductor Corp. and Semiconductor Components Industries, LLC 13.00%
2008(5) 5,220 5,912
Hyundai Semiconductor America, Inc. 8.625% 2007(3) 4,860 4,697
Viasystems, Inc. 10.50% 2011(3) 2,825 2,712
Iron Mountain Inc. 7.75% 2015 1,750 1,798
Micron Technology, Inc. 6.50% 2005(3) 1,000 995
555,189
MATERIALS -- 1.23%
Fort James Corp. 6.625% 2004 2,600 2,620
Georgia-Pacific Corp. 7.50% 2006 6,500 6,906
Fort James Corp. 6.875% 2007 5,000 5,325
Georgia-Pacific Corp. 7.375% 2008 15,500 16,740
Georgia-Pacific Corp. 8.875% 2010 14,125 16,279
Georgia-Pacific Corp. 8.125% 2011 9,110 10,272
Georgia-Pacific Corp. 9.50% 2011 3,900 4,680
Georgia-Pacific Corp. 9.375% 2013 250 291
Georgia-Pacific Corp. 7.70% 2015 950 1,031
Georgia-Pacific Corp. 8.25% 2023 6,992 7,219
Owens-Illinois, Inc. 8.10% 2007 750 786
Owens-Brockway Glass Container Inc. 8.875% 2009 20,975 22,915
Owens-Illinois, Inc. 7.50% 2010 750 765
Owens-Brockway Glass Container Inc. 7.75% 2011 8,500 9,053
Owens-Brockway Glass Container Inc. 8.75% 2012 6,000 6,630
Owens-Brockway Glass Container Inc. 8.25% 2013 14,000 14,735
Abitibi-Consolidated Co. of Canada 6.95% 2006 500 519
Abitibi-Consolidated Co. of Canada 5.25% 2008 24,500 23,398
Abitibi-Consolidated Finance LP 7.875% 2009 5,000 5,188
Abitibi-Consolidated Inc. 8.55% 2010 8,000 8,520
Abitibi-Consolidated Co. of Canada 6.00% 2013 14,750 13,459
Lyondell Chemical Co. 9.50% 2008 31,050 32,641
Equistar Chemicals, LP 10.125% 2008 5,825 6,415
Equistar Chemicals, LP 8.75% 2009 625 648
Equistar Chemicals, LP and Equistar Funding Corp. 10.625% 2011 3,550 3,958
Lyondell Chemical Co. 11.125% 2012 4,825 5,410
Weyerhaeuser Co. 5.95% 2008 16,000 17,062
Weyerhaeuser Co. 5.25% 2009 3,000 3,078
Weyerhaeuser Co. 6.75% 2012 12,000 13,140
Freeport-McMoRan Copper & Gold Inc. 10.125% 2010 23,890 26,637
Norske Skogindustrier ASA 7.625% 2011(3) 13,641 15,129
Norske Skogindustrier ASA 6.125% 2015(3) 11,500 11,429
Scotia Pacific Co. LLC, Series B, Class A-2, 7.11% 2028(9) 14,800 12,432
Scotia Pacific Co. LLC, Series B, Class A-3, 7.71% 2028 20,050 14,035
Stone Container Corp. 9.25% 2008 8,375 9,254
Stone Container Corp. 9.75% 2011 875 971
Jefferson Smurfit Corp. (U.S.) 8.25% 2012 2,250 2,413
Stone Container Corp. 8.375% 2012 3,000 3,225
Jefferson Smurfit Corp. (U.S.) 7.50% 2013 7,750 7,905
Graphic Packaging International, Inc. 8.50% 2011 12,150 13,244
Graphic Packaging International, Inc. 9.50% 2013 7,500 8,288
Packaging Corp. of America 4.375% 2008 9,500 9,452
Packaging Corp. of America 5.75% 2013 11,250 11,309
Ainsworth Lumber Co. Ltd. 6.75% 2014(3) 10,000 9,650
Ainsworth Lumber Co. Ltd. 6.75% 2014(3) 5,000 4,825
Phelps Dodge Corp. 8.75% 2011 10,000 11,977
Temple-Inland Inc. 7.875% 2012 10,000 11,445
Allegheny Technologies, Inc. 8.375% 2011 10,500 10,973
Ispat Inland ULC 9.75% 2014(3) 10,350 10,738
Norampac Inc. 6.75% 2013 10,500 10,605
Dow Chemical Co. 6.00% 2012 9,000 9,439
Associated Materials Inc. 0%/11.25% 2014(3),(7) 11,500 8,108
International Paper Co. 4.00% 2010 8,000 7,691
Smurfit Capital Funding PLC 6.75% 2005 3,425 3,545
JSG Funding PLC 9.625% 2012 500 563
JSG Funding PLC 15.50% 2013(6) 2,827 3,265
Corporacion Nacional del Cobre de Chile 6.375% 2012(3) 5,500 5,925
Corporacion Nacional del Cobre de Chile 5.50% 2013(3) 750 760
Huntsman LLC 11.50% 2012(3) 5,000 5,088
United States Steel Corp. 9.75% 2010 4,205 4,699
Gerdau Ameristeel Corp. and GUSAP Partners 10.375% 2011 4,125 4,620
ICI Wilmington, Inc. 4.375% 2008 1,665 1,647
ICI Wilmington, Inc. 5.625% 2013 3,000 2,972
SCA Coordination Center NV 4.50% 2015(3) 5,000 4,612
Inco Ltd. 7.75% 2012 4,000 4,573
Ball Corp. 6.875% 2012 2,500 2,566
Earle M. Jorgensen Co. 9.75% 2012 2,000 2,220
Oregon Steel Mills, Inc. 10.00% 2009 1,750 1,873
Luscar Coal Ltd. 9.75% 2011 1,500 1,695
AK Steel Corp. 7.75% 2012 1,575 1,465
Pindo Deli Finance Mauritius Ltd. 10.25% 2002(11) 4,000 1,120
554,065
ENERGY -- 1.07%
Port Arthur Finance Corp. 12.50% 2009(9) 536 627
Premcor Refining Group Inc. 9.25% 2010 13,875 15,679
Premcor Refining Group Inc. 6.125% 2011 47,500 47,975
Premcor Refining Group Inc. 6.75% 2011 15,650 16,393
Premcor Refining Group Inc. 7.75% 2012 3,000 3,203
Premcor Refining Group Inc. 9.50% 2013 57,215 66,655
Premcor Refining Group Inc. 6.75% 2014 49,000 49,613
Premcor Refining Group Inc. 7.50% 2015 22,000 23,320
Northwest Pipeline Corp. 8.125% 2010 5,000 5,569
Transcontinental Gas Pipe Line Corp., Series B, 7.00% 2011 19,765 21,000
Williams Companies, Inc. 7.125% 2011 41,750 43,629
Williams Companies, Inc. 8.125% 2012 12,910 14,169
Williams Companies, Inc. 7.875% 2021 10,000 10,150
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 2009(3),(9) 35,915 35,239
Western Oil Sands Inc. 8.375% 2012 21,185 23,277
Newfield Exploration Co., Series B, 7.45% 2007 6,000 6,390
Newfield Exploration Co. 7.625% 2011 1,500 1,628
Newfield Exploration Co. 8.375% 2012 11,400 12,369
Devon Financing Corp., ULC 6.875% 2011 17,000 18,694
Overseas Shipholding Group, Inc. 8.25% 2013 16,210 17,183
General Maritime Corp. 10.00% 2013 10,225 11,299
XTO Energy Inc. 7.50% 2012 8,850 10,092
Oryx Energy Co. 8.125% 2005 8,500 8,930
Pemex Project Funding Master Trust 7.875% 2009 1,600 1,764
Pemex Project Funding Master Trust 7.375% 2014 3,500 3,675
Pemex Project Funding Master Trust 8.625% 2022 500 541
OXYMAR 7.50% 2016(3) 5,500 5,638
Reliance Industries Ltd., Series B, 10.25% 2097 3,125 3,416
PETRONAS Capital Ltd. 7.00% 2012(3) 2,000 2,217
480,334
CONSUMER STAPLES -- 0.78%
Ahold Finance U.S.A., Inc. 8.25% 2010 57,355 61,800
Ahold Lease Pass Through Trust, Series 2001-A-1, 7.82% 2020(9) 946 949
Ahold Lease Pass Through Trust, Series 2001-A-2, 8.62% 2025(9) 9,800 9,782
Ahold Finance U.S.A., Inc. 6.25% 2009 64,208 63,967
Delhaize America, Inc. 7.375% 2006 27,985 29,775
Delhaize America, Inc. 8.125% 2011 22,010 24,513
Delhaize America, Inc. 9.00% 2031 5,150 5,811
Burns Philp Capital Pty Ltd. and Burns Philp Capital (U.S.) Inc., Series B,
9.50% 2010 3,000 3,210
Burns Philp Capital Pty Ltd. and Burns Philp Capital (U.S.) Inc., Series B,
10.75% 2011 8,675 9,391
Burns Philp Capital Pty Ltd., Series B, 9.75% 2012 10,875 11,392
SUPERVALU INC 7.50% 2012 18,185 20,569
Rite Aid Corp. 6.875% 2013 7,725 7,107
Rite Aid Corp. 9.25% 2013 5,700 5,999
Stater Bros. Holdings Inc. 5.06% 2010(3),(5) 6,525 6,688
Stater Bros. Holdings Inc. 8.125% 2012(3) 5,725 5,882
Jean Coutu Group (PJC) Inc. 7.625% 2012(3) 2,500 2,531
Jean Coutu Group (PJC) Inc. 8.50% 2014(3) 10,000 9,963
Anheuser-Busch Co. Inc. 9.00% 2009 10,000 12,211
Kraft Foods Inc. 6.25% 2012 10,000 10,691
Kellogg Co. 6.00% 2006 10,000 10,497
Playtex Products, Inc. 8.00% 2011(3) 10,000 10,425
Gold Kist Inc. 10.25% 2014(3) 8,175 8,870
CVS Corp. 5.789% 2026(3) 7,417 7,334
Winn Dixie Pass-through Trust, Series 1999-1, Class A-1, 7.803% 2017(3),(9) 8,506 6,810
Pathmark Stores, Inc. 8.75% 2012 6,125 6,171
352,338
ASSET-BACKED OBLIGATIONS9 -- 0.77%
Green Tree Financial Corp., Series 1993-2, Class B, 8.00% 2018 14,000 13,500
Green Tree Financial Corp., Series 1995-4, Class B-2, 7.70% 2025(8) 1,900 475
Green Tree Financial Corp., Series 1995-3, Class B-2, 8.10% 2025(8) 16,121 4,836
Green Tree Financial Corp., Series 1995-2, Class B-2, 8.80% 2026(8) 11,457 4,010
Green Tree Financial Corp., Series 1996-2, Class B-2, 7.90% 2027(8) 12,950 2,849
Green Tree Financial Corp., Series 1996-10, Class B-2, 7.74% 2028(8) 8,369 1,841
Green Tree Financial Corp., Series 1997-8, Class B-2, 7.75% 2028(8) 6,393 1,407
Green Tree Financial Corp., Series 1997-1, Class B-2, 7.76% 2028(8) 9,781 2,152
Green Tree Financial Corp., Series 1997-2, Class B-2, 8.05% 2028(8) 3,280 722
Green Tree Financial Corp., Series 1997-6, Class B-2, 7.75% 2029(8) 10,611 2,334
Conseco Finance Home Loan Trust, Series 1999-G, Class B-2, 10.96% 2029(8) 18,188 15,403
Green Tree Financial Corp., Series 1998-3, Class B-2, 8.07% 2030(8) 4,723 1,039
Green Tree Financial Corp., Series 1998-4, Class B-2, 8.11% 2030(8) 6,470 1,423
Vita Capital Ltd., Series 2003-I, 2.95% 2007(3),(5) 24,000 24,279
Residential Asset Securities Corp. Trust, Series 2003-KS2, Class A-I-3,
2.66% 2028 1,400 1,393
Residential Asset Securities Corp. Trust, Series 2001-KS3, Class A-I-6,
5.96% 2031 9,500 9,770
Residential Asset Securities Corp. Trust, Series 2003-KS6, Class A-II, 1.75%
2033(5) 7,104 7,113
Metris Master Trust, Series 2000-3, Class A, 1.68% 2009(5) 14,428 14,271
Metris Master Trust, Series 2001-2, Class A, 1.74% 2009(5) 3,500 3,491
AESOP Funding II LLC, Series 2002-1A, Class A-1, AMBAC insured, 3.85% 2006(3) 7,925 8,018
AESOP Funding II LLC, Series 2003-2, Class A-1, MBIA insured, 2.74% 2007(3) 8,000 7,940
AmSouth Auto Trust, Series 2000-1, Class C, 7.44% 2007 14,260 14,301
AmeriCredit Automobile Receivables Trust, Series 2002-C, Class A-4, FSA insured,
3.55% 2009 5,000 5,037
AmeriCredit Automobile Receivables Trust, Series 2003-C-F, Class A-4, FSA
insured, 3.48% 2010 9,000 9,036
MMCA Auto Owner Trust, Series 2001-4, Class B, 4.84% 2008 3,158 3,186
MMCA Auto Owner Trust, Series 2002-4, Class A-4, 3.05% 2009 5,000 4,991
MMCA Auto Owner Trust, Series 2002-4, Class B, 3.82% 2009 5,169 5,187
Ameriquest Mortgage Securities Inc., Series 2003-12, Class M-1, 2.20% 2033(5) 7,000 7,071
Ameriquest Mortgage Securities Inc., Series 2003-5, Class A-2, 2.43% 2033 5,158 5,154
Chase Credit Card Owner Trust, Series 2003-4, Class C, 2.63% 2016(5) 11,500 11,796
Residential Asset Mortgage Products Trust, Series 2004-RS3, Class A-I-2,
3.052% 2029 5,000 4,884
Residential Asset Mortgage Products Trust, Series 2003-RZ4, Class A-7, 4.79%
2033(5) 7,000 6,846
Consumer Credit Reference Index Securities Program Trust, Series 2002-2A, Class
FL, 6.67% 2007(3),(5) 5,000 4,984
Consumer Credit Reference Index Securities Program Trust, Series 2002-2A, Class
FX, 10.421% 2007(3) 5,000 5,191
MBNA Master Credit Card Trust II, Series 1999-D, Class C, 6.95% 2008(3) 4,700 5,004
MBNA Master Credit Card Trust II, Series 2000-H, Class B, 1.98% 2013(5) 5,000 5,072
Mediterranean Re PLC, Class B, 7.11% 2005(3),(5) 9,000 9,248
Banco Itau SA, Series 2002, XLCA insured, 1.85% 2007(3),(5) 9,050 9,039
First USA Credit Card Master Trust, Series 1997-4, Class C, 2.41% 2010(3),(5) 6,500 6,509
First USA Credit Card Master Trust, Series 1998-6, Class C, 6.16% 2011(3) 2,000 2,120
Vanderbilt Mortgage and Finance, Inc., Series 1999-B, Class I-A-6, 6.925% 2024 7,706 8,303
WFS Financial Owner Trust, Series 2002-3, Class A-4, 3.50% 2010 8,000 8,076
CPS Auto Receivables Trust, Series 2002-C, Class A-2, XLCA insured, 3.52%
2009(3) 7,142 7,158
CitiFinancial Mortgage Securities Inc., Series 2003-3, Class AF-5, 4.553% 2033 6,500 6,375
PIONEER 2002 Ltd., Class D Series, 3.27% 2006(3),(5) 6,000 6,080
Centex Home Equity Loan Trust, Series 2003-A, Class AF-3, 2.708% 2026 5,600 5,604
Financial Pacific Funding II, LLC, Series 2003-A, Class A, FSA insured,
2.29% 2009(3) 5,245 5,211
SLM Private Credit Student Loan Trust, Series 2002-A, Class A-2, 2.07% 2030(5) 5,000 5,044
Drivetime Auto Owner Trust, Series 2003-A, Class A-3, XLCA insured, 2.524%
2008(3) 5,000 5,005
SeaWest Securitization, LLC, Series 2002-A, Class A-3, XLCA insured, 3.58%
2008(3) 2,270 2,286
SeaWest Securitization, LLC, Series 2003-A, Class A-2, XLCA insured, 2.84%
2009(3) 2,701 2,712
Home Equity Asset Trust, Series 2003-5, Class A-2, 1.80% 2033(5) 4,866 4,872
California Infrastructure and Economic Development Bank, Special Purpose Trust,
PG&E-1, Series 1997-1, Class A-7, 6.42% 2008 4,649 4,843
Chevy Chase Auto Receivables Trust, Series 2001-2, Class B, 5.16% 2008 4,332 4,446
Providian Master Trust, Series 2000-1, Class C, 2.60% 2009(3),(5) 4,000 3,974
Long Beach Mortgage Loan Trust, Series 2004-A, Class M-3, 2.40% 2024(5) 3,500 3,490
Rental Car Finance Corp., Series 1999-1A, Class D, 7.10% 2007(3) 2,500 2,520
Pass-through Amortizing Credit Card Trusts, Series 2002-1A, Class A-2FX,
4.685% 2012(3) 1,351 1,364
Pass-through Amortizing Credit Card Trusts, Series 2002-1A, Class A-3FX,
6.298% 2012(3) 901 907
Nebhelp Trust, Student Loan Interest Margin Securities, Series 1998-1, Class A,
MBIA insured, 6.68% 2016(3) 1,746 1,822
PECO Energy Transition Trust, Series 1999-A, Class A-7, 6.13% 2009 1,250 1,346
NPF XII, Inc., Series 1999-3, Class B, 2.389% 2003(3),(4),(5),(11) 3,000 30
NPF XII, Inc., Series 2001-1A, Class A, 1.989% 2004(3),(4),(5),(11) 5,000 569
NPF XII, Inc., Series 2001-3, Class A, 5.52% 2007(3),(4),(8) 1,000 114
Residential Reinsurance 2002 Ltd. 6.21% 2005(3),(5) 500 505
345,578
HEALTH CARE -- 0.72%
Columbia/HCA Healthcare Corp. 6.91% 2005 11,250 11,569
HCA Inc. 7.125% 2006 7,785 8,231
Columbia/HCA Healthcare Corp. 7.00% 2007 6,250 6,672
Columbia/HCA Healthcare Corp. 8.85% 2007 12,500 13,701
Columbia/HCA Healthcare Corp. 7.25% 2008 1,000 1,075
Columbia/HCA Healthcare Corp. 8.70% 2010 9,500 10,854
HCA - The Healthcare Co. 8.75% 2010 7,750 8,939
HCA - The Healthcare Co. 7.875% 2011 40,000 44,353
HCA Inc. 6.95% 2012 5,000 5,275
HCA Inc. 6.25% 2013 4,900 4,930
Tenet Healthcare Corp. 6.375% 2011 17,300 15,527
Tenet Healthcare Corp. 9.875% 2014(3) 31,625 33,009
Aetna Inc. 7.375% 2006 22,000 23,465
Aetna Inc. 7.875% 2011 10,625 12,360
Triad Hospitals, Inc. 7.00% 2012 23,000 23,633
Team Health, Inc. 9.00% 2012(3) 24,000 23,400
Quintiles Transnational Corp. 10.00% 2013 12,300 12,700
Pharma Services Intermediate Holding Corp. 0%/11.50% 2014(3),(7) 18,250 10,494
Health Net, Inc. 8.375% 2011 15,000 17,684
Humana Inc. 7.25% 2006 13,375 14,327
Wyeth 5.50% 2013(5) 9,000 8,762
Schering-Plough Corp. 5.30% 2013 4,500 4,507
Concentra Operating Corp. 9.50% 2010 4,000 4,360
Universal Hospital Services, Inc., Series B, 10.125% 2011 4,000 4,050
323,877
MUNICIPALS -- 0.13%
State of California, Golden State Tobacco Securitization Corp., Tobacco
Settlement Asset-backed Bonds, Series 2003-A1, 6.25% 2033 19,750 17,911
State of New Jersey, Tobacco Settlement Fncg. Corp., Tobacco Settlement
Asset-backed Bonds, Series 2003, 6.125% 2024 9,625 8,907
State of New Jersey, Tobacco Settlement Fncg. Corp., Tobacco Settlement
Asset-backed Bonds, Series 2002, 5.75% 2032 3,885 3,406
State of Wisconsin, Badger Tobacco Asset Securitization Corp., Tobacco
Settlement Asset-backed Bonds, 6.125% 2027 9,655 8,919
State of Louisiana, Tobacco Settlement Financing Corp., Tobacco Settlement
Asset-backed Bonds, Series 2001-A, Class A, 6.36% 2025 5,591 5,427
State of California, Dept. of Water Resources, Power Supply Rev. Bonds, Series
2002-E, 4.33% 2006 4,500 4,568
State of New York, Dormitory Auth., City University System Consolidated
Third General Resolution Rev. Bonds, Series 2003-2, 2.38% 2005 4,500 4,498
State of South Dakota, Educational Enhancement Funding Corp. Tobacco
Settlement Asset-backed Bonds, Series 2002-A, Class A, 6.72% 2025 4,575 4,303
57,939
MISCELLANEOUS -- 0.01%
Other bonds and notes in initial period of acquisition 2,379
TOTAL BONDS AND NOTES (cost: $10,599,625,000) 10,735,350
SHORT-TERM SECURITIES -- 7.76%
U.S. Treasury Bills 0.98%-1.435% due 8/5-10/28/2004 341,200 340,639
Freddie Mac 1.20%-1.27% due 8/20-8/26/2004 183,800 183,644
Pfizer Inc 1.18%-1.49% due 8/2-10/12/2004(3) 155,400 155,180
Federal Home Loan Bank 1.23%-1.355% due 8/18-9/17/2004 155,000 154,824
Wal-Mart Stores Inc. 1.26%-1.34% due 8/3-9/8/2004(3) 150,000 149,878
Clipper Receivables Co., LLC 1.29%-1.35% due 8/6-9/1/2004(3) 150,000 149,867
Coca-Cola Co. 1.14%-1.36% due 8/4-9/21/2004(12) 150,000 149,848
Receivables Capital Co., LLC 1.25%-1.37% due 8/9-9/1/2004(3) 75,000 74,935
Bank of America Corp. 1.30%-1.49% due 8/17-10/4/2004(12) 75,000 74,877
Three Pillars Funding, LLC 1.30%-1.56% due 8/2-10/20/2004(3) 150,000 149,627
CAFCO LLC 1.19%-1.50% due 8/3-10/4/2004(3) 145,000 144,848
Abbott Laboratories Inc. 1.24%-1.54% due 8/17-10/26/2004(3) 135,000 134,668
New Center Asset Trust 1.23%-1.44% due 8/16-10/13/2004 127,900 127,728
J.P. Morgan Chase & Co. 1.20%-1.30% due 8/11-8/25/2004 97,100 97,024
Park Avenue Receivables Co., LLC 1.48% due 9/24/2004(3) 30,000 29,932
Wells Fargo & Co. 1.32%-1.34% due 9/2/2004 125,000 124,848
DuPont (E.I.) de Nemours & Co. 1.30%-1.33% due 8/25-9/10/2004(12) 125,000 124,829
General Electric Capital Services Inc. 1.21%-1.44% due 8/2-9/22/2004 125,000 124,805
Procter & Gamble Co. 1.26%-1.48% due 8/11-10/12/2004(3) 125,000 124,791
Variable Funding Capital Corp. 1.40% due 9/15/2004(3) 125,000 124,773
ChevronTexaco Funding Corp. 1.19%-1.25% due 8/10-8/18/2004(12) 100,000 99,943
Triple-A One Funding Corp. 1.12%-1.30% due 8/3-8/13/2004(3) 80,296 80,270
Fannie Mae 1.16% due 8/10/2004 80,000 79,973
IBM Capital Inc. 1.20%-1.37% due 8/6-9/10/2004(3) 50,000 49,957
IBM Credit Corp. 1.20% due 8/3/2004 25,000 24,997
Anheuser-Busch Cos. Inc. 1.30%-1.38% due 8/23-9/16/2004(3),(12) 66,700 66,620
FCAR Owner Trust I 1.14%-1.31% due 8/6-8/24/2004 56,800 56,772
Federal Farm Credit Banks 1.10%-1.38% due 8/3-9/17/2004 52,000 51,950
American Express Credit Corp. 1.26% due 8/13/2004 50,000 49,977
Exxon Asset Management Co. 1.25% due 8/27/2004(3) 50,000 49,953
Household Finance Corp. 1.29%-1.40% due 8/16-9/14/2004 50,000 49,935
Gannett Co. 1.35% due 9/13/2004(3) 43,200 43,129
Eli Lilly and Co. 1.54% due 10/22/2004(3) 40,000 39,852
3,484,893
TOTAL SHORT-TERM SECURITIES (cost: $3,484,991,000) 3,484,893
TOTAL INVESTMENT SECURITIES (cost: $41,150,613,000) 44,995,225
New Taiwanese Dollar (cost: $3,000,000) NT$104,905 3,091
Other assets less liabilities (95,270)
NET ASSETS $44,903,046
(1) Represents an affiliated company as defined under the Investment Company
Act of 1940.
(2) Security did not produce income during the last 12 months.
(3) Purchased in a private placement transaction; resale may be limited to
qualified institutional Buyers; resale to the public may require
registration. The total value of all restricted securities was
$3,864,013,000, which represented 8.61% of the net assets of the fund.
(4) Valued under fair value procedures adopted by authority of the Board of
Directors.
(5) Coupon rate may change periodically.
(6) Payment in kind; the issuer has the option of paying additional securities
in lieu of cash.
(7) Step bond; coupon rate will increase at a later date.
(8) Company not making scheduled interest payments; bankruptcy proceedings
pending.
(9) Pass-through security backed by a pool of mortgages or other loans on which
principal payments are periodically made. Therefore, the effective maturity
is shorter than the stated maturity.
(10) Index-linked bond whose principal amount moves with a government retail
price index.
(11) Company did not make principal payment upon scheduled maturity date;
reorganization pending.
(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
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 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers Not applicable to this Registrant, insofar as
the Registrant is not a closed-end management investment company.
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, as amended. 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 Registrant's Principal Executive Officer and Principal Financial
Officer have concluded, based on their evaluation of the Registrant's
disclosure controls and procedures (as such term is defined in Rule 30a-3
under the Investment Company Act of 1940), 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 that is the subject of the disclosure required by Item 2
is attached as an exhibit hereto.
(b) The certifications required by Rule 30a-2 of the Investment Company Act of
1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley Act of
2002 are attached as exhibits hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
THE INCOME FUND OF AMERICA, INC.
By /s/ Hilda L. Applbaum
--------------------------------------
Hilda L. Applbaum, President and PEO
Date: October 11, 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/ Hilda L. Applbaum
- -------------------------------------
Hilda L. Applbaum, President and PEO
Date: October 11, 2004
By /s/ Dayna G. Yamabe
- -------------------------------------
Dayna G. Yamabe, Treasurer and PFO
Date: October 11, 2004