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
Date of reporting period: July 31, 2005
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
A unique blend of experience, expertise and individuality
[cover: close-up photo of a woven mat]
Annual report for the year ended July 31, 2005
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 organization ranks among the
nation's three largest mutual fund families. 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
A unique blend of experience, expertise and individuality 6
About your fund 11
The portfolio at a glance 12
Summary investment portfolio 13
Financial statements 20
Directors and officers 35
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. 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. 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, 2005 (the most recent
calendar quarter):
Class A shares 1 year 5 years 10 years
Reflecting 5.75% maximum sales charge +4.99% +8.48% +10.01%
The fund's investment adviser waived 5% of its management fees from September 1,
2004, through March 31, 2005, and increased the waiver to 10% on April 1, 2005.
Fund results shown reflect the waiver, without which they would have been lower.
Please see the Financial Highlights table on page 29 for details.
The fund's 30-day yield for Class A shares as of August 31, 2005, calculated in
accordance with the Securities and Exchange Commission formula, was 3.74%, which
reflects a fee waiver (3.71% without the fee waiver). The fund's distribution
rate for Class A shares as of that date was 3.24%. Both reflect the 5.75%
maximum sales charge. The SEC yield reflects the rate at which the fund is
earning income on its current portfolio of securities while the distribution
rate reflects the fund's past dividends paid to shareholders. Accordingly, the
fund's SEC yield and distribution rate may differ.
Results for other share classes can be found on page 34. Please see the inside
back cover for important information about other share classes.
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. High-yield bonds are
subject to greater fluctuations in value and risk of loss of income and
principal. Investing outside the United States is subject to additional risks,
such as currency fluctuations and political instability, which are detailed in
the fund's prospectus.
[close-up photo of a woven mat]
FELLOW SHAREHOLDERS:
During the 12 months ended July 31, 2005, the yields for The Income Fund of
America's cash and short-term bond holdings rose as the Federal Reserve raised
the federal funds rate, a short-term lending rate, eight times from 1.25% to
3.25%. Also during this time, dividends for the fund's stock holdings, on
average, increased.
These higher dividends coupled with rising short-term yields allowed us to
increase the fund's quarterly dividend from 15.5 to 16.5 cents a share in June
2005. In August 2005, the Federal Reserve raised the federal funds rate one more
time to 3.5%. We are pleased to report that, in December 2005, we will be
increasing the fund's quarterly dividend once again to 17.5 cents a share and
will also be paying a special dividend.
A STRONG SHOWING
As of July 31, 2005, the fund's 3.4% 12-month dividend yield was twice the 1.7%
yield for the Standard & Poor's 500 Composite Index and significantly higher
than the 2.3% average yield for the Lipper income funds. As the chart on page 3
shows, the fund has been able to provide shareholders with a higher dividend
rate than both its peers and the S&P 500 over the past decade.
In addition to providing shareholders with above-stock-market dividends, the
fund also generated an above-stock-market total return during its 2005 fiscal
year. With all dividends reinvested, The Income Fund of America had a total
return of 14.1% for the year ended July 31, 2005. Although this return was only
slightly higher than the S&P 500's return of 14.0%, it was accomplished with
much lower volatility, a commonly used measurement of investment risk. The
fund's 12-month return also exceeded the 9.9% average total return for the
Lipper income funds and the 4.8% total return for the Lehman Brothers Aggregate
Bond Index.
[Begin Sidebar]
Results at a glance (with dividends reinvested or interest compounded)
Average annual total returns
for periods ended July 31, 2005
1 year 5 years 10 years Lifetime(1)
THE INCOME FUND OF AMERICA +14.1% +9.9% +10.7% +12.7%
Standard & Poor's 500 Composite Index +14.0 - 1.3 +10.0 +12.0
Lipper income funds average(2) +9.9 +4.7 +7.1 +12.0
Lehman Brothers Aggregate Bond Index +4.8 +7.0 +6.8 +8.6(3)
Consumer Price Index (inflation)(4) + 3.2 + 2.5 +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]
A REVIEW OF YOUR FUND'S PORTFOLIO
During the 12 months ended July 31, 2005, bond returns continued to lag stock
returns, validating our decision to reduce the fund's bond holdings over the
past two years. During the fund's 2004 fiscal year, we gradually reduced the
bond holdings from 32% to 24% of the fund's total assets. By the end of the 2005
fiscal year, the fund's bond exposure had declined to approximately 22%.
As we mentioned in the fund's 2004 annual report feature -- "Navigating your
fund through a rising-rate environment"-- we remain cautious about the
possibility of rising interest rates and its impact on the fund's bond holdings.
The market's recent appetite for high-yield bonds has pushed up prices on many
of these securities to levels that are less appealing from both a historical and
risk perspective.
During the fund's 2005 fiscal year, rising oil prices combined with a decline in
long-term interest rates caused energy and utility stocks to post strong
returns. These two sectors were among the largest in the fund. Utility common
stocks represented 9.3% of the fund's total assets while energy stocks
represented 6.2%.
THE SEARCH FOR LONG-TERM OPPORTUNITIES
Bad news and disappointments for companies, industries or markets can create
potential long-term investment opportunities for The Income Fund of America.
When searching for investment opportunities in struggling areas, we rely on our
fundamental research to assess long-term values, dividend prospects and risks.
One such area has been our common stock holdings in the telecommunication
services sector, which represented 7.8% of the fund's total assets on July 31,
2005. Over the past few years, many telecommunication services companies have
made steady progress in improving their balance sheets, maintaining their cash
flows and increasing their dividends, making them attractive investments for the
fund. For example, BellSouth, SBC Communications and Verizon Communications --
three of the fund's largest common stock holdings -- all raised their dividends
during the fund's 2005 fiscal year.
Similarly, we increased the fund's holdings in health care common stocks from
2.6% to 3.4% of the fund's portfolio during the 12-month period. Concerns about
Medicare reforms, litigation and patent expirations have caused the valuations
on many pharmaceutical stocks in the health care sector to drop to levels not
seen since 1994. As with all of our investments, our focus is on finding those
pharmaceutical companies with attractive, sustainable dividends as well as good
long-term values.
[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, 2005
[begin quadrant graph]
Average annual
total returns Volatility
More return, less risk quadrant IFA 10.70% 8.23
More return, more risk quadrant Stocks 9.98 15.59
Less return, less risk quadrant Bonds 6.75 3.66
Less return, less risk quadrant Income funds
average 7.12 7.68
Sources: Stocks -- S&P 500; bonds -- Lehman Aggregate Bond Index; income funds
average -- Lipper. Returns include reinvestment of all distributions. Volatility
is calculated at net asset value by Lipper using annualized standard deviation
(based on monthly returns), a measure of how returns over time have varied from
the mean; a lower number signifies lower volatility.
[End quadrant graph]
[End Sidebar]
THE CHALLENGES AHEAD
Since the middle of 2000, The Income Fund of America has provided shareholders
with above-stock-market returns as dividend-paying stocks became more sought
after due to the end of the Internet bubble, a reduction in the federal tax rate
on dividends and the general decline in interest rates. Now that
high-dividend-paying stocks are more fully valued, we do not expect the fund to
continue to outpace the S&P 500.
We are mindful of a number of potential risks to the U.S. economy and asset
prices. Higher oil prices and interest rates could cause the economy to slow and
prices for stocks, bonds and housing to decline.
Regardless of market conditions, the fund's investment professionals will
continue to seek to provide shareholders with above-average income, preservation
of capital and prudent growth relative to risk. To learn more about the fund's
investment process, please see "A unique blend of experience, expertise and
individuality" on page 6.
Cordially,
/s/ Stephen E.Bepler
Stephen E. Bepler
Vice Chairman of the Board
/s/ Hilda L. Applbaum
Hilda L. Applbaum
President
September 13, 2005
For current information about the fund, visit americanfunds.com.
Leonade D. Jones, an independent Director of the fund since 1993, has been
elected non-executive chairman of the Board. Stephen E. Bepler, the previous
chairman, has been elected vice chairman. As independent Board chair pursuant to
recently adopted Securities and Exchange Commission regulations, Ms. Jones will
chair Board meetings, including executive sessions of the independent Directors,
and will be responsible for Board agendas, but will not have other executive or
management responsibilities with the fund. She will remain unaffiliated with
Capital Research and Management Company, the fund's investment adviser, and any
of its affiliates.
[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 INCOME FUND LIPPER INCOME S&P 500
OF AMERICA FUNDS AVERAGE
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 7.31 3.37
7/31/1990 7.07 7.40 3.31
1/31/1991 8.12 7.82 3.52
7/31/1991 7.09 7.10 3.11
1/31/1992 6.33 6.61 2.96
7/31/1992 6.05 6.42 2.89
1/31/1993 6.44 5.78 2.83
7/31/1993 6.19 5.05 2.79
1/31/1994 5.56 4.76 2.64
7/31/1994 6.06 4.52 2.80
1/31/1995 6.14 4.90 2.81
7/31/1995 5.55 4.56 2.41
1/31/1996 5.07 4.29 2.18
7/31/1996 5.19 4.50 2.28
1/31/1997 5.09 4.13 1.89
7/31/1997 4.74 3.94 1.61
1/31/1998 4.27 4.03 1.59
7/31/1998 4.32 3.93 1.43
1/31/1999 4.79 3.72 1.29
7/31/1999 4.86 3.89 1.24
1/31/2000 5.40 4.25 1.19
7/31/2000 5.49 4.34 1.15
1/31/2001 4.78 4.31 1.20
7/31/2001 4.80 4.18 1.30
1/31/2002 5.01 3.84 1.40
7/31/2002 5.49 3.67 1.75
1/31/2003 5.45 3.44 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 2.58 1.69
1/31/2005 3.57 2.40 1.64
7/31/2005 3.44 2.33 1.70
[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.
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 figures reflect deduction of the maximum sales charge of
5.75% on the $10,000 investment.(1) Thus the amount invested was $9,425%.(2)
[begin sidebar]
Average annual total returns based on a $1,000 investment
(for periods ended July 31, 2005)*
1 year 5 years 10 years
Class A shares 7.58% 8.61% 10.04%
*Assumes reinvestment of all distributions and payment of the maximum 5.75%
sales charge.
The fund's investment adviser waived 5% of its management fees from September 1,
2004, through March 31, 2005, and increased the waiver to 10% on April 1, 2005.
Fund results shown reflect the waiver, without which they would have been lower.
Please see the Financial Highlights table on page 29 for details.
[end sidebar]
[begin mountain chart]
Year Standard & Poor's IFA (1)(3)(7) Lehman Bros. IFA(1)(6)(7)
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
2005 366,973 415,525 137,146 54,032 10,000
EXPENSE RATIOS AND TURNOVER RATES*
Year ended July 31, 2005
THE INCOME FUND OF AMERICA INDUSTRY AVERAGE+
Expense ratio 0.54%** 0.77%
Portfolio turnover rate 24% 38%
* 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.
** Reflects the fee waiver, 0.55% without the fee waiver.
Year ended July 31 1974# 1975 1976 1977 1978 1979 1980
Value of dividends
Dividends in cash(7) $343 734 859 781 843 937 952
Dividends reinvested(7) $346 785 997 970 1,117 1,333 1,463
Value of investment
Dividends in cash(7) $8,767 10,141 12,155 12,701 12,584 12,693 12,490
Dividends reinvested(7) $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(7) 1,046 1,202 1,280 1,344 1,438 1,550 1,636
Dividends reinvested(7) 1,743 2,187 2,548 2,895 3,365 3,909 4,431
Value of investment
Dividends in cash(7) 12,818 12,256 16,112 15,738 19,443 21,668 23,568
Dividends reinvested(7) 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(7) 1,542 1,710 1,577 1,764 1,715 1,713 1,727
Dividends reinvested(7) 4,479 5,337 5,269 6,311 6,579 6,995 7,471
Value of investment
Dividends in cash(7) 22,341 25,644 24,351 25,390 28,370 29,917 28,788
Dividends reinvested(7) 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(7) 1,752 1,766 1,968 1,959 2,210 2,320 2,226
Dividends reinvested(7) 8,046 8,581 10,074 10,530 12,446 13,740 13,913
Value of investment
Dividends in cash(7) 31,571 34,007 41,731 44,436 45,588 42,276 46,460
Dividends reinvested(7) 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 2005
Value of dividends
Dividends in cash(7) 2,272 2,071 1,944 1,850
Dividends reinvested(7) 14,927 14,311 14,072 13,921
Value of investment
Dividends in cash(7) 41,359 44,136 49,057 54,032(6)
Dividends reinvested(7) 280,397 314,550 364,136 415,525(3)
IFA total return (6.4) 12.2 15.8 14.1
Average annual total return for 31-2/3 years: 12.5%(1)
# 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 and is eliminated for
purchases of $1 million or more. There is no sales charge on dividends or
capital gain distributions that are reinvested in additional shares.
(2) The maximum initial sales charge was 8.5% prior to July 1, 1988.
(3) Includes reinvested dividends of $205,094 and reinvested capital gain
distributions of $90,619.
(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, 2005, the
Lehman Brothers Aggregate Bond Index was used.
(6) Includes capital gain distributions of $19,115 but does not reflect income
dividends of $49,030 taken in cash.
(7) 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.
The results shown are before taxes on fund distributions and sale of fund
shares.
[end mountain chart]
A UNIQUE BLEND OF EXPERIENCE, EXPERTISE AND INDIVIDUALITY
For more than three decades, the success of The Income Fund of America has
relied on an investment strategy composed of a number of interlocking parts.
[photo of a partially weaved basket]
In its pursuit of high income, the fund may invest in a variety of
income-producing investments, including high-dividend-paying stocks both inside
and, to a limited extent, outside the United States, investment-grade and
high-yield bonds and convertible securities. These investments -- which numbered
660 at the end of the fund's 2005 fiscal year -- are the result of an approach
the American Funds calls the multiple portfolio counselor system.
The Income Fund of America's assets are divided among nine managers, known as
portfolio counselors, and a research portfolio. As of July 31, 2005, the
research portfolio represented approximately 23% of the fund's total assets. In
it a group of 56 equity and fixed-income analysts can invest in their best
investment ideas. Each of the fund's portfolio counselors manages his or her
slice of the portfolio independently, subject to the fund's objectives and
overall guidelines.
To give you more insight into how the multiple portfolio counselor system works,
we interviewed six of the fund's nine portfolio counselors (pictured on page 8):
Hilda Applbaum, David Barclay, Stephen Bepler, Dina Perry, John Smet and Steven
Watson. Here's what they had to say.
INCOME: A COMMON STARTING POINT
HILDA: Income is our primary objective, and, to that end, every portfolio
counselor has a yield target. When I look at a company, the first questions I
ask are: What is the dividend, is it sustainable and what are the risks? I want
to really get my hands around the dividend and try to determine whether it can
be maintained or, in some cases, even grow.
DAVID: Having the ability to invest in both fixed-income and equity securities
helps us find more income opportunities because the level of income varies
between these two asset classes.
DINA: Investing outside the U.S. has also helped the fund, especially when U.S.
interest rates were so low, and we were increasingly finding better yielding
opportunities outside the U.S.
HILDA: During that time, companies outside the United States were paying higher
dividends because non-U.S. investors had a greater appreciation for the value of
a steady, predictable income stream. It was only after the bursting of the
Internet bubble and the reduction of the federal tax rate on dividends that we
started to see U.S. companies increase their dividends more broadly.
THE SEARCH FOR LONG-TERM OPPORTUNITIES
HILDA: In the fund, we will often invest in high-yielding stocks from companies
that are in out-of-favor industries or facing challenges. We will only make such
investments once we are satisfied that the dividend yields are sustainable and
the issues facing the companies or industries are short-term or resolvable.
While the exact timing of a company or industry turnaround is difficult to
anticipate, the high dividend income allows us to get paid while we wait.
STEPHEN: Yes, we do tend to go into areas where companies are having difficulty.
Before we invest, we do a lot of research. We evaluate what's happening in the
company, the industry and the markets to determine whether the investment --
with all its blemishes and problems -- is a good long-term value. Over time, the
combination of high yield, low valuations and a recovery in the markets or
industry can generate strong returns.
JOHN: This is one of those areas where the fund's ability to invest in
fixed-income securities is beneficial. We can help provide sustainable income
and allow the equity portfolio counselors to not only search for investments
that offer income but that offer the potential for capital appreciation as well.
[photo of a person's hands weaving what appears to be a hat]
[Begin Pull Quote]
Income is our primary objective, and, to that end, every portfolio counselor has
a yield target. When I look at a company, the first questions I ask are: What is
the dividend, is it sustainable and what are the risks?
- -- Hilda Applbaum
[End Pull Quote]
[close up photo of a what appears to be a woven mat]
[Begin Pull Quote]
There's also a lot of sharing of information and research between the
fixed-income and equity portfolio counselors and analysts. We often go on
research trips together, and that's a great advantage to shareholders because we
have people who are looking at the same company from different vantage points.
- -- John Smet
[End Pull Quote]
[Begin Photo Caption]
[photo of Hilda Applbaum]
Hilda Applbaum
San Francisco
18 years
[End Photo Caption]
[Begin Photo Caption]
[photo of David Barclay]
David Barclay
Los Angeles
23 years
[End Photo Caption]
[Begin Photo Caption]
[photo of Stephen Bepler]
Stephen Bepler
New York
38 years
[End Photo Caption]
[Begin Photo Caption]
[photo of Dina Perry]
Dina Perry
Washington, D.C.
27 years
[End Photo Caption]
[Begin Photo Caption]
[photo of John Smet]
John Smet
Los Angeles
22 years
[End Photo Caption]
[Begin Photo Caption]
[photo of Steven Watson]
Steven Watson
Hong Kong
17 years
[End Photo Caption]
[Begin Photo Caption]
Portfolio counselors' years of experience are as of the fund's prospectus dated
October 1, 2004.
[End Photo Caption]
STRENGTH THROUGH RESEARCH
HILDA: Many of our tenured analysts and portfolio counselors have experienced
numerous market cycles and witnessed many different challenges. This depth of
experience enhances and reinforces our research efforts. Often we have three or
four generations of analysts who have covered the same industry, ranging from
those just starting out to those who have been researching companies for 20 or
more years. Some of our analysts have worked in the industries they now cover.
This expertise and intergenerational perspective can help give us a unique
insight into a company's or industry's current condition and long-term
prospects.
JOHN: There's also a lot of sharing of information and research between the
fixed-income and equity portfolio counselors and analysts. We often go on
research trips together, and that's a great advantage to shareholders because we
have people who are looking at the same company from different vantage points.
You have the equity side looking at the growth prospects, the management, the
competitive landscape as well as the product lines. On the fixed-income side,
the analysts and portfolio counselors care about those things as well, but they
dig a little deeper into the balance sheet to determine the cash flows and the
ability to pay off the bond and service the debt.
DINA: Having the fixed-income and equity analysts work together helps us quite a
bit. For example, because of the analytical tools the fixed-income analysts use,
they often spot negative changes in companies before these changes show up in
the earnings.
DAVID: In the research portfolio, analysts are investing in a real sense. I
think this produces a more collaborative approach that puts the portfolio
counselors and analysts on the same page as the fund's shareholders.
STEVEN: I agree. It's one thing for an analyst to say, "I like a company." It's
much more powerful when an analyst says, "Not only do I like a company, but I've
made it the biggest holding in my area of the fund's research portfolio."
THE BENEFITS OF MULTIPLE PERSPECTIVES
DAVID: Dividing the fund's management among nine portfolio counselors and a
research portfolio allows each of us to invest in our highest convictions and to
focus on those investments we know best instead of having to make investments
simply to diversify the fund's assets.
STEVEN: Because we have the freedom to go off into our own areas, we frequently
find ideas that our colleagues might overlook. I, for example, am the only
portfolio counselor domiciled in Asia. Asia has proved to be a great hunting
ground for income-focused investments, and shareholders have been able to
benefit from having a portfolio counselor who is able to look around for
opportunities in Asia.
DINA: What we don't want in the fund is for everybody to agree and to invest in
the same things. As far as the investor is concerned, you want to have diversity
in the fund. That's why you need portfolio counselors with different opinions
and styles.
HILDA: As we mentioned before, many times the companies that present the best
opportunities are having trouble. If you were the only manager of a fund, it
might be more difficult to invest a large amount of the fund's assets in
challenging areas of the market.
STEPHEN: I think it would be very hard to be the sole manager of a fund like The
Income Fund of America. The stock and bond markets are their own disciplines,
and I think it would be almost impossible to cover both. For example, I hold 36
companies in my portfolio. The fund's portfolio had investments from 660
companies and issuers at the end of its 2005 fiscal year. There is no way I
could intelligently invest in that many companies. I wouldn't know what most of
them did.
HILDA: Having a mix of portfolio counselors with different styles and comfort
zones is also important because it helps enrich and broaden investment
discussions. It helps you make more thoughtful investment decisions when you get
that opening question in our conference calls, "Have you thought about ...?"
STEVEN: In the multiple portfolio counselor system, we all try to be stars at
all times, but we know we're not going to be. And during those times when we're
in a market where our investments are not shining as brightly, we know the fund
is less likely to suffer on the whole because it typically will be someone
else's time to shine.
[Begin Pull Quote]
Dividing the fund's management among nine portfolio counselors and a research
portfolio allows all of us to invest in our highest convictions and to focus on
those investments we know best instead of having to make investments simply to
diversify the fund.
- -- David Barclay
[End Pull Quote]
[Begin Pull Quote]
In the multiple portfolio counselor system, we all try to be stars at all times,
but we know we're not going to be. And during those times when we're in a market
where our investments are not shining as brightly, we know the fund is less
likely to suffer on the whole because typically it will be someone else's time
to shine.
- -- Steven Watson
[End Pull Quote]
[photo of the top of a woven hat]
[Begin Pull Quote]
One of the most critical components in the fund's long-term success is keeping
the lines of communication open. We have weekly investment meetings where
analysts and portfolio counselors from both the fixed-income and equity areas
participate. It's a forum where we discuss what we believe are the opportunities
and risks in the marketplace.
- -- Hilda Applbaum
[End Pull Quote]
[Begin Pull Quote]
I believe the fund has been able to maintain its focus because, when we add new
investment professionals to the fund, the coordinating portfolio counselor and
senior officers spend a lot of time explaining the history, goals and objectives
of the fund.
- -- Stephen Bepler
[End Pull Quote]
MAINTAINING A COMMITMENT TO INCOME IN CHANGING TIMES
HILDA: One of the most critical components in the fund's long-term success is
keeping the lines of communication open. We have weekly investment meetings
where analysts and portfolio counselors from both the fixed-income and equity
areas participate. It's a forum where we discuss what we believe are the
opportunities and risks in the marketplace. Often, we'll invite analysts to
these meetings who aren't part of the research portfolio but who cover an area
where we see growing opportunities or problems.
[photo of three woven baskets]
STEVEN: In these meetings, we spend a lot of time discussing what the fund is
meant to achieve and what our shareholders expect from us. This constant
dialogue between portfolio counselors and analysts helps us stay on course in
terms of respecting what the fund is meant to achieve and the way it's meant to
achieve it.
STEPHEN: Another reason why I believe the fund has been able to maintain its
focus is because, when we add new investment professionals to the fund, the
coordinating portfolio counselor and senior officers spend a lot of time
explaining the history, goals and objectives of the fund.
JOHN: Also, with the multiple portfolio counselor system, when a portfolio
counselor retires, we're only replacing one manager out of many so transitions
are smooth. And as fund assets grow, we can add portfolio counselors so we don't
overwhelm the existing managers.
DAVID: I think it's important to remember that how you produce income today is
different than it was five years ago. Moreover, it will be different in the
future, and we don't exactly know how. The multiple portfolio counselor system
is greatly beneficial to our shareholders because -- through a sharing of
research and ideas -- we have the resources and people in place to take
advantage of new opportunities.
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) VERSUS
RESILIENCE DURING STOCK DECLINES THE S&P 500 DURING MARKET DECLINES*
Dates of decline S&P 500 IFA cumulative IFA advantage
cumulative total return total return (percentage points)
September 21, 1976,
through March 6, 1978 -13.5% +1.9% +15.4
November 28, 1980,
through August 12, 1982 -20.2 +19.0 +39.2
August 25 through
December 4, 1987 -32.8 -13.6 +19.2
July 16 through October 11, 1990 -19.2 -10.2 +9.0
July 17 through August 31, 1998 -19.1 - 9.5 +9.6
March 24, 2000,
through October 9, 2002 -47.4 +0.7 +48.1
*Periods show S&P 500 price declines of 15% or greater. S&P 500 total returns,
which include reinvestment of all distributions, may be higher. There have been
times when the index, which is unmanaged, has done better.
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 $861,738
S&P $176,432
[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 $1,163,104 $202,889
Amount withdrawn $508,809 $508,809
[end chart]
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, 2005. 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 $508,809.
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 31 years, income from IFA has been substantially higher.
Years ended July 31
[begin bar chart]
The Income S&P 500 CDs
Fund of
America
7/31/75 $ 864 $ 479 $ 924
7/31/80 1,610 980 1,998
7/31/85 3,702 1,637 2,617
7/31/90 5,797 2,969 3,382
7/31/95 8,853 3,963 2,920
7/31/00 15,119 5,333 4,011
7/31/05 15,318 7,290 1,844
[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
The following summary investment portfolio is designed to streamline the report
and help investors better focus on a fund's principal holdings. For details on
how to obtain a complete schedule of portfolio holdings, please see the inside
back cover.
July 31, 2005
[begin pie chart]
Percent
of net
Investment portfolio assets
U.S. common stocks 47.7%
Non-U.S. common stocks 16.8
U.S. & non-U.S. convertible securities & preferred stocks 5.8
U. S. Treasury & agency bonds & notes 2.2
Other fixed-income securities 19.9
Cash & equivalents 7.6
[end pie chart]
Percent
of net
Five largest sectors in common stock holdings assets
Financials 17.2
Utilities 9.3
Telecommunication services 7.8
Energy 6.2
Consumer staples 5.7
Percent
of net
Ten largest common stock holdings assets
Royal Dutch Shell 1.9
BellSouth 1.7
SBC Communications 1.7
Verizon Communications 1.3
Bristol-Myers Squibb 1.2
Dow Chemical 1.2
Chevron 1.2
General Electric 1.1
Washington Mutual 1.1
General Motors 1.1
July 31, 2004
[begin pie chart]
Percent
of net
Investment portfolio assets
U.S. common stocks 44.9 %
Non-U.S. common stocks 17.3
U.S. & non-U.S. convertible securities & preferred stocks 6.3
U. S. Treasury & agency bonds & notes 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
SUMMARY INVESTMENT PORTFOLIO
July 31, 2005
Shares Market Percent
value of net
Common stocks - 64.43% (000) assets
Financials - 17.20%
Washington Mutual, Inc. 15,955,000 $ 677,768 1.13%
Societe Generale 5,432,300 594,790 .99
Citigroup Inc. 12,885,000 560,497 .93
U.S. Bancorp 16,735,000 503,054 .84
HSBC Holdings PLC (United Kingdom) 19,731,426 320,315
HSBC Holdings PLC (Hong Kong) 10,543,396 171,457 .82
Bank of America Corp. 11,255,550 490,742 .81
Wells Fargo & Co. 7,556,800 463,534 .77
J.P. Morgan Chase & Co. 11,950,000 419,923 .70
Lloyds TSB Group PLC 44,561,400 377,766 .63
Boston Properties, Inc. 4,393,800 334,588 .56
Equity Residential 7,387,700 298,463 .49
Equity Office Properties Trust 7,590,000 269,065 .45
Fannie Mae 4,206,200 234,958 .39
Other securities 4,626,374 7.69
10,343,294 17.20
Utilities - 9.33%
National Grid PLC 48,870,000 450,391 .75
Exelon Corp. 8,152,000 436,295 .72
Consolidated Edison, Inc. 8,685,700 418,303 .70
Southern Co. 9,915,000 346,926 .58
Duke Energy Corp. 11,242,393 332,100 .55
E.ON AG 3,250,000 301,238 .50
Dominion Resources, Inc. 4,058,498 299,761 .50
Ameren Corp. 5,384,100 299,464 .50
Other securities 2,725,472 4.53
5,609,950 9.33
Telecommunication services - 7.84%
BellSouth Corp. 37,815,000 1,043,694 1.73
SBC Communications Inc. 42,485,000 1,038,758 1.73
Verizon Communications Inc. 22,015,000 753,573 1.25
AT&T Corp. 23,250,000 460,350 .77
Other securities 1,417,893 2.36
4,714,268 7.84
Energy - 6.17%
Royal Dutch Shell PLC, Class A (ADR) 10,752,000 658,883
Royal Dutch Shell PLC, Class B 8,469,142 269,013
Royal Dutch Shell PLC, Class B (ADR) 3,021,565 192,383
Royal Dutch Shell PLC, Class A 1,340,000 41,227 1.93
Chevron Corp. 11,998,300 696,021 1.16
Marathon Oil Corp. 11,285,000 658,593 1.09
ENI SpA 11,670,000 331,298 .55
Kinder Morgan, Inc. 3,036,000 269,779 .45
Other securities 592,467 .99
3,709,664 6.17
Consumer staples - 5.74%
Altria Group, Inc. 9,377,500 627,917 1.04
ConAgra Foods, Inc. 18,485,000 419,794 .70
H.J. Heinz Co. 11,200,000 411,936 .69
Reynolds American Inc. 4,431,600 369,197 .61
Sara Lee Corp. 15,330,000 305,527 .51
Other securities 1,316,755 2.19
3,451,126 5.74
Materials - 5.28%
Dow Chemical Co. 14,567,500 698,512 1.16
Weyerhaeuser Co. 9,275,000 639,790 1.06
E.I. du Pont de Nemours and Co. 8,012,800 341,986 .57
International Paper Co. 9,865,040 311,735 .52
Other securities 1,187,976 1.97
3,179,999 5.28
Industrials - 3.46%
General Electric Co. 19,996,000 689,862 1.15
Emerson Electric Co. 4,925,000 324,065 .54
Other securities 1,068,324 1.77
2,082,251 3.46
Health care - 3.37%
Bristol-Myers Squibb Co. 29,393,000 734,237 1.22
Merck & Co., Inc. 20,768,300 645,063 1.07
Other securities 647,487 1.08
2,026,787 3.37
Consumer discretionary - 2.87%
General Motors Corp. 18,275,000 672,886 1.12
May Department Stores Co. 7,793,000 319,903 .53
Other securities 735,678 1.22
1,728,467 2.87
Information technology - 0.61%
Microsoft Corp. 14,360,000 367,760 .61
Other securities 1,797 .00
369,557 .61
Miscellaneous - 2.56%
Other common stocks in initial period of acquisition 1,540,468 2.56
Total common stocks (cost: $31,968,337,000) 38,755,831 64.43
Shares Market Percent
value of net
Preferred stocks - 1.04% (000) assets
Financials - 0.98%
Fannie Mae, Series O, 7.00% preferred (1) 2,150,000 119,728 .20
HSBC Capital Funding LP, Series 1, 9.547% noncumulative step-up perpetual
preferred (1) (2) 37,500,000 44,944
HSBC Capital Funding LP, Series 2, 10.176% noncumulative step-up perpetual
preferred (1) (2) 10,000,000 15,674 .10
Other securities 407,009 .68
587,355 .98
Other - 0.04% 27,138 .04
Miscellaneous - 0.02%
Other preferred stocks in initial period of acquisition 10,605 .02
Total preferred stocks (cost: $577,414,000) 625,098 1.04
Shares Market Percent
value of net
Warrants - 0.00% (000) assets
Total warrants (cost: $818,000) 928 .00
Shares or principal Market Percent
amount value of net
Convertible securities - 4.79% (000) assets
Information technology - 1.12% 670,611 1.12
Consumer discretionary - 1.10%
Ford Motor Co. Capital Trust II 6.50% cumulative convertible trust preferred 2032 9,565,300 398,969 .66
General Motors Corp., Series B, 5.25% convertible senior debentures 2032 $ 27,200,000 21,662
General Motors Corp., Series C, 6.25% convertible preferred 2033 $ 5,620,000 126,394 .25
Other securities 115,570 .19
662,595 1.10
Financials - 1.06%
Fannie Mae 5.375% convertible preferred (undated) 1,065 101,176 .17
Other securities 538,155 .89
639,331 1.06
Other - 1.51% 904,300 1.51
Miscellaneous - 0.00%
Other convertible securities in initial period of acquisition 1,487 .00
Total convertible securities (cost: $2,719,383,000) 2,878,324 4.79
Principal Market Percent
amount value of net
Bonds & notes - 22.10% (000) (000) assets
Consumer discretionary - 4.88%
General Motors Acceptance Corp. 5.53%-8.00% 2006-2031 (2) $ 335,060 324,367
General Motors Corp. 7.125%-8.25% 2011-2023 137,169 130,787
Residential Capital Corp. 6.375%-6.875% 2010-2015 (1) 16,500 16,847 .78
Ford Motor Co. 7.45% 2031 8,000 6,800
Ford Motor Credit Co. 5.169%-7.875% 2007-2011 (2) 178,000 177,581 .31
Other securities 2,281,627 3.79
2,938,009 4.88
Telecommunication services - 3.06%
SBC Communications Inc. 4.125%-6.45% 2009-2034 78,680 79,263 .13
Verizon Global Funding Corp. 6.125% 2007 7,000 7,219
Verizon New York Inc., Series A, 6.875% 2012 6,500 7,091 .02
BellSouth Corp. 4.20%-5.20% 2009-2014 8,700 8,623 .02
Other securities 1,737,532 2.89
1,839,728 3.06
Financials - 2.42%
Washington Mutual Bank, FA 5.125% 2015 6,500 6,483
Dime Capital Trust I, Dime Bancorp, Inc., Series A, 9.33% 2027 9,425 10,386
Washington Mutual, Inc. 3.899%-5.00% 2008-2012 (2) 49,000 48,788 .11
SocGen Real Estate Co. LLC, Series A, 7.64% (undated) (1) (2) 45,700 48,444
Societe Generale 7.85% (undated) (1) (2) 11,200 11,762 .10
HSBC Holdings PLC 5.25% 2012 3,500 3,589
HSBC Bank USA 4.625% 2014 (1) 5,000 4,900
HSBC Finance Corp. 5.00% 2015 2,720 2,699
Midland Bank 3.938% Eurodollar note (undated) (2) 5,000 4,250
Household Finance Corp. 4.125%-6.375% 2009-2012 41,000 42,670 .10
J.P. Morgan & Co. Inc. 6.70% 2007 5,000 5,222
J.P. Morgan Chase & Co. 4.00%-6.75% 2008-2015 22,500 22,699 .04
Citigroup Inc. 4.625% 2010 10,000 10,004 .02
Bank of America Corp. 4.50% 2010 10,000 9,944 .02
Other securities 1,226,746 2.03
1,458,586 2.42
Mortgage-backed obligations (3) - 2.05%
Fannie Mae 3.778%-11.848% 2010-2042 (2) 420,941 425,472 .71
Other securities 808,274 1.34
1,233,746 2.05
Materials - 1.29%
Weyerhaeuser Co. 5.25%-6.875% 2008-2033 25,919 27,761 .05
Other securities 747,545 1.24
775,306 1.29
Industrials - 1.28%
General Electric Co. 5.00% 2013 5,000 5,067 .04
General Electric Capital Corp. 5.375%-6.00% 2007-2012 16,000 16,707
Other securities 748,763 1.24
770,537 1.28
U.S. government & government agency bonds & notes - 1.24%
Fannie Mae 6.25%-6.625% 2009-2029 32,750 36,382 .06
Other securities 707,629 1.18
744,011 1.24
Utilities - 1.11% 671,247 1.11
Energy - 1.08% 648,657 1.08
Information technology - 1.04% 624,771 1.04
Consumer staples - 0.88% 531,254 .88
Health care - 0.83% 500,105 .83
Asset-backed obligations (3) - 0.57% 342,573 .57
Other - 0.36% 213,449 .36
Miscellaneous - 0.01%
Other bonds & notes in initial period of acquisition 4,336 .01
Total bonds & notes (cost: $13,066,611,000) 13,296,315 22.10
Principal Market Percent
amount value of net
Short-term securities - 7.29% (000) (000) assets
Federal Home Loan Bank 3.08%-3.425% due 8/5-10/14/2005 383,000 381,479 .63
Freddie Mac 3.07%-3.455% due 8/1-10/18/2005 337,200 335,877 .56
CAFCO, LLC 3.18%-3.44% due 8/12-9/14/2005 (1) 175,000 174,426
Ciesco LLC 3.18% due 8/12/2005 (1) 50,000 49,947 .37
Park Avenue Receivables Co., LLC 3.21%-3.29% due 8/10-8/17/2005 (1) 120,800 120,659
Preferred Receivables Funding Corp. 3.34%-3.45% due 9/20/2005 (1) 100,000 99,524 .37
Wells Fargo & Co. 3.13%-3.45% due 8/4-9/21/2005 190,600 190,598 .32
Edison Asset Securitization LLC 3.16% due 8/5/2005 (1) 50,000 49,978
General Electric Capital Corp. 3.27% due 8/24/2005 50,000 49,895
General Electric Capital Services, Inc. 3.31% due 8/29/2005 50,000 49,867
General Electric Co. 3.47% due 9/28/2005 35,000 34,804 .31
Bank of America Corp. 3.20%-3.50% due 8/9-10/7/2005 150,000 149,521
Ranger Funding Co. LLC 3.27% due 8/11/2005 (1) 25,000 24,975 .29
HSBC Finance Corp. 3.23%-3.40% due 8/19-9/26/2005 103,900 103,620 .17
FCAR Owner Trust I 3.25%-3.38% due 8/15-9/12/2005 50,000 49,865 .08
BellSouth Corp. 3.37% due 9/9/2005 (1) 25,000 24,906 .04
Other securities 2,495,284 4.15
Total short-term securities (cost: $4,385,264,000) 4,385,225 7.29
Total investment securities (cost: $52,717,827,000) 59,941,721 99.65
Other assets less liabilities 209,847 .35
Net assets $60,151,568 100.00%
"Miscellaneous" securities include holdings in their initial period of
acquisition that have not previously been publicly disclosed.
"Other securities" includes all issues that are not disclosed separately in the
summary investment portfolio.
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. Some of the fund's affiliated
holdings listed below are also among the fund's largest holdings and are shown
in the preceding summary investment portfolio. The market value of the
affiliated companies which are not among the fund's largest holdings is included
in "Other securities" under their respective industry sectors. Further details
on these holdings and related transactions during the year ended July 31, 2005,
appear below.
Company Beginning shares Purchases Sales
or principal amount
R.R. Donnelley & Sons Co. 3,000,000 10,474,000 -
iStar Financial, Inc. 6,885,000 355,000 -
iStar Financial, Inc. 5.375% 2010 $ - $ 10,925,000 $ -
iStar Financial, Inc., Series F, 7.80% cumulative redeemable preferred 400,000 - -
iStar Financial, Inc., Series B, 5.125% 2011 $ 10,000,000 $ - $ -
iStar Financial, Inc. 7.00% 2008 $ 6,525,000 $ - $ -
iStar Financial, Inc., Series B, 4.875% 2009 $ 5,000,000 $ - $ -
iStar Financial, Inc. 6.05% 2015 $ - $ 4,285,000 $ -
iStar Financial, Inc. 6.00% 2010 $ 3,750,000 $ - $ -
iStar Financial, Inc. 8.75% 2008 $ 1,028,000 $ - $ -
iStar Financial, Inc., Series B, 5.70% 2014 $ 1,000,000 $ - $ 1,000,000
Arthur J. Gallagher & Co. 3,131,400 2,251,800 -
Montpelier Re Holdings Ltd. 2,290,000 1,830,000 -
Tupperware Corp. - 3,125,500 -
Sunstone Hotel Investors, Inc. - 2,438,400 -
Beverly Hills Bancorp Inc. 2,150,517 - 211,000
Clarent Hospital Corp. (4) (5) 484,684 - -
Dividend Market value
or interest of affiliates
Company Ending shares income at 7/31/05
or principal amount (000) (000)
R.R. Donnelley & Sons Co. 13,474,000 $6,901 $485,738
iStar Financial, Inc. 7,240,000 11,165 309,800
iStar Financial, Inc. 5.375% 2010 $ 10,925,000 163 10,960
iStar Financial, Inc., Series F, 7.80% cumulative redeemable preferred 400,000 780 10,244
iStar Financial, Inc., Series B, 5.125% 2011 $ 10,000,000 543 9,851
iStar Financial, Inc. 7.00% 2008 $ 6,525,000 357 6,862
iStar Financial, Inc., Series B, 4.875% 2009 $ 5,000,000 279 4,955
iStar Financial, Inc. 6.05% 2015 $ 4,285,000 72 4,416
iStar Financial, Inc. 6.00% 2010 $ 3,750,000 228 3,869
iStar Financial, Inc. 8.75% 2008 $ 1,028,000 62 1,136
iStar Financial, Inc., Series B, 5.70% 2014 $ - 24 -
Arthur J. Gallagher & Co. 5,383,200 4,967 150,138
Montpelier Re Holdings Ltd. 4,120,000 27,699 147,990
Tupperware Corp. 3,125,500 1,343 66,667
Sunstone Hotel Investors, Inc. 2,438,400 1,239 63,057
Beverly Hills Bancorp Inc. 1,939,517 996 20,695
Clarent Hospital Corp. (4) (5) 484,684 - 242
$ 56,818 $ 1,296,620
The following footnotes to the summary investment 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 in "Other securities" in the summary investment portfolio,
was $4,916,930,000, which represented 8.17% of the net assets of 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) Security did not produce income during the last 12 months.
(5) Valued under fair value procedures adopted by authority of the Board of
Directors.
ADR = American Depositary Receipts
See Notes to Financial Statements
FINANCIAL STATEMENTS
Statement of assets and liabilities
at July 31, 2005 (dollars and shares in thousands,
except per-share amounts)
Assets:
Investment securities at market:
Unaffiliated issuers (cost: $51,519,935) $58,645,101
Affiliated issuers (cost: $1,197,892) 1,296,620 $59,941,721
Cash denominated in non-U.S. currencies
(cost: $3,024) 3,322
Cash 53,261
Receivables for:
Sales of investments 139,359
Sales of fund's shares 145,328
Dividends and interest 376,444 661,131
60,659,435
Liabilities:
Payables for:
Purchases of investments 219,455
Repurchases of fund's shares 41,146
Dividends on fund's shares 205,155
Investment advisory services 10,484
Services provided by affiliates 29,361
Deferred Directors' compensation 1,887
Other fees and expenses 379 507,867
Net assets at July 31, 2005 $60,151,568
Net assets consist of:
Capital paid in on shares of capital stock $51,222,483
Undistributed net investment income 501,690
Undistributed net realized gain 1,204,347
Net unrealized appreciation 7,223,048
Net assets at July 31, 2005 $60,151,568
Total authorized capital stock - 5,500,000 shares, $.001 par value (3,219,798
total shares outstanding)
Net assets Shares outstanding Net asset value per share(1)
Class A $47,196,081 2,523,657 $18.70
Class B 4,135,033 222,235 18.61
Class C 5,755,881 309,765 18.58
Class F 1,603,140 85,823 18.68
Class 529-A 328,233 17,567 18.68
Class 529-B 73,999 3,969 18.65
Class 529-C 153,169 8,211 18.65
Class 529-E 17,305 927 18.66
Class 529-F 5,350 286 18.68
Class R-1 18,637 999 18.65
Class R-2 270,437 14,538 18.60
Class R-3 393,908 21,100 18.67
Class R-4 120,043 6,424 18.69
Class R-5 80,352 4,297 18.70
(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 $19.84 and
$19.82, respectively.
See Notes to Financial Statements
Statement of operations
for the year ended July 31, 2005 (dollars in thousands)
Investment income:
Income:
Dividends (net of non-U.S. withholding
tax of $33,453; also includes
$55,090 from affiliates) $1,523,306
Interest (net of non-U.S. withholding
tax of $4; also includes
$1,728 from affiliates) 1,018,098 $2,541,404
Fees and expenses: (1)
Investment advisory services 131,860
Distribution services 188,300
Transfer agent services 28,610
Administrative services 13,025
Reports to shareholders 1,106
Registration statement and prospectus 3,105
Postage, stationery and supplies 3,011
Directors' compensation 601
Auditing and legal 186
Custodian 2,674
State and local taxes 1
Other 139
Total fees and expenses before reimbursements/waivers 372,618
Less reimbursement/waiver of fees and expenses:
Investment advisory services 8,405
Administrative services 310
Total fees and expenses after reimbursements/waivers 363,903
Net investment income 2,177,501
Net realized gain and unrealized
appreciation on investments
and non-U.S. currency:
Net realized gain (loss) on:
Investments (including $235 net loss from affiliates) 1,210,647
Non-U.S. currency transactions (7,242) 1,203,405
Net unrealized appreciation (depreciation) on:
Investments 3,379,489
Non-U.S. currency translations (980) 3,378,509
Net realized gain and
unrealized appreciation
on investments and non-U.S. currency 4,581,914
Net increase in net assets resulting
from operations $6,759,415
(1) Additional information related to class-specific fees and expenses is
included in the Notes to Financial Statements.
See Notes to Financial Statements
Statements of changes in net assets (dollars in thousands)
Year ended July 31
2005 2004
Operations:
Net investment income $2,177,501 $1,557,944
Net realized gain on investments and
non-U.S. currency transactions 1,203,405 732,245
Net unrealized appreciation
on investments and non-U.S. currency translations 3,378,509 2,871,155
Net increase in net assets
resulting from operations 6,759,415 5,161,344
Dividends and distributions paid or accrued to
shareholders:
Dividends from net investment income (1,825,496) (1,635,840)
Distributions from net realized gain
on investments (377,655) -
Total dividends and distributions paid or accrued
to shareholders (2,203,151) (1,635,840)
Capital share transactions 10,692,258 10,818,973
Total increase in net assets 15,248,522 14,344,477
Net assets:
Beginning of year 44,903,046 30,558,569
End of year (including undistributed
net investment income: $501,690 and $154,465, respectively) $60,151,568 $44,903,046
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(R) 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 0% 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.
CollegeAmerica is a registered trademark of the Virginia College Savings
Plan.(SM)
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, including short-term securities
purchased with more than 60 days left to maturity, 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 bid prices, if asked prices are not available) or at
prices for securities of comparable maturity, quality and type.
Securities with both fixed-income and equity characteristics, or
equity securities traded principally among fixed-income dealers, are
valued in the manner described above for either equity or fixed-income
securities, depending on which method is deemed most appropriate by
the investment adviser. Short-term securities purchased within 60 days
to maturity are valued at amortized cost, which approximates market
value. The value of short-term securities originally purchased with
maturities greater than 60 days, are determined based on an amortized
value to par when they reach 60 days or less remaining to maturity.
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 under procedures adopted 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 - Dividends paid to
shareholders are declared daily from net investment income and are
paid to shareholders quarterly. Distributions paid to shareholders are
recorded on the ex-dividend date.
NON-U.S. CURRENCY TRANSLATION - Assets and liabilities, including
investment securities, denominated in non-U.S. currencies are
translated into U.S. dollars at the exchange rates in effect at the
end of the reporting period. Purchases and sales of investment
securities and income and expenses are translated into U.S. dollars at
the exchange rates on the dates of such transactions. In the
accompanying financial statements, the effects of changes in non-U.S.
exchange rates on investment securities are included with the net
realized gain or loss and net unrealized appreciation or depreciation
on investments. The realized gain or loss and unrealized appreciation
or depreciation resulting from all other transactions denominated in
non-U.S. currencies are disclosed separately.
MORTGAGE DOLLAR ROLLS - The fund may enter into mortgage dollar roll
transactions in which the fund sells a mortgage-backed security to a
counterparty and simultaneously enters into an agreement with the same
counterparty to buy back a similar security on a specific future date
at a predetermined price. Each mortgage dollar roll is treated as a
financing transaction, therefore, any gain or loss is considered
unrealized until the roll reaches completion. Risks may arise due to
the delayed payment date and the potential inability of counterparties
to complete the transaction. Income is generated as consideration for
entering into these transactions and is included in interest income in
the accompanying financial statements.
2. NON-U.S. INVESTMENTS
INVESTMENT RISK - The risks of investing in securities of non-U.S. issuers may
include, but are not limited to, investment and repatriation restrictions;
revaluation of currencies; adverse political, social and economic developments;
government involvement in the private sector; limited and less reliable investor
information; lack of liquidity; certain local tax law considerations; and
limited regulation of the securities markets.
TAXATION - Dividend and interest income is recorded net of non-U.S. withholding
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; and paydowns on investments. 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 for financial
reporting purposes. As of July 31, 2005, the cost of investment securities for
federal income tax purposes was $52,728,531,000.
During the year ended July 31, 2005, the fund reclassified $4,693,000 from
undistributed net investment income to undistributed net realized gain and
$87,000 from undistributed net investment income to capital paid in on shares of
capital stock to align financial reporting with tax reporting.
As of July 31, 2005, the components of distributable earnings on a tax basis
were as follows (dollars in thousands):
Undistributed net investment income and non-U.S. currency gains $705,922
Loss deferrals related to non-U.S. currency that were realized during the period
November 1, 2004 through July 31, 2005 (5,769)
Undistributed long-term capital gains 1,210,282
Gross unrealized appreciation on investment securities 8,095,038
Gross unrealized depreciation on investment securities (881,848)
Net unrealized appreciation on investment securities 7,213,190
Undistributed net investment income and non-U.S. currency gains above include
non-U.S. currency losses of $2,755,000 that were realized during the period
November 1, 2003, through July 31, 2004. During the year ended July 31, 2005,
the fund realized, on a tax basis, a net capital gain of $1,212,777,000.
The tax character of distributions paid or accrued to shareholders was as
follows (dollars in thousands):
Year ended July 31, 2005
Distributions from Distributions from Total distributions
ordinary income long-term capital gains paid or accrued
Share class
Class A $ 1,507,294 $ 299,587 $ 1,806,881
Class B 105,906 27,212 133,118
Class C 132,396 34,316 166,712
Class F 45,544 9,107 54,651
Class 529-A 9,019 1,789 10,808
Class 529-B 1,649 447 2,096
Class 529-C 3,247 856 4,103
Class 529-E 433 95 528
Class 529-F 136 25 161
Class R-1 334 78 412
Class R-2 5,613 1,403 7,016
Class R-3 8,959 1,829 10,788
Class R-4 2,450 430 2,880
Class R-5 2,516 481 2,997
Total $ 1,825,496 $ 377,655 $ 2,203,151
Year ended July 31, 2004
Distributions from Distributions from Total distributions
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
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. At the beginning of the year,
these fees were 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 Board of Directors approved an amended
agreement effective January 1, 2005, continuing the series of rates to include
an additional annual rate of 0.127% on daily net assets in excess of $55
billion. The agreement also provides for monthly fees, accrued daily, of 2.25%
of the fund's monthly gross income. CRMC is currently waiving a portion of
investment advisory fees. From September 1, 2004, through March 31, 2005, CRMC
waived 5% of these fees and increased the waiver to 10% on April 1, 2005. During
the year ended July 31, 2005, total investment advisory services fees waived by
CRMC were $8,405,000. As a result, the fee shown on the accompanying financial
statements of $131,860,000, which was equivalent to an annualized rate of
0.249%, was reduced to $123,455,000, or 0.233% 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 and service
existing accounts. The plans provide for payments, based on an
annualized percentage of average daily net assets, ranging from 0.25%
to 1.00% as noted below. In some cases, the Board of Directors has
limited amounts that may be paid to less than the maximum allowed by
the plans. 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. The remaining amounts
available to be paid under each plan are paid to selling dealers to
compensate them for their selling activities.
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, 2005, 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 share classes other than classes A and B.
Each relevant share class pays CRMC annual fees up to 0.15% (0.10% for
Class R-5) based on its respective average daily net assets. Each
relevant share 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. CRMC has agreed to pay
AFS on the fund's behalf for a portion of the transfer agent services
fees for some of the retirement plan share classes. For the year ended
July 31, 2005, the total administrative services fees paid by CRMC
were $4,000 and $306,000 for classes R-1 and R-2, respectively.
Administrative services fees are presented gross of any payments made
by CRMC. 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.
Expenses under the agreements described on the previous page for the
year ended July 31, 2005, 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 $93,555 $25,980 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class B 37,442 2,630 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class C 48,394 Included $7,067 $759 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class F 3,277 Included 1,860 174 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-A 456 Included 369 29 $ 260
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-B 631 Included 90 24 63
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-C 1,237 Included 175 35 124
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-E 69 Included 19 2 14
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-F 7 Included 6 - * 4
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-1 123 Included 18 11 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-2 1,534 Included 307 852 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-3 1,403 Included 421 162 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-4 172 Included 105 7 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-5 Not applicable Included 66 2 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Total $188,300 $28,610 $10,503 $2,057 $465
--------------------------------------------------------------------------------------------------------------
*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 of $601,000, shown on the accompanying
financial statements, includes $388,000 in current fees (either paid in cash or
deferred) and a net increase of $213,000 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, 2005
Class A $ 9,640,392 532,521 $ 1,565,111 86,078
Class B 755,566 42,102 111,888 6,179
Class C 1,867,364 103,792 133,316 7,372
Class F 660,579 36,521 41,363 2,276
Class 529-A 114,656 6,328 10,343 569
Class 529-B 17,625 977 2,028 112
Class 529-C 52,313 2,889 3,934 216
Class 529-E 5,928 328 504 27
Class 529-F 2,757 152 149 8
Class R-1 13,146 724 374 20
Class R-2 143,180 7,950 6,558 362
Class R-3 241,450 13,332 9,950 547
Class R-4 97,347 5,337 2,546 140
Class R-5 24,245 1,332 1,947 107
Total net increase
(decrease) $ 13,636,548 754,285 $ 1,890,011 104,013
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
Share class Repurchases(1) Net increase
Amount Shares Amount Shares
Year ended July 31, 2005
Class A $ (3,709,618) (204,836) $ 7,495,885 413,763
Class B (287,281) (15,953) 580,173 32,328
Class C (485,019) (26,922) 1,515,661 84,242
Class F (208,234) (11,499) 493,708 27,298
Class 529-A (13,713) (756) 111,286 6,141
Class 529-B (2,180) (121) 17,473 968
Class 529-C (8,587) (473) 47,660 2,632
Class 529-E (618) (34) 5,814 321
Class 529-F (763) (43) 2,143 117
Class R-1 (3,977) (218) 9,543 526
Class R-2 (34,869) (1,935) 114,869 6,377
Class R-3 (56,185) (3,110) 195,215 10,769
Class R-4 (14,255) (782) 85,638 4,695
Class R-5 (9,002) (498) 17,190 941
Total net increase
(decrease) $ (4,834,301) (267,180) $ 10,692,258 591,118
Year ended July 31, 2004
Class A $ (3,062,800) (182,922) $ 7,246,752 432,803
Class B (204,546) (12,236) 971,612 58,734
Class C (281,356) (16,825) 1,743,083 104,943
Class F (129,030) (7,671) 467,606 27,970
Class 529-A (6,789) (402) 90,635 5,412
Class 529-B (1,439) (85) 20,095 1,205
Class 529-C (4,315) (256) 45,823 2,743
Class 529-E (516) (30) 4,494 269
Class 529-F (258) (15) 1,991 119
Class R-1 (874) (52) 5,462 328
Class R-2 (17,214) (1,031) 80,352 4,803
Class R-3 (37,073) (2,254) 111,588 6,665
Class R-4 (8,520) (523) 16,019 935
Class R-5 (5,905) (358) 13,461 799
Total net increase
(decrease) $ (3,760,635) (224,660) $ 10,818,973 647,728
(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 $21,069,039,000 and $11,608,756,000, respectively, during the
year ended July 31, 2005.
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, 2005, the custodian fee of $2,674,000, shown on the
accompanying financial statements, includes $450,000 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 7/31/2005 $17.10 $.77 $1.61 $2.38
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
Class B:
Year ended 7/31/2005 17.01 .63 1.61 2.24
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
Class C:
Year ended 7/31/2005 16.99 .61 1.60 2.21
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 7/31/2005 17.08 .75 1.61 2.36
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 7/31/2005 17.08 .75 1.61 2.36
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 7/31/2005 17.05 .59 1.61 2.20
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 7/31/2005 17.06 .59 1.60 2.19
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 7/31/2005 17.06 .69 1.61 2.30
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 7/31/2005 17.08 .75 1.60 2.35
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
Financial highlights(1) (continued)
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 R-1:
Year ended 7/31/2005 $17.05 $.61 $1.61 $2.22
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 7/31/2005 17.01 .61 1.60 2.21
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 7/31/2005 17.07 .70 1.60 2.30
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 7/31/2005 17.09 .76 1.60 2.36
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 7/31/2005 17.10 .80 1.61 2.41
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)
Financial highlights(1)
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 7/31/2005 $(.65) $(.13) $(.78) $18.70
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
Class B:
Year ended 7/31/2005 (.51) (.13) (.64) 18.61
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
Class C:
Year ended 7/31/2005 (.49) (.13) (.62) 18.58
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 7/31/2005 (.63) (.13) (.76) 18.68
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 7/31/2005 (.63) (.13) (.76) 18.68
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 7/31/2005 (.47) (.13) (.60) 18.65
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 7/31/2005 (.47) (.13) (.60) 18.65
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 7/31/2005 (.57) (.13) (.70) 18.66
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 7/31/2005 (.62) (.13) (.75) 18.68
Year ended 7/31/2004 (.70) - (.70) 17.08
Period from 9/17/2002 to 7/31/2003 (.51) (.02) (.53) 15.42
Financial highlights(1) (continued)
Dividends and distributions
Dividends
(from net Distributions Total Net asset
investment (from capital dividends and value, end
income) gains) distributions of period
Class R-1:
Year ended 7/31/2005 $(.49) $(.13) $(.62) $18.65
Year ended 7/31/2004 (.59) - (.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 7/31/2005 (.49) (.13) (.62) 18.60
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 7/31/2005 (.57) (.13) (.70) 18.67
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 7/31/2005 (.63) (.13) (.76) 18.69
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 7/31/2005 (.68) (.13) (.81) 18.70
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
Financial highlights(1)
Ratio of expenses Ratio of expenses
to average net to average net Ratio of
Net assets, assets before assets after net income
Total end of period reimbursements/ reimbursements/ to average
return (3) (in millions) waivers waivers (4) net assets
Class A:
Year ended 7/31/2005 14.12% $47,196 .55% .54% 4.26%
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
Class B:
Year ended 7/31/2005 13.32 4,135 1.34 1.32 3.48
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
Class C:
Year ended 7/31/2005 13.17 5,756 1.43 1.41 3.38
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 7/31/2005 14.01 1,603 .67 .65 4.14
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 7/31/2005 13.98 328 .70 .68 4.13
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 7/31/2005 13.05 74 1.55 1.53 3.28
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 7/31/2005 13.00 153 1.54 1.52 3.29
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 7/31/2005 13.63 17 1.02 1.01 3.80
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 7/31/2005 13.96 5 .70 .68 4.14
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)
Financial highlights(1) (continued)
Ratio of expenses Ratio of expenses
to average net to average net Ratio of
Net assets, assets before assets after net income
Total end of period reimbursements/ reimbursements/ to average
return (in millions) waivers waivers (4) net assets
Class R-1:
Year ended 7/31/2005 13.15% $19 1.50% 1.45% 3.36%
Year ended 7/31/2004 14.75 8 1.55 1.48 3.27
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 7/31/2005 13.16 271 1.58 1.42 3.39
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 7/31/2005 13.68 394 .97 .96 3.85
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 7/31/2005 14.00 120 .67 .65 4.17
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 7/31/2005 14.33 81 .37 .35 4.45
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
2005 2004 2003 2002 2001
Portfolio turnover rate for all classes of shares 24% 27% 28% 36% 44%
(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/waivers from CRMC. During the year ended 7/31/2005, CRMC
reduced fees for investment advisory services for all share classes. In
addition, during the start-up period for the retirement plan share classes
(except Class R-5), CRMC 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 Shareholders and Board of Directors 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 summary investment
portfolio, as of July 31, 2005, and the related statements of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of periods
presented. 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. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of July 31, 2005, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. 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, 2005, 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 periods
presented, in conformity with accounting principles generally accepted in the
United States of America.
Deloitte & Touche LLP
Costa Mesa, California
September 9, 2005
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, 2005.
During the fiscal year ended, the fund paid a long-term capital gain
distribution of $377,655,000. A portion of this amount was distributed to
shareholders in redemption of their shares.
Individual shareholders are eligible for reduced tax rates on qualified dividend
income. The fund designates $1,523,819,000 of the dividends received as
qualified dividend income.
Corporate shareholders may exclude up to 70% of qualifying dividends. The fund
designates $1,044,068,000 of dividends received as qualified dividend income.
For state tax purposes, certain states may exempt from income taxation that
portion of the income dividends paid by the fund that were derived from direct
U.S. government obligations. The fund designates $40,750,000 as interest derived
on direct U.S. government obligations.
INDIVIDUAL SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 2006 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 2005 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
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, 2005, through July 31, 2005).
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 0.75% to 1.50% of assets annually
depending on services offered. You can estimate the impact of these fees by
adding the amount of the fees to the total estimated expenses you paid on your
account during the period as calculated above. In addition, your ending account
value would also be lower by the amount of these fees.
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 5.00%
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 and Class 529-F shareholders may
be subject to fees charged by financial intermediaries, typically ranging from
0.75% to 1.50% of assets annually depending on services offered. You can
estimate the impact of these fees by adding the amount of the fees to the total
estimated expenses you paid on your account during the period as calculated
above. In addition, your ending account value would also be lower by the amount
of these fees.
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 2/1/2005 value 7/31/2005 during period(1) expense ratio
Class A -- actual return $1,000.00 $1,044.88 $2.74 .54%
Class A -- assumed 5% return 1,000.00 1,022.12 2.71 .54
Class B -- actual return 1,000.00 1,041.07 6.68 1.32
Class B -- assumed 5% return 1,000.00 1,018.25 6.61 1.32
Class C -- actual return 1,000.00 1,040.70 7.13 1.41
Class C -- assumed 5% return 1,000.00 1,017.80 7.05 1.41
Class F -- actual return 1,000.00 1,044.37 3.24 .64
Class F -- assumed 5% return 1,000.00 1,021.62 3.21 .64
Class 529-A -- actual return 1,000.00 1,044.15 3.50 .69
Class 529-A -- assumed 5% return 1,000.00 1,021.37 3.46 .69
Class 529-B -- actual return 1,000.00 1,040.54 7.69 1.52
Class 529-B -- assumed 5% return 1,000.00 1,017.26 7.60 1.52
Class 529-C -- actual return 1,000.00 1,040.00 7.64 1.51
Class 529-C -- assumed 5% return 1,000.00 1,017.31 7.55 1.51
Class 529-E -- actual return 1,000.00 1,042.65 5.06 1.00
Class 529-E -- assumed 5% return 1,000.00 1,019.84 5.01 1.00
Class 529-F -- actual return 1,000.00 1,044.44 3.14 .62
Class 529-F -- assumed 5% return 1,000.00 1,021.72 3.11 .62
Class R-1 -- actual return 1,000.00 1,040.35 7.28 1.44
Class R-1 -- assumed 5% return 1,000.00 1,017.65 7.20 1.44
Class R-2 -- actual return 1,000.00 1,040.67 7.13 1.41
Class R-2 -- assumed 5% return 1,000.00 1,017.80 7.05 1.41
Class R-3 -- actual return 1,000.00 1,043.44 4.76 .94
Class R-3 -- assumed 5% return 1,000.00 1,020.13 4.71 .94
Class R-4 -- actual return 1,000.00 1,044.35 3.29 .65
Class R-4 -- assumed 5% return 1,000.00 1,021.57 3.26 .65
Class R-5 -- actual return 1,000.00 1,046.44 1.78 .35
Class R-5 -- assumed 5% return 1,000.00 1,023.06 1.76 .35
(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 (181), and divided by 365 (to reflect the one-half year period).
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
Average annual total returns for periods ended June 30, 2005 (the most recent
calendar quarter):
1 year 5 years Life of class
Class B shares -- first sold 3/15/00
Reflecting applicable contingent deferred sales charge
(CDSC), maximum of 5%, payable only if shares
are sold within six years of purchase +5.48% +8.64% +8.87%
Not reflecting CDSC +10.48% +8.93% +9.00%
Class C shares -- first sold 3/15/01
Reflecting CDSC, maximum of 1%, payable only if
shares are sold within one year of purchase +9.38% -- +7.63%
Not reflecting CDSC +10.38% -- +7.63%
Class F shares(1) -- first sold 3/15/01
Not reflecting annual asset-based fee
charged by sponsoring firm +11.21% -- +8.44%
Class 529-A shares(2) -- first sold 2/15/02
Reflecting 5.75% maximum sales charge +4.80% -- +7.71%
Not reflecting maximum sales charge +11.20% -- +9.61%
Class 529-B shares(2) -- first sold 2/19/02
Reflecting applicable CDSC, maximum of 5%,
payable only if shares are sold
within six years of purchase +5.21% -- +8.24%
Not reflecting CDSC +10.21% -- +8.97%
Class 529-C shares(2) -- first sold 2/19/02
Reflecting CDSC, maximum of 1%, payable only if
shares are sold within one year of purchase +9.28% -- +8.98%
Not reflecting CDSC +10.28% -- +8.98%
Class 529-E shares(1,2) -- first sold 2/25/02 +10.78% -- +9.21%
Class 529-F shares(1,2) -- first sold 9/17/02
Not reflecting annual asset-based fee charged
by sponsoring firm +11.14% -- +14.61%
The fund's investment adviser waived 5% of its management fees from September 1,
2004, through March 31, 2005, and increased the waiver to 10% on April 1, 2005.
Fund results shown reflect these waivers, without which they would have been
lower. Please see the Financial Highlights table on page 29 for details.
(1) These shares are sold without any initial or contingent deferred sales
charge.
(2) Results shown do not reflect the $10 initial account set up fee and an
annual $10 account maintenance fee.
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, 68 1972 Managing General Partner, Fox Investments LP; former Professor,
University of California; retired President and CEO, Foster Farms
(poultry producer)
Leonade D. Jones, 57 1993 Co-founder, VentureThink LLC (developed and managed e-commerce
Chairman of the Board businesses) and Versura Inc. (education loan exchange); former
(Independent and Non-Executive) Treasurer, The Washington Post Company
John M. Lillie, 68 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, 68 1976 Professor of Finance, Graduate School of Business, Stanford University
James K. Peterson, 64 1999 Managing Director, Oak Glen Consultancy, LLC (consulting services to
charitable organizations, pension funds and other financial management
companies)
Henry E. Riggs, 70 1989 President Emeritus, Keck Graduate Institute of Applied Life Sciences
Isaac Stein, 58 2004 President, Waverly Associates (private investment fund); Managing
Director, Technogen Associates L.P. (venture capital partnership);
Chairman Emeritus, Stanford University Board of Trustees
Patricia K. Woolf, Ph.D., 71 1985 Private investor; corporate director; former 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, 68 7 Crompton Corporation
Leonade D. Jones, 57 6 None
Chairman of the Board
(Independent and Non-Executive)
John M. Lillie, 68 2 None
John G. McDonald, 68 8 iStar Financial, Inc.; Plum Creek Timber Co.; Scholastic Corporation;
Varian, Inc.
James K. Peterson, 64 2 None
Henry E. Riggs, 70 4 None
Isaac Stein, 58 2 Maxygen, Inc.
Patricia K. Woolf, Ph.D., 71 6 Crompton Corporation; First Energy Corporation
"INTERESTED" DIRECTOR(4)
Year first
elected a
Director or Principal occupation(s) during past five years and
Name, age and officer of positions held with affiliated entities or the principal
position with fund the fund(1) underwriter of the fund
Stephen E. Bepler, 63 1993 Senior Vice President, Capital Research Company(5)
Vice Chairman of the Board
"INTERESTED" DIRECTOR(4)
Number of
portfolios
in fund
complex(2)
Name, age and overseen by
position with fund Director Other directorships(3) held by Director
Stephen E. Bepler, 63 1 None
Vice Chairman of the Board
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, 44 1998 Senior Vice President, Capital Research Company(5)
President
Abner D. Goldstine, 75 1993 Senior Vice President and Director, Capital Research
Senior Vice President and Management Company
Paul G. Haaga, Jr., 56 1994 Executive Vice President and Director, Capital
Senior Vice President Research and Management Company; Director, The Capital Group
Companies, Inc.(5)
Dina N. Perry, 59 1994 Senior Vice President, Capital Research and
Senior Vice President Management Company; Director, Capital Research Company(5)
David C. Barclay, 48 1998 Senior Vice President, Capital Research and
Vice President Management Company; Director, The Capital Group Companies, Inc.(5)
Mark R. Macdonald, 46 2004 Senior Vice President and Director, Capital Research
Vice President and Management Company
Mary E. Sheridan, 55 2004 Vice President, Capital Research Company(5)
Vice President
John H. Smet, 49 1994 Senior Vice President, Capital Research and
Vice President Management Company; Director, American Funds
Distributors, Inc.(5)
Andrew B. Suzman, 38 2004 Executive Vice President and Director, Capital
Vice President Research Company;(5) Director, Capital International Research, Inc.(5)
Patrick F. Quan, 47 1986 Vice President -- Fund Business Management
Secretary Group, Capital Research and Management Company
Jennifer M. Buchheim, 32 2005 Assistant Vice President -- Fund Business
Treasurer Management Group, Capital Research and Management Company
R. Marcia Gould, 51 1999 Vice President -- Fund Business Management
Assistant Treasurer Group, Capital Research and Management Company
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.
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
695 Town Center Drive
Suite 1200
Costa Mesa, CA 92626-7188
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, CA 90071-1406
There are several ways to invest in The Income Fund of America. Class A shares
are subject to a 5.75% maximum up-front sales charge that declines for accounts
(and aggregated investments) of $25,000 or more and is eliminated for purchases
of $1 million or more. Other share classes, which are generally not available
for certain employer-sponsored retirement plans, have no up-front sales charges
but are subject to additional annual expenses and fees. Annual expenses for
Class B shares were 0.78 percentage points higher than for Class A shares; Class
B shares convert to Class A shares after eight years of ownership. If redeemed
within six years, Class B shares may also be subject to a contingent deferred
sales charge ("CDSC") of up to 5% that declines over time. Class C shares were
subject to annual expenses 0.87 percentage points higher than those for Class A
shares and a 1% CDSC if redeemed within the first year after purchase. Class C
shares convert to Class F shares after 10 years. Class F shares, which are
available only through certain fee-based programs offered by broker-dealer firms
and registered investment advisers, had higher annual expenses (by 0.11
percentage points) than did Class A shares, and an annual asset-based fee
charged by the sponsoring firm. Expenses are deducted from income earned by the
fund. As a result, dividends and investment results will differ for each share
class.
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 AND THE COLLEGEAMERICA PROGRAM
DESCRIPTION, WHICH CAN BE OBTAINED FROM YOUR FINANCIAL ADVISER AND SHOULD BE
READ CAREFULLY BEFORE INVESTING. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY (AFS) AT 800/421-0180 OR VISIT THE AMERICAN FUNDS WEBSITE AT
AMERICANFUNDS.COM. IF YOU RESIDE IN A STATE OTHER THAN VIRGINIA, THERE MAY BE AN
IN-STATE PLAN THAT OFFERS ADDITIONAL TAX BENEFITS NOT AVAILABLE IN
COLLEGEAMERICA. TALK TO YOUR TAX ADVISER. INTERESTS IN COLLEGEAMERICA ARE SOLD
THROUGH UNAFFILIATED INTERMEDIARIES. AMERICAN FUNDS DISTRIBUTORS IS THE
DISTRIBUTOR OF COLLEGEAMERICA.
"American Funds Proxy Voting Guidelines" -- which describes how we vote proxies
relating to portfolio securities -- is available free of charge on the U.S.
Securities and Exchange Commission (SEC) website at www.sec.gov, on the American
Funds website or upon request by calling AFS. The fund files its proxy voting
record with the SEC for the 12 months ended June 30 by August 31. The report
also is available on the SEC and American Funds websites.
A complete July 31, 2005, portfolio of The Income Fund of America's investments
is available free of charge on the SEC website or upon request by calling AFS.
The Income Fund of America files a complete list of its portfolio holdings with
the SEC for the first and third quarters of each fiscal year on Form N-Q. This
form is available free of charge on the SEC website or upon request by calling
AFS. You may also review or, for a fee, copy the form at the SEC's Public
Reference Room in Washington, D.C. (800/SEC-0330).
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, 2005, this report must be accompanied by an
American Funds statistical update for the most recently completed calendar
quarter.
[logo - American Funds(R)]
CollegeAmerica is sponsored by
Virginia College Savings Plan(SM)
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 30 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-906-0905P
Litho in USA BAG/LPT/8061-S4707
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, One Market, Steuart Tower,
San Francisco, California 94120.
ITEM 3 - Audit Committee Financial Expert
The Registrant's Board has determined that Isaac Stein, 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
Registrant:
a) Audit Fees:
2004 $83,000
2005 $90,000
b) Audit- Related Fees:
2004 $6,000
2005 $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:
2004 $6,000
2005 $6,000
The tax fees consist of professional services relating to the
preparation of the Registrant's tax returns.
d) All Other Fees:
2004 none
2005 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):
a) Not Applicable
b) Audit- Related Fees:
2004 $338,000
2005 $349,000
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:
2004 none
2005 none
d) All Other Fees:
2004 none
2005 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 non-audit services listed above
provided to the Registrant, adviser, and affiliates.
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 $693,000 for fiscal year 2004
and $1,123,000 for fiscal year 2005. 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 to this Registrant, insofar as the Registrant is not a listed
issuer as defined in Rule 10A-3 under the Securities Exchange Act of 1934.
ITEM 6 - Schedule of Investments
[logo - American Funds(R)]
THE INCOME FUND OF AMERICA(R)
INVESTMENT PORTFOLIO
July 31, 2005
Market value
Common stocks -- 64.43% Shares (000)
FINANCIALS -- 17.20%
Washington Mutual, Inc. 15,955,000 $677,768
Societe Generale 5,432,300 594,790
Citigroup Inc. 12,885,000 560,497
U.S. Bancorp 16,735,000 503,054
HSBC Holdings PLC (United Kingdom) 19,731,426 320,315
HSBC Holdings PLC (Hong Kong) 10,543,396 171,457
Bank of America Corp. 11,255,550 490,742
Wells Fargo & Co. 7,556,800 463,534
J.P. Morgan Chase & Co. 11,950,000 419,923
Lloyds TSB Group PLC 44,561,400 377,766
Boston Properties, Inc. 4,393,800 334,588
iStar Financial, Inc.(1) 7,240,000 309,800
Equity Residential 7,387,700 298,463
Equity Office Properties Trust 7,590,000 269,065
ING Groep NV 8,189,076 248,176
Fannie Mae 4,206,200 234,958
Regions Financial Corp. 6,810,000 229,088
Fidelity National Financial, Inc. 5,792,000 228,205
Kimco Realty Corp. 3,290,000 216,021
Wachovia Corp. 4,250,000 214,115
Hang Lung Properties Ltd. 133,883,000 212,726
Developers Diversified Realty Corp. 4,270,000 207,821
ABN AMRO Holding NV 7,261,976 181,667
Westpac Banking Corp. 10,380,425 155,462
Arthur J. Gallagher & Co.(1) 5,383,200 150,137
Montpelier Re Holdings Ltd.(1) 4,120,000 147,990
Fortis 4,880,000 142,800
Hospitality Properties Trust 2,835,100 125,878
Banco Itau Holding Financeira SA, preferred nominative 659,000 124,512
Bank of Nova Scotia 3,600,000 122,784
Sky Financial Group, Inc. 4,140,000 117,907
St. George Bank Ltd. 5,624,451 113,919
Bank of New York Co., Inc. 3,675,000 113,117
PNC Financial Services Group, Inc. 2,000,000 109,640
Allied Capital Corp. 3,848,020 109,438
XL Capital Ltd., Class A 1,175,000 84,389
Unibail Holding 580,000 80,217
DnB NOR ASA 7,500,000 78,662
General Growth Properties, Inc. 1,700,000 78,166
Westfield Group 5,530,000 75,481
Westfield Group(2) 172,912 2,338
Health Care Property Investors, Inc. 2,442,300 68,042
Sunstone Hotel Investors, Inc.(1) 2,438,400 63,057
Allstate Corp. 975,000 59,729
Lincoln National Corp. 1,200,000 57,960
Marsh & McLennan Companies, Inc. 2,000,000 57,940
Regency Centers Corp. 900,000 55,530
Archstone-Smith Trust 1,252,000 53,210
St. Paul Travelers Companies, Inc. 1,167,400 51,389
Hysan Development Co. Ltd. 21,702,509 51,096
Fubon Financial Holding Co., Ltd. 26,830,000 26,307
Newcastle Investment Corp. 736,000 22,742
Federal Realty Investment Trust 345,000 22,532
Beverly Hills Bancorp Inc.(1) 1,939,517 20,695
FirstMerit Corp. 650,000 18,389
Anthracite Capital, Inc. 1,447,700 17,300
10,343,294
UTILITIES -- 9.33%
National Grid Transco PLC 48,870,000 450,391
Exelon Corp. 8,152,000 436,295
Consolidated Edison, Inc. 8,685,700 418,303
Southern Co. 9,915,000 346,926
Duke Energy Corp. 11,242,393 332,100
E.ON AG 3,250,000 301,238
Dominion Resources, Inc. 4,058,498 299,761
Ameren Corp. 5,384,100 299,464
FirstEnergy Corp. 5,304,780 264,072
Scottish Power PLC 29,008,000 257,137
Public Service Enterprise Group Inc. 3,460,000 222,478
DTE Energy Co. 4,539,100 213,338
Equitable Resources, Inc. 2,735,000 194,322
Progress Energy, Inc. 4,125,400 184,034
Edison International 4,400,000 179,872
Xcel Energy Inc. 8,180,000 158,774
PPL Corp. 2,500,000 153,950
Energy East Corp. 4,883,300 136,098
Entergy Corp. 1,651,600 128,726
American Electric Power Co., Inc. 2,500,000 96,750
NSTAR 3,111,200 94,363
Cinergy Corp. 1,923,600 84,927
KeySpan Corp. 2,060,000 83,821
AGL Resources Inc. 2,100,000 80,745
FPL Group, Inc. 1,500,000 64,680
MDU Resources Group, Inc. 1,750,000 53,725
NiSource Inc. 1,292,000 31,383
Northeast Utilities 1,000,000 21,580
PG&E Corp. 550,000 20,697
5,609,950
TELECOMMUNICATION SERVICES -- 7.84%
BellSouth Corp. 37,815,000 1,043,694
SBC Communications Inc. 42,485,000 1,038,758
Verizon Communications Inc. 22,015,000 753,573
AT&T Corp. 23,250,000 460,350
Chunghwa Telecom Co., Ltd. (ADR) 8,400,000 180,684
Chunghwa Telecom Co., Ltd. 35,315,000 72,139
Belgacom SA 6,700,277 237,523
Telefonica, SA 13,894,400 234,139
TDC A/S 3,759,500 169,066
Telefonos de Mexico, SA de CV, Class L (ADR) 6,200,000 119,474
Royal KPN NV 12,900,000 112,369
Vodafone Group PLC 38,650,000 99,587
KT Corp. (ADR) 1,755,000 38,856
KT Corp. 738,480 31,543
BCE Inc. 1,722,573 41,724
Eircom Group PLC 13,782,900 28,259
Nextel Communications, Inc., Class A(2) 600,000 20,880
Dobson Communications Corp., Class A(2,3) 2,500,483 17,628
BT Group PLC 3,500,000 14,004
XO Communications, Inc.(2) 6,837 18
4,714,268
ENERGY -- 6.17%
Royal Dutch Shell PLC, Class A (ADR) 10,752,000 658,883
Royal Dutch Shell PLC, Class B 8,469,142 269,013
Royal Dutch Shell PLC, Class B (ADR) 3,021,565 192,383
Royal Dutch Shell PLC, Class A 1,340,000 41,227
Chevron Corp. 11,998,300 696,021
Marathon Oil Corp. 11,285,000 658,593
ENI SpA 11,670,000 331,298
Kinder Morgan, Inc. 3,036,000 269,779
ConocoPhillips 2,600,000 162,734
Occidental Petroleum Corp. 1,800,000 148,104
Enbridge Inc. 3,100,000 89,396
Exxon Mobil Corp. 1,385,000 81,369
TOTAL SA (ADR) 645,000 80,625
Husky Energy Inc. 700,000 30,239
3,709,664
CONSUMER STAPLES -- 5.74%
Altria Group, Inc. 9,377,500 627,917
ConAgra Foods, Inc. 18,485,000 419,794
H.J. Heinz Co. 11,200,000 411,936
Reynolds American Inc. 4,431,600 369,197
Sara Lee Corp. 15,330,000 305,527
Albertson's, Inc. 11,335,000 241,549
General Mills, Inc. 4,950,000 234,630
Unilever NV (New York registered) 2,230,000 149,209
Unilever NV 500,000 33,545
Diageo PLC 10,650,000 147,227
UST Inc. 2,600,000 119,652
Gallaher Group PLC 7,186,186 102,882
Tesco PLC 13,978,669 80,026
SABMiller PLC 4,311,000 75,253
Imperial Tobacco Group PLC 2,765,839 71,168
Woolworths Ltd. 3,510,482 43,657
Lion Nathan Ltd. 3,200,000 17,957
3,451,126
MATERIALS -- 5.28%
Dow Chemical Co. 14,567,500 $ 698,512
Weyerhaeuser Co. 9,275,000 639,790
E.I. du Pont de Nemours and Co. 8,012,800 341,986
International Paper Co. 9,865,040 311,735
Akzo Nobel NV 5,635,575 232,050
DSM NV 2,000,000 152,257
Lyondell Chemical Co. 4,920,000 137,465
Eastman Chemical Co. 2,000,000 110,780
RPM International, Inc. 5,385,000 100,969
MeadWestvaco Corp. 3,180,000 92,920
Alcoa Inc. 3,200,000 89,760
Temple-Inland Inc. 2,017,578 80,279
UPM-Kymmene Corp. 4,100,000 79,735
Stora Enso Oyj, Class R 3,264,275 43,285
Worthington Industries, Inc. 1,701,800 30,088
Holmen AB, Class B 942,900 26,304
Freeport-McMoRan Copper & Gold Inc., Class B 300,000 12,084
3,179,999
INDUSTRIALS -- 3.46%
General Electric Co. 19,996,000 689,862
R.R. Donnelley & Sons Co.(1) 13,474,000 485,738
Emerson Electric Co. 4,925,000 324,065
Hubbell Inc., Class B 3,213,100 145,875
Cooper Industries, Ltd., Class A 2,100,000 135,618
Caterpillar Inc. 2,400,000 129,384
Sandvik AB 2,000,000 80,019
Wesfarmers Ltd. 2,205,000 66,715
Brambles Industries PLC 2,856,000 15,735
Singapore Technologies Engineering Ltd. 4,823,000 7,633
Delta Air Lines, Inc.(2,3) 542,911 1,607
2,082,251
HEALTH CARE -- 3.37%
Bristol-Myers Squibb Co. 29,393,000 734,237
Merck & Co., Inc. 20,768,300 645,063
Pfizer Inc 6,925,000 183,513
GlaxoSmithKline PLC 7,670,000 180,901
Eli Lilly and Co. 2,750,000 154,880
Wyeth 1,431,500 65,491
Schering-Plough Corp. 3,000,000 62,460
Clarent Hospital Corp.(1,2,4) 484,684 242
2,026,787
CONSUMER DISCRETIONARY -- 2.87%
General Motors Corp. 18,275,000 672,886
May Department Stores Co. 7,793,000 319,903
ServiceMaster Co. 13,973,750 191,999
Delphi Corp. 22,800,000 120,840
Dixons Group PLC 38,354,242 107,089
Kingfisher PLC 16,678,565 75,609
Tupperware Corp.(1) 3,125,500 66,667
KangwonLand Inc. 4,155,395 66,610
Kesa Electricals PLC 13,644,958 60,777
Harrah's Entertainment, Inc. 585,300 46,087
TI Automotive Ltd., Class A(2,4) 7,000,000 --
1,728,467
INFORMATION TECHNOLOGY -- 0.61%
Microsoft Corp. 14,360,000 $ 367,760
ZiLOG, Inc.(2) 455,000 1,797
369,557
MISCELLANEOUS -- 2.56%
Other common stocks in initial period of acquisition 1,540,468
Total common stocks (cost: $31,968,337,000) 38,755,831
Preferred stocks -- 1.04%
FINANCIALS -- 0.98%
SB Treasury Co. LLC, Series A, 9.40% noncumulative preferred(3,5) 124,434,000 138,064
Fannie Mae, Series O, 7.00% preferred(3) 2,150,000 119,728
Fuji JGB Investment LLC, Series A, 9.87% noncumulative preferred(3,5) 55,950,000 62,779
IBJ Preferred Capital Co. LLC, Series A, 8.79% noncumulative preferred(3,5) 24,300,000 26,567
HSBC Capital Funding LP, Series 1, 9.547% noncumulative step-up perpetual preferred(3,5) 37,500,000 44,944
HSBC Capital Funding LP, Series 2, 10.176% noncumulative step-up perpetual preferred(3,5) 10,000,000 15,674
Tokai Preferred Capital Co. LLC, Series A, 9.98% noncumulative preferred(3,5) 52,000,000 56,781
BNP Paribas Capital Trust 9.003% noncumulative trust preferred(3,5) 11,750,000 13,957
BNP U.S. Funding LLC, Series A, 7.738% noncumulative preferred(3,5) 4,200,000 4,481
Royal Bank of Scotland Group PLC, Series 3, 7.816% preference shares(5) 12,000,000 12,181
RBS Capital Trust I 4.709% noncumulative trust preferred(5) 4,550,000 4,392
Duke Realty Corp., Series B, 7.99% preferred cumulative step-up premium rate 300,000 15,553
NB Capital Corp., Series A, 8.35% exchangeable preferred depositary shares 520,000 14,274
Simon Property Group, Inc., Series G, 7.89% preferred cumulative step-up premium rate 200,000 10,875
Public Storage, Inc., Series V, 7.50% cumulative preferred depositary shares 400,000 10,412
iStar Financial, Inc., Series F, 7.80% cumulative redeemable preferred(1) 400,000 10,244
ACE Ltd., Series C, 7.80% preferred depositary shares 297,930 8,000
DBS Capital Funding Corp., Series A, 7.657% noncumulative guaranteed preference shares(3,5) 6,500,000 7,326
New Plan Excel Realty Trust, Inc., Series D, 7.80% preferred cumulative step-up premium rate 112,500 5,906
Nationwide Health Properties, Inc., Series A, 7.677% preferred cumulative step-up premium rate 50,000 5,217
587,355
CONSUMER DISCRETIONARY -- 0.04%
Delphi Corp., Series A, 8.25% cumulative trust preferred 2033 1,356,910 27,138
INFORMATION TECHNOLOGY -- 0.00%
ZiLOG, Inc. -- MOD III Inc., units(4) 513 0
TELECOMMUNICATION SERVICES -- 0.00%
XO Communications, Inc. 14.00% preferred 2009(2,4,6) 12 0
MISCELLANEOUS -- 0.02%
Other preferred stocks in initial period of acquisition 10,605
Total preferred stocks (cost: $577,414,000) 625,098
Market value
Warrants -- 0.00% Shares (000)
TELECOMMUNICATION SERVICES -- 0.00%
American Tower Corp., warrants, expire 2008(2,3) 3,000 $ 918
XO Communications, Inc., Series A, warrants, expire 2010(2) 13,674 5
XO Communications, Inc., Series B, warrants, expire 2010(2) 10,256 3
XO Communications, Inc., Series C, warrants, expire 2010(2) 10,256 2
Allegiance Telecom, Inc., warrants, expire 2008(2,3,4) 20,000 0
GT Group Telecom Inc., warrants, expire 2010(2,3,4) 15,000 0
Total warrants (cost: $818,000) 928
Shares or
Convertible securities -- 4.79% principal amount
INFORMATION TECHNOLOGY -- 1.12%
Sanmina Corp. 0% convertible subordinated debentures 2020 $161,000,000 87,544
SCI Systems, Inc. 3.00% convertible subordinated debentures 2007 $57,500,000 54,266
Nortel Networks Corp. 4.25% convertible notes 2008 $80,000,000 75,100
Nortel Networks Corp. 4.25% convertible notes 2008(3) $40,000,000 37,550
Celestica Inc. 0% convertible debentures 2020 $181,000,000 103,849
Agilent Technologies, Inc. 3.00% convertible debentures 2021(5) $50,092,600 50,280
Agilent Technologies, Inc. 3.00% convertible debentures 2021(3,5) $30,185,000 30,298
ASM Lithography Holding NV 5.75% convertible notes 2006(3) $57,500,000 63,394
Advanced Micro Devices, Inc. 4.75% convertible debentures 2022(5) $50,000,000 52,875
International Rectifier Corp. 4.25% convertible notes 2007 $52,000,000 50,960
Micron Technology, Inc. 2.50% convertible notes 2010(3) $32,000,000 34,840
Liberty Media Corp. 3.50% exchangeable debentures 2031 $25,000,000 24,219
LSI Logic Corp. 4.00% convertible notes 2006 $3,000,000 2,970
Fairchild Semiconductor Corp. 5.00% convertible notes 2008 $2,500,000 2,466
670,611
CONSUMER DISCRETIONARY -- 1.10%
Ford Motor Co. Capital Trust II 6.50% cumulative convertible trust preferred 2032 9,565,300 398,969
General Motors Corp., Series B, 5.25% convertible senior debentures 2032 $27,200,000 21,662
General Motors Corp., Series C, 6.25% convertible preferred 2033 $5,620,000 126,394
Amazon.com, Inc. 4.75% convertible subordinated debentures 2009 $59,137,000 57,363
Interpublic Group of Companies, Inc., Series A, 5.375% convertible preferred 2006 647,000 30,085
Liberty Media Corp. 3.25% exchangeable debentures 2031 $25,000,000 19,562
Six Flags, Inc. 7.25% PIERS convertible preferred 2009 400,000 8,560
662,595
FINANCIALS -- 1.06%
Metropolitan Life Insurance Co., Class B, 6.375% convertible preferred 2008 6,400,000 units 177,088
Chubb Corp. 7.00% convertible preferred 2005 1,800,000 units 58,356
Chubb Corp. 7.00% convertible preferred 2006 1,600,000 units 51,792
Fannie Mae 5.375% convertible preferred 1,065 101,176
Genworth Financial, Inc. 6.00% convertible preferred 2007 2,400,000 units 84,144
UnumProvident Corp. 8.25% ACES convertible 2006 2,100,000 units 78,855
St. Paul Companies, Inc., Series E, 9.00% convertible preferred 2005 600,000 units 45,378
Providian Financial Corp. 3.25% convertible debentures 2005 $34,500,000 34,586
XL Capital Ltd. 6.50% ACES convertible preferred 2007 340,000 units 7,956
639,331
HEALTH CARE -- 0.46%
Schering-Plough Corp. 6.00% convertible preferred 2007 2,499,900 $ 136,745
Baxter International Inc. 7.00% convertible preferred 2006 1,407,500 units 79,270
Sepracor Inc. 5.00% convertible subordinated debentures 2007 $46,000,000 46,057
Incyte Corp. 3.50% convertible notes 2011(3) $15,000,000 13,744
275,816
INDUSTRIALS -- 0.34%
Tyco International Group SA, Series B, 3.125% convertible debentures 2023(3) $50,000,000 71,875
Allied Waste Industries, Inc., Series D, 6.25%, convertible preferred 2008 240,000 63,667
Cummins Capital Trust I 7.00% QUIPS convertible preferred 2031 422,000 38,481
Cummins Capital Trust I 7.00% QUIPS convertible preferred 2031(3) 178,000 16,231
Kansas City Southern 4.25% convertible preferred(3) 15,000 11,876
202,130
MATERIALS -- 0.20%
Freeport-McMoRan Copper & Gold Inc. 5.50% convertible preferred(3) 50,000 48,312
Phelps Dodge Corp., Series A, 6.75% mandatory convertible preferred shares (MEDS) 2005 200,000 44,792
Inco Ltd. 0% convertible notes LYON 2021 $26,000,000 28,438
121,542
UTILITIES -- 0.20%
PG&E Corp. 9.50% convertible note 2010 $28,000,000 80,885
American Electric Power Co., Inc. 9.25% convertible preferred 2005 460,000 22,039
AES Trust VII 6.00% convertible preferred 2008 325,000 15,912
118,836
ENERGY -- 0.14%
El Paso Corp. 4.99% convertible preferred(3) 75,000 82,519
TELECOMMUNICATION SERVICES -- 0.10%
American Tower Corp. 5.00% convertible debentures 2010 $38,100,000 37,957
Liberty Media Corp. 4.00% exchangeable debentures 2029 $36,000,000 22,275
60,232
CONSUMER STAPLES -- 0.07%
Albertson's, Inc. 7.25% convertible preferred 2007 1,900,000 units 43,225
MISCELLANEOUS -- 0.00%
Other convertible securities in initial period of acquisition 1,487
Total convertible securities (cost: $2,719,383,000) 2,878,324
Principal amount
Bonds & notes -- 22.10% (000)
CONSUMER DISCRETIONARY -- 4.88%
General Motors Acceptance Corp. 6.75% 2006 $ 2,000 2,016
General Motors Acceptance Corp. 6.125% 2007 13,250 13,233
General Motors Acceptance Corp. 5.85% 2009 10,000 9,668
Residential Capital Corp. 6.375% 2010(3) 14,000 14,240
General Motors Acceptance Corp. 7.75% 2010 8,360 8,448
General Motors Acceptance Corp. 6.875% 2011 96,635 93,378
General Motors Corp. 7.20% 2011 97,274 93,626
General Motors Acceptance Corp. 7.25% 2011 127,555 124,384
General Motors Acceptance Corp. 6.875% 2012 18,455 17,698
General Motors Acceptance Corp. 7.00% 2012 29,805 28,677
General Motors Corp. 7.125% 2013 27,895 26,361
General Motors Acceptance Corp. 5.53% 2014(5) 22,000 20,057
Residential Capital Corp. 6.875% 2015(3) 2,500 2,607
General Motors Corp. 8.25% 2023 12,000 10,800
General Motors Acceptance Corp. 8.00% 2031 7,000 6,808
Delphi Automotive Systems Corp. 6.50% 2009 85,656 77,090
Delphi Corp. 6.50% 2013 134,530 108,969
Delphi Automotive Systems Corp. 7.125% 2029 78,905 59,771
Delphi Trust II, trust preferred securities, 6.197% 2033(5) 15,500 9,377
Ford Motor Credit Co. 6.50% 2007 1,000 1,011
Ford Motor Credit Co. 5.80% 2009 4,000 3,851
Ford Motor Credit Co. 7.375% 2009 111,500 111,352
Ford Motor Credit Co. 5.169% 2010(5) 5,055 4,736
Ford Motor Credit Co. 5.70% 2010 1,445 1,363
Ford Motor Credit Co. 7.875% 2010 36,000 36,371
Ford Motor Credit Co. 7.375% 2011 19,000 18,897
Ford Motor Co. 7.45% 2031 8,000 6,800
Clear Channel Communications, Inc. 4.625% 2008 14,000 13,774
Chancellor Media Corp. of Los Angeles 8.00% 2008 23,750 25,486
Clear Channel Communications, Inc. 7.65% 2010 15,550 16,629
Clear Channel Communications, Inc. 5.75% 2013 13,080 12,643
Clear Channel Communications, Inc. 5.50% 2014 109,720 102,977
Clear Channel Communications, Inc. 6.875% 2018 1,000 989
J.C. Penney Co., Inc. 8.00% 2010 39,205 43,357
J.C. Penney Co., Inc. 9.00% 2012 14,920 17,770
J.C. Penney Co., Inc. 7.65% 2016 4,000 4,580
J.C. Penney Co., Inc. 7.95% 2017 24,386 28,421
J.C. Penney Co., Inc. 7.125% 2023 1,272 1,411
J.C. Penney Co., Inc. 7.625% 2097 18,500 19,055
DaimlerChrysler North America Holding Corp. 6.40% 2006 2,925 2,972
DaimlerChrysler North America Holding Corp. 4.05% 2008 2,560 2,509
DaimlerChrysler North America Holding Corp. 4.75% 2008 1,440 1,438
DaimlerChrysler North America Holding Corp. 7.20% 2009 24,450 26,322
DaimlerChrysler North America Holding Corp. 4.875% 2010 10,000 9,901
DaimlerChrysler North America Holding Corp. 8.00% 2010 15,000 16,747
DaimlerChrysler North America Holding Corp. 7.75% 2011 25,000 27,889
DaimlerChrysler North America Holding Corp. 7.30% 2012 7,250 8,031
DaimlerChrysler North America Holding Corp. 6.50% 2013 3,200 3,456
Cox Communications, Inc. 7.75% 2006 6,000 6,199
Cox Communications, Inc. 3.95% 2007(5) 8,250 8,298
Cox Communications, Inc. 7.875% 2009 12,500 13,781
Cox Communications, Inc. 4.625% 2010 33,250 32,712
Cox Communications, Inc. 7.75% 2010 10,000 11,166
Cox Communications, Inc. 5.45% 2014 13,500 13,583
Liberty Media Corp. 7.75% 2009 10,950 11,594
Liberty Media Corp. 7.875% 2009 33,350 35,457
Liberty Media Corp. 5.70% 2013 16,680 15,461
Liberty Media Corp. 8.25% 2030 13,035 13,187
Mirage Resorts, Inc. 7.25% 2006 4,960 5,121
MGM MIRAGE 6.00% 2009 35,100 35,363
MGM MIRAGE 8.50% 2010 22,830 25,284
MGM MIRAGE 6.75% 2012 9,150 9,516
Time Warner Inc. 8.18% 2007 20,000 21,428
AOL Time Warner Inc. 6.875% 2012 17,700 19,740
Time Warner Companies, Inc. 9.125% 2013 5,000 6,228
Time Warner Companies, Inc. 7.25% 2017 8,000 9,326
AOL Time Warner Inc. 7.625% 2031 9,750 12,052
TCI Communications, Inc. 8.00% 2005 10,000 10,000
Comcast Cable Communications, Inc. 8.375% 2007 9,925 10,565
Comcast Cable Communications, Inc. 6.20% 2008 24,000 25,123
Lenfest Communications, Inc. 7.625% 2008 2,000 2,132
Comcast Cable Communications, Inc. 6.875% 2009 8,000 8,608
Comcast Cable Communications, Inc. 7.125% 2013 3,100 3,500
Comcast Corp. 6.50% 2015 5,000 5,489
Comcast Corp. 5.65% 2035 2,650 2,594
CCH II, LLC and CCH II Capital Corp. 10.25% 2010 9,000 9,337
Charter Communications Holdings, LLC and Charter Communications Holdings
Capital Corp. 0%/13.50% 2011(7) 4,375 3,587
Charter Communications Operating, LLC and Charter Communications Operating
Capital Corp. 8.00% 2012(3) 26,730 27,265
CCO Holdings, LLC and CCO Holdings Capital Corp. 8.75% 2013 13,350 13,417
Royal Caribbean Cruises Ltd. 7.00% 2007 3,000 3,150
Royal Caribbean Cruises Ltd. 8.00% 2010 2,250 2,486
Royal Caribbean Cruises Ltd. 8.75% 2011 25,475 29,233
Royal Caribbean Cruises Ltd. 6.875% 2013 6,750 7,273
D.R. Horton, Inc. 7.50% 2007 3,500 3,706
D.R. Horton, Inc. 5.00% 2009 3,000 3,011
D.R. Horton, Inc. 8.00% 2009 19,900 21,746
D.R. Horton, Inc. 9.75% 2010 3,000 3,512
D.R. Horton, Inc. 7.875% 2011 550 619
D.R. Horton, Inc. 6.875% 2013 2,000 2,166
D.R. Horton, Inc. 5.25% 2015 6,500 6,327
Harrah's Operating Co., Inc. 7.875% 2005 5,850 5,923
Harrah's Operating Co., Inc. 7.125% 2007 4,150 4,325
Harrah's Operating Co., Inc. 5.50% 2010 26,375 26,867
Harrah's Operating Co., Inc. 5.625% 2015(3) 3,800 3,857
ITT Corp. 6.75% 2005 8,675 8,773
Starwood Hotels & Resorts Worldwide, Inc. 7.375% 2007 12,350 12,906
Starwood Hotels & Resorts Worldwide, Inc. 7.875% 2012 12,450 14,006
EchoStar DBS Corp. 5.75% 2008 9,300 9,277
EchoStar DBS Corp. 9.125% 2009 22,509 23,972
Standard Pacific Corp. 6.50% 2008 5,000 5,125
Standard Pacific Corp. 5.125% 2009 17,750 17,306
Standard Pacific Corp. 6.875% 2011 6,500 6,695
Standard Pacific Corp. 6.25% 2014 3,500 3,412
Visteon Corp. 8.25% 2010 16,300 15,811
Visteon Corp. 7.00% 2014 18,000 16,020
Radio One, Inc., Series B, 8.875% 2011 16,750 18,027
Radio One, Inc. 6.375% 2013(3) 11,850 11,820
Hilton Hotels Corp. 7.625% 2008 2,450 2,619
Hilton Hotels Corp. 7.20% 2009 4,850 5,243
Hilton Hotels Corp. 8.25% 2011 13,158 15,021
Hilton Hotels Corp. 7.625% 2012 5,875 6,700
British Sky Broadcasting Group PLC 6.875% 2009 10,000 10,617
British Sky Broadcasting Group PLC 8.20% 2009 16,250 18,123
Dana Corp. 6.50% 2009 3,175 3,165
Dana Corp. 5.85% 2015 27,700 25,070
KB Home 6.375% 2011 2,000 2,091
KB Home 5.75% 2014 1,500 1,499
KB Home 6.25% 2015 23,800 24,473
Wynn Las Vegas, LLC and Wynn Las Vegas Capital Corp. 6.625% 2014 28,535 27,929
K. Hovnanian Enterprises, Inc. 10.50% 2007 16,275 18,065
K. Hovnanian Enterprises, Inc. 8.00% 2012 3,000 3,217
K. Hovnanian Enterprises, Inc. 7.75% 2013 2,500 2,662
K. Hovnanian Enterprises, Inc. 6.375% 2014 2,000 2,030
Toll Brothers, Inc. 6.875% 2012 9,000 9,869
Toll Brothers, Inc. 4.95% 2014 5,000 4,861
Toll Brothers Finance Corp. 5.15% 2015(3) 10,500 10,267
Telenet Group Holding NV 0%/11.50% 2014(3,7) 30,725 24,887
Stoneridge, Inc. 11.50% 2012 22,950 24,442
Dex Media West LLC and Dex Media West Finance Co., Series B, 5.875% 2011 23,275 23,159
Mohegan Tribal Gaming Authority 6.375% 2009 19,780 20,225
Mohegan Tribal Gaming Authority 8.00% 2012 2,100 2,255
Six Flags, Inc. 8.875% 2010 2,500 2,481
Six Flags, Inc. 9.75% 2013 4,125 4,048
Six Flags, Inc. 9.625% 2014 16,300 15,913
Technical Olympic USA, Inc. 9.00% 2010 8,615 8,960
Technical Olympic USA, Inc. 9.00% 2010 1,275 1,326
Technical Olympic USA, Inc. 7.50% 2011 12,250 11,821
Kabel Deutschland GmbH 10.625% 2014(3) 19,675 21,839
Tenneco Automotive Inc., Series B, 10.25% 2013 5,325 6,097
Tenneco Automotive Inc. 8.625% 2014 14,900 15,645
MDC Holdings, Inc. 7.00% 2012 5,000 5,480
MDC Holdings, Inc. 5.50% 2013 15,750 15,808
Toys "R" Us, Inc. 7.875% 2013 23,344 20,776
Warner Music Group 7.375% 2014 20,000 20,750
Boyd Gaming Corp. 9.25% 2009 8,500 8,936
Boyd Gaming Corp. 7.75% 2012 10,950 11,771
Blockbuster Inc. 9.00% 2012(3) 21,250 19,391
CSC Holdings, Inc. 7.25% 2008 8,000 8,140
CSC Holdings, Inc., Series B, 8.125% 2009 8,000 8,280
Cablevision Systems Corp., Series B, 8.00% 2012 2,050 2,070
DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. 8.375% 2013 16,536 18,417
Univision Communications Inc. 7.85% 2011 15,685 17,530
Adelphia Communications Corp. 10.25% 2006(8) 13,975 11,984
Adelphia Communications Corp. 10.25% 2011(8) 6,100 5,528
Viacom Inc. 6.40% 2006 3,000 3,031
Viacom Inc. 5.625% 2007 5,000 5,075
Viacom Inc. 6.625% 2011 8,370 8,860
RH Donnelley Inc. 8.875% 2010(3) 10,500 11,471
RH Donnelley Inc. 8.875% 2010 3,800 4,151
RH Donnelley Inc. 10.875% 2012(3) 1,000 1,165
News America Inc. 6.75% 2038 15,000 16,755
William Lyon Homes, Inc. 7.625% 2012 17,000 16,660
American Media Operations, Inc., Series B, 10.25% 2009 7,725 7,860
American Media Operations, Inc. 8.875% 2011 8,535 8,258
NTL Cable PLC 8.75% 2014 15,019 15,995
TRW Automotive Acquisition Corp. 9.375% 2013 14,088 15,849
Argosy Gaming Co. 7.00% 2014 13,525 14,962
Young Broadcasting Inc. 10.00% 2011 15,640 14,858
Hyatt Equities, LLC 6.875% 2007(3) 14,000 14,346
AMC Entertainment Inc., Series B, 8.625% 2012 5,305 5,530
AMC Entertainment Inc. 8.00% 2014 7,500 6,937
Ryland Group, Inc. 5.375% 2012 12,350 12,270
YUM! Brands, Inc. 7.70% 2012 10,500 12,163
Videotron Ltee 6.875% 2014 11,500 11,816
Pulte Homes, Inc. 7.875% 2011 5,000 5,696
Pulte Homes, Inc. 7.625% 2017 5,000 5,668
May Department Stores Co. 5.75% 2014 5,215 5,397
May Department Stores Co. 6.65% 2024 4,785 5,206
Staples, Inc. 7.375% 2012 9,000 10,240
Lear Corp., Series B, 8.11% 2009 9,710 10,071
NVR, Inc. 5.00% 2010 10,000 9,870
Cinemark USA, Inc. 9.00% 2013 8,575 9,068
Meritor Automotive, Inc. 6.80% 2009 8,500 8,542
CanWest Media Inc., Series B, 10.625% 2011 3,000 3,285
CanWest Media Inc., Series B, 8.00% 2012 4,685 4,995
LBI Media, Inc. 10.125% 2012 7,500 8,212
Centex Corp. 4.75% 2008 8,075 8,063
Regal Cinemas Corp., Series B, 9.375% 2012(4) 7,250 7,685
Emmis Communications Corp. 9.314% 2012(3,5) 6,700 6,742
WCI Communities, Inc. 10.625% 2011 1,850 2,003
WCI Communities, Inc. 9.125% 2012 4,150 4,409
Boyds Collection, Ltd., Series B, 9.00% 2008(4) 7,382 6,090
Payless ShoeSource, Inc. 8.25% 2013 5,500 5,837
NextMedia Operating, Inc. 10.75% 2011 4,580 5,021
Fisher Communications, Inc. 8.625% 2014 4,605 5,008
Carnival Corp. 3.75% 2007 5,000 4,917
Quebecor Media Inc. 0%/13.75% 2011(7) 2,000 2,032
Quebecor Media Inc. 11.125% 2011 1,750 1,951
Warnaco, Inc. 8.875% 2013 3,425 3,785
Seneca Gaming Corp. 7.25% 2012(3) 3,275 3,414
Marriott International, Inc., Series C, 7.875% 2009 3,000 3,333
Sealy Mattress Co. 8.25% 2014 2,825 3,023
Aztar Corp. 7.875% 2014 2,500 2,675
Gray Communications Systems, Inc. 9.25% 2011 2,000 2,195
Reader's Digest Association, Inc. 6.50% 2011 1,625 1,674
2,938,009
TELECOMMUNICATION SERVICES -- 3.06%
Qwest Capital Funding, Inc. 7.75% 2006 3,000 3,075
U S WEST Capital Funding, Inc. 6.375% 2008 3,100 3,053
Qwest Capital Funding, Inc. 7.00% 2009 2,625 2,592
Qwest Capital Funding, Inc. 7.90% 2010 29,635 29,931
Qwest Services Corp. 13.50% 2010 22,021 25,434
Qwest Capital Funding, Inc. 7.25% 2011 15,395 14,972
Qwest Corp. 8.875% 2012 12,400 13,640
Qwest Services Corp. 14.00% 2014 25,000 30,375
U S WEST Capital Funding, Inc. 6.50% 2018 10,000 8,300
Qwest Capital Funding, Inc. 7.625% 2021 7,800 6,903
U S WEST Capital Funding, Inc. 6.875% 2028 49,525 40,363
Qwest Capital Funding, Inc. 7.75% 2031 69,620 59,873
Nextel Communications, Inc. 6.875% 2013 69,900 75,055
Nextel Communications, Inc. 7.375% 2015 149,720 162,072
Dobson Communications Corp. 10.875% 2010 55,930 58,726
Dobson Cellular Systems, Inc. 7.96% 2011(5) 4,850 5,080
American Cellular Corp., Series B, 10.00% 2011 74,000 77,885
Dobson Cellular Systems, Inc. 9.875% 2012 3,850 4,278
Dobson Communications Corp. 8.875% 2013 31,750 31,829
American Tower Corp. 9.375% 2009 3,701 3,914
American Tower Corp. 7.25% 2011 49,175 52,003
American Tower Corp. 7.125% 2012 65,025 68,926
American Tower Corp. 7.50% 2012 43,300 46,114
Triton PCS, Inc. 8.75% 2011 18,200 13,013
Triton PCS, Inc. 9.375% 2011 28,350 20,412
Triton PCS, Inc. 8.50% 2013 79,150 73,214
MetroPCS, Inc. 10.75% 2007(5) 54,500 56,952
MetroPCS, Inc. 8.25% 2011(5) 44,250 45,799
SBC Communications Inc. 4.125% 2009 17,465 17,111
SBC Communications Inc. 5.10% 2014 56,215 56,624
SBC Communications Inc. 6.45% 2034 5,000 5,528
AT&T Wireless Services, Inc. 7.50% 2007 34,250 36,043
AT&T Wireless Services, Inc. 8.125% 2012 34,935 41,316
France Telecom 8.50% 2011(5) 58,750 67,358
Intelsat, Ltd. 8.695% 2012(3,5) 20,575 21,089
Intelsat, Ltd. 8.25% 2013(3) 36,635 38,467
Deutsche Telekom International Finance BV 8.50% 2010(5) 7,150 8,168
Deutsche Telekom International Finance BV 5.25% 2013 15,000 15,364
Deutsche Telekom International Finance BV 8.75% 2030(5) 7,000 9,392
Deutsche Telekom International Finance BV 9.25% 2032(5) 10,000 14,757
Nextel Partners, Inc. 12.50% 2009 16,234 17,654
Nextel Partners, Inc. 8.125% 2011 19,250 21,103
Nextel Partners, Inc. 8.125% 2011 5,000 5,481
AT&T Corp. 9.05% 2011(5) 23,228 26,625
AT&T Corp. 8.35% 2025 9,000 9,315
Western Wireless Corp. 9.25% 2013 28,575 32,718
Sprint Capital Corp. 4.78% 2006 10,950 10,990
Sprint Capital Corp. 7.625% 2011 5,000 5,649
Sprint Capital Corp. 8.375% 2012 8,500 10,094
Sprint Capital Corp. 6.875% 2028 5,000 5,668
Centennial Cellular Corp. 10.75% 2008 3,858 4,017
Centennial Communications Corp. and Centennial Cellular Operating Co. LLC 10.125% 2013 16,000 18,100
Centennial Communications Corp. and Centennial Cellular Operating Co. LLC and
Centennial Puerto Rico Operations Corp. 8.125% 2014(5) 9,500 10,236
Rogers Wireless Inc. 7.25% 2012 11,825 12,741
Rogers Wireless Inc. 7.50% 2015 16,750 18,383
TELUS Corp. 8.00% 2011 25,150 29,074
Cincinnati Bell Inc. 7.25% 2013 26,275 28,147
Hawaiian Telcom Communications, Inc. 9.75% 2013(3) 15,225 16,519
Hawaiian Telcom Communications, Inc. 12.50% 2015(3) 5,500 5,988
Telecom Italia Capital SA, Series A, 4.00% 2008 3,000 2,943
Telecom Italia Capital SA, Series B, 5.25% 2013 10,300 10,375
Telecom Italia Capital SA 4.95% 2014(3) 9,000 8,838
SBA Communications Corp. 8.50% 2012 17,055 18,462
Koninklijke KPN NV 8.00% 2010 15,750 17,981
NTELOS Inc. 8.49% 2012(5) 15,500 15,267
PCCW-HKT Capital Ltd. 8.00% 2011(3)(,5) 13,000 14,722
Verizon Global Funding Corp. 6.125% 2007 7,000 7,219
Verizon New York Inc., Series A, 6.875% 2012 6,500 7,091
Singapore Telecommunications Ltd. 6.375% 2011(3) 6,000 6,491
Singapore Telecommunications Ltd. 6.375% 2011 4,825 5,220
Verizon Wireless Capital LLC and Cellco Partnership 5.375% 2006 11,000 11,155
UbiquiTel Operating Co. 9.875% 2011 9,750 10,932
ALLTEL Corp. 4.656% 2007 8,700 8,731
BellSouth Corp. 4.20% 2009 7,000 6,896
BellSouth Corp. 5.20% 2014 1,700 1,727
Vodafone Group PLC 7.75% 2010 7,300 8,218
US Unwired Inc., Series B, 10.00% 2012 6,000 6,960
AirGate PCS, Inc. 9.375% 2009(3) 6,128 6,504
Telefonos de Mexico, SA de CV 8.25% 2006 5,000 5,108
Millicom International Cellular SA 10.00% 2013 3,500 3,640
Valor Telecommunications Enterprises, LLC and Valor Finance Corp. 7.75% 2015(3) 1,750 1,746
GT Group Telecom Inc. 13.25% 2010(4,8) 15,000 --
1,839,728
FINANCIALS -- 2.42%
Capital One Bank 6.875% 2006 21,600 21,883
Capital One Financial Corp. 7.25% 2006 3,000 3,066
Capital One Financial Corp. 8.75% 2007 3,500 3,710
Capital One Bank 4.875% 2008 20,000 20,124
Capital One Financial Corp. 7.125% 2008 22,100 23,527
Capital One Financial Corp. 6.25% 2013 30,000 32,187
Capital One Financial Corp. 5.50% 2015 5,000 5,071
Capital One Capital I 4.76% 2027(3,5) 10,500 10,581
MBNA Corp. 5.625% 2007 10,000 10,248
MBNA Corp., Series F, 5.00% 2010 10,000 10,132
MBNA Corp., Series F, 7.50% 2012 10,000 11,461
MBNA Corp., Series F, 6.125% 2013 10,000 10,718
MBNA Global Capital Funding, Series B, 4.01% 2027(5) 32,000 31,349
Washington Mutual, Inc. 4.375% 2008 17,000 16,926
Washington Mutual, Inc. 3.899% 2010(5) 16,000 16,043
Washington Mutual, Inc. 4.20% 2010 9,000 8,811
Washington Mutual, Inc. 5.00% 2012 7,000 7,008
Washington Mutual Bank, FA 5.125% 2015 6,500 6,483
Dime Capital Trust I, Dime Bancorp, Inc., Series A, 9.33% 2027 9,425 10,386
Rouse Co. 3.625% 2009 32,561 30,455
Rouse Co. 7.20% 2012 32,189 34,052
SocGen Real Estate Co. LLC, Series A, 7.64% (undated)(3,5) 45,700 48,444
Societe Generale 7.85% (undated)(3,5) 11,200 11,762
Household Finance Corp. 4.125% 2009 15,000 14,662
Household Finance Corp. 6.375% 2011 16,000 17,170
HSBC Holdings PLC 5.25% 2012 3,500 3,589
Household Finance Corp. 6.375% 2012 10,000 10,838
HSBC Bank USA 4.625% 2014(3) 5,000 4,900
HSBC Finance Corp. 5.00% 2015 2,720 2,699
Midland Bank 3.938% Eurodollar note (undated)(5) 5,000 4,250
Host Marriott, LP, Series G, 9.25% 2007 775 837
Host Marriott, LP, Series I, 9.50% 2007 750 796
Host Marriott, LP, Series M, 7.00% 2012 21,085 21,955
Host Marriott, LP, Series K, 7.125% 2013 10,000 10,487
Host Marriott, LP, Series O, 6.375% 2015 13,750 13,681
iStar Financial, Inc. 7.00% 2008(1) 6,525 6,862
iStar Financial, Inc. 8.75% 2008(1) 1,028 1,136
iStar Financial, Inc., Series B, 4.875% 2009(1) 5,000 4,955
iStar Financial, Inc. 5.375% 2010(1) 10,925 10,960
iStar Financial, Inc. 6.00% 2010(1) 3,750 3,869
iStar Financial, Inc., Series B, 5.125% 2011(1) 10,000 9,851
iStar Financial, Inc. 6.05% 2015(1) 4,285 4,416
CIT Group Inc. 3.65% 2007 7,110 6,974
CIT Group Inc. 6.875% 2009 16,500 17,848
CIT Group Inc. 4.75% 2010 10,000 9,929
CIT Group Inc. 7.75% 2012 4,000 4,613
ASIF Global Financing XVIII 3.85% 2007(3) 8,500 8,348
International Lease Finance Corp. 4.50% 2008 4,000 3,979
International Lease Finance Corp. 3.50% 2009 10,000 9,506
International Lease Finance Corp. 4.75% 2009 10,000 9,916
International Lease Finance Corp. 5.00% 2010 6,560 6,590
PRICOA Global Funding I, Series 2004-4, 4.35% 2008(3) 8,000 7,953
Prudential Holdings, LLC, Series C, 8.695% 2023(3,9) 22,250 28,596
CNA Financial Corp. 6.75% 2006 4,370 4,486
CNA Financial Corp. 6.45% 2008 2,406 2,495
CNA Financial Corp. 6.60% 2008 8,630 9,067
CNA Financial Corp. 5.85% 2014 8,975 9,031
CNA Financial Corp. 7.25% 2023 9,538 10,365
Chuo Mitsui Trust and Banking Co., Ltd. 5.506% (undated)(3,5) 36,590 35,408
Sumitomo Mitsui Banking Corp. 5.625% (undated)(3,)(5) 34,000 33,937
Lazard LLC 7.125% 2015(3) 32,930 32,837
Mangrove Bay Pass Through Trust 6.102% 2033(3,5) 21,000 21,191
Twin Reefs Asset Trust (XLFA), Series B, 4.35% (undated)(3,5) 7,200 7,177
J.P. Morgan & Co. Inc. 6.70% 2007 5,000 5,222
J.P. Morgan Chase & Co. 4.00% 2008 10,000 9,900
J.P. Morgan Chase & Co. 6.75% 2011 5,000 5,452
J.P. Morgan Chase & Co. 4.75% 2015 7,500 7,347
Allstate Financial Global Funding LLC 5.25% 2007(3) 16,750 16,959
Allstate Life Global Funding Trust, Series 2004-1, 4.50% 2009 10,000 9,985
Hospitality Properties Trust 7.00% 2008 1,210 1,269
Hospitality Properties Trust 6.75% 2013 23,315 25,124
USA Education, Inc. 5.625% 2007 12,895 13,137
SLM Corp., Series A, 4.50% 2010 5,000 4,948
SLM Corp., Series A, 5.375% 2013 7,000 7,220
Nationwide Life Insurance Co. 5.35% 2007(3) 8,500 8,569
North Front Pass Through Trust 5.81% 2024(3,5) 10,000 10,181
Nationwide Mutual Insurance Co. 7.875% 2033(3) 5,000 6,143
EOP Operating LP 7.75% 2007 5,000 5,325
EOP Operating LP 8.10% 2010 6,500 7,367
EOP Operating LP 7.00% 2011 5,000 5,498
EOP Operating LP 6.75% 2012 4,750 5,198
United Dominion Realty Trust, Inc., Series E, 4.50% 2008 20,000 19,952
United Dominion Realty Trust, Inc. 5.00% 2012 2,500 2,458
Liberty Mutual Group Inc. 6.50% 2035(3) 23,095 22,372
Monumental Global Funding Trust II, Series 2001-B, 6.05% 2006(3) 5,000 5,045
Monumental Global Funding Trust II, Series 2002-A, 5.20% 2007(3) 16,750 16,966
ACE INA Holdings Inc. 5.875% 2014 7,000 7,183
ACE Capital Trust II 9.70% 2030 10,250 13,659
Development Bank of Singapore Ltd. 7.875% 2010(3) 10,000 11,312
Development Bank of Singapore Ltd. 7.125% 2011(3) 5,000 5,574
HBOS Treasury Services PLC 3.75% 2008(3) 14,500 14,203
Scotland International Finance No. 2 BV 4.25% 2013(3) 1,500 1,450
HBOS PLC 5.375% (undated)(3,5) 500 507
Downey Financial Corp. 6.50% 2014 15,500 16,117
ReliaStar Financial Corp. 8.00% 2006 8,000 8,315
ReliaStar Financial Corp. 6.50% 2008 3,000 3,181
ING Bank NV 5.125% 2015(3) 3,500 3,549
Developers Diversified Realty Corp. 4.625% 2010 10,140 9,910
Developers Diversified Realty Corp. 5.50% 2015 5,000 5,064
LaBranche & Co Inc. 9.50% 2009 13,725 14,823
Assurant, Inc. 5.625% 2014 13,500 13,945
BNP Paribas 4.80% 2015(3) 8,000 7,883
BNP Paribas 5.186% noncumulative (undated)(3,5) 5,000 4,972
Westfield Capital Corp. Ltd. and WT Finance (Aust) Pty Ltd. and WEA Finance LLC 5.125% 2014(3) 12,500 12,441
ProLogis Trust 7.05% 2006 12,000 12,242
Standard Chartered Bank 4.00% Eurodollar note (undated)(5) 15,000 12,000
Kazkommerts International BV 8.50% 2013(3) 1,500 1,601
Kazkommerts International BV 7.875% 2014(3) 10,000 10,300
Simon Property Group, LP 4.875% 2010 6,375 6,364
Simon Property Group, LP 6.35% 2012 5,000 5,408
Skandinaviska Enskilda Banken 7.50% (undated)(3,5) 10,405 11,441
Abbey National PLC, Series 1-B, 6.69% 2005 2,000 2,012
Abbey National PLC 6.70% (undated)(5) 3,635 3,822
Abbey National PLC 7.35% (undated)(5) 5,105 5,273
Providian Financial Corp., Series A, 9.525% 2027(3) 10,000 11,000
Willis North America, Inc. 5.125% 2010 4,900 4,883
Willis North America, Inc. 5.625% 2015 5,500 5,462
TuranAlem Finance BV 8.50% 2015(3) 10,000 10,325
Federal Realty Investment Trust 6.125% 2007 10,000 10,270
United Overseas Bank Ltd. 5.375% 2019(3,5) 10,000 10,136
Citigroup Inc. 4.625% 2010 10,000 10,004
Bank of America Corp. 4.50% 2010 10,000 9,944
Resona Bank, Ltd 7.191% (undated)(3,5) 9,650 9,874
Popular North America, Inc., Series E, 3.875% 2008 10,000 9,800
Duke Realty LP 4.625% 2013 10,000 9,655
Independence Community Bank 3.75% 2014(5) 10,000 9,621
Zions Bancorporation 6.00% 2015 9,000 9,590
Bayerische Landesbank, Series F, 2.50% 2006 9,000 8,911
Bank of Nova Scotia 3.255% Eurodollar note 2085(5) 10,000 8,466
Canadian Imperial Bank of Commerce 3.313% Eurodollar note 2085(5) 10,000 8,325
Barclays Bank PLC, Series 1, 6.278% noncumulative preferred (undated)(5) 5,000 5,128
Barclays Bank PLC 8.55% (undated)(3,5) 1,540 1,825
BCI U.S. Funding Trust I 8.01% noncumulative preferred (undated)(3,5) 5,000 5,429
Lincoln National Corp. 6.20% 2011 5,000 5,368
Irvine Co., Class A, 7.46% 2006(3,4) 5,000 5,063
Metropolitan Life Insurance Co. 7.00% 2005(3) 5,000 5,037
Credit Suisse First Boston (USA), Inc. 4.625% 2008 5,000 5,016
Jackson National Life Global Funding, Series 2002-1, 5.25% 2007(3) 4,000 4,072
HVB Funding Trust III 9.00% 2031(3) 2,600 3,537
Kimco Realty Corp. 6.00% 2012 3,250 3,469
Swedish Export Credit Corp. 4.00% 2010 3,500 3,443
National Westminster Bank PLC 7.75% (undated)(5) 3,024 3,209
Principal Life Global Funding I 4.40% 2010(3) 3,000 2,950
1,458,586
MORTGAGE-BACKED OBLIGATIONS(9) -- 2.05%
Fannie Mae, Series 2000-T5B, 7.30% 2010 $ 19,000 $ 21,210
Fannie Mae 9.00% 2010 360 380
Fannie Mae 4.89% 2012 10,000 10,037
Fannie Mae 4.00% 2015 9,492 9,253
Fannie Mae 6.00% 2016 1,824 1,885
Fannie Mae 6.00% 2016 961 993
Fannie Mae 7.00% 2016 387 406
Fannie Mae 5.00% 2018 22,698 22,800
Fannie Mae 5.50% 2018 20,822 21,271
Fannie Mae 10.00% 2018 499 565
Fannie Mae 9.50% 2022 513 571
Fannie Mae 7.50% 2023 309 331
Fannie Mae 7.50% 2023 26 28
Fannie Mae 10.00% 2025 344 389
Fannie Mae, Series 2001-4, Class GA, 10.242% 2025(5) 1,732 1,949
Fannie Mae, Series 2001-4, Class NA, 11.848% 2025(5) 163 186
Fannie Mae, Series 2002-W3, Class A-5, 7.50% 2028 1,553 1,645
Fannie Mae 6.50% 2031 856 886
Fannie Mae 7.00% 2031 1,333 1,404
Fannie Mae 7.00% 2031 813 856
Fannie Mae 7.50% 2031 634 677
Fannie Mae, Series 2001-20, Class E, 9.602% 2031(5) 1,577 1,748
Fannie Mae 6.50% 2032 3,721 3,851
Fannie Mae 6.50% 2032 2,182 2,259
Fannie Mae 3.778% 2033(5) 6,811 6,706
Fannie Mae 6.50% 2033 4,992 5,168
Fannie Mae 5.50% 2034 22,965 23,099
Fannie Mae 6.00% 2034 8,703 8,896
Fannie Mae 6.00% 2034 6,426 6,569
Fannie Mae 6.00% 2034 4,047 4,138
Fannie Mae 6.00% 2034 3,450 3,528
Fannie Mae 6.00% 2034 1,777 1,817
Fannie Mae 6.00% 2034 1,629 1,666
Fannie Mae 6.00% 2034 1,253 1,281
Fannie Mae 6.00% 2034 1,188 1,214
Fannie Mae 6.00% 2034 877 896
Fannie Mae 6.00% 2034 596 609
Fannie Mae 4.499% 2035(5) 3,299 3,280
Fannie Mae 4.60% 2035(5) 8,989 8,946
Fannie Mae 5.00% 2035 54,000 53,199
Fannie Mae 5.00% 2035 29,380 28,944
Fannie Mae 5.00% 2035 7,620 7,507
Fannie Mae 5.50% 2035 132,133 132,908
Fannie Mae 5.50% 2035 10,452 10,513
Fannie Mae 6.00% 2035 302 308
Fannie Mae, Series 2001-50, Class BA, 7.00% 2041 2,843 3,011
Fannie Mae, Series 2001-T10, Class A-1, 7.00% 2041 2,003 2,095
Fannie Mae, Series 2002-W1, Class 2A, 7.50% 2042 3,407 3,594
CS First Boston Mortgage Securities Corp., Series 2003-AR26, Class VI-A-1, 4.197% 2033(5) 47,363 46,601
CS First Boston Mortgage Securities Corp., Series 2001-CF2, Class A-2, 5.935% 2034 4,430 4,459
CS First Boston Mortgage Securities Corp., Series 2004-5, Class IV-A-1, 6.00% 2034 7,074 7,154
CS First Boston Mortgage Securities Corp., Series 2001-CF2, Class A-3, 6.238% 2034 6,000 6,200
CS First Boston Mortgage Securities Corp., Series 2005-6, Class IV-A-1, 6.00% 2035 10,100 10,290
CS First Boston Mortgage Securities Corp., Series 2005-5, Class IV-A-1, 6.25% 2035 9,281 9,488
CS First Boston Mortgage Securities Corp., Series 2001-CK1, Class A-3, 6.38% 2035 10,100 10,798
CS First Boston Mortgage Securities Corp., Series 2005-C3, Class A-AB, 4.614% 2037 10,000 9,846
CS First Boston Mortgage Securities Corp., Series 2002-CKN2, Class A-3, 6.133% 2037 6,910 7,402
Freddie Mac 9.00% 2007 45 46
Freddie Mac 8.50% 2008 18 19
Freddie Mac, Series SF02, Class GC, 2.64% 2009 5,000 4,855
Freddie Mac 8.50% 2009 123 128
Freddie Mac 8.50% 2010 193 202
Freddie Mac 5.00% 2018 14,773 14,834
Freddie Mac 5.50% 2018 7,216 7,370
Freddie Mac 11.00% 2018 482 545
Freddie Mac, Series 178, Class Z, 9.25% 2021 179 179
Freddie Mac, Series 2289, Class NB, 11.471% 2022(5) 374 420
Freddie Mac 6.00% 2033 11,104 11,347
Freddie Mac 6.00% 2033 6,638 6,784
Freddie Mac 6.00% 2034 7,880 8,053
Freddie Mac 4.648% 2035(5) 13,400 13,317
Freddie Mac 4.792% 2035(5) 10,052 10,011
Freddie Mac 5.00% 2035 16,940 16,682
Freddie Mac 6.00% 2035 3,421 3,497
Freddie Mac, Series T-056, Class A-2A, 2.842% 2036 1,927 1,919
CHL Mortgage Pass-Through Trust, Series 2003-27, Class A-1, 3.74% 2033(5) 4,017 3,945
CHL Mortgage Pass-Through Trust, Series 2003-56, Class 6-A-1, 4.86% 2033(5) 25,660 25,643
CHL Mortgage Pass-Through Trust, Series 2003-58, Class 2-A-2, 4.60% 2034(5) 47,180 46,477
CHL Mortgage Pass-Through Trust, Series 2004-22, Class A-2, 4.705% 2034(5) 7,842 7,767
Merrill Lynch Mortgage Investors, Inc., Series 1999-C1, Class A-2, 7.56% 2031 11,696 12,732
Merrill Lynch Mortgage Investors, Inc., Series 2003-A6, Class II-A, 4.24% 2033(5) 45,943 45,236
Merrill Lynch Mortgage Investors, Inc., Series 2004-A1, Class II-A-1, 4.617% 2034(5) 5,744 5,696
Banc of America Mortgage Securities Trust, Series 2003-G, Class 2-A-1, 4.088% 2033(5) 4,377 4,329
Banc of America Mortgage Securities Trust, Series 2003-D, Class 2-A-1, 4.183% 2033(5) 2,521 2,483
Banc of America Mortgage Securities Trust, Series 2003-J, Class 2-A-2, 4.438% 2033(5) 46,798 46,420
Government National Mortgage Assn. 9.50% 2009 526 556
Government National Mortgage Assn. 9.00% 2016 71 78
Government National Mortgage Assn. 5.50% 2017 4,926 5,060
Government National Mortgage Assn. 8.50% 2017 39 43
Government National Mortgage Assn. 8.50% 2017 9 10
Government National Mortgage Assn. 8.50% 2017 9 10
Government National Mortgage Assn. 10.00% 2020 1,487 1,718
Government National Mortgage Assn. 8.50% 2021 335 364
Government National Mortgage Assn. 8.50% 2021 102 111
Government National Mortgage Assn. 8.50% 2021 7 8
Government National Mortgage Assn. 9.50% 2021 242 268
Government National Mortgage Assn. 10.00% 2021 2,212 2,554
Government National Mortgage Assn. 10.00% 2025 2,034 2,339
Government National Mortgage Assn. 7.00% 2034 2,676 2,843
Government National Mortgage Assn. 4.00% 2035(5) 6,235 6,123
Government National Mortgage Assn. 4.00% 2035(5) 1,863 1,827
Government National Mortgage Assn. 4.00% 2035(5) 1,748 1,714
Government National Mortgage Assn. 5.50% 2035 25,000 25,284
Crown Castle Towers LLC, Series 2005-1, Class A-FX, 4.643% 2035(3) 10,000 9,893
Crown Castle Towers LLC, Series 2005-1, Class D, 5.612% 2035(3) 37,750 37,342
Bear Stearns ARM Trust, Series 2003-8, Class II-A-1, 4.851% 2034(5) 33,356 33,183
Bear Stearns ARM Trust, Series 2003-9, Class III-A-2, 5.009% 2034(5) 3,031 3,018
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR8, Class A, 4.03% 2033(5) 5,344 5,293
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR5, Class A-7, 4.208% 2033(5) 3,937 3,907
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR6, Class A-1, 4.358% 2033(5) 1,883 1,859
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR1, Class A-6, 4.49% 2033(5) 1,129 1,120
WaMu Mortgage Pass-Through Certificates Trust, Series 2004-AR1, Class A, 4.229% 2034(5) 5,288 5,236
WaMu Mortgage Pass-Through Certificates Trust, Series 2004-AR11, Class A, 4.616% 2034(5) 6,977 6,897
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 2026(3) 22,002 23,724
Chase Commercial Mortgage Securities Corp., Series 1998-1, Class A-2, 6.56% 2030 6,139 6,394
Chase Commercial Mortgage Securities Corp., Series 2000-1, Class A-2, 7.757% 2032 15,675 17,163
Countrywide Alternative Loan Trust, Series 2005-21CB, Class A-17, 6.00% 2035 13,640 13,799
Countrywide Alternative Loan Trust, Series 2004-36CB, Class 1-A-1, 6.00% 2035 8,798 8,878
GS Mortgage Securities Corp. II, Series 1998-C1, Class D, 7.213% 2030(5) 20,000 21,094
Bear Stearns Commercial Mortgage Securities Inc., Series 1999-C1, Class X,
interest only, 1.033% 2031(3,5) 79,429 3,035
Bear Stearns Commercial Mortgage Securities Inc., Series 2002-PBW1, Class A-1, 3.97% 2035 8,810 8,654
Bear Stearns Commercial Mortgage Securities Inc., Series 2001-TOP2, Class A-2, 6.48% 2035 7,665 8,285
Wachovia Bank Commercial Mortgage Trust, Series 2002-C1, Class A-2, 5.681% 2034 8,200 8,393
Wachovia Bank Commercial Mortgage Trust, Series 2005-C17, Class A-2, 4.782% 2042 11,000 11,029
Residential Accredit Loans, Inc., Series 2005-QR1, Class A, 6.00% 2034 13,153 13,276
GE Capital Commercial Mortgage Corp., Series 2001-1, Class A-1, 6.079% 2033 4,027 4,164
GE Capital Commerical Mortgage Corp., Series 2002-3, Class A-1, 4.229% 2037 9,101 8,974
Morgan Stanley Mortgage Trust, Series 2004-3, Class 4-A, 5.706% 2034(5) 12,786 12,779
Residential Asset Mortgage Products Trust, Series 2004-RS3, Class A-I-2, 3.052% 2029 5,000 4,943
Residential Asset Mortgage Products Trust, Series 2003-RZ4, Class A-7, 4.79% 2033(5) 7,000 6,927
Host Marriott Pool Trust, Series 1999-HMTA, Class D, 7.97% 2015(3) 10,990 11,739
Banc of America Commercial Mortgage Inc., Series 2001-1, Class A-2, 6.503% 2036 10,000 10,811
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP1, Class A-2, 4.625% 2046 10,000 9,978
Salomon Brothers Commercial Mortgage Trust, Series 2000-C1, Class A-1, 7.46% 2008 3,051 3,188
Salomon Brothers Commercial Mortgage Trust, Series 2000-C3, Class A-1, 6.341% 2033(3) 4,553 4,700
Morgan Stanley Capital I, Inc., Series 2003-KIDS, Class A, 4.06% 2016(3,5) 4,769 4,784
Metropolitan Asset Funding, Inc., Series 1998-A, Class B-1, 7.728% 2014(3) 4,669 4,711
First Union National Bank-Bank of America, N.A. Commercial Mortgage Trust,
Series 2001-C1, Class A-1, 5.711% 2033 2,373 2,398
Morgan Stanley Dean Witter Capital I Trust, Series 2002-HQ, Class A-1, 4.59% 2034 1,159 1,160
Structured Asset Securities Corp., Series 1998-RF2, Class A, 8.544% 2027(3,5) 467 478
Structured Asset Securities Corp., Series 1998-RF1, Class A, 8.731% 2027(3,5) 377 389
Financial Asset Securitization, Inc., Series 1997-NAM1, Class B-1, 7.75% 2027 597 595
1,233,746
MATERIALS -- 1.29%
Abitibi-Consolidated Co. of Canada 6.95% 2006 312 320
Abitibi-Consolidated Co. of Canada 5.25% 2008 22,650 21,971
Abitibi-Consolidated Finance LP 7.875% 2009 12,000 12,240
Abitibi-Consolidated Inc. 8.55% 2010 16,000 16,880
Abitibi-Consolidated Co. of Canada 6.91% 2011(5) 11,850 11,969
Abitibi-Consolidated Co. of Canada 6.00% 2013 10,625 9,961
Abitibi-Consolidated Co. of Canada 8.375% 2015 28,125 29,391
Georgia-Pacific Corp. 7.50% 2006 6,500 6,663
Fort James Corp. 6.875% 2007 5,000 5,225
Georgia-Pacific Corp. 7.375% 2008 15,000 15,938
Georgia-Pacific Corp. 8.875% 2010 17,525 19,803
Georgia-Pacific Corp. 8.125% 2011 8,935 10,074
Georgia-Pacific Corp. 9.50% 2011 7,600 9,158
Georgia-Pacific Corp. 9.375% 2013 21,045 23,886
Georgia-Pacific Corp. 7.70% 2015 950 1,088
Georgia-Pacific Corp. 8.875% 2031 3,450 4,330
Owens-Illinois, Inc. 8.10% 2007 750 786
Owens-Illinois, Inc. 7.35% 2008 9,800 10,192
Owens-Brockway Glass Container Inc. 8.875% 2009 20,975 22,286
Owens-Illinois, Inc. 7.50% 2010 750 788
Owens-Brockway Glass Container Inc. 7.75% 2011 13,500 14,378
Owens-Brockway Glass Container Inc. 8.75% 2012 6,000 6,578
Owens-Brockway Glass Container Inc. 8.25% 2013 14,000 15,208
Lyondell Chemical Co. 9.50% 2008 31,050 33,107
Equistar Chemicals, LP 10.125% 2008 9,825 10,857
Equistar Chemicals, LP and Equistar Funding Corp. 8.75% 2009 625 667
Equistar Chemicals, LP and Equistar Funding Corp. 10.625% 2011 3,550 3,976
Lyondell Chemical Co. 11.125% 2012 4,825 5,494
Norske Skogindustrier ASA 7.625% 2011(3) 38,991 42,754
Norske Skogindustrier ASA 6.125% 2015(3) 11,250 11,279
Boise Cascade, LLC and Boise Cascade Finance Corp. 7.125% 2014 49,800 49,178
Stone Container Corp. 9.25% 2008 8,375 8,794
Stone Container Corp. 9.75% 2011 875 924
Jefferson Smurfit Corp. (U.S.) 8.25% 2012 2,750 2,784
Stone Container Corp. 8.375% 2012 8,475 8,666
Jefferson Smurfit Corp. (U.S.) 7.50% 2013 14,425 13,956
Graphic Packaging International, Inc. 8.50% 2011 19,350 20,318
Graphic Packaging International, Inc. 9.50% 2013 11,050 11,382
Weyerhaeuser Co. 5.95% 2008 8,529 8,848
Weyerhaeuser Co. 5.25% 2009 1,000 1,011
Weyerhaeuser Co. 6.75% 2012 13,890 15,135
Weyerhaeuser Co. 6.875% 2033 2,500 2,767
Smurfit Capital Funding PLC 6.75% 2005 3,425 3,442
JSG Funding PLC 9.625% 2012 8,200 8,323
JSG Funding PLC 7.75% 2015 18,650 15,946
Freeport-McMoRan Copper & Gold Inc. 10.125% 2010 24,390 27,195
United States Steel Corp. 10.75% 2008 10,500 11,852
United States Steel Corp. 9.75% 2010 13,205 14,592
International Paper Co. 4.00% 2010 2,725 2,601
International Paper Co. 6.75% 2011 5,000 5,424
International Paper Co. 5.85% 2012 13,855 14,311
Rhodia 10.25% 2010 17,975 19,458
Ainsworth Lumber Co. Ltd. 7.25% 2012 7,175 6,906
Ainsworth Lumber Co. Ltd. 6.75% 2014 10,000 9,225
Temple-Inland Inc. 7.875% 2012 12,250 13,861
Crystal US Holdings 3 LLC and Crystal US Sub 3 Corp., Series B, 0%/10.50% 2014(7) 10,300 7,468
BCP Caylux Holdings Luxembourg SCA 9.625% 2014 4,550 5,164
NewPage Corp. 9.46% 2012(3,5) 12,250 12,434
Allegheny Technologies, Inc. 8.375% 2011 10,500 11,078
Packaging Corp. of America 4.375% 2008 9,500 9,278
Ispat Inland ULC 9.75% 2014 6,719 7,962
AMH Holdings, Inc. 0%/11.25% 2014(7) 11,500 7,360
Ball Corp. 6.875% 2012 6,000 6,360
Crompton Corp. 9.164% 2010(5) 4,775 5,348
Scotia Pacific Co. LLC, Series B, Class A-2, 7.11% 2028(9) 5,780 4,599
Inco Ltd. 7.75% 2012 4,000 4,583
Gerdau Ameristeel Corp. and GUSAP Partners 10.375% 2011 4,125 4,579
Building Materials Corp. of America, Series B, 8.00% 2007 3,500 3,509
ICI Wilmington, Inc. 5.625% 2013 3,000 3,056
Earle M. Jorgensen Co. 9.75% 2012 2,000 2,180
Oregon Steel Mills, Inc. 10.00% 2009 1,750 1,908
Corporacion Nacional del Cobre de Chile 6.375% 2012(3) 1,500 1,628
AK Steel Corp. 7.75% 2012 1,575 1,473
Rockwood Specialties Group, Inc. 7.50% 2014(3) 1,175 1,193
775,306
INDUSTRIALS -- 1.28%
Bombardier Capital Inc., Series A, 6.125% 2006(3) $40,625 $41,133
Bombardier Inc. 6.75% 2012(3) 40,530 39,719
Bombardier Inc. 6.30% 2014(3) 40,400 38,178
Allied Waste North America, Inc. 8.50% 2008 4,800 5,082
Allied Waste North America, Inc., Series B, 8.875% 2008 48,750 51,675
Allied Waste North America, Inc., Series B, 6.50% 2010 16,000 15,860
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 7,450
Allied Waste North America, Inc., Series B, 7.375% 2014 4,500 4,230
Allied Waste North America, Inc. 7.25% 2015(3) 8,500 8,415
Northwest Airlines, Inc. 8.875% 2006 2,200 1,507
Northwest Airlines, Inc. 9.875% 2007 37,400 20,009
Northwest Airlines, Inc. 7.875% 2008 22,000 10,230
Northwest Airlines, Inc. 10.00% 2009 47,000 22,971
Northwest Airlines, Inc., Series 1999-2, Class A, 7.575% 2020(9) 2,493 2,504
Northwest Airlines, Inc., Series 2001-1, Class A-1, 7.041% 2023(9) 4,180 3,989
Cendant Corp. 6.25% 2008 28,000 29,002
Cendant Corp. 7.375% 2013 24,250 27,391
Continental Airlines, Inc. 8.00% 2005 5,010 5,041
Continental Airlines, Inc., Series 2000-2, Class A-1, 7.487% 2012(9) 11,500 11,605
Continental Airlines, Inc., Series 2001-1, Class B, 7.373% 2017(9) 7,312 6,213
Continental Airlines, Inc., Series 1998-1, Class A, 6.648% 2019(9) 2,486 2,452
Continental Airlines, Inc., Series 1997-4, Class A, 6.90% 2019(9) 3,011 3,009
Continental Airlines, Inc., Series 2001-1, Class A-1, 6.703% 2021(9) 13,938 13,736
Continental Airlines, Inc., Series 2000-1, Class B, 8.388% 2022(9) 6,946 5,853
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class B, 7.156% 2011(3,9) 25,842 27,362
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class G, MBIA insured, 6.664% 2013(3,9) 12,332 13,205
Tyco International Group SA 6.125% 2008 13,000 13,573
Tyco International Group SA 6.375% 2011 22,915 24,855
Hutchison Whampoa International Ltd. 7.00% 2011(3) 5,000 5,459
Hutchison Whampoa International Ltd. 6.50% 2013(3) 21,000 22,448
Hutchison Whampoa Finance Ltd., Series B, 7.45% 2017(3) 6,750 7,783
American Standard Inc. 7.375% 2008 5,935 6,289
American Standard Inc. 8.25% 2009 2,124 2,366
American Standard Inc. 7.625% 2010 20,501 22,646
American Standard Inc. 5.50% 2015(3) 3,000 3,019
Waste Management, Inc. 7.00% 2006 7,000 7,206
Waste Management, Inc. 6.50% 2008 5,000 5,252
Waste Management, Inc. 5.00% 2014 7,000 6,911
WMX Technologies, Inc. 7.10% 2026 10,125 11,578
Delta Air Lines, Inc. 8.00% 2007(3) 62,396 16,847
Delta Air Lines, Inc., Series 2001-1, Class A-2, 7.111% 2013 10,000 9,368
Delta Air Lines, Inc., Series 1992-A2, 9.20% 2014(9) 5,000 1,964
Delta Air Lines, Inc. 10.375% 2022 3,000 720
Horizon Lines, LLC and Horizon Lines Holding Corp. 9.00% 2012(3) 14,090 15,182
H-Lines Finance Holding Corp. 0%/11.00% 2013(3,7) 13,000 10,530
General Electric Capital Corp., Series A, 5.375% 2007 8,000 8,137
General Electric Capital Corp., Series A, 6.00% 2012 8,000 8,570
General Electric Co. 5.00% 2013 5,000 5,067
Raytheon Co. -- RC Trust I 7.00% trust preferred 2006 18,000 18,416
Caterpillar Inc. 4.50% 2009 7,000 6,984
Caterpillar Financial Services Corp. 4.30% 2010 10,000 9,865
NTK Holdings, Inc. 0%/10.75% 2014(3,7) 7,500 4,313
THL Buildco, Inc. 8.50% 2014 12,325 12,063
Jacuzzi Brands, Inc. 9.625% 2010 13,441 14,852
Southwest Airlines Co. 5.25% 2014 15,000 14,822
John Deere Capital Corp. 3.90% 2008 9,000 8,888
Accuride Corp. 8.50% 2015 7,575 7,897
American Airlines, Inc., Series 2003-1, Class G, AMBAC insured, 3.857% 2010(9) 2,034 1,966
American Airlines, Inc., Series 2001-2, Class A-1, 6.978% 2012(9) 4,552 4,735
Kansas City Southern Railway Co. 7.50% 2009 5,750 5,951
Terex Corp., Class B, 10.375% 2011 2,000 2,170
Terex Corp. 7.375% 2014 3,500 3,693
TFM, SA de CV 12.50% 2012 4,165 4,925
Dyncorp International LLC 9.50% 2013(3) 4,325 4,314
United Air Lines, Inc. 9.00% 2003(10) 8,000 1,320
United Air Lines, Inc., Series 1996-A2, 7.87% 2019(8,9) 5,000 2,190
Jet Equipment Trust, Series 1995-A, Class B, 8.64% 2015(3,8,9) 7,790 1
Jet Equipment Trust, Series 1995-B, Class C, 9.71% 2015(3,8,9) 5,500 1
770,537
U.S. GOVERNMENT & GOVERNMENT AGENCY BONDS & NOTES -- 1.24%
U.S. Treasury 5.75% 2005 138,250 139,103
U.S. Treasury 3.25% 2007 40,000 39,416
U.S. Treasury 4.375% 2007 50,000 50,332
U.S. Treasury 2.625% 2008 5,000 4,814
U.S. Treasury 3.625% 2008(11) 12,034 12,609
U.S. Treasury 3.625% 2009 41,500 40,745
U.S. Treasury 3.875% 2009(11) 41,788 44,834
U.S. Treasury Principal Strip 0% 2011 5,660 4,416
U.S. Treasury 3.50% 2011(11) 11,171 12,150
U.S. Treasury Principal Strip 0% 2013 6,585 4,612
U.S. Treasury 2.00% 2014(11) 17,887 18,045
U.S. Treasury 8.875% 2017 32,500 45,967
U.S. Treasury 6.875% 2025 63,500 82,709
Freddie Mac 1.875% 2006 3,765 3,723
Freddie Mac 6.625% 2009 84,250 91,356
Freddie Mac 4.125% 2010 19,250 19,004
Federal Home Loan Bank 2.00% 2006 29,865 29,552
Federal Home Loan Bank 2.375% 2006 26,870 26,568
Federal Home Loan Bank 5.823% 2009 17,000 17,755
Fannie Mae 6.625% 2009 24,750 26,830
Fannie Mae 6.25% 2029 8,000 9,552
Federal Agricultural Mortgage Corp. 4.25% 2008 20,000 19,919
744,011
UTILITIES -- 1.11%
Edison Mission Energy 10.00% 2008 19,250 21,560
Mission Energy Holding Co. 13.50% 2008 22,230 26,676
Edison Mission Energy 7.73% 2009 16,720 17,723
Edison Mission Energy 9.875% 2011 32,930 38,940
Midwest Generation, LLC, Series B, 8.56% 2016(9) 10,408 11,585
Homer City Funding LLC 8.734% 2026(9) 9,941 11,830
Midwest Generation, LLC and Midwest Finance Corp. 8.75% 2034 24,675 27,759
AES Corp. 9.50% 2009 39,815 44,593
AES Corp. 9.375% 2010 8,752 9,977
AES Corp. 8.75% 2013(3) 68,100 75,761
AES Red Oak, LLC, Series B, 9.20% 2029(9) 2,000 2,300
Israel Electric Corp. Ltd. 7.95% 2011(3) 5,000 5,691
Israel Electric Corp. Ltd. 7.70% 2018(3) 22,500 25,736
Israel Electric Corp. Ltd. 8.10% 2096(3) 14,405 15,660
Dynegy Holdings Inc. 9.875% 2010(3) 11,750 13,043
Dynegy Holdings Inc. 10.125% 2013(3) 26,400 30,228
Nevada Power Co., General and Refunding Mortgage Bonds, Series A, 8.25% 2011 6,000 6,840
Nevada Power Co., General and Refunding Mortgage Notes, Series I, 6.50% 2012 4,250 4,505
Nevada Power Co., General and Refunding Mortgage Notes, Series G, 9.00% 2013 15,595 17,583
Sierra Pacific Resources 8.625% 2014 2,725 3,032
Nevada Power Co., Series L, 5.875% 2015(3) 5,675 5,845
Virginia Electric and Power Co., Series 2002-A, 5.375% 2007 8,000 8,106
Dominion Resources, Inc., Series 2002-D, 5.125% 2009 22,500 22,765
Dominion Resources, Inc., Series 2000-A, 8.125% 2010 5,000 5,683
Texas Genco LLC and Texas Genco Financing Corp. 6.875% 2014(3) 26,675 28,142
PSEG Energy Holdings Inc. 8.625% 2008 8,800 9,438
PSEG Power LLC 7.75% 2011 7,500 8,547
PSEG Power LLC 5.00% 2014 10,000 9,938
NiSource Finance Corp. 7.625% 2005 9,000 9,090
NiSource Finance Corp. 7.875% 2010 15,000 16,964
Alabama Power Co., Series U, 2.65% 2006 5,000 4,962
Alabama Power Co., Series X, 3.125% 2008 3,750 3,621
Alabama Power Co., Series R, 4.70% 2010 1,250 1,244
Southern Power Co., Series B, 6.25% 2012 9,000 9,676
Alabama Power Co., Series Q, 5.50% 2017 5,000 5,199
Duke Capital Corp. 7.50% 2009 7,000 7,679
Duke Capital Corp. 6.25% 2013 4,500 4,827
Duke Capital Corp. 5.50% 2014 5,000 5,101
Duke Capital LLC 5.668% 2014 1,500 1,545
Reliant Energy Resources Corp. 7.75% 2011 13,000 14,722
Centerpoint Energy, Inc., Series B, 6.85% 2015 3,000 3,331
Cilcorp Inc. 8.70% 2009 9,000 10,283
Cilcorp Inc. 9.375% 2029 3,000 4,370
Exelon Corp. 6.75% 2011 1,000 1,093
Exelon Generation Co., LLC 6.95% 2011 11,300 12,481
Constellation Energy Group, Inc. 6.125% 2009 12,000 12,604
Progress Energy, Inc. 6.75% 2006 5,000 5,068
Progress Energy, Inc. 5.85% 2008 2,500 2,581
Progress Energy, Inc. 7.10% 2011 2,500 2,750
Appalachian Power Co., Series G, 3.60% 2008 6,770 6,606
Oncor Electric Delivery Co. 6.375% 2015 5,000 5,466
Pacific Gas and Electric Co., First Mortgage Bonds, 6.05% 2034 4,000 4,303
MidAmerican Energy Co. 4.65% 2014 3,200 3,116
Tri-State Generation and Transmission Association Inc., Pass Through Trust,
Series 2003-A, 6.04% 2018(3,9) 2,965 3,079
671,247
ENERGY -- 1.08%
Port Arthur Finance Corp. 12.50% 2009(9) 437 497
Premcor Refining Group Inc. 9.25% 2010 13,875 15,332
Premcor Refining Group Inc. 6.125% 2011 37,500 39,375
Premcor Refining Group Inc. 6.75% 2011 15,650 16,863
Premcor Refining Group Inc. 7.75% 2012 3,000 3,263
Premcor Refining Group Inc. 9.50% 2013 57,215 65,797
Premcor Refining Group Inc. 6.75% 2014 46,000 49,220
Premcor Refining Group Inc. 7.50% 2015 22,000 23,870
Williams Companies, Inc. 6.75% 2009(3) 8,000 8,400
Northwest Pipeline Corp. 8.125% 2010 5,000 5,450
Transcontinental Gas Pipe Line Corp., Series B, 7.00% 2011 19,765 21,692
Williams Companies, Inc. 7.125% 2011 38,750 42,431
Williams Companies, Inc. 8.125% 2012 14,810 17,106
Williams Companies, Inc. 7.875% 2021 10,000 11,625
Williams Companies, Inc. 8.75% 2032 7,000 8,698
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 2009(3,9) 44,920 43,812
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 2009(9) 864 843
Ras Laffan Liquefied Natural Gas Co. Ltd. 8.294% 2014(3,9) 13,329 15,662
Ras Laffan Liquefied Natural Gas Co. Ltd. 8.294% 2014(9) 4,325 5,082
Newfield Exploration Co., Series B, 7.45% 2007 6,000 6,345
Newfield Exploration Co. 7.625% 2011 1,500 1,650
Newfield Exploration Co. 8.375% 2012 11,400 12,483
Newfield Exploration Co. 6.625% 2014 32,075 33,759
Tengizchevroil Finance Co. S.ar.l., Series A, 6.124% 2014(3,9) 28,500 29,034
Tengizchevroil Finance Co. S.ar.l., Series A, 6.124% 2014(9) 9,000 9,169
Devon Financing Corp., ULC 6.875% 2011 24,500 27,087
Devon Energy Corp. 7.95% 2032 7,250 9,394
Overseas Shipholding Group, Inc. 8.25% 2013 27,110 28,872
Overseas Shipholding Group, Inc. 7.50% 2024 850 825
General Maritime Corp. 10.00% 2013 20,225 22,197
Western Oil Sands Inc. 8.375% 2012 10,175 11,816
XTO Energy Inc. 7.50% 2012 8,850 10,037
Oryx Energy Co. 8.125% 2005 8,500 8,604
Petroleum Export Ltd., Class A-2, XLCA insured, 4.633% 2010(3,9) 8,500 8,482
Pemex Project Funding Master Trust 7.875% 2009 1,600 1,740
Pemex Project Funding Master Trust 7.375% 2014 3,500 3,876
Pemex Project Funding Master Trust 8.625% 2022 500 608
OXYMAR 7.50% 2016(3) 5,500 5,680
Delek & Avner-Yam Tethys Ltd. 5.326% 2013(3,9) 4,968 4,905
Peabody Energy Corp., Series B, 6.875% 2013 4,300 4,580
PETRONAS Capital Ltd. 7.00% 2012(3) 4,000 4,494
Sunoco, Inc. 4.875% 2014 4,500 4,421
Reliance Industries Ltd., Series B, 10.25% 2097 3,125 3,581
648,657
INFORMATION TECHNOLOGY -- 1.04%
Electronic Data Systems Corp. 6.334% 2006 10,000 10,140
Electronic Data Systems Corp. 7.125% 2009 43,250 46,282
Electronic Data Systems Corp., Series B, 6.50% 2013(5) 137,150 139,204
Celestica Inc. 7.875% 2011 32,275 33,405
Celestica Inc. 7.625% 2013 36,195 36,738
Motorola, Inc. 4.608% 2007 10,000 10,003
Motorola, Inc. 8.00% 2011 38,985 45,349
Motorola, Inc. 5.22% 2097 14,506 11,896
Sanmina-SCI Corp. 10.375% 2010 35,500 39,583
Sanmina-SCI Corp. 6.75% 2013 19,000 18,383
Jabil Circuit, Inc. 5.875% 2010 53,450 55,017
Flextronics International Ltd. 6.50% 2013 47,375 49,033
Amkor Technology, Inc. 10.50% 2009 7,355 6,656
Amkor Technology, Inc. 7.125% 2011 19,085 16,747
Amkor Technology, Inc. 7.75% 2013 11,000 9,405
Xerox Corp. 7.125% 2010 21,000 22,260
Nortel Networks Ltd. 6.125% 2006 21,000 21,158
SunGard Data Systems Inc. 10.25% 2015(3) 18,000 18,743
Freescale Semiconductor, Inc. 6.875% 2011 15,000 15,900
MagnaChip Semiconductor SA and MagnaChip Semiconductor Finance Co. 6.66% 2011(3,5) 7,275 7,311
MagnaChip Semiconductor SA and MagnaChip Semiconductor Finance Co. 6.875% 2011(3) 975 970
Solectron Corp., Series B, 7.375% 2006 5,450 5,559
Hyundai Semiconductor America, Inc. 8.625% 2007(3) 4,860 5,029
624,771
CONSUMER STAPLES -- 0.88%
Ahold Finance U.S.A., Inc. 6.25% 2009 83,168 84,831
Ahold Finance U.S.A., Inc. 8.25% 2010 65,555 72,438
Ahold Lease Pass Through Trust, Series 2001-A-1, 7.82% 2020(9) 12,277 13,389
Ahold Lease Pass Through Trust, Series 2001-A-2, 8.62% 2025(9) 14,400 15,993
Rayovac Corp. 7.375% 2015(3) 79,775 79,177
Delhaize America, Inc. 7.375% 2006 10,000 10,243
Delhaize America, Inc. 8.125% 2011 27,745 31,081
Jean Coutu Group (PJC) Inc. 7.625% 2012 2,500 2,613
Jean Coutu Group (PJC) Inc. 8.50% 2014 33,500 33,374
Burns Philp Capital Pty Ltd. and Burns Philp Capital (U.S.) Inc., Series B, 9.50% 2010 3,000 3,300
Burns Philp Capital Pty Ltd. and Burns Philp Capital (U.S.) Inc., Series B, 10.75% 2011 8,675 9,673
Burns Philp Capital Pty Ltd., Series B, 9.75% 2012 12,100 13,250
Rite Aid Corp. 6.875% 2013 12,450 11,049
Rite Aid Corp. 9.25% 2013 14,050 14,015
Kraft Foods Inc. 6.25% 2012 14,000 15,133
Kraft Foods Inc. 6.50% 2031 5,000 5,709
Stater Bros. Holdings Inc. 6.91% 2010(5) 6,525 6,639
Stater Bros. Holdings Inc. 8.125% 2012 9,775 9,922
Anheuser-Busch Companies, Inc. 9.00% 2009 10,000 11,714
Anheuser-Busch Companies, Inc. 4.70% 2012 4,000 4,034
CVS Corp. 5.789% 2026(3,9) 7,229 7,620
CVS Corp. 5.298% 2027(3,9) 3,378 3,425
Playtex Products, Inc. 8.00% 2011 10,000 10,750
Pepsi Bottling Group, Inc. 5.625% 2009(3) 10,000 10,375
Cadbury Schweppes US Finance LLC 5.125% 2013(3) 10,000 9,973
SUPERVALU INC. 7.50% 2012 8,025 9,051
Kellogg Co. 7.45% 2031 5,000 6,477
Winn-Dixie Pass Through Trust, Series 1999-1, Class A-1, 5.24% 2017(3,9,12) 8,285 6,260
Gold Kist Inc. 10.25% 2014 5,306 6,029
PepsiAmericas, Inc. 4.875% 2015 6,000 5,969
Duane Reade Inc. 7.91% 2010(3,5) 6,000 5,880
Pathmark Stores, Inc. 8.75% 2012 1,870 1,868
531,254
HEALTH CARE -- 0.83%
HCA Inc. 7.125% 2006 7,785 7,967
Columbia/HCA Healthcare Corp. 7.00% 2007 6,250 6,469
Columbia/HCA Healthcare Corp. 8.85% 2007 12,500 13,176
Columbia/HCA Healthcare Corp. 7.25% 2008 1,000 1,051
HCA Inc. 5.50% 2009 20,900 20,858
Columbia/HCA Healthcare Corp. 8.70% 2010 9,500 10,567
HCA -- The Healthcare Co. 8.75% 2010 7,750 8,736
HCA -- The Healthcare Co. 7.875% 2011 40,000 44,007
Cardinal Health, Inc. 6.75% 2011 26,500 28,896
Cardinal Health, Inc. 4.00% 2015 35,000 31,902
Warner Chilcott Corp. 8.75% 2015(3) 61,065 60,607
Tenet Healthcare Corp. 6.375% 2011 17,300 16,522
Tenet Healthcare Corp. 9.875% 2014 31,625 33,997
Tenet Healthcare Corp. 9.25% 2015(3) 9,700 10,040
American Medical Response, Inc. and EmCare Holdings, Inc. 10.00% 2015(3) 29,470 31,680
Quintiles Transnational Corp. 10.00% 2013 13,050 14,616
Pharma Services Intermediate Holding Corp. 0%/11.50% 2014(7) 20,660 15,598
Aetna Inc. 7.375% 2006 22,000 22,387
Aetna Inc. 7.875% 2011 4,500 5,160
Team Health, Inc. 9.00% 2012 24,000 25,200
Health Net, Inc. 9.875% 2011(5) 19,080 22,412
Triad Hospitals, Inc. 7.00% 2012 15,000 15,750
Humana Inc. 7.25% 2006 13,375 13,679
Wyeth 4.375% 2008(5) 2,500 2,491
Wyeth 5.50% 2013(5) 6,500 6,737
Amgen Inc. 4.00% 2009 9,125 8,943
Concentra Operating Corp. 9.50% 2010 4,975 5,323
Concentra Operating Corp. 9.125% 2012 2,905 3,094
HealthSouth Corp. 8.375% 2011 1,400 1,409
HealthSouth Corp. 7.625% 2012 6,600 6,501
MedCath Holdings Corp. 9.875% 2012 3,875 4,330
500,105
ASSET-BACKED OBLIGATIONS(9) -- 0.57%
CWABS, Inc., Series 2004-12, Class 2-AV-2, 3.74% 2033(5) 11,750 11,780
CWABS, Inc., Series 2004-15, Class AF-5, 5.227% 2035 14,250 14,116
Vita Capital Ltd., Series 2003-I, 4.854% 2007(3,5) 24,000 24,094
Green Tree Financial Corp., Series 1995-3, Class B-2, 8.10% 2025(8) 13,517 3,109
Green Tree Financial Corp., Series 1995-2, Class B-2, 8.80% 2026(8) 9,716 3,984
Green Tree Financial Corp., Series 1996-2, Class B-2, 7.90% 2027(8) 9,138 23
Green Tree Financial Corp., Series 1997-6, Class B-2, 7.75% 2029(8) 7,345 18
Conseco Finance Home Loan Trust, Series 1999-G, Class B-2, 10.96% 2029(8) 17,655 16,772
Green Tree Financial Corp., Series 1998-4, Class B-2, 8.11% 2030(8) 4,493 -
ARG Funding Corp., Series 2005-2, Class A-4, AMBAC insured, 4.84% 2011(3) 20,000 20,112
Advanta Business Card Master Trust, Series 2005-A2, Class A-1, 3.47% 2013(5) 18,000 18,000
Metris Master Trust, Series 2000-3, Class A, 3.69% 2009(5) 14,428 14,442
AmeriCredit Automobile Receivables Trust, Series 2002-C, Class A-4, FSA insured, 3.55% 2009 5,000 4,975
AmeriCredit Automobile Receivables Trust, Series 2003-C-F, Class A-4, FSA insured, 3.48% 2010 9,000 8,918
AESOP Funding II LLC, Series 2002-1A, Class A-1, AMBAC insured, 3.85% 2006(3) 3,963 3,962
AESOP Funding II LLC, Series 2003-2, Class A-1, MBIA insured, 2.74% 2007(3) 8,000 7,919
Residential Asset Securities Corp. Trust, Series 2003-KS2, Class A-I-3, 2.66% 2028 153 153
Residential Asset Securities Corp. Trust, Series 2001-KS3, Class A-I-6, 5.96% 2031 8,433 8,547
Residential Asset Securities Corp. Trust, Series 2003-KS6, Class A-2, 3.76% 2033(5) 2,836 2,838
Consumer Credit Reference Index Securities Program Trust, Series 2002-2A, Class FL, 8.564% 2007(3,5) 5,000 5,045
Consumer Credit Reference Index Securities Program Trust, Series 2002-2A, Class FX, 10.421% 2007(3) 5,000 5,129
Home Equity Asset Trust, Series 2004-7, Class M-1, 4.08% 2035(5) 10,000 10,074
Prestige Auto Receivables Trust, Series 2005-1A, Class A-2, FSA insured, 4.37% 2012(3) 10,000 10,006
Triad Automobile Receivables Trust, Series 2005-A, Class A-4, AMBAC insured, 4.22% 2012 10,000 9,914
MBNA Master Credit Card Trust II, Series 1999-D, Class C, 6.95% 2008(3) 4,700 4,807
MBNA Master Credit Card Trust II, Series 2000-H, Class B, 3.988% 2013(5) 5,000 5,084
PG&E Energy Recovery Funding LLC, Series 2005-1, Class A-3, 4.14% 2012 10,000 9,886
Structured Asset Investment Loan Trust, Series 2004-BNC2, Class A-4, 3.78% 2034(5) 9,407 9,448
Mediterranean Re PLC, Class B, 9.12% 2005(3,5) 9,000 9,162
Drive Auto Receivables Trust, Series 2005-2, Class A-3, MBIA insured, 4.26% 2012(3) 8,900 8,814
First USA Credit Card Master Trust, Series 1997-4, Class C, 4.409% 2010(3,5) 6,500 6,524
First USA Credit Card Master Trust, Series 1998-6, Class C, 6.16% 2011(3) 2,000 2,070
Vanderbilt Mortgage and Finance, Inc., Series 1999-B, Class I-A-6, 6.925% 2024 7,706 8,174
MMCA Auto Owner Trust, Series 2001-4, Class B, 4.84% 2008 955 955
MMCA Auto Owner Trust, Series 2002-4, Class A-4, 3.05% 2009 4,264 4,233
MMCA Auto Owner Trust, Series 2002-4, Class B, 3.82% 2009 2,452 2,436
Ameriquest Mortgage Securities Inc., Series 2003-12, Class M-1, 4.21% 2033(5) 7,000 7,069
WFS Financial Owner Trust, Series 2002-3, Class A-4, 3.50% 2010 6,898 6,871
CitiFinancial Mortgage Securities Inc., Series 2003-3, Class AF-5, 4.553% 2033 6,500 6,431
Banco Itau SA, Series 2002, XLCA insured, 3.996% 2007(3,5) 6,122 6,122
PIONEER 2002 Ltd., Series 2002-I, Class D, 5.16% 2006(3,5) 6,000 6,026
Centex Home Equity Loan Trust, Series 2003-A, Class AF-3, 2.708% 2026 706 705
Centex Home Equity Loan Trust, Series 2005-A, Class AF-3, 4.14% 2028 5,000 4,927
Specialty Underwriting and Residential Finance Trust, Series 2004-BC4, Class A-2B, 3.77% 2035(5) 5,000 5,009
Chevy Chase Auto Receivables Trust, Series 2001-2, Class B, 5.16% 2008 4,332 4,349
CPS Auto Receivables Trust, Series 2002-C, Class A-2, XLCA insured, 3.52% 2009(3) 3,779 3,763
Long Beach Mortgage Loan Trust, Series 2004-A, Class M-3, 4.41% 2024(5) 3,500 3,531
Drivetime Auto Owner Trust, Series 2003-A, Class A-3, XLCA insured, 2.524% 2008(3) 2,600 2,584
California Infrastructure and Economic Development Bank, Special Purpose Trust, PG&E-1,
Series 1997-1, Class A-7, 6.42% 2008 2,470 2,506
Financial Pacific Funding II, LLC, Series 2003-A, Class A, FSA insured, 2.29% 2009(3) 2,495 2,457
SeaWest Securitization, LLC, Series 2002-A, Class A-3, XLCA insured, 3.58% 2008(3) 698 697
SeaWest Securitization, LLC, Series 2003-A, Class A-2, XLCA insured, 2.84% 2009(3) 1,121 1,113
Nebhelp Trust, Student Loan Interest Margin Securities, Series 1, Class A, MBIA insured, 6.68% 2016(3) 1,326 1,350
PECO Energy Transition Trust, Series 1999-A, Class A-7, 6.13% 2009 1,250 1,300
NPF XII, Inc., Series 1999-3, Class B, 2.389% 2003(3,5,10) 3,000 0
NPF XII, Inc., Series 2001-1A, Class A, 1.989% 2004(3,5,10) 5,000 200
NPF XII, Inc., Series 2001-3, Class A, 5.52% 2007(3,8) 1,000 40
342,573
NON-U.S. GOVERNMENT BONDS & NOTES -- 0.26%
United Mexican States Government Global 4.625% 2008 10,000 9,958
United Mexican States Government Global 8.625% 2008 5,000 5,500
United Mexican States Government Eurobonds, Global 8.375% 2011 3,000 3,449
United Mexican States Government Eurobonds, Global 7.50% 2012 6,310 7,064
United Mexican States Government Global 6.375% 2013 7,500 7,946
United Mexican States Government Global 11.375% 2016 29,684 43,561
United Mexican States Government Global 8.125% 2019 2,061 2,497
United Mexican States Government Global 8.30% 2031 1,965 2,434
United Mexican States Government Global 7.50% 2033 2,833 3,249
Russian Federation 8.25% 2010 25,250 27,502
Russian Federation 8.25% 2010(3) 10,000 10,892
Russian Federation 5.00% 2030(5) 7,770 8,644
State of Qatar 9.75% 2030 9,000 13,635
El Salvador (Republic of) 7.75% 2023 3,000 3,383
El Salvador (Republic of) 7.75% 2023(3) 1,250 1,409
Banque Centrale de Tunisie 7.375% 2012 3,500 3,968
155,091
MUNICIPALS -- 0.10%
State of California, Golden State Tobacco Securitization Corp., Tobacco
Settlement Asset-backed Bonds, Series 2003-A1, 6.25% 2033 19,750 22,031
State of New Jersey, Tobacco Settlement Financing Corp., Tobacco Settlement
Asset-backed Bonds, Series 2003, 4.375% 2019 1,945 1,973
State of New Jersey, Tobacco Settlement Financing Corp., Tobacco Settlement
Asset-backed Bonds, Series 2003, 6.125% 2024 9,625 10,901
State of Wisconsin, Badger Tobacco Asset Securitization Corp., Tobacco Settlement
Asset-backed Bonds, 6.125% 2027 9,125 9,830
State of Louisiana, Tobacco Settlement Financing Corp., Tobacco Settlement
Asset-backed Bonds, Series 2001-A, Class A, 6.36% 2025 4,805 4,804
State of California, Department of Water Resources, Power Supply Revenue Bonds,
Series 2002-E, 4.33% 2006 4,500 4,502
State of South Dakota, Educational Enhancement Funding Corp., Tobacco Settlement
Asset-backed Bonds, Series 2002-A, Class A, 6.72% 2025 4,383 4,317
58,358
MISCELLANEOUS -- 0.01%
Other bonds & notes in initial period of acquisition 4,336
Total bonds & notes (cost: $13,066,611,000) 13,296,315
Short-term securities -- 7.29%
Federal Home Loan Bank 3.08%-3.425% due 8/5-10/14/2005 383,000 381,479
Freddie Mac 3.07%-3.455% due 8/1-10/18/2005 337,200 335,877
Procter & Gamble Co. 3.20%-3.33% due 8/23-9/14/2005(3,13) 250,900 250,116
CAFCO, LLC 3.18%-3.44% due 8/12-9/14/2005(3) 175,000 174,426
Ciesco LLC 3.18% due 8/12/2005(3) 50,000 49,947
Park Avenue Receivables Co., LLC 3.21%-3.29% due 8/10-8/17/2005(3) 120,800 120,659
Preferred Receivables Funding Corp. 3.34%-3.45% due 9/20/2005(3) 100,000 99,524
DuPont (E.I.) de Nemours & Co. 3.20%-3.30% due 8/12-9/2/2005 214,235 213,750
Variable Funding Capital Corp. 3.12%-3.47% due 8/2-9/27/2005(3) 207,400 206,817
Wal-Mart Stores Inc. 3.10%-3.49% due 8/10-10/4/2005(3) 200,800 200,140
Wells Fargo & Co. 3.13%-3.45% due 8/4-9/21/2005 190,600 190,598
Edison Asset Securitization LLC 3.16% due 8/5/2005(3) 50,000 49,978
General Electric Capital Corp. 3.27% due 8/24/2005 50,000 49,895
General Electric Capital Services, Inc. 3.31% due 8/29/2005 50,000 49,867
General Electric Co. 3.47% due 9/28/2005 35,000 34,804
Bank of America Corp. 3.20%-3.50% due 8/9-10/7/2005 150,000 149,521
Ranger Funding Co. LLC 3.27% due 8/11/2005(3) 25,000 24,975
Clipper Receivables Co., LLC 3.28%-3.44% due 8/19-9/13/2005(3) 175,000 174,481
International Lease Finance Corp. 3.23%-3.42% due 8/16-9/23/2005 119,000 118,682
American General Finance Corp. 3.17% due 8/8/2005 25,000 24,982
Gannett Co. 3.10%-3.37% due 8/11-9/8/2005(3) 125,000 124,654
Three Pillars Funding, LLC 3.28%-3.44% due 8/1-9/26/2005(3) 112,495 112,261
IBM Corp. 3.22%-3.24% due 8/11-8/26/2005 104,000 103,825
HSBC Finance Corp. 3.23%-3.40% due 8/19-9/26/2005 103,900 103,620
International Bank for Reconstruction and Development 3.05%-3.30% due 8/15-9/26/2005 100,000 99,668
Tennessee Valley Authority 3.21%-3.22% due 9/15/2005 100,000 99,551
Triple-A One Funding Corp. 3.34%-3.44% due 8/15-9/8/2005(3) 90,052 89,820
Anheuser-Busch Companies, Inc. 3.14%-3.48% due 8/9-10/17/2005(3) 89,500 89,211
American Express Credit Corp. 3.21%-3.23% due 8/17-8/29/2005 75,700 75,538
Coca-Cola Co. 3.10%-3.22% due 8/8-8/18/2005 69,700 69,633
PepsiCo Inc. 3.19%-3.28% due 8/3-8/18/2005(3) 64,800 64,746
Private Export Funding Corp. 3.53%-3.54% due 10/26/2005(3) 65,000 64,448
NetJets Inc. 3.33%-3.50% due 9/6-9/29/2005(3) 55,000 54,768
USAA Capital Corp. 3.13%-3.23% due 8/1-8/15/2005 50,000 49,963
FCAR Owner Trust I 3.25%-3.38% due 8/15-9/12/2005 50,000 49,865
Hershey Co. 3.28%-3.29% due 8/16-8/31/2005(3) 42,400 42,316
Colgate-Palmolive Co. 3.22% due 8/4/2005(3) 39,100 39,086
U.S. Treasury Bills 2.923%-2.975% due 8/11-9/1/2005 36,900 36,817
Illinois Tool Works Inc. 3.22% due 8/3/2005 35,000 34,991
Bank of New York Co., Inc. 3.31% due 8/25/2005 25,000 24,943
BellSouth Corp. 3.37% due 9/9/2005(3) 25,000 24,906
Harvard University 3.38% due 9/21/2005 25,000 24,878
United Parcel Service Inc. 3.21% due 8/2/2005 5,200 5,199
Total short-term securities (cost: $4,385,264,000) 4,385,225
Total investment securities (cost: $52,717,827,000) 59,941,721
Other assets less liabilities 209,847
Net assets $60,151,568
"Miscellaneous" securities include holdings in their initial period of
acquisition that have not previously been publicly disclosed.
(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 such restricted securities was
$4,916,930,000, which represented 8.17% 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 securities backed by a pool of mortgages or other loans on
which principal payments are periodically made. Therefore, the effective
maturities are shorter than the stated maturities.
(10) Company did not make principal payment upon scheduled maturity date;
reorganization pending.
(11) Index-linked bond whose principal amount moves with a government retail
price index.
(12) Scheduled interest payments not made; reorganization pending.
(13) 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON DETAILED SCHEDULE OF
INVESTMENTS
To the Shareholders and Board of Directors of
The Income Fund of America, Inc.:
We have audited, in accordance with standards of the Public Company Accounting
Oversight Board (United States), the financial statements of The Income Fund of
America, Inc. (the "Fund") as of July 31, 2005, and for the year then ended and
have issued our report thereon dated September 9, 2005, which report and
financial statements are included in Item 1 of this Certified Shareholder Report
on Form N-CSR. Our audit also included the Fund's investment portfolios (the
"Schedule") as of July 31, 2005 appearing in Item 6 of this Form N-CSR. This
Schedule is the responsibility of the Fund's management. Our responsibility is
to express an opinion based on our audit. In our opinion, the Schedule referred
to above, when considered in relation to the basic financial statements taken as
a whole of the Fund referred to above, presents fairly, in all material
respects, the information set forth therein.
DELOITTE & TOUCHE LLP
September 9, 2005
Costa Mesa, California
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 - Portfolio Managers of Closed-End Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end
management investment company.
ITEM 9 - 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 10 - 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 11 - 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 second fiscal quarter of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the Registrant's internal control
over financial reporting.
ITEM 12 - Exhibits
(a) (1) The Code of Ethics that is the subject of the disclosure required by
Item 2 is attached as an exhibit hereto.
(a) (2) 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 7, 2005
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 7, 2005
By /s/ Jennifer M. Buchheim
- ---------------------------------------
Jennifer M. Buchheim, Treasurer and PFO
Date: October 7, 2005