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- 5364
American High-Income Trust
(Exact Name of Registrant as specified in charter)
333 South Hope Street
Los Angeles, California 90071
(Address of principal executive offices)
Registrant's telephone number, including area code: (213) 486-9200
Date of fiscal year end: September 30, 2003
Date of reporting period: September 30, 2003
Julie F. Williams
Capital Research and Management Company
333 South Hope Street
Los Angeles, California 90071
(name and address of agent for service)
Copies to:
Robert E. Carlson, Esq.
Paul, Hastings, Janofsky & Walker LLP
515 South Flower Street
Los Angeles, California 90071
(Counsel for the Registrant)
ITEM 1 - Reports to Stockholders
[logo - American Funds(R)]
The right choice for the long term(R)
AMERICAN HIGH-INCOME TRUST
[cover: man looking through report]
Special report: Managing a return to realistic expectations
Annual report for the year ended September 30, 2003
AMERICAN HIGH-INCOME TRUSTSM seeks a high level of current income and,
secondarily, capital appreciation through a diversified, carefully supervised
portfolio consisting primarily of lower rated, higher risk corporate bonds.
The fund is one of the 29 American Funds, the nation's third-largest mutual fund
family. For more than seven decades, Capital Research and Management Company,SM
the American Funds adviser, has invested with a long-term focus based on
thorough research and attention to risk.
Table of contents
Letter to shareholders 1
Results at a glance 1
Chart: The value of a long-term perspective 3
Feature: Managing a return to realistic expectations 4
Our multiple portfolio counselor system 9
Investment portfolio 10
Financial statements 28
Board of Trustees and officers 40
The American Funds family back cover
Fund results in this report were calculated for Class A shares at net asset
value (without a sales charge) unless otherwise indicated. Please see page 3 for
Class A share results with sales charges deducted. Results for other share
classes can be found on page 39. Please see the inside back cover for important
information about other share classes.
FIGURES SHOWN ARE PAST RESULTS AND ARE NOT PREDICTIVE OF FUTURE RESULTS. CURRENT
RESULTS MAY BE LOWER OR HIGHER THAN THOSE SHOWN. SHARE PRICE AND RETURN WILL
VARY, SO YOU MAY LOSE MONEY. INVESTING FOR SHORT PERIODS MAKES LOSSES MORE
LIKELY. INVESTMENTS ARE NOT FDIC-INSURED, NOR ARE THEY DEPOSITS OF OR GUARANTEED
BY A BANK OR ANY OTHER ENTITY. FOR MORE CURRENT INFORMATION AND MONTH-END
RESULTS, VISIT AMERICANFUNDS.COM. High-yield bonds are subject to greater
fluctuations in value and risk of loss of income and principal. Investing
outside the United States involves additional risks, such as currency
fluctuations, political instability, differing securities regulations and
periods of illiquidity, which are detailed in the fund's prospectus.
[photograph: man on the phone looking through report]
[Begin Sidebar]
Because of the volatility of the market, we emphasize that investing in the
high-yield bond market should be viewed as a long-term commitment.
[End Sidebar]
FELLOW SHAREHOLDERS:
A combination of factors, including an improving economy, stronger balance
sheets and greater availability of credit, led to a sharp recovery in corporate
bond prices and helped American High-Income Trust to post the strongest
fiscal-year results of its lifetime.
Shareholders who reinvested monthly dividends totaling 91.5 cents a share earned
a total return of 34.3% for the 12 months ended September 30, 2003, including an
income return of 9.9%. Those results outpaced both the 26.5% gain for the Lipper
High Current Yield Bond Funds Index, a benchmark of similar funds, and the 28.0%
return for the Credit Suisse First Boston High Yield Bond Index, which attempts
to mirror the high-yield debt markets. The Citigroup Broad Investment-Grade
(BIG) Bond Index, which measures high-quality bond markets including Treasuries,
posted a 5.5% return. The latter two indexes are unmanaged and include no
expenses.
Shareholders who elected to take their dividends in cash saw the value of their
holdings increase 23.5% while also earning an income return of 9.5%.
A TIME OF OPPORTUNITY
The past two years are a good example of how volatile the high-yield bond market
can be. This year's exceptional returns follow the fund's 5.9% negative return
in fiscal 2002, the worst year of its lifetime. That year, an unusually
difficult corporate debt market brought corporate bond prices down to levels
that were not justified by underlying fundamentals. Credit concerns were high,
defaults were growing and demand for high-yield bonds waned.
During this time, the fund's portfolio counselors and analysts took advantage of
the depressed market by buying the bonds of good companies at attractive values,
and holding them even as they dropped further in value.
Shortly after the start of the fund's fiscal year on October 1, 2002, the market
began to change. As companies took steps to solve their liquidity problems and
improve their balance sheets, credit markets became more accessible and demand
for high-yield bonds increased. Consequently, corporate bond prices began to
rise. Some of the areas that were hardest hit in 2002 have provided superior
returns in this recent period, including many companies in the wireless,
telecommunications, cable and media sectors. The success of many of these
holdings emphasizes the value of meticulous research and maintaining a long-term
perspective, particularly during difficult periods.
[Begin Sidebar]
Results at a glance
Total returns for periods ended September 30, 2003, with all distributions
reinvested. The market indexes are unmanaged.
5 YEARS 10 YEARS
1 YEAR ANNUALIZED ANNUALIZED
RETURNS
American High-Income Trust +34.3% +6.8% +7.4%
Credit Suisse First Boston
High Yield Bond Index +28.0 +5.8 +7.2
Citigroup Broad Investment-
Grade (BIG) Bond Index +5.5 +6.6 +6.9
Lipper High Current Yield
Bond Funds Index +26.5 +2.4 +5.1
30-DAY RATES (AS OF OCTOBER 31, 2003)
Yield based on Securities and Exchange
Commission formula 6.01%
Distribution rate based on
maximum offering price 6.75
Distribution rate based on
net asset value 7.01
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.
For the 10 years ended September 30, 2003, American High-Income Trust ranked 3rd
in total return among the 69 high current yield funds in existence throughout
the period, according to Lipper. For the five years ended September 30, it
ranked 18th of 238, and for the 12 months ended September 30, the fund ranked
23rd of 395. Lipper rankings do not reflect the effect of sales charges.
[End Sidebar]
[Begin Sidebar]
Some of the areas that were hardest hit in 2002 have provided superior returns
in this recent period, including many companies in the wireless,
telecommunications, cable and media sectors.
[End Sidebar]
A COMMITMENT TO RESEARCH
Our goal is to invest to produce reasonable long-term returns. We understand the
volatility of the high-yield bond market, and we manage the fund's portfolio
with that in mind. As a result, we do not chase bonds with the highest yields.
Rather, we look for companies that we believe can weather a variety of business
climates and still meet their debt obligations.
One challenge is to continue to find attractive investment opportunities in a
low-yielding environment. Because many of our holdings have enjoyed significant
capital appreciation over the past period, we are searching out new areas that
can offer investment value going forward.
For more information on this year's results and how the fund's portfolio
counselors are guiding the fund in the current environment, please see the
article on page 4.
LOOKING AHEAD
While we are pleased with the fund's exceptional returns for the past 12 months,
we also want to remind shareholders that such results are not likely to be
repeated in the period ahead. As we have mentioned in previous reports, the
inevitable price fluctuations in the high-yield bond market make this fund most
appropriate for investors who are comfortable with the degree of risk usually
associated with an equity investment.
Because of the volatility of the market, we also emphasize that investing in the
high-yield bond market should be viewed as a long-term commitment. Over the
years, our research-driven investment process and long-term outlook have allowed
American High-Income Trust to provide shareholders with solid returns. For the
past 10-year period, shareholders have earned an average annual return of 7.4%,
with dividends reinvested. That compares to a 5.1% return for the Lipper High
Current Yield Bond Funds Index and a 7.2% return for the Credit Suisse First
Boston High Yield Bond Index.
We welcome the many new shareholders who have joined the fund during the past
year, helping to increase the fund's assets by 105% and the number of
shareholder accounts by 83%. We thank you for your support.
Cordially,
/s/ Paul G. Haaga, Jr. /s/ David C. Barclay
Paul G. Haaga, Jr. David C. Barclay
Chairman of the Board President
November 14, 2003
[Begin Sidebar]
As reported in the press, instances of excessive short-term trading and illegal
"late trading" (trading after 4 p.m. Eastern time) have been discovered at a
number of different fund companies. In several of those cases, fund personnel
engaged in or permitted these activities in clear violation of regulatory
requirements and strict internal policies. This sort of conduct is unethical and
detrimental to long-term shareholders. We will not tolerate it at American
Funds. Although it is often difficult to detect and prevent abusive trading
practices, we are committed to taking action to combat this harmful activity
wherever we find it.
[End Sidebar]
THE VALUE OF A LONG-TERM PERSPECTIVE
Here's how a $10,000 investment in American High-Income Trust grew between
February 19, 1988, when the fund began operations, and September 30, 2003, the
end of its latest fiscal year. As you can see, that $10,000 grew to $38,197 with
all distributions reinvested.
[begin mountain chart]
Year ended September 30
Credit Suisse Lipper High
First Boston Yield Bond Citigroup Broad Consumer
Year American High- High Yield Funds Investment-Grade Price Index Original
Ended Income Trust(2) Index(1) Index(1),(3) (BIG) Bond Index(1) (inflation)(4) Investment
<s> <c> <c> <c> <c> <c> <c>
1988(*) $10,182 $10,446 $10,475 $10,222 $10,328 $10,000
1989 $11,189 $11,026 $10,935 $11,367 $10,776 $10,000
1990 $10,735 $10,046 $9,570 $12,237 $11,440 $10,000
1991 $13,873 $13,757 $12,290 $14,198 $11,828 $10,000
1992 $16,376 $16,572 $15,132 $15,999 $12,181 $10,000
1993 $18,764 $19,171 $17,473 $17,627 $12,509 $10,000
1994 $19,066 $19,831 $17,899 $17,063 $12,879 $10,000
1995 $21,604 $22,617 $20,178 $19,461 $13,207 $10,000
1996 $24,570 $25,053 $22,644 $20,423 $13,603 $10,000
1997 $28,176 $28,992 $26,120 $22,406 $13,897 $10,000
1998 $27,491 $28,841 $25,688 $24,975 $14,103 $10,000
1999 $29,721 $29,979 $27,037 $24,908 $14,474 $10,000
2000 $31,295 $30,555 $27,021 $26,632 $14,974 $10,000
2001 $30,218 $29,049 $23,569 $30,110 $15,371 $10,000
2002 $28,442 $29,876 $22,814 $32,632 $15,603 $10,000
2003 $38,197 $38,257 $28,862 $34,423 $15,966 $10,000
[end mountain chart]
*For the period February 19 through September 30, 1988.
(1) The index is unmanaged and does not reflect sales charges, commissions or
expenses.
(2) Results reflect payment of the maximum sales charge of 3.75% on the $10,000
investment. Thus, the net amount invested was $9,625. As outlined in the
prospectus, the sales charge is reduced for larger investments. The maximum
sales charge was 4.75% prior to January 10, 2000.
(3) Calculated by Lipper, at net asset value.
(4) Computed from data supplied by the U.S. Department of Labor, Bureau of
Labor Statistics.
Past results are not predictive of future results. The results shown are before
taxes on fund distributions and sale of fund shares.
Fund results in this report were calculated for Class A shares at net asset
value (without a sales charge) unless otherwise indicated. Here are the average
annual total returns on a $1,000 investment with all distributions reinvested
for periods ended September 30, 2003:
1 year 5 years 10 years
Class A shares
Reflecting 3.75% maximum sales charge +29.33% +5.98% +6.96%
Results for other share classes can be found on page 39. For the most current
investment results, please refer to americanfunds.com
MANAGING A RETURN TO REALISTIC EXPECTATIONS
Following two consecutive years of negative returns, shareholders in high-yield
bond funds enjoyed some of the best gains in the bond market for much of this
fiscal year. As a result, demand for high-yield bond funds skyrocketed. American
High-Income Trust posted a total return of 34.3% for fiscal 2003, the best year
of its lifetime. These strong returns are not likely to be sustained going
forward. Over the past 10-year period, American High-Income Trust has returned
an average 7.4% a year, while the Lipper High Current Yield Bond Funds Index has
reported a 5.1% average annual return for the same period ended September 30,
2003.
We asked the three portfolio counselors who manage American High-Income Trust to
offer their insights on the fund's strong return over the past 12 months and
their approach to guiding the fund in the period ahead.
PUTTING THE YEAR'S RETURNS IN PERSPECTIVE
"The first thing shareholders should understand is that the recent returns are
not repeatable," says David Barclay, president of American High-Income Trust.
The double-digit returns, he says, were the result of several factors. First,
the start of the fiscal year on October 1, 2002, roughly coincided with the
bottom of the stock market and a severe cyclical depression in corporate bond
prices. During fiscal 2002, liquidity had become extremely tight, credit
concerns were high and defaults were rising. "There were concerns that
borrowers, even those with solid income and financial statements, would not be
able to raise the money needed to meet their debt obligations," says David.
[Begin Sidebar]
COMPARING YIELDS
How American High-Income Trust's yield compares to investment-grade bond funds
[begin bar chart]
Year American High- Corporate A Rated Rate of
Income Trust (1) Debt Funds (1) Inflation (2)
1989 11.39% 8.53% 4.3%
1990 13.41 8.57 6.2
1991 10.93 7.74 3.4
1992 9.10 7.02 3.0
1993 8.59 6.23 2.7
1994 8.66 6.65 3.0
1995 9.27 6.23 2.5
1996 8.83 6.24 3.0
1997 7.90 6.05 2.2
1998 9.54 5.58 1.5
1999 9.62 5.72 2.6
2000 10.08 5.96 3.5
2001 10.94 5.53 2.6
2002 11.23 4.98 1.5
2003 7.72 4.04 2.3
Year ended September 30
[end bar chart]
(1) 12-month yield at net asset value as measured by Lipper
(2) Source: Consumer Price Index, U.S. Dept. of Labor, Bureau of Labor
Statistics
[End Sidebar]
[photograph: open book]
[Begin Sidebar]
"We look at bonds over full three- to four- year cycles," says Susan Tolson. "We
devise stress tests to see if they can endure several economic scenarios."
[End Sidebar]
As a result, the market experienced a significant decline in prices that was not
warranted on a fundamental basis. In response, the fund's managers took this
opportunity to purchase bonds of companies that had been beaten down in price,
but that they believed had a sound capital structure. "It wasn't that they had
too much debt in general, but that they had too much debt during a period in
which refinancing was so difficult," says David. "This created good investment
opportunities."
As the issues related to liquidity and corporate credit diminished, the prices
of many high-yield issues bounced back. "In October 2002, the environment
changed considerably," says Abner Goldstine, a portfolio counselor in the fund.
"Capital markets became more readily accessible, allowing companies to borrow.
Concerns over whether companies could access credit markets and meet their
maturity and coupon obligations were abated, and the markets opened."
Consequently, worries about bankruptcies eased and the whole psychology of the
high-yield market began to turn around. "Investors who had been skittish about
owning high-yield bonds flocked to the market," says Abner. In turn, the prices
of many high-yield bonds rose significantly during the year, boosting overall
returns.
BUILDING THE PORTFOLIO FROM THE BOTTOM UP
Throughout the downturn in 2002, the three portfolio counselors stood by their
time-tested approach: build the fund's portfolio from the bottom up, issuer by
issuer. "We don't chase yield," says David. "We look for companies with strong
fundamentals that can survive in many different business climates."
The fund's consistent analytic approach set the stage for the huge returns it
enjoyed in fiscal 2003. The fund's managers are always looking for companies or
industries that may be temporarily out of favor or have strengths not apparent
to others. Often, these can be the best opportunities for capital appreciation
once market conditions improve, the issuer's success becomes clearer and, under
optimum conditions, the bonds are upgraded to a higher rating.
[Begin Sidebar]
The role of a high-yield bond fund in a diversified portfolio
There are many reasons why a high-yield bond fund serves as an important part of
a diversified portfolio. Historically, high-yield bond funds have offered a
higher level of income than investment-grade bond funds and have had less
volatility than stocks. Moreover, interest and income are contractual
obligations, which makes them more predictable over the long term than
dividends.
"The biggest misperception I hear most is that high-yield bonds are risky in
comparison with every other investment, including equities," says David Barclay,
president of American High-Income Trust. "That's just not the case."
Rather, they offer a combination of bond and equity risk. Over the long run,
high-yield bonds have provided somewhat lower returns than equities with lower
price volatility and higher returns than high-quality bonds with somewhat higher
price volatility.
In a low interest rate environment, where money market funds (which offer
stability of principal) are hovering below 1% and investment-grade bond yields
barely exceed the rate of inflation, a high-yield bond fund can be a valuable
part of an overall portfolio. For information on how the fund's yield compares
to investment-grade bonds and the rate of inflation, see the chart on page 4.
Another reason to invest in a high-yield bond fund is that it offers
diversification from other asset classes. Consider the market cycle from the
stock market low on August 31, 1998, to the low on October 9, 2002. While the
Standard & Poor's 500 Composite Index endured a 14.3% loss, American High-Income
Trust posted a gain of 0.2%, as shown in the chart below.
COMPARING MARKET CYCLES
A good test of a mutual fund is how it does over a full market cycle -- for
example, from market high to market high or market low to market low. Here are
total returns, with distributions reinvested, for American High-Income Trust and
the S&P 500 over the most recent stock market cycle, plus the periods from
market high to market low and market high to the fiscal year-end.
High-to-
Low-to-low High-to-low fiscal year-end
8/31/98-10/9/02 3/24/00-10/9/02 3/24/00-9/30/03
American High-Income Trust +0.2% -11.4% +22.8%
S&P 500 Composite Index -14.3% -47.4% -31.3%
Data based on price decline of 15% or more in the S&P 500. The most current
decline has not fully recovered.
[End Sidebar]
In 2002, the bonds of telecommunications companies offered such an opportunity.
The prices of many of these bonds had been hit hard due to concerns about slower
growth and access to capital. The fund's managers, believing that the underlying
fundamentals of many of these issuers were strong and offered attractive return
possibilities, invested in many of these bonds and held them even as their
prices declined further that summer. Although those holdings hurt returns for
fiscal 2002, those same investments have since paid off handsomely, with that
portion of the portfolio posting among the strongest gains for fiscal 2003.
[photograph: pencil on top of stacked tablets of paper]
[Begin Sidebar]
"In October 2002, the environment changed considerably," says Abner Goldstine.
"Investors who had been skittish about owning high-yield bonds flocked to the
market."
[End Sidebar]
"We do not buy bonds from year to year," says Susan Tolson, another portfolio
counselor for the fund. "We analyze an investment for its potential three to
four years out."
FOCUSING ON THE LONG TERM
A long-term outlook is all the more important now. Over the course of the past
12 months, the high-yield bond market has shifted toward a more typical
environment -- and that means a return to more normal returns going forward. "We
can't expect the same sort of recovery or bounce back in prices that we saw this
past year," says David. "That means looking more at companies with long-term
potential."
Although the environment for bonds means that there is less potential upside,
there are also many positive factors currently at work in the high-yield bond
market, including an economic recovery, the possibility of higher revenues,
stronger corporate balance sheets, fewer defaults and, at least for now, low
borrowing costs.
"The market is probably primed to return its coupon (or interest payment)," says
Susan. That means prices are unlikely to change much over the near term and that
most gains will likely come from income on the interest payments. Because there
are fewer companies that are undervalued in today's market and capital
appreciation will be more difficult to achieve, "we must continue to focus on
those companies where we are being paid to take the risk," she says.
A RESEARCH-DRIVEN APPROACH
Typically, high-yield bonds experience significant price fluctuations over time.
During some periods, high-yield bonds may appreciate in value; during other
periods, they may decline. As a result, the return on high-yield bonds over long
periods of time has historically approximated the coupon. For example, American
High-Income Trust's 9.2% average annual total return since its inception on
February 19, 1988, is roughly equivalent to its 9.4% average annual yield for
that same period.
Avoiding defaults, therefore, is key to protecting return. For that reason,
research is critical when investing in the high-yield bond market.
"We focus on fully understanding the companies in which we invest so that we can
weigh the nature of their risks against their potential returns," says David.
"We try to pick companies we believe will be able to meet their debt
obligations, even in difficult times. This means scrutinizing a company's cash
flow as well as analyzing the management's commitment to fostering good
relations with its creditors."
Unlike investment-grade issuers, which typically have a number of options
available to them when there is a financial setback -- including the opportunity
to increase their debt load -- below investment-grade issuers often have fewer
options. Hence, many considerations enter into finding issuers able to meet
their debt obligations. "We look at bonds over full three- to four-year cycles,"
says Susan. "We devise stress tests to see if they can endure several economic
scenarios. We build models, make growth estimates, and ask, what if we're wrong?
What if the market does not improve?"
[photograph: eyeglasses on top of document]
[Begin Pull Quote]
"We focus on fully understanding the companies in which we invest so that we can
weigh the nature of their risks against their potential returns," says David
Barclay. "We try to pick companies we believe will be able to meet their debt
obligations, even in difficult times."
[End Pull Quote]
This commitment to research is not limited to the U.S. market. To find the best
investment opportunities for shareholders, the fund's analysts research
opportunities around the globe. "We have global analysts who are fully
integrated with their equity counterparts," says Susan, "which helps us to spot
trends and gives us access to companies we may not otherwise have had."
HOW RISING INTEREST RATES MAY AFFECT THE PORTFOLIO
At any given time, the market price of bonds is influenced by a variety of
market conditions, including the general level of interest rates. Like all other
bonds, high-yield bond prices usually move in the opposite direction from
interest rates. Rising rates typically cause bond prices to decline, while
declining rates typically cause prices to rise.
Yet, while high-yield bonds can be negatively affected by an increase in
interest rates, they often fare better than investment-grade bonds when rising
rates are accompanied by strong economic growth. A thriving economy tends to
benefit lower quality issuers because they have the chance to improve their
revenues and businesses, as well as their credit standing. In many ways, this
helps to mitigate the impact of rising rates. In addition, the higher coupons
offered by lower quality bonds help to cushion the negative effects of rising
interest rates.
Of course, the actual effect a rising-rate environment will have on the
high-yield bond market and American High-Income Trust in particular is unclear.
"It can vary," says David. "Rising rates are difficult for the bond market.
While high-yield bonds are not immune, they will likely fare better than other
parts of the fixed-income market."
A PROVEN TRACK RECORD
Dealing with the ups and downs of the stock and bond markets is nothing new to
American High-Income Trust, whose long-term, consistent approach has allowed it
to become one of the oldest high-yield bond funds on the market. Although there
are 422 high-yield bond funds in existence today, only 69 have been around for a
decade or longer, and just 42 have been around since 1988, the year this fund
was formed. Of those 42 funds that were around 15 years ago, American
High-Income Trust ranks in the top 5% in terms of results through September 30,
2003, according to Lipper.
The past few years in particular have proven to be a volatile period for the
fund and the high-yield bond market. After the fund's worst fiscal year in 2002,
when it posted a 5.9% loss, the fund enjoyed the best year of its lifetime in
fiscal 2003. Over the long run, the fund has generated an attractive return for
shareholders. Since its inception on February 19, 1988, American High-Income
Trust has returned an average annual return of 9.2% as of September 30, 2003,
with dividends reinvested, compared with a 7.0% average annual return for the
Lipper High Current Yield Bond Funds Index.
"This fund has been around through good times and bad times," says David. "Our
consistent approach, attention to risk and long-term perspective has allowed the
fund to not only survive, but to provide a relatively consistent source of
income and solid returns for shareholders over the years."
[Begin Sidebar]
A UNIQUE MANAGEMENT SYSTEM
American High-Income Trust is managed in a unique fashion -- as are all American
Funds -- using a method we call the multiple portfolio counselor system. Each
individual in the group is entrusted with a segment of the portfolio to manage
as he or she deems appropriate, within the objective of the fund. What makes the
system special is that it enables counselors to consult with each other, yet
follow their own highest convictions.
It also provides for diverse viewpoints and leads to consistent results.
Transition of fund management from one generation to the next becomes almost
seamless. Another segment of the fund, as shown in the pie chart, is managed
directly by the fund's research analysts, each contributing to the portfolio in
his or her own area of expertise. Those contributions, in turn, signal to
counselors the degree of an analyst's conviction.
[illustration of a pie with four segments, one segment highlighted to
show research analysts' segment]
[Begin Caption]
research analysts
[photograph: David C. Barclay]
[Begin Photo Caption]
David C. Barclay, Los Angeles
22 years of investment experience
[End Photo Caption]
[photograph: Abner D. Goldstine]
[Begin Photo Caption]
Abner D. Goldstine, Los Angeles
51 years of investment experience
[End Photo Caption]
[photograph: Susan M. Tolson]
[Begin Photo Caption]
Susan M. Tolson, Los Angeles
15 years of investment experience
[End Photo Caption]
Sizes of portfolio segments shown do not reflect actual asset allocations.
[End Sidebar]
INVESTMENT PORTFOLIO September 30, 2003
[begin pie chart]
% of Net Assets
U.S. corporate bonds 76.7 %
Non-U.S. corporate bonds 12.3
U.S. Government obligations 1.3
Non-U.S. government bonds 2.6
Common stocks & warrants 2.3
Cash & equivalents 4.4
Other 0.4
[end pie chart]
TEN LARGEST HOLDINGS
% of Net Assets
Dobson Communications 3.1
American Tower Systems 2.0
Edison International 1.7
Crown Castle International 1.6
Delhaize America 1.5
J.C. Penney Co. 1.4
AES 1.4
Nextel Partners 1.4
Qwest Services 1.4
Georgia-Pacific 1.4
PRINCIPAL MARKET
AMOUNT (000) VALUE
BONDS, NOTES & equity securities OR SHARES (000)
WIRELESS TELECOMMUNICATION SERVICES - 12.55%
Dobson Communications Corp.:
Series F, 6.00% convertible preferred (1) 57,760 shares $ 11,668
12.25% senior exchangeable preferred 2008 (2) 61,968 65,822
13.00% senior exchangeable preferred 2009 (2) 27,329 28,422
8.875% 2013 (1) $ 38,835 39,466
American Cellular Corp. 10.00% 2011 (1) 61,050 65,934
American Tower Corp.:
6.25% convertible notes 2009 6,750 6,463
9.375% 2009 105,850 108,496
5.00% convertible debentures 2010 25,925 23,559
American Towers, Inc. 0%/12.25% 2008 (3) 38,250 25,627
Crown Castle International Corp.:
12.75% senior exchangeable preferred 2010 (2) (4) 5,757 shares 6,218
9.00% 2011 $ 11,770 12,211
9.375% 2011 15,750 16,892
0%/10.375% 2011 (3) 46,000 46,460
10.75% 2011 20,000 22,300
0%/11.25% 2011 (3) 27,100 27,100
Nextel Partners, Inc.:
12.50% 2009 13,765 15,761
11.00% 2010 24,375 26,751
8.125% 2011 (1) 77,175 75,631
Nextel Communications, Inc. 7.375% 2015 96,300 97,744
Triton PCS, Inc.:
8.75% 2011 17,075 17,118
9.375% 2011 15,135 15,476
8.50% 2013 45,705 49,247
Western Wireless Corp. 9.25% 2013 (1) 69,025 70,751
Centennial Cellular Corp. 10.75% 2008 35,700 35,611
Centennial Communications Corp. and Centennial Cellular
Operating Co. LLC 10.125% 2013 (1) 31,305 32,401
AT&T Wireless Services, Inc.:
7.875% 2011 4,035 4,705
8.125% 2012 17,000 20,223
8.75% 2031 3,000 3,724
Tritel PCS, Inc. 10.375% 2011 3,173 3,832
Cricket Communications, Inc.: (5) (6)
6.188% 2007 30,070 14,359
6.375% 2007 11,325 5,408
6.625% 2007 8,815 4,209
9.50% 2007 8,250 3,939
AirGate PCS, Inc. 0%/13.50% 2009 (3) 30,475 23,466
iPCS, Inc. 0%/14.00% 2010 (3) (6) 27,725 3,188
Mobile Telesystems Finance 5.141% 2004 (1) (5) 18,000 17,977
Cellco Finance NV 12.75% 2005 1,500 1,639
Rogers Cantel Inc. 9.75% 2016 1,375 1,598
Teletrac, Inc. 9.00% 2004 (1) (2) (7) 1,915 479
1,051,875
MEDIA - 10.00%
Young Broadcasting Inc.:
Series B:
9.00% 2006 11,367 11,481
8.75% 2007 15,802 16,118
10.00% 2011 50,560 53,846
Hollinger Participation Trust 12.125% 2010 (1) (2) (5) 41,383 46,815
CanWest Media Inc., Series B:
10.625% 2011 16,100 18,354
7.625% 2013 6,000 6,450
Cinemark USA, Inc:
Series B, 8.50% 2008 4,000 4,170
9.00% 2013 47,850 51,319
Liberty Media Corp.:
7.75% 2009 4,750 5,472
7.875% 2009 12,535 14,518
5.70% 2013 5,000 5,003
8.25% 2030 18,225 21,173
Quebecor Media Inc.:
11.125% 2011 38,178 43,714
0%/13.75% 2011 (3) 2,192 1,874
AMC Entertainment Inc.:
9.50% 2009 12,000 12,495
9.50% 2011 10,150 10,708
9.875% 2012 20,150 22,064
Tele-Communications, Inc.:
9.80% 2012 9,380 12,399
7.875% 2013 3,173 3,822
TCI Communications, Inc. 8.75% 2015 7,500 9,717
Comcast Corp.:
10.625% 2012 2,245 2,945
7.05% 2033 5,000 5,501
Lenfest Communications, Inc. 7.625% 2008 6,750 7,726
AOL Time Warner Inc.:
6.15% 2007 20,000 21,999
6.875% 2012 9,500 10,680
Time Warner Inc. 6.875% 2018 5,000 5,563
Antenna TV SA:
9.00% 2007 12,450 12,030
9.75% 2008 Euro 20,750 23,424
DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. 8.375% 2013 (1) $ 29,000 32,842
Emmis Communications Corp. 0%/12.50% 2011 (3) 35,496 31,769
Gray Communications Systems, Inc.:
9.25% 2011 23,675 26,220
Series C, 8.00% convertible preferred 2012 (1) (2) (7) 300 shares 3,073
Charter Communications Holdings, LLC:
10.00% 2009 $ 1,125 894
10.25% 2010 (1) 6,750 6,834
0%/11.75% 2010 (3) 3,425 2,432
0%/9.92% 2011 (3) 4,900 3,491
0%/11.75% 2011 (3) 11,175 6,202
0%/13.50% 2011 (3) 5,525 3,481
Charter Communications Holdings Capital Corp. 0%/12.125% 2012 (3) 2,850 1,482
Carmike Cinemas, Inc., Series B, 10.375% 2009 22,720 23,970
EchoStar DBS Corp. 9.125% 2009 19,925 22,665
Regal Cinemas Corp., Series B, 9.375% 2012 17,750 20,057
TransWestern Publishing Co. LLC, Series F, 9.625% 2007 19,050 19,764
Univision Communications Inc. 7.85% 2011 14,960 17,781
Adelphia Communications Corp.:
10.25% 2006 (6) 9,955 6,819
Series B, 13.00% preferred 2009 (4) 36,196 shares 299
10.25% 2011 (6) $ 9,850 6,993
Century Communications Corp. 0% 2003 (8) 4,565 2,899
Clear Channel Communications, Inc.:
4.625% 2008 3,000 3,149
4.25% 2009 4,625 4,687
Chancellor Media Corp. of Los Angeles 8.00% 2008 6,699 7,670
RH Donnelley Inc.: (1)
8.875% 2010 10,605 11,931
10.875% 2012 3,000 3,555
British Sky Broadcasting Group PLC:
6.875% 2009 5,000 5,597
8.20% 2009 7,500 8,911
NextMedia Operating, Inc. 10.75% 2011 12,000 13,500
Cox Communications, Inc. 7.75% 2010 11,005 13,163
Radio One, Inc., Series B, 8.875% 2011 10,250 11,198
Mediacom LLC and Mediacom Capital Corp.:
7.875% 2011 3,000 2,737
9.50% 2013 7,115 6,777
Entravision Communications Corp. 8.125% 2009 8,500 8,946
LBI Media, Inc. 10.125% 2012 7,375 8,112
Entercom Radio, LLC 7.625% 2014 6,500 6,874
Dex Media East LLC, Dex Media East Finance Co., Series B, 9.875% 2009 5,000 5,687
Sun Media Corp. 7.625% 2013 4,250 4,484
News America Inc. 6.75% 2038 2,990 3,246
RBS Participacoes SA 11.00% 2007 (1) 4,500 2,947
Globo Comunicacoes e Participacoes Ltda., Series B, 10.50% 2006 (1) (6) 2,600 1,027
Globo Comunicacoes e Participacoes SA 10.625% 2008 (1) (6) 2,485 982
PanAmSat Corp. 6.125% 2005 1,025 1,048
Cox Radio, Inc. 6.625% 2006 250 270
837,845
MATERIALS - 9.21%
Georgia-Pacific Corp.:
7.50% 2006 18,875 19,536
7.375% 2008 (1) 35,200 36,476
8.125% 2011 29,250 30,566
9.50% 2022 8,150 8,231
9.125% 2022 3,000 2,985
8.25% 2023 5,000 4,650
8.875% 2031 10,095 10,196
Fort James Corp. 6.625% 2004 1,600 1,648
Lyondell Chemical Co.:
Series A, 9.625% 2007 5,500 5,252
Series B, 9.875% 2007 2,000 1,915
9.50% 2008 22,215 20,660
10.875% 2009 34,885 31,222
11.125% 2012 14,340 14,125
10.50% 2013 1,950 1,872
Equistar Chemicals, LP 10.625% 2011 (1) 10,500 10,447
Freeport-McMoRan Copper & Gold Inc. 10.125% 2010 61,205 68,703
Owens-Brockway Glass Container Inc.:
8.875% 2009 9,425 10,085
7.75% 2011 15,985 16,624
8.75% 2012 22,225 23,947
Owens-Illinois, Inc.:
8.10% 2007 5,250 5,414
7.35% 2008 4,440 4,329
7.50% 2010 2,000 1,940
Jefferson Smurfit Corp. (U.S.):
8.25% 2012 21,450 22,522
7.50% 2013 18,550 18,921
Stone Container Corp.:
9.25% 2008 6,425 7,019
9.75% 2011 10,700 11,716
Abitibi-Consolidated Co. of Canada:
5.25% 2008 11,500 11,075
6.00% 2013 33,075 31,190
Abitibi-Consolidated Inc. 8.55% 2010 13,500 14,764
Potlatch Corp. 10.00% 2011 30,853 34,401
Kappa Beheer BV:
10.625% 2009 Euro 16,250 20,477
0%/12.50% 2009 (3) 6,150 7,212
United States Steel Corp.:
10.75% 2008 $ 5,500 5,885
9.75% 2010 20,000 20,600
Gerdau Ameristeel Corp. 10.375% 2011 (1) 24,375 24,619
Graphic Packaging International, Inc. 8.50% 2011 (1) 21,600 23,490
AK Steel Corp.:
7.875% 2009 9,495 6,836
7.75% 2012 20,900 14,525
Longview Fibre Co. 10.00% 2009 17,950 20,014
Oregon Steel Mills, Inc. 10.00% 2009 23,724 19,572
Steel Dynamics, Inc. 9.50% 2009 15,930 17,125
Norampac Inc. 6.75% 2013 (1) 15,700 16,092
Luscar Coal Ltd. 9.75% 2011 13,925 15,944
Earle M. Jorgensen Co. 9.75% 2012 14,725 15,756
Smurfit Capital Funding PLC 6.75% 2005 10,175 10,480
Tekni-Plex, Inc., Series B, 12.75% 2010 10,575 10,416
Millennium America Inc. 9.25% 2008 9,100 9,487
Ball Corp., Series A, 6.875% 2012 7,500 7,772
Peabody Energy Corp., Series B, 6.875% 2013 7,000 7,332
UCAR Finance Inc. 10.25% 2012 5,551 6,092
Allegheny Technologies, Inc. 8.375% 2011 5,000 4,425
Norske Skogindustrier ASA 7.125% 2033 (1) 2,500 2,582
Indah Kiat Finance Mauritius Ltd. 10.00% 2007 (6) 125 58
Indah Kiat International Finance Co. BV 11.875% 2002 (8) 2,250 1,046
Kaiser Aluminum & Chemical Corp. 12.75% 2003 (8) 11,875 950
Pindo Deli Finance Mauritius Ltd.:
10.25% 2002 (8) 2,500 637
10.75% 2007 (6) 550 143
APP International Finance Co. BV 11.75% 2005 (6) 275 121
772,119
TECHNOLOGY HARDWARE & EQUIPMENT - 8.20%
Solectron Corp.:
Series B, 7.375% 2006 13,095 13,455
9.625% 2009 54,425 60,276
0% LYON convertible notes 2020 69,150 39,415
Xerox Corp.:
7.15% 2004 5,500 5,651
9.75% 2009 2,000 2,230
7.125% 2010 46,625 46,508
7.625% 2010 5,000 4,956
Xerox Capital (Europe) PLC 5.875% 2004 28,500 28,785
ON Semiconductor Corp.:
13.00% 2008 37,165 42,554
Semiconductor Components Industries, LLC 12.00% 2010 (5) 22,125 26,052
SCG Holding Corp. 12.00% 2009 3,305 3,462
Sanmina-SCI Corp. 10.375% 2010 51,750 60,936
SCI Systems, Inc. 3.00% convertible subordinated debentures 2007 12,000 10,935
Micron Technology, Inc.:
6.50% 2005 (1) 45,000 43,650
2.50% convertible notes 2010 (1) 8,000 10,680
Amkor Technology, Inc.:
5.75% convertible notes 2006 6,800 6,502
9.25% 2008 19,935 21,629
7.75% 2013 (1) 21,310 21,523
Fairchild Semiconductor Corp.:
5.00% convertible notes 2008 17,850 17,560
10.50% 2009 27,675 30,927
Motorola, Inc.:
7.625% 2010 7,000 8,015
8.00% 2011 14,235 16,513
7.50% 2025 9,500 10,212
6.50% 2028 3,175 3,076
5.22% 2097 4,550 3,401
Juniper Networks, Inc. 4.75% convertible subordinated notes 2007 25,750 25,235
Analog Devices, Inc. 4.75% convertible subordinated notes 2005 20,200 20,654
Nortel Networks Ltd. 6.125% 2006 17,925 18,104
Celestica Inc. 0% convertible debentures 2020 32,625 17,332
Flextronics International Ltd.:
9.75% 2010 Euro 11,310 14,516
6.50% 2013 (1) $ 2,500 2,494
Jabil Circuit, Inc. 5.875% 2010 14,750 15,341
Lucent Technologies Inc. 7.25% 2006 15,000 14,512
Conexant Systems, Inc. 4.00% convertible subordinated notes 2007 14,700 12,550
LSI Logic Corp. 4.00% convertible notes 2006 3,000 2,884
Hyundai Semiconductor America, Inc. 8.625% 2007 (1) 2,600 2,223
Cypress Semiconductor Corp. 3.75% convertible subordinated notes 2005 1,525 1,483
TriQuint Semiconductor, Inc. 4.00% convertible subordinated notes 2007 1,060 918
687,149
RETAILING - 7.52%
Delhaize America, Inc.:
7.375% 2006 33,325 35,824
8.125% 2011 55,645 61,488
9.00% 2031 23,000 25,702
J.C. Penney Co., Inc.:
7.05% 2005 6,380 6,667
Series A, 6.50% 2007 250 261
7.60% 2007 1,375 1,492
7.375% 2008 7,030 7,522
8.00% 2010 24,000 26,460
9.00% 2012 4,020 4,563
6.875% 2015 7,920 7,841
7.65% 2016 2,000 2,100
7.95% 2017 14,750 15,635
9.75% 2021 (9) 8,136 8,502
8.25% 2022 (9) 13,937 14,425
7.125% 2023 500 475
8.125% 2027 8,925 9,193
7.40% 2037 5,745 6,118
7.625% 2097 9,875 9,134
Ahold Finance U.S.A., Inc.:
6.25% 2009 23,765 23,646
8.25% 2010 16,027 17,309
6.50% 2017 Lira 1,375 2,056
Koninklijke Ahold NV 5.875% 2008 Euro 15,750 18,285
Koninklijke KPN NV 4.00% convertible note 2005 10,000 11,143
Ahold Lease Pass Through Trust: (9)
Series 2001-A-1, 7.82% 2020 $ 3,452 3,368
Series 2001-A-2, 8.62% 2025 7,345 7,203
Amazon.com, Inc.: 11,721
4.75% convertible subordinated debentures 2009 12,225 68,354
6.875% PEACS convertible subordinated notes 2010 Euro 59,550
Saks Inc.: 5,375
7.50% 2010 $ 5,000 19,543
9.875% 2011 16,492 15,125
7.375% 2019 15,050
Gap, Inc.: 2,137
9.90% 2005 (5) 1,900 17,474
6.90% 2007 16,180 19,574
10.55% 2008 (5) 16,210
Dillard's, Inc.: 5,300
6.125% 2003 5,300 2,994
6.43% 2004 2,950 970
6.69% 2007 1,000 2,817
6.30% 2008 2,950 5,912
6.625% 2018 6,915 6,215
7.00% 2028 7,720 6,697
Mercantile Stores Company, Inc. 8.20% 2022 (9) 7,125 2,225
Dillard Department Stores, Inc. 7.875% 2023 2,500
Pathmark Stores, Inc.: 11,793
8.75% 2012 (1) 11,450 16,789
8.75% 2012 16,300
Toys "R" Us, Inc.: 1,898
6.875% 2006 1,750 2,181
7.625% 2011 2,000 19,991
7.875% 2013 18,250 15,983
Office Depot, Inc. 10.00% 2008 13,375 12,561
PETCO Animal Supplies, Inc. 10.75% 2011 10,875 10,200
Payless ShoeSource, Inc. 8.25% 2013 (1) 10,000 4,935
DR Securitized Lease Trust, Series 1994 K-2, 9.35% 2019 (9) (10) 9,665 3,732
Kmart Corp. Pass Through Trust, Series 1995 K-2, 9.78% 2020 (9) (10) 9,089
Rite Aid Corp.: 1,504
6.875% 2013 1,600 5,464
7.70% 2027 6,280 4,089
Staples, Inc. 7.375% 2012 3,500
Great Atlantic & Pacific Tea Co., Inc.: 283
9.125% 2011 300
9.375% QUIBS preferred 2039 18,500 shares 423
630,671
HOTELS, RESTAURANTS & LEISURE - 6.38%
Six Flags, Inc.:
7.25% PIERS convertible preferred 2009, Series B 1,000,000 19,600
9.50% 2009 $ 13,000 12,448
8.875% 2010 25,125 23,178
9.75% 2013 (1) 16,125 15,238
Premier Parks Inc. 9.75% 2007 14,875 14,689
Royal Caribbean Cruises Ltd.:
7.00% 2007 18,668 19,275
6.75% 2008 7,340 7,450
8.00% 2010 13,750 14,575
8.75% 2011 12,000 13,140
Mohegan Tribal Gaming Authority:
8.125% 2006 7,055 7,646
6.375 2009 (1) 14,160 14,355
8.375% 2011 4,000 4,380
8.00% 2012 7,775 8,436
MGM Mirage, Inc.:
6.00% 2009 11,750 11,867
8.50% 2010 3,100 3,503
Mirage Resorts, Inc.:
6.625% 2005 1,950 2,038
6.75% 2007 7,450 7,860
6.75% 2008 4,800 5,076
Boyd Gaming Corp.:
9.25% 2009 6,595 7,395
7.75% 2012 15,500 16,081
8.75% 2012 4,500 4,899
Buffets, Inc. 11.25% 2010 22,400 23,408
IT&T Corp. 6.75% 2005 12,000 12,705
Starwood Hotels & Resorts Worldwide, Inc.:
7.375% 2007 6,625 7,138
7.875% 2012 2,575 2,833
Horseshoe Gaming Holding Corp., Series B, 8.625% 2009 19,500 20,987
Harrah's Operating Co., Inc.:
7.875% 2005 10,875 11,799
7.125% 2007 3,850 4,372
8.00% 2011 3,189 3,783
Station Casinos, Inc.:
8.375% 2008 16,250 17,611
9.875% 2010 2,000 2,222
Extended Stay America, Inc. 9.875% 2011 17,625 19,542
Argosy Gaming Co.:
10.75% 2009 7,375 8,122
9.00% 2011 10,350 11,307
Circus and Eldorado Joint Venture and Silver Legacy Resort Casino 10.125% 2012 17,380 17,380
Hilton Hotels Corp.:
7.625% 2008 4,700 5,170
7.20% 2009 9,710 10,487
8.25% 2011 1,290 1,448
YUM Brands, Inc. 7.70% 2012 14,150 15,742
Coast Hotels and Casinos, Inc. 9.50% 2009 14,500 15,551
Eldorado Resorts LLC 10.50% 2006 14,250 14,464
Florida Panthers Holdings, Inc. 9.875% 2009 12,250 13,123
Jupiters Ltd. 8.50% 2006 11,780 12,914
Sbarro, Inc. 11.00% 2009 14,000 12,180
International Game Technology:
7.875% 2004 6,000 6,216
8.375% 2009 3,250 3,946
Perkins Family Restaurants, LP, Perkins Finance Corp., Series B, 10.125% 2007 10,250 10,045
Mandalay Resort Group, Series B, 10.25% 2007 7,500 8,663
CKE Restaurants, Inc. 9.125% 2009 6,179 6,241
Ameristar Casinos, Inc. 10.75% 2009 2,000 2,285
AMF Bowling Worldwide, Inc. 0% convertible debentures 2018 (1) (6) (7) 10,508 1
534,814
DIVERSIFIED TELECOMMUNICATION SERVICES - 5.15%
Qwest Services Corp.: (1)
13.00% 2007 46,641 52,471
13.50% 2010 17,530 20,510
14.00% 2014 8,097 9,777
Qwest Capital Funding, Inc. 7.75% 2006 29,100 28,664
Qwest Corp. 8.875% 2012 (1) 3,600 4,014
U S WEST, Inc. 7.20% 2004 1,500 1,549
Sprint Capital Corp.:
7.90% 2005 1,500 1,621
7.125% 2006 10,140 11,142
6.00% 2007 13,502 14,543
7.625% 2011 23,860 26,942
8.375% 2012 10,550 12,468
6.90% 2019 12,332 12,679
NTL Inc. 19.00% 2010 (2) 36,245 35,339
Comcast UK Cable Partners Ltd. 11.20% 2007 20,605 20,734
Cincinnati Bell Inc. 7.25% 2013 (1) 51,750 51,491
AT&T Corp. 7.80% 2011 (5) 32,000 37,055
TeleWest PLC: (6)
9.625% 2006 6,100 2,898
11.00% 2007 18,160 8,944
Telewest Communications PLC: (6)
11.25% 2008 9,210 4,467
9.875% 2010 29,883 13,970
0%/11.375% 2010 (3) 12,000 4,380
France Telecom 9.00% 2011 (5) 17,250 21,107
NTELOS, Inc. 9.00% convertible bonds 2013 (1) (7) 14,555 14,656
TELUS Corp. 7.50% 2007 8,250 9,286
FairPoint Communications, Inc. 11.875% 2010 4,950 5,668
PCCW-HKT Capital Ltd. 7.75% 2011 (1) 4,750 5,445
GT Group Telecom Inc. 0%/13.25% 2010 (3) (6) 11,000 23
VoiceStream Wireless Corp. 10.375% 2009 1 1
XO Communications, Inc. 14.00% preferred 2009 (2) (4) 40 shares 0
431,844
UTILITIES - 4.73%
Edison Mission Energy:
10.00% 2008 $ 7,000 6,195
7.73% 2009 21,375 17,528
9.875% 2011 18,625 16,018
Southern California Edison 8.00% 2007 (1) 30,725 34,489
Mission Energy Holding Co. 13.50% 2008 34,975 23,258
Edison International 6.875% 2004 20,000 20,450
Midwest Generation, LLC, Series B, 8.56% 2016 (9) 15,350 14,285
Homer City Funding LLC 8.734% 2026 (9) 10,800 11,124
AES Corp.:
10.00% 2005 (1) 14,450 14,956
9.50% 2009 19,357 20,034
9.375% 2010 10,569 10,833
8.75% 2013 (1) 43,985 46,404
9.00% 2015 (1) 15,150 16,097
AES Trust VII 6.00% convertible preferred 2008 264,925 shares 10,067
Dynegy Holdings Inc.: (1)
9.875% 2010 $ 18,025 18,926
10.125% 2013 37,140 39,368
Duke Capital Corp. 7.50% 2009 18,375 20,703
Drax Holdings Ltd., Series B, 10.41% 2020 (9) 22,975 17,231
FPL Energy American Wind, LLC 6.639% 2023 (1) (9) 14,475 14,711
Nevada Power Co. 9.00% 2013 (1) 8,000 8,300
TNP Enterprises, Inc., Series B, 10.25% 2010 4,250 4,399
Williams Companies, Inc. 8.125% 2012 1,750 1,829
Williams Holdings of Delaware, Inc. 6.25% 2006 1,250 1,250
Israel Electric Corp. Ltd. 7.75% 2027 (1) 2,550 2,618
El Paso Corp. 7.875% 2012 3,000 2,535
Dominion Resources, Inc., Series 2002-C, 5.70% 2012 (5) 1,800 1,917
Oncor Electric Delivery Co. 6.375% 2012 670 750
396,275
FINANCIALS - 3.96%
Fuji JGB Investment LLC, Series A, 9.87% noncumulative
preferred (undated) (1) (5) 50,580 54,566
IBJ Preferred Capital Co. LLC, Series A, 8.79%
noncumulative preferred (undated) (1) (5) 36,650 37,841
Capital One Financial Corp.:
7.25% 2006 5,500 5,912
8.75% 2007 32,815 36,980
7.125% 2008 5,000 5,407
Capital One Bank 6.50% 2013 12,500 12,817
Providian Financial Corp.:
3.25% convertible debentures 2005 20,000 18,800
Series A, 9.525% 2027 (1) (11) 15,000 13,725
UFJ Finance Aruba AEC 6.75% 2013 16,745 17,575
Tokai Preferred Capital Co. LLC, Series A, 9.98% noncumulative
preferred (undated) (1) (5) 13,500 14,677
MBNA Corp.:
5.625% 2007 10,000 10,876
Series F, 7.50% 2012 7,500 8,773
MBNA Capital A, Series A, 8.278% 2026 7,500 8,129
Sumitomo Mitsui Banking Corp. 8.00% 2012 9,750 11,705
SB Treasury Co. LLC, Series A, 9.40% noncumulative preferred (undated) (1) (5) 8,480 9,158
Bayer Hypo-Vereinsbank 8.741% 2031 (1) 9,903 10,944
ACE Capital Trust II 9.70% 2030 6,250 8,172
Mangrove Bay Pass Through Trust 6.102% 2033 (1) 8,000 7,976
Household Finance Corp. 6.40% 2008 6,000 6,741
Prudential Holdings, LLC, Series C, 8.695% 2023 (1) (9) 5,000 6,157
Chevy Chase Preferred Capital Corp., Series A, 10.375% exchangeable preferred 106,389 shares 6,022
BankUnited Capital Trust, BankUnited Financial Corp. 10.25% 2026 $ 4,500 4,916
CNA Financial Corp. 7.25% 2023 5,000 4,667
Kazkommerts International BV 8.50% 2013 (1) 3,500 3,421
Advanta Capital Trust I, Series B, 8.99% 2026 4,500 2,948
Sovereign Capital Trust I 9.00% 2027 2,500 2,772
331,677
AUTOMOBILES & COMPONENTS - 3.60%
Ford Motor Credit Co.:
6.875% 2006 13,500 14,369
6.50% 2007 25,000 26,440
7.375% 2009 14,000 14,941
7.875% 2010 12,025 13,055
7.25% 2011 10,000 10,452
7.375% 2011 19,000 20,013
Ford Motor Co. Capital Trust II 6.50% cumulative convertible
trust preferred 2032 160,600 shares 6,956
General Motors Acceptance Corp.:
6.125% 2006 $ 5,000 5,315
6.125% 2007 13,500 14,285
6.15% 2007 10,000 10,598
6.875% 2011 12,000 12,475
6.875% 2012 27,500 28,499
General Motors Corp.:
7.20% 2011 7,250 7,650
Series B, 5.25% convertible debentures 2032 500 11,490
TRW Automotive Acquisition Corp.: (1)
9.375% 2013 18,850 21,301
11.00% 2013 2,520 2,948
Tenneco Automotive Inc.:
Series B, 11.625% 2009 11,000 10,890
10.25% 2013 (1) 3,875 4,224
Stoneridge, Inc. 11.50% 2012 13,075 15,004
Lear Corp., Series B, 8.11% 2009 12,675 14,640
Visteon Corp. 8.25% 2010 9,000 9,606
ArvinMeritor, Inc.:
6.625% 2007 750 743
8.75% 2012 4,375 4,605
Meritor Automotive, Inc. 6.80% 2009 2,200 2,145
Dana Corp. 10.125% 2010 4,925 5,528
R.J. Tower Corp. 12.00% 2013 (1) 5,000 5,100
Dura Operating Corp., Series B, 8.625% 2012 4,625 4,822
DaimlerChrysler North America Holding Corp. 7.20% 2009 3,000 3,366
Key Plastics Holdings, Inc., Series B, 10.25% 2007 (6) (7) 9,650 121
301,581
OIL & GAS - 3.53%
Premcor Refining Group Inc.:
9.25% 2010 12,675 13,879
9.50% 2013 27,375 30,249
7.50% 2015 18,550 18,596
Clark Refining & Marketing, Inc.:
8.375% 2007 2,225 2,281
8.875% 2007 29,140 29,869
8.625% 2008 1,120 1,159
Port Arthur Finance Corp. 12.50% 2009 (9) 1,906 2,220
General Maritime Corp. 10.00% 2013 33,990 38,154
Western Oil Sands Inc. 8.375% 2012 30,355 34,529
Petrozuata Finance, Inc., Series B: (9)
8.22% 2017 (1) 29,490 25,361
8.22% 2017 6,900 5,934
Newfield Exploration Co.:
Series B, 7.45% 2007 1,750 1,881
7.625% 2011 3,500 3,763
8.375% 2012 22,000 23,980
Overseas Shipholding Group, Inc.:
8.25% 2013 11,000 11,550
8.75% 2013 7,000 7,499
Teekay Shipping Corp. 8.875% 2011 16,875 18,731
Pogo Producing Co.:
10.375% 2009 8,250 8,889
Series B, 8.25% 2011 1,700 1,857
XTO Energy Inc.:
7.50% 2012 4,450 4,973
6.25% 2013 3,000 3,120
Valero Energy Corp. 6.125% 2007 3,940 4,324
Pemex Project Funding Master Trust:
7.875% 2009 1,400 1,596
8.625% 2022 1,170 1,310
295,704
CONSUMER DURABLES & APPAREL - 3.18%
K. Hovnanian Enterprises, Inc.:
10.50% 2007 12,480 14,570
8.875% 2012 14,475 15,561
7.75% 2013 (1) 15,750 16,301
D.R. Horton, Inc.:
8.00% 2009 14,770 16,210
9.75% 2010 3,000 3,390
6.875% 2013 3,000 3,030
Schuler Homes, Inc. 10.50% 2011 6,280 7,151
WCI Communities, Inc.:
10.625% 2011 21,600 23,760
9.125% 2012 5,325 5,724
Ryland Group, Inc.:
5.375% 2008 18,000 18,203
9.75% 2010 9,825 11,274
MDC Holdings, Inc.:
7.00% 2012 15,900 17,507
5.50% 2013 4,000 4,007
William Lyon Homes, Inc. 10.75% 2013 17,495 19,070
Warnaco Inc. 8.875% 2013 (1) 15,875 17,105
Toll Corp.:
8.25% 2011 1,750 1,916
8.25% 2011 5,500 6,023
Toll Brothers, Inc. 6.875% 2012 6,750 7,570
Beazer Homes USA, Inc. 8.375% 2012 13,250 14,376
Levi Strauss & Co.:
11.625% 2008 Euro 3,316 3,250
11.625% 2008 $ 2,400 1,980
12.25% 2012 9,125 7,346
Salton/Maxim Housewares, Inc. 10.75% 2005 4,300 4,246
Salton, Inc. 12.25% 2008 6,575 6,460
Boyds Collection, Ltd., Series B, 9.00% 2008 8,122 8,254
Lennar Corp.:
7.625% 2009 3,250 3,797
Series B, 9.95% 2010 2,500 2,895
Pulte Homes, Inc.:
7.875% 2032 2,430 2,770
6.375% 2033 2,500 2,407
266,153
CAPITAL GOODS - 3.00%
Tyco International Group SA:
6.375% 2005 9,900 10,346
6.125% 2008 21,225 22,286
6.125% 2009 11,500 12,075
6.375% 2011 11,500 11,917
Terex Corp.:
8.875% 2008 2,000 2,095
9.25% 2011 23,900 26,290
Class B, 10.375% 2011 12,300 13,838
Technical Olympic USA, Inc.:
9.00% 2010 17,400 18,444
10.375% 2012 19,500 21,060
American Standard Inc.:
7.375% 2005 7,220 7,671
7.375% 2008 4,450 4,884
8.25% 2009 10,190 11,515
7.625% 2010 8,850 9,912
Cummins Inc. 9.50% 2010 (1) 12,475 14,284
Cummins Capital Trust I 7.00% QUIPS convertible preferred 2031 (1) 180,000 shares 10,575
Bombardier Capital Inc., Series A, 6.125% 2006 (1) $ 12,200 12,902
Nortek, Inc., Class B:
9.125% 2007 4,000 4,140
9.25% 2007 1,000 1,035
9.875% 2011 5,350 5,684
Koppers Industry Inc. 9.875% 2013 (1) 9,875 9,875
Swire Pacific Offshore Financing Ltd. 9.33% cumulative guaranteed perpetual
preferred capital securities (1) 351,648 shares 9,231
AGCO Corp. 9.50% 2008 $ 5,250 5,696
Jacuzzi Brands, Inc. 9.625% 2010 (1) 3,000 3,128
NMHG Holding Co. 10.00% 2009 2,000 2,210
251,093
COMMERCIAL SERVICES & SUPPLIES - 2.23%
Allied Waste North America, Inc.:
Series B, 7.625% 2006 7,000 7,350
8.50% 2008 18,000 19,530
Series B, 8.875% 2008 18,750 20,391
10.00% 2009 48,225 52,505
United Rentals (North America), Inc.:
10.75% 2008 (1) 18,575 20,665
10.75% 2008 5,000 5,563
Cendant Corp.:
6.25% 2008 6,000 6,598
7.125% 2015 7,500 8,539
PHH Corp. 7.125% 2013 5,000 5,602
KinderCare Learning Centers, Inc., Series B, 9.50% 2009 19,850 20,049
Waste Management, Inc.:
6.875% 2009 1,500 1,702
7.375% 2010 3,000 3,512
WMX Technologies, Inc.:
6.375% 2003 1,000 1,007
7.10% 2026 2,150 2,360
Synagro Technologies, Inc. 9.50% 2009 4,000 4,400
Stericycle, Inc., Series B, 12.375% 2009 3,407 3,935
Protection One Alarm Monitoring, Inc. 13.625% 2005 (5) (7) 3,543 3,012
Safety-Kleen Services, Inc. 9.25% 2008 (6) (7) 7,000 140
186,860
FOOD & BEVERAGES - 1.65%
Burns Philp Capital Pty Ltd.: (1)
9.50% 2010 16,750 17,588
10.75% 2011 14,575 15,304
9.75% 2012 52,247 52,508
Constellation Brands, Inc. 8.125% 2012 16,200 17,577
Canandaigua Brands, Inc. 8.50% 2009 1,300 1,378
Del Monte Corp. 8.625% 2012 (1) 16,775 18,411
Fage Dairy Industry SA 9.00% 2007 10,000 10,050
Dole Food Co., Inc. 8.875% 2011 5,210 5,575
138,391
HEALTH CARE PROVIDERS & SERVICES - 1.40%
Columbia/HCA Healthcare Corp.:
6.91% 2005 13,250 13,995
7.00% 2007 8,255 8,999
HCA Inc.:
6.95% 2012 5,000 5,313
6.25% 2013 16,275 16,533
Quintiles Transnational 10.00% 2013 (1) 29,100 30,191
Concentra Operating Corp.:
Series A, 13.00% 2009 5,775 6,439
9.50% 2010 (1) 20,350 21,368
Tenet Healthcare Corp.:
5.375% 2006 5,515 5,432
6.375% 2011 7,500 7,219
Integrated Health Services, Inc.: (6) (7)
10.25% 2006 (5) 11,250 253
Series A:
9.50% 2007 37,500 844
9.25% 2008 46,250 1,041
117,627
TRANSPORTATION - 1.17%
Northwest Airlines, Inc.:
8.52% 2004 3,625 3,516
7.625% 2005 5,250 4,633
8.875% 2006 20,090 15,520
9.875% 2007 13,250 10,269
7.875% 2008 13,900 10,286
Continental Airlines, Inc.:
8.00% 2005 9,815 9,054
Series 2000-2, Class C, 8.312% 2011 (9) 6,942 5,273
Series 2000-1, Class A-1, 8.048% 2022 (9) 3,161 3,110
TFM, SA de CV:
10.25% 2007 2,295 2,375
11.75% 2009 9,600 9,888
12.50% 2012 2,310 2,553
Kansas City Southern Railway Co.:
9.50% 2008 3,375 3,738
7.50% 2009 5,365 5,593
RailAmerica Transportation Corp. 12.875% 2010 6,545 7,249
International Shipholding Corp., Series B, 7.75% 2007 1,950 1,848
Delta Air Lines, Inc. 9.75% 2021 2,200 1,474
USAir, Inc. Pass Through Trust, Series 1993-A3, 10.375% 2013 (6) (9) 2,977 930
United Air Lines, Inc.: (6)
9.00% 2003 3,000 296
1991 Equipment Trust Certificates, Series A, 10.11% 2006 (9) 1,907 381
97,986
REAL ESTATE - 0.82%
Host Marriott, LP:
Series E, 8.375% 2006 7,450 7,832
Series G, 9.25% 2007 2,150 2,357
Series I, 9.50% 2007 3,550 3,905
HMH Properties, Inc.:
Series A, 7.875% 2005 10,510 10,825
Series B, 7.875% 2008 1,350 1,394
Felcor Lodging LP:
10.00% 2008 (5) 1,500 1,620
8.50% 2011 16,465 17,618
Equity Office Properties Trust, Series B, 5.25% convertible preferred 2008 200,000 shares 9,840
MeriStar Hospitality Operating Partnership, MeriStar Hospitality Finance:
Corp. II 10.50% 2009 $ 2,250 2,441
Corp. III 9.125% 2011 5,125 5,407
Rouse Co. 7.20% 2012 5,000 5,703
68,942
OTHER - 0.66%
Freddie Mac 4.25% 2005 20,000 20,933
Elan Finance Corp. Ltd. 0% convertible notes 2018 20,325 12,144
Iron Mountain Inc.:
Pierce Leahy Command Co., 8.125% 2008 550 573
8.625% 2013 2,000 2,140
7.75% 2015 6,200 6,433
Playtex Products, Inc. 9.375% 2011 5,750 5,549
Electronic Data Systems Corp. 6.85% 2004 5,000 5,183
GMAC Commercial Mortgage Securities, Inc., Series 1997-C2,
Class E, 7.624% 2029 (5) (9) 2,500 2,226
Exodus Communications, Inc. 11.625% 2010 (6) 4,076 82
55,263
ASSET-BACKED OBLIGATIONS
Asset-backed obligations - 0.33%
Consumer Credit Reference Index Securities Program Trust, Series 2002-2A,
Class FX, 10.421% 2007 (1) 16,500 17,447
Mediterranean Re PLC 6.98% 2005 (1) (5) (9) 5,000 5,100
Residential Reinsurance 2002 Ltd. 6.04% 2005 (1) (5) (9) 5,000 5,000
27,547
GOVERNMENT OBLIGATIONS
Non-U.S. government obligations - 2.59%
Brazil (Federal Republic of):
Global 10.00% 2007 1,000 1,074
Debt Conversion Bond, Series L, Bearer, 2.188% 2012 (5) 2,500 2,013
10.25% 2013 28,000 27,510
Bearer 8.00% 2014 (2) 7,957 7,361
8.875% 2024 1,895 1,531
11.00% 2040 13,110 12,455
Russian Federation:
12.75% 2028 8,000 12,980
5.00% 2030 (5) 22,865 21,750
United Mexican States Government:
Global 8.625% 2008 6,780 8,092
Series M10, 10.50% 2011 MXP 12,320 1,276
Eurobonds, Global 6.375% 2013 $ 4,000 4,230
Eurobonds 11.375% 2016 6,751 9,742
Global 8.125% 2019 3,695 4,185
Global 8.30% 2031 3,020 3,437
Panama (Republic of):
Interest Reduction Bond 1.938% 2014 (5) 5,327 5,008
10.75% 2020 415 497
Global 9.375% 2023 12,210 13,187
8.875% 2027 2,000 2,070
Peru (Republic of):
9.125% 2012 4,909 5,486
9.875% 2015 7,500 8,719
Past Due Interest Eurobond 5.00% 2017 (5) 409 378
Dominican Republic:
9.50% 2006 (1) 3,130 3,099
9.50% 2006 1,250 1,238
9.04% 2013 (1) 6,095 5,546
2.063% 2024 (5) 500 364
Colombia (Republic of):
10.00% 2012 1,500 1,639
Global 10.75% 2013 6,800 7,650
Global 10.375% 2033 700 732
Bulgaria (Republic of):
8.25% 2015 (1) 3,160 3,616
8.25% 2015 4,900 5,607
Turkish Treasury Bill:
0% 2003 TRL 2,284,750,000 1,576
0% 2004 2,895,745,000 1,903
Turkey (Republic of):
9.875% 2008 $ 2,335 2,536
12.375% 2009 1,925 2,267
Ukraine Government 7.65% 2013 (1) 4,900 4,900
State of Qatar 9.75% 2030 3,500 4,883
Banque Centrale de Tunisie 7.375% 2012 3,500 3,964
Guatemala (Republic of):
10.25% 2011 (1) 1,000 1,150
10.25% 2011 1,000 1,150
9.25% 2013 (1) 1,500 1,601
El Salvador (Republic of) 7.75% 2023 (1) 2,775 2,928
Argentina (Republic of):
Global 7.00%/15.50% 2008 (3) (10) 1,500 435
11.75% 2009 (10) 75 21
1.162% 2012 (5) 2,380 1,465
11.375% 2017 (10) 80 23
Global 12.25% 2018 (2) (10) 2,860 766
Global 12.00% 2031 (2) (10) 53 14
Venezuela (Republic of) 9.25% 2027 2,130 1,657
Philippines (Republic of):
9.875% 2019 500 546
Global 10.625% 2025 945 1,096
Central Bank of Nigeria, Series WRN, 0% 2020 (7) 1 0
217,353
U.S. TREASURY NOTES AND BONDS - 1.05%
7.50% February 2005 (11) 6,000 6,518
5.75% November 2005 14,000 15,234
6.625% May 2007 25,000 28,797
3.25% August 2007 5,000 5,163
4.75% November 2008 10,000 10,897
7.50% November 2016 12,000 15,675
7.875% February 2021 4,000 5,465
87,749
Market
value
EQUITY-RELATED SECURITIES (000)
Common stocks & warrants - 2.34%
SpectraSite, Inc. (1) (4) (7) (12) 2,541,328 shares 66,424
Dobson Communications Corp., Class A (1) (4) 5,754,785 46,729
NTELOS, Inc. (4) (7) (12) 1,247,193 24,832
ZiLOG, Inc. (4) (12) 3,315,000 10,608
ZiLOG, Inc. - MOD III Inc., units (4) (7) (12) 3,315 1,776
Nextel Communications, Inc., Class A (1) (4) 613,418 12,078
Fairchild Semiconductor Corp., Class A (4) 500,000 8,290
American Tower Corp., warrants, expire 2008 (1) (4) 38,250 5,355
Equity Office Properties Trust 150,000 4,129
Emmis Communications Corp., Class A (4) 201,000 4,056
Viacom Inc., Class B, nonvoting 63,225 2,422
Clear Channel Communications, Inc. 51,012 1,954
DigitalGlobe, Inc. (1) (4) (7) 3,064,647 1,532
VersaTel Telecom International NV (4) 779,280 1,482
NTL Inc. (1) (4) (7) 29,500 1,251
Radio One, Inc., Class A (4) 22,000 323
Radio One, Inc., Class D, nonvoting (4) 44,000 632
Clarent Hospital Corp. (4) (12) 576,849 937
Cincinnati Bell Inc. (4) 70,740 360
Nortel Inversora SA, Class A, preferred (ADR) (Argentina) (1) (4) (7) 675,397 338
Netia Holdings SA (4) 327,966 324
XO Communications, Inc. (4) 18,882 110
XO Communications, Inc., Series A, warrants, expire 2010 (4) 37,767 59
XO Communications, Inc., Series B, warrants, expire 2010 (4) 28,325 42
XO Communications, Inc., Series C, warrants, expire 2010 (4) 28,325 31
KMC Telecom Holdings, Inc., warrants, expire 2008 (1) (4) 22,500 67
Allegiance Telecom, Inc., warrants, expire 2008 (1) (4) (7) 5,000 1
GT Group Telecom Inc., warrants, expire 2010 (1) (4) (7) 11,000 0
Protection One, Inc., warrants, expire 2005 (1) (4) (7) 30,400 0
196,142
Miscellaneous - 0.38%
Investment securities in initial period of acquisition 31,961
TOTAL BONDS, NOTES & equity securities (cost: $7,691,234,000) 8,014,621
Principal
amount
SHORT-TERM SECURITIES (000)
U.S. Treasuries - 1.57%
U.S. Treasury Bills 0.872%-0.94% due 10/16-12/11/2003 (11) $ 131,800 131,666
Corporate short-term notes - 1.15%
E.I. DuPont de Nemours & Co. 1.03%-1.06% due 10/21-12/16/2003 (11) 79,000 78,864
Motiva Enterprises LLC 1.09% due 10/1/2003 17,300 17,299
96,163
TOTAL SHORT-TERM SECURITIES (cost: $227,821,000) 227,829
TOTAL INVESTMENT SECURITIES (cost: $7,919,055,000) 8,242,450
OTHER ASSETS LESS LIABILITIES 138,348
NET ASSETS $8,380,798
(1) Purchased in a private placement transaction; resale may be limited to
qualified institutional buyers; resale to the public may require
registration.
(2) Payment in kind; the issuer has the option of paying additional securities
in lieu of cash.
(3) Step bond; coupon rate will increase at a later date.
(4) Security did not produce income during the last 12 months.
(5) Coupon rate may change periodically.
(6) Company not making scheduled interest payments; bankruptcy proceedings
pending.
(7) Valued under fair value procedures adopted by authority of the Board of
Trustees.
(8) Company did not make principal payment upon scheduled maturity date;
reorganization pending.
(9) Pass-through security backed by a pool of mortgages or other loans on which
principal payments are periodically made. Therefore, the effective maturity
is shorter than the stated maturity.
(10) Scheduled interest payments not made; reorganization pending.
(11) This security, or a portion of this security, has been segregated to cover
funding requirements on investment transactions settling in the future.
(12) The fund owns 5.35%, 9.45%, 11.37% and 12.47% of the outstanding voting
securities of SpectraSite, Inc., Clarent Hospital Corp., ZiLOG, Inc. and
NTELOS, Inc., respectively, and thus is considered an affiliate of these
companies under the Investment Company Act of 1940.
See Notes to Financial Statements
FINANCIAL STATEMENTS
Statement of assets and liabilities
(dollars and shares in thousands, except per-share amounts)
at September 30, 2003
ASSETS:
Investment securities at market:
Unaffiliated issuers (cost: $7,772,022) $8,137,873
Affiliated issuers (cost: $147,033) 104,577 $8,242,450
Cash 13,695
Receivables for:
Sales of investments 18,784
Sales of fund's shares 30,539
Dividends and interest 153,510 202,833
8,458,978
LIABILITIES:
Payables for:
Purchases of investments 55,883
Repurchases of fund's shares 9,490
Dividends on fund's shares 5,842
Open forward currency contracts 1,193
Investment advisory services 2,439
Services provided by affiliates 3,240
Deferred Trustees' compensation 63
Other fees and expenses 30 78,180
NET ASSETS AT SEPTEMBER 30, 2003 $8,380,798
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest $8,595,836
Undistributed net investment income 2,355
Accumulated net realized loss (539,780)
Net unrealized appreciation 322,387
NET ASSETS AT SEPTEMBER 30, 2003 $8,380,798
SHARES OF BENEFICIAL INTEREST ISSUED AND OUTSTANDING -
UNLIMITED SHARES AUTHORIZED
SHARES NET ASSET
NET ASSETS OUTSTANDING VALUE PER SHARE (1)
Class A $6,234,692 524,795 $11.88
Class B 735,719 61,928 11.88
Class C 771,994 64,981 11.88
Class F 470,329 39,589 11.88
Class 529-A 28,420 2,392 11.88
Class 529-B 7,222 608 11.88
Class 529-C 16,193 1,363 11.88
Class 529-E 1,539 130 11.88
Class 529-F 1,015 85 11.88
Class R-1 1,099 92 11.88
Class R-2 14,739 1,241 11.88
Class R-3 13,888 1,169 11.88
Class R-4 8,741 736 11.88
Class R-5 75,208 6,331 11.88
(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 $12.34 for
each.
See Notes to Financial Statements
Statement of operations (dollars in thousands)
for the year ended September 30, 2003
INVESTMENT INCOME:
Income:
Interest $562,384
Dividends 20,329 $582,713
Fees and expenses:
Investment advisory services 24,736
Distribution services 23,165
Transfer agent services 4,571
Administrative services 1,849
Reports to shareholders 262
Registration statement and prospectus 691
Postage, stationery and supplies 494
Trustees' compensation 44
Auditing and legal 79
Custodian 158
State and local taxes 66
Total expenses before reimbursement 56,115
Reimbursement of expenses 138 55,977
Net investment income 526,736
NET REALIZED LOSS AND UNREALIZED
APPRECIATION ON INVESTMENTS
AND NON-U.S. CURRENCY:
Net realized loss on:
Investments (143,292)
Non-U.S. currency transactions (1,908) (145,200)
Net unrealized appreciation on:
Investments 1,381,461
Non-U.S. currency translations (883) 1,380,578
Net realized loss and
unrealized appreciation
on investments and non-U.S. currency 1,235,378
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $1,762,114
See Notes to Financial Statements
Statement of changes in net assets (dollars in thousands)
Year ended September 30
2003 2002
OPERATIONS:
Net investment income $526,736 $384,478
Net realized loss on investments and
non-U.S. currency transactions (145,200) (244,307)
Net unrealized appreciation (depreciation)
on investments and non-U.S. currency translations 1,380,578 (457,752)
Net increase (decrease) in net assets
resulting from operations 1,762,114 (317,581)
DIVIDENDS PAID TO SHAREHOLDERS
FROM NET INVESTMENT INCOME (509,744) (373,620)
CAPITAL SHARE TRANSACTIONS 3,033,873 1,650,268
TOTAL INCREASE IN NET ASSETS 4,286,243 959,067
NET ASSETS:
Beginning of year 4,094,555 3,135,488
End of year (including
undistributed and distributions in excess of
net investment income:
$2,355 and $13,906, respectively) $8,380,798 $4,094,555
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - American High-Income Trust (the "fund") is registered under the
Investment Company Act of 1940 as an open-end, diversified management investment
company. The fund seeks a high level of current income and, secondarily, capital
appreciation through a diversified, carefully supervised portfolio consisting
primarily of lower rated, higher risk corporate bonds.
The fund offers 14 share classes consisting of four retail share classes, five
CollegeAmerica savings plan share classes and five retirement plan share
classes. The CollegeAmerica savings plan share classes (529-A, 529-B, 529-C,
529-E and 529-F) are sponsored by the Commonwealth of Virginia and can be
utilized to save for college education. The five retirement plan share classes
(R-1, R-2, R-3, R-4 and R-5) are sold without any sales charges and do not carry
any conversion rights. The fund's share classes are described below:
- ---------------------------------------------------------------------------------------------------------
Initial sales Contingent deferred sales Conversion feature
Share class charge charge upon redemption
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes A and 529-A Up to 3.75% None (except 1% for certain None
redemptions within one year of
purchase without an initial
sales charge)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes B and 529-B None Declines from 5% to zero for Classes B and 529-B
redemptions within six years convert to classes A
purchase and 529-A,respectively,
after eight years
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class C None 1% for redemptions within one Class C converts to
year of purchase Class F after 10 years
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class 529-C None 1% for redemptions within one None
year of purchase
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class 529-E None None None
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes F and 529-F None None None
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes R-1, R-2, None None None
R-3, R-4 and R-5
- ---------------------------------------------------------------------------------------------------------
Holders of all share classes have equal pro rata rights to assets, dividends and
liquidation. Each share class has identical voting rights, except for the
exclusive right to vote on matters affecting only its class. Share classes have
different fees and expenses ("class-specific fees and expenses"), primarily due
to different arrangements for distribution, administrative and shareholder
services. Differences in class-specific fees and expenses will result in
differences in net investment income and, therefore, the payment of different
per-share dividends by each class.
SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared to
comply with accounting principles generally accepted in the United States of
America. These principles require management to make estimates and assumptions
that affect reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies followed by the fund:
SECURITY VALUATION - Equity securities are valued at the official closing
price of, or the last reported sale price on, the exchange or market on
which such securities are traded, as of the close of business on the day
the securities are being valued or, lacking any sales, at the last
available bid price. Prices for each security are taken from the principal
exchange or market in which the security trades. Fixed-income securities
are valued at prices obtained from an independent pricing service, when
such prices are available. However, where the investment adviser deems it
appropriate, such securities will be valued at the mean quoted bid and
asked prices or at prices for securities of comparable maturity, quality
and type. Short-term securities maturing within 60 days are valued at
amortized cost, which approximates market value. The ability of the issuers
of the debt securities held by the fund to meet their obligations may be
affected by economic developments in a specific industry, state or region.
Forward currency contracts are valued at the mean of their representative
quoted bid and asked prices. Securities and other assets for which
representative market quotations are not readily available are valued at
fair value as determined in good faith by authority of the fund's Board of
Trustees.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
are recorded by the fund as of the date the trades are executed with
brokers. Realized gains and losses from security transactions are
determined based on the specific identified cost of the securities. In the
event a security is purchased with a delayed payment date, the fund will
segregate liquid assets sufficient to meet its payment obligations.
Dividend income is recognized on the ex-dividend date and interest income
is recognized on an accrual basis. Market discounts, premiums and original
issue discounts on fixed-income securities are amortized daily over the
expected life of the security.
CLASS ALLOCATIONS - Income, fees and expenses (other than class-specific
fees and expenses) and realized and unrealized gains and losses are
allocated daily among the various share classes based on their relative net
assets. Class-specific fees and expenses, such as distribution,
administrative and shareholder services, are charged directly to the
respective share class.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends paid to
shareholders are declared daily from net investment income and are paid to
shareholders monthly. 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.
FORWARD CURRENCY CONTRACTS - The fund may enter into forward currency
contracts, which represent agreements to exchange non-U.S. currencies on
specific future dates at predetermined rates. The fund enters into these
contracts to manage its exposure to changes in non-U.S. exchange rates
arising from investments denominated in non-U.S. currencies. Upon entering
into these contracts, risks may arise from the potential inability of
counterparties to meet the terms of their contracts and from possible
movements in non-U.S. exchange rates. Due to these risks, the fund could
incur losses up to the entire contract amount, which may exceed the net
unrealized value shown in the accompanying financial statements. On a daily
basis, the fund values forward currency contracts based on the applicable
exchange rates and records unrealized gains or losses. The fund records
realized gains or losses at the time the forward contract is closed or
offset by another contract with the same broker for the same settlement
date and currency.
2. NON-U.S. INVESTMENTS
INVESTMENT RISK - The risks of investing in securities of non-U.S. issuers may
include, but are not limited to, investment and repatriation restrictions;
revaluation of currencies; adverse political, social and economic developments;
government involvement in the private sector; limited and less reliable investor
information; lack of liquidity; certain local tax law considerations; and
limited regulation of the securities markets.
TAXATION - Dividend and interest income is recorded net of non-U.S. taxes paid.
For the year ended September 30, 2003, there were no non-U.S. taxes paid on
realized gains.
3. FEDERAL INCOME TAXATION AND DISTRIBUTIONS
The fund complies with the requirements under Subchapter M of the Internal
Revenue Code applicable to mutual funds and intends to distribute substantially
all of its net taxable income and net capital gains each year. The fund is not
subject to income taxes to the extent such distributions are made.
DISTRIBUTIONS - Distributions paid to shareholders are based on net investment
income and net realized gains determined on a tax basis, which may differ from
net investment income and net realized gains for financial reporting purposes.
These differences are due primarily to differing treatment for items such as
non-U.S. currency gains and losses; short-term capital gains and losses; capital
losses related to sales of securities within 30 days of purchase; unrealized
appreciation of certain investments in non-U.S. securities; deferred expenses;
cost of investments sold; and net capital losses. The fiscal year in which
amounts are distributed may differ from the year in which the net investment
income and net realized gains are recorded by the fund. As of September 30,
2003, the cost of investment securities, excluding forward currency contracts,
for federal income tax purposes was $7,923,532,000.
During the year ended September 30, 2003, the fund reclassified $731,000 from
undistributed net investment income to undistributed net realized losses to
align financial reporting with tax reporting.
As of September 30, 2003, the components of distributable earnings on a tax
basis were as follows:
(dollars in thousands)
Undistributed net investment income and currency gains $14,485
Loss deferrals related to non-U.S. currency that were realized
during the period November 1, 2002 through September 30, 2003 (1,527)
Short-term and long-term capital loss deferrals (537,643)
Gross unrealized appreciation on investment securities 671,028
Gross unrealized depreciation on investment securities (352,110)
Short-term and long-term capital loss deferrals above include capital loss
carryforwards of $9,548,000, $167,849,000 and $300,191,000 expiring in 2009,
2010 and 2011, respectively. The capital loss carryforwards will be used to
offset any capital gains realized by the fund in the current year or in
subsequent years through the expiration dates. The fund will not make
distributions from capital gains while capital loss carryforwards remain. Also
included are capital losses of $60,055,000, that were realized during the period
November 1, 2002 through September 30, 2003.
Distributions paid to shareholders from net investment income and currency gains
were as follows (dollars in thousands):
Year ended September 30
Share class(1) 2003 2002
Class A $ 396,679 $ 326,106
Class B 37,860 20,684
Class C 37,330 15,421
Class F 28,874 9,747
Class 529-A 1,364 246
Class 529-B 283 46
Class 529-C 690 134
Class 529-E 68 9
Class 529-F 31 -*
Class R-1 30 -*
Class R-2 424 3
Class R-3 462 5
Class R-4 152 -*
Class R-5 5,497 1,219
Total $ 509,744 $ 373,620
* Amount less than one thousand.
(1) Class 529-A, 529-B, 529-C, 529-E and 529-F shares were offered beginning
February 15, 2002. Class R-1, R-2, R-3, R-4 and R-5 shares were offered
beginning May 15, 2002.
4. FEES AND TRANSACTIONS WITH RELATED PARTIES
Capital Research and Management Company ("CRMC"), the fund's investment adviser,
is the parent company of American Funds Service Company ("AFS"), the fund's
transfer agent, and American Funds Distributors, Inc. ("AFD"), the principal
underwriter of the fund's shares.
INVESTMENT ADVISORY SERVICES - The Investment Advisory and Service Agreement
with CRMC provides for monthly fees accrued daily. These fees are based on a
declining series of annual rates beginning with 0.30% on the first $60 million
of daily net assets and decreasing to 0.16% on such assets in excess of $3
billion. The agreement also provides for monthly fees, accrued daily, based on a
declining series of annual rates beginning with 3.00% on the first $8,333,333 of
the fund's monthly gross investment income and decreasing to 2.00% on such
income in excess of $25,000,000.
The Board of Trustees approved an amended agreement effective November 1, 2003,
reducing the rates to 0.15% on assets in excess of $6 billion. Beginning March
18, 2003, CRMC voluntarily reduced fees for investment advisory services to the
rates provided by the amended agreement. As a result, for the year ended
September 30, 2003, the fee shown on the accompanying financial statements of
$24,736,000, which was equivalent to an annualized rate of 0.391%, was
voluntarily reduced by $84,000 to $24,652,000, or 0.389% 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 Trustees
approves certain categories of expenses that are used to finance activities
primarily intended to sell fund shares. The plans provide for annual
expenses, based on a percentage of average daily net assets, ranging from
0.30% to 1.00% as noted below. In some cases, the Board of Trustees has
approved expense amounts lower than plan limits.
-----------------------------------------------------------------------------
SHARE CLASS CURRENTLY APPROVED LIMITS PLAN LIMITS
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class A 0.30% 0.30%
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class 529-A 0.30 0.50
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Classes B and 529-B 1.00 1.00
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Classes C, 529-C and R-1 1.00 1.00
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class R-2 0.75 1.00
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Classes 529-E and R-3 0.50 0.75
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Classes F, 529-F and R-4 0.25 0.50
-----------------------------------------------------------------------------
All share classes may use up to 0.25% of average daily net assets to pay
service fees, or to compensate AFD for paying service fees, to firms that
have entered into agreements with AFD for providing certain shareholder
services. Expenses in excess of these amounts, up to approved limits, may
be used to compensate dealers and wholesalers for shares sold.
For classes A and 529-A, the Board of Trustees 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 0.30% is not exceeded. As of September 30, 2003,
there were no unreimbursed expenses subject to reimbursement for classes A
or 529-A.
TRANSFER AGENT SERVICES - The fund has a transfer agent agreement with AFS
for classes A and B. Under this agreement, these share classes compensate
AFS for transfer agent services including shareholder recordkeeping,
communications and transaction processing. AFS is also compensated for
certain transfer agent services provided to all other share classes from
the administrative services fees paid to CRMC described below.
ADMINISTRATIVE SERVICES - The fund has an administrative services agreement
with CRMC to provide transfer agent and other related shareholder services
for all classes of shares other than classes A and B. Each relevant class
pays CRMC annual fees of 0.15% (0.10% for Class R-5) based on its
respective average daily net assets. Each relevant class also pays AFS
additional amounts for certain transfer agent services. CRMC and AFS may
use these fees to compensate third parties for performing these services.
During the start-up period for classes R-1, R-2, R-3 and R-4, CRMC has
voluntarily agreed to pay a portion of these fees. For the year ended
September 30, 2003, the total fees paid by CRMC were $54,000. Each 529
share class is subject to an additional annual administrative services fee
of 0.10% of its respective average daily net assets; this fee is payable to
the Commonwealth of Virginia for the maintenance of the CollegeAmerica
plan. Although these amounts are included with administrative services fees
in the accompanying financial statements, the Commonwealth of Virginia is
not considered a related party. Administrative services fees are presented
gross of any payments made by CRMC.
Expenses under the agreements described above for the year ended September
30, 2003, were as follows (dollars in thousands):
- ---------------------------------------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES
-------------------------------------------------------------
COMMONWEALTH OF
CRMC VIRGINIA
DISTRIBUTION TRANSFER AGENT ADMINISTRATIVE TRANSFER AGENT ADMINISTRATIVE
SHARE CLASS SERVICES SERVICES SERVICES SERVICES SERVICES
- ---------------------------------------------------------------------------------------------------------------
Class A $11,640 $4,075 Not applicable Not applicable Not applicable
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class B 5,165 496 Not applicable Not applicable Not applicable
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class C 5,207 Included $781 $166 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class F 905 Included 543 99 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class 529-A 16 Included 25 3 $17
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class 529-B 41 Included 6 3 4
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class 529-C 97 Included 15 5 10
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class 529-E 5 Included 1 -* 1
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class 529-F 1 Included 1 -* -*
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class R-1 5 Included 1 2 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class R-2 46 Included 9 63 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class R-3 32 Included 10 14 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class R-4 5 Included 3 1 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Class R-5 Not applicable Included 64 2 Not applicable
in
administrative
services
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Total $23,165 $4,571 $1,459 $358 $32
- ----------------===============================================================================================
* Amount less than one thousand.
DEFERRED TRUSTEES' COMPENSATION - Since the adoption of the deferred
compensation plan in 1993, Trustees 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. Trustees' compensation in the accompanying financial statements
includes $39,000 in current fees (either paid in cash or deferred) and a net
increase of $5,000 in the value of the deferred amounts.
AFFILIATED OFFICERS AND TRUSTEES - Officers and certain Trustees of the fund are
or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated
officers or Trustees 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 DIVIDENDS
SHARE CLASS(1) SALES(2) AND DISTRIBUTIONS REPURCHASES(2) NET INCREASE
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
Year ended September 30, 2003
Class A $2,947,678 269,710 $ 293,946 26,810 $(1,294,863) (117,608) $ 1,946,761 178,912
Class B 401,738 36,762 25,201 2,283 (84,952) (7,642) 341,987 31,403
Class C 515,059 47,001 25,987 2,350 (129,541) (11,555) 411,505 37,796
Class F 537,925 49,913 19,042 1,721 (313,475) (28,218) 243,492 23,416
Class 529-A 17,906 1,629 1,344 121 (1,383) (123) 17,867 1,627
Class 529-B 4,996 452 279 25 (282) (24) 4,993 453
Class 529-C 10,184 929 683 62 (791) (72) 10,076 919
Class 529-E 1,070 98 67 6 (80) (7) 1,057 97
Class 529-F 915 82 30 3 -* -* 945 85
Class R-1 1,232 110 29 3 (249) (23) 1,012 90
Class R-2 15,383 1,383 413 36 (2,374) (208) 13,422 1,211
Class R-3 14,631 1,322 452 40 (2,825) (248) 12,258 1,114
Class R-4 9,077 800 146 13 (891) (78) 8,332 735
Class R-5 32,990 3,070 3,129 287 (15,953) (1,410) 20,166 1,947
Total net increase
(decrease) $4,510,784 413,261 $ 370,748 33,760 $ (1,847,659) (167,216) $ 3,033,873 279,805
Year ended September 30, 2002
Class A $1,565,510 142,047 $ 232,348 21,359 $ (841,488) (78,010) $ 956,370 85,396
Class B 246,129 22,036 12,690 1,187 (37,615) (3,590) 221,204 19,633
Class C 298,982 26,749 10,115 958 (46,447) (4,456) 262,650 23,251
Class F 205,334 18,636 7,125 673 (64,350) (6,023) 148,109 13,286
Class 529-A 8,109 752 240 24 (109) (11) 8,240 765
Class 529-B 1,618 151 45 4 (2) -* 1,661 155
Class 529-C 4,791 444 130 13 (130) (13) 4,791 444
Class 529-E 342 32 9 1 (5) -* 346 33
Class 529-F 3 -* -* -* - - 3 -*
Class R-1 16 2 -* -* - - 16 2
Class R-2 328 33 3 -* (34) (3) 297 30
Class R-3 544 56 4 1 (20) (2) 528 55
Class R-4 13 1 -* -* - - 13 1
Class R-5 45,966 4,376 845 86 (771) (78) 46,040 4,384
Total net increase
(decrease) $2,377,685 215,315 $ 263,554 24,306 $ (990,971) (92,186) $ 1,650,268 147,435
* Amount less than one thousand.
(1) Class 529-A, 529-B, 529-C, 529-E and 529-F shares were offered beginning
February 15, 2002. Class R-1, R-2, R-3, R-4 and R-5 shares were offered
beginning May 15, 2002.
(2) Includes exchanges between share classes of the fund.
6. FORWARD CURRENCY CONTRACTS
As of September 30, 2003, the fund had outstanding forward currency contracts to
sell non-U.S. currencies as follows:
U.S. VALUATIONS AT
SEPTEMBER 30, 2003
CONTRACT AMOUNT
NON-U.S. CONTRACTS UNREALIZED
Non-U.S. U.S. AMOUNT (DEPRECIATION)
(000) (000) (000) (000)
Sales:
Euros expiring
11/3 to 12/17/2003 Euro 22,475 $24,988 $26,181 $( 1,193)
7. RESTRICTED SECURITIES
The fund has invested in certain securities for which resale may be limited to
qualified buyers or which are otherwise restricted. These securities are
identified in the investment portfolio. As of September 30, 2003, the total
value of restricted securities was $1,695,406,000, which represented 20.23% of
the net assets of the fund.
8. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding short-term
securities, of $5,317,203,000 and $2,381,098,000, respectively, during the year
ended September 30, 2003.
The fund receives a reduction in its custodian fee equal to the amount of
interest calculated on certain cash balances held at the custodian bank. For the
year ended September 30, 2003, the custodian fee of $158,000 included $149,000
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 9/30/2003 $9.62 $.93 $2.25 $3.18
Year ended 9/30/2002 11.27 1.08 (1.65) (.57)
Year ended 9/30/2001 12.93 1.20 (1.61) (.41)
Year ended 9/30/2000 13.52 1.18 (.48) .70
Year ended 9/30/1999 13.75 1.28 (.17) 1.11
CLASS B:
Year ended 9/30/2003 9.62 .84 2.25 3.09
Year ended 9/30/2002 11.27 1.00 (1.65) (.65)
Year ended 9/30/2001 12.93 1.10 (1.61) (.51)
Period from 3/15/2000 to 9/30/2000 13.57 .52 (.53) (.01)
CLASS C:
Year ended 9/30/2003 9.62 .83 2.25 3.08
Year ended 9/30/2002 11.27 .99 (1.65) (.66)
Period from 3/15/2001 to 9/30/2001 12.48 .53 (1.15) (.62)
CLASS F:
Year ended 9/30/2003 9.62 .92 2.25 3.17
Year ended 9/30/2002 11.27 1.07 (1.65) (.58)
Period from 3/15/2001 to 9/30/2001 12.48 .57 (1.15) (.58)
CLASS 529-A:
Year ended 9/30/2003 9.62 .92 2.25 3.17
Period from 2/19/2002 to 9/30/2002 11.37 .65 (1.76) (1.11)
CLASS 529-B:
Year ended 9/30/2003 9.62 .82 2.25 3.07
Period from 2/25/2002 to 9/30/2002 11.23 .59 (1.63) (1.04)
CLASS 529-C:
Year ended 9/30/2003 9.62 .82 2.25 3.07
Period from 2/19/2002 to 9/30/2002 11.37 .60 (1.76) (1.16)
CLASS 529-E:
Year ended 9/30/2003 9.62 .88 2.25 3.13
Period from 3/15/2002 to 9/30/2002 11.57 .57 (1.96) (1.39)
CLASS 529-F:
Year ended 9/30/2003 9.62 .91 2.25 3.16
Period from 9/16/2002 to 9/30/2002 9.88 .08 (.30) (.22)
CLASS R-1:
Year ended 9/30/2003 9.62 .83 2.25 3.08
Period from 7/11/2002 to 9/30/2002 10.00 .23 (.40) (.17)
CLASS R-2:
Year ended 9/30/2003 9.62 .84 2.25 3.09
Period from 6/18/2002 to 9/30/2002 10.76 .31 (1.18) (.87)
CLASS R-3:
Year ended 9/30/2003 9.62 .88 2.25 3.13
Period from 6/21/2002 to 9/30/2002 10.60 .31 (1.01) (.70)
CLASS R-4:
Year ended 9/30/2003 9.62 .92 2.25 3.17
Period from 7/19/2002 to 9/30/2002 9.97 .22 (.38) (.16)
CLASS R-5:
Year ended 9/30/2003 9.62 .95 2.25 3.20
Period from 5/15/2002 to 9/30/2002 11.30 .42 (1.70) (1.28)
Dividends and distributions
Dividends
(from net Distributions Total Net asset
investment (from capital dividends and value, end Total
income) gains) distributions of period return(3)
CLASS A:
Year ended 9/30/2003 $(.92) $- $(.92) $11.88 34.30%
Year ended 9/30/2002 (1.08) - (1.08) 9.62 (5.88)
Year ended 9/30/2001 (1.25) - (1.25) 11.27 (3.44)
Year ended 9/30/2000 (1.29) - (1.29) 12.93 5.29
Year ended 9/30/1999 (1.29) (.05) (1.34) 13.52 8.11
CLASS B:
Year ended 9/30/2003 (.83) - (.83) 11.88 33.28
Year ended 9/30/2002 (1.00) - (1.00) 9.62 (6.57)
Year ended 9/30/2001 (1.15) - (1.15) 11.27 (4.17)
Period from 3/15/2000 to 9/30/2000 (.63) - (.63) 12.93 (.05)
CLASS C:
Year ended 9/30/2003 (.82) - (.82) 11.88 33.17
Year ended 9/30/2002 (.99) - (.99) 9.62 (6.65)
Period from 3/15/2001 to 9/30/2001 (.59) - (.59) 11.27 (5.11)
CLASS F:
Year ended 9/30/2003 (.91) - (.91) 11.88 34.17
Year ended 9/30/2002 (1.07) - (1.07) 9.62 (5.95)
Period from 3/15/2001 to 9/30/2001 (.63) - (.63) 11.27 (4.86)
CLASS 529-A:
Year ended 9/30/2003 (.91) - (.91) 11.88 34.17
Period from 2/19/2002 to 9/30/2002 (.64) - (.64) 9.62 (10.11)
CLASS 529-B:
Year ended 9/30/2003 (.81) - (.81) 11.88 33.01
Period from 2/25/2002 to 9/30/2002 (.57) - (.57) 9.62 (9.54)
CLASS 529-C:
Year ended 9/30/2003 (.81) - (.81) 11.88 33.03
Period from 2/19/2002 to 9/30/2002 (.59) - (.59) 9.62 (10.52)
CLASS 529-E:
Year ended 9/30/2003 (.87) - (.87) 11.88 33.73
Period from 3/15/2002 to 9/30/2002 (.56) - (.56) 9.62 (12.29)
CLASS 529-F:
Year ended 9/30/2003 (.90) - (.90) 11.88 34.06
Period from 9/16/2002 to 9/30/2002 (.04) - (.04) 9.62 (2.23)
CLASS R-1:
Year ended 9/30/2003 (.82) - (.82) 11.88 33.16
Period from 7/11/2002 to 9/30/2002 (.21) - (.21) 9.62 (1.70)
CLASS R-2:
Year ended 9/30/2003 (.83) - (.83) 11.88 33.21
Period from 6/18/2002 to 9/30/2002 (.27) - (.27) 9.62 (8.05)
CLASS R-3:
Year ended 9/30/2003 (.87) - (.87) 11.88 33.71
Period from 6/21/2002 to 9/30/2002 (.28) - (.28) 9.62 (6.63)
CLASS R-4:
Year ended 9/30/2003 (.91) - (.91) 11.88 34.17
Period from 7/19/2002 to 9/30/2002 (.19) - (.19) 9.62 (1.58)
CLASS R-5:
Year ended 9/30/2003 (.94) - (.94) 11.88 34.61
Period from 5/15/2002 to 9/30/2002 (.40) - (.40) 9.62 (11.41)
RATIO OF RATIO OF
NET ASSETS, EXPENSES NET INCOME
END OF PERIOD TO AVERAGE TO AVERAGE
(IN MILLIONS) NET ASSETS NET ASSETS
CLASS A:
Year ended 9/30/2003 $6,235 .75% (5) 8.49%
Year ended 9/30/2002 3,327 .88 9.99
Year ended 9/30/2001 2,936 .83 9.75
Year ended 9/30/2000 2,788 .82 8.87
Year ended 9/30/1999 2,777 .82 9.21
CLASS B:
Year ended 9/30/2003 736 1.51 (5) 7.63
Year ended 9/30/2002 294 1.59 9.28
Year ended 9/30/2001 123 1.57 8.75
Period from 3/15/2000 to 9/30/2000 27 1.52 (6) 8.18 (6)
CLASS C:
Year ended 9/30/2003 772 1.60 (5) 7.49
Year ended 9/30/2002 262 1.67 9.21
Period from 3/15/2001 to 9/30/2001 44 1.70 (6) 8.54 (6)
CLASS F:
Year ended 9/30/2003 470 .84 (5) 8.26
Year ended 9/30/2002 156 .93 9.95
Period from 3/15/2001 to 9/30/2001 32 .93 (6) 9.32 (6)
CLASS 529-A:
Year ended 9/30/2003 28 .77 (5) 8.36
Period from 2/19/2002 to 9/30/2002 7 1.07 (6) 10.40 (6)
CLASS 529-B:
Year ended 9/30/2003 7 1.73 (5) 7.36
Period from 2/25/2002 to 9/30/2002 2 1.82 (6) 9.67 (6)
CLASS 529-C:
Year ended 9/30/2003 16 1.71 (5) 7.43
Period from 2/19/2002 to 9/30/2002 4 1.80 (6) 9.65 (6)
CLASS 529-E:
Year ended 9/30/2003 2 1.18 (5) 7.94
Period from 3/15/2002 to 9/30/2002 - (4) 1.27 (6) 10.45 (6)
CLASS 529-F:
Year ended 9/30/2003 1 .92 (5) 7.96
Period from 9/16/2002 to 9/30/2002 - (4) .05 .77
CLASS R-1:
Year ended 9/30/2003 1 1.60 (5)(7) 7.20
Period from 7/11/2002 to 9/30/2002 - (4) .38 (7) 2.32
CLASS R-2:
Year ended 9/30/2003 15 1.57 (5)(7) 7.34
Period from 6/18/2002 to 9/30/2002 - (4) .48 (7) 3.17
CLASS R-3:
Year ended 9/30/2003 14 1.18 (5)(7) 7.74
Period from 6/21/2002 to 9/30/2002 1 .36 (7) 3.21
CLASS R-4:
Year ended 9/30/2003 9 .83 (5)(7) 8.13
Period from 7/19/2002 to 9/30/2002 - (4) .14 (7) 2.25
CLASS R-5:
Year ended 9/30/2003 75 .52 (5) 8.77
Period from 5/15/2002 to 9/30/2002 42 .23 4.25
Year ended September 30
2003 2002 2001 2000 1999
Portfolio turnover rate
for all classes of shares 41% 34% 44% 46% 30%
(1) Based on operations for the period shown (unless otherwise noted) and,
accordingly, may not be representative of a full year.
(2) Year ended 1999 is based on shares outstanding on the last day of the year;
all other periods are based on average shares outstanding.
(3) Total returns exclude all sales charges, including contingent deferred
sales charges.
(4) Amount less than 1 million.
(5) CRMC voluntarily agreed to pay a portion of the fees relating to investment
advisory fees. The expense ratios for all classes were not affected by any
payments made by CRMC during the year ended September 30, 2003.
(6) Annualized.
(7) During the start-up period for this class, CRMC voluntarily agreed to pay a
portion of the fees relating to transfer agent services. Had CRMC not paid
such fees, expense ratios would have been 2.01%, 2.31%, 1.28% and .86% for
classes R-1, R-2, R-3 and R-4, respectively, during the year ended
September 30, 2003, and 2.07%, .85%, .51% and 9.55% for classes R-1, R-2,
R-3 and R-4, respectively, during the period ended September 30, 2002.
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF AMERICAN HIGH-INCOME TRUST:
We have audited the accompanying statement of assets and liabilities of American
High-Income Trust (the "Fund"), including the investment portfolio, as of
September 30, 2003, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 2003, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
American High-Income Trust as of September 30, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Los Angeles, California
November 7, 2003
TAX INFORMATION (unaudited)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of certain distributions received by
shareholders during such fiscal year.
As a result of recent tax legislation, individual shareholders are now eligible
for reduced tax rates on qualified dividend income received during 2003. For
purposes of computing the dividends eligible for reduced tax rates, 3.0% of the
dividends paid by the fund from net investment income from January 1 through the
end of the fund's fiscal year are considered qualified dividend income.
Corporate shareholders may exclude up to 70.0% of qualifying dividends received
during the year. For purposes of computing this exclusion, 3.9% of the dividends
paid by the fund from net investment income represent qualifying dividends.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. government
obligations. For purposes of computing this exclusion, .9% of the dividends paid
by the fund from net investment income were derived from interest on direct U.S.
government obligations.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans and 403(b) plans need not be reported as taxable income.
However, many retirement plan trusts may need this information for their annual
information reporting.
SINCE THE INFORMATION ABOVE IS REPORTED FOR THE FUND'S FISCAL YEAR AND NOT THE
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 2004 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 2003 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
OTHER SHARE CLASS RESULTS (unaudited)
Class B, Class C, Class F, and Class 529
RETURNS FOR PERIODS ENDED SEPTEMBER 30, 2003:
1 year Life of class
CLASS B SHARES
Reflecting applicable contingent deferred sales charge (CDSC),
maximum of 5%, payable only if shares are sold within six
years of purchase +28.28% +4.44% (1)
Not reflecting CDSC +33.28% +5.10% (1)
CLASS C SHARES
Reflecting CDSC, maximum of 1%, payable only if shares
are sold within one year of purchase +32.17% +6.71% (2)
Not reflecting CDSC +33.17% +6.71% (2)
CLASS F SHARES (3)
Not reflecting annual asset-based fee charged
by sponsoring firm +34.17% +7.45% (2)
CLASS 529-A SHARES
Reflecting 3.75% maximum sales charge +29.20% +9.71% (4)
Not reflecting maximum sales charge +34.17% +12.33% (4)
CLASS 529-B SHARES
Reflecting applicable CDSC, maximum of 5%, payable
only if shares are sold within six years of purchase +28.01% +9.94% (5)
Not reflecting CDSC +33.01% +12.30% (5)
CLASS 529-C SHARES
Reflecting CDSC, maximum of 1%, payable only if shares
are sold within one year of purchase +32.03% +11.42% (4)
Not reflecting CDSC +33.03% +11.42% (4)
CLASS 529-E SHARES (3) +33.73% +10.88% (6)
Class 529-F shares (3)
Not reflecting annual asset-based fee charged
by sponsoring firm +34.06% +29.76% (7)
(1) Average annual total return from March 15, 2000, when Class B shares were
first sold.
(2) Average annual total return from March 15, 2001, when Class C and Class F
shares were first sold.
(3) These shares are sold without any initial or contingent deferred sales
charge.
(4) Average annual total return from February 19, 2002, when Class 529-A and
Class 529-C shares were first sold.
(5) Average annual total return from February 25, 2002, when Class 529-B shares
were first sold.
(6) Average annual total return from March 15, 2002, when Class 529-E shares
were first sold.
(7) Average annual total return from September 16, 2002, when Class 529-F
shares were first sold.
BOARD OF TRUSTEES
"Non-interested" Trustees
YEAR FIRST
ELECTED
A TRUSTEE
NAME AND AGE OF THE FUND (1) PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
AMBASSADOR 1999 Corporate director and author; former U.S.
RICHARD G. CAPEN, JR., 69 Ambassador to Spain; former Vice Chairman,
Knight-Ridder, Inc.; former Chairman and
Publisher, The Miami Herald
H. FREDERICK CHRISTIE, 70 1987 Private investor; former President and CEO,
The Mission Group (non-utility holding company,
subsidiary of Southern California Edison Company)
DIANE C. CREEL, 55 1994 Chairman of the Board and CEO, AnAerobics, Inc.
(organic waste management)
MARTIN FENTON, 68 1989 Chairman of the Board and CEO, Senior Resource
Group LLC (development and management of senior
living communities)
LEONARD R. FULLER, 57 1994 President and CEO, Fuller Consulting (financial
management consulting firm)
RICHARD G. NEWMAN, 69 1991 Chairman of the Board and CEO, AECOM Technology
Corporation (engineering, consulting and professional
services)
FRANK M. SANCHEZ, 60 1999 Principal, The Sanchez Family Corporation dba
McDonald's Restaurants (McDonald's licensee)
"Non-interested" Trustees
NUMBER OF
BOARDS WITHIN THE
FUND COMPLEX (2)
ON WHICH
NAME AND AGE TRUSTEE SERVES OTHER DIRECTORSHIPS (3) HELD BY TRUSTEE
AMBASSADOR 14 Carnival Corporation
RICHARD G. CAPEN, JR., 69
H. FREDERICK CHRISTIE, 70 19 Ducommun Incorporated; IHOP Corporation;
Southwest Water Company; Valero L.P.
DIANE C. CREEL, 55 12 Allegheny Technologies; BF Goodrich;
Teledyne Technologies
MARTIN FENTON, 68 16 None
LEONARD R. FULLER, 57 14 None
RICHARD G. NEWMAN, 69 13 Sempra Energy; Southwest Water Company
FRANK M. SANCHEZ, 60 12 None
"Interested" Trustees (4)
YEAR FIRST
ELECTED A
TRUSTEE 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
PAUL G. HAAGA, JR., 54 1987 Executive Vice President and Director, Capital Research
Chairman of the Board and Management Company; Director, The Capital Group
Companies, Inc. (5); Director, American Funds
Distributors, Inc. (5)
ABNER D. GOLDSTINE, 73 1987 Senior Vice President and Director, Capital Research
Vice Chairman of the Board and Management Company
DAVID C. BARCLAY, 47 1995 Senior Vice President and Director, Capital Research
President and Management Company; Director, Capital Research Company (5)
"Interested" Trustees (4)
NUMBER OF
BOARDS WITHIN THE OTHER
FUND COMPLEX (2) DIRECTORSHIPS (3)
NAME, AGE AND ON WHICH HELD BY
POSITION WITH FUND TRUSTEE SERVES TRUSTEE
PAUL G. HAAGA, JR., 54 17 None
Chairman of the Board
ABNER D. GOLDSTINE, 73 12 None
Vice Chairman of the Board
DAVID C. BARCLAY, 47 1 None
President
THE STATEMENT OF ADDITIONAL INFORMATION INCLUDES ADDITIONAL INFORMATION ABOUT
FUND TRUSTEES AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST BY CALLING AMERICAN
FUNDS SERVICE COMPANY AT 800/421-0180. THE ADDRESS FOR ALL TRUSTEES AND OFFICERS
OF THE FUND IS 333 SOUTH HOPE STREET, LOS ANGELES, CA 90071, ATTENTION: FUND
SECRETARY.
OTHER OFFICERS
YEAR FIRST
ELECTED AN PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND
NAME, AGE AND OFFICER OF POSITIONS HELD WITH AFFILIATED ENTITIES OR THE PRINCIPAL
POSITION WITH FUND THE FUND (1) UNDERWRITER OF THE FUND
SUSAN M. TOLSON, 41 1997 Senior Vice President, Capital Research Company (5)
Senior Vice President
MICHAEL J. DOWNER, 48 1994 Vice President and Secretary, Capital Research and
Vice President Management Company; Secretary, American Funds Distributors, Inc.(5);
Director, Capital Bank and Trust Company (5)
JENNIFER L. HINMAN, 45 2001 Vice President and Director, Capital Research Company (5)
Vice President
JULIE F. WILLIAMS, 55 1987 Vice President-- Fund Business Management
Secretary Group, Capital Research and Management Company
ANTHONY W. HYNES, JR., 40 1993 Vice President-- Fund Business Management
Treasurer Group, Capital Research and Management Company
KIMBERLY S. VERDICK, 39 1994 Assistant Vice President-- Fund Business
Assistant Secretary Management Group, Capital Research and Management Company
SUSI M. SILVERMAn, 33 2001 Vice President-- Fund Business Management
Assistant Treasurer Group, Capital Research and Management Company
(1) Trustees and officers of the fund serve until their resignation, removal or
retirement.
(2) Capital Research and Management Company manages the American Funds,
consisting of 29 funds. Capital Research and Management Company also
manages American Funds Insurance Series(R) and Anchor Pathway Fund, which
serve as the underlying investment vehicles for certain variable insurance
contracts; and Endowments, whose shareholders are limited to certain
nonprofit organizations.
(3) This includes all directorships (other than those in the American Funds)
that are held by each Trustee 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.
OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER
Capital Research and Management Company
333 South Hope Street Los Angeles, CA 90071-1406
135 South State College Boulevard
Brea, CA 92821-5823
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 25065 Santa Ana, CA 92799-5065
P.O. Box 659522 San Antonio, TX 78265-9522
P.O. Box 6007 Indianapolis, IN 46206-6007
P.O. Box 2280 Norfolk, VA 23501-2280
CUSTODIAN OF ASSETS
JPMorgan Chase Bank
270 Park Avenue
New York, NY 10017-2070
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
515 South Flower Street
Los Angeles, CA 90071-2228
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two California Plaza
350 South Grand Avenue
Los Angeles, CA 90071-3462
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, CA 90071-1406
There are several ways to invest in American High-Income Trust. Class A shares
are subject to a 3.75% maximum up-front sales charge that declines for accounts
(and aggregated investments) of $100,000 or more. Other share classes, which are
generally not available for certain employer-sponsored retirement plans, have no
up-front sales charges but are subject to additional annual expenses and fees.
Annual expenses for Class B shares were 0.76 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 0.85 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 0.09 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.
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, OR FOR A
PROSPECTUS FOR ANY OF THE AMERICAN FUNDS, PLEASE CONTACT YOUR FINANCIAL ADVISER.
YOU MAY ALSO CALL AMERICAN FUNDS SERVICE COMPANY AT 800/421-0180 OR VISIT US AT
AMERICANFUNDS.COM. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR
SEND MONEY.
THE AMERICAN FUNDS PROXY VOTING GUIDELINES -- USED TO DETERMINE HOW TO VOTE
PROXIES RELATING TO PORTFOLIO SECURITIES -- ARE AVAILABLE UPON REQUEST, FREE OF
CHARGE, BY CALLING AMERICAN FUNDS SERVICE COMPANY, VISITING THE AMERICAN FUNDS
WEBSITE OR ACCESSING THE U.S. SECURITIES AND EXCHANGE COMMISSION WEBSITE AT
WWW.SEC.GOV.
This report is for the information of shareholders of American High-Income
Trust, 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 December 31, 2003, this report must be accompanied by an American
Funds statistical update for the most recently completed calendar quarter.
[logo - American Funds(R)]
The right choice for the long term(R)
WHAT MAKES AMERICAN FUNDS DIFFERENT?
For more than 70 years, we have followed a consistent philosophy that we firmly
believe is in our investors' best interests. The range of opportunities offered
by our family of just 29 carefully conceived, broadly diversified funds has
attracted over 20 million shareholder accounts.
Our unique combination of strengths includes these five factors:
o A LONG-TERM, VALUE-ORIENTED APPROACH
Rather than follow fads, we pursue a consistent strategy, focusing on each
investment's long-term potential.
o AN UNPARALLELED GLOBAL RESEARCH EFFORT
American Funds draws on one of the industry's most globally integrated
research networks.
o THE MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Every American Fund is divided among a number of portfolio counselors. Each
takes responsibility for a portion independently, within each fund's
objectives; in most cases, research analysts manage a portion as well. Over
time this method has contributed to a consistency of results and continuity
of management.
o EXPERIENCED INVESTMENT PROFESSIONALS
The recent market decline was not the first for most of the portfolio
counselors who serve the American Funds. Nearly 70% of them were in the
investment business before the sharp market decline of 1987.
o A COMMITMENT TO LOW OPERATING EXPENSES
American Funds' operating expenses are among the lowest in the mutual fund
industry. Our portfolio turnover rates are low as well, keeping transaction
costs and tax consequences contained.
29 MUTUAL FUNDS, CONSISTENT PHILOSOPHY, CONSISTENT RESULTS
o GROWTH FUNDS
Emphasis on long-term growth through stocks
AMCAP Fund(R)
EuroPacific Growth Fund(R)
The Growth Fund of America(R)
The New Economy Fund(R)
New Perspective Fund(R)
New World FundSM
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 FundSM
Fundamental InvestorsSM
The Investment Company of America(R)
Washington Mutual Investors FundSM
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 TRUSTSM
The Bond Fund of AmericaSM
Capital World Bond Fund(R)
Intermediate Bond Fund of America(R)
U.S. Government Securities FundSM
o TAX-EXEMPT BOND FUNDS
Emphasis on tax-free current income through municipal bonds American
High-Income Municipal Bond Fund(R) Limited Term Tax-Exempt Bond Fund of
AmericaSM
The Tax-Exempt Bond Fund of America(R)
STATE-SPECIFIC TAX-EXEMPT FUNDS
The Tax-Exempt Fund of California(R)
The Tax-Exempt Fund of Maryland(R)
The Tax-Exempt Fund of Virginia(R)
o MONEY MARKET FUNDS
The Cash Management Trust of America(R)
The Tax-Exempt Money Fund of AmericaSM
The U.S. Treasury Money Fund of AmericaSM
THE CAPITAL GROUP COMPANIES
American Funds
Capital Research and Management
Capital International
Capital Guardian
Capital Bank and Trust
Lit. No. MFGEAR-921-1103
Litho in USA RCG/L/8049
Printed on recycled paper
ITEM 2 - Code of Ethics
The Registrant has adopted a Code of Ethics that applies to its Principal
Executive Officer and Principal Financial Officer. The Registrant undertakes to
provide to any person without charge, upon request, a copy of the Code of
Ethics. Such request can be made to American Funds Service Company at
800/421-0180 or to the Secretary of the Registrant, 333 South Hope Street, Los
Angeles, California 90071.
ITEM 3 - Audit Committee Financial Expert
The Registrant's Board has determined that H. Frederick Christie, a member of
the Registrant's Audit Committee, is an "audit committee financial expert" and
"independent," as such terms are defined in this Item. This designation will not
increase the designee's duties, obligations or liability as compared to his
duties, obligations and liability as a member of the Audit Committee and of the
Board; nor will it reduce the responsibility of the other Audit Committee
members. There may be other individuals who, through education or experience,
would qualify as "audit committee financial experts" if the Board had designated
them as such. Most importantly, the Board believes each member of the Audit
Committee contributes significantly to the effective oversight of the
Registrant's financial statements and condition.
ITEM 4 - Principal Accountant Fees and Services
Form N-CSR disclosure requirement not yet effective with respect to Registrant.
ITEM 5 - Audit Committee of Listed Registrants
Not applicable.
ITEM 6 - Reserved
ITEM 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end
management investment company.
ITEM 8 - Reserved
ITEM 9 - Controls and Procedures
(a) The officers providing the certifications in this report in accordance with
rule 30a-2 under the Investment Company Act of 1940 have concluded, based
on their evaluation of the Registrant's disclosure controls and procedures
(as such term is defined in such rule), that such controls and procedures
are adequate and reasonably designed to achieve the purposes described in
paragraph (c) of such rule.
(b) There were no changes in the Registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of
1940) that occurred during the Registrant's last fiscal half-year (the
Registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 10 - Exhibits
(a) The Code of Ethics that is the subject of the disclosure required by Item 2
is attached as an exhibit hereto.
(b) The certifications required by Rule 30a-2 of the Investment Company Act of
1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley Act of
2002 are attached as exhibits hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
American High-Income Trust
By: /s/ David C. Barclay
David C. Barclay, President and PEO
Date: December 9, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ David C. Barclay
David C. Barclay, President and PEO
Date: December 9, 2003
By: /s/ Susi M. Silverman
Susi M. Silverman, Treasurer
Date: December 9, 2003