<Page>
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OMB APPROVAL
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OMB Number: 3235-0570
Expires: November 30, 2005
Estimated average burden
hours per response....... 5.0
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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 811-05642
---------------------------------------------
American Income Fund, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
800 Nicollet Mall Minneapolis, MN 55402
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Joseph M. Ulrey III - 800 Nicollet Mall, Minneapolis, MN 55402
- -------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 800-677-3863
----------------------------
Date of fiscal year end: October 31, 2004
--------------------------
Date of reporting period: April 30, 2004
-------------------------
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW, Washington, DC 20549-0609. The OMB has reviewed this collection of
information under the clearance requirements of 44 U.S.C. Section 3507.
<Page>
Item 1. Report to Shareholders
<Page>
[FIRST AMERICAN(TM) LOGO]
[GRAPHIC]
AMERICAN INCOME FUND
MRF
APRIL 30, 2004
SEMIANNUAL REPORT
<Page>
AMERICAN INCOME FUND
OUR IMAGE-GEORGE WASHINGTON
HIS RICH LEGACY AS PATRIOT AND LEADER IS WIDELY RECOGNIZED AS EMBODYING THE
SOUND JUDGMENT, RELIABILITY, AND STRATEGIC VISION THAT ARE CENTRAL TO OUR BRAND.
FASHIONED IN A STYLE REMINISCENT OF AN 18TH CENTURY ENGRAVING, THE ILLUSTRATION
CONVEYS THE SYMBOLIC STRENGTH AND VITALITY OF WASHINGTON, WHICH ARE ATTRIBUTES
THAT WE VALUE AT FIRST AMERICAN.
TABLE OF CONTENTS
<Table>
1 Financial Statements
5 Notes to Financial Statements
17 Schedule of Investments
</Table>
NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
<Page>
FINANCIAL STATEMENTS (Unaudited)
STATEMENT OF ASSETS AND LIABILITIES April 30, 2004
<Table>
ASSETS:
Investments in unaffiliated securities, at value* (note 2) $ 108,563,779
Investment in affiliated money market fund, at value** (note 3) 1,554,796
Receivable for investment securities sold 3,772
Accrued interest receivable 916,119
---------------
Total assets 111,038,466
---------------
LIABILITIES:
Payable for investment securities purchased 8,753,203
Payable for reverse repurchase agreements (note 2) 16,921,482
Options written, at value 60,938
Payable for investment management fees (note 3) 45,628
Bank overdraft 199,419
Payable for administrative fees (note 3) 7,010
Payable for interest expense 23,786
Payable for variation margin 4,922
Payable for other expenses 31,053
---------------
Total liabilities 26,047,441
---------------
Net assets applicable to outstanding capital stock $ 84,991,025
===============
COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital $ 96,737,923
Distributions in excess of net investment income (186,176)
Accumulated net realized loss on investments (13,248,702)
Net unrealized appreciation of investments 1,693,017
Net unrealized appreciation of futures contracts 10,338
Net unrealized depreciation of options written (15,375)
---------------
Total-representing net assets applicable to capital stock $ 84,991,025
===============
*Investments in unaffiliated securities, at cost $ 106,870,762
===============
**Investment in affiliated money market fund, at cost $ 1,554,796
===============
NET ASSET VALUE AND MARKET PRICE OF CAPITAL STOCK:
Net assets outstanding $ 84,991,025
Shares outstanding (authorized 200 million shares of $0.01 par value) 9,454,221
Net asset value per share $ 8.99
Market price per share $ 8.42
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
1
<Page>
STATEMENT OF OPERATIONS For the Six Months Ended April 30, 2004
<Table>
INVESTMENT INCOME:
Interest from unaffiliated securities
(net of interest expense of $100,297) $ 3,304,025
Dividends from affiliated money market fund 7,935
---------------
Total investment income 3,311,960
---------------
EXPENSES (NOTE 3):
Investment management fees 278,433
Administrative fees 42,836
Custodian fees 4,284
Transfer agent fees 16,986
Registration fees 13,313
Reports to shareholders 20,025
Directors' fees 668
Audit and legal fees 13,794
Other expenses 11,537
---------------
Total expenses 401,876
---------------
Net investment income 2,910,084
---------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS IN SECURITIES, FUTURES CONTRACTS, AND
OPTIONS WRITTEN (NOTE 4):
Net realized gain on:
Investments in securities 1,061,582
Futures contracts 44,271
Options written 66,665
Net change in unrealized appreciation or depreciation of:
Investments in securities (1,634,122)
Futures contracts 10,338
Options written (43,159)
---------------
Net loss on investments (494,425)
---------------
Net increase in net assets resulting from operations $ 2,415,659
===============
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
2
<Page>
STATEMENT OF CASH FLOWS For the Six Months Ended April 30, 2004
<Table>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets from operations $ 2,415,659
Adjustments to reconcile net increase in net assets from
operations to net cash used in operating activities:
Purchases of investments (95,956,623)
Proceeds from sales of investments 89,079,910
Net purchases of short-term securities (1,162,600)
Net amortization of bond discount and premium (61,003)
Net unrealized depreciation of investments in securities,
future contracts, and options written 1,666,943
Net realized gains on investments in securities, future
contracts, and options written (1,172,518)
Net premiums received for options written 45,563
Increase in accrued interest receivable 197,084
Increase in other assets 178
Increase in variation margin payable 4,922
Decrease in accrued fees and expenses (9,930)
---------------
Net cash used in operating activities (4,952,415)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from reverse repurchase agreements 7,075,472
Distributions paid to shareholders (3,096,260)
---------------
Net cash provided by financing activities 3,979,212
---------------
Net decrease in cash (973,203)
Cash at beginning of period 773,784
---------------
Bank overdraft at end of period $ (199,419)
===============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 109,050
===============
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
SIX MONTHS
ENDED
4/30/04 YEAR ENDED
(UNAUDITED) 10/31/03
---------------- ----------------
OPERATIONS:
Net investment income $ 2,910,084 $ 6,322,680
Net realized gain on:
Investments 1,061,582 570,150
Futures contracts 44,271 --
Options written 66,665 --
Net change in unrealized appreciation or depreciation of:
Investments (1,634,122) 2,881,801
Futures contracts 10,338 --
Options written (43,159) 27,784
---------------- ----------------
Net increase in net assets resulting from operations 2,415,659 9,802,415
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2):
From net investment income (3,096,260) (6,417,500)
From return of capital -- (11,374)
---------------- ----------------
Total distributions (3,096,260) (6,428,874)
---------------- ----------------
Total increase (decrease) in net assets (680,601) 3,373,541
Net assets at beginning of period 85,671,626 82,298,085
---------------- ----------------
Net assets at end of period $ 84,991,025 $ 85,671,626
================ ================
Undistributed (distributions in excess of) net investment income $ (186,176) $ --
================ ================
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
<Page>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) ORGANIZATION
American Income Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, closed-end management investment company.
The Fund invests in fixed-income securities, primarily in mortgage-backed
securities. The Fund also invests in other debt securities, such as
collateralized mortgage obligations (CMOs) and asset-backed securities,
high-yield bonds, corporate bonds, and preferred stock. The Fund will invest at
least 65% of its total assets in investment-grade securities under normal market
conditions. No more than 35% of the Funds's total assets may be held in
high-yield issues. The Fund is authorized to borrow funds or issue senior
securities in amounts not exceeding 33 1/3% of its total assets. Fund shares are
listed on the New York Stock Exchange under the symbol MRF.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATIONS
Security valuations for the Fund's investments are furnished by independent
pricing services that have been approved by the Fund's board of directors.
Investments in equity securities that are traded on a national securities
exchange are stated at the last quoted sales price if readily available for such
securities on each business day. For securities traded on the Nasdaq national
market system, the Fund utilizes the Nasdaq Official Closing Price which
compares the last trade to the bid/ask range of a security. If the last trade
falls within the bid/ask range, then that price will be the closing price. If
the last trade is outside the bid/ask range, and falls above the ask, the ask
price will be the closing price. If the last trade is below the bid, the bid
will be the closing price. Other equity securities traded in the
over-the-counter market and listed equity securities for which no sale was
reported on that
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date are stated at the last quoted bid price. Debt obligations exceeding 60 days
to maturity are valued by an independent pricing service. The pricing service
may employ methodologies that utilize actual market transactions, broker-dealer
supplied valuations, or other formula driven valuation techniques. These
techniques generally consider such factors as yields or prices of bonds of
comparable quality, type of issue, coupon, maturity, ratings, and general market
conditions. Securities for which prices are not available from an independent
pricing service, but where an active market exists, are valued using market
quotations obtained from one or more dealers that make markets in the securities
or from a widely used quotation system. When market quotations are not readily
available, securities are valued at fair value as determined in good faith by
procedures established and approved by the Fund's board of directors. Some of
the factors which may be considered by the board of directors in determining
fair value are fundamental analytical data relating to the investment; the
nature and duration of any restrictions on disposition; trading in similar
securities of the same issuer or comparable companies; information from
broker-dealers; and an evaluation of the forces that influence the market in
which the securities are purchased and sold. If events occur that materially
affect the value of securities (including non-U.S. securities) between the close
of trading in those securities and the close of regular trading on the New York
Stock Exchange, the securities will be valued at fair value. As of April 30,
2004, the Fund held a fair value security with a value of $35,727 or 0.04% of
net assets. Debt obligations with 60 days or less remaining until maturity may
be valued at their amortized cost, which approximates market value. Security
valuations are performed once a week and at the end of each month.
6
<Page>
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
The Fund records security transactions on the trade date of the security
purchase or sale. Dividend income is recorded on the ex-dividend date. Interest
income, including accretion of bond discounts and amortization of premiums, is
recorded on an accrual basis. Security gains and losses are determined on the
basis of identified cost, which is the same basis used for federal income tax
purposes.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve the sale of a portfolio-eligible security
by the Fund, coupled with an agreement to repurchase the security at a specified
date and price. Reverse repurchase agreements may increase volatility of the
Fund's net asset value and involve the risk that interest costs on money
borrowed may exceed the return on securities purchased with that borrowed money.
Reverse repurchase agreements are considered to be borrowings by the Fund, and
are subject to the Fund's overall restriction on borrowing under which it must
maintain asset coverage of at least 300%. For the six months ended April 30,
2004, the weighted average borrowings outstanding were $17,822,396. The weighted
average interest rate was 1.13%.
FUTURES TRANSACTIONS
In order to protect against changes in interest rates, the Fund may enter into
interest rate index futures. Upon entering into a futures contract, the Fund is
required to deposit cash or pledge U.S. government securities in an amount equal
to 5% of the purchase price indicated in the futures contract (initial margin).
Subsequent payments, which are dependent on the daily fluctuations in the value
of the underying security or securities, are made or received by the Fund each
day (daily variation margin) and
7
<Page>
recorded as unrealized gains (losses) until the contract is closed. When the
contract is closed, the Fund records a realized gain (loss) equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Fund's basis in the contract.
Risks of entering into futures contracts, in general, include the possiblity
that there will not be a perfect price correlation between the futures contracts
and the underlying securities. Second, it is possible that a lack of liquidity
for futures contracts could exist in the secondary market, resulting in an
inability to close a futures postion prior to its maturity date. Third, the
purchase of a futures contract involves the risk that the Fund could lose more
than the original margin deposit required to initiate a futures transaction.
Unrealized gains (losses) on outstanding positions in futures contracts held at
the close of the year will be recognized as capital gains (losses) for federal
income tax purposes. As of April 30, 2004, futures contracts for the Fund were
as follows:
<Table>
<Caption>
MARKET VALUE
NUMBER OF COVERED BY SETTLEMENT UNREALIZED
NAME OF CONTRACT CONTRACTS CONTRACTS MONTH GAIN
- ---------------- --------- ------------ ---------- ----------
10 year U.S.
Treasury Futures 15 $ 1,657,500 Jun-04 $ 10,388
</Table>
OPTIONS TRANSACTIONS
The Fund may utilize options in an attempt to manage market or business risk or
enhance the Fund's yield. When a call or put option is written, an amount equal
to the premium received is recorded as a liability. The liability is
marked-to-market daily to reflect the current market value of the option
written. When a written option expires, a gain is realized in the amount of the
premium originally received. If a closing purchase
8
<Page>
contract is entered into, a gain or loss is realized in the amount of the
original premium less the cost of the closing transaction. If a written call is
exercised, a gain or loss is realized from the sale of the underlying security,
and the proceeds from such sale are increased by the premium orginally received.
If a written put option is exercised, the amount of the premium originally
received reduces the cost of the security that is purchased upon exercise of the
option.
Purchased options are recorded as investments and marked-to-market daily to
reflect the current market value of the option contract. If a purchased option
expires, a loss is realized in the amount of the cost of the option. If a
closing transaction is entered into, a gain or loss is realized, to the extent
that the proceeds from the sale are greater or less than the cost of the option.
If a put option is exercised, a gain or loss is realized from the sale of the
underlying security by adjusting the proceeds from such sale by the amount of
the premium originally paid. If a call option is exercised, the cost of the
security purchased upon exercise is increased by the premium originally paid.
The following options written were outstanding as of April 30, 2004:
<Table>
<Caption>
EXPIRATION EXERCISE NUMBER OF
PUT OPTIONS WRITTEN DATE PRICE CONTRACTS VALUE
- ------------------- ------------ ------------ ------------ ------------
90 Day Eurodollar
June 04 Futures June-04 $ 98.75 45 $ 12,656
10 year U.S.
Treasury Futures Sept-04 103.00 15 6,563
10 year U.S.
Treasury Futures Sept-04 104.00 5 2,813
90 Day Eurodollar
September 04 Futures Sept-04 98.50 50 38,125
------------
Total put options outstanding (premiums received $42,316) $ 60,157
============
</Table>
9
<Page>
<Table>
<Caption>
EXPIRATION EXERCISE NUMBER OF
CALL OPTIONS WRITTEN DATE PRICE CONTRACTS VALUE
- -------------------- ------------ ------------ ------------ -----
10 year U.S. Treasury Futures Sept-04 $ 118.00 10 $ 781
-----
Total call options outstanding (premiums received $3,246) $ 781
=====
</Table>
Transactions in options written for the six months ended April 30, 2004, were as
follows:
<Table>
<Caption>
PUT OPTIONS WRITTEN CALL OPTIONS WRITTEN
----------------------- -----------------------
NUMBER OF PREMIUM NUMBER OF PREMIUM
BALANCE AT CONTRACTS AMOUNT CONTRACTS AMOUNT
- ---------- --------- ---------- --------- ----------
October 31, 2003 30 $ 16,348 54 $ 36,874
Opened 115 42,316 10 3,246
Expired (30) (16,348) (54) (36,874)
--- ---------- --- ----------
April 30, 2004 115 $ 42,316 10 $ 3,246
=== ========== === ==========
</Table>
MORTGAGE DOLLAR ROLLS
The Fund may enter into mortgage dollar rolls in which the Fund sells securities
purchased on a forward commitment basis and simultaneously contracts with a
counterparty to repurchase similar (same type, coupon and maturity) but not
identical securities on a specified future date. For the six months ended April
30, 2004, there were $8,753,203 in mortgage dollar roll transactions
outstanding, which had $14,439,713 of segregated assets pledged as collateral.
ILLIQUID SECURITIES AND RESTRICTED SECURITIES
At April 30, 2004, the Fund held one security which was considered illiquid.
A security may be considered illiquid if it lacks a readily available market
or if its valuation has not changed for a certain period of time. Illiquid
securities may be valued under methods approved by the Fund's board of
directors as reflecting fair value. The Fund intends to invest no more than
15% of its net assets (determined at the time of purchase and reviewed
periodically) in illiquid securities.
10
<Page>
Illiquid securities may include restricted securities, which are often
purchased in private placement transactions, are not registered under the
Securities Act of 1933, and may have contractual restrictions on resale.
However, certain restricted securities eligible for resale to qualified
institutional investors, including Rule 144A securities, are not subject to
the limitation on a Fund's investment in illiquid securities if they are
determined to be liquid in accordance with procedures adopted by the Fund's
board of directors.
At April 30, 2004, the value of the illiquid security subject to the
limitation on investment was $35,727, which represents 0.04% of net assets. At
April 30, 2004, there were no restricted securities.
FEDERAL TAXES
The Fund intends to continue to qualify as a regulated investment company as
provided in Subchapter M of the Internal Revenue Code, as amended, and to
distribute all taxable income, if any, to its shareholders. Accordingly, no
provision for federal income taxes is required.
Net investment income and net realized gains (losses) may differ for financial
statement and tax purposes because of temporary and permanent book/tax
differences. These differences primarily relate to mark to market tax treatment
of certain options and futures contracts, losses deferred under tax straddle
rules, and the expiration of certain capital loss carryovers. To the extent
these differences are permanent, reclassifications are made to the appropriate
equity accounts in the period that the difference arises.
11
<Page>
The character of distributions made during the year from net investment income
or net realized gains may differ from its ultimate characterization for federal
income tax purposes. In addition, due to the timing of dividend distributions,
the fiscal year in which amounts are distributed may differ from the year that
the income or realized gains (losses) were recorded by the Fund.
The tax character of distributions paid during the six months ended April 30,
2004 (estimated) and the fiscal year ended October 31, 2003 were as follows:
<Table>
<Caption>
2004 2003
------------ ------------
Distributions paid from:
Ordinary income $ 3,096,260 $ 6,417,500
Return of capital -- 11,374
------------ ------------
$ 3,096,260 $ 6,428,874
============ ============
</Table>
At October 31, 2003, the Fund's most recently completed fiscal year-end, the
components of accumulated deficit on a tax basis were as follows:
<Table>
Undistributed ordinary income $ --
Accumulated capital losses (14,383,594)
Unrealized appreciation 3,317,297
-------------
Accumulated deficit $ (11,066,297)
=============
</Table>
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income are declared and paid on a monthly
basis. Any net realized capital gains on sales of securities for the Fund are
distributed to shareholders at least annually. Such distributions are payable in
cash or, pursuant to the Fund's dividend reinvestment plan, reinvested in
additional shares of the Fund's capital stock.
REPURCHASE AGREEMENTS
For repurchase agreements entered into with broker-dealers, the Fund, along with
other affiliated registered
12
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investment companies, may transfer uninvested cash balances into a joint trading
account, the daily aggregate balance of which is invested in repurchase
agreements secured by U.S. government or agency obligations. Securities pledged
as collateral for all individual and joint repurchase agreements are held by the
Fund's custodian bank until maturity of the repurchase agreement. Provisions for
all agreements ensure that the daily market value of the collateral is in excess
of the repurchase amount, including accrued interest, to protect the Fund in the
event of a default.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements, in conformity with U.S. generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts in the financial statements. Actual
results could differ from these estimates.
(3) EXPENSES
INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES
Pursuant to an investment advisory agreement (the "Agreement"), U.S. Bancorp
Asset Management, Inc. ("USBAM"), a subsidiary of U.S. Bank National
Association ("U.S. Bank"), manages the Fund's assets and furnishes related
office facilities, equipment, research, and personnel. The Agreement provides
USBAM with a monthly investment management fee in an amount equal to an
annualized rate of 0.65% of the Fund's average weekly net assets. For its
fee, USBAM provides investment advice, and in general, conducts the
management and investment activities of the Fund.
Pursuant to a co-administration agreement (the "Co-Administration Agreement"),
USBAM serves as co-administrator for the Fund (U.S. Bancorp Fund Services, LLC,
a subsidiary of U.S. Bancorp, is also
13
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co-administrator but currently has no functional responsibilities related to the
Fund) and provides administrative services, including legal and shareholder
services, to the Fund. Under this Co-Administration Agreement, USBAM receives a
monthly administrative fee equal to an annualized rate of 0.10% of the Fund's
average weekly net assets. For its fee, USBAM provides numerous services to the
Fund including, but not limited to, handling the general business affairs,
financial and regulatory reporting, and various other services. Separate from
the Co-Administration Agreement, USBAM (from its own resources) has retained SEI
Investments, Inc. as a sub-administrator to perform, among other services, net
asset value calculations.
The Fund may invest in money market funds that are series of First American
Funds, Inc. ("FAF"), subject to certain limitations. In order to avoid the
payment of duplicative investment advisory fees to USBAM, which acts as the
investment adviser to both the Fund and the related money market funds, USBAM
will reimburse the Fund an amount equal to that portion of the investment
advisory fee received from the related money market funds that is attributable
to the assets of the Fund. For financial statement purposes, this reimbursement
is recorded as investment income.
CUSTODIAN FEES
U.S. Bank serves as the Funds' custodian pursuant to a custodian agreement with
the Fund. The fee for the Fund is equal to an annual rate of 0.02% of average
weekly net assets. These fees are computed weekly and paid monthly.
OTHER FEES AND EXPENSES
In addition to the investment management, administrative, and custodian fees,
the Fund is responsible for paying most other operating expenses,
14
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including: outside directors' fees and expenses, registration fees, printing and
shareholder reports, transfer agent fees and expenses, legal, auditing, and
accounting services, insurance, interest, taxes, and other miscellaneous
expenses.
(4) INVESTMENT SECURITY TRANSACTIONS
Cost of purchases and proceeds from sales of securities, other than temporary
investments in short-term securities, for the six months ended April 30, 2004,
aggregated $91,292,956 and $88,514,594, respectively.
(5) CAPITAL LOSS CARRYOVER
For federal income tax purposes, the Fund had capital loss carryovers at October
31, 2003, the Fund's most recently completed fiscal year-end, which, if not
offset by subsequent capital gains, will expire on the Fund's fiscal year-ends
as indicated below.
<Table>
<Caption>
CAPITAL LOSS
CARRYOVER EXPIRATION
------------ ----------
$ 1,699,165 2004
1,155,089 2006
2,573,283 2007
4,931,683 2008
662,186 2009
3,362,188 2010
------------
$ 14,383,594
============
</Table>
(6) INDEMNIFICATIONS
The Fund enters into contracts that contain a variety of indemnifications. The
Fund's maximum exposure under these arrangements is unknown. However, the Fund
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
15
<Page>
(7) FINANCIAL HIGHLIGHTS
Per-share data for a share of capital stock outstanding throughout each period
and selected information for each period are as follows:
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
4/30/04 ------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 (d) 1999
------------ -------- -------- -------- -------- --------
PER-SHARE DATA
Net asset value, beginning of period $ 9.06 $ 8.70 $ 9.19 $ 8.90 $ 9.23 $ 9.94
------------ -------- -------- -------- -------- --------
Operations:
Net investment income 0.31 0.67 0.70 0.65 0.68 0.65
Net realized and unrealized gains
(losses) on investments (0.05) 0.37 (0.50) 0.26 (0.29) (0.64)
------------ -------- -------- -------- -------- --------
Total from operations 0.26 1.04 0.20 0.91 0.39 0.01
------------ -------- -------- -------- -------- --------
Distributions to shareholders:
From net investment income (0.33) (0.68) (0.69) (0.59) (0.67) (0.70)
From tax return of capital -- --(e) -- (0.03) (0.05) (0.02)
------------ -------- -------- -------- -------- --------
Total distributions (0.33) (0.68) (0.69) (0.62) (0.72) (0.72)
------------ -------- -------- -------- -------- --------
Net asset value, end of period $ 8.99 $ 9.06 $ 8.70 $ 9.19 $ 8.90 $ 9.23
============ ======== ======== ======== ======== ========
Market value, end of period $ 8.42 $ 8.55 $ 8.37 $ 8.53 $ 8.06 $ 9.94
============ ======== ======== ======== ======== ========
SELECTED INFORMATION
Total return, net asset value (a) 3.02% 12.53% 2.48% 10.96% 5.97% 1.28%
Total return, market value (b) 2.24% 10.38% 6.22% 13.69% 17.20% (3.68)%
Net assets at end of period (in millions) $ 85 $ 86 $ 82 $ 87 $ 105 $ 109
Ratio of expenses to average weekly
net assets excluding interest expense 0.94%(f) 0.95% 0.96% 0.89% 1.06% 1.06%
Ratio of expenses to average weekly
net assets including interest expense 1.17%(f) 1.48% 2.00% 2.06% 1.59% 2.54%
Ratio of net investment income to
average weekly net assets 6.78%(f) 7.49% 7.88% 7.37% 7.52% 6.73%
Portfolio turnover rate (excluding
short-term securities) 81% 135% 54% 82% 65% 99%
Amount of borrowings outstanding
at end of period (in millions) $ 17 $ 10 $ 33 $ 33 $ -- $ 25
Per-share amount of borrowings
outstanding at end of period $ 1.79 $ 1.04 $ 3.48 $ 3.46 $ -- $ 2.10
Per-share amount of net assets,
excluding borrowings, at end of period $ 10.78 $ 10.10 $ 12.18 $ 12.66 $ 8.90 $ 11.33
Asset coverage ratio (c) 602% 970% 350% 366% N/A 539%
</Table>
(a) ASSUMES REINVESTMENT OF DISTRIBUTIONS AT NET ASSET VALUE.
(b) ASSUMES REINVESTMENT OF DISTRIBUTIONS AT ACTUAL PRICES PURSUANT TO THE
FUND'S DIVIDEND REINVESTMENT PLAN.
(c) REPRESENTS NET ASSETS, EXCLUDING BORROWINGS, AT END OF PERIOD DIVIDED BY
BORROWINGS OUTSTANDING AT END OF PERIOD.
(d) EFFECTIVE OCTOBER 24, 2000, THE ADVISOR WAS CHANGED FROM MENTOR INVESTMENT
ADVISORS, A WHOLLY-OWNED SUBSIDIARY OF FIRST UNION CORPORATION, TO U.S.
BANK NATIONAL ASSOCIATION, ACTING THROUGH ITS FIRST AMERICAN ASSET
MANAGEMENT DIVISION. U.S. BANCORP ASSET MANAGEMENT, INC., A SUBSIDIARY OF
U.S. BANK NATIONAL ASSOCIATION, IS THE SUCCESSOR TO FIRST AMERICAN ASSET
MANAGEMENT.
(e) LESS THAN $0.01 PER SHARE.
(f) ANNUALIZED.
16
<Page>
SCHEDULE OF INVESTMENTS (Unaudited)
AMERICAN INCOME FUND April 30, 2004
<Table>
<Caption>
PAR
DESCRIPTION OF SECURITY VALUE VALUE (a)
- ----------------------------------------------------------------- --------------- ---------------
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO NET ASSETS)
HIGH YIELD CORPORATE BONDS -- 34.9%
AEROSPACE -- 0.9%
BE Aerospace,
Callable 6/17/04 @ 104.75
9.50%, 11/1/08 $ 200,000 $ 201,000
Sequa
9.00%, 8/1/09 500,000 557,500
---------------
758,500
---------------
CABLE TELEVISION -- 2.5%
Charter Communications,
Callable 6/17/04 @ 104.31
8.63%, 4/1/09 500,000 417,500
CSC Holdings, Series B
7.63%, 4/1/11 500,000 521,250
DirectTV Holdings,
Callable 6/17/04 @ 104.31
8.38%, 3/15/13 125,000 141,250
Echostar DBS,
Callable 1/15/06 @ 104.56
9.13%, 1/15/09 324,000 362,880
Insight Midwest,
Callable 11/1/05 @ 105.25
10.50%, 11/1/10 200,000 217,000
Mediacom,
Callable 1/15/06 @ 104.75
9.50%, 1/15/13 200,000 198,000
Paxson Communications,
Callable 7/15/05 @ 105.38
10.75%, 7/15/08 250,000 262,500
---------------
2,120,380
---------------
CHEMICALS AND PLASTICS -- 1.1%
Equistar Chemical
10.13%, 9/1/08 250,000 278,125
Huntsman ICI Chemicals,
Callable 7/1/04 @ 105.06
10.13%, 7/1/09 200,000 210,000
</Table>
SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS.
17
<Page>
<Table>
<Caption>
PAR
DESCRIPTION OF SECURITY VALUE VALUE (a)
- ----------------------------------------------------------------- --------------- ---------------
Nalco Co,
Callable 11/15/07 @ 103.88
7.75%, 11/15/11 (c) $ 200,000 $ 211,000
Polyone,
Callable 5/15/07 @ 105.31
10.63%, 5/15/10 200,000 208,000
---------------
907,125
---------------
CONSUMER PRODUCTS -- 0.5%
Sealy Mattress,
Callable 6/15/09 @ 104.13
8.25%, 6/15/14 (c) 250,000 245,000
Simmons,
Callable 1/15/09 @ 103.94
7.88%, 1/15/14 (c) 200,000 199,500
---------------
444,500
---------------
CONTAINERS -- 1.3%
Greif Brothers,
Callable 8/1/07 @ 104.44
8.88%, 8/1/12 300,000 330,000
Owens-Brockway Glass Container,
Callable 2/15/06 @ 104.44
8.88%, 2/15/09 500,000 541,250
Stone Container,
Callable 7/1/07 @ 104.19
8.38%, 7/1/12 200,000 214,000
---------------
1,085,250
---------------
ENERGY -- 3.3%
Dynegy Holdings,
Callable 7/15/08 @ 105.06
10.13%, 7/15/13 (c) 200,000 220,000
El Paso
7.00%, 5/15/11 500,000 430,000
7.75%, 1/15/32 250,000 196,875
Gulfterra Energy Partner,
Callable 12/1/07 @ 105.31
10.63%, 12/1/12 66,000 80,850
Parker Drilling, Series B,
Callable 11/15/04 @ 105.06
10.13%, 11/15/09 500,000 536,250
</Table>
SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS.
18
<Page>
<Table>
<Caption>
PAR
DESCRIPTION OF SECURITY VALUE VALUE (a)
- ----------------------------------------------------------------- --------------- ---------------
Pride Petroleum Services,
Callable 6/17/04 @ 101.56
9.38%, 5/1/07 $ 268,000 $ 272,020
Swift Energy,
Callable 8/1/04 @ 105.12
10.25%, 8/1/09 500,000 535,000
Williams Companies
7.13%, 9/1/11 500,000 522,500
---------------
2,793,495
---------------
FOOD AND BEVERAGE PRODUCTS -- 1.0%
Corn Products International
8.25%, 7/15/07 500,000 558,750
Swift & Co,
Callable 10/1/06 @ 106.25
12.50%, 1/1/10 250,000 266,250
---------------
825,000
---------------
GAMING -- 1.7%
Coast Hotels and Casinos,
Callable 6/17/04 @ 104.75
9.50%, 4/1/09 400,000 420,500
Isle of Capri Casinos,
Callable 3/1/09 @ 103.50
7.00%, 3/1/14 (c) 500,000 495,000
Mandalay Resort, Series B
10.25%, 8/1/07 250,000 290,625
Mohegan Tribal Gaming
6.38%, 7/15/09 250,000 256,250
---------------
1,462,375
---------------
HEALTH CARE -- 1.5%
Alliance Imaging,
Callable 4/15/06 @ 105.19
10.38%, 4/15/11 200,000 202,000
IASIS Healthcare,
Callable 10/15/04 @ 106.50
13.00%, 10/15/09 500,000 555,000
Medco Health Solutions
7.25%, 8/15/13 300,000 323,265
Triad Hospitals,
Callable 11/15/08 @ 103.50
7.00%, 11/15/13 200,000 193,000
---------------
1,273,265
---------------
</Table>
SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS.
19
<Page>
<Table>
<Caption>
PAR
DESCRIPTION OF SECURITY VALUE VALUE (a)
- ----------------------------------------------------------------- --------------- ---------------
HOTELS -- 1.1%
Florida Panthers Holdings,
Callable 6/17/04 @ 104.94
9.88%, 4/15/09 $ 500,000 $ 526,250
Hilton Hotels
8.25%, 2/15/11 200,000 232,500
HMH Properties, Series B
7.88%, 8/1/08 147,000 152,512
---------------
911,262
---------------
MANUFACTURING -- 2.8%
Amsted Industries,
Callable 10/15/07 @ 105.12
10.25%, 10/15/11 (c) 200,000 226,000
Case New Holland,
Callable 8/1/07 @ 104.62
9.25%, 8/1/11 (c) 200,000 225,000
Collins & Aikman Products,
Callable 6/18/04 @ 100.00
11.50%, 4/15/06 200,000 198,000
Flextronics International Ltd.,
Callable 5/15/08 @ 103.25
6.50%, 5/15/13 250,000 251,250
International Steel Group
6.50%, 4/15/14 (c) 300,000 294,750
Texas Industries,
Callable 6/15/07 @ 105.12
10.25%, 6/15/11 200,000 227,000
United States Steel,
Callable 5/15/07 @ 104.88
9.75%, 5/15/10 211,000 242,650
USEC
6.63%, 1/20/06 200,000 201,000
WCI Communities,
Callable 5/1/07 @ 104.56
9.13%, 5/1/12 500,000 545,000
---------------
2,410,650
---------------
MISCELLANEOUS -- 1.1%
DJ Trac-X
7.38%, 3/25/09 (c) 1,000,000 976,250
---------------
</Table>
SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS.
20
<Page>
<Table>
<Caption>
PAR
DESCRIPTION OF SECURITY VALUE VALUE (a)
- ----------------------------------------------------------------- --------------- ---------------
PAPER PRODUCTS -- 1.3%
Abitibi-Consolidated
8.55%, 8/1/10 $ 250,000 $ 272,500
Bowater Canada Finance
7.95%, 11/15/11 250,000 266,725
Georgia-Pacific
8.88%, 5/15/31 500,000 560,000
---------------
1,099,225
---------------
REAL ESTATE -- 0.2%
LNR Property,
Callable 7/15/08 @ 103.81
7.63%, 7/15/13 200,000 206,000
---------------
SERVICES -- 5.1%
Ahold Finance USA
8.25%, 7/15/10 300,000 326,250
Allied Waste,
Callable 4/15/08 @ 103.94
7.88%, 4/15/13 500,000 540,000
Autonation
9.00%, 8/1/08 500,000 567,500
Buffets,
Callable 7/15/06 @ 105.62
11.25%, 7/15/10 200,000 219,500
Dex Media,
Callable 11/15/08 @ 104.00
8.00%, 11/15/13 (c) 200,000 193,000
Dominos,
Callable 7/1/07 @ 104.12
8.25%, 7/1/11 500,000 540,000
Primedia,
Callable 5/15/06 @ 104.44
8.88%, 5/15/11 200,000 203,000
Rite Aid
7.13%, 1/15/07 250,000 253,750
Service Corporation International
7.70%, 4/15/09 500,000 533,750
</Table>
SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS.
21
<Page>
<Table>
<Caption>
PAR
DESCRIPTION OF SECURITY VALUE VALUE (a)
- ----------------------------------------------------------------- --------------- ---------------
Six Flags,
Callable 4/15/08 @ 104.88
9.75%, 4/15/13 $ 500,000 $ 525,000
Toys R Us
7.38%, 10/15/18 250,000 238,810
United Rentals,
Callable 2/15/09 @ 103.50
7.00%, 2/15/14 (c) 250,000 233,750
---------------
4,374,310
---------------
TELECOMMUNICATIONS -- 3.3%
ACC Escrow, Series B,
Callable 8/1/07 @ 105.00
10.00%, 8/1/11 250,000 243,125
Crown Castle,
Callable 8/1/05 @ 105.38
10.75%, 8/1/11 500,000 566,250
Lucent Technologies
6.45%, 3/15/29 250,000 195,000
Nextel Communications,
Callable 11/15/04 @ 104.69
9.38%, 11/15/09 500,000 541,250
Nortel Networks
6.13%, 2/15/06 250,000 246,875
Qwest
9.13%, 3/15/12 (c) 400,000 432,000
Qwest Capital Funding
7.00%, 8/3/09 400,000 339,000
Triton PCS,
Callable 11/15/06 @ 104.38
8.75%, 11/15/11 250,000 232,500
Worldwide Fiber,
Callable 8/1/04 @ 160.00
12.00%, 8/1/09 (d) 450,000 5
---------------
2,796,005
---------------
TRANSPORTATION -- 0.9%
CP Ships Limited,
Callable 7/15/07 @ 105.19
10.38%, 7/15/12 500,000 572,545
Northwest Airlines
9.88%, 3/15/07 200,000 170,000
---------------
742,545
---------------
</Table>
SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS.
22
<Page>
<Table>
<Caption>
PAR
DESCRIPTION OF SECURITY VALUE VALUE (a)
- ----------------------------------------------------------------- --------------- ---------------
UTILITIES -- 5.3%
AES
9.38%, 9/15/10 $ 500,000 $ 538,750
Allegheny Energy
8.25%, 4/15/12 (c) 500,000 502,500
Aquila
7.95%, 2/1/11 200,000 209,000
Centerpoint Energy, Series B
6.85%, 6/1/15 500,000 507,745
CMS Energy
8.50%, 4/15/11 500,000 526,250
Homer City Funding
8.14%, 10/1/19 198,000 217,800
Illinova,
Callable 12/15/06 @ 105.75
11.50%, 12/15/10 300,000 358,500
Midwest Generation,
Callable 5/1/09 @ 104.38
8.75%, 5/1/34 (c) 300,000 300,000
Nevada Power,
Callable 8/15/08 @ 104.50
9.00%, 8/15/13 (c) 400,000 450,000
Pseg Energy Holdings
8.63%, 2/15/08 200,000 215,500
Teco Energy
7.20%, 5/1/11 250,000 250,000
Western Resources
9.75%, 5/1/07 340,000 393,734
---------------
4,469,779
---------------
Total High Yield Corporate Bonds
(cost: $28,202,496) 29,655,916
---------------
U.S. GOVERNMENT AND AGENCY SECURITIES -- 45.1%
U.S. AGENCY MORTGAGE-BACKED SECURITIES -- 44.9%
ADJUSTABLE RATE (f) -- 2.1%
FHLMC
3.40%, 9/1/18, #605911 400 409
FNMA
3.21%, 7/1/27, #70179 4,533 4,630
3.96%, 10/1/32, #725110 1,111,285 1,149,658
</Table>
SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS.
23
<Page>
<Table>
<Caption>
PAR
DESCRIPTION OF SECURITY VALUE VALUE (a)
- ----------------------------------------------------------------- --------------- ---------------
GNMA
5.63%, 12/20/22, #8096 (h) $ 654,376 $ 671,174
---------------
1,825,871
---------------
FIXED RATE -- 42.8%
FHLMC
9.50%, 12/1/09, #300119 228,021 248,257
6.50%, 8/1/30, #C43641 (h) 333,953 348,043
FHLMC Gold
7.00%, 12/1/14, #E00766 198,966 212,894
6.50%, 11/1/28, #C00676 771,080 803,612
5.50%, 10/1/33, #A15120 (h) 1,961,227 1,958,775
FNMA
4.00%, 11/1/10, #254956 (h) 3,253,410 3,248,335
6.00%, 12/1/13, #190179 780,621 809,895
7.50%, 4/1/15, #534888 176,505 189,193
7.50%, 5/1/15, #537440 113,227 121,506
7.00%, 6/1/17, #254384 (h) 653,001 696,674
7.00%, 7/1/17, #254414 (h) 826,811 882,109
6.00%, 9/1/17, #653368 (j) 843,239 880,131
5.00%, 11/1/18, #750989 (h) 956,360 962,041
5.00%, 2/1/19, #767182 1,466,857 1,475,570
6.00%, 5/1/29, #323702 (h) 1,215,001 1,246,518
7.00%, 8/1/29, #510487 335,390 354,674
6.50%, 5/1/31, #540814 (h) 393,072 409,165
6.50%, 9/1/31, #596680 883,856 934,161
7.00%, 3/1/32, #635970 (h) 522,355 552,067
6.50%, 6/1/32, #596712 (j) 1,246,839 1,297,498
5.50%, 6/1/33, #709700 (h) 1,630,266 1,627,722
6.00%, 11/1/33, #743642 (h) 1,370,447 1,401,282
5.50%, 12/1/33, #756202 1,723,388 1,719,613
6.00%, 1/1/34, #763687 (h) 1,494,978 1,528,615
FNMA TBA (i)
5.50%, 8/1/33 3,000,000 2,992,500
6.00%, 3/1/34 5,500,000 5,625,466
GNMA
7.00%, 12/15/08, #780388 524,514 561,230
7.50%, 12/15/30, #535621 294,535 316,165
6.50%, 4/15/33, #602233 (h) 965,089 1,007,920
5.50%, 8/15/33, #604567 (h) 1,945,099 1,947,531
---------------
36,359,162
---------------
Total U.S. Agency Mortgage-Backed Securities 38,185,033
---------------
</Table>
SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS.
24
<Page>
<Table>
<Caption>
PAR
DESCRIPTION OF SECURITY VALUE VALUE (a)
- ----------------------------------------------------------------- --------------- ---------------
U.S. TREASURY OBLIGATION -- 0.2%
U.S. Treasury Bill
0.96%, 5/20/04 $ 130,000 $ 129,953
---------------
Total U.S. Government and Agency Securities
(cost: $38,342,457) 38,314,986
---------------
CMO-PRIVATE MORTGAGE-BACKED SECURITIES -- 21.1%
ADJUSTABLE RATE (f) -- 2.4%
California Federal Bank Los Angeles
Series 1991-Cl2, Class A
6.15%, 7/15/21 (g) 36,444 35,727
DLJ ABS Trust
Series 2000-5, Class M1
1.74%, 9/25/30 (b) (j) 2,000,000 2,003,120
---------------
2,038,847
---------------
FIXED RATE -- 18.7%
Citicorp Mortgage Securities
Series 2001-6, Class M
6.50%, 5/25/29 (j) 1,956,895 1,969,909
First Nationwide Trust
Series 2001-3, Class 2A1
8.22%, 1/25/23 (j) 325,437 339,215
GMAC Mortgage Corporation Loan Trust
Series 2003-GH2, Class A3
5.00%, 3/25/23 1,500,000 1,480,935
Goldman Sachs Mortgage Securities
Series 2001-2, Class A
7.50%, 6/19/32 (c) 892,513 959,479
Series 2003-1, Class B2
6.93%, 3/25/43 1,991,234 2,017,167
Prudential Home Mortgage Securities
Series 1995-5, Class B1
7.25%, 9/25/25 (c) 492,778 492,068
Series 1995-5, Class M
7.25%, 9/25/25 (j) 477,085 474,962
Residential Accredit Loans
Series 1997-QS13, Class M3
7.25%, 12/25/27 (j) 908,560 903,008
</Table>
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25
<Page>
<Table>
<Caption>
PAR
DESCRIPTION OF SECURITY VALUE VALUE (a)
- ----------------------------------------------------------------- --------------- ---------------
Residential Asset Mortgage Products
Series 2003-SL1, Class M2
7.32%, 4/25/31 $ 1,120,226 $ 1,162,055
Residential Asset Securitization Trust
Series 2002-A12, Class 1A1
5.20%, 11/25/32 1,172,213 1,187,299
Residential Funding Mortgage Securities I
Series 2001-S21, Class M3
6.25%, 9/25/16 407,050 412,195
Washington Mutual MSC Mortgage
Series 2003-AR3, Class B1
5.01%, 6/25/33 (j) 1,990,620 1,994,422
Series 2003-MS9, Class CB2
7.43%, 12/25/33 446,423 464,410
Wells Fargo Mortgage-Backed Securities Trust
Series 2003-7, Class A3
4.50%, 8/25/18 (j) 1,432,981 1,421,073
Series 2003-D, Class A1
4.90%, 2/25/33 597,943 605,794
---------------
15,883,991
---------------
Total CMO-Private Mortgage-Backed Securities
(cost: $18,169,538) 17,922,838
---------------
ASSET-BACKED SECURITIES -- 16.5%
COMMERCIAL -- 1.0%
Morgan Stanley Capital
Series 1999-FNV1, Class A1
6.12%, 3/15/31 (j) 811,233 858,025
---------------
CREDIT CARDS -- 1.2%
Providian Gateway Master Trust
Series 2004-AA, Class C
2.00%, 3/15/11 (f) 1,000,000 1,000,600
---------------
HOME EQUITY -- 12.0%
Ace Securities
Series 2003-OP1, Class M3
2.75%, 12/25/33 (b) (f) 1,500,000 1,519,545
First Franklin Mortgage Loan
Series 2004-FFA, Class M2F
4.62%, 3/25/24 (b) 2,760,000 2,697,155
</Table>
SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS.
26
<Page>
<Table>
<Caption>
PAR
DESCRIPTION OF SECURITY VALUE VALUE (a)
- ----------------------------------------------------------------- --------------- ---------------
Green Tree Financial
Series 1998-D, Class HEM1
6.71%, 8/15/29 (j) $ 1,682,863 $ 1,705,379
Home Equity Mortgage Trust
Series 2004-2, Class B1
3.00%, 8/25/34 (b) 1,000,000 1,000,000
Residential Asset Securities Corporation
Series 2002-KS1, Class AI4
5.86%, 11/25/29 1,000,000 1,022,360
Residential Funding Mortgage Securities I
Series 2003-HI4, Class M1
5.53%, 2/25/29 (b) 2,327,000 2,296,702
---------------
10,241,141
---------------
MANUFACTURED HOUSING -- 2.3%
Green Tree Financial
Series 1994-2, Class A5
8.30%, 5/15/19 (j) 795,027 839,429
Oakwood Mortgage Investments
Series 1994-A, Class A3
9.10%, 2/15/15 (j) 1,108,660 1,111,790
---------------
1,951,219
---------------
Total Asset-Backed Securities
(cost: $14,007,138) 14,050,985
---------------
CMO-U.S. AGENCY MORTGAGE-BACKED SECURITIES -- 6.2%
FIXED RATE -- 3.1%
FHLMC REMIC
Series 2690, Class OE
5.00%, 11/15/28 1,274,000 1,278,892
FNMA REMIC
Series 2002-W1, Class 2A
7.50%, 2/25/42 (j) 1,274,548 1,371,733
---------------
2,650,625
---------------
Z-BOND (e) -- 3.1%
GNMA REMIC
Series 2001-8, Class Z
6.50%, 3/20/31 (h) 2,442,502 2,580,088
---------------
Total CMO-U.S. Agency Mortgage-Backed Securities
(cost: $4,891,333) 5,230,713
---------------
</Table>
SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS.
27
<Page>
<Table>
<Caption>
PAR VALUE/
DESCRIPTION OF SECURITY SHARES VALUE (a)
- ----------------------------------------------------------------- --------------- ---------------
PRIVATE MORTGAGE-BACKED SECURITIES -- 3.0%
ADJUSTABLE RATE (f) -- 1.8%
MLCC Mortgage Investors
Series 2003-H, Class A3A
2.88%, 1/25/29 $ 1,473,994 $ 1,506,923
---------------
FIXED RATE -- 1.2%
GRP/AG Real Estate Asset Trust
Series 2004-1, Class A
3.96%, 3/25/09 (b) (c) 700,148 700,148
Series 2003-1, Class A
5.97%, 11/25/32 (b) 329,729 332,202
---------------
1,032,350
---------------
Total Private Mortgaged-Backed Securities
(cost: $2,546,642) 2,539,273
---------------
CORPORATE BONDS -- 0.9%
TELECOMMUNICATIONS -- 0.3%
Telus
8.00%, 6/1/11 250,000 289,380
---------------
TRANSPORTATION -- 0.6%
American Airlines, Series 99-1
7.02%, 10/15/09 500,000 505,000
---------------
Total Corporate Bonds
(cost: $668,808) 794,380
---------------
PUT OPTIONS PURCHASED -- 0.0%
Eurodollar 1 year Mid-Curve June 05
Futures Put, Expires 06/11/04,
Exercise price $96.50 20 5,375
Eurodollar 1 year Mid-Curve June 05
Futures Put, Expires 06/11/04,
Exercise price $97 30 23,063
Eurodollar 1 year Mid-Curve September 05
Futures Put, Expires 09/13/04,
Exercise price $96 50 26,250
---------------
Total Put Options Purchased
(cost: $42,350) 54,688
---------------
AFFILIATED MONEY MARKET FUND (k) -- 1.8%
First American Prime Obligations Fund, Class Z
(cost: $1,554,796) 1,554,796 1,554,796
---------------
Total Investments in Securities -- 129.5%
(cost: $108,425,558) (l) $ 110,118,575
===============
</Table>
SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS.
28
<Page>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 IN
NOTES TO FINANCIAL STATEMENTS.
(b) DELAYED INTEREST (STEP BONDS)-REPRESENTS SECURITIES THAT REMAIN ZERO-COUPON
SECURITIES UNTIL A PREDETERMINED DATE AT WHICH TIME THE STATED COUPON RATE
BECOMES EFFECTIVE AND INTEREST BECOMES PAYABLE AT REGULAR INTERVALS. THE
INTEREST RATE SHOWN REPRESENTS THE CURRENT YIELD AT APRIL 30, 2004, BASED
UPON THE ESTIMATED TIMING AND AMOUNT OF FUTURE INTEREST AND PRINCIPAL
PAYMENTS.
(c) SECURITIES SOLD WITHIN THE TERMS OF A PRIVATE PLACEMENT MEMORANDUM, EXEMPT
FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT OF 1933, AS
AMENDED, WHICH MAY BE SOLD ONLY TO DEALERS IN THAT PROGRAM OR OTHER
"QUALIFIED INSTITUTIONAL BUYERS." THESE SECURITIES HAVE BEEN DETERMINED TO
BE LIQUID UNDER GUIDELINES ESTABLISHED BY THE FUND'S BOARD OF DIRECTORS.
(d) INTEREST ONLY-SECURITY IS NON-INCOME PRODUCING AND IS CURRENTLY IN DEFAULT
AS TO THE TIMELY PAYMENT OF PRINCIPAL AND INTEREST.
(e) Z-BOND-REPRESENTS SECURITIES THAT PAY NO INTEREST OR PRINCIPAL DURING THEIR
ACCRUAL PERIODS, BUT ACCRUE ADDITIONAL PRINCIPAL AT SPECIFIED RATES. THE
INTEREST RATE SHOWN REPRESENTS THE CURRENT YIELD BASED UPON THE CURRENT
COST BASIS, ELIMINATED TIMING, AND AMOUNT OF FUTURE CASH FLOWS.
(f) VARIABLE RATE SECURITY-THE RATE SHOWN ON THE SCHEDULE OF INVESTMENTS IS THE
RATE IN EFFECT AS OF APRIL 30, 2004.
(g) SECURITY IS FAIR VALUED AND CONSIDERED ILLIQUID. ON APRIL 30, 2004, THE
FAIR VALUE OF THIS SECURITY WAS $35,727, WHICH REPRESENTS 0.04% OF NET
ASSETS. SEE NOTE 2 IN NOTES TO FINANCIAL STATEMENTS.
(h) ON APRIL 30, 2004, SECURITIES VALUED AT $21,068,059 WERE PLEDGED AS
COLLATERAL FOR THE FOLLOWING OUTSTANDING REVERSE REPURCHASE AGREEMENTS:
<Table>
<Caption>
NAME OF
BROKER
ACQUISTION ACCRUED AND DESCRIPTION
AMOUNT DATE RATE* DUE INTEREST OF COLLATERAL
- --------------- ---------- ----- ------- ---------- ---------------
$ 7,084,000 2/6/04 1.10% 5/6/04 $ 18,399 (1)
1,454,000 4/2/04 1.10% 5/3/04 1,288 (2)
8,383,482 4/15/04 1.10% 7/15/04 4,099 (3)
- --------------- ----------
$ 16,921,482 $ 23,786
=============== ==========
</Table>
*INTEREST RATE AS OF APRIL 30, 2004. RATES ARE BASED ON THE LONDON INTERBANK
OFFERED RATE (LIBOR) AND RESET MONTHLY.
NAME OF BROKER AND DESCRIPTION OF COLLATERAL:
(1) MORGAN STANLEY;
FHLMC, 6.50%, 8/1/30, $333,953 PAR
FNMA, 7.00%, 6/1/17, $653,001 PAR
FNMA, 7.00%, 7/1/17, $826,811 PAR
FNMA, 5.00%, 11/1/18, $956,360 PAR
FNMA, 6.00%, 5/1/29, $1,215,001 PAR
FNMA, 6.50%, 5/1/31, $393,072 PAR
FNMA, 7.00%, 3/1/32, $552,355 PAR
GNMA, 5.63%, 12/20/22, $654,376 PAR
GNMA REMIC, 6.50%, 3/20/31, $2,442,502 PAR
29
<Page>
(2) MORGAN STANLEY;
FNMA, 6.00%, 11/1/33, $1,370,447 PAR
(3) MORGAN STANLEY;
FHLMC GOLD, 5.50%, 10/1/33, $1,961,227 PAR
FNMA, 4.00%, 11/1/10, $3,253,410 PAR
FNMA, 5.50%, 6/1/33, $1,630,266 PAR
FNMA, 6.00%, 1/1/34, $1,494,978 PAR
GNMA, 6.50%, 4/15/33, $965,089 PAR
GNMA, 5.50%, 8/15/33, $1,945,099 PAR
(i) ON APRIL 30, 2004, THE TOTAL COST OF INVESTMENTS PURCHASED ON A WHEN-ISSUED
BASIS WAS $8,753,203.
(j) SECURITY OR A PORTION OF THIS SECURITY IS PLEDGED AS COLLATERAL FOR
POSITIONS PURCHASED ON A WHEN-ISSUED BASIS.
(k) THIS MONEY MARKET FUND IS ADVISED BY U.S. BANCORP ASSET MANAGEMENT, INC.,
WHICH ALSO SERVES AS ADVISOR FOR THIS FUND. SEE ALSO NOTES TO FINANCIAL
STATEMENTS
(l) ON APRIL 30, 2004, THE COST OF INVESTMENTS IN SECURITIES WAS $108,425,558.
THE AGGREGATE GROSS UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS
IN SECURITIES BASED ON THIS COST WERE AS FOLLOWS:
<Table>
GROSS UNREALIZED APPRECIATION $ 3,372,856
GROSS UNREALIZED DEPRECIATION (1,738,734)
------------
NET UNREALIZED APPRECIATION $ 1,634,122
============
</Table>
CMO-COLLATERALIZED MORTGAGE OBLIGATION
FHLMC-FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA-FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA-GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
REMIC-REAL ESTATE MORTGAGE INVESTMENT CONDUIT
TBA-TO BE ANNOUNCED
30
<Page>
SHAREHOLDER UPDATE (Unaudited)
HOW TO OBTAIN A COPY OF THE FUND'S PROXY VOTING POLICIES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without charge
upon request by calling 800.677.FUND; (2) at firstamericanfunds.com; and (3) on
the U.S. Securities and Exchange Commission's website at sec.gov.
31
<Page>
BOARD OF DIRECTORS
VIRGINIA STRINGER
Chairperson of American Income Fund, Inc.
Owner and President of Strategic Management Resources, Inc.
BENJAMIN FIELD III
Director of American Income Fund, Inc.
Senior Financial Advisor to, and formerly Senior Vice President, Chief Financial
Officer, and Treasurer of, Bemis Company, Inc.
MICKEY FORET
Director of American Income Fund, Inc.
Consultant to, and formerly Executive Vice President and Chief Financial Officer
of, Northwest Airlines, Inc.
ROGER GIBSON
Director of American Income Fund, Inc.
Vice President of Cargo-United Airlines
VICTORIA HERGET
Director of American Income Fund, Inc.
Investment Consultant; former Managing Director of Zurich Scudder Investments
LEONARD KEDROWSKI
Director of American Income Fund, Inc.
Owner and President of Executive and Management Consulting, Inc.
RICHARD RIEDERER
Director of American Income Fund, Inc.
Retired; former President and Chief Executive Officer of Weirton Steel
JOSEPH STRAUSS
Director of American Income Fund, Inc.
Former Chairman of First American Investment Funds, Inc.
Owner and President of Strauss Management Company
JAMES WADE
Director of American Income Fund, Inc.
Owner and President of Jim Wade Homes
AMERICAN INCOME FUND, INC.'S BOARD OF DIRECTORS IS COMPRISED ENTIRELY OF
INDEPENDENT DIRECTORS.
<Page>
AMERICAN INCOME FUND
2004 SEMIANNUAL REPORT
U.S. Bancorp Asset Management, Inc., is a wholly owned subsidiary of U.S. Bank
National Association, which is a wholly owned subsidiary of U.S. Bancorp.
[GRAPHIC]
This document is printed on paper containing 10% postconsumer waste.
6/2004 0252-04 MRF-SAR
<Page>
ITEM 2--CODE OF ETHICS - Did registrant adopt a code of ethics, as of the end of
the period covered by this report, that applies to the registrant's principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, regardless of whether these
individuals are employed by the registrant or a third party? If not, why not?
Briefly describe any amendments or waivers that occurred during the period.
State here if code of ethics/amendments/waivers are on website and give website
address. State here if fund will send code of ethics to shareholders without
charge upon request.
RESPONSE: Not applicable to semi-annual report.
ITEM 3--AUDIT COMMITTEE FINANCIAL EXPERT - Did the registrant's board of
directors determine that the registrant either: (i) has at least one audit
committee financial expert serving on its audit committee; or (ii) does not have
an audit committee financial expert serving on its audit committee? If yes,
disclose name of financial expert and whether he/she is "independent," (fund
may, but is not required, to disclose name/independence of more than one
financial expert) If no, explain why not.
RESPONSE: Not applicable to semi-annual report.
ITEM 4--PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) Audit Fees - Disclose aggregate fees billed for each of the last two
fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for
those fiscal years.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of the
last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance of
the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item. Registrants shall describe
the nature of the services comprising the fees disclosed under this
category.
(c) Tax Fees - Disclose aggregate fees billed in each of the last two
fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the
fees disclosed under this category.
(d) All Other Fees - Disclose aggregate fees billed in each of the last
two fiscal years for products and services provided by the principal
accountant, other than the services reported in paragraphs (a) through
(c) of this Item.
<Page>
Registrants shall describe the nature of the services comprising the
fees disclosed under this category.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
pursuant to paragraph (c)(7) of Rule 2-01 of Regulation S-X.
(e)(2) Disclose the percentage of services described in each of paragraphs
(b) through (d) of this Item that were approved by the audit committee
pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) If greater than 50%, disclose the percentage of hours expended on the
principal accountant's engagement to audit the registrant's financial
statements for the most recent fiscal year that were attributed to
work performed by persons other than the principal accountant's
full-time, permanent employees.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted with
or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the last
two fiscal years of the registrant.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any subadviser whose
role is primarily portfolio management and is subcontracted with or
overseen by another investment adviser), and any entity controlling,
controlled by, or under common control with the investment adviser
that provides ongoing services to the registrant that were not
pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal
accountant's independence.
RESPONSE: Not applicable to semi-annual report.
ITEM 5--AUDIT COMMITTEE OF LISTED REGISTRANTS
RESPONSE: Not applicable to semi-annual report.
ITEM 6 - SCHEDULE OF INVESTMENTS (APPLICABLE FOR PERIODS ENDING ON OR AFTER
JULY 9, 2004)
RESPONSE: Not applicable for periods ending before July 9, 2004.
ITEM 7--DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES - For closed-end funds that contain voting
securities in their portfolio, describe the policies and procedures that it uses
to determine how to vote proxies relating to those portfolio securities.
RESPONSE: Not applicable to semi-annual report.
<Page>
ITEM 8--PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS (APPLICABLE FOR PERIODS ENDING ON OR AFTER
JUNE 15, 2004)
RESPONSE: Not applicable for periods ending before June 15, 2004.
ITEM 9--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
RESPONSE: There have been no material changes to the procedures by which
shareholders may recommend nominees to the registrant's board of directors,
where those changes were implemented after the registrant last provided
disclosure in response to the requirements of Item 7(d)(2)(ii)(G) of Schedule
14A (17 CFR 240.14a-101), or this item.
ITEM 10--CONTROLS AND PROCEDURES
(a) Disclose the conclusions of the registrant's principal executive officer or
officers and principal financial officer or officers, or persons performing
similar functions, about the effectiveness of the registrant's disclosure
controls and procedures (as defined in Rule 30a-3(c) under the Act (17 CFR
270.30a-3(c))) based on their evaluation of these controls and procedures
as of a date within 90 days of the filing date of the report that includes
the disclosure required by this paragraph.
RESPONSE: The registrant's Principal Executive Officer and Principal
Financial Officer have evaluated the registrant's disclosure controls and
procedures within 90 days of the date of this filing and have concluded
that the registrant's disclosure controls and procedures were effective, as
of that date, in ensuring that information required to be disclosed by the
registrant in this Form N-CSR was recorded, processed, summarized and
reported timely. Notwithstanding this conclusion, the registrant's
Principal Executive Officer and Principal Financial Officer seek continuous
improvements to the registrant's disclosure controls and procedures.
(b) Disclose any change in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(c) under the Act (17 CFR 270.30a-3(c)))
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.
RESPONSE: There were no changes in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal half-year that have materially affected, or are reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
ITEM 11 - EXHIBITS
11(a) - Attach code of ethics or amendments/waivers, unless code of ethics or
amendments/waivers is on website or offered to shareholders upon request without
charge.
RESPONSE: Not applicable to semi-annual report.
11(b) - Attach certifications (4 in total pursuant to Sections 302 and 906 for
PEO/PFO).
RESPONSE: Attached hereto.
<Page>
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 Income Fund, Inc.
By: /s/ Thomas S. Schreier, Jr.
----------------------------
Thomas S. Schreier, Jr.
President
Date: July 8, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Thomas S. Schreier, Jr.
----------------------------
Thomas S. Schreier, Jr.
President
Date: July 8, 2004
By: /s/ Joseph M. Ulrey III
----------------------------
Joseph M. Ulrey III
Treasurer
Date: July 8, 2004