N-CSRS 1 a06-7047_7ncsrs.htm CERTIFIED SEMI-ANNUAL SHAREHOLDER REPORT

 

 

OMB APPROVAL

 

OMB Number:  3235-0570

 

Expires: November 30, 2005

 

Estimated average burden
hours per response. . . . . 5.0

 

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)

 

Charles D. Gariboldi    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:          August 31

 

Date of reporting period:       February 28, 2006

 

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.

 

 


 

Item 1. Report to Shareholders

 


 

 

AMERICAN

 

 

INCOME FUND

 

 

 

 

 

MRF

 

 

 

 

 

 

 

February 28, 2006

 

SEMIANNUAL REPORT

 


 

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

 

Financial Statements

2

 

 

Notes to Financial Statements

6

 

 

Schedule of Investments

12

 

 

Notice to Shareholders

19

 

NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE

 


Portfolio Allocation

As a percentage of total assets on February 28, 2006

2006 Semiannual Report

American Income Fund

1


Financial STATEMENTS

Statement of Assets and Liabilities February 28, 2006 (unaudited)

Assets:  
Investments in unaffiliated securities, at value (cost: $101,287,551) (note 2)   $ 101,202,500    
Investment in affiliated money market fund, at value (cost: $2,172,757) (note 3)     2,172,757    
Cash     9,141    
Receivable for accrued interest     977,889    
Prepaid expenses     4,325    
Total assets     104,366,612    
Liabilities:  
Payable for securities purchased on a when-issued basis (note 2)     1,505,273    
Payable for reverse repurchase agreements (note 2)     19,152,114    
Payable for investment advisory fees (note 3)     41,453    
Payable for administrative fees (note 3)     10,282    
Payable for interest expense     35,909    
Payable for professional fees     22,574    
Payable for variation margin (note 2)     24,812    
Payable for other expenses     22,083    
Total liabilities     20,814,500    
Net assets applicable to outstanding capital stock   $ 83,552,112    
Composition of net assets:  
Capital stock and additional paid-in capital   $ 95,888,834    
Undistributed net investment income     101,365    
Accumulated net realized loss on investments (note 5)     (12,368,780 )  
Net unrealized depreciation of investments     (85,051 )  
Net unrealized appreciation of futures contracts     15,744    
Total – representing net assets applicable to capital stock   $ 83,552,112    
Net asset value and market price of capital stock:  
Net assets outstanding   $ 83,552,112    
Shares outstanding (authorized 200 million shares of $0.01 par value)     9,454,221    
Net asset value per share   $ 8.84    
Market price per share   $ 7.83    

 

See accompanying Notes to Financial Statements.

2006 Semiannual Report

American Income Fund

2


Statement of Operations For the Six-Month Period Ended February 28, 2006 (unaudited)

Investment income:  
Interest from unaffiliated securities   $ 3,324,483    
Dividends from affiliated money market fund     28,886    
Total investment income     3,353,369    
Expenses (note 3):  
Investment advisory fees     267,946    
Interest expense     427,412    
Administrative fees     41,222    
Custodian fees     2,061    
Professional fees     13,306    
Postage and printing fees     23,121    
Transfer agent fees     10,248    
Listing fees     25,556    
Directors' fees     18,105    
Other expenses     13,047    
Total expenses     842,024    
Less: Indirect payments from the custodian     (847 )  
Total net expenses     841,177    
Net investment income.     2,512,192    
Net realized and unrealized gains (losses) on investments in securities, futures contracts, and options written (notes 2 and 4):  
Net realized gain (loss) on:  
Investments in securities     (332,344 )  
Futures contracts     288,589    
Options written     5,172    
Net change in unrealized appreciation or depreciation of:  
Investments in securities     (1,452,496 )  
Futures contracts     62,580    
Options written     (242 )  
Net loss on investments     (1,428,741 )  
Net increase in net assets resulting from operations   $ 1,083,451    

 

See accompanying Notes to Financial Statements.

2006 Semiannual Report

American Income Fund

3


Financial STATEMENTS continued

Statement of Changes in Net Assets

    Six-Month
Period Ended
2/28/06
(unaudited)		   Ten-Month
Fiscal
Period Ended
8/31/05		   Year Ended
10/31/04		  
Operations:  
Net investment income   $ 2,512,192     $ 4,496,729     $ 5,975,168    
Net realized gain (loss) on:
Investments in securities		     (332,344 )     77,696       1,821,219    
Futures contracts     288,589       (185,988 )     (478,981 )  
Options written     5,172       78,866       135,111    
Net change in unrealized appreciation or depreciation of:
Investments in securities		     (1,452,496 )     (1,899,600 )     (60,094 )  
Futures contracts     62,580       258,948       (305,784 )  
Options written     (242 )     242       (27,784 )  
Net increase in net assets resulting from operations     1,083,451       2,826,893       7,058,855    
Distributions to shareholders (note 2):  
From net investment income     (2,410,827 )     (4,496,729 )     (5,975,168 )  
From return of capital     —       (154,087 )     (51,902 )  
Total distributions     (2,410,827 )     (4,650,816 )     (6,027,070 )  
Total increase (decrease) in net assets     (1,327,376 )     (1,823,923 )     1,031,785    
Net assets at beginning of period     84,879,488       86,703,411       85,671,626    
Net assets at end of period   $ 83,552,112     $ 84,879,488     $ 86,703,411    

 

See accompanying Notes to Financial Statements.

2006 Semiannual Report

American Income Fund

4


Statement of Cash Flows  For the Six-Month Period Ended February 28, 2006 (unaudited)

Cash flows from operating activities:  
Net increase in net assets resulting from operations   $ 1,083,451    
Adjustments to reconcile net increase/decrease in net assets resulting from operations to net cash provided by
(used in) operating activities:		  
Purchases of investments     (36,947,297 )  
Proceeds from sales of investments     40,920,672    
Net purchases/sales of short-term securities     (549,318 )  
Net amortization of bond discount and premium     (9,105 )  
Net change in unrealized appreciation or depreciation of investments in securities, futures contracts, and
options written		     1,390,158    
Net realized gain/loss on investments in securities, futures contracts, and options written     38,583    
Net premiums received for options written     (3,039 )  
Increase/decrease in receivable for accrued interest     137,433    
Increase/decrease in prepaid expenses     32,926    
Net change in variation margin     335,356    
Increase/decrease in accrued fees and expenses     (19,587 )  
Net cash provided by (used in) operating activities     6,410,233    
Cash flows from financing activities:  
Net payments from reverse repurchase agreements     (4,000,325 )  
Distributions paid to shareholders     (2,410,827 )  
Net cash provided by (used in) in financing activities     (6,411,152 )  
Net decrease in cash     (919 )  
Cash at beginning of period     10,060    
Cash at end of period   $ 9,141    
Supplemental disclosure of cash flow information:
Cash paid for interest		   $ 430,689    

 

See accompanying Notes to Financial Statements.

2006 Semiannual Report

American Income Fund

5



Notes to Financial STATEMENTS (unaudited as to February 28, 2006)

(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 fund'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.  
    On June 22, 2005, the fund's board of directors approved a change in the fund's fiscal year-end from October 31 to August 31, effective with the ten-month fiscal period ended August 31, 2005.  
(2) Summary of Significant Accounting Policies   Security Valuations  
    Security valuations for the fund's investments are furnished by one or more independent pricing services that have been approved by the fund's board of directors. 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 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. 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.  
    As of February 28, 2006, the fund had no fair valued securities.  
    Securities Transactions and Investment Income  
    For financial statement purposes, 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 bond 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-month period ended February 28, 2006, the weighted average borrowings outstanding were $20,494,194. The weighted average interest rate was 4.21%.  

 

2006 Semiannual Report

American Income Fund

6


Futures Transactions  
In order to protect against changes in interest rates, the fund may buy and sell interest rate futures contracts. 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 underlying security or securities, are made or received by the fund each day (daily variation margin) and 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 possibility 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 position 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. These contracts involve market risk in excess of the amount reflected in the fund's statement of assets and liabilities. Unrealized gains (losses) on outstanding positions in futures contracts held at the close of the period will be recognized as capital gains (losses) for federal income tax purposes.  
Options Transactions  
The fund may utilize options in an attempt to manage market or business risk or enhance its 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 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 originally 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 fund had no options outstanding as of February 28, 2006.  
Transactions in options written for the six-month period ended February 28, 2006, were as follows:  

 

    Put Options Written   Call Options Written  
Balance at   Number of
Contracts		   Premium
Amount		   Number of
Contracts		   Premium
Amount		  
August 31, 2005     10     $ 4,496       10     $ 3,715    
Opened     —       —       —       —    
Expired     —       —       —       —    
Closed     (10 )     (4,496 )     (10 )     (3,715 )  
February 28, 2006     —     $ —       —     $ —    

 

2006 Semiannual Report

American Income Fund

7


Notes to Financial STATEMENTS continued

Securities Purchased on a When-Issued Basis  
Delivery and payment for securities that have been purchased by the fund on a when-issued or forward-commitment basis can take place a month or more after the transaction date. Such securities do not earn interest, are subject to market fluctuation, and may increase or decrease in value prior to their delivery. The fund segregates assets with a market value equal to or greater than the amount of its purchase commitments. The purchase of securities on a when-issued or forward-commitment basis may increase the volatility of the fund's net asset value if the fund makes such purchases while remaining substantially fully invested. As of February 28, 2006, the fund had $1,505,273 of when-issued or forward-commitment securities outstanding.  
In connection with the ability to purchase securities on a when-issued basis, the fund may also enter into 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. As an inducement for the fund to "rollover" its purchase commitments, the fund receives negotiated amounts in the form of reductions of the purchase price of the commitment. Dollar rolls are considered a form of leverage. As of February 28, 2006, the fund had no outstanding dollar roll transactions.  
Illiquid Securities and Restricted Securities  
A security may be considered illiquid if it lacks a readily available market. Securities are generally considered liquid if they can be sold or disposed of in the ordinary course of business within seven days at approximately the value at which the security is valued by the fund. Illiquid securities may be valued under methods approved by the fund's board of directors as reflecting fair value.  
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.  
As of February 28, 2006, the fund held one illiquid security, the value of which was $12,875, which represents 0.02% of net assets. This security's valuation was furnished by an independent pricing service. As of February 28, 2006, there were no restricted securities. Information concerning the illiquid security, is as follows:  

 

Security   Par   Date
Acquired		   Cost
Basis		  
California Federal Bank Los Angeles   $ 12,906       7/93     $ 1,758    

 

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. The fund also intends to distribute its taxable net investment income and realized gains, if any, to avoid the payment of any federal excise taxes.  

 

2006 Semiannual Report

American Income Fund

8


The tax character of distributions paid during the six-month period ended February 28, 2006, the ten-month fiscal period ended August 31, 2005 and the fiscal year ended October 31, 2004 were as follows:  

 

    2/28/06   8/31/05   10/31/04  
Distributions paid from:  
Ordinary income   $ 2,410,827     $ 4,496,729     $ 5,975,168    
Return of capital     —       154,087       51,902    
    $ 2,410,827     $ 4,650,816     $ 6,027,070    

 

At August 31, 2005, the components of accumulated deficit on a tax basis were as follows:  

 

Accumulated capital losses   $ (12,376,791 )  
Unrealized appreciation     1,367,445    
Accumulated deficit   $ (11,009,346 )  

 

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 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. All agreements require that the daily market value of the collateral be in excess of the repurchase amount, including accrued interest, to protect the fund in the event of a default. As of February 28, 2006, the fund had no outstanding repurchase agreements.  
Deferred Compensation Plan  
Under a Deferred Compensation Plan (the "Plan"), non-interested directors of the First American Fund family may participate and elect to defer receipt of their annual compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of selected open-end First American Funds as designated by the board of directors. All amounts in the Plan are 100% vested and accounts under the Plan are obligations of the funds. Deferred amounts remain in the funds until distributed in accordance with the Plan.  
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 amount of assets and liabilities at the date of the financial statements and the reported results of operations during the reporting period. Actual results could differ from these estimates.  
Reclassifications  
Certain amounts in the 2004 financial statements have been reclassified to conform to the current presentation.  

 

2006 Semiannual Report

American Income Fund

9


Notes to Financial STATEMENTS continued

(3) Expenses
 		  Investment Advisory 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 advisory 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.  
    The fund may invest in related 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 advisor to both the fund and the related money market funds, USBAM will reimburse the fund an amount equal to 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.  
    Administrative Fees  
    USBAM serves as the fund's administrator pursuant to an administration agreement between USBAM and the fund. Under this 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.  
    Custodian Fees  
    U.S. Bank serves as the fund's custodian pursuant to a custodian agreement with the fund. The custodian fee charged to the fund is equal to an annual rate of 0.005% of average weekly net assets. These fees are computed weekly and paid monthly.  
    Under this agreement, interest earned on uninvested cash balances is used to reduce a portion of the fund's custodian expenses. These credits, if any, are disclosed as "Indirect payments from the custodian" in the Statement of Operations. Conversely, the custodian charges a fee for any cash overdrafts incurred, which will increase the fund's custodian expenses. For the six-month period ended February 28, 2006, custodian fees were reduced by $847 as a result of interest earned. There were no overdraft charges during the period.  
    Other Fees and Expenses  
    In addition to the investment advisory, administrative, and custodian fees, the fund is responsible for paying most other operating expenses, including: legal, auditing, and accounting services, postage and printing of shareholder reports, transfer agent fees and expenses, listing fees, outside directors' fees and expenses, insurance, interest, taxes, and other miscellaneous expenses. For the six-month period ended February 28, 2006, legal fees and expenses were paid to a law firm of which an Assistant Secretary of the fund is a partner.  
(4) Investment Security Transactions   Cost of purchases and proceeds from sales of securities, other than temporary investments in short-term securities, for the six-month period ended February 28, 2006, aggregated $28,669,757 and $40,920,672, respectively.  
(5) Capital Loss Carryover   For federal income tax purposes, the fund had capital loss carryovers at August 31, 2005, which, if not offset by subsequent capital gains, will expire on the fund's fiscal year-ends as indicated below.  

 

Capital Loss
Carryover		   Expiration  
$ 847,451       2006    
  2,573,283       2007    
  4,931,683       2008    
  662,186       2009    
  3,362,188       2010    
$ 12,376,791          

 

2006 Semiannual Report

American Income Fund

10


(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.  
(7) Investment Advisor Name
Change		   Effective March 31, 2006, USBAM changed its name to FAF Advisors, Inc.  
(8) Financial Highlights   Per-share data for a share of capital stock outstanding throughout each period and selected information for each period are as follows:  

 

    Six-Month
Period Ended
2/28/06		   Ten-Month
Fiscal
Period Ended		  
    (unaudited)   8/31/05  
Per-Share Data                  
Net asset value, beginning of period   $ 8.98     $ 9.17    
Operations:  
Net investment income     0.27       0.48    
Net realized and unrealized gains (losses)
on investments		     (0.15 )     (0.18 )  
Total from operations     0.12       0.30    
Distributions to shareholders:  
From net investment income     (0.26 )     (0.47 )  
Tax return of capital     —       (0.02 )  
Total distributions to shareholders     (0.26 )     (0.49 )  
Net asset value, end of period   $ 8.84     $ 8.98    
Market value, end of period   $ 7.83     $ 8.13    
Selected Information                  
Total return, net asset value (a)     1.69 % (h)     3.86 % (h)  
Total return, market value (b)     (0.51 )% (h)     0.85 % (h)  
Net assets at end of period (in millions)   $ 84     $ 85    
Ratio of expenses to average weekly net assets
excluding interest expense		     1.00 % (g)     0.96 % (g)  
Ratio of expenses to average weekly net assets     2.04 % (g)     1.62 % (g)  
Ratio of net investment income to average
weekly net assets		     6.09 % (g)     6.35 % (g)  
Portfolio turnover rate     27 %     168 %  
Amount of borrowings outstanding at
end of period (in millions)		   $ 19     $ 23    
Per-share amount of borrowings outstanding at
end of period		   $ 2.02     $ 2.45    
Per-share amount of net assets, excluding
borrowings, at end of period		   $ 10.86     $ 11.43    
Asset coverage ratio (c)     536 %     467 %  

 

   
Year Ended October 31,		  
    2004   2003   2002   2001   2000 (d)  
Per-Share Data                                          
Net asset value, beginning of period   $ 9.06     $ 8.70     $ 9.19     $ 8.90     $ 9.23    
Operations:  
Net investment income     0.64       0.67       0.70       0.65       0.68    
Net realized and unrealized gains (losses)
on investments		     0.11       0.37       (0.50 )     0.26       (0.29 )  
Total from operations     0.75       1.04       0.20       0.91       0.39    
Distributions to shareholders:  
From net investment income     (0.64 )     (0.68 )     (0.69 )     (0.59 )     (0.67 )  
Tax return of capital     — (e)     — (e)     —       (0.03 )     (0.05 )  
Total distributions to shareholders     (0.64 )     (0.68 )     (0.69 )     (0.62 )     (0.72 )  
Net asset value, end of period   $ 9.17     $ 9.06     $ 8.70     $ 9.19     $ 8.90    
Market value, end of period   $ 8.55     $ 8.55     $ 8.37     $ 8.53     $ 8.60    
Selected Information                                          
Total return, net asset value (a)     9.02 %     12.53 %     2.48 %     10.96 %     5.97 %  
Total return, market value (b)     7.71 %     10.38 %     6.22 %     13.69 %     17.20 %  
Net assets at end of period (in millions)   $ 87     $ 86     $ 82     $ 87     $ 105    
Ratio of expenses to average weekly net assets
excluding interest expense		     0.93 %     0.95 %     0.96 %     0.89 %     1.06 %  
Ratio of expenses to average weekly net assets     1.23 %     1.48 %     2.00 %     2.06 %     1.59 %  
Ratio of net investment income to average
weekly net assets		     7.00 %     7.49 %     7.88 %     7.37 %     7.52 %  
Portfolio turnover rate     193 % (f)     135 %     54 %     82 %     65 %  
Amount of borrowings outstanding at
end of period (in millions)		   $ 22     $ 10     $ 33     $ 33     $ —    
Per-share amount of borrowings outstanding at
end of period		   $ 2.28     $ 1.04     $ 3.48     $ 3.46     $ —    
Per-share amount of net assets, excluding
borrowings, at end of period		   $ 11.45     $ 10.10     $ 12.18     $ 12.66     $ 8.90    
Asset coverage ratio (c)     502 %     970 %     350 %     366 %     N/A    

 

(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)  The large turnover is due to increased activity in mortgage dollar roll transactions.

(g)  Annualized.

(h)  Total return has not been annualized.

2006 Semiannual Report

American Income Fund

11



Schedule of INVESTMENTS (unaudited)

American Income Fund  February 28, 2006

Description of Security   Par
Value		  
Value (a)		  
(Percentages of each investment category relate to net assets)  
High Yield Corporate Bonds — 36.5%  
Basic Industry — 3.0%  
Abitibi-Consolidated, 8.55%, 8/1/10   $ 170,000     $ 167,025    
Allegheny Technologies, 8.38%, 12/15/11     110,000       120,312    
Caraustar Industries, Callable 4/1/06 @ 105.25, 9.88%, 4/1/11     300,000       315,750    
Georgia-Pacific, 8.88%, 5/15/31     200,000       210,000    
Borden U.S., Callable 7/15/09 @ 104.50, 9.00%, 7/15/14     250,000       258,125    
Huntsman ICI Chemicals, Callable 4/17/06 @ 103.38, 10.13%, 7/1/09     105,000       107,625    
LPG International, 7.25%, 12/20/15 (c)     250,000       250,688    
Newark Group, Callable 3/15/09 @ 104.88, 9.75%, 3/15/14     200,000       176,000    
OM Group, Callable 12/15/06 @ 104.62, 9.25%, 12/15/11     300,000       300,000    
Polyone, 8.88%, 5/1/12     200,000       204,500    
Southern Peru Copper, 7.50%, 7/27/35     200,000       210,250    
Stone Container, Callable 7/1/07 @ 104.19, 8.38%, 7/1/12     200,000       197,000    
              2,517,275    
Brokerage — 0.6%  
E*Trade Financial, Callable 6/15/08 @ 104.00, 8.00%, 6/15/11     250,000       263,125    
Lazard, 7.13%, 5/15/15     250,000       264,151    
              527,276    
Capital Goods — 2.7%  
Case New Holland, Callable 8/1/07 @ 104.62, 9.25%, 8/1/11     200,000       214,750    
Compression Polymers, Callable 7/1/09 @ 105.25, 10.50%, 7/1/13 (c)     250,000       251,250    
Graham Packaging, Callable 10/15/09 @ 104.94, 9.88%, 10/15/14     250,000       252,812    
Greif Brothers, Callable 8/1/07 @ 104.44, 8.88%, 8/1/12     300,000       319,125    
L-3 Communications, Callable 1/15/10 @ 102.94, 5.88%, 1/15/15     200,000       193,000    
Owens-Broadway Glass Container, Callable 4/17/06 @ 104.44, 8.88%, 2/15/09     500,000       521,875    
Sequa, 9.00%, 8/1/09     500,000       537,500    
              2,290,312    
Communications — 4.9%  
Charter Communications Holdings, 8.00%, 4/30/12 (c)     400,000       402,000    
Citizens Communications, 9.25%, 5/15/11     250,000       276,875    
CSC Holdings, Series B, 7.63%, 4/1/11     250,000       253,125    
Dex Media, Callable 11/15/08 @ 104.00, 8.00%, 11/15/13     200,000       206,500    
DirectTV Holdings, Callable 3/15/08 @ 104.19, 8.38%, 3/15/13     81,000       87,277    
Echostar, 6.63%, 10/1/14     300,000       291,750    
Horizon PCS, Callable 7/15/08 @ 105.69, 11.38%, 7/15/12     200,000       229,500    
Houghton-Mifflin, Callable 10/15/08 @ 105.75, 0.00% through 10/15/08 thereafter 11.50%, 10/15/13 (b)     400,000       334,000    
Insight Midwest, Callable 11/1/05 @ 105.25, 10.50%, 11/1/10     200,000       210,750    
Intelsat, Callable 1/15/10 @ 104.31, 8.63%, 1/15/15 (c)     250,000       258,437    
Panamsat, Callable 8/15/09 @ 104.50, 9.00%, 8/15/14     195,000       206,212    
Qwest, 8.88%, 3/15/12     400,000       449,000    
Qwest Capital Funding, 7.00%, 8/3/09     400,000       408,000    
Rogers Wireless, 6.38%, 3/1/14     300,000       303,750    
Time Warner Telecommunications Holdings, Callable 2/15/09 @ 104.62, 9.25%, 2/15/14     175,000       188,781    
              4,105,957    
Consumer Cyclical — 5.2%  
Buffets, Callable 7/15/06 @ 105.63, 11.25%, 7/15/10     200,000       208,000    
Dominos, Series B, Callable 7/1/07 @ 104.13, 8.25%, 7/1/11     364,000       378,105    
Ford Motor, 7.00%, 10/1/13     500,000       439,796    
Hovnanian K Enterprises, 6.25%, 1/15/16     250,000       230,625    
Isle of Capri Casinos, Callable 3/1/09 @ 103.50, 7.00%, 3/1/14     500,000       501,250    
Landry's Restaurants, Series B, Callable 12/15/09 @ 103.75, 7.50%, 12/15/14     250,000       242,188    

 

See accompanying Notes to Schedule of Investments.

2006 Semiannual Report

American Income Fund

12


American Income Fund  February 28, 2006

Description of Security   Par
Value		  
Value (a)		  
Mandalay Resort, Series B, 10.25%, 8/1/07   $ 250,000     $ 265,000    
Mohegan Tribal Gaming, 6.38%, 7/15/09     250,000       251,250    
Neiman Marcus Group, Callable 10/15/10 @ 105.19, 10.38%, 10/15/15 (c)     300,000       316,500    
Service Corporation International, 7.70%, 4/15/09     500,000       523,750    
Six Flags, Callable 4/15/08 @ 104.88, 9.75%, 4/15/13     250,000       255,000    
WCI Communities, Callable 5/1/07 @ 104.56, 9.13%, 5/1/12     500,000       506,250    
Wynn Las Vegas, Callable 12/1/09 @ 103.31, 6.63%, 12/1/14     250,000       246,875    
              4,364,589    
Consumer NonCyclical — 2.2%  
Ahold Finance USA, 8.25%, 7/15/10     300,000       321,000    
Delhaize America, 9.00%, 4/15/31     250,000       297,799    
Iasis Healthcare, Callable 6/15/09 @ 104.38, 8.75%, 6/15/14     250,000       255,938    
RJ Reynolds Tobacco Holdings, 6.50%, 7/15/10 (c)     250,000       251,875    
Stater Brothers Holdings, Callable 6/15/08 @ 104.06, 8.13%, 6/15/12     250,000       252,500    
Swift & Co., Callable 10/1/06 @ 106.25, 12.50%, 1/1/10     250,000       248,125    
Triad Hospitals, Callable 11/15/08 @ 103.50, 7.00%, 11/15/13     200,000       202,000    
              1,829,237    
Electric — 2.5%  
CMS Energy, 8.50%, 4/15/11     500,000       546,250    
Dynegy – Roseton Danskammer, Series B, 7.67%, 11/8/16     200,000       205,500    
Mission Energy Holdings, 13.50%, 7/15/08     250,000       288,750    
Nevada Power, Callable 8/15/08 @ 104.50, 9.00%, 8/15/13     262,000       289,824    
Reliant Energy, Callable 7/15/08 @ 104.75, 9.50%, 7/15/13     250,000       255,000    
Teco Energy, 7.20%, 5/1/11     250,000       264,063    
TXU, Series P, 5.55%, 11/15/14     250,000       238,319    
              2,087,706    
Energy — 0.7%  
Bluewater Finance, Callable 2/15/07 @ 105.12, 10.25%, 2/15/12     290,000       313,200    
Harvest Operations, Callable 10/15/08 @ 103.94, 7.88%, 10/15/11     250,000       250,625    
              563,825    
Industrials Other (c) — 0.6%  
Amsted Industries, Callable 10/15/07 @ 105.12, 10.25%, 10/15/11     200,000       216,000    
Chart Industries, Callable 10/15/10 @ 104.56, 9.13%, 10/15/15     300,000       311,250    
              527,250    
Insurance — 0.3%  
Fairfax Financial Holdings, 7.75%, 4/26/12     250,000       237,500    
Miscellaneous (c) — 6.6%  
Dow Jones, 7.25%, 12/29/10     3,500,000       3,500,000    
Dow Jones, 8.25%, 6/29/10     30,450       30,755    
Dow Jones, 8.75%, 12/29/10     1,960,000       2,004,100    
              5,534,855    
Natural Gas — 1.5%  
El Paso, 7.75%, 6/15/10     200,000       208,500    
SemGroup, Callable 11/15/10 @ 104.38, 8.75%, 11/15/15 (c)     250,000       259,375    
Tennessee Gas Pipeline, 7.50%, 4/1/17     250,000       274,688    
Williams, 7.13%, 9/1/11     500,000       524,375    
              1,266,938    
Sovereign — 4.7%  
Federal Republic of Brazil  
7.13%, 1/20/37     250,000       266,000    
7.88%, 3/7/15     500,000       560,000    
10.25%, 6/17/13     500,000       623,750    

 

See accompanying Notes to Schedule of Investments.

2006 Semiannual Report

American Income Fund

13


Schedule of INVESTMENTS (unaudited) continued

American Income Fund  February 28, 2006

Description of Security   Par
Value		  
Value (a)		  
Republic of Panama  
7.13%, 1/29/26   $ 500,000     $ 529,250    
7.25%, 3/15/15     500,000       538,250    
Republic of Philippines, 8.38%, 2/15/11     500,000       540,625    
Republic of Turkey, 9.00%, 6/30/11     500,000       570,625    
Republic of Uruguay, 8.00%, 11/18/22     250,000       270,625    
              3,899,125    
Technology — 0.3%  
Lucent Technologies, 6.45%, 3/15/29     250,000       210,000    
Transportation — 0.7%  
Continental Airlines, 7.57%, 3/15/20     313,565       293,967    
Hertz, Callable 1/1/10 @ 104.44, 8.88%, 1/1/14 (c)     250,000       261,250    
              555,217    
Total High Yield Corporate Bonds
(cost: $29,687,860)		             30,517,062    
U.S. Government Agency Mortgage-Backed Securities — 32.3%  
Adjustable Rate (f) — 1.3%  
Federal Home Loan Mortgage Corporation, 4.96%, 9/1/18, #605911     240       245    
Federal National Mortgage Association  
5.41%, 7/1/27, #70179     2,787       2,850    
5.56%, 10/1/32, #725110 (h)     645,286       657,647    
Government National Mortgage Association, 5.13%, 12/20/22, #8096 (h)     399,734       405,397    
              1,066,139    
Fixed Rate —31.0%  
Federal Home Loan Mortgage Corporation, 6.50%, 8/1/30, #C43641     139,835       143,767    
Federal Home Loan Mortgage Corporation Gold  
6.50%, 11/1/28, #C00676     385,711       396,560    
5.50%, 10/1/33, #A15120 (h)     1,366,671       1,356,848    
Federal National Mortgage Association  
4.00%, 11/1/10, #254956 (h)     2,187,097       2,118,067    
6.00%, 12/1/13, #190179     443,890       449,578    
7.50%, 5/1/15, #537440 (h)     78,011       81,676    
7.00%, 6/1/17, #254384 (h)     330,257       343,811    
7.00%, 7/1/17, #254414 (h)     419,087       436,287    
6.00%, 9/1/17, #653368 (h)     369,213       376,751    
5.00%, 11/1/18, #750989 (h)     684,590       677,245    
5.00%, 2/1/19, #767182 (h)     1,103,333       1,088,047    
6.00%, 5/1/29, #323702     647,690       657,001    
6.50%, 5/1/31, #540814     158,786       163,252    
7.00%, 9/1/31, #596680 (h)     571,200       590,656    
7.00%, 3/1/32, #635970     269,932       279,127    
6.50%, 6/1/32, #596712 (h)     729,200       746,518    
5.50%, 6/1/33, #709700 (h)     916,927       910,337    
5.50%, 11/1/33, #555967     2,233,352       2,217,300    
6.00%, 11/1/33, #743642 (h)     672,826       679,554    
5.50%, 12/1/33, #756202 (h)     1,286,398       1,276,348    
6.00%, 1/1/34, #763687 (h)     1,168,472       1,180,157    
5.50%, 2/1/34, #766070 (h)     1,167,617       1,158,495    
6.00%, 1/1/35, #810225     1,046,555       1,056,366    
6.50%, 2/1/35, #735273 (h)     1,380,923       1,416,741    
5.50%, 3/1/35, #815979     1,910,939       1,893,621    
Federal National Mortgage Association (When-Issued Security), 5.50%, 4/1/21 (i)     1,500,000       1,504,219    

 

See accompanying Notes to Schedule of Investments.

2006 Semiannual Report

American Income Fund

14


American Income Fund  February 28, 2006

Description of Security   Par
Value		  
Value (a)		  
Government National Mortgage Association  
6.50%, 4/15/33, #602233   $ 490,395     $ 511,186    
5.50%, 8/15/33, #604567 (h)     1,454,494       1,459,494    
6.00%, 7/15/34, #631574 (h)     722,896       736,902    
              25,905,911    
Total U.S. Government Agency Mortgage-Backed Securities
(cost: $27,335,406)		             26,972,050    
Collateralized Mortgage Obligation-Private Mortgage-Backed Securities — 25.8%  
Adjustable Rate (f) — 5.0%  
California Federal Bank Los Angeles, Series 1991-C12, Class A, 6.15%, 7/15/21(g)     12,906       12,875    
Goldman Sachs Mortgage Securities, Series 2003-1, Class B2, 6.91%, 3/25/43     1,921,377       1,951,108    
Sequoia Mortgage Trust, Series 2004-5, Class X1, 0.80%, 6/20/34 (d)     53,738,708       424,600    
Washington Mutual MCS Mortgage, Series 2003-AR3, Class B1, 4.96%, 6/25/33 (j)     1,433,262       1,485,931    
Wells Fargo Mortgage-Backed Securities Trust, Series 2003-D, Class A1, 4.82%, 2/25/33     269,907       273,349    
              4,147,863    
Fixed Rate — 20.8%  
Citicorp Mortgage Securities  
Series 2004-5, Class B3, 5.27%, 8/25/34     1,228,294       1,133,648    
Series 2005-4, Class 1A6, 5.50%, 7/25/35     1,000,000       965,715    
Countrywide Alternative Loan Trust Series 2005-7CB, Class 2A4, 5.50%, 4/25/35     750,000       733,358    
Crown Castle Towers LLC, 5.61%, 6/15/35     1,000,000       959,747    
GMAC Mortgage Corporation Loan Trust  
Series 2003-GH2, Class A3, 5.00%, 3/25/23     1,500,000       1,480,571    
Series 2003-J9, Class A15, 5.00%, 1/25/34     1,325,000       1,277,381    
Series 2004-J5, Class A7, 6.50%, 1/25/35     1,028,930       1,034,671    
Goldman Sachs Mortgage Securities Series 2001-2, Class A, 7.50%, 6/19/32 (c)     425,812       441,863    
GRP/AG Real Estate Asset Trust  
Series 2004-2, Class A, 4.21%, 7/25/34 (b) (c)     187,553       183,494    
Series 2005-1, Class A, 4.85%, 1/25/35 (b) (c)     124,001       122,785    
Morgan Stanley Mortgage Loan Trust Series 2004-9, Class 1A, 6.25%, 11/25/34     867,154       868,219    
Nomura Asset Acceptance Corporation Series 2004-R2, Class B1, 6.74%, 10/25/34 (c)     1,115,784       1,128,488    
Prime Mortgage Trust  
Series 2004-2, Class B2, 5.04%, 11/25/19     404,256       384,541    
Series 2004-2, Class B3, 5.04%, 11/25/19     302,958       283,005    
Residential Accredit Loans Series 2003-QS12, Class M1, 5.00%, 6/25/18     1,001,626       954,249    
Residential Asset Mortgage Products  
Series 2003-SL1, Class M2, 7.32%, 4/25/31     1,066,612       1,064,347    
Series 2004-SL4, Class A3, 6.50%, 7/25/32     939,568       950,943    
Residential Asset Securitization Trust Series 2002-A12, Class 1A1, 5.20%, 11/25/32     36,414       36,189    
Structured Asset Securities Corporation Series 2005-6, Class 5A6, 5.00%, 5/25/35     1,000,000       978,813    
Washington Mutual MSC Mortgage Series 2003-MS9, Class CB2, 7.45%, 12/25/33     413,074       410,193    
Wells Fargo Mortgage-Backed Securities Trust  
Series 2003-7, Class A3, 4.50%, 8/25/18 (j)     937,426       911,215    
Series 2004-7, Class B2, 4.72%, 7/25/19     681,882       641,090    
Series 2004-7, Class B3, 4.72%, 7/25/19     511,641       464,984    
              17,409,509    
Total Collateralized Mortgage Obligation-Private Mortgage-Backed Securities
(cost:$22,317,855)		             21,557,372    

 

See accompanying Notes to Schedule of Investments.

2006 Semiannual Report

American Income Fund

15


Schedule of INVESTMENTS (unaudited) continued

American Income Fund  February 28, 2006

Description of Security   Par
Value		  
Value (a)		  
Asset-Backed Securities — 12.3%  
Commercial — 0.1%  
Morgan Stanley Capital, Series 1999-FNV1, Class A1, 6.12%, 3/15/31 (j)   $ 107,088     $ 107,080    
Home Equity — 10.7%  
Ace Securities, Series 2003-OP1, Class M3, 6.23%, 12/25/33 (b) (f) (k)     1,500,000       1,519,016    
First Franklin Mortgage Loan, Series 2004-FFA, Class M2F, 4.62%, 3/25/24 (b) (j)     2,760,000       2,707,532    
Home Equity Mortgage Trust, Series 2004-6, Class M2, 5.32%, 4/25/35 (b) (j)     500,000       484,721    
Residential Funding Mortgage Securities I  
Series 2004-HI2, Class A4, 5.24%, 9/25/18     2,000,000       1,992,026    
Series 2003-HI4, Class M1, 5.53%, 2/25/29 (b) (j)     2,327,000       2,254,554    
              8,957,849    
Manufactured Housing — 1.5%  
Green Tree Financial, Series 1994-2, Class A5, 8.30%, 5/15/19 (j)     444,181       447,421    
Origen Manufactured Hsg, Series 2005-B, Class M1, 5.99%, 1/15/37     750,000       749,198    
              1,196,619    
Total Asset-Backed Securities
(cost: $10,420,328)		             10,261,548    
Collateralized Mortgage Obligation-U.S. Agency Mortgage-Backed Securities — 12.7%  
Fixed Rate – 7.7%  
Federal Home Loan Mortgage Corporation  
Series 2690, Class OE, 5.00%, 11/15/28 (h)     1,274,000       1,241,781    
Federal National Mortgage Association  
Series 2004-27, Class HB, 4.00%, 5/25/19 (j)     1,923,137       1,724,343    
Series 2004-29, Class WG, 4.50%, 5/25/19     942,115       871,782    
Series 2004-90, Class GA, 4.35%, 3/25/34     970,822       929,439    
Series 2002-WI, Class 2A, 7.50%, 2/25/42 (j)     620,122       634,920    
Freddie Mac, Series 2972  
Class KA, 4.50%, 6/15/18     1,044,067       1,019,714    
              6,421,979    
Z-Bonds (e) — 5.0%  
Federal Home Loan Mortgage Corporation  
Series 2676, Class GZ, 4.50%, 9/15/33     1,690,047       1,396,760    
Government National Mortgage Association  
Series 2001-8, Class Z, 6.50%, 3/20/31 (h)     2,750,735       2,809,349    
              4,206,109    
Total Collateralized Mortgage Obligation-U.S. Agency Mortgage-Backed Securities
(cost: $10,299,575)		             10,628,088    
Corporate Bonds — 1.4%  
Basic Industry — 0.3%  
Vale Overseas, 6.25%, 1/11/16 (b)     250,000       255,000    
Communications — 0.2%  
AT&T, 9.05% through 5/15/06 thereafter 7.30%, 11/15/11 (b)     142,000       155,444    
Consumer NonCyclical — 0.3%  
Glencore Funding, 6.00%, 4/15/14 (c)     250,000       234,211    
Transportation — 0.6%  
American Airlines, Series 99-1, 7.02%, 10/15/09     500,000       517,500    
Total Corporate Bonds
(cost: $1,122,302)		             1,162,155    

 

See accompanying Notes to Schedule of Investments.

2006 Semiannual Report

American Income Fund

16


American Income Fund  February 28, 2006

Description of Security   Shares/
Par Value		  
Value (a)		  
Short-Term Investments — 2.7%  
Affiliated Money Market Fund — 2.6%  
First American Prime Obligations Fund, Class Z (l)     2,172,757     $ 2,172,757    
U.S. Treasury Obligations — 0.1%  
U.S. Treasury Bill, 4.31%, 4/20/06 (m)   $ 65,000       64,611    
U.S. Treasury Bill, 4.46%, 5/18/06 (m)     40,000       39,614    
Total U.S. Treasury Obligations
(cost: $104,225)		             104,225    
Total Short-Term Investments
(cost: $2,276,982)		             2,276,982    
Total Investments in Securities (n) — 123.7%
(cost: $103,460,308)		           $ 103,375,257    

 

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) – Securities for which the coupon rate of interest will adjust on specified future date(s).

(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. As of February 28, 2006, the value of these investments was $10,424,321 or 12.5% of net assets. See note 2 in Notes to Financial Statements.

(d)  Interest only – Represents securities that entitle holders to receive only interest payments on the underlying mortgages. The yield to maturity of an interest only is extremely sensitive to the rate of principal payments on the underlying mortgage assets. A rapid (slow) rate of principal repayments may have an adverse (positive) effect on yield to maturity. The principal amount shown is the notional amount of the underlying mortgages. The interest disclosed represents the coupon rate in effect February 28, 2006.

(e)  Z-Bond – Represents securities that pay no interest or principal during their accrual periods, but accrue additional principal at specified rates. Interest rate shown represents the current yield based upon the current cost basis and estimated future cash flows.

(f)  Variable Rate Security – The rate shown is the rate in effect as of February 28, 2006.

(g)  Security considered illiquid. As of February 28, 2006, the value of this investment was $12,875 or 0.02% of net assets. See note 2 in Notes to Financial Statements.

(h)  On February 28, 2006, securities valued at $21,748,108 were pledged as collateral for the following outstanding reverse repurchase agreements:

Amount   Acquisition
Date		   Rate*   Due   Accrued
Interest		   Name of
Broker
and Description
of Collateral		  
$ 8,630,206     2/17/06     4.76 %   5/18/06   $ 102,699       (1 )  
  3,875,850     2/9/06     4.70 %   5/9/06     45,035       (2 )  
  6,646,058     2/15/06     4.68 %   4/17/06     52,703       (2 )  
$ 19,152,114               $ 200,437          

 

*  Interest rate as of February 28, 2006. Rates are based on the London InterBank Offered Rate (LIBOR) and reset monthly.

Name of broker and description of collateral:

  (1)  Goldman:
Federal Home Loan Mortgage Corporation Gold, 5.50%, 10/1/33, $1,366,671 par
Federal Home Loan Mortgage Corporation, 5.00%, 11/15/28, 1,274,000 par
Federal National Mortgage Association, 4.00%, 11/1/10, $2,187,097 par
Federal National Mortgage Association, 4.65%, 10/1/32, $645,286 par
Federal National Mortgage Association, 5.50%, 6/1/33, $916,927 par
Federal National Mortgage Association, 5.50%, 12/1/33, $1,286,398 par
Government National Mortgage Association, 5.50%, 8/15/33, $1,454,494 par

2006 Semiannual Report

American Income Fund

17


Schedule of INVESTMENTS (unaudited) continued

  (2)  Morgan Stanley:
Federal National Mortgage Association, 7.50%, 5/1/15, $78,011 par
Federal National Mortgage Association, 7.00%, 6/1/17, $330,257 par
Federal National Mortgage Association, 7.00%, 7/1/17, $419,087 par
Federal National Mortgage Association, 6.00%, 9/1/17, $369,213 par
Federal National Mortgage Association, 5.00%, 11/1/18, $684,590 par
Federal National Mortgage Association, 5.00%, 2/1/19, $1,103,333 par
Federal National Mortgage Association, 7.00%, 9/1/31, $571,200 par
Federal National Mortgage Association, 6.50%, 6/1/32, $729,200 par
Federal National Mortgage Association, 6.00%, 11/1/33, $672,826 par
Federal National Mortgage Association, 6.00%, 1/1/34, $1,168,472 par
Federal National Mortgage Association, 5.50%, 2/1/34, $1,167,617 par
Federal National Mortgage Association, 6.50%, 2/1/35, $1,380,923 par
Government National Mortgage Association, 6.50%, 3/20/31, $2,750,735 par
Government National Mortgage Association, 5.13%, 12/20/22, $399,734 par
Government National Mortgage Association, 6.00%, 7/15/34, $722,896 par

(i)  This security has been purchased on a when-issued basis. On February 28, 2006, the total cost of investments purchased on a when-issued basis was $1,505,273.

(j)  This security or a portion of this security is pledged as collateral for positions purchased on a when-issued basis. See note 2 in Notes to Financial Statements.

(k)  This security or a portion of this security is pledged as initial margin deposits for open futures contracts. See note 2 in Notes to Financial Statements.

(l)  Investment in affiliated security. This money market fund is advised by U.S. Bancorp Asset Management, Inc., which also serves as advisor for this fund. See note 3 in Notes to Financial Statements.

(m)  Security has been deposited as initial margin on open futures contracts. Yield shown is effective yield at date of purchase. See note 2 in Notes to Financial Statements.

(n)  On February 28, 2006, the cost of investments in securities for federal income tax purposes was $103,460,308. The aggregate gross unrealized appreciation and depreciation of investments in securities, based on this cost, were as follows:

Gross unrealized appreciation   $ 1,617,796    
Gross unrealized depreciation     (1,702,847 )  
Net unrealized depreciation   $ (85,051 )  
Schedule of Open Futures Contracts  

 

Description   Number of
Contracts
(Sold)		   Notional
Contract
Value		   Settlement
Month		   Unrealized
Appreciation
(Depreciation)		  
U.S. 20 Year Treasury Long Bond Futures     (5 )   $ (500,000 )   Jun-06   $ (1,027 )  
U.S. 5 Year Treasury Note Futures     (46 )     (4,600,000 )   Jun-06     3,804    
U.S. 10 Year Treasury Note Futures     (25 )     (2,500,000 )   Jun-06     3,457    
90 Day Eurodollar Futures     (15 )     (15,000,000 )   Dec-06     9,510    
      (91 )   $ (22,600,000 )       $ 15,744    

 

2006 Semiannual Report

American Income Fund

18



NOTICE TO SHAREHOLDERS (unaudited)

How to Obtain a Copy of the Fund's Proxy Voting Policies and Proxy Voting Record

A description of the policies and procedures that the fund uses to determine how to vote proxies relating to portfolio securities, as well as information regarding how the fund voted proxies relating to portfolio securities during the most recent 12 month period ended June 30, is available (1) without charge upon request by calling 800.677.FUND; (2) at www.firstamericanfunds.com; and (3) on the U.S. Securities and Exchange Commission's website at http://www.sec.gov.

Form N-Q Holdings Information

The fund is required to file its complete schedule of portfolio holdings for the first and third quarters of each fiscal year with the Securities and Exchange Commission on Form N-Q. The fund's Forms N-Q are available (1) without charge upon request by calling 800.677.FUND and (2) on the U.S. Securities and Exchange Commission's website at http://www.sec.gov. In addition, you may review and copy the fund's Forms N-Q at the Commissions Public Reference Room in Washington D.C. You may obtain information on the operation of the Public Reference Room by calling 1-800-SEC-0330.

2006 Semiannual Report

American Income Fund

19


(This page has been left blank intentionally.)



 

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.
Retired; former Senior Vice President, Chief Financial Officer, and
Treasurer of Bemis Company, Inc.

 

ROGER GIBSON

Director of American Income Fund, Inc.
Retired; former 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.

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’s Board of Directors is comprised entirely of independent directors.

 


 

 

AMERICAN INCOME FUND

2006 Semiannual Report

 

FAF Advisors, Inc., is a wholly owned subsidiary of
U.S. Bank National Association, which is a
wholly owned subsidiary of U.S. Bancorp.

 

This document is printed on paper

containing 10% postconsumer waste.

 

4/2006 0070-06 MRF-SAR

 


 

Item 2—Code of Ethics

 

Not applicable to semi-annual report.

 

Item 3—Audit Committee Financial Expert

 

Not applicable to semi-annual report.

 

Item 4—Principal Accountant Fees and Services

 

Not applicable to semi-annual report.

 

Item 5—Audit Committee of Listed Registrants

 

Not applicable to semi-annual report.

 

Item 6 – Schedule of Investments

 

This schedule is included as part of the report to shareholders filed under Item 1 of this Form.

 

Item 7—Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies

 

Not applicable to semi-annual report.

 

Item 8 – Portfolio Managers of Closed-End Management Investment Companies

 

Not applicable until first annual report for a fiscal year ending on or after December 31, 2005.

 

Item 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers

 

Neither the registrant nor any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the Exchange Act, purchased any shares or other units of any class of the registrant’s equity securities that is registered pursuant to Section 12 of the Exchange Act.

 

Item 10 – Submission of Matters to a Vote of Security Holders

 

There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of directors, 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, or this Item.

 

Item 11 – Controls and Procedures

 

(a) 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.

 

(b) There were no changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

Item 12 – Exhibits

 

(a)(1) Not applicable.

 

(a)(2) Certifications of the Principal Executive Officer and Principal Financial Officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act are filed as exhibits hereto.

 

(a)(3) Not applicable.

 

(b) Certifications of the Principal Executive Officer and Principal Financial Officer of the registrant as required by Rule 30a-2(b) under the Investment Company Act are filed 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 Income Fund, Inc.

 

By:

 /s/ Thomas S. Schreier, Jr.

 

Thomas S. Schreier, Jr.

President

 

Date: May 8, 2006

 

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: May 8, 2006

 

By:

 /s/ Charles D. Gariboldi

 

Charles D. Gariboldi

Treasurer

 

Date: May 8, 2006