<PAGE>
[LOGO OF THE AMERICAN FUNDS GROUP (R)]
- --------------------------------------------------------------------------------
The Income Fund
of America
Prospectus
DECEMBER 1, 1996
<PAGE>
THE INCOME FUND OF AMERICA
One Market
Steuart Tower, Suite 1800
San Francisco, CA 94105
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Expenses 1
.........................................
Financial Highlights 2
.........................................
Investment Policies and
Risks 3
.........................................
Securities and Investment
Techniques 4
.........................................
Multiple Portfolio
Counselor System 8
Investment Results 10
.........................................
Dividends, Distributions and Taxes 11
.........................................
Fund Organization and Management 12
.........................................
Shareholder Services 15
</TABLE>
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The fund's investment objective is to emphasize current income while
secondarily striving to attain capital growth. The fund strives to accomplish
this objective by investing in a broadly diversified portfolio of securities
including stocks and bonds.
This prospectus presents information you should know before investing in the
fund. You should keep it on file for future reference.
More detailed information about the fund, including the fund's financial
statements, is contained in the statement of additional information dated
December 1, 1996, which has been filed with the Securities and Exchange
Commission and is available to you without charge, by writing to the Secretary
of the fund at the above address or calling American Funds Service Company.
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU INTEND TO INVEST FOR A SHORTER PERIOD OF TIME. YOUR INVESTMENT IN THE
FUND IS NOT A DEPOSIT OR OBLIGATION OF, OR INSURED OR GUARANTEED BY, ANY ENTITY
OR PERSON INCLUDING THE U.S. GOVERNMENT AND THE FEDERAL DEPOSIT INSURANCE
CORPORATION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
06-010-1296
<PAGE>
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EXPENSES
The effect of the expenses described below is reflected in the fund's share
price or return.
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Annual fund operating expenses are paid out of the fund's
assets and are factored into its share price.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum sales charge on purchases (as a percentage of offering price).... 5.75%
</TABLE>
SALES CHARGES ARE REDUCED OR ELIMINATED FOR LARGER PURCHASES. The fund has no
sales charge on reinvested dividends, and no deferred sales charge or
redemption or exchange fees. A contingent deferred sales charge of 1% applies
on certain redemptions made within 12 months following purchases without a
sales charge.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
- ------------------------------------
<S> <C>
Management fees .30%
....................................
12b-1 expenses .23%*
....................................
Other expenses .09%
....................................
Total fund operating expenses .62%
</TABLE>
* 12b-1 expenses may not exceed 0.25% of the fund's average net assets
annually. Due to these distribution expenses, long-term shareholders may pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
EXAMPLES
Assuming a hypothetical annual return of 5% and shareholder transaction and
operating expenses as described above, for every $1,000 you invested, you would
pay the following total expenses over the following periods:
- ------------------------------------
<TABLE>
<S> <C>
One year $ 63
....................................
Three years $ 76
....................................
Five years $ 90
....................................
Ten years $130
</TABLE>
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY.
THE INCOME FUND OF AMERICA / PROSPECTUS 1996 1
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FINANCIAL HIGHLIGHTS
The following information has been derived from the fund's financial statements
which have been audited by Deloitte and Touche llp, independent auditors. This
table should be read together with the financial statements which are included
in the statement of additional information and annual report. In addition, more
detailed information regarding the fund's investment strategies and results is
contained in the fund's annual report which may be obtained without charge by
writing to the Secretary of the fund at the address indicated on the cover of
this prospectus.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
YEARS ENDED JULY 31
...................
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $14.92 $13.59 $14.47 $13.94 $12.54 $12.11 $13.20 $11.50 $12.54 $12.11
- --------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .87 .85 .83 .85 .85 .86 .82 .90 .82 .82
........................................................................................................
Net realized and
unrealized gain (loss)
on investments 1.11 1.29 (.53) .74 1.48 .53 (.67) 1.68 (.68) 1.08
........................................................................................................
Total income from
investment operations 1.98 2.14 .30 1.59 2.33 1.39 .15 2.58 .14 1.90
- --------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net
investment income (.83) (.75) (.83) (.84) (.85) (.89) (.87) (.88) (.80) (.88)
........................................................................................................
Distributions from net
realized gains (.18) (.06) (.35) (.22) (.08) (.07) (.37) (--) (.38) (.59)
........................................................................................................
Total distributions (1.01) (.81) (1.18) (1.06) (.93) (.96) (1.24) (.88) (1.18) (1.47)
........................................................................................................
Net Asset Value, End of
Year $15.89 $14.92 $13.59 $14.47 $13.94 $12.54 $12.11 $13.20 $11.50 $12.54
........................................................................................................
Total Return /1/ 13.46% 16.42% 1.98% 11.88% 19.16% 12.24% 1.12% 23.43% 1.71% 16.67%
</TABLE>
/1/ Excludes maximum sales charge of 5.75%.
2 THE INCOME FUND OF AMERICA / PROSPECTUS 1996
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<TABLE>
<CAPTION>
YEARS ENDED JULY 31
...................
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL
DATA:
Net assets,
end of year
(in millions) $14,459 $12,290 $10,537 $9,045 $5,121 $2,771 $2,110 $1,271 $ 925 $ 943
.................................................................................................
Ratio of expenses
to average net assets .62% .65% .63% .62% .66% .73% .67% .69% .55% .54%
.................................................................................................
Ratio of net income to
average net assets 5.56% 6.12% 5.92% 6.05% 6.40% 7.23% 7.36% 7.45% 7.14% 6.55%
.................................................................................................
Portfolio turnover rate 37.77% 26.26% 26.42% 29.18% 22.71% 23.35% 18.90% 34.38% 42.83% 38.73%
- -------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT POLICIES AND RISKS
The investment objective of the fund is to emphasize current income while
secondarily striving to attain capital growth. Because the fund invests in
stocks and bonds it is subject to certain risks.
The portfolio of the fund is managed to earn current income on, and to
anticipate long-term capital growth of, the portfolio as a whole rather than
any individual security in it. Generally, substantially all of the fund's
portfolio will be invested in income-producing securities; however, the fund
under normal market conditions will maintain at least 65% of the value of its
total assets in income-producing securities. The relative percentages of each
type of security in the portfolio may be expected to fluctuate. Normally, at
least 60% of the fund will be invested in equity securities; however, at times
the fund may be invested solely in fixed-income securities or solely in equity
securities including securities convertible into common stock. A COMPLETE
DESCRIPTION OF THE FUND'S INVESTMENT POLICIES IS CONTAINED IN ITS STATEMENT OF
ADDITIONAL INFORMATION.
The fund's investment restrictions (which are described in the statement of
additional information as fundamental) and objective may not be changed without
shareholder approval. All other investment practices may be changed by the
fund's board of directors.
ACHIEVEMENT OF THE FUND'S INVESTMENT OBJECTIVE CANNOT, OF COURSE, BE ASSURED
DUE TO THE RISK OF CAPITAL LOSS FROM FLUCTUATING PRICES INHERENT IN ANY
INVESTMENT IN SECURITIES.
THE INCOME FUND OF AMERICA / PROSPECTUS 1996 3
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SECURITIES AND INVESTMENT TECHNIQUES
[CHART]
The following chart illustrates the asset mix of the fund's investment
portfolio as of the end of the fund's fiscal year.
U.S. Equity-Type Securities 56.7%
Non U.S. Equity-Type Securities 4.0%
Debt Securities 32.9%
Cash & Equivalents 6.4%
Also includes 0.4% in Canadian equities that are part of the S&P500.
[END CHART]
EQUITY SECURITIES
Equity securities represent an ownership position in a company. These
securities may include common stocks, preferred stocks, and securities with
equity conversion or purchase rights. Although equity securities have a history
of long-term growth in value, their prices fluctuate based on changes in a
company's financial condition and on overall market and economic conditions,
and the fund's results will be related to the overall market for these
securities.
DEBT SECURITIES
Bonds and other debt securities are used by issuers to borrow money. The issuer
pays the investor a fixed or variable rate of interest, and must repay the
amount borrowed at maturity. Some debt securities, such as zero coupon bonds,
do not pay current interest, but are purchased at a discount from their face
values.
In general, bond prices rise when interest rates fall, and vice versa. Debt
securities have varying levels of sensitivity to changes in interest rates and
varying degrees of quality as measured by Moody's Investors Service, Inc.
(which rates bonds from Aaa to C) or Standard & Poor's Corporation (which rates
bonds from AAA to D) or as rated by the fund's investment adviser. Longer-term
bonds are generally more sensitive to interest rate changes than short-term
bonds. In addition, the fund may invest in cash and cash equivalents. Finally,
the fund may invest to a limited extent (no more than 1 1/2% of its assets) in
inverse floating rate notes.
The fund may invest up to 20% of its total assets in debt securities rated Ba
and BB or below. These securities are commonly known as "high-yield, high-risk"
or
4 THE INCOME FUND OF AMERICA / PROSPECTUS 1996
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"junk" bonds. High-yield, high-risk bonds are described by the rating agencies
as speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness, or they may already be in default.
Capital Research and Management Company believes that these securities possess
many characteristics similar to equity securities. The market prices of these
securities may fluctuate more than higher-quality securities and may decline
significantly in periods of general economic difficulty. It may be more
difficult to dispose of, or to determine the value of, high-yield, high-risk
bonds. The fund's high-yield, high-risk securities may be rated as low as Ca or
CC which are described by the rating agencies as "speculative in a high degree;
often in default or [having] other marked shortcomings." See the statement of
additional information for a complete description of the bond ratings. The 20%
limit shall not apply to debt securities that have equity conversion or
purchase rights.
Capital Research and Management Company attempts to reduce the risks described
above through diversification of the portfolio and by credit analysis of each
issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
During the previous fiscal year, the monthly average percentage of the fund's
net assets in fixed-income investments was 35%. The average monthly composition
of the fund's portfolio based on the higher of Moody's or S&P ratings for the
fiscal year ended July 31, 1996 was as follows:
<TABLE>
- ----------------------------------
<S> <C>
Aaa/AAA 13.16%
..................................
Aa/AA 0.40%
..................................
A/A 2.00%
..................................
Baa/BBB 3.94%
..................................
Ba/BB 5.96%
..................................
B/B 8.04%
..................................
Caa/CCC 0.88%
..................................
Non-rated 0.59%
</TABLE>
THE INCOME FUND OF AMERICA / PROSPECTUS 1996 5
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Some or all of these non-rated securities were determined to be equivalent to
securities rated by Moody's or S&P as follows:
<TABLE>
- ------------------------------
<S> <C>
A/A 0.10%
..............................
Baa/BBB 0.04%
..............................
Ba/BB 0.16%
..............................
B/B 0.19%
..............................
Caa/CCC 0.10%
</TABLE>
..............................
Money market instruments and cash made up an average of 8.72% of the fund's
portfolio.
CONVERTIBLE SECURITIES
Convertible securities are securities having both debt and equity
characteristics and can include corporate bonds, notes or preferred stocks. The
convertible security typically gives its holder the right to exchange the
security for a fixed number of shares of common stock. Convertible securities
may have lower yields compared to similar securities without convertible
characteristics. In addition, they may be more susceptible to the type of
market fluctuations common to equity securities.
ASSET-BACKED SECURITIES
The fund may invest in various asset-backed securities. These securities
include mortgage-backed obligations such as those issued by the Government
National Mortgage Association, the Federal National Mortgage Association and
the Federal Home Loan Mortgage Corporation as well as collateralized mortgage
obligations and mortgage-backed bonds. They also can include obligations backed
by pools of motor vehicle retail installment sales contracts, security
interests in the vehicles servicing the contracts, a pool of credit card loan
receivables and other types of assets.
PRIVATE PLACEMENTS
Private placements may be either purchased from another institutional investor
that originally acquired the securities in a private placement or directly from
the issuers of the securities. Generally, securities acquired in private
placements are subject to contractual restrictions on resale and may not be
resold except pursuant to a registration statement under the Securities Act of
1933 or in reliance upon an exemption from the registration requirements under
the Act,
6 THE INCOME FUND OF AMERICA / PROSPECTUS 1996
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for example, private placements sold pursuant to Rule 144A. Accordingly, all
private placements will be considered illiquid unless they have been
specifically determined to be liquid taking into account factors such as the
frequency and volume of trading and the commitment of dealers to make markets
under procedures adopted by the fund's board of directors. Additionally, the
liquidity of any particular security will depend on such factors as the
availability of "qualified" institutional investors and the extent of investor
interest in the security, which can change from time to time.
FORWARD COMMITMENTS
The fund may purchase securities on a when-issued or delayed-delivery basis or
sell them on a delayed-delivery basis and enter into firm commitment
agreements. These are trading practices in which payment and delivery for the
securities take place at a future date. When the fund purchases such securities
it assumes the risk of any decline in value of the security beginning on the
date of the agreement or purchase. When the fund sells such securities, it does
not participate in further gains or losses with respect to the security. If the
other party to a delayed-delivery transaction fails to deliver or pay for the
securities, the fund could miss a favorable price or yield opportunity, or
could suffer a loss. In addition, the fund may also enter into "roll"
transactions which generally are the sale of a security by the fund and its
agreement to purchase the security or a similar security at a specified time
and price at a later date. The fund assumes the rights and risks of ownership,
including the risk of price and yield fluctuations as of the time of the
agreement.
INVESTING IN VARIOUS COUNTRIES
The fund may invest in securities of issuers domiciled outside the U.S. Up to
10% of the fund's total assets may be invested in non-U.S. equity and equity-
type securities which are not included in the Standard & Poor's 500 Composite
Index, and up to 10% may be invested in non-U.S. debt securities payable in
U.S. dollars. Non-U.S. issuers may not be subject to uniform accounting,
auditing and financial reporting standards and practices or regulatory
requirements comparable to those applicable to U.S. issuers. There may also be
less public information available about certain non-U.S. issuers. Additionally,
specific local political and economic factors must be evaluated in making these
investments including trade balances and imbalances, and related economic
policies; expropriation or confiscatory taxation; limitations on the removal of
funds or other assets; political or social instability; the diverse structure
and liquidity of the various securities markets; and nationalization policies
of governments around the world. However, investing outside the U.S. can also
THE INCOME FUND OF AMERICA / PROSPECTUS 1996 7
<PAGE>
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reduce certain risks due to greater diversification opportunities. Finally, the
fund may purchase and sell currencies to facilitate transactions in equity and
equity-type securities denominated in currencies other than U.S. dollars.
- --------------------------------------------------------------------------------
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
The basic investment philosophy of Capital Research and Management Company is
to seek fundamental values at reasonable prices, using a system of multiple
portfolio counselors in managing mutual fund assets. Under this system the
portfolio of the fund is divided into segments which are managed by individual
counselors. Counselors decide how their respective segments will be invested
(within the limits provided by the fund's objective and policies and by Capital
Research and Management Company's investment committee). In addition, Capital
Research and Management Company's research professionals make investment
decisions with respect to a portion of the fund's portfolio. The primary
individual portfolio counselors for the fund are listed on the following page.
88 THE INCOME FUND OF AMERICA / PROSPECTUS 1996
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<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
.........................
YEARS OF EXPERIENCE
AS PORTFOLIO COUNSELOR WITH CAPITAL
(AND RESEARCH PROFESSIONAL, RESEARCH AND
PORTFOLIO COUNSELORS IF APPLICABLE) FOR THE MANAGEMENT
FOR THE INCOME FUND INCOME FUND OF AMERICA, INC. COMPANY OR
OF AMERICA, INC. PRIMARY TITLE(S) (APPROXIMATE) ITS AFFILIATES TOTAL YEARS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STEPHEN Senior Vice 12 years (in 24 years 30 years
E. President addition to 11
BEPLER of the fund. years as a
Senior Vice research
President, professional
Capital prior to
Research becoming a
Company* portfolio
counselor for
the fund)
- -----------------------------------------------------------------------------------------------
ABNER D. Senior Vice 23 years 29 years 44 years
GOLDSTINE President
of the fund.
Senior Vice
President and
Director,
Capital
Research and
Management
Company
- -----------------------------------------------------------------------------------------------
GREGG E. Vice President, 7 years (in 23 years 23 years
IRELAND Capital addition to
Research and 5 years as a
Management research
Company professional
prior to
becoming a
portfolio
counselor for
the fund)
- -----------------------------------------------------------------------------------------------
JANET A. President of 3 years (in 14 years 20 years
MCKINLEY the fund. addition to
Senior Vice 8 years as a
President, research
Capital professional
Research prior to
Company* becoming a
portfolio
counselor for
the fund)
- -----------------------------------------------------------------------------------------------
DINA N. Vice President 4 years 5 years 29 years
PERRY of the fund.
Vice President,
Capital
Research and
Management
Company
- -----------------------------------------------------------------------------------------------
RICHARD Senior Vice 18 years 19 years 29 years
T. President
SCHOTTE of the fund.
Senior Vice
President,
Capital
Research and
Management
Company
- -----------------------------------------------------------------------------------------------
JOHN H. Vice President 4 years 13 years 14 years
SMET of the fund.
Vice President,
Capital
Research and
Management
Company
</TABLE>
* Company affiliated with Capital Research and Management Company.
THE INCOME FUND OF AMERICA / PROSPECTUS 1996 9
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INVESTMENT RESULTS
The fund may from time to time compare investment results to various indices or
other mutual funds. Fund results may be calculated on a total return, yield,
and/or distribution rate basis. Results calculated without a sales charge will
be higher.
X TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gain
distributions.
X YIELD refers to the income the fund expects to earn based on its current
portfolio over a given period of time, expressed as an annual percentage
rate. Because yield is calculated using a formula mandated by the Securities
and Exchange Commission, this yield may be different than the income
actually paid to shareholders.
X DISTRIBUTION RATE reflects dividends that were paid by the fund. The
distribution rate is calculated by dividing the dividends paid over the last
12 months by the sum of the month-end price and the capital gain
distributions paid over the last 12 months.
INVESTMENT RETURNS
(AS OF SEPTEMBER 30, 1996)
<TABLE>
<CAPTION>
FUND/1/ BOND INDEX/2/ S&P 500/3/
- --------------------------------------------------------
<S> <C> <C> <C>
AVERAGE ANNUAL
COMPOUND RETURNS:
........................................................
One year + 7.48% +4.90% +20.32%
........................................................
Five years +11.44% +7.46% +15.21%
........................................................
Ten years +11.21% +8.50% +14.96%
........................................................
Lifetime +13.47% +9.25%/4/ +13.46%
- --------------------------------------------------------
OTHER FUND RETURNS/1/:
........................................................
30-Day Yield: 4.84% Distribution Rate: 4.86%
</TABLE>
/1/ These fund results were calculated according to a standard that is required
for all stock and bond funds. The maximum sales charge has been deducted.
/2/ Lehman Brothers Aggregate Bond Index represents investment grade debt. This
index is unmanaged and does not reflect sales charges, commissions or
expenses.
/3/ The Standard & Poor's 500 Index represents stocks. This index is unmanaged
and does not reflect sales charges, commissions or expenses.
/4/ From December 1, 1973 through July 31, 1976, the Lehman Brothers Corporate
Bond Index was used because the Lehman Brothers Aggregate Bond Index did not
yet exist.
10 THE INCOME FUND OF AMERICA / PROSPECTUS 1996
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[CHART]
Here are the fund's annual total returns calculated without a sales charge.
This information is being supplied on a calendar year basis for comparative
purposes. The fund recorded positive returns in each of the last ten fiscal
years (which end in July).
86 - 15.25%
87 - 0.72%
88 - 14.79%
89 - 22.99%
90 - -3.03%
91 - 23.78%
92 - 12.03%
93 - 14.01%
94 - -2.50%
95 - 29.08%
[END CHART]
Past results are not an indication of future results.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The fund pays dividends four times each year (usually in March, June, September
and December). The first three are generally of the same size and the fourth
can vary in amount. Capital gains, if any, are usually distributed in December.
When a dividend or capital gain is distributed, the net asset value per share
is reduced by the amount of the payment.
FEDERAL TAXES
In any fiscal year in which the fund qualifies as a regulated investment
company and distributes to shareholders all of its net investment income and
net capital gains, the fund itself is relieved of federal income tax.
All dividends and capital gains are taxable whether they are reinvested or
received in cash -- unless you are exempt from taxation or entitled to tax
deferral. Early each year, you will be notified as to the amount and federal
tax status of all income distributions paid during the prior year. Such
distributions may also be subject to state or local taxes.
THE INCOME FUND OF AMERICA / PROSPECTUS 1996 11
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YOU MUST PROVIDE THE FUND WITH A CERTIFIED CORRECT TAXPAYER IDENTIFICATION
NUMBER (GENERALLY YOUR SOCIAL SECURITY NUMBER) AND CERTIFY THAT YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING. IF YOU FAIL TO DO SO THE IRS CAN REQUIRE THE
FUND TO WITHHOLD 31% OF YOUR TAXABLE DISTRIBUTIONS AND REDEMPTIONS. Federal law
also requires the fund to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
This is a brief summary of some of the tax laws that affect your investment in
the fund. Please see the statement of additional information and your tax
adviser for further information.
- --------------------------------------------------------------------------------
FUND ORGANIZATION AND MANAGEMENT
FUND ORGANIZATION AND VOTING RIGHTS
The fund, an open-end, diversified management investment company, was organized
as a Delaware corporation in 1969 and reorganized as a Maryland corporation in
1983. All fund operations are supervised by the fund's board of directors who
meet periodically and perform duties required by applicable state and federal
laws. Members of the board who are not employed by Capital Research and
Management Company or its affiliates are paid certain fees for services
rendered to the fund as described in the statement of additional information.
They may elect to defer all or a portion of these fees through a deferred
compensation plan in effect for the fund. The fund does not hold annual
meetings of shareholders. However, significant corporate matters which require
shareholder approval, such as certain elections of board members or a change in
a fundamental investment policy, will be presented to shareholders at a meeting
called for such purpose. Shareholders have one vote per share owned.
THE INVESTMENT ADVISER
Capital Research and Management Company, a large and experienced investment
management organization founded in 1931, is the investment adviser to the fund
and other funds, including those in The American Funds Group. Capital Research
and Management Company, a wholly owned subsidiary of The Capital Group
Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA
90071. Capital Research and Management Company manages the investment portfolio
and business affairs of the fund. The management fee paid by the fund to
Capital Research and Management Company is composed of a basic management fee
which may not exceed 0.24%
12 THE INCOME FUND OF AMERICA / PROSPECTUS 1996
<PAGE>
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of the fund's average net assets annually and declines at certain asset levels
and 2.25% of the fund's gross investment income for the preceding month. The
total management fee paid by the fund for the previous fiscal year is listed
above under "Expenses."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. (See the statement of
additional information.) This policy has also been incorporated into the fund's
"code of ethics" which is available from the fund's Secretary upon request.
PLAN OF DISTRIBUTION
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the board and the expenses paid under the
plan were incurred within the preceeding 12 months and accrued while the plan
is in effect. The 12b-1 fee paid by the fund for the last fiscal year is listed
above under "Expenses."
PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by Capital
Research and Management Company, which strives to obtain the best available
prices, taking into account the costs and quality of executions. Fixed-income
securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are usually purchased at a fixed price which includes an
amount of compensation to the dealer, generally referred to as a concession or
discount. On occasion, securities may be purchased directly from an issuer, in
which case no commissions or discounts are paid. In the over-the-counter
market, purchases and sales are transacted directly with principal market-
makers except in those circumstances where it appears better prices and
executions are available elsewhere.
Subject to the above policy, when two or more brokers are in a position to
offer comparable prices and executions, preference may be given to brokers who
have sold shares of the fund or have provided investment research, statistical,
and other related services for the benefit of the fund and/or other funds
served by Capital Research and Management Company.
THE INCOME FUND OF AMERICA / PROSPECTUS 1996 13
<PAGE>
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PRINCIPAL UNDERWRITER AND TRANSFER AGENT
American Funds Distributors, Inc. and American Funds Service Company serve as
the principal underwriter and transfer agent for the fund, respectively. They
are headquartered at 333 South Hope Street, Los Angeles, CA 90071 and 135 South
State College Boulevard, Brea, CA 92821, respectively.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
[MAP OF UNITED STATES OF AMERICA]
14 THE INCOME FUND OF AMERICA / PROSPECTUS 1996
<PAGE>
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SHAREHOLDER SERVICES
The fund offers you a valuable array of services you can use to alter your
investment program as your needs and circumstances change. These services,
which are summarized below, are available only in states where they may be
legally offered and may be terminated or modified at any time upon 60 days'
written notice. A COMPLETE DESCRIPTION OF SHAREHOLDER SERVICES AND ACCOUNT
POLICIES IS CONTAINED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION. In
addition, an easy-to-read guide to owning a fund in The American Funds Group
titled "Welcome to the Family" is sent to new shareholders and is available by
writing or calling American Funds Service Company.
- --------------------------------------------------------------------------------
PURCHASING SHARES
HOW TO PURCHASE SHARES
You may open an account by contacting any investment dealer authorized to sell
the fund's shares. You may add to your account through your dealer or directly
through American Funds Service Company by mail, wire, or bank debit. You may
also establish or add to your account by exchanging shares from any of your
other accounts in The American Funds Group. The fund and American Funds
Distributors reserve the right to reject any purchase order.
Various purchase options are available as described below subject to certain
investment minimums and limitations described in the statement of additional
information and "Welcome to the Family."
X Automatic Investment Plan
You may invest monthly or quarterly through automatic withdrawals from your
bank account.
X Automatic Reinvestment
You may reinvest your dividends and capital gain distributions into the
fund (with no sales charge). This will be done automatically unless you
elect to have the dividends and/or capital gain distributions paid to you
in cash.
X Cross-Reinvestment
You may invest your dividend and capital gain distributions into any other
fund in The American Funds Group.
THE INCOME FUND OF AMERICA / PROSPECTUS 1996 15
<PAGE>
===============================================================================
X Exchange Privilege
You may exchange your shares into other funds in The American Funds Group
generally with no sales charge. Exchanges of shares from the money market
funds that were initially purchased with no sales charge will generally be
subject to the appropriate sales charge. You may also elect to
automatically exchange shares among any of the funds in The American Funds
Group. Exchange requests may be made in writing, by telephone including
American FundsLine(R) (see below) or by fax. EXCHANGES HAVE THE SAME TAX
CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
X Retirement Plans
You may invest in the funds through various retirement plans. For further
information contact your investment dealer or American Funds Distributors.
SHARE PRICE
The fund's share price, also called net asset value, is determined as of the
close of trading (normally 4:00 p.m., Eastern time) every day the New York
Stock Exchange is open. The fund calculates its net asset value per share,
generally using market prices, by dividing the total value of its assets after
subtracting liabilities by the number of its shares outstanding. Shares are
purchased at the offering price next determined after your investment is
received and accepted by American Funds Service Company. The offering price is
the net asset value plus a sales charge, if applicable.
SHARE CERTIFICATES
Shares are credited to your account and certificates are not issued unless you
request them by writing to American Funds Service Company.
16 THE INCOME FUND OF AMERICA / PROSPECTUS 1996
<PAGE>
===============================================================================
INVESTMENT MINIMUMS
<TABLE>
- ----------------------------------------------------------------
<S> <C>
To establish an account $1,000
For a retirement plan account $ 250
For a retirement plan account through payroll deduction $ 50
To add to an account $ 50
For a retirement plan account $ 25
</TABLE>
SALES CHARGES
A sales charge may apply, as described below, when purchasing shares. Sales
charges may be reduced for larger purchases as indicated below.
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF
..................
DEALER
NET CONCESSION AS
OFFERING AMOUNT % OF OFFERING
INVESTMENT PRICE INVESTED PRICE
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
......................................................................
$50,000 but less than $100,000 4.50% 4.71% 3.75%
......................................................................
$100,000 but less than $250,000 3.50% 3.63% 2.75%
......................................................................
$250,000 but less than $500,000 2.50% 2.56% 2.00%
......................................................................
$500,000 but less than $1 million 2.00% 2.04% 1.60%
......................................................................
$1 million or more and certain
other investments described below see below see below see below
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES
Investments of $1 million or more and investments made by employer-sponsored
defined contribution-type plans with 200 or more eligible employees are sold
with no initial sales charge. A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF PURCHASE BY THESE
ACCOUNTS. A dealer concession of up to 1% may be paid by the fund from its Plan
of Distribution on these investments. Investments by retirement plans with $100
million or more in assets may be made with no sales charge and are not subject
to a contingent deferred sales charge. A dealer concession of up to 1% may be
paid by American Funds Distributors on these investments. Investments by
certain individuals and entities including employees and other associated
persons of dealers authorized to sell shares of the fund and Capital
THE INCOME FUND OF AMERICA / PROSPECTUS 1996 17
<PAGE>
===============================================================================
Research and Management Company and its affiliated companies are not subject to
a sales charge.
ADDITIONAL DEALER COMPENSATION
In addition to the concessions listed, up to 0.25% of average net assets is
paid annually to qualified dealers for providing certain services pursuant to
the fund's Plan of Distribution. During 1997, American Funds Distributors will
also provide additional compensation to the top one hundred dealers who have
sold shares of funds in The American Funds Group based on the pro rata share of
a qualifying dealer's sales.
REDUCING YOUR SALES CHARGE
You and your immediate family may combine investments to reduce your costs. You
must let your investment dealer or American Funds Service Company know if you
qualify for a reduction in your sales charge using one or any combination of
the methods described below.
X Aggregation
Investments that may be aggregated include those made by you, your spouse
and your children under the age of 21, if all parties are purchasing shares
for their own account(s), including any business account solely "controlled
by", as well as any retirement plan or trust account solely for the
benefit, of these individuals. Investments made for multiple employee
benefit plans of a single employer or "affiliated" employers may be
aggregated provided they are not also aggregated with individual accounts.
Finally, investments made by a common trust fund or other diversified
pooled account not specifically formed for the purpose of accumulating fund
shares may be aggregated.
Purchases made for nominee or street name accounts will generally not be
aggregated with those made for other accounts unless qualified as described
above.
X Concurrent Purchases
You may combine concurrent purchases of two or more funds in The American
Funds Group, except direct purchases of the money market funds. Shares of
the money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
18 THE INCOME FUND OF AMERICA / PROSPECTUS 1996
<PAGE>
===============================================================================
X Right of Accumulation
You may take into account the current value of our existing holdings in The
American Funds Group to determine your sales charge. Direct purchases of
the money market funds are excluded.
X Statement of Intention
You may enter into a non-binding commitment to invest a certain amount in
non-money market fund shares over a 13-month period. A portion of your
account may be held in escrow to cover additional sales charges which may
be due if your total investments over the statement period are insufficient
to qualify for the applicable sales charge reduction.
- --------------------------------------------------------------------------------
SELLING SHARES
HOW TO SELL SHARES
You may sell (redeem) shares in your account by contacting your investment
dealer or American Funds Service Company. You may also use American
FundsLine(R) (see below). You may also sell shares in amounts of $50 or more
automatically. If you sell shares through your investment dealer you may be
charged for this service. Shares held for you in your dealer's street name must
be sold through the dealer.
Shares are sold at the net asset value next determined after your request is
received and accepted by American Funds Service Company. Sale requests may be
made in writing, by telephone including American FundsLine(R) (see below) or by
fax. Sales by telephone or fax are limited to $10,000 in accounts registered to
individual(s) (including non-retirement trust accounts). In addition, checks
must be made payable to the registered shareholder(s) and mailed to an address
of record that has been used with the account for at least 15 days. Proceeds
will not be mailed until sufficient time has passed to provide reasonable
assurance that checks or drafts (including certified or cashier's check) for
shares purchased have cleared (which may take up to 15 calendar days from the
purchase date). Except for delays relating to clearance of checks for share
purchases or in extraordinary circumstances (and as permissible under the
Investment Company Act of 1940), sale proceeds will be paid on or before the
seventh day following receipt and acceptance of an order. The fund may, with 60
days' written notice, close your account if due to a sale of shares the account
has a value of less than the minimum required initial investment.
THE INCOME FUND OF AMERICA / PROSPECTUS 1996 19
<PAGE>
===============================================================================
Generally, written requests to sell shares must be signed by you and must
include any shares you wish to sell that are in certificate form. Your
signature must be guaranteed by a bank, savings association, credit union, or
member firm of a domestic stock exchange or the National Association of
Securities Dealers, Inc., that is an eligible guarantor institution. A
signature guarantee is not currently required for any sale of $50,000 or less
provided the check is made payable to the registered shareholder(s) and is
mailed to the address of record on the account, provided the address has been
used with the account for at least 15 days. Additional documentation may be
required for sale of shares held in corporate, partnership or fiduciary
accounts.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge in any fund in The American Fund Group
within 90 days after the date of the redemption or distribution. Reinvestment
will be at the next calculated net asset value after receipt and acceptance by
American Funds Service Company.
- --------------------------------------------------------------------------------
OTHER IMPORTANT THINGS TO REMEMBER
AMERICAN FUNDSLINE(R)
You may check your share balance, the price of your shares, or your most recent
account transactions, sell shares (up to $10,000 per fund, per account each
day), or exchange shares around the clock with American FundsLine(R). To use
this service, call 800/325-3590 from a TouchTone(TM) telephone.
TELEPHONE PURCHASES, SALES AND EXCHANGES
Unless you opt out of the telephone (including American FundsLine(R)) or fax
purchase, sale and/or exchange options (see below), you agree to hold the fund,
American Funds Service Company, any of its affiliates or mutual funds managed
by such affiliates, and each of their respective directors, trustees, officers,
employees and agents harmless from any losses, expenses, costs or liability
(including attorney fees) which may be incurred in connection with the exercise
of these privileges provided American Funds Service Company employs reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine. If reasonable procedures are not
employed, the fund may be liable for losses due to unauthorized or fraudulent
instructions.
Generally, all shareholders are automatically eligible to use these options.
However, you may elect to opt out of these options by writing American Funds
20 THE INCOME FUND OF AMERICA / PROSPECTUS 1996
<PAGE>
===============================================================================
Service Company. (You may also reinstate them at any time by writing to
American Funds Service Company.)
ACCOUNT STATEMENTS
You will receive regular confirmation statements reflecting transactions in
your account. Purchases through automatic investment plans and certain
retirement plans will be confirmed at least quarterly.
THE INCOME FUND OF AMERICA / PROSPECTUS 1996 21
<PAGE>
===============================================================================
NOTES
PHONE NUMBERS TO CALL FOR SERVICE AND INFORMATION
Call American Funds Call American Funds Call American
Service Company Distributors FundsLine(R)
for shareholder services for dealer services for 24-hour
800/421-0180 ext. 1 800/421-9900 ext. 11 information
800/325-3590
Telephone conversations may be recorded or monitored for verification,
recordkeeping and quality assurance purposes.
This prospectus has been printed on recycled paper.
[LOGO OF RECYCLED PAPER]
22 THE INCOME FUND OF AMERICA / PROSPECTUS 1996
<PAGE>
Prospectus
for Eligible Retirement Plans
The Income
Fund of
America, Inc.
An opportunity for current income and, secondarily,
growth of capital from a portfolio of both stocks and bonds
DECEMBER 1, 1996
[LOGO OF THE AMERICAN FUNDS GROUP(R)]
THE INCOME FUND OF AMERICA, INC.
One Market
Steuart Tower, Suite 1800
San Francisco, CA 94105
The investment objective of the fund is to emphasize current income while
secondarily striving to attain capital growth. The fund believes that a
portfolio with relatively high current income can also generate growth of
capital. The fund strives to accomplish this objective by investing in a
broadly diversified portfolio of securities including stocks and bonds.
This prospectus relates only to shares of the fund offered without a sales
charge to eligible retirement plans. For a prospectus regarding shares of the
fund to be acquired otherwise, contact the Secretary of the fund at the
address indicated above.
This prospectus presents information you should know before investing in the
fund. It should be retained for future reference.
You may obtain the statement of additional information dated December 1, 1996,
which contains the fund's financial statements and has been filed with the
Securities and Exchange Commission, without charge, by writing to
the Secretary of the fund at the above address or telephoning 800/421-0180.
These requests will be honored within three business days of receipt.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR
GUARANTEED BY, THE U.S. GOVERNMENT, ANY FINANCIAL INSTITUTION, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, OR ANY OTHER AGENCY, ENTITY OR PERSON. THE
PURCHASE OF FUND SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
RP 06-010-1296
<PAGE>
- -------------------------------------------------------------------------------
SUMMARY OF
EXPENSES
Average annual expenses
paid over a 10-year
period would be
approximately $8 per
year, assuming a $1,000
investment and a 5%
annual return.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Expenses.......... 2
Financial Highlights......... 3
Investment Objective and
Policies.................... 3
Certain Securities and
Investment Techniques....... 4
Investment Results........... 7
Dividends, Distributions and
Taxes....................... 7
Fund Organization and
Management.................. 8
Purchasing Shares............ 10
Shareholder Services......... 11
Redeeming Shares............. 11
</TABLE>
This table is designed to help you understand the costs of investing in the
fund. These are historical expenses; your actual expenses may vary.
SHAREHOLDER TRANSACTION EXPENSES
Certain retirement plans may purchase shares of the fund with no sales
charge./1/ The fund also has no sales charge on reinvested dividends, deferred
sales charge, redemption fees or exchange fees.
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
<TABLE>
<S> <C>
Management fees....................................................... 0.30%
12b-1 expenses........................................................ 0.23%/2/
Other expenses (including audit, legal, shareholder services,
transfer agent and custodian expenses).............................. 0.09%
Total fund operating expenses......................................... 0.62%
</TABLE>
Summary of Expenses continued on the following page..
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following cumulative ex-
penses on a $1,000 investment, assuming a 5%
annual return./3/ $6 $20 $35 $77
</TABLE>
/1/ Retirement plans of organizations with $100 million or more in collective
retirement plan assets may purchase shares of the fund with no sales charge.
In addition, any defined contribution plan qualified under Section 401(a) of
the Internal Revenue Code including a "401(k)" plan with 200 or more
eligible employees or any other plan that invests at least $1 million in
shares of the fund (or in combination with shares of other funds in The
American Funds Group other than the money market funds) may purchase shares
at net asset value; however, a contingent deferred sales charge of 1%
applies on certain redemptions within 12 months following such purchases.
(See "Redeeming Shares--Contingent Deferred Sales Charge.")
/2/ These expenses may not exceed 0.25% of the fund's average net assets
annually. (See "Fund Organization and Management--Plan of Distribution.")
Due to these distribution expenses, long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers.
/3/ Use of this assumed 5% return is required by the Securities and Exchange
Commission; it is not an illustration of past or future investment results.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL The following information for the ten years ended July
HIGHLIGHTS 31, 1996 has been derived from financial statements
(For a share which have been audited by Deloitte & Touche llp, inde-
outstanding pendent accountants. This information should be read in
throughout the conjunction with the financial statements and related
fiscal year) notes, which are included in the statement of addi-
tional information.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
---------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of Year........... $14.92 $13.59 $14.47 $13.94 $12.54 $12.11 $13.20 $11.50 $12.54 $12.11
------- ------- ------- ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. .87 .85 .83 .85 .85 .86 .82 .90 .82 .82
Net realized and
unrealized gain
(loss) on investments 1.11 1.29 (.53) .74 1.48 .53 (.67) 1.68 (.68) 1.08
------- ------- ------- ------ ------ ------ ------ ------ ------ ------
Total income from in-
vestment operations. 1.98 2.14 .30 1.59 2.33 1.39 .15 2.58 .14 1.90
------- ------- ------- ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Distributions from net
investment income..... (.83) (.75) (.83) (.84) (.85) (.89) (.87) (.88) (.80) (.88)
Distributions from net
realized gains........ (.18) (.06) (.35) (.22) (.08) (.07) (.37) -- (.38) (.59)
------- ------- ------- ------ ------ ------ ------ ------ ------ ------
Total distributions.. (1.01) (.81) (1.18) (1.06) (.93) (.96) (1.24) (.88) (1.18) (1.47)
------- ------- ------- ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Year................... $15.89 $14.92 $13.59 $14.47 $13.94 $12.54 $12.11 $13.20 $11.50 $12.54
======= ======= ======= ====== ====== ====== ====== ====== ====== ======
Total Return/1/......... 13.46% 16.42% 1.98% 11.88% 19.16% 12.24% 1.12% 23.43% 1.71% 16.67%
RATIOS/SUPPLEMENTAL
DATA:
Net Assets, end of
year (in millions).... $14,459 $12,290 $10,537 $9,045 $5,121 $2,771 $2,110 $1,271 $ 925 $ 943
Ratio of expenses to
average net assets.... .62% .65% .63% .62% .66% .73% .67% .69% .55% .54%
Ratio of net income to
average net assets.... 5.56% 6.12% 5.92% 6.05% 6.40% 7.23% 7.36% 7.45% 7.14% 6.55%
Portfolio turnover
rate.................. 37.77% 26.26% 26.42% 29.18% 22.71% 23.35% 18.90% 34.38% 42.83% 38.73%
</TABLE>
--------
/1/ Calculated with no sales charge.
INVESTMENT The fund's investment objective is to emphasize current
OBJECTIVE income while secondarily striving to attain capital
AND POLICIES growth. The fund believes that a portfolio with rela-
tively high current income can also generate growth of
The fund aims to capital.
provide you with
current income The portfolio of the fund is managed to earn current
while secondarily income on, and to anticipate long-term capital growth
striving for of, the portfolio as a whole rather than any individual
capital growth. security in it. The fund may invest in common and pre-
ferred stocks, straight debt securities (including gov-
ernment securities) or debt securities with equity con-
version or purchase rights, and cash and cash equiva-
lents. In addition, the fund may invest in various
mortgage-related securities including those issued by
the Government National Mortgage Association (GNMA),
the Federal National Mortgage Association (FNMA), and
the Federal Home Loan Mortgage Corporation (FHLMC), and
collateralized mortgage obligations (CMOs) and mort-
gage-backed bonds. The fund may also invest to a very
limited extent in inverse floating rate notes (a type
of derivative instrument). (See the statement of addi-
tional information for a description of cash equiva-
lents, mortgage-related securities and inverse floating
rate notes.) The mix of these securities is determined
on the basis of existing and anticipated conditions.
The relative percentages of each type of security in
the portfolio may be expected to fluctuate and at times
the fund may be invested solely in fixed-income securi-
ties or solely in equity securities. The fund may invest
in securities of issuers domiciled outside the U.S.
Up to 10% of the fund's total assets may be invested
in non-U.S. equity and equity-type securities which are
not included in the Standard & Poor's 500 Composite
Index, and up to 10% may be invested in non-U.S. debt
securities payable in U.S. dollars.
3
<PAGE>
- -------------------------------------------------------------------------------
The fund's straight debt securities may consist of
bonds that are rated, measured at the time of purchase,
as low as CC by Standard & Poor's Corporation or Ca by
Moody's Investors Service, Inc. (or unrated but consid-
ered of similar quality). However, securities rated BB
and Ba or below (or unrated but considered of similar
quality) must represent no more than 20% of the fund's
total assets. Securities rated BB and Ba or below (or
unrated but considered of similar quality) are commonly
referred to as "junk bonds" or "high-yield, high-risk"
bonds. The 20% limit shall not apply to debt securities
that have equity conversion or purchase rights.
During the previous fiscal year, the monthly average
percentage of the fund's net assets in fixed-income in-
vestments was 35%. The average monthly composition of
the fund's portfolio based on the higher of the Moody's
or S&P ratings for the fiscal year ended July 31, 1996
was as follows: Aaa/AAA-13.16%; Aa/AA-0.40%; A/A-2.00%;
Baa/BBB-3.94%; Ba/BB-5.96%; B/B-8.04%; and Caa/CCC-
0.88%.
The fund's investment restrictions (which are described
in the statement of additional information) and objec-
tive cannot be changed without shareholder approval.
All other investment practices may be changed by the
fund's board.
The fund's rate of portfolio turnover will depend pri-
marily on market conditions. The rate of portfolio
turnover will not be a limiting factor when changes are
appropriate.
ACHIEVEMENT OF THE FUND'S INVESTMENT OBJECTIVE CANNOT,
OF COURSE, BE ASSURED DUE TO THE RISK OF CAPITAL LOSS
FROM FLUCTUATING PRICES INHERENT IN ANY INVESTMENT IN
SECURITIES.
CERTAIN RISKS OF INVESTING IN STOCKS AND BONDS Because the fund
SECURITIES AND invests in common stocks or securities convertible into
INVESTMENT common stocks, the fund is subject to stock market
TECHNIQUES risks. For example, the fund is subject to the possi-
bility that stock prices in general will decline over
Investing in short or even extended periods.
stocks and bonds
involves certain The fund also invests in fixed-income securities, in-
risks. cluding bonds, which have market values which tend to
vary inversely with the level of interest rates--when
interest rates rise, their values will tend to decline
and vice versa. Although under normal market conditions
longer term securities yield more than shorter term se-
curities of similar quality, they are subject to
greater price fluctuations. These fluctuations in the
value of the fund's investments will be reflected in
its net asset value per share. The values of high-
yield, high-risk securities may be subject to greater
fluctuations in value than are higher rated securities
because the values of high-yield, high-risk securities
tend to reflect short-term corporate and market devel-
opments and investor perceptions of the issuer's credit
quality to a greater extent. It may be more difficult
to dispose of, or determine the value of, high-yield,
4
<PAGE>
- -------------------------------------------------------------------------------
high-risk securities. See the statement of additional
information for a description of the ratings and for
more information about the risks of high-yield, high-
risk securities. High-yield, high-risk securities rated
CC or Ca generally are described by the rating agencies
as "speculative in a high degree; often in default or
[having] other marked shortcomings."
U.S. GOVERNMENT SECURITIES Securities guaranteed by the
U.S. Government include: (1) direct obligations of the
U.S. Treasury (such as Treasury bills, notes and bonds)
and (2) federal agency obligations guaranteed as to
principal and interest by the U.S. Treasury.
Certain securities issued by U.S. Government instrumen-
talities and certain federal agencies are neither di-
rect obligations of, nor guaranteed by, the Treasury.
However, they generally involve federal sponsorship in
one way or another: some are backed by specific types
of collateral; some are supported by the issuer's right
to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase
certain obligations of the issuer; and others are sup-
ported only by the credit of the issuing government
agency or instrumentality.
WHEN-ISSUED SECURITIES, FIRM COMMITMENT AGREEMENTS AND
"ROLL" TRANSACTIONS The fund may purchase securities on
a delayed delivery or "when-issued" basis and enter
into firm commitment agreements (transactions whereby
the payment obligation and interest rate are fixed at
the time of the transaction but the settlement is
delayed). The fund as purchaser assumes the risk of any
decline in value of the security beginning on the date
of the agreement or purchase. As the fund's aggregate
commitments under these transactions increase, the
opportunity for leverage similarly increases.
The fund also may enter into "roll" transactions, which
consist of the sale of securities together with a com-
mitment (for which the fund typically receives a fee)
to purchase similar, but not identical, securities at a
later date.
PRIVATE PLACEMENTS Private placements may be either
purchased from another institutional investor that
originally acquired the securities in a private place-
ment or directly from the issuers of the securities.
Generally, securities acquired in private placements
are subject to contractual restrictions on resale and
may not be resold except pursuant to a registration
statement under the Securities Act of 1933 or in reli-
ance upon an exemption from the registration require-
ments under the Act, for example, private placements
sold pursuant to Rule 144A. Accordingly, any such obli-
gation will be deemed illiquid unless it has been spe-
cifically determined to be liquid under procedures
adopted by the fund's board of directors.
In determining whether these securities are liquid,
factors such as the frequency and volume of trading and
the commitment of dealers to make markets will be con-
sidered. Additionally, the liquidity of any particular
security will depend on such factors as the availabil-
ity of "qualified" institutional investors and the ex-
tent of investor interest in the security, which can
change from time to time.
RISKS OF INVESTING IN VARIOUS COUNTRIES The fund may
invest in non-U.S. issuers as described above. These
issuers may not be subject to
5
<PAGE>
- -------------------------------------------------------------------------------
uniform accounting, auditing and financial reporting
standards and practices or regulatory requirements com-
parable to those applicable to U.S. issuers. There may
also be less public information available about non-
U.S. issuers. Additionally, specific local political
and economic factors must be evaluated in making these
investments including trade balances and imbalances,
and related economic policies; expropriation or confis-
catory taxation; limitations on the removal of funds or
other assets; political or social instability; the di-
verse structure and liquidity of the various securities
markets; and nationalization policies of governments
around the world. However, investing outside the U.S.
can also reduce certain risks due to greater diversifi-
cation opportunities.
MULTIPLE PORTFOLIO COUNSELOR SYSTEM The basic
investment philosophy of Capital Research and
Management Company is to seek fundamental values at
reasonable prices, using a system of multiple portfolio
counselors in managing mutual fund assets. Under this
system the portfolio of the fund is divided into
segments which are managed by individual counselors.
Each counselor decides how their segment will be
invested (within the limits provided by the fund's
objective and policies and by Capital Research and
Management Company's investment committee). In
addition, Capital Research and Management Company's
research professionals make investment decisions with
respect to a portion of the fund's portfolio. The
primary individual portfolio counselors for the fund
are listed below.
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
YEARS OF EXPERIENCE AS INVESTMENT PROFESSIONAL
PORTFOLIO COUNSELOR (APPROXIMATE)
(AND WITH CAPITAL
RESEARCH PROFESSIONAL, RESEARCH AND
PRIMARY TITLE(S) IF APPLICABLE) FOR MANAGEMENT
PORTFOLIO COUNSELORS THE INCOME FUND OF COMPANY OR
FOR THE INCOME FUND AMERICA, INC. ITS TOTAL
OF AMERICA, INC. (APPROXIMATE) AFFILIATES YEARS
- -----------------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Stephen E. Bepler Senior Vice President of 12 years (in 24 years 30 years
the fund. addition to
Senior Vice President and 11 years as a
Director, Capital Research research professional
Company* prior to becoming a
portfolio counselor
for the fund)
- -----------------------------------------------------------------------------------------------------
Abner D. Goldstine Senior Vice President of 23 years 29 years 44 years
the fund.
Senior Vice President and
Director, Capital Research
and Management Company
- -----------------------------------------------------------------------------------------------------
Gregg E. Ireland Vice President, Capital 7 years (in 23 years 23 years
Research and Management addition to
Company 5 years as a research
professional prior to
becoming a portfolio
counselor for the
fund)
- -----------------------------------------------------------------------------------------------------
Janet A. McKinley President of the 3 years (in 14 years 20 years
fund. Senior Vice Presi- addition to
dent, Capital Research 8 years as a
Company* research professional
prior to becoming a
portfolio counselor
for the fund)
- -----------------------------------------------------------------------------------------------------
Dina Perry Vice President of the 4 years 5 years 29 years
fund.
Vice President, Capital
Research and Management
Company
- -----------------------------------------------------------------------------------------------------
Richard T. Schotte Senior Vice President of 18 years 19 years 29 years
the fund.
Senior Vice President,
Capital Research and
Management Company
- -----------------------------------------------------------------------------------------------------
John H. Smet Vice President of the 4 years 13 years 14 years
fund.
Vice President, Capital
Research and Management
Company
- -----------------------------------------------------------------------------------------------------
</TABLE>
*COMPANY AFFILIATED WITH CAPITAL RESEARCH AND MANAGEMENT COMPANY.
6
<PAGE>
- -------------------------------------------------------------------------------
INVESTMENT The fund may from time to time compare its investment
RESULTS results to various unmanaged indices or other mutual
funds in reports to shareholders, sales literature and
The fund has advertisements. The results may be calculated on a
averaged a total total return, yield and/or distribution rate basis for
return (at no various periods, with or without sales charges. Results
sales charge) of calculated without a sales charge will be higher. Total
+13.76% a year returns assume the reinvestment of all dividends and
under Capital capital gains distributions. The fund's distribution
Research and rate is calculated by dividing the dividends paid by the
Management fund over the last 12 months by the sum of the month-end
Company's price and the capital gains paid over the last 12 months.
management The SEC yield reflects income the fund expects to earn
(December 1, 1973 based on its current portfolio of securities, while
through the distribution rate is based solely on the fund's
September 30, 1996). past dividends. Accordingly, the fund's SEC yield
and distribution rate may differ.
For the 30-day period ended September 30, 1996, the
fund's SEC yield was 5.14% and the distribution rate
was 5.16% with no sales charge. The fund's total
return over the past 12 months and average annual total
returns over the past five- and ten-year periods were
+14.05%, +12.76% and +11.86%, respectively. These results
were calculated in accordance with Securities and
Exchange Commission requirements at no sales charge.
Of course, past results are not an indication of future
results. Further information regarding the fund's
investment results is contained in the fund's annual
report which may be obtained without charge by writing
to the Secretary of the fund at the address indicated
on the cover of this prospectus.
DIVIDENDS, DIVIDENDS AND DISTRIBUTIONS Dividends are usually paid
DISTRIBUTIONS in March, June, September and December. Capital gains,
AND TAXES if any, are usually distributed in December. When a
dividend or capital gain is distributed, the net asset
Income value per share is reduced by the amount of the pay-
distributions are ment.
usually made in
March, June, The terms of your plan will govern how your plan may
September and receive distributions from the fund. Generally, peri-
December. odic distributions from the fund to your plan are rein-
vested in additional fund shares, although your plan
may permit fund distributions from net investment in-
come to be received by you in cash while reinvesting
capital gain distributions in additional shares or all
fund distributions to be received in cash. Unless you
select another option, all distributions will be rein-
vested in additional fund shares.
FEDERAL TAXES The fund intends to operate as a "regu-
lated investment company" under the Internal Revenue
Code. In any fiscal year in which the fund so qualifies
and distributes to shareholders all of its net invest-
ment income and net capital gains, the fund itself is
relieved of federal income tax. The tax treatment of
redemptions from a retirement plan may differ from re-
demptions from an ordinary shareholder account.
PLEASE SEE THE STATEMENT OF ADDITIONAL INFORMATION AND
YOUR TAX ADVISER FOR FURTHER INFORMATION.
7
<PAGE>
- -------------------------------------------------------------------------------
FUND FUND ORGANIZATION AND VOTING RIGHTS The fund, an open-
ORGANIZATION end, diversified management investment company, was or-
AND ganized as a Delaware corporation in 1969 and reorga-
MANAGEMENT nized as a Maryland corporation in 1983. The fund's
board supervises fund operations and performs duties
The fund is a required by applicable state and federal law. Members
member of The of the board who are not employed by Capital Research
American Funds and Management Company or its affiliates are paid cer-
Group, which is tain fees for services rendered to the fund as de-
managed by one of scribed in the statement of additional information.
the largest and They may elect to defer all or a portion of these fees
most experienced through a deferred compensation plan in effect for the
investment fund. Shareholders have one vote per share owned and,
advisers. at the request of the holders of at least 10% of the
shares, the fund will hold a meeting at which any mem-
ber of the board could be removed by a majority vote.
There will not usually be a shareholder meeting in any
year except, for example, when the election of the
board is required to be acted upon by shareholders un-
der the Investment Company Act of 1940.
THE INVESTMENT ADVISER Capital Research and Management
Company, a large and experienced investment management
organization founded in 1931, is the investment adviser
to the fund and other funds, including those in The
American Funds Group. Capital Research and Management
Company is located at 333 South Hope Street, Los Ange-
les, CA 90071, and at 135 South State College Boule-
vard, Brea, CA 92621. Capital Research and Management
Company manages the investment portfolio and business
affairs of the fund and receives a fee at the annual
rates of 0.24% on the first $1 billion of the fund's
net assets, 0.20% on net assets in excess of $1 billion
but not exceeding $2 billion, 0.18% on net assets in
excess of $2 billion but not exceeding $3 billion,
0.165% on net assets in excess of $3 billion but not
exceeding $5 billion, 0.155% on net assets in excess of
$5 billion but not exceeding $8 billion, and 0.15% on
net assets in excess of $8 billion, but not exceeding
$13 billion, and 0.147% on net assets in excess of
$13 billion plus 2.25% of the portion of the fund's
gross investment income for the preceding month.
Assuming net assets of $14 billion and gross investment
income levels of 3%, 4%, 5%, 6%, 7% and 8%, management
fees would be 0.23%, 0.26%, 0.28%, 0.30%, 0.32% and
0.35%, respectively.
Capital Research and Management Company is a wholly
owned subsidiary of The Capital Group Companies, Inc.
(formerly "The Capital Group, Inc."), which is located
at 333 South Hope Street, Los Angeles, CA 90071. The
research activities of Capital Research and Management
Company are conducted by affiliated companies which
have offices in Los Angeles, San Francisco, New York,
Washington, D.C., London, Geneva, Singapore, Hong Kong
and Tokyo.
Capital Research and Management Company and its
affiliated companies have adopted a personal investing
policy that is consistent with the recommendations
contained in the report dated May 9, 1994 issued by
8
<PAGE>
- -------------------------------------------------------------------------------
the Investment Company Institute's Advisory Group on
Personal Investing. (See the statement of additional
information.)
PORTFOLIO TRANSACTIONS Orders for the fund's portfolio
securities transactions are placed by Capital Research
and Management Company, which strives to obtain the
best available prices, taking into account the costs
and quality of executions. In the over-the-counter mar-
ket, purchases and sales are transacted directly with
principal market-makers except in those circumstances
where it appears better prices and executions are
available elsewhere.
Subject to the above policy, when two or more brokers
are in a position to offer comparable prices and
executions, preference may be given to brokers that
have sold shares of the fund or have provided
investment research, statistical, and other related
services for the benefit of the fund and/or of other
funds served by Capital Research and Management
Company.
PRINCIPAL UNDERWRITER American Funds Distributors,
Inc., a wholly owned subsidiary of Capital Research and
Management Company, is the principal underwriter of the
fund's shares. American Funds Distributors, Inc. is lo-
cated at 333 South Hope Street, Los Angeles, CA 90071,
135 South State College Boulevard, Brea, CA 92821, 8000
IH-10 West, San Antonio, TX 78230, 8332 Woodfield
Crossing Boulevard, Indianapolis, IN 46240, and 5300
Robin Hood Road, Norfolk, VA 23513. Telephone conversa-
tions with American Funds Distributors may be recorded
or monitored for verification, recordkeeping and qual-
ity assurance purposes.
PLAN OF DISTRIBUTION The fund has a plan of distribu-
tion or "12b-1 Plan" under which it may finance activi-
ties primarily intended to sell shares, provided the
categories of expenses are approved in advance by the
board and the expenses paid under the plan were in-
curred within the last 12 months and accrued while the
plan is in effect. Expenditures by the fund under the
plan may not exceed 0.25% of its average net assets an-
nually (all of which may be for service fees.)
TRANSFER AGENT American Funds Service Company, 800/421-
0180, a wholly owned subsidiary of Capital Research and
Management Company, is the transfer agent and performs
shareholder service functions. American Funds Service
Company is located at 333 South Hope Street, Los Ange-
les, CA 90071, 135 South State College Boulevard, Brea,
CA 92821, 8000 IH-10 West, San Antonio, TX 78230, 5300
Robin Hood Road, Norfolk, VA 23513 and 8332 Woodfield
Crossing Boulevard, Indianapolis, IN 46240. It was paid
a fee of $8,735,000 for the fiscal year ended July 31,
1996. Telephone conversations with American Funds Serv-
ice Company may be recorded or monitored for verifica-
tion, recordkeeping and quality assurance purposes.
9
<PAGE>
- -------------------------------------------------------------------------------
PURCHASING SHARES ALL ORDERS TO PURCHASE SHARES MUST BE MADE THROUGH YOUR
RETIREMENT PLAN. FOR MORE INFORMATION ABOUT HOW TO
PURCHASE SHARES OF THE FUND THROUGH YOUR PLAN OR
LIMITATIONS ON THE AMOUNT THAT MAY BE PURCHASED, PLEASE
CONSULT WITH YOUR EMPLOYER. Shares are sold to eligible
retirement plans at the net asset value per share next
determined after receipt of an order by the fund or
American Funds Service Company. Orders must be received
before the close of regular trading on the New York
Stock Exchange in order to receive that day's net asset
value. Plans of organizations with collective
retirement plan assets of $100 million or more may
purchase shares at net asset value. In addition, any
defined contribution plan qualified under Section
401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees or
any other plan that invests at least $1 million in
shares of the fund (or in combination with shares of
other funds in The American Funds Group other than the
money market funds) may purchase shares at net asset
value; however, a contingent deferred sales charge of
1% is imposed on certain redemptions within one year of
such purchase. (See "Redeeming Shares--Contingent
Deferred Sales Charge.") Plans may also qualify to
purchase shares at net asset value by completing a
statement of intention to purchase $1 million in fund
shares subject to commission over a maximum of 13
consecutive months. Certain redemptions of such shares
may also be subject to a contingent deferred sales
charge as described above. (See the statement of
additional information.)
The minimum initial investment is $250, except that the
money market funds have a minimum of $1,000 for
individual retirement accounts (IRAs). Minimums are
reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds)
or to $25 for purchases by retirement plans through
payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds
Group.
During 1997, American Funds Distributors will provide
compensation to the top one hundred dealers
who have sold shares of the fund or other funds in The
American Funds Group based on a pro rata share of a
qualifying dealer's sales.
Qualified dealers currently are paid a continuing
service fee not to exceed 0.25% of average net assets
annually in order to promote selling efforts and to
compensate them for providing certain services. (See
"Fund Organization and Management--Plan of
Distribution.") These services include processing
purchase and redemption transactions, establishing
shareholder accounts and providing certain information
and assistance with respect to the fund.
10
<PAGE>
- -------------------------------------------------------------------------------
Shares of the fund are offered to other shareholders
pursuant to another prospectus at public offering
prices that may include an initial sales charge.
SHARE PRICE Shares are offered to eligible retirement
plans at the net asset value after the order is
received by the fund or American Funds Service Company.
In the case of orders sent directly to the fund or
American Funds Service Company, an investment dealer
must be indicated. Dealers are responsible for promptly
transmitting orders. (See the statement of additional
information under "Purchase of Shares--Price of
Shares.")
The fund's net asset value per share is determined as
of the close of trading (currently 4:00 p.m., New York
time) on each day the New York Stock Exchange is open.
The current value of the fund's total assets, less all
liabilities, is divided by the total number of shares
outstanding and the result, rounded to the nearer cent,
is the net asset value per share.
SHAREHOLDER Subject to any restrictions contained in your plan, you
SERVICES can exchange your shares for shares of other funds in
The American Funds Group which are offered through the
plan at net asset value. In addition, again depending
on your plan, you may be able to exchange shares
automatically or cross-reinvest dividends in shares of
other funds. Contact your plan administrator/trustee
regarding how to use these services. Also, see the
fund's statement of additional information for a
description of these and other services that may be
available through your plan. These services are
available only in states where the fund to be purchased
may be legally offered and may be terminated or
modified at any time upon 60 days' written notice.
REDEEMING SHARES Subject to any restrictions imposed by your plan, you
can sell your shares through the plan any day the New
York Stock Exchange is open. For more information about
how to sell shares of the fund through your retirement
plan, including any charges that may be imposed by the
plan, please consult with your employer.
By Your plan administrator/trustee must
contacting send a letter of instruction
your plan specifying the name of the fund, the
administrator/ number of shares or dollar amount to
trustee be sold, and, if applicable, your
name and account number. For your
protection, if you redeem more than
$50,000, the signatures of the
registered owners (i.e., trustees or
their legal representatives) must be
guaranteed by a bank, savings
association, credit union, or member
firm of a domestic stock exchange or
the National Association of
Securities Dealers, Inc., that is an
eligible guarantor institution. Your
plan administrator/trustee should
verify with the institution that it
is an eligible guarantor prior to
signing. Additional documentation may
be required to redeem shares from
certain accounts. Notarization by a
Notary Public is not an acceptable
signature guarantee.
--------------------------------------------------------
By Shares may also be redeemed through
contacting an investment dealer; however, you or
an your plan may be charged for this
investment service. SHARES HELD FOR YOU IN AN
dealer INVESTMENT DEALER'S STREET NAME MUST
BE REDEEMED THROUGH THE DEALER.
11
<PAGE>
- -------------------------------------------------------------------------------
THE PRICE YOU RECEIVE FOR THE SHARES YOU REDEEM IS THE
NET ASSET VALUE NEXT DETERMINED AFTER YOUR ORDER AND ALL
REQUIRED DOCUMENTATION ARE RECEIVED BY THE FUND OR
AMERICAN FUNDS SERVICE COMPANY. (SEE "PURCHASING
SHARES--SHARE PRICE.")
CONTINGENT DEFERRED SALES CHARGE A contingent deferred
sales charge of 1% applies to certain redemptions
within the first year on investments of $1 million or
more and, subject to regulatory approval, on any
investment made with no initial sales charge by any
defined contribution plan qualified under Section
401(a) of the Internal Revenue Code including "401(k)"
plans with 200 or more eligible employees. The charge
is 1% of the lesser of the value of the shares redeemed
(exclusive of reinvested dividends and capital gain
distributions) or the total cost of such shares. Shares
held for the longest period are assumed to be redeemed
first for purposes of calculating this charge. The
charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12
months of the initial purchase); for distributions from
qualified retirement plans and other employee benefit
plans; for redemptions resulting from participant-
directed switches among investment options within a
401(k) plan; and for redemptions in connection with
loans made by qualified retirement plans.
OTHER IMPORTANT THINGS TO REMEMBER The net asset value
for redemptions is determined as indicated under
"Purchasing Shares--Share Price." Because the fund's
net asset value fluctuates, reflecting the market value
of the portfolio, the amount you receive for shares
redeemed may be more or less than the amount paid for
them.
Redemption proceeds will not be mailed until sufficient
time has passed to provide reasonable assurance that
checks or drafts (including certified or cashier's
checks) for shares purchased have cleared (which may
take up to 15 calendar days from the purchase date).
Except for delays relating to clearance of checks for
share purchases or in extraordinary circumstances (and
as permissible under the Investment Company Act of
1940), redemption proceeds will be paid on or before
the seventh day following receipt of a proper
redemption request.
[LOGO OF This prospectus has been printed on
RECYCLED PAPER] recycled paper that meets the
guidelines of the United States
Environmental Protection Agency
THIS PROSPECTUS RELATES ONLY TO SHARES OF THE FUND
OFFERED WITHOUT A SALES CHARGE TO ELIGIBLE RETIREMENT
PLANS. FOR A PROSPECTUS REGARDING SHARES OF THE FUND
TO BE ACQUIRED OTHERWISE, CONTACT THE SECRETARY OF
THE FUND AT THE ADDRESS INDICATED ON THE FRONT.
<PAGE>
THE INCOME FUND OF AMERICA, INC.
Part B
Statement of Additional Information
DECEMBER 1, 1996
This document is not a prospectus but should be read in conjunction with the
current Prospectus of The Income Fund of America, Inc. (the fund or IFA) dated
December 1, 1996. The Prospectus may be obtained from your investment dealer
or financial planner or by writing to the fund at the following address:
THE INCOME FUND OF AMERICA, INC.
ATTENTION: SECRETARY
ONE MARKET, STEUART TOWER
P.O. BOX 7650
SAN FRANCISCO, CA 94120
TELEPHONE: (415) 421-9360
The fund has two forms of prospectuses. Each reference to the prospectus in
this statement of additional information includes both of the fund's
Prospectuses. Shareholders who purchase shares at net asset value through
eligible retirement plans should note that not all of the services or features
described below may be available to them, and they should contact their
employer for details.
Table of Contents
Item
DESCRIPTION OF CERTAIN SECURITIES
CERTAIN RISK FACTORS RELATING TO BELOW INVESTMENT GRADE BONDS
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
FUND OFFICERS AND DIRECTORS
MANAGEMENT
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
PURCHASE OF SHARES
REDEEMING SHARES
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
EXECUTION OF PORTFOLIO TRANSACTIONS
GENERAL INFORMATION
INVESTMENT RESULTS
DESCRIPTION OF BOND RATINGS
FINANCIAL STATEMENTS
DESCRIPTION OF CERTAIN SECURITIES
CASH EQUIVALENTS - These securities include (1) commercial paper (short-term
notes up to 9 months in maturity which may be direct obligations of
corporations or governmental bodies or obligations of special purpose issuers
which represent an interest in a pool of financial assets), (2) commercial bank
obligations (E.G., certificates of deposit, bankers' acceptances (time drafts
on a commercial bank where the bank accepts an irrevocable obligation to pay at
maturity) and documented discount notes (corporate promissory discount notes
accompanied by a commercial bank guarantee to pay at maturity)), (3) savings
association and savings bank obligations (E.G., certificates of deposit issued
by savings banks or savings associations), (4) securities of the U.S.
Government, its agencies or instrumentalities that mature, or may be redeemed,
in one year or less, and (5) corporate bonds and notes that mature, or that may
be redeemed, in one year or less.
U.S. GOVERNMENT SECURITIES Securities guaranteed by the U.S. Government
include: (1) direct obligations of the U.S. Treasury (such as Treasury bills,
notes and bonds) and (2) federal agency obligations guaranteed as to principal
and interest by the U.S. Treasury.
Certain securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the
Treasury. However, they generally involve federal sponsorship in one way or
another: some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; and others are supported only by the credit of the issuing government
agency or instrumentality.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES - Certificates issued by
the Government National Mortgage Association (GNMA) are mortgage-backed
securities representing part ownership of a pool of mortgage loans, which are
issued by lenders such as mortgage bankers, commercial banks and savings and
loan associations, and are either insured by the Federal Housing Administration
or guaranteed by the Veterans Administration. A pool of these mortgages is
assembled and, after being approved by GNMA, is offered to investors through
securities dealers. The timely payment of interest and principal on each
mortgage is guaranteed by GNMA and backed by the full faith and credit of the
U.S. Government.
Principal is paid back monthly by the borrower over the term of the loan.
Reinvestment of prepayments may occur at higher or lower rates than the
original yield on the certificates. Due to the prepayment feature and the need
to reinvest prepayments of principal at current market rates, GNMA certificates
can be less effective than typical bonds of similar maturities at "locking in"
yields during periods of declining interest rates. GNMA certificates typically
appreciate or decline in market value during periods of declining or rising
interest rates, respectively. Due to the regular repayment of principal and
the prepayment feature, the effective maturities of mortgage pass-through
securities are shorter than stated maturities, will vary based on market
conditions and cannot be predicted in advance. The effective maturities of
newly-issued GNMA certificates backed by relatively new loans at or near the
prevailing interest rates are generally assumed to range between approximately
9 and 12 years.
FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS - Federal National Mortgage
Association (FNMA), a federally chartered and privately-owned corporation,
issues pass-through securities representing interests in a pool of conventional
mortgage loans. FNMA guarantees the timely payment of principal and interest
but this guarantee is not backed by the full faith and credit of the U.S.
Government.
Federal Home Loan Mortgage Corporation (FHLMC), a corporate instrumentality of
the U.S. Government, issues participation certificates which represent an
interest in a pool of conventional mortgage loans. FHLMC guarantees the timely
payment of interest and the ultimate collection of principal, and maintains
reserves to protect holders against losses due to default, but the certificates
are not backed by the full faith and credit of the U.S. Government.
As is the case with GNMA certificates, the actual maturity of and realized
yield on particular FNMA and FHLMC pass-through securities will vary based on
the prepayment experience of the underlying pool of mortgages.
OTHER MORTGAGE-RELATED SECURITIES - The fund may invest in mortgage-related
securities issued by financial institutions such as commercial banks, savings
and loan associations, mortgage bankers and securities broker-dealers (or
separate trusts or affiliates of such institutions established to issue these
securities). These securities include mortgage pass-through certificates,
collateralized mortgage obligations (including real estate mortgage investment
conduits as authorized under the Internal Revenue Code of 1986) (CMOs) or
mortgage-backed bonds. Each class of bonds in a CMO series may have a
different effective maturity, bear a different coupon, and have a different
priority in receiving payments. All principal payments, both regular principal
payments as well as any prepayment of principal, are passed through to the
holders of the various CMO classes dependent on the characteristics of each
class. In some cases, all payments are passed through first to the holders of
the class with the shortest stated maturity until it is completely retired.
Thereafter, principal payments are passed through to the next class of bonds in
the series, until all the classes have been paid off. In other cases, payments
are passed through to holders of whichever class first has the shortest
effective maturity at the time payments are made. As a result, an acceleration
in the rate of prepayments that may be associated with declining interest rates
shortens the expected life of each class. The impact of an acceleration in
prepayments affects the expected life of each class differently depending on
the unique characteristics of that class. In the case of some CMO series, each
class may receive a differing proportion of the monthly interest and principal
repayments on the underlying collateral. In these series the classes would be
more affected by an acceleration (or slowing) in the rate of prepayments than
CMOs which share principal and interest proportionally.
Mortgage-backed bonds are general obligations of the issuer fully
collateralized directly or indirectly by a pool of mortgages. The mortgages
serve as collateral for the issuer's payment obligations on the bonds, but
interest and principal payments on the mortgages are not passed through either
directly (as with GNMA certificates and FNMA and FHLMC pass-through securities)
or on a modified basis (as with CMOs). Accordingly, a change in the rate of
prepayments on the pool of mortgages could change the effective maturity of a
CMO but not that of a mortgage-backed bond (although, like many bonds,
mortgage-backed bonds can provide that they are callable by the issuer prior to
maturity).
INVERSE FLOATING RATE NOTES - The fund may invest to a very limited extent (no
more than 1 1/2% of its assets) in inverse floating rate notes (a type of
derivative instrument). These notes have rates that move in the opposite
direction of prevailing interest rates. A change in prevailing interest rates
will often result in a greater change in the instruments' interest rates.
Therefore, these securities have a greater degree of volatility than other
types of interest-bearing securities.
WHEN-ISSUED SECURITIES, FIRM COMMITMENT AGREEMENTS AND "ROLL TRANSACTIONS" -
The fund may purchase securities on a when-issued or delayed-delivery basis or
sell them on a delayed-delivery basis and enter into firm commitment
agreements. These are trading practices in which payment and delivery for the
securities take place at a future date. The fund as purchaser assumes the risk
of any decline in value of the security beginning on the date of the agreement
or purchase. When the fund sells such securities, it does not participate in
further gains or losses with respect to the security. If the other party to a
delayed delivery transaction fails to deliver or pay for securities, the fund
could miss a favorable price or yield opportunity, or could experience a loss.
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly increases.
The fund will identify liquid assets which will be marked to market daily in
an amount sufficient to meet its payment obligations in these transactions.
Although these transactions will not be entered into for leveraging purposes,
to the extent the fund's aggregate commitments under these transactions exceed
its segregated assets, the fund temporarily could be in a leveraged position
(because it may have an amount greater than its net assets subject to market
risk). Should market values of the fund's portfolio securities decline while
the fund is in a leveraged position, greater depreciation of its net assets
will likely occur than were it not in such a position. The fund will not
borrow money to settle these transactions and, therefore, will liquidate other
portfolio securities in advance of settlement if necessary to generate
additional cash to meet its obligations thereunder.
The fund also may enter into "roll" transactions, which consist of the sale of
securities together with a commitment (for which the fund typically receives a
fee) to purchase similar, but not identical, securities at a later date. The
fund intends to treat roll transactions as two separate transactions: one
involving the purchase of a security and a separate transaction involving the
sale of a security. Since the fund does not intend to enter into roll
transactions for financing purposes, it may treat these transactions as not
falling within the definition of "borrowing" set forth in Section 2(a)(23) of
the Investment Company Act of 1940.
CURRENCY TRANSACTIONS - The fund has the ability to purchase and sell
currencies to facilitate securities transactions and to enter into forward
currency contracts to hedge against changes in currency exchange rates. The
fund purchases or sells currency in connection with settling transactions
involving securities denominated in currencies other than the U.S. dollar. A
forward currency contract is an obligation to purchase or sell a specific
currency at a future date and price, both of which are set at the time of the
contract. For example, the fund might sell a currency on a forward basis to
hedge against an anticipated decline in the currency in which a portfolio
security is denominated. Although this strategy could minimize the risk of
loss due to a decline in the value of the hedged currency, it could also limit
any potential gain which might result from an increase in the value of the
currency.
CERTAIN RISK FACTORS RELATING TO BELOW INVESTMENT GRADE BONDS
Certain risk factors relating to investing in below investment grade
securities ("high-yield, high-risk bonds") are discussed below.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high-risk
bonds are very sensitive to adverse economic changes and corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers or issuers whose revenue is very
sensitive to economic conditions may experience financial stress that would
adversely affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaults on its obligations to pay interest
or principal or enters into bankruptcy proceedings, the fund may incur losses
or expenses in seeking recovery of amounts owed to it. In addition, periods of
economic uncertainty and changes can be expected to result in increased
volatility of market prices of high-yield, high-risk bonds.
PAYMENT EXPECTATIONS - High-yield, high-risk bonds, like other bonds, may
contain redemption or call provisions. If an issuer exercised these provisions
in a declining interest rate market, the fund would have to replace the
security with a lower yielding security, resulting in a decreased return for
investors. Conversely, a high-yield, high-risk bond's value is likely to
decrease in a rising interest rate market, as is generally true with all bonds.
LIQUIDITY AND VALUATION - There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
The fund may invest no more than 20% of its total assets in securities rated
BB and Ba or below (or unrated but considered of similar quality). The 20%
limit shall not apply to debt securities that have equity conversion or
purchase rights. In addition, the fund has no current intention of holding
more than 25% of its total assets in high-yield, high-risk bonds, INCLUDING
those that have equity conversion or purchase rights.
The fund's investment adviser, Capital Research and Management Company,
attempts to reduce the fund's risks through diversification of the portfolio by
credit analysis of each issuer as well as by monitoring broad economic trends
and corporate developments, but there can be no assurance that it will be
successful in doing so. The fund's investment policy with respect to investing
in high-yield, high-risk securities is a "non-fundamental" policy and thus may
be changed by the board of directors at any time.
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
The fund has adopted certain fundamental policies and investment restrictions
which cannot be changed without shareholder approval. Approval requires the
affirmative vote of 67% or more of the voting securities present at a meeting
of shareholders, provided more than 50% of such securities are represented at
the meeting, or the vote of more than 50% of the outstanding voting securities,
whichever is less.
The fund may not:
1. Act as underwriter of securities issued by other persons.
2. Invest more than 10% of the value of its total assets in securities that
are illiquid.
3. Borrow amounts in excess of 5% of its gross assets taken at cost or market
value, whichever is lower, determined at the time of borrowing, and then only
from banks as a temporary measure for extraordinary or emergency purposes; or
pledge, mortgage, or hypothecate its assets taken at market value to any extent
greater than 15% of its gross assets taken at cost or market value, whichever
is lower, at the time of such action.
4. Purchase real estate (including limited partnership interests but excluding
securities of companies, such as real estate investment trusts, which deal in
real estate or interests therein) or purchase oil, gas, or other mineral
leases.
5. Purchase or deal in commodities or commodity contracts.
6. Make loans to other persons, except by making time or demand deposits with
banks or by purchasing a portion of an issue (not prohibited by any investment
restriction set forth herein) of bonds, debentures, commercial paper or other
debt securities at original issue or otherwise.
7. Purchase securities of any company for the purpose of exercising control or
management.
8. Purchase securities of any other managed investment company.
9. Purchase any securities on "margin", except that it may obtain such
short-term credit as may be necessary for the clearance of purchases of
securities.
10. Sell or contract to sell any security which it does not own unless by
virtue of its ownership of other securities it has at the time of sale a right
to obtain securities, without payment of further consideration, equivalent in
kind and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions.
11. Purchase or sell puts, calls, straddles, or spreads, but this restriction
shall not prevent the purchase or sale of rights represented by warrants or
convertible securities.
12. Purchase any securities of any issuer, except the U.S. Government (or its
instrumentalities), if immediately after and as a result of such investment (1)
the market value of the securities of such other issuer shall exceed 5% of the
market value of the total assets of the fund, or (2) the fund shall own more
than 10% of the outstanding voting securities of such issuer, provided that
this restriction shall apply only as to 75% of the fund's total assets.
13. Purchase any securities (other than securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities) if immediately after and
as a result of such purchase 25% or more of the market value of the total
assets of the fund would be invested in securities of companies in any one
industry.
14. Purchase securities of companies (other than real estate investment
trusts) which, with their predecessors, have a record of less than three years'
continuous operations, if such purchase would cause more than 5% of the fund's
total assets to be invested in the securities of such companies.
For purposes of Investment Restriction #2, restricted securities are treated
as illiquid by the fund, with the exception of those securities that have been
determined to be liquid pursuant to procedures adopted by the fund's Board of
Directors. Notwithstanding Investment Restriction #8, the fund may invest in
securities of other investment companies if deemed advisable by its officers in
connection with the administration of a deferred compensation plan adopted by
directors pursuant to an exemptive order granted by the Securities and Exchange
Commission.
The fund has also agreed that it will not purchase any warrants if immediately
after and as a result of such purchase more than 5% of the market value of the
total assets of the fund would be invested in such warrants, with no more than
2% being unlisted on the New York or American Stock Exchanges. These are not
fundamental policies of the fund and may be changed without shareholder
approval.
FUND OFFICERS AND DIRECTORS
DIRECTORS AND DIRECTOR COMPENSATION
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
AGE WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER
REGISTRANT DURING PAST (INCLUDING FROM OF FUND
5 YEARS (POSITIONS VOLUNTARILY ALL FUNDS BOARDS
WITHIN THE DEFERRED MANAGED BY ON WHICH
ORGANIZATIONS COMPENSATION/1/) CAPITAL DIRECTOR
LISTED MAY HAVE FROM THE FUND RESEARCH AND SERVES
CHANGED DURING THIS DURING FISCAL MANAGEMENT
PERIOD) YEAR ENDED COMPANY
7/31/96 FOR THE YEAR
ENDED
7/31/96/2/
<S> <C> <C> <C> <C> <C>
Robert A. Fox Director President and Chief $ 17,000/3/ $ 80,550 5
P.O. Box 457 Executive Officer,
1000 Davis Street Foster Farms;
Livingston, CA former President,
95334 Revlon
Age: 59 International,
Chairman and
Chief Executive
Officer, Clarke
Hooper America
(advertising)
Roberta L. Hazard Director Consultant; Rear $ 17,000 $ 42,650 3
1419 Audmar Drive Admiral, United
McLean, VA 22101 States Navy
Age: 61 (Retired)
++Richard H. M. Director Retired; former $ 14,800 $ 58,650 4
Holmes Vice President,
580 Laurent Road Capital Research
Hillsborough, CA and Management
94010 Company (retired
Age: 70 1986)
Leonade D. Jones Director Former Treasurer, $ 16,400/3/ $ 69,100 5
4105 Illinois The Washington
Avenue, N.W. Post Company
Washington, D.C.
20011
Age: 48
John G. Director The IBJ Professor $ 17,900/3/ $ 138,950 7
McDonald of Finance,
Stanford Graduate School of
University Business, Stanford
Stanford, CA University
94305
Age: 59
Theodore D. Director Private investor; $ 16,400 $ 41,150 3
Nierenberg former President,
15 Middle Patent Dansk International
Road Designs, Ltd.
Armonk, NY 10504
Age: 73
+James W. Director Senior Partner, The None/4/ None/4/ 8
Ratzlaff Capital Group
P.O. Box 7650 Partners L.P.
San Francisco,
CA 94120
Age: 60
Henry E. Riggs Director President and $ 17,900/3/ $ 71,750 5
Kingston Hall Professor of
201 Engineering, Harvey
Harvey Mudd Mudd College
College
Claremont, CA
91711
Age: 61
+Walter P. Stern Chairman Chairman, Capital None/4/ None/4/ 8
630 Fifth Avenue of Group
New York, NY the International,
10111 Board Inc.; Vice
Age: 68 Chairman,
Capital Research
International;
Chairman, Capital
International,
Inc.;
Director, Temple-Inland Inc. (forest
products)
Patricia K. Woolf Director Private investor; $ 17,300 $ 70,500 5
506 Quaker Road Lecturer,
Princeton, NJ Department
08540 of Molecular
Age: 62 Biology, Princeton
University
</TABLE>
+ "Interested persons" within the meaning of the Investment Company Act of 1940
(the 1940 Act) on the basis of their affiliation with the fund's Investment
Adviser , Capital Research and Management Company or the parent company of the
Investment Adviser, The Capital Group Companies, Inc.
++ Not considered an "interested person" within the meaning of the 1940 Act;
but he does not participate on the Contracts Committee due to his former
affiliation with the Investment Adviser.
/1/ Amounts may be deferred by eligible directors under a non-qualified
deferred compensation plan adopted by the fund in 1993. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more of
the funds in the American Funds Group as designated by the director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, Inc., American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management
Trust of America, Capital Income Builder, Inc., Capital World Growth and Income
Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America.
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U.S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc. Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serve as the underlying investment vehicles for certain
variable insurance contracts; and Bond Portfolio for Endowments, Inc. and
Endowments, Inc. whose shares may be owned only by tax-exempt organizations.
/3/ Since the plan's adoption, the total amounts of deferred compensation
accrued by the fund (plus earnings thereon) for participating directors are as
follows: Robert A. Fox ($86,692), Leonade D. Jones ($27,833), John G. McDonald
($45,767) and Henry E. Riggs ($52,352). Amounts deferred and accumulated
earnings thereon are not funded and are general unsecured liabilities of the
fund until paid to the director.
/4/ James W. Ratzlaff and Walter P. Stern are affiliated with the Investment
Adviser and, accordingly, receive no compensation from the fund.
OFFICERS
(with their principal occupations for the past five years)#
Walter P. Stern, Chairman of the Board.
Fund officers whose other positions are not described above are:
Stephen E. Bepler, Senior Vice President /2/; Senior Vice President and
Director, Capital Research Company
Abner D. Goldstine, Senior Vice President /3/; Senior Vice President and
Director, Capital Research and Management Company
Paul G. Haaga, Jr., Senior Vice President, 333 South Hope Street, Los Angeles,
CA 90071; Senior Vice President and Director, Capital Research and Management
Company; Director, American Funds Service Company.
Richard T. Schotte, Senior Vice President /3/; Senior Vice President, Capital
Research and Management Company.
Steven N. Kearsley, Vice President /4/; Vice President and Treasurer,
Capital Research and Management Company; Director, American Funds Service
Company.
Janet A. McKinley, President /2/; Senior Vice President, Capital Research
Company.
Dina N. Perry, Vice President, 3000 K Street, N.W., Washington, D.C. 20007;
Vice President, Capital Research and Management Company.
John H. Smet, Vice President /3/; Vice President, Capital Research and
Management Company.
Patrick F. Quan, Secretary /1/; Vice President - Fund Business Management
Group, Capital Research and Management Company.
Mary C. Hall, Treasurer /4/; Senior Vice President - Fund Business Management
Group, Capital Research and Management Company.
R. Marcia Gould, Assistant Treasurer /4/; Vice President - Fund Business
Management Group, Capital Research and Management Company.
/1/ Address is P.O. Box 7650, San Francisco, CA 94120.
/2/ Address is 630 Fifth Avenue, New York, NY 10111.
/3/ Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025.
/4/ Address is 135 South State College Boulevard, Brea, CA 92821.
# Positions within the organizations listed may have changed during this
period.
All of the directors and officers are also officers and/or directors and/or
trustees of one or more of the other funds for which Capital Research and
Management Company serves as Investment Adviser. No compensation is paid by
the fund to any officer or director who is a director, officer or employee of
the Investment Adviser or affiliated companies. The fund pays fees of $12,000
per annum to directors who are not affiliated with the Investment Adviser, plus
$700 for each Board of Directors meeting attended, plus $300 for each meeting
attended as a member of a committee of the Board of Directors. The directors
may elect, on a voluntary basis, to defer all or a portion of these fees
through a deferred compensation plan in effect for the fund. The fund also
reimburses certain expenses of the directors who are not affiliated with the
Investment Adviser. As of July 31, 1996 the officers and directors of the fund
and their families, as a group, owned beneficially or of record less than 1% of
the outstanding shares.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience. The Investment Adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821.
The Investment Adviser's research professionals travel several million miles a
year, making more than 5,000 research visits in more than 50 countries around
the world. The Investment Adviser believes that it is able to attract and
retain quality personnel. The Investment Adviser is a wholly owned subsidiary
of The Capital Group Companies, Inc.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for managing more than $100 billion of
stocks, bonds and money market instruments and serves over five million
investors of all types. These investors include privately owned businesses and
large corporations as well as schools, colleges, foundations and other
non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and
Service Agreement (the Agreement) between the fund and the Investment Adviser,
dated January 1, 1994, and approved by the shareholders on December 14, 1993,
was amended by the Board of Directors on April 1, 1996. The Agreement shall be
in effect until the close of business on November 30, 1997 and may be renewed
from year to year thereafter, provided that any such renewal has been
specifically approved at least annually by (i) the Board of Directors of the
fund, or by the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the fund, and (ii) the vote of a majority of
directors who are not parties to the Agreement or interested persons (as
defined in said Act) of any such party, cast in person, at a meeting called for
the purpose of voting on such approval. The Agreement also provides that
either party has the right to terminate it without penalty, upon 60 days'
written notice to the other party, and that the Agreement automatically
terminates in the event of its assignment (as defined in said Act).
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the fund, and provides suitable office space, necessary small office equipment
and utilities, as well as general purpose accounting forms, supplies, and
postage to be used at the offices of the fund relating to the services
furnished by the Investment Adviser. The fund pays all expenses not
specifically assumed by the Investment Adviser, including, but not limited to,
custodian, stock transfer and dividend disbursing fees and expenses; costs of
designing, printing and mailing reports, prospectuses, proxy statements, and
notices to shareholders; taxes; expenses for the issuance and redemption of
shares of the fund (including stock certificates, registration and
qualification fees and expenses); expenses pursuant to the fund's Plan of
Distribution (described below); legal and auditing expenses; compensation,
fees, and expenses paid to directors unaffiliated with the Investment Adviser;
association dues; costs of stationery and forms prepared exclusively for the
fund; and costs of assembling and storing shareholder account data.
The management fee is based upon the net assets of the fund and monthly gross
investment income. Gross investment income means gross income, computed
without taking account of gains or losses from sales of capital assets, but
including original issue discount as defined for federal income tax purposes.
The Internal Revenue Code in general defines original issue discount to mean
the difference between the issue price and the stated redemption price at
maturity of certain debt obligations. The holder of such indebtedness is in
general required to treat as ordinary income the proportionate part of the
original issue discount attributable to the period during which the holder held
the indebtedness. The management fee is based upon the annual rates of 0.24%
on the first $1 billion of the fund's net assets, 0.20% on net assets in excess
of $1 billion but not exceeding $2 billion, 0.18% on net assets in excess of $2
billion but not exceeding $3 billion, 0.165% on net assets in excess of $3
billion but not exceeding $5 billion, 0.155% on net assets in excess of $5
billion but not exceeding $8 billion, 0.15% on net assets in excess of $8
billion but not exceeding $13 billion, and 0.147% on net assets in excess of
$13 billion, plus 2.25% of the fund's gross investment income for the preceding
month. Assuming net assets of $14 billion and gross investment income levels of
3%, 4%, 5%, 6%, 7% and 8%, management fees would be 0.23%, 0.26%, 0.28%, 0.30%,
0.32% and 0.35% of net assets, respectively.
The Agreement provides for a management fee reduction to the extent that the
fund's annual ordinary operating expenses exceed 1-1/2% of the first $30
million of the net assets of the fund and 1% of the net assets in excess
thereof. Expenses which are not subject to this limitation are interest,
taxes, and extraordinary expenses. Expenditures, including costs incurred in
connection with the purchase or sale of portfolio securities, which are
capitalized in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital items and not
as expenses.
For the fiscal year ended July 31, 1996, the Investment Adviser received
$22,874,000 for the basic management fee (based on a percentage of the net
assets of the fund as expressed above) plus $19,191,000 (based on a percentage
of the fund's gross income as expressed above), for a total fee of $42,065,000.
For the fiscal years ended July 31, 1995 and 1994, management fees paid by the
fund amounted to $35,698,000 and $32,273,000, respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the Principal
Underwriter) is the principal underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 8000 IH-10 West, San Antonio, TX
78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240, and 5300
Robin Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of Distribution
(the Plan), pursuant to rule 12b-1 under the 1940 Act, The Principal
Underwriter receives amounts payable pursuant to the Plan (see below) and
commissions consisting of that portion of the sales charge remaining after the
discounts which it allows to investment dealers. Commissions retained by the
Principal Underwriter on sales of fund shares during the fiscal year ended July
31, 1996 amounted to $11,114,000 after allowance of $56,184,000 to dealers.
During the fiscal years ended 1995 and 1994, the Principal Underwriter received
$7,246,000 and $15,331,000, after allowance of $36,662,000 and $79,611,000,
respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by the full Board of Directors, and separately by
a majority of the directors who are not interested persons of the fund and who
have no direct or indirect financial interest in the operation of the Plan or
the Principal Underwriting Agreement, and the Plan has been approved by the
vote of a majority of the outstanding voting securities of the fund. The
officers and directors who are "interested" persons of the fund may be
considered to have a direct or indirect financial interest in the operation of
the Plan due to present or past affiliations with the Investment Adviser and
related companies. Potential benefits of the Plan to the fund include improved
shareholder services, savings to the fund in transfer agency costs, savings to
the fund in advisory fees and other expenses, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management organization. The selection and nomination of directors who
are not "interested persons" of the fund are committed to the discretion of the
directors who are not interested persons during the existence of the Plan. The
Plan is reviewed quarterly and must be renewed annually by the Board of
Directors.
Under the Plan the fund may expend up to 0.25% of its net assets annually to
finance any activity which is primarily intended to result in the sale of fund
shares, provided the fund's Board of Directors has approved the category of
expenses for which payment is being made. These include service fees for
qualified dealers and dealer commissions and wholesaler compensation on sales
of shares exceeding $1 million (including purchases by any employer-sponsored
403(b) plan or purchases by any defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200
or more eligible employees). Only expenses incurred during the preceding 12
months and accrued while the Plan is in effect may be paid by the fund. During
the fiscal year ended July 31, 1996, the fund paid or accrued $31,409,000 for
compensation to dealers under the Plan.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit commercial banks from engaging in the business of
underwriting, selling or distributing securities, but permit banks to make
shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries or affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer adverse financial consequences as a result of any of
these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements, and has elected the tax status
of, a "regulated investment company," under the provisions of Subchapter M of
the Internal Revenue Code of 1986 (the Code). Under Subchapter M, if the fund
distributes within specified times at least 90% of the sum of its investment
company taxable income (net investment income and the excess of net short-term
capital gains over net long-term capital losses) and its tax-exempt interest,
if any, it will be taxed only on that portion of such investment company
taxable income that it retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities, currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) derive less than 30% of its gross income from the gains on sale
or other disposition of stock or securities held less than three months; and
(c) diversify its holdings so that, at the end of each fiscal quarter, (i) at
least 50% of the market value of the fund's assets is represented by cash, cash
items, U.S. Government securities, securities of other regulated investment
companies, and other securities (but such other securities must be limited, in
respect of any one issuer, to an amount not greater than 5% of the fund's
assets and 10% of the outstanding voting securities of such issuer), and (ii)
not more than 25% of the value of its assets is invested in the securities of
any one issuer (other than U.S. Government securities or the securities of
other regulated investment companies), or in two or more issuers which the fund
controls and which are engaged in the same or similar trades or businesses or
related trades or businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gains (both long-term and
short-term) for the one-year period ending on October 31 (as though the
one-year period ending on October 31 were the regulated investment company's
taxable year), and (iii) the sum of any untaxed, undistributed net investment
income and net capital gains of the regulated investment company for prior
periods. The term "distributed amount" generally means the sum of (i) amounts
actually distributed by the fund from its current year's ordinary income and
capital gain net income and (ii) any amount on which the fund pays income tax
during the periods described above. The fund intends to distribute net
investment income and net capital gains so as to minimize or avoid the excise
tax liability.
The fund also intends to continue distributing to shareholders all of the
excess of net long-term capital gain over net short-term capital loss on sales
of securities. If the net asset value of shares of the fund should, by reason
of a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made payable
to shareholders of record in such a month are treated as paid and are thereby
taxable as of December 31, provided that the fund pays the dividend no later
than the end of January of the following year.
Corporate shareholders of the fund may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gain distributions) paid
by the fund to the extent the fund's income is derived from dividends (which
if received directly would qualify for such deduction) received from domestic
corporations. In order to qualify for the dividends-received deduction, a
corporate shareholder must hold the fund shares paying the dividends upon which
the deduction is based for at least 46 days.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation or foreign
partnership (a foreign shareholder) will be subject to U.S. withholding tax (at
a rate of 30% or lower treaty rate). Withholding will not apply if a dividend
paid by the fund to a foreign shareholder is "effectively connected" with a
U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents, or domestic
corporations will apply. Distributions of net long-term capital gains not
effectively connected with a U.S. trade or business are not subject to tax
withholding, but in the case of a foreign shareholder who is a nonresident
alien individual, such distributions ordinarily will be subject to U.S. income
tax at a rate of 30% if the individual is physically present in the U.S. for
more than 182 days during the taxable year.
Income and dividends received by the fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Because not more than 50% of the value of the
total assets of the fund is expected to consist of securities of foreign
issuers, the fund will not be eligible to elect to "pass through" foreign tax
credits to shareholders.
As of the date of this statement of additional information, the maximum
federal individual stated tax rate applicable to ordinary income is 39.6%
(effective tax rates may be higher for some individuals due to phase out of
exemptions and elimination of deductions); the maximum individual tax rate
applicable to net capital gains is 28%; and the maximum corporate tax
applicable to ordinary income and net capital gains is 35%. However, to
eliminate the benefit of lower marginal corporate income tax rates,
corporations which have taxable income in excess of $100,000 for a taxable year
will be required to pay an additional amount of tax of up to $11,750 and
corporations which have taxable income in excess of $15,000,000 for a taxable
year will be required to pay an additional amount of tax of up to $100,000.
Naturally, the amount of tax payable by a shareholder with respect to either
distributions from the fund or disposition of fund shares will be affected by a
combination of tax law rules covering, E.G., deductions, credits, deferrals,
exemptions, sources of income and other matters. Under the Code, an individual
is entitled to establish an IRA each year (prior to the tax return filing
deadline for the year) whereby earnings on investments are tax-deferred. In
addition, in some cases, the IRA contribution itself may be deductible.
The foregoing is limited to a summary of federal taxation and should not be
viewed as a comprehensive discussion of all provisions of the Code relevant to
investors. Dividends and capital gain distributions may also be subject to
state or local taxes. Shareholders should consult their own tax advisers for
additional details as to their particular tax status.
PURCHASE OF SHARES
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METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums and $50 minimum (except where a lower
Fund Numbers" for initial minimum is noted under "Investment
investment minimums. Minimums and Fund Numbers").
By contacting Visit any investment dealer who Mail directly to your investment
your is registered in the state where dealer's address printed on your
investment the purchase is made and who account statement.
dealer has a sales agreement with
American Funds Distributors.
By mail Make your check payable to the Fill out the account additions form at the
fund and mail to the address bottom of a recent account statement, make
indicated on the account your check payable to the fund, write your
application. Please indicate an account number on your check, and mail
investment dealer on the account the check and form in the envelope
application. provided with your account statement.
By telephone Please contact your investment Complete the "Investments by Phone"
dealer to open account, then section on the account application or
follow the procedures for American FundsLink Authorization Form.
additional investments. Once you establish the privilege, you, your
financial advisor or any person with your
account information can call American
FundsLineR and make investments by
telephone (subject to conditions noted in
"Telephone Purchases, Redemptions and
Exchanges" below).
By wire Call 800/421-0180 to obtain Your bank should wire your additional
your account number(s), if investments in the same manner as
necessary. Please indicate an described under "Initial Investment."
investment dealer on the
account. Instruct your bank to
wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the account of:
American Funds Service
Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER.
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INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial
investments required by the funds in The American Funds Group along with fund
numbers for use with our automated phone line, American FundsLineR (see
description below):
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FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R) $1,000 02
American Balanced Fund(R) 500 11
American Mutual Fund(R) 250 03
Capital Income Builder(R) 1,000 12
Capital World Growth and Income Fund(SM) 1,000 33
EuroPacific Growth Fund(R) 250 16
Fundamental Investors(SM) 250 10
The Growth Fund of America(R) 1,000 05
The Income Fund of America(R) 1,000 06
The Investment Company of America(R) 250 04
The New Economy Fund(R) 1,000 14
New Perspective Fund(R) 250 07
SMALLCAP World Fund(SM) 1,000 35
Washington Mutual Investors Fund(SM) 250 01
BOND FUNDS
American High-Income Municipal Bond Fund(SM) 1,000 40
American High-Income Trust(R) 1,000 21
The Bond Fund of America(SM) 1,000 08
Capital World Bond Fund(R) 1,000 31
Intermediate Bond Fund of America(R) 1,000 23
Limited Term Tax-Exempt Bond Fund of America(SM) 1,000 43
The Tax-Exempt Bond Fund of America(SM) 1,000 19
The Tax-Exempt Fund of California(R)* 1,000 20
The Tax-Exempt Fund of Maryland(R)* 1,000 24
The Tax-Exempt Fund of Virginia(R)* 1,000 25
U.S. Government Securities Fund(SM) 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of America(R) 2,500 09
The Tax-Exempt Money Fund of America(SM) 2,500 39
The U.S. Treasury Money Fund of America(SM) 2,500 49
___________
*Available only in certain states.
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For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
DEALER COMMISSIONS - The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
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AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND FUNDS
Less than $50,000
6.10% 5.75% 5.00%
$50,000 but less than $100,000
4.71 4.50 3.75
BOND FUNDS
Less than $25,000
4.99 4.75 4.00
$25,000 but less than $50,000
4.71 4.50 3.75
$50,000 but less than $100,000
4.17 4.00 3.25
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000
3.63 3.50 2.75
$250,000 but less than $500,000
2.56 2.50 2.00
$500,000 but less than $1,000,000
2.04 2.00 1.60
$1,000,000 or more (see below)
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Commissions of up to 1% will be paid to dealers who initiate and are
responsible for purchases of $1 million or more, for purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $100 million or more: 1.00% on amounts of $1
million to $2 million, 0.80% on amounts over $2 million to $3 million, 0.50% on
amounts over $3 million to $50 million, 0.25% on amounts over $50 million to
$100 million, and 0.15% on amounts over $100 million. The level of dealer
commissions will be determined based on sales made over a 12-month period
commencing from the date of the first sale at net asset value.
American Funds Distributors, at its expense (from a designated percentage of
its income), will, during calendar year 1997, provide additional compensation
to dealers. Currently these payments are limited to the top one hundred dealers
who have sold shares of the fund or other funds in The American Funds Group.
These payments will be based on a pro rata share of a qualifying dealer's
sales. American Funds Distributors will, on an annual basis, determine the
advisability of continuing these payments.
Any employer-sponsored 403(b) plan or defined contribution plan qualified
under Section 401(a) of the Internal Revenue Code including a "401(k)" plan
with 200 or more eligible employees or any other purchaser investing at least
$1 million in shares of the fund (or in combination with shares of other funds
in The American Funds Group other than the money market funds) may purchase
shares at net asset value; however, a contingent deferred sales charge of 1% is
imposed on certain redemptions made within twelve months of the purchase. (See
"Redeeming Shares--Contingent Deferred Sales Charge.")
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
NET ASSET VALUE PURCHASES - The stock, stock/bond and bond funds may sell
shares at net asset value to: (1) current or retired directors, trustees,
officers and advisory board members of the funds managed by Capital Research
and Management Company, employees of Washington Management Corporation,
employees and partners of The Capital Group Companies, Inc. and its affiliated
companies, certain family members of the above persons, and trusts or plans
primarily for such persons; (2) current registered representatives, retired
registered representatives with respect to accounts established while active,
or full-time employees (and their spouses, parents, and children) of dealers
who have sales agreements with American Funds Distributors (or who clear
transactions through such dealers) and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer; (4) trustees or other fiduciaries purchasing shares for
certain retirement plans of organizations with retirement plan assets of $100
million or more; (5) insurance company separate accounts; (6) accounts managed
by subsidiaries of The Capital Group Companies, Inc.; and (7) The Capital Group
Companies, Inc., its affiliated companies and Washington Management
Corporation. Shares are offered at net asset value to these persons and
organizations due to anticipated economies in sales effort and expense.
STATEMENT OF INTENTION - The reduced sales charges and offering prices set
forth in the Prospectus apply to purchases of $50,000 or more made within a
13-month period subject to the following statement of intention (the Statement)
terms. The Statement is not a binding obligation to purchase the indicated
amount. When a shareholder elects to utilize the Statement in order to qualify
for a reduced sales charge, shares equal to 5% of the dollar amount specified
in the Statement will be held in escrow in the shareholder's account out of the
initial purchase (or subsequent purchases, if necessary) by the Transfer Agent.
All dividends and any capital gain distributions on shares held in escrow will
be credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the specified
13-month period, the purchaser will remit to the Principal Underwriter the
difference between the sales charge actually paid and the sales charge which
would have been paid if the total of such purchases had been made at a single
time. If the difference is not paid within 45 days after written request by
the Principal Underwriter or the securities dealer, the appropriate number of
shares held in escrow will be redeemed to pay such difference. If the proceeds
from this redemption are inadequate, the purchaser will be liable to the
Principal Underwriter for the balance still outstanding. The Statement may be
revised upward at any time during the 13-month period, and such a revision will
be treated as a new Statement, except that the 13-month period during which the
purchase must be made will remain unchanged and there will be no retroactive
reduction of the sales charges paid on prior purchases. Existing holdings
eligible for rights of accumulation (see the prospectus and account
application) may be credited toward satisfying the Statement. During the
Statement period reinvested dividends and capital gain distributions,
investments in money market funds, and investments made under a right of
reinstatement will not be credited toward satisfying the Statement.
In the case of purchase orders by the trustees of certain retirement plans by
payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: The regular monthly payroll
deduction investment will be multiplied by 13 and then multiplied by 1.5. The
current value of existing American Funds investments (other than money market
fund investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period are
added to the figure determined above. The sum is the Statement amount and
applicable breakpoint level. On the first investment and all other investments
made pursuant to the Statement, a sales charge will be assessed according to
the sales charge breakpoint thus determined. There will be no retroactive
adjustments in sales charges on investments previously made during the 13-month
period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the Investment Company Act of 1940, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company. This offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. In case of orders sent directly to the fund or American Funds
Service Company, an investment dealer MUST be indicated. The dealer is
responsible for promptly transmitting purchase orders to the Principal
Underwriter. Orders received by the investment dealer, the Transfer Agent, or
the fund after the time of the determination of the net asset value will be
entered at the next calculated offering price. Prices which appear in the
newspaper are not always indicative of prices at which you will be purchasing
and redeeming shares of the fund, since such prices generally reflect the
previous day's closing price whereas purchases and redemptions are made at the
next calculated price.
The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily at the close of trading
(currently 4:00 p.m., New York time) each day the New York Stock Exchange is
open. The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The net
asset value per share is determined as follows:
1. Equity-type securities traded on a national securities exchange (or
reported on the NASDAQ national market) and securities traded in the
over-the-counter market are stated at the last reported sales price on the day
of valuation; other securities, and securities for which no sale was reported
on that date, are stated at the last quoted bid price.
Bonds and notes are valued at prices obtained from a bond-pricing service
provided by a major dealer in bonds, when such prices are available; however,
in circumstances where the investment adviser deems it appropriate to do so,
such securities will be valued at the mean of their representative quoted bid
and asked prices or, if such prices are not available, at prices for securities
of comparable maturity, quality, and type.
Short-term securities with original or remaining maturities in excess of 60
days are valued at the mean of their quoted bid and asked prices. Short-term
securities with 60 days or less to maturity are valued at amortized cost, which
approximates market value. Securities for which market quotations are not
readily available are valued at fair value as determined in good faith by the
Valuation Committee of the Board of Directors.
2. There are deducted from the total assets, thus determined, the
liabilities, including proper accruals of taxes and other expense items; and
3. The value of the net assets so obtained is then divided by the total
number of shares outstanding, and the result, rounded to the nearer cent, is
the net asset value per share.
Any purchase order may be rejected by the Principal Underwriter or the fund.
The Principal Underwriter will not knowingly sell fund shares directly,
indirectly, or through a unit investment trust to any other investment company,
or to any person or entity, where, after the sale, such investment company,
person, or entity would own beneficially, directly, indirectly, or through a
unit investment trust, more than 4.5% of the outstanding shares of the fund
without the consent of a majority of the fund's directors.
REDEEMING SHARES
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By writing to American Funds Send a letter of instruction
Service Company (at the specifying the name of the fund, the
appropriate address indicated number of shares or dollar amount to
under "Principal Underwriter be sold, your name and account
and Transfer Agent" in the number. You should also enclose any
prospectus) share certificates you wish to
redeem. For redemptions over $50,000
and for certain redemptions of
$50,000 or less (see below), your
signature must be guaranteed by a
bank, savings association, credit
union, or member firm of a domestic
stock exchange or the National
Association of Securities Dealers,
Inc. that is an eligible guarantor
institution. You should verify with
the institution that it is an
eligible guarantor prior to signing.
Additional documentation may be
required for redemption of shares
held in corporate, partnership or
fiduciary accounts. Notarization by
a Notary Public is not an acceptable
signature guarantee.
By contacting your investment If you redeem shares through your
dealer investment dealer, you may be charged
for this service. SHARES HELD FOR
YOU IN YOUR INVESTMENT DEALER'S
STREET NAME MUST BE REDEEMED THROUGH
THE DEALER.
You may have a redemption You may use this option, provided the
check sent to you by using account is registered in the name of
American FundsLineR or by an individual(s), a UGMA/UTMA
telephoning, faxing, or custodian, or a non-retirement plan
telegraphing American Funds trust. These redemptions may not
Service Company (subject to exceed $10,000 per day, per fund
the conditions noted in this account and the check must be made
section and in "Telephone payable to the shareholder(s) of
Purchases, Redemptions and record and be sent to the address of
Exchanges" below) record provided the address has been
used with the account for at least 10
days. See "Transfer Agent" and
"Exchange Privilege" below for the
appropriate telephone or fax number.
In the case of the money Upon request (use the account
market funds, you may have application for the money market
redemptions wired to your funds) you may establish telephone
bank by telephoning American redemption privileges (which
Funds Service Company will enable you to have a redemption
($1,000 or more) or by sent to your bank account)
writing and/or check writing privileges. If
a check ($250 or more) you request check writing
privileges, you will be provided with
checks that you may use to
draw against your account. These
checks may be made payable to anyone
you designate and must be signed by
the authorized number of registered
shareholders exactly as indicated on
your checking account signature card.
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A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY REDEMPTION OF $50,000
OR LESS PROVIDED THE REDEMPTION CHECK IS MADE PAYABLE TO THE REGISTERED
SHAREHOLDER(S) AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE ADDRESS HAS
BEEN USED WITH THE ACCOUNT FOR AT LEAST 10 DAYS.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares. Shares held
for the longest period are assumed to be redeemed first for purposes of
calculating this charge. The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer-sponsored
retirement plan; for distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 591/2; for tax-free returns of excess
contributions to IRAs; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the dates you select. Bank accounts will be
charged on the day or a few days before investments are credited, depending on
the bank's capabilities, and shareholders will receive a confirmation statement
at least quarterly. Participation in the plan will begin within 30 days after
receipt of the account application. If the shareholder's bank account cannot
be charged due to insufficient funds, a stop-payment order or the closing of
the account, the plan may be terminated and the related investment reversed.
The shareholder may change the amount of the investment or discontinue the plan
at any time by writing to the Transfer Agent.
AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the paying fund) into any other fund in The
American Funds Group (the receiving fund) subject to the following conditions:
(i) the aggregate value of the shareholder's account(s) in the paying fund(s)
must equal or exceed $5,000 (this condition is waived if the value of the
account in the receiving fund equals or exceeds that fund's minimum initial
investment requirement), (ii) as long as the value of the account in the
receiving fund is below that fund's minimum initial investment requirement,
dividends and capital gain distributions paid by the receiving fund must be
automatically reinvested in the receiving fund, and (iii) if this privilege is
discontinued with respect to a particular receiving fund, the value of the
account in that fund must equal or exceed the fund's minimum initial investment
requirement or the fund shall have the right, if the shareholder fails to
increase the value of the account to such minimum within 90 days after being
notified of the deficiency, automatically to redeem the account and send the
proceeds to the shareholder. These cross-reinvestments of dividends and
capital gain distributions will be at net asset value (without sales charge).
EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLineR (see "American FundsLineR" below), or by telephoning 800/421-0180
toll-free, faxing (see "Transfer Agent" below for the appropriate fax numbers)
or telegraphing American Funds Service Company. (See "Telephone Redemptions and
Exchanges" below.) Shares held in corporate-type retirement plans for which
Capital Guardian Trust Company serves as trustee may not be exchanged by
telephone, fax or telegraph. Exchange redemptions and purchases are processed
simultaneously at the share prices next determined after the exchange order is
received. (See "Purchase of Shares--Price of Shares.") THESE TRANSACTIONS HAVE
THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES - You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS - Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments and dividend reinvestments, will be reflected on regular
confirmation statements from American Funds Service Company. Purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
AMERICAN FUNDSLINER - You may check your share balance, the price of your
shares, or your most recent account transaction, redeem shares (up to $10,000
per fund, per account each day), or exchange shares around the clock with
American FundsLineR. To use this service, call 800/325-3590 from a TouchTonet
telephone. Redemptions and exchanges through American FundsLineR are subject
to the conditions noted above and in "Redeeming Shares--Telephone Redemptions
and Exchanges" below. You will need your fund number (see the list of funds in
The American Funds Group under "Purchase of Shares--Investment Minimums and
Fund Numbers"), personal identification number (the last four digits of your
Social Security number or other tax identification number associated with your
account) and account number.
TELEPHONE REDEMPTIONS AND EXCHANGES - By using the telephone (including
American FundsLineR), fax or telegraph redemption and/or exchange options, you
agree to hold the fund, American Funds Service Company, any of its affiliates
or mutual funds managed by such affiliates, and each of their respective
directors, trustees, officers, employees and agents harmless from any losses,
expenses, costs or liability (including attorney fees) which may be incurred in
connection with the exercise of these privileges. Generally, all shareholders
are automatically eligible to use these options. However, you may elect to opt
out of these options by writing American Funds Service Company (you may also
reinstate them at any time by writing American Funds Service Company). If
American Funds Service Company does not employ reasonable procedures to confirm
that the instructions received from any person with appropriate account
information are genuine, the fund may be liable for losses due to unauthorized
or fraudulent instructions. In the event that shareholders are unable to reach
the fund by telephone because of technical difficulties, market conditions, or
a natural disaster, redemption and exchange requests may be made in writing
only.
EXECUTION OF PORTFOLIO TRANSACTIONS
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner. The fund will not pay a mark-up for
research in principal transactions.
The fund is required to disclose information regarding investments in the
securities of broker-dealers which have certain relationships with the fund.
During the last fiscal year, General Electric Capital Corp., Lehman Commercial
Paper Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., and J.P. Morgan & Co.
Inc. were among the top 10 dealers that acted as principals in portfolio
transactions; and Lehman Brothers Inc., an affiliate of American Express Co.
was among the top 10 dealers receiving commissions due to portfolio
transactions. The fund held equity securities of American Express Co. and J.P.
Morgan & Co. Inc. in the amounts of $10,937,000 and $56,760,000, respectively,
and debt securities of American Express Credit Corp., GE Capital Mortgage
Services, General Electric Capital Corp., and Merrill Lynch Mortgage Investors
Inc. in the amounts of $43,257,000, $8,145,000, $4,563,000, and $19,807,000,
respectively, as of the close of its most recent fiscal year.
Brokerage commissions paid on portfolio transactions during the fiscal years
ended July 31, 1996, 1995 and 1994, amounted to $7,865,000, $5,001,000, and
$4,923,000, respectively.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including
proceeds from the sale of shares of the fund and of securities in the fund's
portfolio, are held by The Chase Manhattan Bank., One Chase Manhattan Plaza,
New York, NY 10081, as Custodian.
TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee
of $8,735,000 for the fiscal year ended July 31, 1996.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
SERVICE AREA ADDRESS AREAS SERVED
- ------------------------------------------------------------------------------
WEST P.O. Box 2205 AK, AZ, CA, HI, ID, MT, NV
Brea, CA 92822-2205 OR, UT, WA and outside the U.S.
Fax: 714/671-7080
CENTRAL- P.O. Box 659522 AR, CO, IA, KS, LA, MN, MO, ND,
WEST San Antonio, TX 78265-9522 NE, NM, OK, SD, TX and WY
Fax: 210/530-4050
CENTRAL- P.O. Box 6007 AL, IL, IN, KY, MI, MS, OH, TN,
EAST Indianapolis, IN 46206-6007 and WI
Fax: 317/735-6620
EAST P.O. Box 2280 CT, DE, FL, GA, MA, MD, ME, NC,
Norfolk, VA 23501-2280 NH, NJ, NY, PA, RI, SC, VA, VT,
Fax: 804/670-4773 WV and Washington, D.C.
All shareholders may call American Funds Service Company at 800/421-0180 for
service.
INDEPENDENT AUDITORS - Deloitte & Touche LLP located at 1000 Wilshire
Boulevard, Los Angeles, CA 90017, serves as the fund's independent auditors
providing audit services, preparation of tax returns and review of certain
documents of the fund to be filed with the Securities and Exchange Commission.
The financial statements included in this statement of additional information
from the annual report have been so included in reliance on the report of
Deloitte & Touche LLP given on the authority of said firm as experts in
accounting and auditing.
REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on July 31. Shareholders
are provided at least semi-annually with reports showing the investment
portfolio, financial statements and other information. The annual financial
statements are audited annually by the fund's independent auditors, Deloitte &
Touche LLP, whose selection is determined by the Board of Directors.
PERSONAL INVESTING POLICY - Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions. You may obtain a summary of
the personal investing policy by contacting the Secretary of the fund.
The financial statements including the investment portfolio and the report of
Independent Auditors contained in the annual report are included in this
statement of additional information. The following information is not included
in the annual report:
<TABLE>
<CAPTION>
<S> <C>
DETERMINATION OF NET ASSET VALUE,
REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE--JULY 31, 1996
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $15.89
Maximum offering price per share
(100/94.25 of net asset value per share
which takes into account the fund's current
maximum sales charge) $16.86
</TABLE>
REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any director or directors from office and may elect a successor
or successors to fill any resulting vacancies for the unexpired terms of
removed directors. The fund has made an undertaking, at the request of the
staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of directors as
though the fund were a common-law trust. Accordingly, the directors of the
fund shall promptly call a meeting of shareholders for the purpose of voting
upon the question of removal of any director when requested in writing to do so
by the record holders of not less than 10% of the outstanding shares.
INVESTMENT RESULTS
The fund's yield is 4.98% based on a 30-day (or one month) period ended July
31, 1996, computed by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last day of
the period, according to the following formula:
YIELD = 2[(a-b/cd+1)/6/-1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The fund's average annual total return for the one-, five- and ten-year
periods ended on July 31, 1996 was +6.94%, +11.09% and +10.90%, respectively.
The average annual total return (T) is computed by equating the value at the
end of the period (ERV) with a hypothetical initial investment of $1,000 (P)
over a period of years (n) according to the following formula as required by
the Securities and Exchange Commission: P(1+T)/n/ = ERV.
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) deduction of the maximum sales load of
5.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated.
The fund may also, at times, calculate total return based on net asset value
per share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the computation. Consequently,
total return calculated in this manner will be higher. These total returns may
be calculated over periods in addition to those described above. Total return
for the unmanaged indices will be calculated assuming reinvestment of dividends
and interest, but will not reflect any deductions for advisory fees, brokerage
costs or administrative expenses.
The fund may also calculate a distribution rate on a taxable and tax
equivalent basis. The distribution rate is computed by dividing the dividends
paid by the fund over the last 12 months by the sum of the month-end net asset
value or maximum offering price and the capital gains paid over the last 12
months. The distribution rate may differ from the yield.
The fund may include information on its investment results and/or comparisons
of its investment results to various unmanaged indices (such as The Dow Jones
Average of 30 Industrial Stocks, The Standard & Poor's 500 Stock Composite
Index, the Lehman Brothers Corporate Bond Index, the Lehman Brothers Aggregate
Bond Index and the Salomon Brothers High-Grade Corporate Bond Index) or results
of other mutual funds or investment or savings vehicles in advertisements or in
reports furnished to present or prospective shareholders.
The fund may refer to results compiled by organizations such as CDA Investment
Technologies, Ibbotson Associates, Lipper Analytical Services, Morningstar,
Inc., and Wiesenberger Investment Companies Services and by the U.S. Department
of Commerce. Additionally, the fund may, from time to time, refer to results
published in various newspapers and periodicals, including Barrons, Forbes,
Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine, Money,
U.S. News and World Report and The Wall Street Journal.
The fund may, from time to time, illustrate the benefits of tax-deferral by
comparing taxable investments to investments made through tax-deferred
retirement plans.
The fund may, from time to time, compare its investment results with the
Consumer Price Index, which is a measure of the average change in prices over
time in a fixed market basket of goods and services (E.G. food, clothing,
fuels, transportation, and other goods and services that people buy for
day-to-day living).
The investment results for the fund set forth below were calculated as
described in the fund's prospectus. Data contained in Salomon's Market
Performance and Lehman Brothers' The Bond Market Report are used to calculate
cumulative total return from their base period (12/31/68 and 12/31/72,
respectively) for each index. The percentage increases shown in the table
below or used in published reports of the fund are obtained by subtracting the
index results at the beginning of the period from the index results at the end
of the period and dividing the difference by the index results at the beginning
of the period.
IFA vs. Various Unmanaged Indices
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lehman
10-Year Lehman Lehman Brothers Average
Period Brothers Brothers Government/ Salomon Savings
8/1 - 7/31 IFA DJIA/1/ S&P 500/2/ Corporate/3/ Aggregate/4/ Corporate/5/ High-Grade/6/ Account/7/
1986 - 1996 +141 +126% +123
+181% +330% +269% % % +149% +69%
1985 - 1995 +179 +160 +158
+197 +391 +306 +206 + 74
1984 - 1994 +217 +193 +189
+241 +385 +327 +254 + 83
1983 - 1993 +241 +218 +213
+254 +333 +294 +281 + 94
1982 - 1992 +295 +251 +242
+351 +528 +478 +330 +106
1981 - 1991 +304 +269 +256
+298 +392 +343 +329 +117
1980 - 1990 +235 +217 +209
+293 +392 +344 +239 +124
1979 - 1989 +202 +201 +197
+317 +409 +416 +202 +125
1978 - 1988 +180 +178 +175
+267 +308 +326 +166 +125
1977 - 1987 +159 +164 +162
+283 +388 +417 +146 +125
1976 - 1986 +184 +181 +180
+265 +209 +271 +177 +124
1975 - 1985 +161 N/A +158
+295 +177 +250 +134 +121
1974 - 1984 +136 N/A +136
+270 +153 +210 +112 +116
1973#- 1983 + 95 N/A +105
+237 +147 +172 + 76 +106
</TABLE>
________________
# From December 1, 1973
/1/ The Dow Jones Average of 30 Industrial Stocks is comprised of 30 industrial
companies such as General Motors and General Electric.
/2/ The Standard & Poor's 500 Stock Composite Index is comprised of industrial,
transportation, public utilities, and financial stocks and represents a large
portion of the value of issues traded on the New York Stock Exchange. Selected
issues traded on the American Stock Exchange are also included.
/3/ The Lehman Brothers Corporate Bond Index is comprised of all public, fixed
rate, non-convertible investment grade domestic corporate debt. Issues
included in this index are rated at least Baa by Moody's Investors Service, BBB
by Standard & Poor's Corporation or, in the case of bank bonds not rated by
either of the previously mentioned services, BBB by Fitch Investors Service.
/4/ The Lehman Brothers Aggregate Bond Index covers all sectors of the fixed
income market and is a combination of the Lehman Brothers Treasury Bond Index,
the Agency Bond Index, the Corporate Bond Index, the Yankee Bond Index and the
Mortgage Backed Securities Index. Its inception date is December 31, 1975.
/5/ The Lehman Brothers Government/Corporate Bond Index is comprised of all
public obligations of the U.S. Treasury, all publicly issued debt of U.S.
Government agencies, and corporate debt guaranteed by the U.S. Government
(exlcuding mortgage-backed securities). It also includes all U.S. dollar
denominated, SEC registered, public, non-convertible debt issued or guaranteed
by foreign or international governments/agencies. Also included are all
public, fixed-rate non-convertible investment grade domestic corporate debt.
/6/ The Salomon Brothers High-Grade Corporate Bond Index is comprised of a
sample of high-grade corporate bonds which have a rating of AAA or AA by
Standard & Poor's Corporation.
/7/ Based on figures supplied by the U.S. League of Savings Institutions and
the Federal Reserve Board which reflect all kinds of savings deposits,
including longer-term certificates. Savings accounts offer a guaranteed return
of principal, but no opportunity for capital growth. During a portion of the
period, the maximum rates paid on some savings deposits were fixed by law.
<TABLE>
<CAPTION>
<S> <C>
If you are considering IFA for an
Individual Retirement Account. . .
Here's how much you would have if you had invested $2,000 a year on August 1
of each year in IFA over the past 5 and 10 years:
5 years 10 years
(8/1/91-7/31/96) (8/1/86-7/31/96)
$13,456 $36,311
</TABLE>
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
. . . and had taken all
dividends and capital
gain distributions
in shares, your
If you had investment would
invested $10,000 have been worth
in IFA this many this much at
years ago . . . 7/31/96
<S> <C> <C>
| |
Number Periods
of Years 8/1 - 7/31 Value
1 1995 - 1996
$10,694
2 1994 - 1996
12,449
3 1993 - 1996
12,698
4 1992 - 1996
14,202
1991 - 1996
5 16,916
6 1990 - 1996
18,989
7 1989 - 1996
19,206
8 1988 - 1996
23,717
9 1987 - 1996
24,111
10 1986 - 1996
28,137
1985 - 1996
11 33,737
12 1984 - 1996
45,001
13 1983 - 1996
47,739
14 1982 - 1996
67,948
15 1981 - 1996
71,528
16 1980 - 1996
79,743
17 1979 - 1996
84,952
18 1978 - 1996
92,420
19 1977 - 1996
98,119
20 1976 - 1996
109,018
21 1975 - 1996
141,200
22 1974 - 1996
176,874
23 1973#- 1995
170,626
</TABLE>
# From December 1, 1973
Illustration of a $10,000 investment in IFA with
dividends reinvested and capital gain distributions taken in shares
(for the period December 1, 1973 through July 31, 1996)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
COST OF SHARES
VALUE OF SHARES
Year Annual Dividends Total From Initial From From Total
Ended Dividends (cumulative) Investment Investment Capital Gains Dividends Value
July 31 Cost Reinvested Reinvested
1974# $ 347 $ 347 $10,347 $ 8,767 - $ 321 $ 9,088
1975 785 1,132 11,132 10,141 - 1,250 11,391
1976 998 2,130 12,130 12,155 - 2,596 14,751
1977 969 3,099 13,099 12,701 - 3,691 16,392
1978 1,117 4,216 14,216 12,584 - 4,820 17,404
1979 1,333 5,549 15,549 12,693 - 6,228 18,921
1980 1,463 7,012 17,012 12,490 - 7,672 20,162
1981 1,743 8,755 18,755 12,818 - 9,667 22,485
1982 2,187 10,942 20,942 12,256 - 11,408 23,664
1983 2,549 13,491 23,491 16,112 - 17,573 33,685
1984 2,896 16,387 26,387 15,254 $1,013 19,455 35,722
1985 3,365 19,752 29,752 18,236 2,637 26,804 47,677
1986 3,909 23,661 33,661 18,907 6,434 31,807 57,148
1987 4,431 28,092 38,092 19,578 9,644 37,452 66,674
1988 4,479 32,571 42,571 17,955 10,904 38,957 67,816
1989 5,338 37,909 47,909 20,609 12,515 50,578 83,702
1990 5,269 43,178 53,178 18,907 13,755 51,497 84,159
1991 6,311 49,489 59,489 19,578 14,787 60,070 94,435
1992 6,578 56,067 66,067 21,764 17,093 73,764 112,621
1993 6,995 63,062 73,062 22,592 19,653 83,771 126,016
1994 7,471 70,533 80,533 21,218 21,364 85,868 128,450
1995 8,046 78,579 88,579 23,294 24,107 102,984 150,385
1996 8,581 87,160 97,160 24,809 27,526 118,291 170,626
</TABLE>
# From December 1, 1973
The dollar amount of capital gain distributions during the period was $21,184.
EXPERIENCE OF INVESTMENT ADVISER - Capital Research and Management Company
manages nine common stock funds that are at least 10 years old. In the rolling
10-year periods since January 1, 1966 (121 in all), those funds have had better
total returns than the Standard & Poor's 500 Composite Stock Index in 94 of the
121 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
DESCRIPTION OF BOND RATINGS
Corporate Debt Securities
MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by
various entities from "Aaa" to "C" according to quality.
"AAA -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large, or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
"AA -- High quality by all standards. They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
"A -- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
"BAA -- Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
"BA -- Have speculative elements; future cannot be considered as well assured.
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
"B -- Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"CAA -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"CA -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
STANDARD & POOR'S CORPORATION rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality.
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
"A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is in
arrears."
<TABLE>
INCOME FUND OF AMERICA
July 31, 1996
- ---------------------------- ------------- --------------
Asset Mix Comparison of Fiscal 1996 Investment Investment
to Fiscal 1995 Portfolio Portfolio
July 31, 1996 July 31, 1995
- ---------------------------- ------------- -------------
<S> <C> <C> <C>
U.S. Equity-Type Securities* 56.7%U.S. Equity-Type Securities 53.4%
Non-U.S. Equity-Type Securities 4.0 Non-U.S. Equity-Type Securi 0.4
Corporate Bonds 19.8 Corporate Bonds 23.3
Government Bonds 13.1 Government Bonds 17.2
Cash & Equivalents 6.4 Cash & Equivalents 5.7
*Also includes 0.4% (1996) and 0.3% (1995)
in Canadian equities which are part of the
S&P 500.
- ---------------------------- ---------- -------------------------------------
Ten Largest Equity Holdings Percent of Ten Largest Equity HoldingsPercent of
July 31, 1996 Net Assets July 31, 1995 Net Assets
- ---------------------------- ---------- -------------------------------------
Philip Morris 1.81% Eli Lilly 1.91%
Atlantic Richfield 1.72 Bristol-Myers Squibb 1.59
J.C. Penney 1.67 Philip Morris 1.46
American Home Products 1.63 American Home Products 1.30
Bristol-Myers Squibb 1.51 Upjohn 1.17
Ford Motor 1.33 Occidental Petroleum .87
First Union 1.25 Lincoln National .85
Phillips Petroleum 1.25 Ford Motor .78
Texaco 1.23 Phillips Petroleum .78
PNC Bank 1.12 U S WEST .77
- ---------------------------- ---------------------------------------------------
Five Largest Industry Holdings Five Largest Industry Holdings
in Equities Percent of in Equities Percent of
July 31, 1996 Net Assets July 31, 1995 Net Assets
- ---------------------------- --------------------------------------------------
Banking 11.30% Banking 7.65%
Energy Sources 8.65 Health & Personal Care 7.63
Health & Personal Care 6.11 Energy Sources 6.14
Utilities: Electric & Gas 4.23 Insurance 4.03
Insurance 3.55 Telecommunications 3.42
</TABLE>
<TABLE>
The Income Fund of America
Investment Portfolio July 31, 1996
- ---------------------------------- --- --- ---
Shares or Market Percent
Principal Value of Net
Equity-Type Securities Amount (000) Assets
- ---------------------------------- --- --- ---
<S> <C> <C> <C>
Banking - 11.30%
First Union Corp. 2,850,000 180,975 1.25%
PNC Bank Corp. 5,580,000 162,518 1.12
CoreStates Financial Corp. 3,810,000 149,543 1.03
Bankers Trust New York Corp. 1,910,200 137,296 .95
Bank of New York Co., Inc. 1,600,000 82,400
Bank of New York Co., Inc. 7.50% convertible debentures
2001$13,000,000 34,229 .83
Chase Manhattan Corp. (New) 1,554,000 108,003 .74
Boatmen's Bancshares, Inc. 2,522,500 100,900 .70
Royal Bank of Canada 3,250,000 78,602 .54
First Security Corp. 2,400,000 61,200 .42
Banc One Corp. 1,650,000 57,131 .40
J.P. Morgan & Co. Inc. 660,000 56,760 .39
Fleet Financial Group, Inc. 1,325,000 53,663 .37
Comerica Inc. 1,080,000 47,385 .33
National Bank of Canada 5,275,000 42,590 .29
Westpac Banking Corp. 9,042,400 40,542 .28
First Chicago NBD Corp. 1,045,000 40,232 .28
Bancorp Hawaii, Inc. 1,000,000 34,875 .24
NationsBank Corp. 350,000 30,056 .21
Regions Financial Corp. 630,000 27,484 .19
U.S. Bancorp 800,000 27,400 .19
Barnett Banks, Inc. 300,000 18,412 .13
National City Corp. 500,000 17,312 .12
Central Fidelity Banks, Inc. 675,000 14,681 .10
Commonwealth Bank of Australia (1) 2,890,000 14,162 .10
First Nationwide Bank, FSB preferred 100,000 10,900 .07
Banco Nacional de Mexico, SA 11.00% exchangeable notes
2003 (1) $4,175,000 3,966 .03
-------- -----
1,633,217 11.30
-------- -----
Energy Sources - 8.65%
Atlantic Richfield Co. 2,150,000 249,400 1.72
Phillips Petroleum Co. 4,574,000 180,673 1.25
Texaco Inc. 2,100,000 178,500 1.23
Chevron Corp. 2,005,000 116,039 .80
Amoco Corp. 1,634,000 109,274 .76
Sun Co., Inc. 1,037,613 26,848
Sun Co., Inc. $1.80 TARGETS, cumulative preferred,
Series A 2,495,000 65,806 .64
USX-Marathon Group 3,500,000 71,750 .50
Occidental Petroleum Corp. 2,000,000 44,750
Occidental Petroleum Corp. $3.875 convertible
preferred (1) 300,000 16,800 .43
Unocal Corp. $3.50 convertible preferred 750,000 42,000 .29
Exxon Corp. 500,000 41,125 .28
Ashland Inc. $3.125 convertible preferred 600,000 35,700 .25
Enterprise Oil PLC 3,600,000 26,702 .18
Cyprus Amax Minerals Co. $4.00 convertible preferred,
Series A 465,000 24,412 .17
Valero Energy Corp. $3.125 convertible preferred 345,000 16,387 .11
Santa Fe Energy Resources, Inc. $0.732 DECS
convertible preferred, Series A 500,000 5,125 .04
-------- -----
1,251,291 8.65
-------- -----
Health & Personal Care - 6.11%
American Home Products Corp. 4,160,000 236,080 1.63
Bristol-Myers Squibb Co. 2,515,000 217,862 1.51
Pharmacia & Upjohn, Inc. 3,580,000 147,675 1.02
Eli Lilly and Co. 2,462,800 137,917 .95
Warner-Lambert Co. 1,550,000 84,475 .58
Tambrands Inc. 1,300,000 52,975 .37
Glycomed Inc. 7.50% convertible debentures 2003 $5,000,000 4,150 .03
McKesson Corp. 4.50% convertible debentures 2004 $2,650,000 2,292 .02
-------- -----
883,426 6.11
-------- -----
Utilities: Electric & Gas - 4.23%
Southern Co. 2,300,000 52,037 .36
DTE Energy Co. 1,750,000 50,312 .35
National Power PLC 8,140,000 50,061 .35
Public Service Enterprise Group Inc. 1,825,000 47,678 .33
Entergy Corp. 1,850,000 47,175 .33
Consolidated Edison Co. of New York, Inc. 1,700,000 45,900 .32
Union Electric Co. 1,175,000 44,209 .31
Long Island Lighting Co. 2,450,000 41,650 .29
Equitable Resources, Inc. 1,500,000 38,063 .26
Peoples Energy Corp. 1,080,000 33,615 .23
General Public Utilities Corp. 1,023,900 33,277 .23
American Electric Power Co., Inc. 780,000 32,370 .22
Houston Industries Inc. 1,300,000 29,413 .20
AGL Resources, Inc. 1,340,000 24,455 .17
Puget Sound Power & Light Co. 700,000 15,925 .11
Pacific Gas and Electric Co. 435,000 8,591 .06
PECO Energy Co. 275,000 6,462 .05
Eastern Utilities Associates 387,100 6,145 .04
Unicom Corp. 150,000 3,525 .02
-------- -----
610,863 4.23
-------- -----
Insurance - 3.55%
Lincoln National Corp. 2,540,000 108,267 .75
American General Corp. 2,500,000 86,875 .60
St. Paul Companies, Inc. 1,280,000 66,240 .46
Ohio Casualty Corp. (2) 1,830,400 58,115 .40
SAFECO Corp. 1,500,000 51,656 .36
Italy (Republic of) 5.00% PENs 2001
(exchangeable into INA SpA) $51,000,000 50,939 .35
USF&G Corp. 1,300,000 20,638
USF&G Corp. 0% convertible debentures 2009 $10,000,000 5,900 .18
CIGNA Corp. 200,000 21,300 .15
Allstate Corp. 6.76% exchangeable notes 1998 370,000 15,771 .11
Alexander & Alexander Services Inc. $3.625 convertible
preferred, Series A (1) 220,000 10,230 .07
St. Paul Capital LLC 6.00% MIPS convertible preferred 190,000 9,856 .07
Mutual Risk Management Ltd. 0% convertible debentures
2015 (1) $22,000,000 7,700 .05
-------- -----
513,487 3.55
-------- -----
Telecommunications - 3.21%
U S WEST Communications Group 4,400,000 133,650
U S WEST Communications Group 0% convertible debentures
2011 $70,000,000 24,500 1.09
Ameritech Corp. 1,492,200 82,817 .57
Pacific Telesis Group 2,435,000 81,877 .57
Bell Atlantic Corp. 1,100,000 65,038 .45
NYNEX Corp. 900,000 40,387 .28
International CableTel Inc. 7.25% convertible
notes 2005 (1) $8,000,000 8,540
International CableTel Inc. 7.00% convertible debentures
2008 (1) $15,000,000 13,538 .15
ALLTEL Corp. 500,000 13,687 .10
IntelCom Group (USA), Inc. warrants, expire 2005
(1)(3) 19,800 252 .00
Comunicacion Celular SA warrants, expire 2003 (1)(3) 31,000 155 .00
NEXTEL Communications, Inc. warrants (formerly Dial Page, Inc.)
(3)(4) 51,912 0 .00
-------- -----
464,441 3.21
-------- -----
Beverages & Tobacco - 2.81%
Philip Morris Companies Inc. 2,500,000 261,562 1.81
RJR Nabisco Holdings Corp. 3,200,000 98,400 .68
UST Inc. 1,400,000 46,550 .32
-------- -----
406,512 2.81
-------- -----
Merchandising - 2.41%
J.C. Penney Co., Inc. 4,864,300 241,999 1.67
Giant Food Inc., Class A 2,340,000 78,682 .54
Staples, Inc. 4.50% convertible debentures 2000 (1) $17,000,000 16,957 .12
Home Shopping Network, Inc. 5.875% convertible debentures
2006 (1) $10,000,000 9,700 .07
Thrifty PayLess, Inc., Class B (3) 57,000 798 .01
-------- -----
348,136 2.41
-------- -----
Forest Products & Paper - 2.08%
Union Camp Corp. 1,660,000 79,680 .55
Weyerhaeuser Co. 1,805,000 75,359 .52
UPM-Kymmene Corp. 2,628,300 57,724 .40
James River Corp. of Virginia 550,000 13,887
James River Corp. of Virginia $1.55 DECS convertible
preferred 1,665,000 40,376 .37
Sonoco Products Co. $2.25 convertible preferred 345,000 21,131 .15
Bowater Inc. 7.00% PRIDES convertible preferred
depositary shares, Series B 485,000 13,156 .09
-------- -----
301,313 2.08
-------- -----
Chemicals - 2.03%
E.I. du Pont de Nemours and Co. 1,820,000 146,965 1.02
Dow Chemical Co. 900,000 66,937 .46
Ethyl Corp. 5,200,000 46,800 .33
Eastman Chemical Co. 450,000 23,513 .16
Atlantic Richfield Co. DECS convertible preferred 400,000 9,150 .06
-------- -----
293,365 2.03
-------- -----
Automobiles - 1.55%
Ford Motor Co. 5,932,700 192,813 1.33
General Motors Corp. 650,000 31,687 .22
-------- -----
224,500 1.55
-------- -----
Business & Public Services - 1.43%
Dun & Bradstreet Corp. 750,000 43,125 .30
Moore Corp. Ltd. 1,900,000 33,012 .23
Browning-Ferris Industries, Inc. 7.25% ACES convertible
preferred 1,000,000 26,625 .18
Alco Standard Corp. 201,612 8,821
Alco Standard Corp. 6.50% ACES convertible preferred 200,000 16,600 .18
Tenet Healthcare Corp. 6.00% exchangeable notes 2005 $25,000,000 24,250 .17
FHP International Corp. convertible preferred, Series A 785,000 19,061 .13
Ceridian Corp. $2.75 cumulative convertible
exchangeable preferred 170,000 16,235 .11
Vivra Inc. 5.00% convertible debentures 2001 (1) $15,000,000 14,550 .10
Electronic Data Systems Holding Corp. 78,546 4,153 .03
Protection One Alarm Monitoring, Inc. warrants (1)(3) 57,600 562 .00
-------- -----
206,994 1.43
-------- -----
Broadcasting & Publishing - 1.20%
Time Warner Financing Trust 4.00% PERCS 1997 790,000 28,144
Time Warner Inc. exchangeable preferred, Series K (1) 30,668 30,362
Time Warner Inc. 0% convertible debentures 2012 $36,000,000 13,050
Time Warner Inc. 0% convertible debentures 2013 $57,500,000 24,006 .66
Comcast Corp. 1.125% convertible debentures 2007 $54,000,000 23,962 .17
Turner Broadcasting System, Inc. 0% convertible
debentures 2007 (1) $45,000,000 21,375 .15
Reader's Digest Assn., Inc., Class A 500,000 20,688 .14
Tele-Communications International 4.50% convertible
debentures 2006 $15,000,000 12,375 .08
Heartland Wireless Communications, Inc. warrants, expire
2000 (1)(3) 18,000 72 .00
-------- -----
174,034 1.20
-------- -----
Multi-Industry - 0.94%
Tenneco Inc. 2,051,300 101,027 .70
Minnesota Mining and Manufacturing Co. 400,000 26,000 .18
Harsco Corp. 160,000 9,480 .06
-------- -----
136,507 .94
-------- -----
Food & Household Products - 0.84%
General Mills, Inc. 1,435,000 77,849 .54
H.J. Heinz Co. 1,300,000 43,062 .30
-------- -----
120,911 .84
-------- -----
Miscellaneous Materials & Commodities - 0.79%
English China Clays PLC (2) 17,932,600 72,920 .50
Cooper Industries, Inc. 6.00% DECS convertible preferred 1,500,000 24,000 .17
Olin Corp. 203,100 17,213 .12
-------- -----
114,133 .79
-------- -----
Real Estate - 0.71%
Security Capital Realty, Inc. (1)(3)(4) 18,680 19,696
Security Capital Realty, Inc. 12.00% convertible
debentures 2014 (1)(4) $14,150,000 14,263 .23
Security Capital Pacific Trust 830,000 17,222
Security Capital Pacific Trust $1.75
convertible preferred, Series A 600,000 15,225 .23
Weingarten Realty Investors 685,000 27,571 .19
Western Investment Real Estate Trust 710,000 8,875 .06
-------- -----
102,852 .71
-------- -----
Financial Services - 0.66%
Beneficial Corp. 1,200,000 64,800 .45
American Express Co. 250,000 10,937 .08
First USA, Inc. 6.25% PRIDES convertible preferred 250,000 10,625 .07
United Companies Financial Corp. 6.75% PRIDES
convertible preferred 159,000 8,904 .06
-------- -----
95,266 .66
-------- -----
Transportation: Airlines - 0.54%
Continental Airlines Finance Trust 8.50% convertible
TOPrS (1) 450,000 27,000
Continental Airlines, Inc. 6.75% convertible debentures
2006 (1) $18,500,000 18,454 .31
Delta Air Lines, Inc. 309,752 21,644 .15
Airborne Freight Corp. 6.75% convertible debentures 2001 $6,500,000 6,435 .05
Alaska Air Group, Inc. 6.50% convertible debentures 2005 $4,000,000 4,820 .03
-------- -----
78,353 .54
-------- -----
Recreation & Other Consumer Products - 0.52%
Eastman Kodak Co. 600,000 44,775 .31
Jostens, Inc. 1,580,000 30,218 .21
-------- -----
74,993 .52
-------- -----
Industrial Components - 0.44%
Goodyear Tire & Rubber Co. 1,000,000 44,250 .31
Dana Corp. 700,000 19,512 .13
-------- -----
63,762 .44
-------- -----
Metals: Steel - 0.42%
USX Corp. $3.25 convertible preferred 350,000 15,006
USX Corp. 5.75% convertible debentures 2001 $21,000,000 19,110 .24
Carpenter Technology Corp. 500,000 16,625 .11
Bethlehem Steel Corp. $3.50 convertible preferred (1) 250,000 9,750 .07
-------- -----
60,491 .42
-------- -----
Energy Equipment - 0.30%
Cooper Industries, Inc. 1,100,000 43,313 .30
-------- -----
43,313 .30
-------- -----
Metals: Nonferrous - 0.29%
Inco Ltd. 5.75% convertible debentures 2004 $15,000,000 18,150 .13
Alumax Inc. $4.00 convertible preferred, Series A 90,000 11,385 .08
Freeport-McMoRan Copper & Gold Inc., Class B 299,991 8,887 .06
Kaiser Aluminum Corp. 8.255% PRIDES convertible
preferred 260,000 2,892 .02
-------- -----
41,314 .29
-------- -----
Machinery & Engineering - 0.18%
Thermo Electron Corp. 5.00% convertible debentures
2001 (1) $1,900,000 3,401
Thermo Electron Corp. 4.25% convertible debentures 2003
(1) $20,000,000 22,800 .18
-------- -----
26,201 .18
-------- -----
Data Processing & Reproduction - 0.15%
Data General Corp. 7.75% convertible debentures 2001 $10,000,000 9,000 .06
Wang Laboratories, Inc. 6.50% convertible preferred
depositary shares, Series B (1) 170,000 7,650 .06
AST Research, Inc. 0% convertible debentures 2013 $15,000,000 4,575 .03
-------- -----
21,225 .15
-------- -----
Electronic Components & Instruments - 0.09%
Seagate Technology 5.00% convertible debentures 2003 (1) $3,365,000 6,259 .04
Maxtor Corp. 5.75% convertible debentures 2012 $7,500,000 5,175 .04
Geotek Communications, Inc. warrants, expire 2005 (1)(3) 300,000 1,500 .01
-------- -----
12,934 .09
-------- -----
MISCELLANEOUS: Equity-type securities
in initial period of acquisition 470,471 3.26
-------- -----
TOTAL EQUITY-TYPE SECURITIES (cost: $7,328,943,000) 8,774,305 60.69
-------- -----
- ---------------------------------- ---
Principal
Bonds & Notes Amount
(000)
- ---------------------------------- ---
Broadcasting, Advertising & Publishing - 3.92%
Time Warner Inc. 7.45% 1998 $ 10,000 10,093
Time Warner Inc. 9.625% 2002 24,000 26,317
Time Warner Inc. 10.15% 2012 12,000 13,753
Time Warner Inc. 9.125% 2013 20,000 20,820 .49
Bell Cablemedia PLC 0%/11.95% 2004 (5) 53,750 38,700 .27
News America Holdings Inc. 10.125% 2012 20,000 22,365
News America Holdings Inc. 9.25% 2013 7,500 8,111
News America Holdings Inc. 8.45% 2034 7,500 7,913 .27
Continental Cablevision, Inc. 8.50% 2001 20,200 21,062
Continental Cablevision, Inc. 10.625% 2002 5,500 5,926
Continental Cablevision, Inc. 8.875% 2005 7,000 7,497 .24
Cablevision Systems Corp. 10.75% 2004 18,000 18,090
Cablevision Systems Corp. 9.875% 2013 11,500 10,580
Cablevision Systems Corp. 9.875% 2023 6,000 5,370 .24
TKR Cable I, Inc. 10.50% 2007 30,000 32,687 .23
International CableTel Inc. 0%/10.875% 2003 (5) 20,075 14,755
International CableTel Inc. 0%/12.75% 2005 (5) 22,000 14,135 .20
Videotron Holdings PLC 0%/11.125% 2004 (5) 37,500 27,375 .19
Chancellor Broadcasting Co. 9.375% 2004 24,000 23,160
Chancellor Broadcasting Co. 12.50% 2004 2,000 2,210 .18
Marvel Holdings Inc. 0% 1998 24,250 19,279 .13
Univision Television Group, Inc. 11.75% 2001 17,000 18,105 .13
American Media Operations, Inc. 11.625% 2004 17,750 18,016 .12
Tele-Communications, Inc. 9.875% 1998 7,100 7,420
Tele-Communications, Inc. 10.125% 2001 5,000 5,456
Tele-Communications, Inc. 9.25% 2023 3,500 3,360 .11
Comcast Corp. 10.25% 2001 12,600 13,041
Comcast Corp. 9.375% 2005 3,000 2,940 .11
TeleWest plc 9.625% 2006 5,000 4,863
TeleWest plc 0%/11.00% 2007 (5) 18,000 10,530 .11
Century Communications Corp. 9.50% 2000 3,500 3,518
Century Communications Corp. 9.75% 2002 7,000 7,070
Century Communications Corp. 11.875% 2003 4,400 4,664 .10
Viacom International Inc. 9.125% 1999 4,000 4,110
Viacom International Inc. 10.25% 2001 9,500 10,201 .10
Insight Communications Co., LP 11.25% 2000 (6) 12,750 12,846 .09
Comcast UK Cable Partners Ltd. 0%/11.20% 2007 (5) 18,500 11,192 .08
Infinity Broadcasting Corp. 10.375% 2002 10,250 10,814 .07
Young Broadcasting Inc. 10.125% 2005 10,500 10,185 .07
Multicanal Participacoes SA 12.625% 2004 (1) 8,750 9,100 .06
TCI Communications, Inc. 8.75% 2015 8,000 7,677 .05
Grupo Televisa, SA, Series A, 11.375% 2003 (1) 3,750 3,802
Grupo Televisa, SA 0%/13.25% 2008 (1)(5) 6,500 3,510 .05
Summitt Communications 10.50% 2005 6,655 7,221 .05
Storer Communications, Inc. 10.00% 2003 6,000 6,000 .04
Adelphia Communications Corp. 9.875% 2005 6,500 5,915 .04
American Radio Systems Corp. 9.00% 2006 4,000 3,810 .03
Rogers Communications Inc. 10.875% 2004 3,500 3,570 .02
Heartland Wireless Communications, Inc. 13.00% 2003 3,000 3,210 .02
CAI Wireless Systems, Inc. 12.25% 2002 3,000 3,105 .02
EZ Communications, Inc. 9.75% 2005 2,000 1,970 .01
-------- -----
567,419 3.92
-------- -----
Wireless Communications - 2.22%
NEXTEL Communications, Inc. 0%/11.50% 2003 (5) 40,500 26,325
NEXTEL Communications, Inc. 0%/9.75% 2004 (5) 61,000 34,160
NEXTEL Communications, Inc. 0%/10.125% 2004
(formerly CenCall) (5) 44,250 25,886
NEXTEL Communications, Inc. 0%/12.25% 2004
(formerly Dial Call) (5) 32,500 19,906 .74
360 Communications Co. 7.125% 2003 22,500 21,660
360 Communications Co. 7.50% 2006 14,000 13,357 .24
Centennial Cellular Corp. 8.875% 2001 28,000 26,040
Centennial Cellular Corp. 10.125% 2005 3,000 2,880 .20
Comcast Cellular Corp., Series A, 0% 2000 14,500 9,896
Comcast Cellular Corp., Series B, 0% 2000 25,300 17,394 .19
PriCellular Wireless Corp. 0%/14.00% 2001 (5) 10,000 8,950
PriCellular Wireless Corp. 0%/12.25% 2003 (5) 14,550 11,494 .14
Comunicacion Celular SA 0%/13.125% 2003 (5) 31,000 18,600 .13
Cellular Communications International, Inc.,
units consisting of notes and warrants, 0% 2000 (3) 24,500 15,067 .10
Cellular, Inc. 0%/11.75% 2003 (5) 18,000 14,760 .10
Horizon Cellular Telephone Co., LP, Series B,
0%/11.375% 2000 (5) 15,000 14,100 .10
Paging Network, Inc. 11.75% 2002 10,500 11,366 .08
InterCel, Inc. 0%/12.00% 2006 (5) 17,500 9,406 .06
Geotek Communications, Inc., Series B, 0%/15.00% 2005
(5) 10,000 6,150 .04
MobileMedia Communications, Inc. 0%/10.50% 2003 (5) 8,000 5,620 .04
Commnet Cellular Inc. 11.25% 2005 3,000 3,165 .02
Rogers Cantel Inc. 9.375% 2008 3,000 2,910 .02
Vanguard Cellular Systems, Inc. 9.375% 2006 3,000 2,895 .02
-------- -----
321,987 2.23
-------- -----
Transportation - 1.90%
Jet Equipment Trust, Series 1994-A, Class B1, 10.91%
2006 (1) 6,965 7,923
Jet Equipment Trust, Series 1995-B, Certificates,
10.91% 2014 (1) 4,750 5,166
Jet Equipment Trust, Series 1995-A, Class B, 8.64%
2015 (1) 14,756 15,633
Jet Equipment Trust, Series 1995-A, Class C, 10.69%
2015 (1) 5,000 5,829
Jet Equipment Trust, Series 1995-B, Class A, 7.63%
2015 (1) 14,241 14,290
Jet Equipment Trust, Series 1995-B, Class C, 9.71%
2015 (1) 5,500 5,947 .38
Airplanes Pass Through Trust, pass-through certificates,
Class B, 6.596% 2019 (6)(7) 7,396 7,451
Airplanes Pass Through Trust, pass-through certificates,
Class C, 8.15% 2019 (7) 15,000 14,963
Airplanes Pass Through Trust, pass-through certificates,
Class D, 10.875% 2019 (7) 22,800 23,740 .32
Delta Air Lines, Inc. 9.875% 1998 6,750 7,033
Delta Air Lines, Inc. 10.375% 2022 13,000 15,511
Delta Air Lines, Inc., pass-through certificates,
Series 1992-A2, 9.20% 2014 (7) 5,000 5,402
Delta Air Lines, Inc., pass-through certificates,
Series 1993-A2, 10.50% 2016 (7) 6,000 7,057 .24
USAir, Inc. 9.625% 2001 13,179 12,256
USAir, Inc., enhanced equipment notes, Class C, 8.93%
2008 (1) 7,000 7,245
USAir, Inc., pass-through trust, Series 1993-A3, 10.375%
2013 (7) 10,000 9,912 .21
Continental Airlines, pass-through certificates,
Series 1996-2C, 10.22% 2014 (1)(7) 4,250 4,802
Continental Airlines, pass-through certificates,
Series 1996-A, 6.94% 2015 (1)(7) 9,000 8,663
Continental Airlines, pass-through certificates,
Series 1996-C, 9.50% 2015 (1)(7) 13,000 14,056 .19
United Air Lines, Inc. 9.00% 2003 8,000 8,369
United Air Lines, Inc., pass-through certificates,
Series 1993-A3, 8.39% 2011 (7) 7,500 7,541
United Airlines, Inc., pass-through certificates,
Series 1996-A2 7.87% 2019 (7) 5,000 4,692 .14
Northwest Airlines, Inc. 12.0916% 2000 9,663 9,735
NWA Trust No. 2, Class D, 13.875% 2008 9,000 10,440 .14
TNT Transport (Euro) PLC/TNT (USA) Inc. 11.50% 2004 11,750 11,956 .08
Atlas Air, pass-through certificates, 12.25% 2002 (7) 10,000 10,600 .07
Teekay Shipping Corp. 8.32% 2008 9,820 9,231 .06
MC-Cuernavaca Trust 9.25% 2001 (1) 7,730 5,295 .04
SFP Pipeline Holdings, Inc. 11.16% 2010 3,000 3,544 .03
-------- -----
274,282 1.91
-------- -----
Energy Sources and Energy Equipment & Services - 1.70%
California Energy Co., Inc. 9.875% 2003 5,000 5,075
California Energy Co., Inc. 0%/10.25% 2004 (5) 61,300 60,687 .45
Oryx Energy Co. 9.50% 1999 15,000 15,733
Oryx Energy Co. 8.375% 2004 8,000 8,020
Oryx Energy Co. 8.125% 2005 3,500 3,434 .19
Mesa Capital Corp. 12.75% 1998 15,000 15,038
Mesa Operating Co. 0%/11.625% 2006 (5) 8,500 5,142
Mesa Operating Co. 10.625% 2006 2,000 2,045 .15
Global Marine, Inc. 12.75% 1999 17,500 18,900 .13
J. Ray McDermott, SA 9.375% 2006 17,000 16,745 .12
Cliffs Drilling Co. 10.25% 2003 (1) 14,250 14,250 .10
Flores & Rucks, Inc. 13.50% 2004 12,000 13,800 .10
Occidental Petroleum Corp. 9.25% 2019 11,400 13,273 .09
Falcon Drilling Co., Inc. 9.75% 2001 6,000 6,060
Falcon Drilling Co., Inc. 8.875% 2003 5,000 4,800 .08
Chesapeake Energy Corp. 10.50% 2002 3,850 4,067
Chesapeake Energy Corp. 9.125% 2006 6,000 5,880 .07
Dual Drilling Co. 9.875% 2004 8,550 8,978 .06
OXYMAR 7.50% 2016 (1) 8,000 7,270 .05
Subic Power Corp. 9.50% 2008 (1) 6,552 6,552 .05
Noble Drilling Corp. 9.25% 2003 2,750 2,764 .02
Petroleo Brasileiro SA-PETROBRAS 10.15% 1998 (6) 2,500 2,584 .02
Parker & Parsley Petroleum Co. 8.25% 2007 2,000 2,073 .01
TransTexas Gas Corp. 11.50% 2002 2,000 1,990 .01
-------- -----
245,160 1.70
-------- -----
Utilities - Electric & Gas - 1.50%
Long Island Lighting Co. 7.30% 1999 41,240 40,051
Long Island Lighting Co. 6.25% 2001 9,000 8,103
Long Island Lighting Co. 7.125% 2005 10,000 8,817
Long Island Lighting Co. 7.50% 2007 15,000 13,205
Long Island Lighting Co. 7.90% 2008 20,000 19,105
Long Island Lighting Co. 8.90% 2019 32,000 29,326
Long Island Lighting Co. 9.00% 2022 17,000 15,778
Long Island Lighting Co. 8.20% 2023 22,500 19,909
Long Island Lighting Co. 9.625% 2024 22,250 22,040 1.22
Midland Cogeneration Venture LP, Secured Lease
Obligation Bonds, Series C-91 10.33% 2002 5,656 5,854
Midland Cogeneration Venture LP, Secured Lease
Obligation Bonds, Series C-94 10.33% 2002 8,650 8,953 .10
Columbia Gas System, Inc., Series F 7.42% 2015 12,000 11,118 .08
Bridas Corp. 12.50% 1999 6,000 6,240 .04
El Paso Electric Co., Series A, 7.25% 1999 5,431 5,340 .04
CMS Energy Corp. 9.50% 1997 3,000 3,053 .02
-------- -----
216,892 1.50
-------- -----
Telecommunications - 1.05%
MFS Communications Co., Inc. 0%/9.375% 2004 (5) 97,800 73,350
MFS Communications Co., Inc. 0%/8.875% 2006 (5) 43,250 25,409 .68
IntelCom Group (USA), Inc. 0%/13.50% 2005 (5) 8,000 4,780
IntelCom Group (USA), Inc. 0%/12.5% 2006 (1)(5) 22,500 11,925 .12
Brooks Fiber Properties, Inc. 0%/10.875% 2006 (1)(5) 29,000 15,225 .11
PanAmSat, LP 9.75% 2000 10,300 10,712 .07
Teleport Communications 9.875% 2006 7,500 7,181 .05
Telecom Argentina STET-France Telecom SA 12.00% 2002 2,500 2,637 .02
-------- -----
151,219 1.05
-------- -----
Business & Public Services - 0.82% .
Federal Express Corp. 10.00% 1998 4,000 4,260
Federal Express Corp. 9.875% 2002 7,000 7,843
Federal Express Corp. 7.53% 2006 13,287 13,275
Federal Express Corp, pass-through certificates,
Series 1996-A1, 7.85% 2015 (7) 10,000 10,034 .24
Integrated Health Services, Inc. 10.75% 2004 5,175 5,330
Integrated Health Services, Inc. 10.25% 2006 (1) 16,900 16,942 .15
Protection One Alarm Monitoring, Inc.
0%/13.625% 2005 (5) 18,000 15,435 .11
Neodata Services, Inc. 12.00% 2003 11,000 10,973 .08
Mariner Health Group, Inc. 9.50% 2006 (1) 11,000 10,780 .07
Regency Health Services, Inc. 9.875% 2002 5,000 4,850
Regency Health Services, Inc. 12.25% 2003 (1) 5,000 5,150 .07
ADT Operations 9.25% 2003 7,000 7,315 .05
Merit Behavioral Care Corp. 11.50% 2005 6,750 7,054 .05
-------- -----
119,241 .82
-------- -----
Forest Products & Paper - 0.78%
Container Corp. of America 10.75% 2002 1,000 1,035
Container Corp. of America 9.75% 2003 49,050 48,560
Container Corp. of America 11.25% 2004 23,000 23,920 .51
Fort Howard Corp. 9.25% 2001 9,500 9,548
Fort Howard Corp. 8.25% 2002 4,500 4,297 .10
Tjiwi Kimia International Finance Co. 13.25% 2001 6,750 7,594 .05
Grupo Industrial Durango, SA de CV 12.00% 2001 6,000 6,067 .04
Repap Wisconsin 9.875% 2006 6,325 5,787 .04
Four M Corp., Series A, 12.00% 2006 (1) 4,000 4,080 .03
Pacific Lumber Co. 10.50% 2003 1,500 1,470 .01
-------- -----
112,358 .78
-------- -----
Food Retailing and Food Products & Beverages - 0.54%
Canandaigua Wine Co., Inc. 8.75% 2003 17,500 17,063 .12
Stater Brothers Holdings Inc. 11.00% 2001 16,000 16,640 .11
Star Markets Co., Inc. 13.00% 2004 9,750 10,189 .07
Dr Pepper Bottling Co. of Texas 10.25% 2000 7,500 7,687 .05
Allied Supermarkets Inc. (Vons) 6.625% 1998 7,443 7,369 .05
Smith's Food & Drug Centers, Inc., pass-through
certificates, Series 94-A2, 8.64% 2012 (7) 8,000 6,400 .04
Carr-Gottstein Foods Co. 12.00% 2005 5,000 5,100 .04
Bruno's, Inc. 10.50% 2005 5,000 4,987 .03
Safeway Inc. 10.00% 2002 3,500 3,885 .03
-------- -----
79,320 .54
-------- -----
General Retailing & Merchandising - 0.49%
Barnes & Noble, Inc. 11.875% 2003 22,500 24,244 .17
AnnTaylor, Inc. 8.75% 2000 13,696 12,635 .09
May Department Stores Co. 8.375% 2024 10,000 10,165 .07
Thrifty PayLess, Inc. 12.25% 2004 6,491 7,205 .05
Woolworth Corp., Series A, 7.00% 2002 6,800 6,635 .05
Dayton Hudson Corp. 9.50% 2015 5,000 5,719 .04
Loehmann's Inc. 11.875% 2003 3,250 3,376 .02
-------- -----
69,979 .49
-------- -----
Banking and Insurance - 0.46%
SFFED Corp. 11.20% 2004 (1) 10,000 11,500 .08
The Equitable Life Assurance Society of the
United States 7.70% 2015 (1) 10,000 9,656 .07
Metropolitan Life Insurance Co. 7.45% 2023 (1) 10,000 9,073 .06
Midland American Capital 12.75% 2003 6,000 6,740 .05
Bank of Scotland 8.80% 2004 (1) 5,000 5,375 .04
New American Capital, Inc. 9.60% 1999 (1) 5,000 5,212 .03
Dime Bancorp, Inc. 10.50% 2005 4,000 4,320 .03
First Nationwide Holdings Inc. 12.50% 2003 4,000 4,200 .03
Coast Federal Bank 13.00% 2002 3,500 3,885 .03
Chevy Chase Savings Bank, FSB 9.25% 2005 4,000 3,770 .02
Fairfax Financial Holdings Ltd. 8.25% 2015 3,000 2,979 .02
-------- -----
66,710 .46
-------- -----
Metals: Steel & Nonferrous - 0.46%
Kaiser Aluminum and Chemical Corp. 9.875% 2002 5,000 4,900
Kaiser Aluminum and Chemical Corp. 12.75% 2003 9,000 9,405 .10
Acme Metals Inc. 12.50% 2002 3,000 3,030
Acme Metals Inc. 0%/13.50% 2004 (5) 10,500 9,555 .09
Inco Ltd. 9.60% 2022 1,625 1,693
Inco Ltd. 9.875% 2019 6,500 7,013 .06
Pohang Iron & Steel Co., Ltd. 7.375% 2005 7,000 6,842 .05
Ispat Mexicana, SA de CV, 10.375% 2001 (1) 2,000 1,940
Ispat Mexicana, SA de CV, 10.375% 2001 4,000 3,880 .04
USX Corp. 9.125% 2013 5,000 5,393 .04
UCAR Global Enterprises Inc. 12.00% 2005 4,250 4,802 .03
Oregon Steel Mills, Inc. 11.00% 2003 4,250 4,441 .03
AK Steel Corp. 10.75% 2004 2,750 2,977 .02
-------- -----
65,871 .46
-------- -----
Data Processing & Reproduction - 0.36%
Digital Equipment Corp. 8.625% 2012 25,314 24,607 .17
Apple Computer, Inc. 6.50% 2004 18,920 14,947 .10
Unisys Corp. 12.00% 2003 12,000 12,060 .09
-------- -----
51,614 .36
-------- -----
Real Estate - 0.35%
B.F. Saul Real Estate Investment Trust 11.625% 2002 23,000 23,575 .16
Irvine Co. 7.46% 2006 (1)(4) 10,000 9,300 .06
Beverly Finance Corp. 8.36% 2004 (1) 5,000 5,144 .04
Shopping Center Associates 6.75% 2004 (1) 5,000 4,719 .03
Security Capital Industrial Trust 7.95% 2008 4,000 3,948 .03
ERP Operating LP 7.95% 2002 3,750 3,784 .03
-------- -----
50,470 .35
-------- -----
Financial Services - 0.33%
General Motors Acceptance Corp. 7.00% 2000 3,000 3,007
General Motors Acceptance Corp. 9.625% 2001 20,000 22,174
General Motors Acceptance Corp. 8.75% 2005 5,000 5,389 .21
Ford Capital BV 10.125% 2000 5,500 6,120 .04
General Electric Capital Corp. 8.875% 2009 4,000 4,563 .03
Credit Foncier de France 8.00% 2002 4,000 4,095 .03
HomeSide, Inc. 11.25% 2003 (1) 3,000 3,128 .02
-------- -----
48,476 .33
-------- -----
Leisure & Tourism - 0.31%
Foodmaker, Inc. 9.25% 1999 8,750 8,662
Foodmaker, Inc. 9.75% 2002 3,550 3,390 .08
Trump Atlantic City Funding, Inc. 11.25% 2006 11,750 11,456 .08
Harrah's Operating Co. Inc. 8.75% 2000 4,000 4,030
Harrah's Operating Co. Inc. 10.875% 2002 5,000 5,325 .07
Station Casinos, Inc. 9.625% 2003 7,650 7,277 .05
Rio Hotel & Casino, Inc. 10.625% 2005 2,000 2,100 .01
Four Seasons Hotels Inc. 9.125% 2000 (1) 2,000 1,993 .01
Plitt Theatres, Inc. 10.875% 2004 1,000 1,011 .01
-------- -----
45,244 .31
-------- -----
Automobiles - 0.31%
General Motors Corp. 9.45% 2011 5,000 5,722
General Motors Corp. 8.80% 2021 35,000 38,957 .31
-------- -----
44,679 .31
-------- -----
Construction & Building Materials - 0.29%
M.D.C. Holdings, Inc. 11.125% 2003 12,000 11,520 .08
Del Webb Corp. 9.75% 2003 10,500 10,185 .07
The Ryland Group, Inc. 10.50% 2006 7,500 7,388 .05
Building Materials Corp. 0%/11.75% 2004 (5) 7,500 5,644 .04
Continental Homes Holding Corp. 10.00% 2006 5,000 4,750 .03
Schuller International Group, Inc. 10.875% 2004 2,000 2,160 .02
-------- -----
41,647 .29
-------- -----
Aerospace, Automotive Parts and Machinery - 0.22%
Coltec Industries Inc 9.75% 1999 5,500 5,638
Coltec Industries Inc 9.75% 2000 8,500 8,712 .10
AGCO Corp. 8.50% 2006 (1) 10,000 9,925 .07
Caterpillar Inc. 8.01% 2002 5,000 5,207 .04
MagneTek, Inc. 10.75% 1998 2,000 1,995 .01
-------- -----
31,477 .22
-------- -----
Recreation, Other Consumer Products - 0.18%
Tyco Toys, Inc. 10.125% 2002 18,700 17,952 .12
AMF Group Inc. 0%/12.25% 2006 (1)(5) 10,000 5,600
AMF Group Inc. 10.875% 2006 (1) 3,000 2,985 .06
-------- -----
26,537 .18
-------- -----
Appliances & Household Durables - 0.07%
Samsung Electronics Co., Ltd. 8.50% 2002 (1) 6,000 6,272 .04
The Knoll Group, Inc. 10.875% 2006 3,750 3,816 .03
-------- -----
10,088 .07
-------- -----
Miscellaneous - 0.23%
Newsquest Capital plc 11.00% 2006 (1) 8,500 8,500 .06
Swire Pacific Ltd. 8.50% 2004 (1) 7,500 7,765 .05
Owens-Illinois, Inc. 11.00% 2003 6,000 6,465 .05
WestPoint Stevens Inc. 8.75% 2001 4,000 3,970 .03
Tenneco Inc. 10.00% 1998 1,500 1,593
Tenneco Inc. 7.875% 2002 2,000 2,049 .02
Lifestyle Furnishings International Ltd. 10.875% 2006 3,000 3,000 .02
-------- -----
33,342 .23
-------- -----
Collateralized Mortgage/Asset-Backed Obligations (7)
(excluding those issued by federal agencies) - 1.08%
Green Tree Financial Corp., Net Interest Margin Trust,
Series 1994-A, 6.90% 2004 4,979 4,923
Green Tree Financial Corp., Seller and Servicer
Manufactured Housing Contract, Series 1993-2, Class B,
8.00% 2018 14,000 13,821
Green Tree Financial Corp., Seller and Servicer
Manufactured Housing Contract, Series 1995-1, Class A-3,
7.95% 2025 5,000 5,081
Green Tree Financial Corp., Seller and Servicer
Manufactured Housing Contract, Series 1995-9, Class A-5,
6.80% 2027 4,000 3,837 .19
Resolution Trust Corp., Series 1992-CHF, Class E,
8.25% 2020 10,825 10,420
Resolution Trust Corp., Series 1993-C1, Class D,
9.45% 2024 6,143 6,288
Resolution Trust Corp., Series 1993-C1, Class E,
9.50% 2024 1,712 1,691
Resolution Trust Corp., Series 1993-C2, Class C,
8.00% 2025 3,000 3,005
Resolution Trust Corp., Series 1993-C2, Class D,
8.50% 2025 3,290 3,307
Resolution Trust Corp., Series 1993-C2, Class E,
8.50% 2025 677 666 .18
Merrill Lynch Mortgage Investors, Inc., Seller
Manufactured Housing Contract, Series 1992-B, Class A2,
8.05% 2012 1,834 1,845
Merrill Lynch Mortgage Investors, Inc., Seller
Manufactured Housing Contract, Series 1995-C2,
Class A-1, 7.251% 2021 (6) 17,953 17,962 .14
Electronic Transfer Master Trust 9.35% 2002 (1) 15,000 15,135 .10
UCFC Acceptance Corp., home-equity loan pass-through
certificates, Series 1996-B1, Class A-2 7.075% 2010 15,000 15,038 .10
Chase Manhattan Bank, NA, Series 1993-I, Class 2A5,
7.25% 2024 9,910 9,427 .07
GE Capital Mortgage Services, Inc., Series 94-2, Class
A15, 5.442% 2009 (8) 6,310 3,549
GE Capital Mortgage Services, Inc., Series 94-9, Class
A9, 6.50% 2024 5,657 4,596 .06
Banco Nacional de Mexico 0% 2002 (1) 7,680 5,910 .04
Prudential Home Mortgage Securities Co., Inc.,
Series 1992-37, Class A6, 7.00% 2022 5,856 5,842 .04
Citicorp Mortgage Securities, Inc., Series 1992-20,
Class A3, 7.50% 2006 5,432 5,436 .04
Fifth Avenue Capital Trust, Class C, 12.36% 2007 (1) 5,000 5,312 .04
Standard Credit Card Master Trust I, credit card
participation certificates, Series 1994-2A, 7.25% 2008 5,000 4,958 .03
CSFB Finance Co. Ltd. 7.00% 2005 (1)(6) 5,000 4,813 .03
CMC Securities Corp. I, Series 1993-E, Class S9,
6.50% 2008 2,801 2,538 .02
Bank of America 9.50% 2008 73 74 .00
-------- -----
155,474 1.08
-------- -----
Federal Agency Obligations: Mortgage Pass-Throughs (7)
- 2.83%
Government National Mortgage Assn. 5.00% 2025 (6) 3,975 3,888
Government National Mortgage Assn. 6.00% 2023 3,003 2,703
Government National Mortgage Assn. 6.00% 2024 (6) 7,164 7,224
Government National Mortgage Assn. 6.50% 2024 4,663 4,326
Government National Mortgage Assn. 6.50% 2023-2024 (6) 88,518 88,830
Government National Mortgage Assn. 7.00% 2008-2023 25,941 24,900
Government National Mortgage Assn. 7.00% 2022 (6) 17,369 17,569
Government National Mortgage Assn. 7.50% 2017-2026 34,940 34,506
Government National Mortgage Assn. 8.00% 2017 6,152 6,309
Government National Mortgage Assn. 8.50% 2017-2026 43,942 45,208
Government National Mortgage Assn. 9.00% 2008-2025 13,983 14,775
Government National Mortgage Assn. 9.50% 2009-2021 15,343 16,495
Government National Mortgage Assn. 10.00% 2016-2019 1,732 1,883
Government National Mortgage Assn. 10.50% 2018-2019 258 286
Government National Mortgage Assn. 11.00% 2015 118 132 1.86
Federal National Mortgage Assn. 7.50% 2007-2023 26,557 26,597
Federal National Mortgage Assn. 8.00% 2009-2024 12,004 12,217
Federal National Mortgage Assn. 8.50% 2014-2023 3,194 3,298
Federal National Mortgage Assn. 9.00% 2008-2025 12,768 13,409
Federal National Mortgage Assn. 10.00% 2008-2025 32,469 35,235 .63
Federal Home Loan Mortgage Corp. 8.00% 2025 8,928 8,986
Federal Home Loan Mortgage Corp. 8.50% 2008-2020 25,348 26,069
Federal Home Loan Mortgage Corp. 9.00% 2007-2021 13,002 13,546
Federal Home Loan Mortgage Corp. 10.00% 2019 124 134
Federal Home Loan Mortgage Corp. 11.50% 2000 15 16 .34
-------- -----
408,541 2.83
-------- -----
Federal Agency Obligations: Collateralized Mortgage
Obligations - 0.16%
Federal National Mortgage Assn., Series 1993-234,
Class SC, 5.829% 2008 (8) 8,754 5,493
Federal National Mortgage Assn., Series 1991-78,
Class PK, 8.50% 2020 8,278 8,531
Federal National Mortgage Assn., Series 1996-4,
Class ZA, 6.50% 2022 5,443 4,341 .13
Federal Home Loan Mortgage Corp., Series 1475, Class SA,
9.118% 2008 (8) 2,168 1,599
Federal Home Loan Mortgage Corp., Series 1673, Class SA,
5.116% 2024 (8) 6,000 2,586 .03
-------- -----
22,550 .16
-------- -----
Other Federal Agency Obligations - 0.54%
Federal Home Loan Mortgage Corp. 5.74% 2003 5,000 4,639
Federal Home Loan Mortgage Corp. 6.39% 2003 7,750 7,417
Federal Home Loan Mortgage Corp. 6.44% 2003 3,000 2,873
Federal Home Loan Mortgage Corp. 6.50% 2003 5,000 4,770
Federal Home Loan Mortgage Corp. 6.59% 2003 6,000 5,765
Federal Home Loan Mortgage Corp. 6.19% 2004 12,750 11,979
Federal Home Loan Mortgage Corp. 6.27% 2004 5,450 5,157 .29
Federal Home Loan Bank 6.41% 2003 10,000 9,547
Federal Home Loan Bank 6.16% 2004 13,000 12,265
Federal Home Loan Bank 6.27% 2004 6,000 5,675 .19
FNSM Principal STRIPS 0%/8.62% 2022 (5) 10,000 8,647 .06
-------- -----
78,734 .54
-------- -----
Governments and Governmental Authorities
(excluding U.S. government) - 0.87%
Argentina (Republic of) 8.375% 2003 13,000 11,018
Argentina (Republic of) Eurobond Series L, 6.312% 2005
(6) 40,343 30,559 .29
Venezuela (Republic of) 6.625% 2007 (6) 45,000 32,850 .22
United Mexican States Government 7.687% 2001 (1)(6) 15,000 14,962
United Mexican States Government 9.75% 2001 5,000 4,963
United Mexican States Government 6.25% Eurobonds 2019 1,000 645 .14
British Columbia Hydro & Power Authority 12.50% 2014 10,000 11,621 .08
Philippine Front-Loaded Interest Reduction Bond,
Series B 5.00% 2008 (6) 8,000 7,260 .05
Brazil (Republic of) Debt Conversion Bond 6.562%
2012 (6) 8,000 5,440 .04
Italy (Republic of) 6.875% 2023 5,000 4,517 .03
Ontario (Province of) 7.75% 2002 2,500 2,598 .02
-------- -----
126,433 .87
-------- -----
Floating Rate Eurodollar Notes (Undated) (6) - 0.23%
Standard Chartered Bank 6.062% 15,000 12,336 .08
Canadian Imperial Bank of Commerce 5.375% 10,000 8,437 .06
Bank of Nova Scotia 5.375% 10,000 8,250 .06
Midland Bank 6.00% 5,000 4,294 .03
-------- -----
33,317 .23
-------- -----
U.S. Treasury Obligations - 8.69%
7.25% August 1996 50,000 50,047 .35
7.25% November 1996 50,000 50,235 .35
8.00% January 1997 50,000 50,524 .35
6.75% February 1997 4,000 4,024 .03
6.875% April 1997 50,000 50,375 .35
8.50% May 1997 6,000 6,121 .04
8.50% July 1997 4,000 4,094 .03
5.625% August 1997 50,000 49,781 .34
8.625% August 1997 50,000 51,320 .36
5.50% September 1997 50,000 49,726 .34
5.75% October 1997 50,000 49,836 .35
8.75% October 1997 25,000 25,781 .18
6.00% November 1997 50,000 49,969 .35
7.875% January 1998 50,000 51,242 .35
8.125% February 1998 30,000 30,867 .21
9.25% August 1998 55,000 58,111 .40
8.875% February 1999 42,000 44,448 .31
9.125% May 1999 10,000 10,688 .07
6.75% June 1999 50,000 50,461 .35
8.75% August 2000 22,500 24,261 .17
8.50% November 2000 20,000 21,453 .15
7.75% February 2001 50,000 52,320 .36
11.625% November 2002 38,000 47,601 .33
10.75% February 2003 19,500 23,656 .16
7.25% May 2004 100,000 103,109 .71
11.625% November 2004 26,500 34,562 .24
6.50% May 2005 55,000 54,029 .37
10.75% August 2005 9,000 11,367 .08
10.375% November 2012 6,000 7,572 .05
8.875% August 2017 61,500 73,368 .51
7.125% February 2023 65,250 65,546 .45
-------- -----
1,256,494 8.69
-------- -----
TOTAL BONDS & NOTES (cost: $4,794,755,000) 4,755,555 32.89
-------- -----
- ---------------------------------- --- --- ---
Principal Market Percent
Short-Term Securities Amount Value of Net
(000) (000) Assets
- ---------------------------------- --- --- ---
Corporate Short-Term Notes - 4.95%
Hewlett-Packard Co. 5.33%-5.42% due 9/23-10/25/96 104,757 103,682 .72
International Lease Finance Corp. 5.27%-5.47%
due 8/14-10/8/96 90,600 90,107 .62
Walt Disney Co. 5.26%-5.32% due 8/16-9/18/96 70,400 70,043 .48
Lucent Technologies Inc. 5.28%-5.38% due 8/2-8/28/96 52,500 52,368 .36
Weyerhaeuser Co. 5.27%-5.38% due 8/14-9/17/96 50,000 49,727 .34
American Express Credit Corp. 5.29%-5.33%
due 8/1-9/16/96 43,400 43,257 .30
Ameritech Corp. 5.26%-5.36% due 8/13-8/29/96 (1) 43,400 43,248 .30
National Rural Utilities Cooperative Finance Corp.
5.35%-5.39% due 8/23-10/02/96 40,000 39,801 .28
J.C. Penney Funding Corp. 5.34%-5.40% due 8/29-10/11/96 39,300 38,966 .27
E.I. du Pont de Nemours and Co. 5.27% due 8/7/96 (1) 30,000 29,969
E.I. du Pont de Nemours and Co. 5.35% due 9/4/96 5,000 4,974 .24
CIT Group Holdings, Inc. 5.31%-5.35% due 8/1-9/19/96 32,500 32,355 .22
Beneficial Corp. 5.35% due 8/15/96 30,000 29,933 .21
A.I. Credit Corp. 5.27% due 8/12/96 20,000 19,964 .14
BellSouth Telecommunications, Inc. 5.34% due 8/13/96 14,900 14,871 .10
AT&T Corp. 5.27%-5.35% due 8/6-8/26/96 13,700 13,671 .09
American Brands, Inc. 5.47% due 10/1/96 10,000 9,906 .07
Eli Lilly and Co. 5.42% due 10/7/96 9,900 9,798 .07
Xerox Corp. 5.36% due 10/11/96 8,600 8,507 .06
Southwestern Bell Telephone Co. 5.40% due 10/15/96 7,500 7,414 .05
Monsanto Co. 5.38% due 9/20/96 4,200 4,168 .03
-------- -----
716,729 4.95
-------- -----
Certificates of Deposit - 0.21%
Mellon Bank Corp. 5.35% due 8/6/96 30,000 30,000 .21
-------- -----
Federal Agency Short-Term Obligations - 0.51%
Federal National Mortgage Assn.
5.21%-5.35% due 8/8-10/30/96 44,550 44,262 .31
Federal Home Loan Mortgage Corp. 5.21% due 8/16/96 23,000 22,946 .16
Federal Home Loan Bank 5.35% due 10/28/96 6,500 6,414 .04
-------- -----
73,622 .51
-------- -----
TOTAL SHORT-TERM SECURITIES (cost: $820,392,000) 820,351 5.67
-------- -----
TOTAL INVESTMENT SECURITIES (cost: $12,944,090,000) 14,350,211 99.25
Excess of cash and receivables over payables 108,953 .75
-------- -----
NET ASSETS $14,459,164 100.00%
======== =====
(1) Purchased in a private placement transaction;
resale to the public may require registration or sale
only to qualified institutional buyers.
(2) The fund owns 5.18% and 5.85% of the outstanding voting
securities of Ohio Casualty and English China Clays,
respectively, which represent investments in an affiliate as
defined in the Investment Company Act of 1940.
(3) Non-income-producing securities.
(4) Valued under procedures established by the
Board of Directors.
(5) Represents a zero coupon bond which will convert
to an interest-bearing security at a later date.
(6) Coupon rates may change periodically.
(7) Pass-through securities backed by a pool of
mortgages or other loans on which principal payments
are periodically made. Therefore, the effective
maturity of these securities is shorter than the
stated maturity.
(8) Represents an inverse floater, which is a floating
rate note whose interest rate moves in the opposite
direction of prevailing interest rates.
See Notes to Financial Statements
</TABLE>
<TABLE>
The Income Fund of America
Financial Statements
- ----------------------------------------- --------- ------------------
Statement of Assets and Liabilities (dollars in
July 31, 1996 thousands)
- ---------------------------------------- --------- ------------------
<S> <C> <C>
ASSETS:
Investment securities at market
(cost: $12,944,090) $14,350,211
Cash 4,819
Receivables for-
Sales of investments $ 72,536
Sales of fund's shares 13,807
Dividends and accrued interest 128,072 214,415
--------- ------------------
14,569,445
LIABILITIES:
Payables for-
Purchases of investments 63,447
Repurchases of fund's shares 37,847
Management services 3,902
Accrued expenses 5,085 110,281
--------- ------------------
NET ASSETS AT JULY 31, 1996-
Equivalent to $15.89 per share on
909,913,014 shares of $1 par value
capital stock outstanding (authorized
capital stock--1,200,000,000 shares) $14,459,164
=================
Statement of Operations (dollars in
for the year ended July 31, 1996 thousands)
- ----------------------------------------- --------- ------------------
INVESTMENT INCOME:
Income:
Dividends $ 328,343
Interest 524,572 $ 852,915
---------
Expenses:
Management services fee 42,065
Distribution expenses 31,409
Transfer agent fee 8,735
Reports to shareholders 879
Registration statement and
prospectus 426
Postage, stationery and supplies 1,701
Directors' fees 149
Auditing and legal fees 58
Custodian fee 312
Taxes other than federal income tax 2
Other expenses 120 85,856
--------- ----------------
Net investment income 767,059
-----------------
REALIZED GAIN AND UNREALIZED
APPRECIATION ON INVESTMENTS:
Net realized gain 630,886
Net increase in unrealized appreciation on
investments 276,975
Net realized gain and unrealized -----------------
appreciation on investments 907,861
----------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $1,674,920
================
- ---------------------------------------- ----------------
Statement of Changes in Net Assets (dollars in
thousands)
- ----------------------------------------- ------------------
Year ended July 31
-----------------
1996 1995
----------------- ----------------
OPERATIONS:
Net investment income $ 767,059 $ 680,297
Net realized gain on investments 630,886 50,302
Net increase in unrealized appreciation
on investments 276,975 994,833
--------- ---------
Net increase in net assets
resulting from operations 1,674,920 1,725,432
--------- ---------
DIVIDENDS AND DISTRIBUTIONS
PAID TO SHAREHOLDERS:
Dividends from net investment income (718,292) (598,609)
Distributions from net realized
gain on investments (152,790) (47,119)
--------- ---------
Total dividends and distributions (871,082) (645,728)
--------- ---------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
143,040,894 and 118,485,003
shares, respectively 2,275,579 1,645,595
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions of
net realized gain on investments:
46,413,197 and 42,687,032
shares, respectively 734,433 586,118
Cost of shares repurchased:
103,371,820 and 112,581,008
shares, respectively (1,644,843) (1,558,083)
--------- ---------
Net increase in net assets
resulting from capital share
transactions 1,365,169 673,630
--------- ---------
TOTAL INCREASE IN NET ASSETS 2,169,007 1,753,334
NET ASSETS:
Beginning of year 12,290,157 10,536,823
--------- ---------
End of year (including undistributed
net investment income: $159,002
and $110,419, respectively) $14,459,164 $12,290,157
=========== ===========
See Notes to Financial Statements
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. The Income Fund of America, Inc. (the "fund") is registered under the
Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks current income while secondarily striving
for capital growth through investments in stocks and fixed-income securities.
The following paragraphs summarize the significant accounting policies
consistently followed by the fund in the preparation of its financial
statements:
Equity-type securities traded on a national securities exchange (or reported
on the NASDAQ national market) and securities traded in the over-the-counter
market are stated at the last-reported sales price on the day of valuation;
other securities, and securities for which no sale was reported on that date,
are stated at the last quoted bid price.
Bonds and notes are valued at prices obtained from a bond-pricing service
provided by a major dealer in bonds, when such prices are available; however,
in circumstances where the investment adviser deems it appropriate to do so,
such securities will be valued at the mean of their representative quoted bid
and asked prices or, if such prices are not available, at prices for securities
of comparable maturity, quality, and type.
Short-term securities with original or remaining maturities in excess of 60
days are valued at the mean of their quoted bid and asked prices. Short-term
securities with 60 days or less to maturity are valued at amortized cost, which
approximates market value.
Securities for which market quotations are not readily available are valued
at fair value as determined in good faith by the Valuation Committee of the
Board of Directors.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Dividend and interest income is reported on the accrual basis. Discounts
on securities purchased are amortized over the life of the respective
securities. The fund does not amortize premiums on securities purchased.
Dividends and distributions paid to shareholders are recorded on the
ex-dividend date.
Investment securities and other assets and liabilities denominated in
non-U.S. currencies are recorded in the financial statements after translation
into U.S. dollars utilizing rates of exchange on the last business day of the
year. Purchases and sales of investment securities, income and expenses are
calculated using the prevailing exchange rate as accrued. The effects of
changes in foreign currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $312,000 includes $248,000 that was paid by these credits
rather than in cash.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of July 31, 1996, net unrealized appreciation on investments for federal
income tax purposes aggregated $1,406,195,000, of which $1,661,133,000 related
to appreciated securities and $254,938,000 related to depreciated securities.
During the year ended July 31, 1996, the fund realized, on a tax basis, a net
capital gain of $631,096,000 on securities transactions. The cost of portfolio
securities for federal income tax purposes was $12,944,016,000 at July 31,
1996.
3. The fee of $42,065,000 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.24% of the first $1 billion of average net assets; 0.20%
of such assets in excess of $1 billion but not exceeding $2 billion; 0.18% of
such assets in excess of $2 billion but not exceeding $3 billion; 0.165% of
such assets in excess of $3 billion but not exceeding $5 billion; 0.155% of
such assets in excess of $5 billion but not exceeding $8 billion; 0.15% of such
assets in excess of $8 billion but not exceeding $13 billion; 0.147% of such
assets in excess of $13 billion; plus 2.25% of monthly gross investment
income.
Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Directors. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the year ended July 31, 1996,
distribution expenses under the Plan were $31,409,000. As of July 31, 1996,
accrued and unpaid distribution expenses were $4,779,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $8,735,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $11,114,000 (after
allowances to dealers) as its portion of the sales charges paid by purchasers
of the fund's shares. Such sales charges are not an expense of the fund and,
hence, are not reflected in the accompanying statement of operations.
Directors who are unaffiliated with CRMC may elect to defer part or all of
the fees earned for services as members of the Board. Amounts deferred are not
funded and are general unsecured liabilities of the fund. As of July 31, 1996,
aggregate amounts deferred and earnings thereon were $213,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Directors and officers of the fund
are or may be considered to be affiliated with CRMC, AFS and AFD. No such
persons received any remuneration directly from the fund.
4. As of July 31, 1996, accumulated undistributed net realized gain on
investments was $525,840,000 and additional paid-in capital was
$11,458,261,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $5,557,992,000 and $4,871,034,000, respectively,
during the year ended July 31, 1996.
Net realized currency losses on dividends and withholding taxes reclaimable
were $26,000 for the year ended July 31, 1996.
The fund reclassified $184,000 from undistributed net investment income to
undistributed net realized gains for the year ended July 31, 1996.
<TABLE>
Per-Share Data and Ratios
Year ended July 31
1996 1995 1994 1993 1992
------- ----------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $14.92 $13.59 $14.47 $13.94 $12.54
------- ----------------------------
Income from Investment
Operations:
Net investment income .87 .85 .83 .85 .85
Net realized and unrealized
gain (loss) on investments 1.11 1.29 (.53) .74 1.48
------- ----------------------------
Total income from
investment operations 1.98 2.14 .30 1.59 2.33
------- ----------------------------
Less Distributions:
Dividends from net investment
income (.83) (.75) (.83) (.84) (.85)
Distributions from net
realized gains (.18) (.06) (.35) (.22) (.08)
------- ----------------------------
Total distributions (1.01) (.81) (1.18) (1.06) (.93)
------- ----------------------------
Net Asset Value, End of Year $15.89 $14.92 $13.59 $14.47 $13.94
======= ============================
Total Return1 13.46% 16.42% 1.98% 11.88% 19.16%
Ratios/Supplemental Data:
Net assets, end of year (in
millions) $14,459 $12,290 $10,537 $9,045 $5,121
Ratio of expenses to average
net assets .62% .65% .63% .62% .66%
Ratio of net income to average
net assets 5.56% 6.12% 5.92% 6.05% 6.40%
Portfolio turnover rate 37.77% 26.26% 26.42% 29.18% 22.71%
1Calculated without
deducting a sales charge.
The maximum sales charge is
5.75% of the fund's offering
price.
</TABLE>
Independent Auditors' Report
To the Board of Directors and Shareholders of
The Income Fund of America, Inc.:
We have audited the accompanying statement of assets and liabilities of The
Income Fund of America, Inc., including the schedule of portfolio investments
as of July 31, 1996, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the per-share data and ratios for each of the five years
in the period then ended. These financial statements and the per-share data
and ratios are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the per-share data
and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
per-share data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at July 31, 1996 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of the Income Fund of America, Inc. as of July 31, 1996, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the per-share data and
ratios for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Los Angeles, California
August 30, 1996
Tax Information (unaudited)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of distributions received by shareholders
during such fiscal year. The distributions made during the fiscal year by the
fund were earned from the following sources:
Dividends and Distributions per Share
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
To Shareholders of Record Payment Date From Net Investment Income From Net Realized Short-Term Gains From Net
Realized Long-Term Gains
September 22, 1995 September 25, 1995 $0.20 - -
December 26, 1995 December 27, 1995 0.23 - $0.18
March 22, 1996 March 25, 1996 0.20 - -
June 21, 1996 June 24, 1996 0.20 - -
</TABLE>
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 40% of the dividends
paid by the fund from net investment income represent qualifying dividends.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans, and 403(b) plans need not be reported as taxable income.
However, many plan retirement trusts may need this information for their annual
information reporting.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 15% of the dividends
paid by the fund from net investment income was derived from interest on direct
U.S. Treasury obligations.
SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FUND'S FISCAL YEAR AND NOT THE
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099 DIV OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 1997 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR RESPECTIVE 1996 TAX RETURNS. SHAREHOLDERS
SHOULD CONSULT THEIR TAX ADVISERS.
