THE INCOME FUND OF AMERICA
ANNUAL REPORT FOR THE YEAR ENDED JULY 31, 1996
KEYS TO IFA'S APPROACH
[The American Funds Group(R)]
The Income Fund of America(R)
Seeks current income while secondarily striving for capital growth through
investments in stocks and fixed-income securities.
[sidebar]
In a period of historically low dividend yields, IFA paid shareholders higher
income than the stock market as a whole and higher income than the average
equity-income fund.
[end sidebar]
[chart]
12-Month Dividend Rates for IFA
Compared with the average of equity-income funds and
Standard & Poor's 500 Stock Composite Index.
<TABLE>
<S> <C> <C> <C>
The Income Fund Average of equity- S & P 500
of America income funds
7/31/91 7.09 4.50 3.11
1/31/92 6.33 4.02 2.96
7/31/92 6.05 3.74 2.89
1/31/93 6.44 3.42 2.83
7/31/93 6.19 3.13 2.79
1/31/94 5.56 2.91 2.64
7/31/94 6.06 2.99 2.80
1/31/95 6.14 3.11 2.81
7/31/95 5.55 2.84 2.41
1/31/96 5.07 2.51 2.18
7/31/96 5.19 2.45 2.28
</TABLE>
All numbers calculated by Lipper Analytical Services.
The 12-month dividend rate is calculated by taking the total of the trailing 12
months' dividends and dividing by the month-end net asset value adjusted for
capital gains.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS. SHARE PRICE AND RETURN WILL
VARY, SO YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE SHORTER THE TIME
PERIOD OF YOUR INVESTMENT, THE GREATER THE POSSIBILITY OF LOSS. FUND SHARES 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.
FELLOW SHAREHOLDERS:
Fiscal 1996 was the 22nd consecutive year in which The Income Fund of America
recorded a positive total return for shareholders who reinvest their dividends,
as almost 90% do. For the 12 months ended July 31, the total return was 13.5%
from income and the growth in value of your investment. /1/
IFA has continued to pay above-average income to shareholders. Its dividend
rate of 5.2% for the 12 months ended July 31 was more than double the average
rate of 2.5% for 145 equity-income funds tracked by Lipper Analytical Services.
It also was more than double the 2.2% dividend rate for the U.S. stock market,
as measured by Standard & Poor's 500 Composite Index. The graph at the left
shows that our dividend rate has comfortably outdistanced both of these
benchmarks over the past five years.
The fund's 13.5% total return for fiscal 1996 trailed the 16.5% gain recorded
by the S&P 500 but surpassed the 5.5% increase in the Lehman Brothers Aggregate
Bond Index. Since the fund is invested in a mix of stocks and bonds, its
results often fall between these two unmanaged indexes.
However, as the chart on page 3 shows, for the 22 1/2 years that IFA has been
managed by Capital Research and Management Company, its cumulative results have
exceeded the S&P 500, albeit by a small margin. This is a noteworthy
accomplishment considering that the fund emphasizes current income over capital
appreciation. IFA also has surpassed, by a much wider margin, the relevant bond
indexes.
This past year, our results were achieved in an environment marked by
considerable volatility in the financial markets. The bond market experienced
periods of both rising and falling prices. The declines were caused by concerns
that the economy might be overheating, and that the Federal Reserve could feel
compelled to tighten credit to prevent inflation from turning upward. When
economic evidence suggested that those fears were exaggerated, stock and bond
prices began climbing again.
The stock market continued surging upward through most of the year. However,
between May 24 and July 24, the market suffered a decline, measuring 7.6% on
the S&P 500, which was triggered partly by a rise in long-term interest rates.
The two-month decline in the equity market produced severe losses among
technology issues; some fell 50% or more. This is an area that earlier had
attracted a great deal of speculative buying. It also is one where yields have
been extremely low and IFA therefore has not been heavily invested. The fund
did not participate to any great extent in the run-up in high-tech stocks
before last May; nor was it hurt by their subsequent downturn.
IFA's fiscal '96 results benefited from the fund's sizable equity investments
in banking, energy and health care, three of our largest areas of industry
concentration.
The fund's 12-month results also were helped by investments in high-yield
corporate bonds (which comprise 14% of the fund's total assets). Bonds issued
by MFS Communications (a telecommunications service company) yielded just over
10% and also rose in price. MFS is now the subject of an acquisition which has
sent the price of its bonds higher still.
At fiscal year-end, about 61% of the fund's net assets was invested in
equity-type securities and 33% in various types of bonds. The remaining 6% was
held in the form of cash and equivalents.
As an equity-income fund, IFA faces a formidable challenge to continue
providing superior income when so few U.S. stocks yield more than 3%. In
December, the Board of Directors authorized IFA to invest up to 10% of its
assets in the equity securities of companies based outside the United States.
This allows the fund to broaden its search for attractively valued companies
with higher yields. Our first purchases included Finland's UPM-Kymmene, the
largest paper company in Europe; National Power, the largest
electricity-generating company in the United Kingdom; and Westpac Banking, an
Australian commercial bank.
We believe that the fund's composition and higher yield will provide good
protection of your investment during times of market weakness.
In the article beginning on page 4, we take a closer look at some of the
factors that have contributed to the fund's stability and success through the
years. We also acknowledge the retirement of George Miller as President of IFA.
George has made an outstanding contribution to the fund and we wish him well.
Cordially,
Walter P. Stern
Chairman of the Board
Janet A. McKinley
President
September 10, 1996
[Sidebar]
Over the past 22 1/2 years, IFA's results have exceeded the S&P 500 Composite
Index. This is a noteworthy accomplishment considering that the fund emphasizes
current income over capital appreciation.
[End Sidebar]
/1/ IFA usually pays the same dividend three times during the year plus a
fourth dividend that can vary in size. In fiscal 1996, three 20-cent dividends
were paid; the dividend paid in December 1995 was 23 cents a share.
FOLLOWING THE COURSE OF AN INVESTMENT IN IFA
Here's how a $10,000 investment in IFA grew between December 1, 1973 - the day
that Capital Research and Management Company became the fund's investment
adviser - and July 31, 1996, the end of the fund's latest fiscal year.
As you can see, the $10,000 would have grown to $170,626 with all distributions
reinvested, an average increase of 13.3% a year. That's better than the major
unmanaged stock and bond market indexes tracked on the chart.
The IFA figures, unlike those shown elsewhere in this report, reflect payment
of the maximum sales charge of 5.75% on the $10,000 investment. Thus, the net
amount invested was $9,425. As outlined in the prospectus, sales charges are
lower for accounts of $50,000 or more. There is no sales charge on dividends or
capital gain distributions that are reinvested in additional shares. No
adjustment has been made for income or capital gain taxes.
The fund's 30-day yield as of August 31, 1996, calculated in accordance with
the Securities and Exchange Commission formula, was 4.95%.
The fund's year-by-year results appear in the table under the chart. You can
use this table to estimate how much the value of your own holdings has grown.
<TABLE>
<CAPTION>
<S> <C> <C>
Average Annual Compound Returns*
Periods Ended
July 31, 1996 June 30, 1996
Ten years +10.90% +10.76%
Five years +11.09 +12.05
One year +6.94 +10.98
</TABLE>
*Assumes reinvestment of all distributions and payment of the 5.75% sales
charge at the beginning of the stated periods.
[chart]
HOW A $10,000 INVESTMENT HAS GROWN
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year ended July 31 1974 # 1975 1976 1977 1978
VALUE OF DIVIDENDS
Dividends in Cash $344 735 860 780 842
Dividends Reinvested $347 785 998 969 1,117
VALUE OF INVESTMENT
Dividends in Cash $8,767 10,141 12,155 12,701 12,584
Dividends Reinvested $9,088 11,391 14,751 16,392 17,404
IFA TOTAL RETURN (9.1)% 25.3 29.5 11.1 6.2
Year ended July 31 1979 1980 1981 1982 1983
VALUE OF DIVIDENDS
Dividends in Cash 936 952 1,047 1,202 1,280
Dividends Reinvested 1,333 1,463 1,743 2,187 2,549
VALUE OF INVESTMENT
Dividends in Cash 12,693 12,490 12,818 12,256 16,112
Dividends Reinvested 18,921 20,162 22,485 23,664 33,685
IFA TOTAL RETURN 8.7 6.6 11.5 5.2 42.3
Year ended July 31 1984 1985 1986 1987 1988
VALUE OF DIVIDENDS
Dividends in Cash 1,344 1,438 1,550 1,636 1,543
Dividends Reinvested 2,896 3,365 3,909 4,431 4,479
VALUE OF INVESTMENT
Dividends in Cash 15,738 19,443 21,668 23,568 22,341
Dividends Reinvested 35,722 47,677 57,148 66,674 67,816
IFA TOTAL RETURN 6.0 33.5 19.9 16.7 1.7
Year ended July 31 1989 1990 1991 1992 1993
VALUE OF DIVIDENDS
Dividends in Cash 1,711 1,578 1,764 1,715 1,713
Dividends Reinvested 5,338 5,269 6,311 6,578 6,995
VALUE OF INVESTMENT
Dividends in Cash 25,644 24,351 25,390 28,370 29,917
Dividends Reinvested 83,702 84,643 95,050 113,242 126,686
IFA TOTAL RETURN 23.4 1.1 12.3 19.1 11.9
Year ended July 31 1994 1995 1996
VALUE OF DIVIDENDS
Dividends in Cash 1,726 1,751 1,766
Dividends Reinvested 7,471 8,046 8,581
VALUE OF INVESTMENT
Dividends in Cash 28,788 31,571 34,007
Dividends Reinvested 129,177 150,385 170,626
IFA TOTAL RETURN 2.0 16.4 13.5
</TABLE>
$170,626 /1/ IFA with dividends reinvested
$165,366 Standard & Poor's 500 Composite Index with dividends reinvested
$74,194 Lehman Bros. Aggregate Bond Index /2/ with interest compounded
$34,007 /3/ IFA with dividends taken in cash
$10,000 original investment
Average annual compound return for 22 1/2 years 13.3%
#For the period December 1, 1973 (when Capital Research and Management Company
became the fund's investment adviser) through July 31, 1974.
/1/ Includes reinvested dividends of $87,160 and reinvested capital gain
distributions of $21,184. From April 1990 to September 1994 the fund declared
daily dividends; therefore, total values for this period were adjusted for
cumulative dividends ex- but not yet paid. After this period, quarterly
dividends were resumed.
/2/ 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.
/3/ Includes capital gain distributions of $6,857 but does not reflect income
dividends of $30,213 taken in cash.
The indexes are unmanaged and do not reflect sales charges, commissions or
expenses.
Past results are not predictive of future results.
[end chart]
KEYS TO THE INCOME FUND
OF AMERICA'S APPROACH
[sidebar]
Seasoned Investment Managers Describe Strategies That Have Produced Positive
Total Returns in Every One of IFA's Past 22 Fiscal Years
[end sidebar]
During the past several years, The Income Fund of America has attracted a
growing number of new shareholders primarily because of its long-term record.
In fact, the growth has been so strong and steady that IFA is now the
ninth-largest equity mutual fund in America, with more than $14 billion in
assets.
Over the 22 1/2 years that the fund has been managed by Capital Research and
Management Company (CRMC), IFA has outpaced the stock market as a whole, as
measured by the unmanaged Standard & Poor's 500 Composite Index. It has also
produced an investment return nearly triple that of the bond market, as
measured by the Lehman Brothers Aggregate Bond Index. And it has never
experienced a losing fiscal year.
How has IFA achieved this record? The keys to its approach have been a
dedicated group of investment managers (known as portfolio counselors within
CRMC) and analysts. They conduct painstaking research, make tough investment
decisions and have weathered all kinds of stock and bond markets. In addition,
over the past 15 years a steady decline in interest rates has fueled a
long-term rise in stock and bond prices.
In any kind of stock and bond market, however, the fund's goal remains crystal
clear. "We work to provide above-average income, preserve shareholders' capital
and then grow the investment as well as we can, taking into account the risks
involved," says Janet McKinley, who succeeded George Miller as President of IFA
in August. "Our first rule is: $Don't lose people's money.' Then we grow the
portfolio with prudent investing."
Miller puts it this way: "IFA is not an exciting fund to own. It has been
steady and dependable. We strive to give investors a good return without
scaring the wits out of them."
Adds portfolio counselor Gregg Ireland: "We are not trying to knock the cover
off the ball. We are seeking stability and some growth. We are old-fashioned.
We have been predictable over long periods of time. Investing this way should
not be precarious."
How IFA pursues its goals of stability and prudent growth is an approach
composed of a number of interlocking parts, all focused on producing high
income for shareholders. The fund invests in stocks that offer above-average
dividend yields, in convertible securities, and in carefully selected
investment-grade and high-yield bonds. All have produced a continual stream of
interest payments and dividends and, in many periods, capital gains. High-yield
stocks form the base of this approach; bonds add income and a measure of
stability.
A NEVER-ENDING SEARCH FOR HIGH-YIELD STOCKS
How does the high-yield stock strategy work? In the first place, the fund
generally doesn't invest in a company unless it generates good cash flow and
pays above-average dividends. As a result, the companies represented in IFA's
portfolio tend to be established firms with long-term records of paying
dividends. Many are household names such as Bristol-Myers Squibb, DuPont and
Texaco.
In today's market environment, where dividend yields are at or near historic
lows, finding a successful company with solid growth potential that also
provides a high enough yield is a difficult task. That's why the fund's
portfolio counselors and analysts look beyond the obvious choices toward
out-of-favor industries where stocks are selling below their long-term
potential because of short-term problems or concerns. When stock prices are low
relative to the dividend, the company's dividend yield is high.
"We buy many unloved companies, underappreciated companies, companies that are
not having their best days," says Ireland, who is based in Washington, D.C.
"And we have to answer important questions: Are these companies fundamentally
sound? Are they in good financial shape? Will they maintain their dividends
through difficult times?"
THE KEY TO PICKING UNDERVALUED STOCKS: RESEARCH
"Research provides the answers," Ireland says. Field trips and company visits
are the fund's raw material. "We know these companies and we know their
competition. We have great appreciation for cycles. All companies go through
business cycles or product cycles when things look good and then look bleak. If
it's automobiles or steel, the demand goes up and down. We have to determine
whether these companies are still well-managed, even though they are currently
having trouble. Do they have a good balance sheet? Do they have a good position
in their industry?"
"Being able to take a longer term view is important," says Dina Perry, an IFA
portfolio counselor also based in Washington, D.C. "A company we select may be
having current difficulties, but it doesn't have to turn around next year. It
may take three or four years. Sooner or later, most of these companies come
back if we have done our research well."
[chart]
The Yield Often Tells When to Buy:
Bank industry price and dividend yield (12/31/88-6/30/96)
1988 = 100
<TABLE>
<CAPTION>
<S> <C> <C>
Bank industry price Bank industry dividend yield
relative to S&P 500 relative to S&P 500
12/31/88 100.0 100.0
12/31/89 92.2 106.2
12/31/90 64.7 128.2
12/31/91 80.4 77.9
12/31/92 98.0 69.0
12/31/93 98.0 82.1
12/31/94 92.2 102.8
12/31/95 105.9 101.4
</TABLE>
When the dividend yield soars and the equity price falls, it may be time to buy
(as the shaded area shows). Banks provided that opportunity in 1990, and they
have been excellent investments.
Source: FactSet Research Systems Inc.
[end chart]
BUYING BANK STOCKS WHEN THEY WERE UNPOPULAR
Bank stocks are an example of IFA's strategy of buying out-of-favor companies
at above-average yields. IFA made a significant investment in this industry
back in 1990 when investors overreacted to a series of negative events. "People
became upset about banks," says Stephen Bepler, an IFA portfolio counselor
based in New York. "There was widespread publicity about loan losses for banks.
There were worries that these losses would continue and that many banks would
fail. People acted as though banks were a toxic waste dump."
But IFA analysts didn't think the losses would continue. "Banks were becoming
serious about cutting expenses - and we saw a banking industry consolidation
coming," Bepler says. So IFA acquired a large number of bank stocks at
discounted prices and attractive yields.
[sidebar]
The move into bank stocks has paid off, providing handsome profits and a steady
stream of dividends.
[end sidebar]
The move has paid off, with bank stocks providing handsome profits and a steady
stream of dividends for IFA over the past several years. Not a single bank that
IFA purchased failed, says Bepler. Not a single bank in IFA's portfolio was
forced to eliminate dividends. Only one bank had to cut its dividend.
"We wait until the market presents opportunities," says Bepler. "When trouble
hits an industry, we go in and look for changed circumstances and opportunities
for capital growth and dividends. If we find that the price is discounted and
the dividend is sound, we move. That was the story with bank stocks."
IFA made a similar move in 1993 with pharmaceutical and health care stocks.
Fears that the Clinton administration's plans for federal health care reform
would impose new cost controls and other regulations on the industry triggered
a steep fall in health care stock prices. The fund's analysts felt that
investors had overreacted, so IFA began accumulating pharmaceutical stocks. The
strategy has worked out well, with these stocks providing impressive gains and
solid dividends.
RESEARCH GROUP PROVIDES IDEAS - AND MANAGES MONEY
Some 30 stock and bond analysts not only provide ideas to IFA portfolio
counselors but also manage money in the fund themselves. All told, the research
portfolio makes up close to 30% of the total assets of the fund, says Darcy
Kopcho, coordinator of IFA's research portfolio, who is based in CRMC's Los
Angeles office.
Why are analysts important? "The analysts are the experts in their industries,"
says Kopcho. "They go out and kick the tires, visit the chemical laboratories
and talk to a company's competitors. The portfolio counselors don't have time
to do all the research themselves. They rely on the work done by analysts to
help them reach investment decisions."
In many mutual funds, analysts only make stock or bond recommendations to
investment managers or investment committees. They can't buy or sell stocks on
their own. But they can in IFA (and most of the other funds managed by CRMC).
It's a rigorous process, however. They write a report on the company with
research and documentation. Then they recommend when to buy or sell. It's
important also that they try to convince a portfolio counselor to follow their
lead. "You make a statement in the research portfolio by buying a stock or bond
yourself. It's a communication tool within the organization - and a chance to
put the shareholders' money to work," says Kopcho.
[sidebar]
High-yield bonds are playing an increasingly important role in helping IFA
provide above-average dividends in a low-yield market.
[end sidebar]
THE IMPORTANCE OF HIGH-YIELD BONDS
Corporate bonds - particularly higher yield, higher risk bonds - have played an
increasingly important role in helping IFA provide above-average dividends at a
time when stock market yields have been declining over the past several years.
As stock prices have soared, dividends just haven't kept up. Bonds can help
fill that gap.
High-yield bonds are issued by corporations with less than the investment-grade
rating that well-known blue-chip companies typically enjoy. Companies earn low
ratings for a number of reasons. Some are young firms that don't have the track
record of sales and earnings that the ratings agencies require to merit an
investment-grade rating. But not having a top rating doesn't make them bad
companies; they may just need more seasoning before their rating rises into the
investment-grade category. Others are corporations that once had
investment-grade ratings but were downgraded because they ran into earnings or
sales difficulties or took on too much debt.
Although a low rating may be bad news for a company, it can be good news for
investors because these bonds often yield between two and five percentage
points more than investment-grade issues. They often yield 9% to 12% a year.
And if they are upgraded by ratings agencies to investment grade, the bonds
become more valuable, providing capital appreciation for investors. So despite
their risks, high-yield bonds can provide good returns - if chosen well.
That's where CRMC's strong research process comes in. "We're very fortunate to
have a large staff of analysts in the high-yield area who do extremely thorough
research," says Los Angeles-based Richard Schotte, one of IFA's three
fixed-income portfolio counselors.
High-yield bond research has much in common with stock research because CRMC
portfolio counselors and analysts must probe deeply before they decide to buy a
high-yield bond. They often travel to meet a firm's management and inspect its
facilities. They study its cash flow and expenditures, ask about future plans
and talk to industry competitors and suppliers. They want to find out if the
company can meet its interest payments and perhaps if its bonds have a strong
potential to be upgraded to investment grade.
At the end of the fiscal year, about 14% of IFA's assets was invested in
high-yield bonds.
[sidebar]
Convertible securities are another type of investment that IFA has been using
more extensively in recent years. These securities are hybrids - part bond and
part stock.
[end sidebar]
THE GROWING ROLE OF CONVERTIBLE SECURITIES
Convertible securities are another type of investment that IFA has been using
more extensively in recent years. Convertible bonds and convertible preferred
stock are hybrids - part bond and part stock. As bonds, they offer a regular
fixed income stream, typically at a yield lower than conventional bonds of the
same company but higher than dividends on the company's common stock. As
stocks, they offer significant potential for appreciation and a way to benefit
from the issuing company's financial success.
These securities are convertible into common stock of the issuing company at a
price known as the conversion price, which is always set higher than the common
stock's price at the time the convertible security is issued. It can be as low
as 10% above the common stock price or as high as 60%.
These convertible securities have allowed IFA to invest in companies that it
normally couldn't because their dividends would be too low. At the end of the
fiscal year, about 7% of the fund's total assets was invested in convertible
securities.
INVESTMENT-GRADE BONDS PROVIDE STABILITY
"IFA's holdings of investment-grade bonds, government agency securities and
mortgage-backed bonds provide income and stability," says John Smet, a
fixed-income portfolio counselor in Los Angeles. Some of the same type of
research that goes on in the equity side occurs here too, says John. "Airline
bonds get cheap, so you buy a lot of airline bonds. Then airlines do better,
their bonds rise in value, and you begin to sell airline bonds. You are always
trying to find the bond that sells cheap because the consensus says it lacks
value. You don't see the large moves you have on the equity side, but inside
the bond portfolio there are significant trends and shifts."
SEASONED PORTFOLIO COUNSELORS SHOW IFA'S DEPTH
A key to IFA's success has always been its seasoned portfolio counselors - and
they will continue to manage IFA's assets. One IFA veteran, however, has
retired. George Miller, who has played a valuable role at IFA in the past 21
years as analyst, portfolio counselor and President, retired from the fund and
CRMC in August. "George has done an outstanding job - and he will be missed,"
says Abner Goldstine, a longtime fixed-income portfolio counselor for the fund.
"Fortunately, we have great depth in this fund."
A look at the experience of IFA's seven portfolio counselors certainly supports
his statement: Goldstine, 22 1/2 years with IFA, 44 years as an investment
professional; Bepler, 22 1/2 years with IFA, 30 years in the investment
business; Schotte, 18 years with IFA, 30 years in the business; Ireland, 11
years with IFA, 24 years in the business; McKinley, 10 years with IFA, 20 years
in the business; Perry, 4 years with IFA, 29 years in the business; and Smet, 4
years with IFA, 14 years in the business.
"With the exception of George, our lineup remains the same," says Janet
McKinley. "Over the years, we've all learned a lot working together, and we
will continue to invest shareholders' money with the same care we always have."
After all, why tamper with what has worked so well for the past 22 years?
[Pull quote]
"We work to provide above-average income, preserve shareholders' capital and
then grow the investment as well as we can, taking into account the risks
involved."
[End Pull quote]
[Photo Caption]
Janet A. McKinley
President of The Income Fund of America, McKinley is a portfolio counselor for
IFA. She joined CRMC in 1982 and has 20 years of investment experience. She was
formerly a director of research and an analyst covering the global paper and
forest products industries.
[End Photo Caption]
[Pull quote]
"Research provides the answers. We know these companies and we know their
competition. All companies go through business cycles or product cycles when
things look good and then look bleak. We have to determine whether these
companies are still well-managed, even though they are currently having
trouble."
[End Pull quote]
[Photo Caption]
Gregg E. Ireland
Ireland is a portfolio counselor for IFA and has 24 years of investment
experience. Joining CRMC in 1972, he was formerly an analyst covering the oil
and gas, capital goods and food industries.
[End Photo Caption]
[Pull quote]
"Being able to take a longer term view is important. A company we select may be
having current difficulties, but it doesn't have to turn around next year.
Sooner or later, most of these companies come back if we have done our research
well."
[End Pull quote]
[Photo Caption]
Dina N. Perry
Perry is a portfolio counselor for IFA who also specializes as an analyst in
conglomerates. She joined CRMC in 1991 and has 29 years of investment
experience as a portfolio counselor and economist.
[End Photo Caption]
[Pull quote]
"We wait until the market presents opportunities. When trouble hits an
industry, we go in and look for changed circumstances and opportunities for
capital growth and dividends. If we find that the price is discounted and the
dividend is sound, we move."
[End Pull quote]
[Photo Caption]
Stephen E. Bepler
Bepler is a portfolio counselor and a Senior Vice President of IFA. Joining
CRMC in 1972, he was formerly an analyst who covered aerospace, consumer
appliances and electronics.
[End Photo Caption]
[Pull quote]
"You make a statement in the research portfolio by buying a stock or bond
yourself. It's a communication tool within the organization - and a chance to
put the shareholders' money to work."
[Pull quote]
[Photo Caption]
Darcy B. Kopcho
Kopcho is coordinator of IFA's research portfolio and an investment analyst
covering global auto and truck industries. She joined CRMC in 1986 and has 14
years of investment experience.
[End Photo Caption]
[Pull quote]
"High-yield bonds have some of the same characteristics as equities. We must
probe deeply before we decide to buy a high-yield bond. So high-yield bond
research has much in common with stock research. We are fortunate to have a
large staff of high-yield analysts."
[Pull quote]
[Photo Caption]
Richard T. Schotte
A specialist in high-yield bonds and fixed-income investing, Schotte is a
portfolio counselor and a Senior Vice President of IFA. He joined CRMC in 1977.
[End Photo Caption]
[Pull quote]
"You are always trying to find the bond that sells cheap because the consensus
says it lacks value. Airline bonds get cheap, so you buy a lot of airline
bonds. Then airlines do better, their bonds rise in value, and you begin to
sell airline bonds."
[Pull quote]
[Photo Caption]
John H. Smet
Smet is a portfolio counselor for IFA who specializes in fixed-income
investing. His primary research responsibility was in mortgage securities. He
joined CRMC in 1983.
[End Photo Caption]
[Pull quote]
"IFA is not an exciting fund to own. It has been steady and dependable. We
strive to give investors a good return without scaring the wits out of them."
[End Pull quote]
[Photo Caption]
George A. Miller
Miller retired in August as President of IFA after 21 years with CRMC and 35
years in the investment business. He plans to spend his time, resources and
energy in the coming years trying to make the world a better place. His
projects include water reform in California, housing the homeless on empty
military bases and helping rural women in Vietnam support themselves by
providing small loans to buy pigs, ducks and water buffalo.
[End Photo Caption]
[Pull quote]
"George Miller has done an outstanding job - and he will be missed.
Fortunately, we have great depth in this fund."
[End Pull quote]
[Photo Caption]
Abner D. Goldstine
Senior Vice President of CRMC, Goldstine is a portfolio counselor and Senior
Vice President of IFA. He joined Capital in 1967 and has 44 years of experience
as a fund executive, economist and investment manager.
[End Photo Caption]
<PAGE>
THE INCOME FUND OF AMERICA AT A GLANCE
Results at a Glance (with dividends reinvested or interest compounded)
Total Returns for Periods Ended July 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12 Months Ten Years Lifetime/1/
The Income Fund of America +13.5% +198.6% +1,710.9%
Standard & Poor's 500 Stock Composite Index +16.5 +268.6 +1,553.7
Salomon Brothers Long-Term High-Yield Bond Index +8.7 +193.6 -
Lehman Brothers Aggregate Bond Index/2/ +5.5 +125.8 +641.9
Consumer Price Index (Inflation)/3/ +3.0 +43.4 +242.0
Average Savings Institution/4/ +4.2 +68.8 +345.9
</TABLE>
/1/ Since December 1, 1973, when Capital Research and Management Company became
IFA's investment adviser.
/2/ 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.
/3/ Computed from data supplied by the U.S. Department of Labor, Bureau of
Labor Statistics.
/4/ Based on figures supplied by the U.S. League of Savings Institutions and
the Federal Reserve Board that reflect all kinds of savings deposits, including
longer term certificates. Unlike investments in the fund, such deposits are
insured and, if held to maturity, offer a guaranteed return of principal and a
fixed rate of interest, but no opportunity for capital growth. Maximum
allowable interest rates were imposed by law until 1983.
Growth of One Share through July 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
With Capital Gains Reinvested and Income Dividends:
Taken Reinvested in Value of
Year Ended July 31 Net Asset Value in Cash Additional Shares Investment
1974* $11.23 $.44 $.44 $11.65
1975 12.99 .94 1.01 14.59
1976 15.57 1.10 1.28 18.89
1977 16.27 1.00 1.25 21.00
1978 8.06 .78 1.43 22.31
1979 8.13 .60 1.71 24.25
1980 8.00 .61 1.89 25.86
1981 8.21 .67 2.24 28.84
1982 7.85 .77 2.81 30.36
1983 10.32 .82 3.27 43.21
1984 9.77 .84 3.71 45.81
1985 11.68 .87 4.32 61.13
1986 12.11 .88 5.01 73.27
1987 12.54 .88 5.68 85.47
1988 11.50 .80 5.74 86.95
1989 13.20 .88 6.85 107.33
1990 12.11 .80 6.76 107.91
1991 12.54 .88 8.09 121.09
1992 13.94 .85 8.43 144.39
1993 14.47 .84 8.96 161.56
1994 13.59 .83 9.57 164.66
1995 14.92 .83 10.31 192.77
1996 15.89 .83 11.00 218.73
TOTAL $18.74 $111.76
</TABLE>
*For the period December 1, 1973, when CRMC became IFA's investment adviser,
through July 31, 1974.
<TABLE>
- ---------------------------- ------------- --------------
Asset Mix of Fiscal 1996 Investment Investment
Compared with 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 Holdings Percent of
July 31, 1996 Net Assets July 31, 1995 Net Assets
- ---------------------------- ---------- ---------------------------- ---------
Philip Morris 1.8% Eli Lilly 1.9%
Atlantic Richfield 1.7 Bristol-Myers Squibb 1.6
J.C. Penney 1.7 Philip Morris 1.5
American Home Products 1.6 American Home Products 1.3
Bristol-Myers Squibb 1.5 Upjohn 1.2
Ford Motor 1.3 Occidental Petroleum .9
First Union 1.3 Lincoln National .9
Phillips Petroleum 1.3 Ford Motor .8
Texaco 1.2 Phillips Petroleum .8
PNC Bank 1.1 U S WEST .8
- ---------------------------- ---------------- ---------------------- -------------
Five Largest Industries Five Largest Industries
in Equity Holdings Percent of in Equity Holdings Percent of
July 31, 1996 Net Assets July 31, 1995 Net Assets
- ---------------------------- ---------------- ---------------------- ------------
Banking 11.3% Banking 7.7%
Energy Sources 8.7 Health & Personal Care 7.6
Health & Personal Care 6.1 Energy Sources 6.1
Utilities: Electric & Gas 4.2 Insurance 4.0
Insurance 3.6 Telecommunications 3.4
</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>
<PAGE>
<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>
<PAGE>
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>
<PAGE>
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 Return/1/ 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%
/1/Calculated without deducting a sales charge. The maximum sales charge is
5.75% of the fund's offering price.
</TABLE>
<PAGE>
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 From Net Realized
Short-Term Gains 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.
<PAGE>
BOARD OF DIRECTORS
ROBERT A. FOX, Livingston, California
President and Chief Executive Officer, Foster Farms Inc.
ROBERTA L. HAZARD, McLean, Virginia
Consultant; Rear Admiral, U.S. Navy (Retired)
RICHARD H.M. HOLMES, Hillsborough, California
Retired; former Vice President,
Capital Research and Management Company
LEONADE D. JONES, Washington, D.C.
Treasurer, The Washington Post Company
JOHN G. MCDONALD, Stanford, California
The IBJ Professor of Finance,
Graduate School of Business, Stanford University
THEODORE D. NIERENBERG, Armonk, New York
Private Investor; Former President,
Dansk International Designs, Ltd.
JAMES W. RATZLAFF, San Francisco, California
Senior Partner, The Capital Group Partners L.P.
HENRY E. RIGGS, Claremont, California
President and Professor of Engineering,
Harvey Mudd College
WALTER P. STERN, New York, New York
Chairman of the Board of the fund
Chairman of the Board,
Capital Group International, Inc.
PATRICIA K. WOOLF, PH.D., Princeton, New Jersey
Private investor; lecturer,
Department of Molecular Biology, Princeton University
E.T. Hinshaw, Jr. retired from the Board effective August 31, 1996. He had been
a member of the Board of Directors since 1974. The Directors thank him for his
many contributions to the fund.
OTHER OFFICERS
JANET A. MCKINLEY, New York, New York
President of the fund
Senior Vice President,
Capital Research Company
STEPHEN E. BEPLER, New York, New York
Senior Vice President of the fund
Senior Vice President,
Capital Research Company
ABNER D. GOLDSTINE, Los Angeles, California
Senior Vice President of the fund
Senior Vice President and Director,
Capital Research and Management Company
PAUL G. HAAGA, JR., Los Angeles, California
Senior Vice President of the fund
Senior Vice President and Director,
Capital Research and Management Company
RICHARD T. SCHOTTE, Los Angeles, California
Senior Vice President of the fund
Senior Vice President,
Capital Research and Management Company
STEVEN N. KEARSLEY, Brea, California
Vice President of the fund
Vice President and Treasurer,
Capital Research and Management Company
DINA N. PERRY, Washington, D.C.
Vice President of the fund
Vice President,
Capital Research and Management Company
JOHN H. SMET, Los Angeles, California
Vice President of the fund
Vice President,
Capital Research and Management Company
PATRICK F. QUAN, San Francisco, California
Secretary of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
MARY C. HALL, Brea, California
Treasurer of the fund
Senior Vice President - Fund Business Management Group,
Capital Research and Management Company
R. MARCIA GOULD, Brea, California
Assistant Treasurer of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
George A. Miller retired as President of the fund effective August 15, 1996. He
had been a portfolio counselor and analyst with IFA since 1975.
OFFICE OF THE FUND
Four Embarcadero Center, Suite 1800
Mailing Address: P.O. Box 7650
San Francisco, California 94120-7650
INVESTMENT ADVISER
Capital Research and Management Company
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5804
TRANSFER AGENT FOR
SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Morrison & Foerster LLP
345 California Street
San Francisco, California 94104-2675
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER OR CALL AMERICAN FUNDS SERVICE COMPANY,
TOLL-FREE, AT 800/421-0180.
This report is for the information of shareholders of The Income Fund of
America, but it may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details about charges,
expenses, investment objectives and operating policies of the fund. If used as
sales material after September 30, 1996, this report must be accompanied by an
American Funds Group Statistical Update for the most recently completed
calendar quarter.
[The American Funds Group(R)]
Litho in USA BDA/AL/3046
Lit. No. IFA-011-0996
