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Previous: ILLINOIS TOOL WORKS INC, DEF 14A, 1996-04-02 |
Next: MALLINCKRODT GROUP INC, 8-K, 1996-04-02 |
THE INCOME FUND OF AMERICA, INC.
Part B
Statement of Additional Information
OCTOBER 1, 1995
(as amended April 1, 1996)
This document is not a prospectus but should be read in conjunction with the
current Prospectus of The Income Fund of America, Inc. (the fund or IFA) dated
October 1, 1995. The Prospectus may be obtained from your investment dealer or
financial planner or by writing to the fund at the following address:
THE INCOME FUND OF AMERICA, INC.
ATTENTION: SECRETARY
FOUR EMBARCADERO CENTER
P.O. BOX 7650
SAN FRANCISCO, CA 94120
TELEPHONE: (415) 421-9360
The fund has two forms of prospectuses. Each reference to the prospectus in
this statement of additional information includes both of the fund's
Prospectuses. Shareholders who purchase shares at net asset value through
eligible retirement plans should note that not all of the services or features
described below may be available to them, and they should contact their
employer for details.
Table of Contents
Item
- --------------------------------------------------------------
DESCRIPTION OF CERTAIN SECURITIES
CERTAIN RISK FACTORS RELATING TO BELOW INVESTMENT GRADE BOND
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
FUND OFFICERS AND DIRECTORS
MANAGEMENT
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
PURCHASE OF SHARES
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
EXECUTION OF PORTFOLIO TRANSACTIONS
GENERAL INFORMATION
INVESTMENT RESULTS
DESCRIPTION OF BOND RATINGS
FINANCIAL STATEMENTS
DESCRIPTION OF CERTAIN SECURITIES
CASH EQUIVALENTS - These securities include (1) commercial paper (short-term
notes up to 9 months in maturity issued by corporations or governmental
bodies), (2) commercial bank obligations (E.G., certificates of deposit,
bankers' acceptances (time drafts on a commercial bank where the bank accepts
an irrevocable obligation to pay at maturity) and documented discount notes
(corporate promissory discount notes accompanied by a commercial bank guarantee
to pay at maturity)), (3) savings association and savings bank obligations
(E.G., certificates of deposit issued by savings banks or savings
associations), (4) securities of the U.S. Government, its agencies or
instrumentalities that mature, or may be redeemed, in one year or less, and (5)
corporate bonds and notes that mature, or that may be redeemed, in one year or
less.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES - Certificates issued by
the Government National Mortgage Association (GNMA) are mortgage-backed
securities representing part ownership of a pool of mortgage loans, which are
issued by lenders such as mortgage bankers, commercial banks and savings and
loan associations, and are either insured by the Federal Housing Administration
or guaranteed by the Veterans Administration. A pool of these mortgages is
assembled and, after being approved by GNMA, is offered to investors through
securities dealers. The timely payment of interest and principal on each
mortgage is guaranteed by GNMA and backed by the full faith and credit of the
U.S. Government.
Principal is paid back monthly by the borrower over the term of the loan.
Reinvestment of prepayments may occur at higher or lower rates than the
original yield on the certificates. Due to the prepayment feature and the need
to reinvest prepayments of principal at current market rates, GNMA certificates
can be less effective than typical bonds of similar maturities at "locking in"
yields during periods of declining interest rates. GNMA certificates typically
appreciate or decline in market value during periods of declining or rising
interest rates, respectively. Due to the regular repayment of principal and
the prepayment feature, the effective maturities of mortgage pass-through
securities are shorter than stated maturities, will vary based on market
conditions and cannot be predicted in advance. The effective maturities of
newly-issued GNMA certificates backed by relatively new loans at or near the
prevailing interest rates are generally assumed to range between approximately
9 and 12 years.
FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS - FNMA, a federally chartered and
privately-owned corporation, issues pass-through securities representing
interests in a pool of conventional mortgage loans. FNMA guarantees the timely
payment of principal and interest but this guarantee is not backed by the full
faith and credit of the U.S. Government.
FHLMC, a corporate instrumentality of the U.S. Government, issues
participation certificates which represent an interest in a pool of
conventional mortgage loans. FHLMC guarantees the timely payment of interest
and the ultimate collection of principal, and maintains reserves to protect
holders against losses due to default, but the certificates are not backed by
the full faith and credit of the U.S. Government.
As is the case with GNMA certificates, the actual maturity of and realized
yield on particular FNMA and FHLMC pass-through securities will vary based on
the prepayment experience of the underlying pool of mortgages.
OTHER MORTGAGE-RELATED SECURITIES - The fund may invest in mortgage-related
securities issued by financial institutions such as commercial banks, savings
and loan associations, mortgage bankers and securities broker-dealers (or
separate trusts or affiliates of such institutions established to issue these
securities). These securities include mortgage pass-through certificates,
collateralized mortgage obligations (including real estate mortgage investment
conduits as authorized under the Internal Revenue Code of 1986) (CMOs) or
mortgage-backed bonds. Each class of bonds in a CMO series may have a
different effective maturity, bear a different coupon, and have a different
priority in receiving payments. All principal payments, both regular principal
payments as well as any prepayment of principal, are passed through to the
holders of the various CMO classes dependent on the characteristics of each
class. In some cases, all payments are passed through first to the holders of
the class with the shortest stated maturity until it is completely retired.
Thereafter, principal payments are passed through to the next class of bonds in
the series, until all the classes have been paid off. In other cases, payments
are passed through to holders of whichever class first has the shortest
effective maturity at the time payments are made. As a result, an acceleration
in the rate of prepayments that may be associated with declining interest rates
shortens the expected life of each class. The impact of an acceleration in
prepayments affects the expected life of each class differently depending on
the unique characteristics of that class. In the case of some CMO series, each
class may receive a differing proportion of the monthly interest and principal
repayments on the underlying collateral. In these series the classes would be
more affected by an acceleration (or slowing) in the rate of prepayments than
CMOs which share principal and interest proportionally.
Mortgage-backed bonds are general obligations of the issuer fully
collateralized directly or indirectly by a pool of mortgages. The mortgages
serve as collateral for the issuer's payment obligations on the bonds, but
interest and principal payments on the mortgages are not passed through either
directly (as with GNMA certificates and FNMA and FHLMC pass-through securities)
or on a modified basis (as with CMOs). Accordingly, a change in the rate of
prepayments on the pool of mortgages could change the effective maturity of a
CMO but not that of a mortgage-backed bond (although, like many bonds,
mortgage-backed bonds can provide that they are callable by the issuer prior to
maturity).
INVERSE FLOATING RATE NOTES - The fund may invest to a very limited extent in
inverse floating rate notes (a type of derivative instrument). These notes
have rates that move in the opposite direction of prevailing interest rates. A
change in prevailing interest rates will often result in a greater change in
the instruments' interest rates. Therefore, these securities have a greater
degree of volatility than other types of interest-bearing securities.
WHEN-ISSUED SECURITIES, FIRM COMMITMENT AGREEMENTS AND "ROLL TRANSACTIONS" -
The fund may purchase securities on a delayed delivery or "when-issued" basis
and enter into firm commitment agreements (transactions whereby the payment
obligation and interest rate are fixed at the time of the transaction but the
settlement is delayed). The fund as purchaser assumes the risk of any decline
in value of the security beginning on the date of the agreement or purchase.
The fund will identify liquid assets such as cash, U.S. Government securities
or other appropriate high-grade debt obligations in an amount sufficient to
meet its payment obligations in these transactions. Although these
transactions will not be entered into for leveraging purposes, to the extent
the fund's aggregate commitments under these transactions exceed its holdings
of cash and securities that do not fluctuate in value (such as short-term money
market instruments), the fund temporarily will be in a leveraged position
(because it will have an amount greater than its net assets subject to market
risk). Should market values of the fund's portfolio securities decline while
the fund is in a leveraged position, greater depreciation of its net assets
will likely occur than were it not in such a position. The fund will not
borrow money to settle these transactions and, therefore, will liquidate other
portfolio securities in advance of settlement if necessary to generate
additional cash to meet its obligations thereunder.
The fund also may enter into "roll" transactions, which consist of the sale of
securities together with a commitment (for which the fund typically receives a
fee) to purchase similar, but not identical, securities at a later date. The
fund intends to treat roll transactions as two separate transactions: one
involving the purchase of a security and a separate transaction involving the
sale of a security. Since the fund does not intend to enter into roll
transactions for financing purposes, it may treat these transactions as not
falling within the definition of "borrowing" set forth in Section 2(a)(23) of
the Investment Company Act of 1940.
CURRENCY TRANSACTIONS - The fund has the ability to purchase and sell
currencies to facilitate securities transactions and to enter into forward
currency contracts to hedge against changes in currency exchange rates. The
fund purchases or sells currency in connection with settling transactions
involving securities denominated in currencies other than the U.S. dollar. A
forward currency contract is an obligation to purchase or sell a specific
currency at a future date and price, both of which are set at the time of the
contract. For example, the fund might sell a currency on a forward basis to
hedge against an anticipated decline in the currency in which a portfolio
security is denominated. Although this strategy could minimize the risk of
loss due to a decline in the value of the hedged currency, it could also limit
any potential gain which might result from an increase in the value of the
currency.
CERTAIN RISK FACTORS RELATING TO BELOW INVESTMENT GRADE BONDS
Certain risk factors relating to investing in below investment grade
securities ("high-yield, high-risk bonds") are discussed below.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high-risk
bonds are very sensitive to adverse economic changes and corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress that
would adversely affect their ability to service their principal and interest
payment obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaulted on its obligations to pay
interest or principal or entered into bankruptcy proceedings, the fund may
incur losses or expenses in seeking recovery of amounts owed to it. In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices of high-yield, high-risk bonds.
PAYMENT EXPECTATIONS - High-yield, high-risk bonds, like other bonds, may
contain redemption or call provisions. If an issuer exercised these provisions
in a declining interest rate market, the fund would have to replace the
security with a lower yielding security, resulting in a decreased return for
investors. Conversely, a high-yield, high-risk bond's value is likely to
decrease in a rising interest rate market, as is generally true with all bonds.
LIQUIDITY AND VALUATION - There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
The fund may invest no more than 20% of its total assets in securities rated
BB and Ba or below (or unrated but considered of similar quality). The 20%
limit shall not apply to debt securities that have equity conversion or
purchase rights. In addition, the fund has no current intention of holding
more than 25% of its total assets in high-yield, high-risk bonds, INCLUDING
those that have equity conversion or purchase rights.
The fund's investment adviser, Capital Research and Management Company,
attempts to reduce the fund's risks through diversification of the portfolio by
credit analysis of each issuer as well as by monitoring broad economic trends
and corporate developments, but there can be no assurance that it will be
successful in doing so. The fund's investment policy with respect to investing
in high-yield, high-risk securities is a "non-fundamental" policy and thus, may
be changed by the board of directors at any time. It is contemplated that most
of the fund's common stock investments will be made in securities that are
listed on a stock exchange.
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
The fund has adopted certain fundamental policies and investment restrictions
which cannot be changed without shareholder approval. Approval requires the
affirmative vote of 67% or more of the voting securities present at a meeting
of shareholders, provided more than 50% of such securities are represented at
the meeting, or the vote of more than 50% of the outstanding voting securities,
whichever is less.
The fund may not:
1. Act as underwriter of securities issued by other persons.
2. Invest more than 10% of the value of its total assets in securities that
are illiquid.
3. Borrow amounts in excess of 5% of its gross assets taken at cost or market
value, whichever is lower, determined at the time of borrowing, and then only
from banks as a temporary measure for extraordinary or emergency purposes; or
pledge, mortgage, or hypothecate its assets taken at market value to any extent
greater than 15% of its gross assets taken at cost or market value, whichever
is lower, at the time of such action.
4. Purchase real estate (including limited partnership interests but excluding
securities of companies, such as real estate investment trusts, which deal in
real estate or interests therein) or purchase oil, gas, or other mineral
leases.
5. Purchase or deal in commodities or commodity contracts.
6. Make loans to other persons, except by making time or demand deposits with
banks or by purchasing a portion of an issue (not prohibited by any investment
restriction set forth herein) of bonds, debentures, commercial paper or other
debt securities at original issue or otherwise.
7. Purchase securities of any company for the purpose of exercising control or
management.
8. Purchase securities of any other managed investment company.
9. Purchase any securities on "margin", except that it may obtain such
short-term credit as may be necessary for the clearance of purchases of
securities.
10. Sell or contract to sell any security which it does not own unless by
virtue of its ownership of other securities it has at the time of sale a right
to obtain securities, without payment of further consideration, equivalent in
kind and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions.
11. Purchase or sell puts, calls, straddles, or spreads, but this restriction
shall not prevent the purchase or sale of rights represented by warrants or
convertible securities.
12. Purchase any securities of any issuer, except the U.S. Government (or its
instrumentalities), if immediately after and as a result of such investment (1)
the market value of the securities of such other issuer shall exceed 5% of the
market value of the total assets of the fund, or (2) the fund shall own more
than 10% of the outstanding voting securities of such issuer, provided that
this restriction shall apply only as to 75% of the fund's total assets.
13. Purchase any securities (other than securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities) if immediately after and
as a result of such purchase 25% or more of the market value of the total
assets of the fund would be invested in securities of companies in any one
industry.
14. Purchase securities of companies (other than real estate investment
trusts) which, with their predecessors, have a record of less than three years'
continuous operations, if such purchase would cause more than 5% of the fund's
total assets to be invested in the securities of such companies.
Notwithstanding Investment Restriction #8, the fund may invest in securities
of other managed investment companies if deemed advisable by its officers in
connection with the administration of a deferred compensation plan adopted by
Directors pursuant to an exemptive order granted by the Securities and Exchange
Commission.
The fund has also agreed that it will not purchase any warrants if immediately
after and as a result of such purchase more than 5% of the market value of the
total assets of the fund would be invested in such warrants, with no more than
2% being unlisted on the New York or American Stock Exchanges. These are not
fundamental policies of the fund and may be changed without shareholder
approval.
FUND OFFICERS AND DIRECTORS
DIRECTORS AND DIRECTOR COMPENSATION
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION PRINCIPAL OCCUPATION(S) DURING PAST AGGREGATE COMPENSATION TOTAL COMPENSATION FROM
TOTAL NUMBER
WITH 5 YEARS (POSITIONS WITHIN THE (INCLUDING VOLUNTARILY ALL FUNDS MANAGED BY OF FUND
BOARDS
REGISTRANT ORGANIZATIONS LISTED MAY HAVE DEFERRED COMPENSATION/1/) CAPITAL RESEARCH AND ON WHICH
CHANGED DURING THIS PERIOD) FROM THE COMPANY MANAGEMENT COMPANY DIRECTOR SERVES
DURING FISCAL YEAR ENDED FOR THE YEAR ENDED
7/31/95 7/31/95/2/
<S> <C> <C> <C> <C> <C>
Robert A. Fox Director President and Chief Executive Officer, $ 17,200 $ 77,150 5
P.O. Box 457 Foster Farms; former President,
1000 Davis Street Revlon International, Chairman and
Livingston, CA 95334 Chief Executive Officer, Clarke
Age: 58 Hooper America (advertising),
President, Continental Can Company,
Inc.
Roberta L. Hazard Director Rear Admiral, United States Navy $ 16,433 $ 37,950 3
1419 Audmar Drive (Retired)
McLean, VA 22101
Age: 60
++ Ernest T. Hinshaw, Jr. Director Private investor; former Yachting $ 16,900 $ 31,800 2
729 Via Lido Soud Commissioner, Los Angeles Olympic
Newport Beach, CA 92663 Organizing Committee, and Director,
Age: 67 Capital Research and Management
Company (retired 1983)
++ Richard H. M. Holmes Director Retired; former Vice President, $ 16,050 $ 57,750 4
580 Laurent Road Capital Research and Management
Hillsborough, CA 94010 Company (retired 1986)
Age: 69
Leonade D. Jones Director Treasurer, The Washington Post $ 16,433 $ 51,517 5
1150-15th Street, N.W. Company
Washington, D.C. 20071
Age: 47
John G. McDonald Director The IBJ Professor of Finance, $ 16,867 $ 128,950 7
Stanford University Graduate School of Business, Stanford
Stanford, CA 94305 University
Age: 58
Theodore D. Nierenberg Director Private investor; former President, $ 16,433 $ 38,850 3
15 Middle Patent Road Dansk International Designs, Ltd.
Armonk, NY 10504
Age: 72
+ James W. Ratzlaff Director Vice Chairman of the Board, Capital None None 8
P.O. Box 7650 Research and Management Company;
San Francisco, CA 94120 Senior Partner, The Capital Group
Age: 59 Partners L.P.
Henry E. Riggs Director President and Professor of $ 16,900 $ 63,750 5
Kingston Hall 201 Engineering, Harvey Mudd College
Harvey Mudd College
Claremont, CA 91711
Age: 60
+ Walter P. Stern Chairman of Chairman, Capital Group None None 8
630 Fifth Avenue the Board International, Inc.; Vice Chairman,
New York, NY 10111 Capital Research International;
Age: 67 Director, The Capital Group
Companies, Inc.; Chairman, Capital
International, Inc.; Director, Temple-
Inland Inc. (forest products)
Patricia K. Woolf Director Private investor; Lecturer, Department $ 16,300 $ 64,450 5
506 Quaker Road of Molecular Biology, Princeton
Princeton, NJ 08540 University
Age: 61
</TABLE>
+ "Interested persons" within the meaning of the Investment Company Act of
1940 (the 1940 Act) on the basis of their affiliation with the Investment
Adviser or the parent company of the Investment Adviser, The Capital Group
Companies, Inc.
++ Not considered an "interested person" within the meaning of the 1940 Act;
but he does not participate on the Contracts Committee due to his former
affiliation with the Investment Adviser.
/1/ Amounts may be deferred by eligible directors under a non-qualified
deferred compensation plan adopted by the fund in 1993. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more of
the funds in the American Funds Group as designated by the director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, American Balanced Fund, Inc., American
High-Income Municipal Bond Fund, Inc., American High-Income Trust, American
Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management Trust of
America, Capital Income Builder, Inc., Capital World Growth and Income Fund,
Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America.
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U.S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc. Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serve as the underlying investment vehicles for certain
variable insurance contracts.
/3/ Since the plan's adoption, the total amounts of deferred compensation
accrued by the fund (plus earnings thereon) for participating Directors are as
follows: Robert A. Fox ($65,448), Leonade D. Jones ($9,216), John G. McDonald
($26,132) and Henry E. Riggs ($29,370). Amounts deferred and accumulated
earnings thereon are not funded and are general unsecured liabilities of the
fund until paid to the Director.
/4/ James W. Ratzlaff and Walter P. Stern are affiliated with the Investment
Adviser and, accordingly, receive no remuneration from the fund.
OFFICERS
(with their principal occupations for the past five years)#
Walter P. Stern, Chairman of the Board.
Fund officers whose other positions are not described above are:
George A. Miller, President /1/; Senior Vice President and Director, Capital
Research and
Management Company.
Stephen E. Bepler, Senior Vice President /2/; Senior Vice President and
Director, Capital
Research Company.
Abner D. Goldstine, Senior Vice President /3/; Senior Vice President and
Director, Capital Research
and Management Company.
Paul G. Haaga, Jr., Senior Vice President, 333 South Hope Street, Los Angeles,
CA 90071; Senior Vice President and Director, Capital Research and Management
Company; Director, American Funds Service Company.
Richard T. Schotte, Senior Vice President /3/; Senior Vice President, Capital
Research and
Management Company.
Steven N. Kearsley, Vice President /4/; Vice President and Treasurer,
Capital Research and Management Company; Director, American Funds Service
Company.
Janet A. McKinley, Vice President /2/; Senior Vice President, Capital Research
Company.
Dina N. Perry, Vice President, 3000 K Street, N.W., Washington, D.C. 20007;
Vice President,
Capital Research and Management Company.
John H. Smet, Vice President /3/; Vice President, Capital Research and
Management Company.
Patrick F. Quan, Secretary /1/; Vice President - Fund Business Management
Group, Capital
Research and Management Company.
Mary C. Cremin, Treasurer /4/; Senior Vice President - Fund Business Management
Group,
Capital Research and Management Company.
R. Marcia Gould, Assistant Treasurer /4/; Vice President - Fund Business
Management Group, Capital
Research and Management Company.
/1/ Address is P.O. Box 7650, San Francisco, CA 94120.
/2/ Address is 630 Fifth Avenue, New York, NY 10111.
/3/ Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025.
/4/ Address is 135 South State College Boulevard, Brea, CA 92621.
# Positions within the organizations listed may have changed during this
period.
All of the directors and officers are also officers and/or directors and/or
trustees of one or more of the other funds for which Capital Research and
Management Company serves as Investment Adviser. No compensation is paid by
the fund to any officer or director who is a director, officer or employee of
the Investment Adviser or affiliated companies. The fund pays fees of $12,000
per annum to directors who are not affiliated with the Investment Adviser, plus
$700 for each Board of Directors meeting attended, plus $300 for each meeting
attended as a member of a committee of the Board of Directors. The directors
may elect, on a voluntary basis, to defer all or a portion of these fees
through a deferred compensation plan in effect for the fund. The fund also
reimburses certain expenses of the directors who are not affiliated with the
Investment Adviser. As of July 31, 1995 the officers and directors of the fund
and their families, as a group, owned beneficially or of record less than 1% of
the outstanding shares.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad, with a staff of professionals, many
of whom have a number of years of investment experience. The Investment
Adviser's research professionals travel several million miles a year, making
more than 5,000 research visits in more than 50 countries around the world.
The Investment Adviser believes that it is able to attract and retain quality
personnel.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for more than $100 billion of stocks,
bonds and money market instruments and serves over five million investors of
all types. These investors include privately owned businesses and large
corporations as well as schools, colleges, foundations and other non-profit and
tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and
Service Agreement (the Agreement) between the fund and the Investment Adviser,
dated January 1, 1994, and approved by the shareholders on December 14, 1993,
shall be in effect until the close of business on November 30, 1995 and may be
renewed from year to year thereafter, provided that any such renewal has been
specifically approved at least annually by (i) the Board of Directors of the
fund, or by the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the fund, and (ii) the vote of a majority of
directors who are not parties to the Agreement or interested persons (as
defined in said Act) of any such party, cast in person, at a meeting called for
the purpose of voting on such approval. The Agreement also provides that
either party has the right to terminate it without penalty, upon 60 days'
written notice to the other party, and that the Agreement automatically
terminates in the event of its assignment (as defined in said Act).
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the fund, and provides suitable office space, necessary small office equipment
and utilities, as well as general purpose accounting forms, supplies, and
postage to be used at the offices of the fund relating to the services
furnished by the Investment Adviser. The fund pays all expenses not
specifically assumed by the Investment Adviser, including, but not limited to,
custodian, stock transfer and dividend disbursing fees and expenses; costs of
designing, printing and mailing reports, prospectuses, proxy statements, and
notices to shareholders; taxes; expenses for the issuance and redemption of
shares of the fund (including stock certificates, registration and
qualification fees and expenses); expenses pursuant to the fund's Plan of
Distribution (described below); legal and auditing expenses; compensation,
fees, and expenses paid to directors unaffiliated with the Investment Adviser;
association dues; costs of stationery and forms prepared exclusively for the
fund; and costs of assembling and storing shareholder account data.
The Investment Adviser's fee is based upon the net assets of the fund and
monthly gross investment income. Gross investment income means gross income,
computed without taking account of gains or losses from sales of capital
assets, but including original issue discount as defined for federal income tax
purposes. The Internal Revenue Code in general defines original issue discount
to mean the difference between the issue price and the stated redemption price
at maturity of certain debt obligations. The holder of such indebtedness is in
general required to treat as ordinary income the proportionate part of the
original issue discount attributable to the period during which the holder held
the indebtedness.
The Agreement provides for an advisory fee reduction to the extent that the
fund's annual ordinary operating expenses exceed 1-1/2% of the first $30
million of the net assets of the fund and 1% of the net assets in excess
thereof. Expenses which are not subject to this limitation are interest,
taxes, and extraordinary expenses. Expenditures, including costs incurred in
connection with the purchase or sale of portfolio securities, which are
capitalized in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital items and not
as expenses.
For the fiscal year ended July 31, 1995, the Investment Adviser received
$18,773,000 for the basic management fee (based on a percentage of the net
assets of the fund as expressed above) plus $16,925,000 (based on a percentage
of the fund's gross income as expressed above), for a total fee of $35,698,000.
For the fiscal years ended July 31, 1994 and 1993, advisory fees paid by the
fund amounted to $32,273,000 and $23,101,000, respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the Principal
Underwriter) is the principal underwriter of the fund's shares. The fund has
adopted a Plan of Distribution (the Plan), pursuant to rule 12b-1 under the
1940 Act, (see "Principal Underwriter" in the Prospectus). The Principal
Underwriter receives amounts payable pursuant to the Plan (see below) and
commissions consisting of that portion of the sales charge remaining after the
discounts which it allows to investment dealers. Commissions retained by the
Principal Underwriter on sales of fund shares during the fiscal year ended July
31, 1995 amounted to $7,246,000 after allowance of $36,662,000 to dealers.
During the fiscal years ended 1994 and 1993, the Principal Underwriter received
$15,331,000 and $23,055,000, after allowance of $79,611,000 and $121,962,000,
respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by the full Board of Directors, and separately by
a majority of the directors who are not interested persons of the fund and who
have no direct or indirect financial interest in the operation of the Plan or
the Principal Underwriting Agreement, and the Plan has been approved by the
vote of a majority of the outstanding voting securities of the fund. The
officers and directors who are "interested" persons of the fund may be
considered to have a direct or indirect financial interest in the operation of
the Plan due to present or past affiliations with the Investment Adviser and
related companies. Potential benefits of the Plan to the fund include improved
shareholder services, savings to the fund in transfer agency costs, savings to
the fund in advisory fees and other expenses, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management organization. The selection and nomination of directors who
are not "interested persons" of the fund are committed to the discretion of the
directors who are not interested persons during the existence of the Plan. The
Plan is reviewed quarterly and must be renewed annually by the Board of
Directors.
Under the Plan the fund may expend up to 0.25% of its net assets annually to
finance any activity which is primarily intended to result in the sale of fund
shares, provided the fund's Board of Directors has approved the category of
expenses for which payment is being made. These include service fees for
qualified dealers and dealer commissions and wholesaler compensation on sales
of shares exceeding $1 million (including purchases by any defined contribution
plan qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees). Only expenses incurred
during the preceding 12 months and accrued while the Plan is in effect may be
paid by the fund. During the fiscal year ended July 31, 1995, the fund paid or
accrued $25,061,000 for compensation to dealers under the Plan.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit commercial banks from engaging in the business of
underwriting, selling or distributing securities, but permit banks to make
shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries of affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer with adverse financial consequences as a result of
any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements, and has elected the tax status
of a "regulated investment company," under the provisions of Subchapter M of
the Internal Revenue Code of 1986 (the Code). Under Subchapter M, if the fund
distributes within specified times at least 90% of the sum of its investment
company taxable income (net investment income and the excess of net short-term
capital gains over net long-term capital losses) and its tax-exempt interest,
if any, it will be taxed only on that portion of such investment company
taxable income that it retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities, currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) derive less than 30% of its gross income from the gains or sale
or other disposition of stock or securities held less than three months; and
(c) diversify its holdings so that, at the end of each fiscal quarter, (i) at
least 50% of the market value of the fund's assets is represented by cash, cash
items, U.S. Government securities, securities of other regulated investment
companies, and other securities (but such other securities must be limited, in
respect of any one issuer, to an amount not greater than 5% of the fund's
assets and 10% of the outstanding voting securities of such issuer), and (ii)
not more than 25% of the value of its assets is invested in the securities of
any one issuer (other than U.S. Government securities or the securities of
other regulated investment companies), or in two or more issuers which the fund
controls and which are engaged in the same or similar trades or businesses or
related trades or businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gains (both long-term and
short-term) for the one-year period ending on October 31 (as though the
one-year period ending on October 31 were the regulated investment company's
taxable year), and (iii) the sum of any untaxed, undistributed net investment
income and net capital gains of the regulated investment company for prior
periods. The term "distributed amount" generally means the sum of (i) amounts
actually distributed by the fund from its current year's ordinary income and
capital gain net income and (ii) any amount on which the fund pays income tax
during the periods described above. The fund intends to distribute net
investment income and net capital gains so as to minimize or avoid the excise
tax liability.
The fund also intends to continue distributing to shareholders all of the
excess of net long-term capital gain over net short-term capital loss on sales
of securities. If the net asset value of shares of the fund should, by reason
of a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made payable
to shareholders of record in such a month are treated as paid and are thereby
taxable as of December 31, provided that the fund pays the dividend no later
than the end of January of the following year.
Corporate shareholders of the fund may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gains dividends) paid by
the fund to the extent the fund's income is derived from dividends (which, if
received directly would qualify for such deduction) received from domestic
corporations. In order to qualify for the dividends-received deduction, a
corporate shareholder must hold the fund shares paying the dividends upon which
the deduction is based for at least 46 days.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent shares are reacquired within
the 61-day period beginning 30 days before and ending 30 days after the shares
are disposed of.
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation or foreign
partnership (a foreign shareholder) will be subject to U.S. withholding tax (at
a rate of 30% or lower treaty rate). Withholding will not apply if a dividend
paid by the fund to a foreign shareholder is "effectively connected" with a
U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens or domestic corporations will apply.
Distributions of net long-term capital gains not effectively connected with a
U.S. trade or business are not subject to tax withholding, but in the case of a
foreign shareholder who is a nonresident alien individual, such distributions
ordinarily will be subject to U.S. income tax at a rate of 30% if the
individual is physically present in the U.S. for more than 182 days during the
taxable year.
Income and dividends received by the fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Because not more than 50% of the value of the
total assets of the fund is expected to consist of securities of foreign
issuers, the fund will not be eligible to elect to "pass through" foreign tax
credits to shareholders.
As of the date of this statement of additional information, the maximum
federal individual stated tax rate applicable to ordinary income is 39.6%
(effective tax rates may be higher for some individuals due to phase out of
exemptions and elimination of deductions); the maximum individual tax rate
applicable to net capital gains is 28%; and the maximum corporate tax
applicable to ordinary income and net capital gains is 35% (except that
corporations which have taxable income in excess of $100,000 for a taxable year
will be required to pay an additional amount of tax of up to $11,750 and
corporations which have taxable income in excess of $15,000,000 for a taxable
year will be required to pay an additional amount of tax of up to $100,000).
Naturally, the amount of tax payable by a shareholder with respect to either
distributions from the fund or disposition of fund shares will be affected by a
combination of tax law rules covering, E.G., deductions, credits, deferrals,
exemptions, sources of income and other matters. Under the Code, an individual
is entitled to establish an IRA each year (prior to the tax return filing
deadline for the year) whereby earnings on investments are tax-deferred. In
addition, in some cases, the IRA contribution itself may be deductible.
The foregoing is limited to a summary of federal taxation and should not be
viewed as a comprehensive discussion of all provisions of the Code relevant to
investors. Dividends and capital gain -distributions may also be subject to
state or local taxes. Shareholders should consult their own tax advisers for
additional details as to their particular tax status.
PURCHASE OF SHARES
PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company; this offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. The dealer is responsible for promptly transmitting purchase
orders to the Principal Underwriter. Orders received by the investment dealer,
the Transfer Agent, or the fund after the time of the determination of the net
asset value will be entered at the next calculated offering price. Prices
which appear in the newspaper are not always indicative of prices at which you
will be purchasing and redeeming shares of the fund, since such prices
generally reflect the previous day's closing price whereas purchases and
redemptions are made at the next calculated price.
The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily at the close of trading
(currently 4:00 p.m., New York time) each day the New York Stock Exchange is
open. The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The net
asset value per share is determined as follows:
1. Equity-type securities are stated at market value based upon closing
sales prices reported on recognized securities exchanges (or reported on the
NASDAQ national market) on the day of valuation or, for listed securities
having no sales reported, upon last-reported bid prices on that date.
Securities traded in the over-the-counter market are valued at the last
available sale price prior to the time of valuation or, lacking any sales, at
the last reported 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
Board of Directors.
2. There are deducted from the total assets, thus determined, the
liabilities, including proper accruals of taxes and other expense items; and
3. The value of the net assets so obtained is then divided by the total
number of shares outstanding, and the result, rounded to the nearer cent, is
the net asset value per share.
Any purchase order may be rejected by the Principal Underwriter or the fund.
The Principal Underwriter will not knowingly sell fund shares directly,
indirectly, or through a unit investment trust to any other investment company,
or to any person or entity, where, after the sale, such investment company,
person, or entity would own beneficially, directly, indirectly, or through a
unit investment trust, more than 4.5% of the outstanding shares of the fund
without the consent of a majority of the fund's directors.
STATEMENT OF INTENTION - The reduced sales charges and offering prices set
forth in the Prospectus apply to purchases of $50,000 or more made within a
13-month period pursuant to the terms of a written statement of intention (the
Statement) in the form provided by the Principal Underwriter and signed by the
purchaser. The Statement is not a binding obligation to purchase the indicated
amount. When a shareholder signs a Statement in order to qualify for a reduced
sales charge, shares equal to 5% of the dollar amount specified in the
Statement will be held in escrow in the shareholder's account out of the
initial purchase (or subsequent purchases, if necessary) by the Transfer Agent.
All dividends and any capital gain distributions on shares held in escrow will
be credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the specified
13-month period, the purchaser will remit to the Principal Underwriter the
difference between the sales charge actually paid and the sales charge which
would have been paid if the total of such purchases had been made at a single
time. If the difference is not paid within 20 days after written request by
the Principal Underwriter or the securities dealer, the appropriate number of
shares held in escrow will be redeemed to pay such difference. If the proceeds
from this redemption are inadequate, the purchaser will be liable to the
Principal Underwriter for the balance still outstanding. The Statement may be
revised upward at any time during the 13-month period, and such a revision will
be treated as a new Statement, except that the 13-month period during which the
purchase must be made will remain unchanged and there will be no retroactive
reduction of the sales charges paid on prior purchases.
In the case of purchase orders by the trustees of certain retirement plans by
payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: The investment made the first
month of the 13-month period will be multiplied by 13 and then multiplied by
1.5. On the first investment and all other investments made pursuant to the
Statement, a sales charge will be assessed according to the sales charge
breakpoint thus determined. There will be no retroactive adjustments in sales
charges on investments previously made during the 13-month period.
DEALER COMMISSIONS - The following commissions will be paid to dealers who
initiate and are responsible for purchases of $1 million or more and for
purchases made at net asset value by certain retirement plans of organizations
with collective retirement plan assets of $100 million or more: 1.00% on
amounts of $1 million to $2 million, 0.80% on amounts over $2 million to $3
million, 0.50% on amounts over $3 million to $50 million, 0.25% on amounts over
$50 million to $100 million, and 0.15% on amounts over $100 million. The level
of dealer commissions will be determined based on sales made over a 12-month
period commencing from the date of the first sale at net asset value. See "The
American Funds Shareholder Guide" in the fund's prospectus for more
information.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the 10th day of the month (or on or about the
15th day of the month in the case of accounts for retirement plans where
Capital Guardian Trust Company serves as custodian or trustee). Bank accounts
will be charged on the day or a few days before investments are credited,
depending on the bank's capabilities, and shareholders will receive a
confirmation statement showing the current transaction. Participation in the
plan will begin within 30 days after receipt of the account application. If
the shareholder's bank account cannot be charged due to insufficient funds, a
stop-payment order or the closing of the account, the plan may be terminated
and the related investment reversed. The shareholder may change the amount of
the investment or discontinue the plan at any time by writing to the Transfer
Agent.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the paying fund) into any other fund in The
American Funds Group (the receiving fund) subject to the following conditions:
(i) the aggregate value of the shareholder's account(s) in the paying fund(s)
must equal or exceed $5,000 (this condition is waived if the value of the
account in the receiving fund equals or exceeds that fund's minimum initial
investment requirement), (ii) as long as the value of the account in the
receiving fund is below that fund's minimum initial investment requirement,
dividends and capital gain distributions paid by the receiving fund must be
automatically reinvested in the receiving fund, and (iii) if this privilege is
discontinued with respect to a particular receiving fund, the value of the
account in that fund must equal or exceed the fund's minimum initial investment
requirement or the fund shall have the right, if the shareholder fails to
increase the value of the account to such minimum within 90 days after being
notified of the deficiency, automatically to redeem the account and send the
proceeds to the shareholder. These cross-reinvestments of dividends and
capital gain distributions will be at net asset value (without sales charge).
EXECUTION OF PORTFOLIO TRANSACTIONS
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner. The fund will not pay a mark-up for
research in principal transactions.
The fund is required to disclose information regarding investments in the
securities of broker-dealers which have certain relationships with the fund.
During the last fiscal year, Ford Motor Credit Co., General Electric Capital
Corp., Merrill Lynch, Pierce, Fenner & Smith Inc., and J.P. Morgan Securities
Inc. were among the top 10 dealers that acted as principals in portfolio
transactions; and Lehman Brothers Inc., an affiliate of American Express Co.
was among the top 10 dealers receiving commissions due to portfolio
transactions. The fund held equity securities of American Express Co. and Ford
Motor Co. in the amounts of $28,875,000 and $96,650,000, respectively, and debt
securities of Ford Capital, Ford Motor Credit Co., General Electric Capital
Corp., GE Capital Mortgage Services, Inc., Merrill Lynch Mortgage Investors,
Inc., and J. P. Morgan & Co. Inc. in the amounts of $6,242,000, $2,565,000,
$4,622,000, $3,691,000, $2,544,000, and $48,263,000, respectively, as of the
close of its most recent fiscal year.
Brokerage commissions paid on portfolio transactions, including dealer
concessions on underwritings, during the fiscal years ended July 31, 1995, 1994
and 1993, amounted to $11,980,000, $22,437,000, and $20,665,000, respectively.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including
proceeds from the sale of shares of the fund and of securities in the fund's
portfolio, are held by The Chase Manhattan Bank N.A., One Chase Manhattan
Plaza, New York, NY 10081, as Custodian.
TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the record of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. When fund shares are purchased by an insurance
company separate account to serve as the underlying investment vehicle for
variable insurance contracts, the fund may pay a fee to the insurance company
or another party for performing certain transfer agent services with respect to
contract owners having interests in the fund.
INDEPENDENT ACCOUNTANTS - Deloitte & Touche LLP located at 1000 Wilshire
Boulevard, Los Angeles, CA 90017, serves as the fund's independent accountants
providing audit services, preparation of tax returns and review of certain
documents of the fund to be filed with the Securities and Exchange Commission.
The financial statements included in this statement of additional information
from the Annual Report have been so included in reliance on the report of
Deloitte & Touche LLP given on the authority of said firm as experts in
accounting and auditing.
REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on July 31. Shareholders
are provided at least semi-annually with reports showing the investment
portfolio, financial statements and other information. The annual financial
statements are audited annually by the fund's independent accountants, Deloitte
& Touche LLP, whose selection is determined annually by the Board of Directors.
PERSONAL INVESTING POLICY - Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions.
The financial statements including the investment portfolio and the report of
Independent Auditors contained in the Annual Report are included in this
statement of additional information. The following information is not included
in the Annual Report:
<TABLE>
<CAPTION>
<S> <C>
DETERMINATION OF NET ASSET VALUE,
REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE--JULY 31, 1995
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $14.92
Maximum offering price per share
(100/94.25 of net asset value per share
which takes into account the fund's current
maximum sales charge) $15.83
</TABLE>
REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any director or directors from office and may elect a successor
or successors to fill any resulting vacancies for the unexpired terms of
removed directors. The fund has made an undertaking, at the request of the
staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of directors as
though the fund were a common-law trust. Accordingly, the directors of the
fund shall promptly call a meeting of shareholders for the purpose of voting
upon the question of removal of any director when requested in writing to do so
by the record holders of not less than 10% of the outstanding shares.
INVESTMENT RESULTS
The fund's yield is 5.26% based on a 30-day (or one month) period ended July
31, 1995, computed by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last day of
the period, according to the following formula:
YIELD = 2[(a-b/cd+1)/6/-1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The fund's average annual total return for the one, five and ten-year periods
ended on July 31, 1995 was +9.72%, +10.85% and +11.51%, respectively. The
average annual total return (T) is computed by equating the value at the end of
the period (ERV) with a hypothetical initial investment of $1,000 (P) over a
period of years (n) according to the following formula as required by the
Securities and Exchange Commission: P(1+T)/n/ = ERV.
The fund may also, at times, calculate total return based on net asset value
per share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the computation. Consequently,
total return calculated in this manner will be higher. These total returns may
be calculated over periods in addition to those described above. Total return
for the unmanaged indices will be calculated assuming reinvestment of dividends
and interest, but will not reflect any deductions for advisory fees, brokerage
costs or administrative expenses.
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) deduction of the maximum sales load of
5.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated.
The fund may include information on its investment results and/or comparisons
of its investment results to various unmanaged indices (such as The Dow Jones
Average of 30 Industrial Stocks, The Standard and Poor's 500 Stock Composite
Index, the Lehman Brothers Corporate Bond Index, the Lehman Brothers Aggregate
Bond Index and the Salomon Brothers High-Grade Corporate Bond Index) or results
of other mutual funds or investment or savings vehicles in advertisements or in
reports furnished to present or prospective shareholders.
The fund may refer to results compiled by organizations such as CDA Investment
Technologies, Ibbotson Associates, Lipper Analytical Services, Morningstar,
Inc., and Wiesenberger Investment Companies Services and by the U.S. Department
of Commerce. Additionally, the fund may, from time to time, refer to results
published in various newspapers and periodicals, including Barrons, Forbes,
Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine, Money,
U.S. News and World Report and The Wall Street Journal.
The fund may, from time to time, illustrate the benefits of tax-deferral by
comparing taxable investments to investments made through tax-deferred
retirement plans.
The fund may, from time to time, compare its investment results with the
Consumer Price Index, which is a measure of the average change in prices over
time in a fixed market basket of goods and services (E.G. food, clothing,
fuels, transportation, and other goods and services that people buy for
day-to-day living).
The investment results for the fund set forth below were calculated as
described in the fund's prospectus. Data contained in Salomon's Market
Performance and Lehman Brothers' The Bond Market Report are used to calculate
cumulative total return from their base period (12/31/68 and 12/31/72,
respectively) for each index. The percentage increases shown in the table
below or used in published reports of the fund are obtained by subtracting the
index results at the beginning of the period from the index results at the end
of the period and dividing the difference by the index results at the beginning
of the period.
IFA vs. Various Unmanaged Indices
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
10-Year Lehman Lehman Average
Period Brothers Brothers Salomon Savings
8/1 - 7/31 IFA DJIA/1/ S&P 500/2/ Corporate/3/ Aggregate/4/ High-Grade/5/ Account/6/
1985 - 1995 +179% +160% +206% + 73%
+197% +391% +306%
1984 - 1994 +217 +193 +254 + 83
+241 +385 +327
1983 - 1993 +241 +218 +281 + 94
+254 +333 +294
1982 - 1992 +295 +251 +330 +105
+351 +528 +478
1981 - 1991 +304 +269 +329 +117
+298 +392 +343
1980 - 1990 +235 +217 +239 +124
+293 +392 +344
1979 - 1989 +202 +201 +202 +125
+317 +409 +416
1978 - 1988 +180 +178 +166 +125
+267 +308 +326
1977 - 1987 +159 +164 +146 +125
+283 +388 +417
1976 - 1986 +184 +181 +177 +124
+265 +209 +271
1975 - 1985 +161 N/A +134 +121
+295 +177 +250
1974 - 1984 +136 N/A +112 +116
+270 +153 +210
1973#- 1983 + 95 N/A + 76 +106
+237 +147 +172
</TABLE>
________________
# From December 1, 1973
/1/ The Dow Jones Average of 30 Industrial Stocks is comprised of 30 industrial
companies such as General Motors and General Electric.
/2/ The Standard and Poor's 500 Stock Composite Index is comprised of
industrial, transportation, public utilities, and financial stocks and
represents a large portion of the value of issues traded on the New York Stock
Exchange. Selected issues traded on the American Stock Exchange are also
included.
/3/ The Lehman Brothers Corporate Bond Index is comprised of all public, fixed
rate, non-convertible investment grade domestic corporate debt. Issues
included in this index are rated at least Baa by Moody's Investors Service, BBB
by Standard and Poor's Corporation or, in the case of bank bonds not rated by
either of the previously mentioned services, BBB by Fitch Investors Service.
/4/ The Lehman Brothers Aggregate Bond Index covers all sectors of the fixed
income market and is a combination of the Lehman Brothers Treasury Bond Index,
the Agency Bond Index, the Corporate Bond Index, the Yankee Bond Index and the
Mortgage Backed Securities Index. Its inception date is December 31, 1975.
/5/ The Salomon Brothers High-Grade Corporate Bond Index is comprised of a
sample of high-grade corporate bonds which have a rating of AAA or AA by
Standard and Poor's Corporation.
/6/ Based on figures supplied by the U.S. League of Savings Institutions and
the Federal Reserve Board which reflect all kinds of savings deposits,
including longer-term certificates. Savings accounts offer a guaranteed return
of principal, but no opportunity for capital growth. During a portion of the
period, the maximum rates paid on some savings deposits were fixed by law.
<TABLE>
<CAPTION>
<S> <C>
If you are considering IFA for an
Individual Retirement Account. . .
Here's how much you would have if you had invested $2,000 a year on August 1
of each year in IFA over the past 5 and 10 years:
5 years 10 years
(8/1/90-7/31/95) (8/1/85-7/31/95)
$13,343 $36,066
</TABLE>
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
. . . and had taken
all dividends and
capital gain
distributions
in shares, your
If you had investment would
invested $10,000 have been worth
in IFA this many this much at
years ago . . . 7/31/95
<S> <C> <C>
| |
Number Periods
of Years 8/1 - 7/31 Value
1 1994 - 1995
$10,972
2 1993 - 1995
11,192
3 1992 - 1995
12,517
4 1991 - 1995
14,909
5 1990 - 1995
16,736
6 1989 - 1995
16,928
7 1988 - 1995
20,903
8 1987 - 1995
21,251
9 1986 - 1995
24,800
10 1985 - 1995
29,735
11 1984 - 1995
39,663
12 1983 - 1995
42,076
13 1982 - 1995
59,887
14 1981 - 1995
63,043
15 1980 - 1995
70,283
16 1979 - 1995
74,874
17 1978 - 1995
81,457
18 1977 - 1995
86,479
19 1976 - 1995
96,086
20 1975 - 1995
124,450
21 1974 - 1995
155,892
22 1973#- 1995
150,385
</TABLE>
# From December 1, 1973
Illustration of a $10,000 investment in IFA with
dividends reinvested and capital gain distributions taken in shares
(for the period December 1, 1973 through July 31, 1995)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
COST OF SHARES VALUE OF SHARES
Year Annual Dividends Total From Initial From From Total
Ended Dividends (cumulative) Investment Investment Capital Gains Dividends Value
July 31 Cost Reinvested Reinvested
1974# $ 347 $ 347 $10,347 $ 8,767 - $ 321 $ 9,088
1975 785 1,132 11,132 10,141 - 1,250 11,391
1976 998 2,130 12,130 12,155 - 2,596 14,751
1977 969 3,099 13,099 12,701 - 3,691 16,392
1978 1,117 4,216 14,216 12,584 - 4,820 17,404
1979 1,333 5,549 15,549 12,693 - 6,228 18,921
1980 1,463 7,012 17,012 12,490 - 7,672 20,162
1981 1,743 8,755 18,755 12,818 - 9,667 22,485
1982 2,187 10,942 20,942 12,256 - 11,408 23,664
1983 2,549 13,491 23,491 16,112 - 17,573 33,685
1984 2,896 16,387 26,387 15,254 $1,013 19,455 35,722
1985 3,365 19,752 29,752 18,236 2,637 26,804 47,677
1986 3,909 23,661 33,661 18,907 6,434 31,807 57,148
1987 4,431 28,092 38,092 19,578 9,644 37,452 66,674
1988 4,479 32,571 42,571 17,955 10,904 38,957 67,816
1989 5,338 37,909 47,909 20,609 12,515 50,578 83,702
1990 5,269 43,178 53,178 18,907 13,755 51,497 84,159
1991 6,311 49,489 59,489 19,578 14,787 60,070 94,435
1992 6,578 56,067 66,067 21,764 17,093 73,764 112,621
1993 6,995 63,062 73,062 22,592 19,653 83,771 126,016
1994 7,471 70,533 80,533 21,218 21,364 85,868 128,450
1995 8,046 78,579 88,579 23,294 24,107 102,984 150,385
</TABLE>
# From December 1, 1973
The dollar amount of capital gain distributions during the period was $19,346.
EXPERIENCE OF INVESTMENT ADVISER - Capital Research and Management Company
manages nine common stock funds that are at least 10 years old. In the rolling
10-year periods since 1964 (115 in all), those funds have had better total
returns than the Standard and Poor's 500 Composite Stock Index in 94 of the 115
periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
DESCRIPTION OF BOND RATINGS
Corporate Debt Securities
MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by
various entities from "Aaa" to "C" according to quality.
"AAA -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large, or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
"AA -- High quality by all standards. They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
"A -- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
"BAA -- Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
"BA -- Have speculative elements; future cannot be considered as well assured.
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
"B -- Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"CAA -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"CA -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
STANDARD & POOR'S CORPORATION rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality.
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
"A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is in
arrears."
THE INCOME FUND OF AMERICA
INVESTMENT PORTFOLIO July 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Equity-Type Securities 53.81%
Corporate Bonds 23.34%
Government Bonds 17.15%
Cash & Equivalents 5.70%
</TABLE>
**********
<TABLE>
<CAPTION>
- ---------------------------- -------------
Percent of
Ten Largest Stock Holdings Net Assets
- ---------------------------- -------------
<S> <C>
Eli Lilly 1.91%
Bristol-Myers Squibb 1.59
Philip Morris 1.46
American Home Products 1.30
Upjohn 1.17
Occidental Petroleum .87
Lincoln National .85
Ford Motor .78
Phillips Petroleum .78
U S WEST .77
</TABLE>
**********
<TABLE>
<CAPTION>
- ---------------------------------- --- --- ---
Shares or Market Percent
Principal Value of Net
Equity-Type Securities Amount (000) Assets
- ---------------------------------- --- --- ---
Banking - 7.65%
<S> <C> <C> <C>
AmSouth Bancorporation 750,000 $26,344 .21%
Banc One Corp. 1,500,000 47,625 .39
BANCORP HAWAII, INC. 800,000 24,500 .20
Bank of New York Co., Inc. 1,300,000 52,163
Bank of New York Co., Inc. 7.50% convertible debentures
2001 $13,000,000 26,665 .64
Bankers Trust New York Corp. 1,000,000 64,500 .52
CalFed Inc., Class A (1) 328,535 4,558 .04
Central Fidelity Banks, Inc. 281,250 8,930 .07
CHEMICAL BANKING CORP. 1,600,000 82,600 .67
Citicorp $5.375 convertible preferred, Series 13 160,000 27,200 .22
Comerica Inc. 1,080,000 37,800 .31
CoreStates Financial Corp. 1,700,000 62,050 .50
First Chicago Corp. 575,000 34,931 .28
FIRST FIDELITY BANCORPORATION 558,900 35,211 .29
First Interstate Bancorp 250,000 21,531 .18
First Nationwide Bank, FSB preferred 100,000 10,900 .09
FIRST SECURITY CORP. 1,125,000 31,219 .25
FIRST TENNESSEE NATIONAL CORP. 900,000 44,325 .36
First Union Corp. 1,700,000 83,087 .68
Fleet Financial Group, Inc. 1,225,000 43,641 .36
Glendale Federal Bank, FSB (1) 234,367 3,223
Glendale Federal Bank, FSB warrants, expire 1999 (1) 6,175 8 .03
Mellon Bank Corp. 375,000 15,047 .12
J.P. Morgan & Co. Inc. 660,000 48,263 .39
NATIONAL CITY CORP. 950,000 29,094 .24
PNC Bank Corp. 2,460,000 60,577 .49
Royal Bank of Canada 380,000 8,128 .07
Washington Mutual Savings Bank $6.00 convertible
preferred, Series D 60,000 6,075 .05
-------- -----
940,195 7.65
-------- -----
Health & Personal Care - 7.63%
American Home Products Corp. 2,030,000 160,370 1.30
Baxter International Inc. 1,300,000 48,425 .39
Bristol-Myers Squibb Co. 2,815,000 194,939 1.59
Glycomed Inc. 7.50% convertible debentures 2003 $5,000,000 3,550 .03
Eli Lilly and Co. 3,000,000 234,750 1.91
Merck & Co., Inc. 800,000 41,300 .34
Tambrands Inc. 960,000 45,240 .37
Upjohn Co. 3,750,000 144,375 1.17
Warner-Lambert Co. 775,000 65,100 .53
-------- -----
938,049 7.63
-------- -----
Energy Sources - 6.14%
Amoco Corp. 850,000 57,162 .46
Atlantic Richfield Co. 700,000 80,675 .66
California Energy Co., Inc. 5.00% convertible debentures
2000 (2) $10,000,000 9,900 .08
Chevron Corp. 1,135,000 56,041 .46
Chieftain International Funding Corp. $1.8125
convertible preferred 152,500 3,603 .03
Cyprus Amax Minerals Co. $4.00 convertible preferred,
Series A 465,000 28,772 .23
Howell Corp. $3.50 convertible preferred, Series A 60,000 3,060 .02
Mobil Corp. 550,000 53,763 .44
Occidental Petroleum Corp. 4,000,000 90,000
Occidental Petroleum Corp. $3.875 convertible
preferred (2) 300,000 16,950 .87
Oryx Energy Co. 7.50% convertible debentures 2014 $9,500,000 8,170 .07
Phillips Petroleum Co. 2,700,000 95,512 .78
Santa Fe Energy Resources, Inc. $0.732 DECS
convertible preferred, Series A 500,000 4,813 .04
Sun Co., Inc. 1,632,000 47,940 .39
Texaco Inc. 1,275,000 84,787 .69
Unocal Corp. $3.50 convertible preferred (2) 750,000 39,937 .32
USX-Marathon Group 3,100,000 62,388 .51
Valero Energy Corp. $3.125 convertible preferred 228,100 11,262 .09
-------- -----
754,735 6.14
-------- -----
Insurance - 4.03%
Aetna Life and Casualty Co. 600,000 37,125 .30
Alexander & Alexander Services Inc. $3.625 convertible
preferred, Series A (2) 220,000 10,780 .09
ALLSTATE CORP. 416,141 13,004 .11
American General Corp. 1,550,000 56,381 .46
CIGNA Corp. 975,000 78,609 .64
Lincoln National Corp. 2,540,000 104,457 .85
Ohio Casualty Corp. 1,795,000 57,889 .47
SAFECO CORP. 750,000 43,875 .36
St. Paul Companies, Inc. 1,280,000 62,400 .51
Trenwick Group Inc. 6.00% convertible debentures 1999 $3,000,000 3,135 .02
USF&G Corp. 1,351,071 22,293
USF&G Corp. 0% convertible debentures 2009 $10,000,000 5,500 .22
-------- -----
495,448 4.03
-------- -----
Telecommunications - 3.42%
Ameritech Corp. 1,300,000 62,887 .51
Bell Atlantic Corp. 1,550,000 88,738 .72
BellSouth Corp. 250,000 16,937 .14
Dial Page, Inc. warrants (1) 51,912 0 .00
GTE Corp. 708,000 25,134 .20
NYNEX Corp. 1,000,000 41,250 .34
Pacific Telesis Group 2,635,000 74,439 .61
Sprint Corp. 465,000 15,926 .13
U S WEST, Inc. 1,830,000 78,461
U S WEST, Inc. 0% convertible debentures 2011 $50,000,000 16,188 .77
-------- -----
419,960 3.42
-------- -----
Utilities: Electric & Gas - 3.29%
Consolidated Edison Co. of New York, Inc. 400,000 11,600 .10
Detroit Edison Co. 1,600,000 47,200 .38
Eastern Utilities Associates 640,000 13,920 .11
Entergy Corp. 3,675,000 87,281 .71
General Public Utilities Corp. 1,157,200 33,414 .27
Houston Industries Inc. 1,200,000 52,500 .43
Long Island Lighting Co. 2,450,000 39,200 .32
NorAm Energy Corp. 1,652,300 11,360 .09
Pacific Gas and Electric Co. 2,355,200 69,478 .57
PECO Energy Co. 276,000 7,901 .07
Puget Sound Power & Light Co. 700,000 15,050 .12
Texas Utilities Co. 333,037 11,282 .09
Unicom Corp. 150,000 4,162 .03
-------- -----
404,348 3.29
-------- -----
Beverages & Tobacco - 2.42%
American Brands, Inc. 1,600,000 63,800 .52
Philip Morris Companies Inc. 2,500,000 179,062 1.46
RJR Nabisco Holdings Corp. 1,000,000 27,625 .22
UST Inc. 1,000,000 27,250 .22
-------- -----
297,737 2.42
-------- -----
Transportation: Airlines - 1.45%
Air Wis Services, Inc. 7.75% convertible
debentures 2010 $4,000,000 3,120 .03
Alaska Air Group, Inc. 0% convertible debentures 2006 $28,000,000 12,950 .11
AMR Corp. 6.125% convertible QUICS 2024 $70,000,000 72,800 .59
Delta Air Lines, Inc. $3.50 convertible preferred, Class
C 915,000 56,616
Delta Air Lines, Inc. 3.23% convertible debentures 2003 $20,000,000 20,050 .62
UAL Corp. preferred, Series B 400,000 12,350 .10
-------- -----
177,886 1.45
-------- -----
Chemicals - 1.36%
Dow Chemical Co. 500,000 37,063 .30
E.I. du Pont de Nemours and Co. 600,000 40,200 .33
Eastman Chemical Co. 495,000 31,680 .26
BFGoodrich Co. 465,000 25,226 .20
MONSANTO CO. 300,000 27,937 .23
RPM, Inc. 0% convertible debentures 2012 $12,500,000 5,219 .04
-------- -----
167,325 1.36
-------- -----
Forest Products & Paper - 1.25%
Federal Paper Board Co., Inc. 1,050,000 39,244 .32
James River Corp. of Virginia 550,000 18,356
James River Corp. of Virginia $1.55 DECS convertible
preferred 675,000 19,744 .31
Riverwood International Corp. 6.75% convertible
debentures 2003 (2) $4,000,000 5,560 .05
Union Camp Corp. 550,000 30,938 .25
WEYERHAEUSER CO. 851,900 39,826 .32
-------- -----
153,668 1.25
-------- -----
Real Estate - 1.20%
Kimco Realty Corp. 125,700 5,012 .04
Meditrust 1,050,000 35,438
Meditrust 7.50% convertible debentures 2001 $5,000,000 5,000 .33
SECURITY CAPITAL PACIFIC TRUST (FORMERLY PROPERTY
TRUST OF AMERICA) 730,000 13,231
SECURITY CAPITAL PACIFIC TRUST $1.75
CONVERTIBLE PREFERRED, SERIES A 600,000 13,500 .22
Security Capital Realty, Inc. (1)(2) 18,680 17,830
Security Capital Realty, Inc. 12.00% convertible
debentures 2014 (2) $14,150,100 12,912 .24
Weingarten Realty Investors 1,025,847 36,546 .30
Western Investment Real Estate Trust 714,900 8,400 .07
-------- -----
147,869 1.20
-------- -----
Automobiles - 1.04%
FORD MOTOR CO. 1,700,000 49,087
Ford Motor Co. $4.20 cumulative convertible preferred,
Series A 500,000 47,563 .78
General Motors Corp. 650,000 31,687 .26
-------- -----
128,337 1.04
-------- -----
Business & Public Services - 1.02%
Air & Water Technologies Corp. 8.00% convertible
debentures 2015 $9,900,000 8,167 .07
Ceridian Corp. $2.75 cumulative convertible
exchangeable preferred 170,500 15,729 .13
Deluxe Corp. 850,000 27,306 .22
Dun & Bradstreet Corp. 1,200,000 67,500 .55
Sanifill, Inc. 7.50% convertible debentures 2006 $6,000,000 6,900 .05
-------- -----
125,602 1.02
-------- -----
Financial Services - 0.79%
American Express Co. 750,000 28,875 .23
Beneficial Corp. 1,000,000 47,375 .39
First USA 6.25% PRIDES convertible preferred 500,000 20,438 .17
-------- -----
96,688 .79
-------- -----
Recreation & Other Consumer Products - 0.76%
Coleman Co., Inc. 0% convertible debentures 2013 $8,000,000 2,400 .02
Eastman Kodak Co. 600,000 34,575 .28
Hasbro, Inc. 6.00% convertible debentures 1998 $7,950,000 8,735 .07
Jostens, Inc. 2,074,000 47,183 .39
-------- -----
92,893 .76
-------- -----
Merchandising - 0.70%
Melville Corp. 900,000 32,400 .26
J.C. PENNEY CO., INC. 800,000 38,700 .32
SEARS, ROEBUCK AND CO. 448,895 14,645 .12
-------- -----
85,745 .70
-------- -----
Multi-Industry - 0.69%
Harsco Corp. 325,000 18,078 .15
Tenneco Inc. 1,356,266 67,135 .54
-------- -----
85,213 .69
-------- -----
Metals: Steel - 0.68%
Bethlehem Steel Corp. $3.50 convertible preferred (2) 250,000 11,437 .09
Carpenter Technology Corp. 250,000 18,438 .15
USX Corp. $3.25 convertible preferred 350,000 16,800
USX Corp. 5.75% convertible debentures 2001 $21,000,000 19,110
USX Corp. 0% convertible debentures 2005 $40,000,000 18,400 .44
-------- -----
84,185 .68
-------- -----
Broadcasting & Publishing - 0.64%
Comcast Corp. 1.125% convertible debentures 2007 $54,000,000 27,000 .22
Time Warner Inc. 0% convertible debentures 2012 $67,000,000 22,445
TIME WARNER INC. 0% CONVERTIBLE DEBENTURES 2013 $25,000,000 10,187 .26
Turner Broadcasting System, Inc. 0% convertible
debentures 2007 (2) $45,000,000 19,350 .16
-------- -----
78,982 .64
-------- -----
Food & Household Products - 0.60%
Clorox Co. 250,000 16,406 .13
ConAgra, Inc. $1.6875 convertible preferred, Class E 100,000 3,812 .03
GENERAL MILLS, INC. 450,000 23,513 .19
H.J. Heinz Co. 700,000 30,362 .25
-------- -----
74,093 .60
-------- -----
Industrial Components - 0.52%
Dana Corp. 700,000 20,650 .17
GOODYEAR TIRE & RUBBER CO. 1,000,000 43,375 .35
-------- -----
64,025 .52
-------- -----
Machinery & Engineering - 0.42%
Deere & Co. 350,000 31,456 .26
Thermo Electron Corp. 5.00% convertible debentures
2001 (2) $13,800,000 20,010 .16
-------- -----
51,466 .42
-------- -----
Metals: Nonferrous - 0.42%
Alumax Inc. $4.00 convertible preferred, Series A 140,000 20,020 .16
FREEPORT-MCMORAN COPPER & GOLD INC., CLASS B 299,991 8,100 .07
Inco Ltd. 5.75% convertible debentures 2004 $15,000,000 19,350 .16
Kaiser Aluminum Corp. 8.255% PRIDES convertible
preferred 260,000 3,705 .03
-------- -----
51,175 .42
-------- -----
Miscellaneous Materials & Commodities - 0.30%
FREEPORT-MCMORAN INC. (1) 427,500 2,137 .02
Olin Corp. 600,000 34,725 .28
-------- -----
36,862 .30
-------- -----
Transportation: Rail & Road - 0.23%
BURLINGTON NORTHERN INC. $3.125 CONVERTIBLE
PREFERRED, SERIES A 258,500 19,129 .16
Yellow Corp. 607,500 9,188 .07
-------- -----
28,317 .23
-------- -----
Energy Equipment - 0.18%
COOPER INDUSTRIES, INC. 600,000 22,425 .18
-------- -----
Textiles & Apparel - 0.15%
Brown Group, Inc. 730,000 18,159 .15
-------- -----
Leisure & Tourism - 0.12%
Topps Co., Inc. 2,345,000 14,656 .12
-------- -----
Electronic Components - 0.10%
Maxtor Corp. 5.75% convertible debentures 2012 $7,500,000 4,500 .04
SEAGATE TECHNOLOGY 5.00% CONVERTIBLE DEBENTURES 2003 (2) $4,365,000 7,562 .06
-------- -----
12,062 .10
-------- -----
Data Processing & Reproduction - 0.08%
Data General Corp. 7.75% convertible debentures 2001 $10,500,000 9,293 .08
-------- -----
Gold Mines - 0.08%
Newmont Mining Corp. $2.75 convertible preferred (2) 150,000 9,113 .08
-------- -----
MISCELLANEOUS: Equity-type securities
in initial period of acquisition 547,225 4.45
-------- -----
TOTAL EQUITY-TYPE SECURITIES (cost: $5,484,689,000) 6,613,736 53.81
-------- -----
- ---------------------------------- ---
Principal
Bonds & Notes Amount
(000)
- ---------------------------------- ---
Broadcasting, Advertising & Publishing - 4.59%
Adelphia Communications Corp. 12.50% 2002 $ 4,000 4,120
Adelphia Communications Corp. 9.50% 2004 (3) 18,798 15,790
Adelphia Communications Corp. 9.875% 2005 17,000 15,555 .29
American Media Operations, Inc. 11.625% 2004 14,250 15,176 .12
Bell Cablemedia PLC 0%/11.95% 2004 (4) 47,000 31,255 .25
Cablevision Industries Corp. 10.75% 2004 18,000 19,350
Cablevision Industries Corp. 9.875% 2013 15,500 16,895
Cablevision Industries Corp. 9.875% 2023 10,000 10,800 .39
Century Communications Corp. 9.50% 2000 3,500 3,561
Century Communications Corp. 9.75% 2002 8,500 8,712
Century Communications Corp. 11.875% 2003 4,400 4,686 .14
Comcast Corp. 10.25% 2001 11,100 11,932
COMCAST CORP. 9.375% 2005 4,000 4,055 .13
Continental Cablevision, Inc. 8.50% 2001 18,200 18,473
Continental Cablevision, Inc. 10.625% 2002 5,500 5,857
Continental Cablevision, Inc. 8.625% 2003 4,000 4,090
Continental Cablevision, Inc. 8.875% 2005 7,000 7,210
Continental Cablevision, Inc. 11.00% 2007 2,000 2,215
Continental Cablevision, Inc. 9.50% 2013 15,000 15,675 .44
Falcon Holding Group, LP 11.00% 2003 (3) 18,208 16,387 .13
HEARTLAND WIRELESS COMMUNICATIONS, INC. 13.00% 2003 (2) 3,000 3,180 .03
Infinity Broadcasting Corp. 10.375% 2002 10,000 10,650 .09
Insight Communications Co., LP 8.25% 2000 (5) 10,750 10,857 .09
Jones Intercable, Inc. 10.50% 2008 15,000 16,125 .13
Marvel Holdings Inc. 0% 1998 62,750 44,866 .37
News America Holdings Inc. 12.00% 2001 7,100 7,984
News America Holdings Inc. 8.50% 2005 7,500 8,052
News America Holdings Inc. 10.125% 2012 20,000 22,882
News America Holdings Inc. 8.45% 2034 7,500 8,004 .38
PEOPLE'S CHOICE TV CORP. 0%/13.125% 2004 (4) 4,000 1,920 .02
Rogers Communications Inc. 10.875% 2004 3,500 3,627 .03
Storer Communications, Inc. 10.00% 2003 6,000 6,000 .05
Summitt Communications 10.50% 2005 6,655 7,320 .06
Time Warner Inc. 7.45% 1998 10,000 10,059
Time Warner Inc. 9.625% 2002 28,000 31,312
Time Warner Inc. 10.15% 2012 12,000 13,874
TIME WARNER INC. 9.125% 2013 15,000 15,538 .57
TKR Cable I, Inc. 10.50% 2007 30,000 33,743 .27
United International Holdings, Inc. 0% 1999 19,750 11,653 .09
Univision Television Group, Inc. 11.75% 2001 17,000 18,275 .15
Viacom International Inc. 9.125% 1999 4,000 4,160
Viacom International Inc. 10.25% 2001 8,000 8,920 .10
Videotron Holdings PLC 0%/11.125% 2004 (4) 37,500 24,562 .20
YOUNG BROADCASTING INC. 10.125% 2005 (2) 8,000 8,200 .07
-------- -----
563,557 4.59
-------- -----
Telecommunications - 3.74%
Cellular, Inc. 0%/11.75% 2003 (4) 18,000 13,320 .11
CenCall Communications Corp. 0%/10.125% 2004 (4) 41,100 21,989 .18
Centennial Cellular Corp. 8.875% 2001 28,000 26,600
CENTENNIAL CELLULAR CORP. 10.125% 2005 1,500 1,506 .23
Comcast Cellular Corp., Series A, 0% 2000 42,000 30,870
Comcast Cellular Corp., Series B, 0% 2000 40,800 29,988 .49
COMMNET CELLULAR INC. 11.25% 2005 3,000 3,105 .02
Dial Call Communications, Inc. 0%/12.25% 2004 (4) 48,500 25,462 .21
GEOTEK COMMUNICATIONS, INC. 0%/15.00% 2005 (2)(4) 10,000 4,925 .04
Horizon Cellular Telephone Co., LP, Series B,
0%/11.375% 2000 (4) 15,000 12,000 .10
International CableTel Inc. 0%/10.875% 2003 (4) 20,075 13,450
INTERNATIONAL CABLETEL INC. 0%/12.75% 2005 (2)(4) 22,000 13,090 .22
MFS Communications Co., Inc. 0%/9.375% 2004 (4) 69,050 49,716 .40
MobileMedia Communications, Inc. 0%/10.50% 2003 (4) 14,500 9,715 .08
NEXTEL Communications, Inc. 0%/11.50% 2003 (4) 48,500 29,343
NEXTEL Communications, Inc. 0%/9.75% 2004 (4) 68,500 35,962 .53
Paging Network, Inc. 11.75% 2002 9,500 10,355 .08
PanAmSat, LP 9.75% 2000 15,300 15,835 .13
PriCellular Wireless Corp. 0%/14.00% 2001 (2)(4) 10,000 8,200 .07
PRONET, INC. 11.875% 2005 (2) 3,000 3,120 .03
Rogers Cantel Mobile Communications Inc. 10.75% 2001 46,000 47,955 .39
TCI COMMUNICATIONS, INC. 8.75% 2015 8,000 8,080 .07
Tele-Communications, Inc. 9.875% 1998 7,100 7,555
Tele-Communications, Inc. 10.125% 2001 5,000 5,605
Tele-Communications, Inc. 9.80% 2012 20,000 22,108
Tele-Communications, Inc. 9.25% 2023 10,000 10,161 .36
-------- -----
460,015 3.74
-------- -----
Forest Products & Paper - 1.83%
Container Corp. of America 9.75% 2003 69,025 70,751
Container Corp. of America 11.25% 2004 16,000 17,120 .72
Fort Howard Corp. 9.25% 2001 19,500 19,500
Fort Howard Corp. 8.25% 2002 4,500 4,275
Fort Howard Corp. 10.00% 2003 5,000 4,975
Fort Howard Corp. 9.00% 2006 18,500 17,159 .37
Grupo Industrial Durango, SA de CV 9.636% 1996 (2)(5) 7,500 6,994
Grupo Industrial Durango, SA de CV 12.00% 2001 2,500 2,175 .08
PT Indah Kiat Pulp & Paper Corp. 11.375% 1999 4,000 4,100
PT Indah Kiat Pulp & Paper Corp. 8.875% 2000 (2) 11,500 10,551
PT Indah Kiat Pulp & Paper Corp. 11.875% 2002 4,500 4,601 .15
PT Indorayon Yankee 9.125% 2000 4,500 4,129 .03
Klabin Fabricadora de Papel e Celulose SA 10.00% 2001 2,500 2,288 .02
Pacific Lumber Co. 10.50% 2003 1,500 1,402 .01
REPAP WISCONSIN 9.875% 2006 17,500 17,413 .14
Riverwood International Corp. 10.75% 2000 7,000 7,542
Riverwood International Corp., Series II, 10.75% 2000 2,000 2,155
Riverwood International Corp. 11.25% 2002 17,750 19,348 .24
Tjiwi Kimia International Finance Co. 13.25% 2001 7,750 8,254 .07
-------- -----
224,732 1.83
-------- -----
Energy Sources and Energy Equipment & Services - 1.61%
California Energy Co., Inc. 0%/10.25% 2004 (2)(4) 60,300 52,461
CALIFORNIA ENERGY CO., INC. 9.875% 2003 3,000 3,030 .45
DUAL DRILLING CO. 9.875% 2004 8,550 8,037 .06
FLORES & RUCKS, INC. 13.50% 2004 9,000 10,102 .08
Global Marine, Inc. 12.75% 1999 17,500 19,316 .16
MESA CAPITAL CORP. 0%/12.75% 1998 (4) 15,000 13,575 .11
Occidental Petroleum Corp. 9.25% 2019 11,400 13,310 .11
Oryx Energy Co. 9.50% 1999 16,000 16,880
Oryx Energy Co. 10.00% 1999 4,500 4,804
Oryx Energy Co. 10.00% 2001 2,000 2,170 .19
Subic Power Corp. 9.50% 2008 (2) 10,102 9,395 .08
TRANSTEXAS GAS CORP. 11.50% 2002 38,000 39,520 .32
Wilrig AS 11.25% 2004 5,500 5,693 .05
-------- -----
198,293 1.61
-------- -----
Utilities - Electric & Gas - 1.38%
BRIDAS CORP. 12.50% 1999 6,000 5,745 .05
CMS Energy Corp. 0%/9.50% 1997 (4) 3,000 2,955 .02
Korea Electric Power Corp. 7.75% 2013 5,000 4,913 .04
LONG ISLAND LIGHTING CO. 7.30% 1999 23,500 23,077
LONG ISLAND LIGHTING CO. 7.125% 2005 10,000 8,819
LONG ISLAND LIGHTING CO. 8.90% 2019 25,000 22,969
Long Island Lighting Co. 9.00% 2022 25,000 23,016
LONG ISLAND LIGHTING CO. 8.20% 2023 10,000 8,837
Long Island Lighting Co. 9.625% 2024 19,000 18,859 .86
Midland Cogeneration Venture LP 10.33% 2002 29,655 30,767
Midland Cogeneration Venture LP, Secured Lease
Obligation Bonds 10.33% 2002 13,871 14,391 .37
OHIO EDISON CO. 7.875% 2023 5,000 4,800 .04
-------- -----
169,148 1.38
-------- -----
Banking and Insurance - 1.37%
H.F. Ahmanson & Co. 9.875% 1999 3,500 3,856 .03
American Re Corp. 10.875% 2004 20,000 22,115 .18
Bank of Scotland 8.80% 2004 (2) 5,000 5,472 .04
BankAmerica Corp. 8.375% 2002 5,000 5,325 .04
BANKERS TRUST NEW YORK CORP. 6.00% 2008 5,000 4,344 .03
Capital One Bank 8.625% 1997 10,000 10,295
CAPITAL ONE BANK 8.33% 1997 10,000 10,240
CAPITAL ONE BANK 8.125% 1998 27,500 28,178 .39
Chevy Chase Savings Bank, F.S.B. 9.25% 2005 5,000 4,875 .04
CIGNA CORP. 6.375% 2006 6,000 5,432 .04
Citicorp 9.50% 2002 5,000 5,611 .05
Coast Federal Bank 13.00% 2002 3,500 4,008 .03
Coast Savings Financial, Inc. 10.00% 2000 6,500 6,792 .06
DIME BANCORP, INC. 10.50% 2005 4,000 4,340 .04
First Nationwide Bank 10.00% 2006 4,000 4,350 .04
Golden West Financial Corp. 10.25% 1997 2,250 2,387 .02
Manufacturers Hanover Corp. 8.50% 1999 3,295 3,478 .03
Midland American Capital 12.75% 2003 6,000 7,043 .06
New American Capital, Inc. 9.60% 1999 (2) 5,000 5,000 .04
Security Pacific Corp. 10.25% 2001 3,000 3,509
Security Pacific Corp. 11.00% 2001 10,500 12,424 .13
SFFED Corp. 11.20% 2004 (2) 10,000 10,325 .08
-------- -----
169,399 1.37
-------- -----
Transportation - 1.27%
American Airlines, pass-through certificates, 1991-A1,
9.71% 2007 (6) 4,622 5,165
AMR Corp. 10.00% 2001 3,000 3,329
AMR Corp. 9.00% 2012 10,500 11,042
AMR Corp. 9.20% 2012 5,000 5,284 .20
Delta Air Lines, Inc. 9.875% 1998 6,750 7,136
Delta Air Lines, Inc. 9.875% 2000 13,000 14,166
Delta Air Lines, Inc. 10.375% 2011 15,000 17,365
Delta Air Lines, Inc., pass-through certificates,
Series 1992-A2, 9.20% 2014 (6) 5,000 5,282
Delta Air Lines, Inc., pass-through certificates,
Series 1993-A2, 10.50% 2016 (6) 6,000 6,862 .42
Mc-Cuernavaca Trust 9.25% 2001 (2) 7,786 5,985 .05
Northwest Airlines, Inc. 12.0916% 2000 10,814 11,192
NWA Trust No. 2, Class D, 13.875% 2008 10,000 11,400 .18
SFP PIPELINE HOLDINGS, INC. 11.16% 2010 3,000 3,840 .03
United Air Lines, Inc. 9.00% 2003 18,000 18,708
United Air Lines, Inc. 8.39% 2011 7,500 7,650
United Air Lines, Inc. 10.67% 2004 14,000 16,174 .34
Viking Star Shipping Inc. 9.625% 2003 6,000 6,090 .05
-------- -----
156,670 1.27
-------- -----
Leisure & Tourism - 0.81%
Foodmaker, Inc. 9.25% 1999 16,750 15,578
Foodmaker, Inc. 9.75% 2002 7,300 6,205 .18
Four Seasons Hotels Inc. 9.125% 2000 (2) 2,000 1,960 .02
Harrah's Jazz Finance Corp. 14.25% 2001 21,250 21,356
HARRAH'S OPERATING CO. INC. 8.75% 2000 4,000 4,025
HARRAH'S OPERATING CO. INC. 10.875% 2002 5,000 5,388 .25
Kloster Cruise Ltd. 13.00% 2003 33,200 24,900 .20
Plitt Theatres, Inc. 10.875% 2004 20,000 20,050 .16
-------- -----
99,462 .81
-------- -----
Financial Services - 0.73%
Chrysler Financial Corp. 13.25% 1999 11,000 13,441 .11
Fairfax Financial Holdings Ltd. 7.75% 2003 9,750 9,550 .08
Ford Capital BV 10.125% 2000 5,500 6,242 .05
Ford Motor Credit Co. 8.875% 1996 2,500 2,565 .02
General Electric Capital Corp. 8.875% 2009 4,000 4,622 .04
General Motors Acceptance Corp. 7.875% 1997 10,000 10,231
General Motors Acceptance Corp. 7.00% 2000 3,000 3,023
General Motors Acceptance Corp. 9.625% 2001 30,000 33,754
General Motors Acceptance Corp. 8.75% 2005 5,000 5,497
General Motors Acceptance Corp. 8.875% 2010 500 563 .43
-------- -----
89,488 .73
-------- -----
Food Retailing and Food Products & Beverages - 0.61%
Allied Supermarkets Inc. 6.625% 1998 9,301 8,929 .07
Canandaigua Wine Co., Inc. 8.75% 2003 17,500 17,237 .14
Dr Pepper Bottling Co. of Texas 10.25% 2000 7,500 7,800 .06
Safeway Inc. 10.00% 2002 3,500 3,990 .03
Smith's Food & Drug Centers, Inc., pass-through
certificates, Series 94-A2, 8.64% 2012 (6) 8,000 8,220 .07
Star Markets Co., Inc. 13.00% 2004 (2) 9,750 9,945 .08
Stater Brothers Holdings Inc. 11.00% 2001 (2) 16,000 16,040 .13
Vons Companies, Inc. 9.625% 2002 3,000 3,173 .03
-------- -----
75,334 .61
-------- -----
General Retailing & Merchandising - 0.60%
AnnTaylor, Inc. 8.75% 2000 10,446 9,924 .08
Barnes & Noble, Inc. 11.875% 2003 23,500 26,026 .21
CompUSA Inc. 9.50% 2000 1,500 1,447 .01
Dayton Hudson Corp. 9.50% 2015 5,000 5,813 .05
Levitz Furniture Corp. 12.375% 1997 9,250 9,065 .07
Thrifty PayLess, Inc. 11.75% 2003 7,500 7,950
Thrifty PayLess, Inc. 12.25% 2004 2,500 2,600
THRIFTY PAYLESS, INC. 12.25% 2004 10,000 11,000 .18
-------- -----
73,825 .60
-------- -----
Business & Public Services - 0.54%
ADT OPERATIONS 9.25% 2003 7,000 7,175 .06
Federal Express Corp. 10.00% 1998 4,000 4,363
Federal Express Corp. 9.875% 2002 7,000 7,993
Federal Express Corp. 7.53% 2006 14,754 14,720 .22
Neodata Services, Inc. 0%/12.00% 2003 (4) 11,500 10,005 .08
PROTECTION ONE ALARM MONITORING, INC., UNITS
CONSISTING OF NOTES AND WARRANTS, 0%/13.625%
2005 (2)(4) 15,000 10,162 .08
TNT Transport (Euro) PLC/TNT (USA) Inc. 11.50% 2004 11,750 12,220 .10
-------- -----
66,638 .54
-------- -----
Metals: Steel & Nonferrous - 0.54%
Acme Metals Inc. 0%/13.50% 2004 (4) 10,500 8,085
Acme Metals Inc. 12.50% 2002 3,000 3,030 .10
AK STEEL CORP. 10.75% 2004 8,000 8,610 .07
Armco Inc. 11.375% 1999 4,950 5,160 .04
Ispat Mexicana 10.375% 2001 (2) 2,000 1,760
Ispat Mexicana, SA de CV, 10.375% 2001 4,000 3,520 .04
KAISER ALUMINUM AND CHEMICAL CORP. 9.875% 2002 5,000 5,050
Kaiser Aluminum and Chemical Corp. 12.75% 2003 7,000 7,753 .11
POHANG IRON & STEEL CO., LTD. 7.375% 2005 10,000 10,044 .08
UCAR Global Enterprises Inc. 12.00% 2005 (2) 7,000 7,700 .06
USX Corp. 9.625% 2003 5,000 5,541 .04
-------- -----
66,253 .54
-------- -----
Miscellaneous - 0.51%
Owens-Illinois, Inc. 11.00% 2003 6,000 6,615 .05
Samsung Electronics Co., Ltd. 8.50% 2002 (2) 22,500 23,934 .19
Tenneco Inc. 10.00% 1998 1,500 1,634
Tenneco Inc. 7.875% 2002 2,000 2,080 .03
Tyco Toys, Inc. 10.125% 2002 15,700 13,973 .12
Unisys Corp. 10.625% 1999 10,000 10,700 .09
WestPoint Stevens Inc. 8.75% 2001 4,000 3,980 .03
-------- -----
62,916 .51
-------- -----
Automobiles - 0.36%
General Motors Corp. 9.45% 2011 5,000 5,832
General Motors Corp. 8.80% 2021 35,000 38,674 .36
-------- -----
44,506 .36
-------- -----
Aerospace, Automotive and Machinery - 0.36%
Caterpillar Inc. 8.01% 2002 15,000 15,903 .13
Coltec Industries Inc 9.75% 1999 8,000 8,280
Coltec Industries Inc 9.75% 2000 8,500 8,797 .14
EXIDE CORP. 10.00% 2005 (2) 8,250 8,601 .07
MagneTek, Inc. 10.75% 1998 2,000 2,100 .02
-------- -----
43,681 .36
-------- -----
Real Estate - 0.29%
Beverly Finance Corp. 8.36% 2004 (2) 5,000 5,188 .04
ERP OPERATING LP 7.95% 2002 3,750 3,844 .03
B.F. Saul Real Estate Investment Trust 11.625% 2002 23,000 21,505 .18
Shopping Center Associates 6.75% 2004 (2) 5,000 4,787 .04
-------- -----
35,324 .29
-------- -----
Construction & Building Materials - 0.23%
BUILDING MATERIALS CORP. 0%/11.75% 2004 (4) 5,000 3,050 .03
M.D.C. Holdings, Inc. 11.125% 2003 10,000 9,000 .07
Tolmex, SA de CV 8.375% 2003 3,500 2,730 .02
TRIANGLE PACIFIC CORP. 10.50% 2003 3,000 3,075 .03
Del Webb Corp. 9.75% 2003 10,500 10,237 .08
-------- -----
28,092 .23
-------- -----
Collateralized Mortgage/Asset-Backed Obligations (6)
(excluding those issued by federal agencies) - 1.69%
BANCO NACIONAL DE MEXICO 0% 2002 (2) 6,500 6,500 .05
Bank of America 9.50% 2008 104 104 .00
CASE EQUIPMENT LOAN TRUST 1995-A 7.30% 2002 19,077 19,387 .16
Chase Manhattan Bank, NA, Series 1993-I, Class 2A5,
7.25% 2024 9,910 9,625 .08
Citicorp Mortgage Securities, Inc., Series 1992-20,
Class A3, 7.50% 2006 8,270 8,304 .07
CMC Securities Corp. I, Series 1993-E, Class S9,
6.50% 2008 2,801 2,627 .02
CSFB FINANCE CO. LTD. 7.00% 2005 (2)(5) 5,000 4,803 .04
ELECTRONIC TRANSFER MASTER TRUST 9.35% 2002 (2) 15,000 15,187 .12
GE Capital Mortgage Services, Inc., Series 94-2, Class
A15, 6.582% 2009 (7) 6,310 3,691 .03
Green Tree Financial Corp., Net Interest Margin Trust,
Series 1994-A, 6.90% 2004 3,640 3,602
Green Tree Financial Corp., Seller and Servicer
Manufactured Housing Contract, Series 1993-2, Class B,
8.00% 2018 14,000 13,877
GREEN TREE FINANCIAL CORP., SELLER AND SERVICER
MANUFACTURED HOUSING CONTRACT, SERIES 1995-1, CLASS A-3,
7.95% 06/15/25
7.95% 2025 5,000 5,184 .18
Jet Equipment Trust, Series 1994-A, Class B1, 10.91%
2006 (2) 6,989 7,776
JET EQUIPMENT TRUST, SERIES 1995-B, CERTIFICATES,
10.91% 2014 (2) 4,750 4,780
JET EQUIPMENT TRUST, SERIES 1995-A, CLASS B, 8.64%
2015 (2) 15,000 15,750
JET EQUIPMENT TRUST, SERIES 1995-A, CLASS C, 10.69%
2015 (2) 5,000 5,419
JET EQUIPMENT TRUST, SERIES 1995-B, CLASS A, 7.63%
2015 (2) 14,500 14,554
JET EQUIPMENT TRUST, SERIES 1995-B, CLASS C, 9.71%
2015 (2) 5,500 5,555 .44
Merrill Lynch Mortgage Investors, Inc., Seller
Manufactured Housing Contract, Series 1992-B, Class A2,
8.05% 2012 2,500 2,544 .02
Prudential Home Mortgage Securities Co., Inc.,
Series 1992-37, Class A6, 7.00% 2022 8,000 7,987 .07
Resolution Trust Corp., Series 1992-CHF, Class E,
8.25% 2020 11,016 10,369
Resolution Trust Corp., Series 1993-C1, Class D,
9.45% 2024 6,142 6,288
Resolution Trust Corp., Series 1993-C1, Class E,
9.50% 2024 2,528 2,481
Resolution Trust Corp., Series 1993-C2, Class C,
8.00% 2025 3,000 3,026
Resolution Trust Corp., Series 1993-C2, Class D,
8.50% 2025 3,290 3,339
Resolution Trust Corp., Series 1993-C2, Class E,
8.50% 2025 1,284 1,268 .23
SKW II REAL ESTATE LP, CLASS A, 6.45% 2002 (2) 7,780 7,780 .06
Standard Credit Card Master Trust I, credit card
participation certificates, Series 1991-1A, 8.50% 1997 4,000 4,079
Standard Credit Card Master Trust I, credit card
participation certificates, Series 1991-4A, 8.00% 1997 5,000 5,094
Standard Credit Card Master Trust I, credit card
participation certificates, Series 1994-2A, 7.25% 2008 5,000 5,062 .11
USWFS Manufactured Housing Contract, Series 1990-A,
9.05% 2010 (2) 1,242 1,252 .01
-------- -----
207,294 1.69
-------- -----
Federal Agency Obligations-Mortgage Pass-Throughs (6)
- 2.94%
Federal Home Loan Mortgage Corp. 8.50% 2008 604 624
Federal Home Loan Mortgage Corp. 8.50% 2020 12,198 12,572
Federal Home Loan Mortgage Corp. 9.00% 2016 3,086 3,211
Federal Home Loan Mortgage Corp. 9.00% 2021 2,482 2,582
Federal Home Loan Mortgage Corp. 10.00% 2019 125 135
Federal Home Loan Mortgage Corp. 11.50% 2000 18 19 .16
Federal National Mortgage Assn. 7.50% 2007-2023 31,210 31,494
Federal National Mortgage Assn. 8.00% 2009-2013 6,426 6,567
Federal National Mortgage Assn. 8.50% 2014-2023 4,014 4,135
Federal National Mortgage Assn. 9.00% 2008-2025 8,774 9,134
FEDERAL NATIONAL MORTGAGE ASSN. 10.00% 2020 4,145 4,502 .46
Government National Mortgage Assn. 5.50% 2023-2024 (5) 90,015 88,545
Government National Mortgage Assn. 6.00% 2017-2024 (5) 12,565 12,495
Government National Mortgage Assn. 6.125% 2022 (5) 14,738 14,834
Government National Mortgage Assn. 6.50% 2024 1,974 1,875
Government National Mortgage Assn. 6.50% 2024 (5) 3,961 3,976
Government National Mortgage Assn. 7.00% 2008-2023 34,018 33,430
Government National Mortgage Assn. 7.50% 2017-2024 36,749 36,726
Government National Mortgage Assn. 8.00% 2017 7,137 7,280
Government National Mortgage Assn. 8.50% 2017-2025 41,812 43,345
Government National Mortgage Assn. 9.00% 2008-2025 18,852 19,806
Government National Mortgage Assn. 9.50% 2009-2025 19,309 20,588
Government National Mortgage Assn. 10.00% 2016-2019 2,167 2,358
Government National Mortgage Assn. 10.50% 2018-2019 335 369
Government National Mortgage Assn. 11.00% 2015 150 167 2.32
-------- -----
360,769 2.94
-------- -----
Federal Agency Obligations-Collateralized Mortgage
Obligations (7) - 0.14%
Federal Home Loan Mortgage Corp., Series 1625, Class SC,
4.703% 2008 2,140 1,273
Federal Home Loan Mortgage Corp., Series 1587, Class SL,
7.511% 2008 3,958 2,963
Federal Home Loan Mortgage Corp., Series 1475, Class SA,
8.035% 2008 2,168 1,725
Federal Home Loan Mortgage Corp., Series 1607, Class SA,
6.536% 2013 5,287 3,374
Federal Home Loan Mortgage Corp., Series 1673, Class SA,
4.445% 2024 6,000 2,786 .10
Federal National Mortgage Assn., Series 1993-234,
Class SC, 4.977% 2008 8,754 4,583
Federal National Mortgage Assn., Series 1993-G19,
Class SJ, 0% 2023 262 136 .04
-------- -----
16,840 .14
-------- -----
Other Federal Agency Obligations - 0.76%
FEDERAL HOME LOAN BANK 7.28% 2000 6,000 6,007
Federal Home Loan Bank 6.41% 2003 10,000 9,634
Federal Home Loan Bank 6.16% 2004 13,000 12,358
Federal Home Loan Bank 6.27% 2004 6,000 5,735 .28
Federal Home Loan Mortgage Corp. 5.74% 2003 5,000 4,677
Federal Home Loan Mortgage Corp. 6.39% 2003 7,750 7,740
Federal Home Loan Mortgage Corp. 6.44% 2003 3,000 2,905
Federal Home Loan Mortgage Corp. 6.50% 2003 5,000 4,855
Federal Home Loan Mortgage Corp. 6.59% 2003 6,000 5,834
Federal Home Loan Mortgage Corp. 6.19% 2004 10,750 10,213
Federal Home Loan Mortgage Corp. 6.27% 2004 5,450 5,208 .33
Federal National Mortgage Assn. 6.30% 1997 10,000 9,998 .08
FNSM Principal STRIPS 0%/8.62% 2022 (4) 10,000 8,066 .07
-------- -----
93,230 .76
-------- -----
Governments and Governmental Authorities - 0.80%
Argentina Bocon 7.306% 2001 (3)(5) 20,000 10,889
Argentina (Republic of) 8.375% 2003 13,000 9,913
Argentina (Republic of) Eurobond Series L, 7.312% 2005
(5) 33,000 20,254
Argentina (Republic of) Eurobond Series L, 5.00% 2023 (5) 42,250 19,646 .50
BRAZIL (REPUBLIC OF) DEBT CONVERSION BOND 7.312%
2012 (5) 2,000 1,047 .01
British Columbia Hydro & Power Authority 12.50% 2014 10,000 12,066 .10
Italy (Republic of) 6.875% 2023 10,000 8,734 .07
Ontario (Province of) 7.75% 2002 2,500 2,624
Ontario (Province of) 15.25% 2012 5,000 6,093 .07
Petroleo Brasileiro SA-PETROBRAS 10.212% 1998 (5) 2,500 2,500 .02
POLAND (REPUBLIC OF) 7.75% 2000 (2) 4,250 4,250 .03
United Mexican States Government 6.25% Eurobonds 2019 1,000 603 .00
-------- -----
98,619 .80
-------- -----
Floating Rate Eurodollar Notes (Undated) (5) - 0.28%
Bank of Nova Scotia 6.562% 10,000 7,838 .06
Canadian Imperial Bank of Commerce 6.625% 10,000 7,925 .07
Financiere Credit Suisse-First Boston 6.125% 2,000 1,560 .01
Gentra Inc. 6.65% 2,125 2,120 .02
Midland Bank 6.125% 5,000 4,075 .03
Standard Chartered Bank 5.812% 15,000 11,231 .09
-------- -----
34,749 .28
-------- -----
U.S. Treasury Obligations - 12.51%
7.25% August 1996 60,000 60,881 .50
8.00% October 1996 4,000 4,100 .03
7.25% November 1996 75,000 76,324 .62
8.00% January 1997 100,000 103,031 .84
6.75% February 1997 4,000 4,055 .03
6.875% April 1997 60,000 61,003 .50
8.50% April 1997 40,000 41,681 .34
8.50% May 1997 6,000 6,262 .05
8.50% July 1997 4,000 4,189 .03
5.625% August 1997 100,000 99,422 .81
8.625% August 1997 75,000 78,856 .64
5.50% September 1997 75,000 74,379 .61
5.75% October 1997 100,000 99,609 .81
8.75% October 1997 35,000 36,996 .30
6.00% November 1997 60,000 60,075 .49
7.875% January 1998 50,000 52,133 .42
8.125% February 1998 40,000 41,975 .34
9.25% August 1998 45,000 48,951 .40
8.875% February 1999 12,000 13,048 .11
9.125% May 1999 10,000 10,997 .09
6.75% June 1999 91,000 92,863 .76
6.875% August 1999 78,000 79,950 .65
8.75% August 2000 22,500 24,954 .20
8.50% November 2000 10,000 11,052 .09
7.75% February 2001 70,000 74,955 .61
11.625% November 2002 18,000 23,425 .19
10.75% February 2003 19,500 24,491 .20
11.625% November 2004 30,000 40,598 .33
10.75% August 2005 9,000 11,758 .10
10.375% November 2009 7,100 8,933 .07
12.75% November 2010 9,500 13,793 .11
14.00% November 2011 3,500 5,519 .04
10.375% November 2012 15,000 19,477 .16
8.875% August 2017 18,500 22,547 .18
7.125% February 2023 102,500 105,111 .86
-------- -----
1,537,393 12.51
-------- -----
TOTAL BONDS & NOTES (cost: $4,969,823,000) 4,976,227 40.49
-------- -----
- ----------------------------------
Short-Term Securities
- ----------------------------------
Corporate Short-Term Notes - 2.24%
THE CIT GROUP HOLDINGS, INC. 5.71%-5.95%
DUE 8/11-8/25/95 50,000 49,856 .41
JOHN DEERE CAPITAL CORP. 5.72% DUE 8/8/95 33,800 33,757 .27
E.I. DU PONT DE NEMOURS AND CO. 5.68% DUE 9/8/95 14,900 14,808 .12
KIMBERLY-CLARK CORP. 5.63% DUE 9/7/95 10,000 9,941 .08
ELI LILLY AND CO. 5.65%-5.88% DUE 8/21-9/18/95 23,200 23,098 .19
National Rural Utilities Cooperative Finance Corp.
5.72% due 8/17/95 30,000 29,919 .24
J.C. Penney Funding Corp. 5.69%-5.92% due 8/15-8/24/95 29,180 29,079 .24
PEPSICO, INC. 5.70%-5.91% DUE 8/10-8/29/95 37,700 37,574 .31
US WEST COMMUNICATIONS 5.62% DUE 10/11/95 15,000 14,830 .12
XEROX CORP. 5.73%-5.94% DUE 8/3-8/30/95 32,400 32,331 .26
-------- -----
275,193 2.24
-------- -----
Federal Agency Short-Term Obligations - 0.20%
Federal Home Loan Mortgage Corp.
5.58%-5.85% due 8/4-10/30/95 24,000 23,859 .19
Federal National Mortgage Assn. 7.00% due 2/10/96 1,000 1,006 .01
-------- -----
24,865 .20
-------- -----
U.S. Treasury Short-Term Securities - 2.15%
8.50% August 1995 53,500 53,550 .44
7.50% January 1996 60,000 60,515 .49
7.875% February 1996 50,000 50,555 .41
8.875% February 1996 19,000 19,312 .16
7.375% May 1996 75,000 75,914 .62
7.875% July 1996 4,000 4,078 .03
-------- -----
263,924 2.15
-------- -----
TOTAL SHORT-TERM SECURITIES (cost: $570,234,000) 563,982 4.59
-------- -----
TOTAL INVESTMENT SECURITIES (cost: $11,024,746,000) 12,153,945 98.89
Excess of cash and receivables over payables 136,212 1.11
-------- -----
NET ASSETS $12,290,157 100.00%
========== ======
</TABLE>
(1) Non-income-producing securities.
(2) Purchased in a private placement transaction; resale to the public may
require registration or may extend only to qualified institutional buyers.
(3) Payment in kind. The issuer has the option of paying additional securities
in lieu of cash.
(4) Represents a zero coupon bond which will convert to an interest-bearing
security at a later date.
(5) Coupon rates may change periodically.
(6) 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.
(7) 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
- ----------------------------
Equity-type securities
appearing in the portfolio
since January 31, 1995
- ----------------------------
Allstate
Bancorp Hawaii
Burlington Northern
Chemical Banking
Cooper Industries
First Fidelity
First Security
First Tennessee National
General Mills
Goodyear Tire & Rubber
Monsanto
National City
J.C. Penney
SAFECO
Seagate Technology
Weyerhaeuser
- ------------------------------
Equity-type securities
eliminated from the portfolio
since January 31, 1995
- ------------------------------
Bank of Montreal
BCE
Canadian Imperial Bank of Commerce
Carolina Power & Light
Consolidated Freightways
Dexter
Household International
MBNA
National Semiconductor
National Service Industries
Phelps Dodge
Republic New York
Staples
Tandy
United Technologies
Xerox
*****************
The Income Fund of America
Financial Statements
<TABLE>
<CAPTION>
Statement of Assets and Liabilities (dollars in
July 31, 1995 thousands)
- ---------------------------------------- --------- ------------------
<S> <C> <C>
ASSETS:
Investment securities at market
(cost: $11,024,746) $12,153,945
Cash 1,282
Receivables for-
Sales of investments $ 35,360
Sales of fund's shares 20,017
Dividends and accrued interest 128,816 184,193
--------- ------------------
12,339,420
LIABILITIES:
Payables for-
Purchases of investments 33,037
Repurchases of fund's shares 8,772
Management services 3,193
Accrued expenses 4,261 49,263
--------- ------------------
NET ASSETS AT JULY 31, 1995-
Equivalent to $14.92 per share on
823,830,743 shares of $1 par value
capital stock outstanding (authorized
capital stock--1,200,000,000 shares) $12,290,157
=================
Statement of Operations (dollars in
for the year ended July 31, 1995 thousands)
- ----------------------------------------- --------- ------------------
INVESTMENT INCOME:
Income:
Dividends $259,485
Interest 492,564 $752,049
---------
Expenses:
Management services fee 35,698
Distribution expenses 25,061
Transfer agent fee 7,211
Reports to shareholders 729
Registration statement and
prospectus 960
Postage, stationery and supplies 1,577
Directors' fees 150
Auditing and legal fees 51
Custodian fee 260
Taxes other than federal income tax 2
Other expenses 53 71,752
--------- ----------------
Net investment income 680,297
-----------------
REALIZED GAIN AND UNREALIZED
APPRECIATION ON INVESTMENTS:
Net realized gain 50,302
Net increase in unrealized appreciation on
investments:
Beginning of year 134,366
End of year 1,129,199 994,833
--------- ----------------
Net realized gain and unrealized
appreciation on investments 1,045,135
---------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $1,725,432
================
- ---------------------------------------- ----------------
Statement of Changes in Net Assets (dollars in
thousands)
- ----------------------------------------- ------------------
Year ended
July 31
1995 1994
----------------- ----------------
OPERATIONS:
Net investment income $ 680,297 $ 599,418
Net realized gain on investments 50,302 127,926
Net increase (decrease) in unrealized
appreciation on investments 994,833 (563,497)
--------- ---------
Net increase in net assets
resulting from operations 1,725,432 163,847
--------- ---------
DIVIDENDS AND DISTRIBUTIONS
PAID TO SHAREHOLDERS:
Dividends from net investment income (598,609) (590,832)
Distributions from net realized
gain on investments (47,119) (242,204)
--------- ---------
Total dividends and distributions (645,728) (833,036)
--------- ---------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
118,485,003 and 194,658,239
shares, respectively 1,645,595 2,785,416
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions of
net realized gain on investments:
42,687,032 and 47,830,913
shares, respectively 586,118 679,271
Cost of shares repurchased:
112,581,008 and 92,301,774
shares, respectively (1,558,083) (1,303,690)
--------- ---------
Net increase in net assets
resulting from capital share
transactions 673,630 2,160,997
--------- ---------
TOTAL INCREASE IN NET ASSETS 1,753,334 1,491,808
NET ASSETS:
Beginning of year 10,536,823 9,045,015
--------- ---------
End of year (including undistributed
net investment income: $110,419
and $28,731, respectively) $12,290,157 $10,536,823
=========== =================
</TABLE>
See Notes to Financial Statements
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 following paragraphs summarize the significant
accounting policies consistently followed by the fund in the preparation of its
financial statements:
Equity-type securities are stated at market value based upon closing sales
prices reported on recognized securities exchanges (or reported on the NASDAQ
national market) on the last business day of the year or, for listed securities
having no sales reported, upon last-reported bid prices on that date.
Securities traded in the over-the-counter market are valued at the last
available sale price prior to the time of valuation or, lacking any sales, at
the last reported 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.
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 $260,000 includes $57,000 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, 1995, net unrealized appreciation on investments for
federal income tax purposes aggregated $1,129,273,000, of which $1,315,988,000
related to appreciated securities and $186,715,000 related to depreciated
securities. During the year ended July 31, 1995, the fund realized, on a tax
basis, a net capital gain of $50,310,000 on securities transactions. The cost
of portfolio securities for federal income tax purposes was $11,024,672,000 at
July 31, 1995.
3. The fee of $35,698,000 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; and 0.15% of
such assets in excess of $8 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, 1995,
distribution expenses under the Plan were $25,061,000. As of July 31, 1995,
accrued and unpaid distribution expenses were $4,105,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $7,211,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $7,246,000 (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 of the fund 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, 1995, aggregate amounts deferred were $111,000.
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, 1995, accumulated undistributed net realized gain on
investments was $47,534,000 and additional paid-in capital was $10,179,174,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $3,377,195,000 and $2,813,332,000, respectively,
during the year ended July 31,1995.
Per-Share Data and Ratios
<TABLE>
<CAPTION>
Year
ended
July 31
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $13.59 $14.47 $13.94 $12.54 $12.11
------- ------- ------- ------- -------
Income from Investment
Operations:
Net investment income .85 .83 .85 .85 .86
Net realized and unrealized
gain (loss) on investments 1.29 (.53) .74 1.48 .53
------- ------- ------- ------- -------
Total income from
investment operations 2.14 .30 1.59 2.33 1.39
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment
income (.75) (.83) (.84) (.85) (.89)
Distributions from net
realized gains (.06) (.35) (.22) (.08) (.07)
------- ------- ------- ------- -------
Total distributions (.81) (1.18) (1.06) (.93) (.96)
------- ------- ------- ------- -------
Net Asset Value, End of Year $14.92 $13.59 $14.47 $13.94 $12.54
======= ======= ======= ======= =======
Total Return /1/ 16.42% 1.98% 11.88% 19.16% 12.24%
Ratios/Supplemental Data:
Net assets, end of year (in
millions) $12,290 $10,537 $9,045 $5,121 $2,771
Ratio of expenses to average
net assets .65% .63% .62% .66% .73%
Ratio of net income to average
net assets 6.12% 5.92% 6.05% 6.40% 7.23%
Portfolio turnover rate 26.26% 26.42% 29.18% 22.71% 23.35%
</TABLE>
/1/ This was calculated without deducting a sales charge. The maximum sales
charge is 5.75% of the fund's offering price.
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, 1995, 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, 1995 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, 1995, 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.
/s/Deloitte & Touche LLP
Los Angeles, California
August 23, 1995
TAX INFORMATION (UNAUDITED)
Corporate shareholders may deduct up to 70% of qualifying dividends
received during the year. For purposes of computing this exclusion, 38% of the
dividends paid by the fund from net investment income represents qualifying
dividends.
Certain states may exempt from income taxation a portion of the dividends
paid from net investment income if derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 20% of the dividends
paid by the fund from net investment income was derived from interest on direct
U.S. Treasury obligations.
In January 1996 we will provide you information on distributions paid
during the calendar year to help you in completing your 1995 income tax
returns. Shareholders should consult their own tax advisors.
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