THE INCOME FUND OF AMERICA, INC.
Part B
Statement of Additional Information
OCTOBER 1, 1997
(as amended November 1, 1997)
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, 1997. The Prospectus may be obtained from your investment dealer or
financial planner or by writing to the fund at the following address:
THE INCOME FUND OF AMERICA, INC.
ATTENTION: SECRETARY
ONE MARKET, STEUART TOWER
P.O. BOX 7650
SAN FRANCISCO, CA 94120
TELEPHONE: (415) 421-9360
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 Page No.
DESCRIPTION OF CERTAIN SECURITIES 1
CERTAIN RISK FACTORS RELATING TO BELOW INVESTMENT GRADE BONDS 3
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS 4
FUND OFFICERS AND DIRECTORS 6
MANAGEMENT 10
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 12
PURCHASE OF SHARES 15
REDEEMING SHARES 21
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 22
EXECUTION OF PORTFOLIO TRANSACTIONS 24
GENERAL INFORMATION 25
INVESTMENT RESULTS 26
DESCRIPTION OF BOND RATINGS 31
FINANCIAL STATEMENTS ATTACHED
DESCRIPTION OF CERTAIN SECURITIES
The descriptions below are intended to supplement the material in the
prospectus under "Investment Policies and Risks."
CASH AND CASH EQUIVALENTS - These securities include (1) commercial paper
(short-term notes issued by corporations or governmental bodies), (2)
commercial bank obligations (E.G., certificates of deposit (interest bearing
time deposits), and bankers' acceptances (time drafts on a commercial bank
where the bank accepts an irrevocable obligation 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 at the time of
purchase, or may be redeemed, in one year or less, and (5) corporate bonds and
notes that mature at the time of purchase, or that may be redeemed, in one year
or less.
OTHER MORTGAGE-RELATED SECURITIES - Although the fund has no current intention
to do so (at least during the next 12 months) the fund may also invest in real
estate investment conduits which are issued in portions or tranches with
varying maturities and characteristics; some tranches may only receive the
interest paid on the underlying mortgages (IOs) and others may only receive the
principal payments (POs); the values of IOs and POs are extremely sensitive to
interest rate fluctuations and prepayment rates, and IOs are also subject to
the risk of early repayment of the underlying mortgages which will
substantially reduce or eliminate interest payments. The fund does not intend
to invest more than 5% of its assets in IOs and POs.
INFLATION-INDEXED BONDS - The fund may invest in inflation-indexed bonds issued
by the U.S. Government, its agencies or instrumentalities or corporations. The
principal value of this type of bond is periodically adjusted according to
changes in the rate of inflation. The interest rate is generally fixed at
issuance; however, interest payments are based on an inflation adjusted
principal value. For example, in a period of falling inflation, principal
value will be adjusted downward, reducing the interest payable.
Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation indexed bonds,
even during a period of deflation. However, the current market value of the
bonds is not guaranteed, and will fluctuate. The fund may also invest in other
bonds which may or may not provide a similar guarantee. If a guarantee of
principal is not provided, the adjusted principal value of the bond repaid at
maturity may be less than the original principal.
REINSURANCE RELATED NOTES AND BONDS - The fund may invest up to 5% of its
assets in reinsurance related notes and bonds. These instruments, which are
typically issued by special purpose reinsurance companies, transfer an element
of insurance risk to the note or bond holders. For example, the reinsurance
company would not be required to repay all or a portion of the principal value
of the notes or bonds if losses due to a catastrophic event under the policy
(such as a major hurricane) exceed certain dollar thresholds. Consequently,
the fund may lose the entire amount of its investment in such bonds or notes if
such an event occurs and losses exceed certain dollar thresholds. In this
instance, investors would have no recourse against the insurance company.
These instruments may be issued with fixed or variable interest rates and rated
in a variety of credit quality categories by the rating agencies.
INVERSE FLOATING RATE NOTES - The fund may invest to a very limited extent (no
more than 11/2% of its assets) in inverse floating rate notes (a type of
derivative instrument). These notes have rates that move in the opposite
direction of prevailing interest rates. A change in prevailing interest rates
will often result in a greater change in the instruments' interest rates.
Therefore, these securities have a greater degree of volatility than other
types of interest-bearing securities.
FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell
securities at a future date. When a fund purchases such securities it assumes
the risk of any decline in value of the security beginning on the date of the
agreement. When a fund sells such securities it does not participate in
further gains or losses with respect to such securities beginning on the date
of the agreement. If the other party to such a transaction fails to deliver
or pay for the securities, the fund could miss a favorable price or yield
opportunity or could experience a loss.
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly may increase. The fund will not use these
transactions for the purpose of leveraging and will segregate liquid assets
which will be marked to market daily in an amount sufficient to meet its
payment obligations in these transactions. Although these transactions will
not be entered into for leveraging purposes, to the extent the fund's aggregate
commitments under these transactions exceed its segregated assets, the fund
temporarily could be in a leveraged position (because it 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 would 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
GNMA certificates or other securities together with a commitment to purchase
similar, but not identical, securities at a future 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 enter into forward
currency contracts to protect against changes in currency exchange rates. A
forward currency contract is an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. Forward currency contracts entered into by the fund will involve the
purchase or sale of a currency against the U.S. dollar. The fund will
segregate liquid assets which will be marked to market daily to meet its
forward contract commitments to the extent required by the Securities and
Exchange Commission.
Certain provisions of the Internal Revenue Code may affect the extent to which
the fund may enter into forward contracts. Such transactions may also affect,
for U.S. federal income tax purposes, the character and timing of income, gain
or loss recognized by the fund.
PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the
length of time particular investments may have been held. Short-term trading
profits are not the fund's objective and changes in its investments are
generally accomplished gradually, though short-term transactions may
occasionally be made. High portfolio turnover (100% or more) involves
correspondingly greater transaction costs in the form of dealer spreads or
brokerage commissions, and may result in the realization of net capital gains,
which are taxable when distributed to shareholders. Fixed-income securities
are generally traded on a net basis and usually neither brokerage commissions
nor transfer taxes are involved. The fund's portfolio turnover rate would
equal 100% if each security in the fund's portfolio were replaced once per
year. Under normal circumstances, it is anticipated that portfolio turnover
for common stocks in the fund's portfolio will not exceed 100% on an annual
basis, and that portfolio turnover for other securities will not exceed 100% on
an annual basis.
CERTAIN RISK FACTORS RELATING TO BELOW INVESTMENT GRADE BONDS
Certain risk factors relating to investing in below investment grade
securities ("high-yield, high-risk bonds") are discussed below.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high-risk
bonds are very sensitive to adverse economic changes and corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers or issuers whose revenue is very
sensitive to economic conditions may experience financial stress that would
adversely affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaults on its obligations to pay interest
or principal or enters into bankruptcy proceedings, the fund may incur losses
or expenses in seeking recovery of amounts owed to it. In addition, periods of
economic uncertainty and changes can be expected to result in increased
volatility of market prices of high-yield, high-risk bonds.
PAYMENT EXPECTATIONS - High-yield, high-risk bonds, like other bonds, may
contain redemption or call provisions. If an issuer exercised these provisions
in a declining interest rate market, the fund would have to replace the
security with a lower yielding security, resulting in a decreased return for
investors. Conversely, a high-yield, high-risk bond's value is likely to
decrease in a rising interest rate market, as is generally true with all bonds.
LIQUIDITY AND VALUATION - There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
The fund may invest no more than 20% of its total assets in securities rated
BB and Ba or below (or unrated but considered of similar quality). The 20%
limit shall not apply to debt securities that have equity conversion or
purchase rights. In addition, the fund has no current intention of holding
more than 25% of its assets in high-yield, high-risk bonds, INCLUDING those
that have equity conversion or purchase rights.
The fund's investment adviser, Capital Research and Management Company,
attempts to reduce the fund's risks through diversification of the portfolio by
credit analysis of each issuer as well as by monitoring broad economic trends
and corporate developments, but there can be no assurance that it will be
successful in doing so. The fund's investment policy with respect to investing
in high-yield, high-risk securities is a "non-fundamental" policy and thus may
be changed by the board of directors at any time.
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
The fund has adopted certain fundamental policies and investment restrictions
which cannot be changed without shareholder approval. Approval requires the
affirmative vote of 67% or more of the voting securities present at a meeting
of shareholders, provided more than 50% of such securities are represented at
the meeting, or the vote of more than 50% of the outstanding voting securities,
whichever is less.
The fund may not:
1. Act as underwriter of securities issued by other persons.
2. Invest more than 10% of the value of its total assets in securities that
are illiquid.
3. Borrow amounts in excess of 5% of its gross assets taken at cost or market
value, whichever is lower, determined at the time of borrowing, and then only
from banks as a temporary measure for extraordinary or emergency purposes; or
pledge, mortgage, or hypothecate its assets taken at market value to any extent
greater than 15% of its gross assets taken at cost or market value, whichever
is lower, at the time of such action.
4. Purchase real estate (including limited partnership interests but excluding
securities of companies, such as real estate investment trusts, which deal in
real estate or interests therein) or purchase oil, gas, or other mineral
leases.
5. Purchase or deal in commodities or commodity contracts.
6. Make loans to other persons, except by making time or demand deposits with
banks or by purchasing a portion of an issue (not prohibited by any investment
restriction set forth herein) of bonds, debentures, commercial paper or other
debt securities at original issue or otherwise.
7. Purchase securities of any company for the purpose of exercising control or
management.
8. Purchase securities of any other managed investment company.
9. Purchase any securities on "margin", except that it may obtain such
short-term credit as may be necessary for the clearance of purchases of
securities.
10. Sell or contract to sell any security which it does not own unless by
virtue of its ownership of other securities it has at the time of sale a right
to obtain securities, without payment of further consideration, equivalent in
kind and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions.
11. Purchase or sell puts, calls, straddles, or spreads, but this restriction
shall not prevent the purchase or sale of rights represented by warrants or
convertible securities.
12. Purchase any securities of any issuer, except the U.S. Government (or its
instrumentalities), if immediately after and as a result of such investment (1)
the market value of the securities of such other issuer shall exceed 5% of the
market value of the total assets of the fund, or (2) the fund shall own more
than 10% of the outstanding voting securities of such issuer, provided that
this restriction shall apply only as to 75% of the fund's total assets.
13. Purchase any securities (other than securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities) if immediately after and
as a result of such purchase 25% or more of the market value of the total
assets of the fund would be invested in securities of companies in any one
industry.
14. Purchase securities of companies (other than real estate investment
trusts) which, with their predecessors, have a record of less than three years'
continuous operations, if such purchase would cause more than 5% of the fund's
total assets to be invested in the securities of such companies.
For purposes of Investment Restriction #2, restricted securities are treated
as illiquid by the fund, with the exception of those securities that have been
determined to be liquid pursuant to procedures adopted by the fund's Board of
Directors. Notwithstanding Investment Restriction #8, the fund may invest in
securities of other investment companies if deemed advisable by its officers in
connection with the administration of a deferred compensation plan adopted by
directors pursuant to an exemptive order granted by the Securities and Exchange
Commission.
FUND OFFICERS AND DIRECTORS
DIRECTORS AND DIRECTOR COMPENSATION
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION PRINCIPAL OCCUPATION(S) DURING AGGREGATE COMPENSATION TOTAL COMPENSATION FROM TOTAL NUMBER
AND AGE WITH PAST 5 YEARS (INCLUDING VOLUNTARILY ALL FUNDS MANAGED BY OF FUND BOARDS
REGISTRANT (POSITIONS WITHIN THE DEFERRED COMPENSATION/1/) CAPITAL RESEARCH AND ON WHICH
ORGANIZATIONS LISTED MAY HAVE FROM THE FUND MANAGEMENT COMPANY DIRECTOR
CHANGED DURING THIS PERIOD) DURING FISCAL YEAR ENDED FOR THE YEAR ENDED SERVES /3/
7/31/97 7/31/97/2/
<S> <C> <C> <C> <C> <C>
Robert A. Fox Director President and Chief Executive $ 20,000/4/ $ 84,600/4/ 5
P.O. Box 457 Officer, Foster Farms; former
1000 Davis Street President, Revlon International
Livingston, CA 95334
Age: 60
Roberta L. Hazard Director Consultant; Rear Admiral, United $ 19,400 $ 46,400 3
1419 Audmar Drive States Navy (Retired)
McLean, VA 22101
Age: 62
Leonade D. Jones Director Former Treasurer, The $ 19,700/4/ $ 78,500/4/ 5
1536 Los Montes Drive Washington
Burlingame, CA 94010 Post Company
Age: 49
John G. McDonald Director The IBJ Professor of Finance, $ 21,200/4/ $ 144,400/4/ 7
Stanford University Graduate School of Business,
Stanford, CA 94305 Stanford University
Age: 60
+ James W. Ratzlaff Director Senior Partner, The Capital Group None/5/ None/5/ 8
P.O. Box 7650 Partners L.P.
San Francisco, CA
94120
Age: 61
Henry E. Riggs Director President, Keck Graduate Institute $ 20,300/4/ $ 78,300/4/ 5
1263 North Dartmouth of Applied Life Sciences; former
Claremont, CA 91711 President and Professor of
Age: 62 Engineering, Harvey Mudd College
+ Walter P. Stern Chairman Chairman, Capital Group None/5/ None/5/ 8
630 Fifth Avenue of International, Inc.; Vice Chairman,
New York, NY 10111 the Board Capital Research International;
Age: 69 Chairman, Capital International,
Inc.; Director, Temple-Inland Inc.
(forest products)
Patricia K. Woolf Director Private investor; Lecturer, $ 20,600 $ 79,600 5
506 Quaker Road Department of Molecular Biology,
Princeton, NJ 08540 Princeton University
Age: 63
</TABLE>
+ "Interested persons" within the meaning of the Investment Company Act of 1940
(the 1940 Act) on the basis of their affiliation with the fund's Investment
Adviser, Capital Research and Management Company or the parent company of the
Investment Adviser, The Capital Group Companies, Inc.
/1/ Amounts may be deferred by eligible directors under a non-qualified
deferred compensation plan adopted by the fund in 1993. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more of
the funds in The American Funds Group as designated by the director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, Inc., American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management
Trust of America, Capital Income Builder, Inc., Capital World Growth and Income
Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America.
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U.S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc. Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serve as the underlying investment vehicles for certain
variable insurance contracts; and Bond Portfolio for Endowments, Inc. and
Endowments, Inc. whose shares may be owned only by tax-exempt organizations.
/3/ Includes funds managed by Capital Research and Management Company and
affiliates.
/4/ 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 ($141,587), Leonade D. Jones ($58,309), John G.
McDonald ($71,813) and Henry E. Riggs ($93,944). Amounts deferred and
accumulated earnings thereon are not funded and are general unsecured
liabilities of the fund until paid to the director.
/5/ James W. Ratzlaff and Walter P. Stern are affiliated with the Investment
Adviser and, accordingly, receive no compensation from the fund.
OFFICERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) HELD PRINCIPAL OCCUPATION(S) DURING
WITH REGISTRANT PAST 5 YEARS
<S> <C> <C> <C>
Janet A. McKinley 42 President Director, Capital Research and Management
630 Fifth Avnue Company; Senior Vice President, Capital
New York, NY 10111 Research Company
Stephen E. Bepler 55 Senior Vice Senior Vice President, Capital Research
630 Fifth Avenue President Company
New York, NY 10111
Abner D. Goldstine 67 Senior Vice Senior Vice President and Director,
11100 Santa Monica Boulevard President Capital Research and Management
Los Angeles, CA 90025 Company
Paul G. Haaga, Jr. 48 Senior Vice Executive Vice President and Director,
333 South Hope Street President Capital Research and Management
Los Angeles, CA 90071 Company; Director, American Funds
Service Company; Director, American
Funds Distributors, Inc.
Richard T. Schotte 55 Senior Vice Senior Vice President, Capital Research
11100 Santa Monica Boulevard President and Management Company
Los Angeles, CA 90025
Dina N. Perry 57 Vice President Vice President, Capital Research and
3000 K Street, N.W. Management Company
Washington, D.C. 20007
John H. Smet 41 Vice President Director, Capital Research Company; Vice
11100 Santa Monica Boulevard President, Capital Research and
Los Angeles, CA 90025 Management Company
Patrick F. Quan 39 Secretary Vice President - Fund Business
P.O. Box 7650 Management Group, Capital Research
San Francisco, CA 94120 and Management Company
Mary C. Hall 39 Treasurer Senior Vice President - Fund Business
135 South State College Boulevard Management Group, Capital Research
Brea, CA 92821 and Management Company
R. Marcia Gould 43 Assistant Vice President - Fund Business
135 South State College Boulevard Treasurer Management Group, Capital Research
Brea, CA 92821 and Management Company
</TABLE>
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, 1997 the officers and directors of the fund
and their families, as a group, owned beneficially or of record less than 1% of
the outstanding shares.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience. The Investment Adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821.
The Investment Adviser's research professionals travel several million miles a
year, making more than 5,000 research visits in more than 50 countries around
the world. The Investment Adviser believes that it is able to attract and
retain quality personnel. The Investment Adviser is a wholly owned subsidiary
of The Capital Group Companies, Inc.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for managing more than $100 billion of
stocks, bonds and money market instruments and serves over five million
investors of all types. These investors include privately owned businesses and
large corporations as well as schools, colleges, foundations and other
non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and
Service Agreement (the Agreement) between the fund and the Investment Adviser,
dated January 1, 1994, and approved by the shareholders on December 14, 1993,
was amended by the Board of Directors effective on November 1, 1997. Its
renewal was approved by the unanimous vote of the Board of Directors of
the fund on October 22, 1997. The Agreement shall be
in effect until the close of business on December 31, 1997 and may be renewed
from year to year thereafter, provided that any such renewal has been
specifically approved at least annually by (i) the Board of Directors of the
fund, or by the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the fund, and (ii) the vote of a majority of
directors who are not parties to the Agreement or interested persons (as
defined in said Act) of any such party, cast in person, at a meeting called for
the purpose of voting on such approval. The Agreement also provides that
either party has the right to terminate it without penalty, upon 60 days'
written notice to the other party, and that the Agreement automatically
terminates in the event of its assignment (as defined in said Act).
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the fund, and provides suitable office space, necessary small office equipment
and utilities, as well as general purpose accounting forms, supplies, and
postage to be used at the offices of the fund relating to the services
furnished by the Investment Adviser. The fund pays all expenses not
specifically assumed by the Investment Adviser, including, but not limited to,
custodian, stock transfer and dividend disbursing fees and expenses; costs of
designing, printing and mailing reports, prospectuses, proxy statements, and
notices to shareholders; taxes; expenses for the issuance and redemption of
shares of the fund (including stock certificates, registration and
qualification fees and expenses); expenses pursuant to the fund's Plan of
Distribution (described below); legal and auditing expenses; compensation,
fees, and expenses paid to directors unaffiliated with the Investment Adviser;
association dues; costs of stationery and forms prepared exclusively for the
fund; and costs of assembling and storing shareholder account data.
The management fee is based upon the net assets of the fund and monthly gross
investment income. Gross investment income means gross income, computed
without taking account of gains or losses from sales of capital assets, but
including original issue discount as defined for federal income tax purposes.
The Internal Revenue Code in general defines original issue discount to mean
the difference between the issue price and the stated redemption price at
maturity of certain debt obligations. The holder of such indebtedness is in
general required to treat as ordinary income the proportionate part of the
original issue discount attributable to the period during which the holder held
the indebtedness. The management fee is based upon the annual rates of 0.24%
on the first $1 billion of the fund's net assets, 0.20% on net assets in excess
of $1 billion but not exceeding $2 billion, 0.18% on net assets in excess of $2
billion but not exceeding $3 billion, 0.165% on net assets in excess of $3
billion but not exceeding $5 billion, 0.155% on net assets in excess of $5
billion but not exceeding $8 billion, 0.15% on net assets in excess of $8
billion but not exceeding $13 billion, 0.145% on net assets in excess of
$13 billion but not exceeding $21 billion, and 0.14% on net assets in excess of
$21 billion, plus 2.25% of the fund's gross investment income for the preceding
month. Assuming net assets of $19 billion and gross investment income levels of
3%, 4%, 5%, 6%, 7% and 8%, management fees would be 0.39%, 0.42%, 0.45%, 0.48%,
0.52% and 0.55% of net assets, respectively.
The Agreement provides for a management fee reduction to the extent that the
fund's annual ordinary operating expenses exceed 1-1/2% of the first $30
million of the net assets of the fund and 1% of the net assets in excess
thereof. Expenses which are not subject to this limitation are interest,
taxes, and extraordinary expenses. Expenditures, including costs incurred in
connection with the purchase or sale of portfolio securities, which are
capitalized in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital items and not
as expenses.
For the fiscal year ended July 31, 1997, the Investment Adviser received
$26,745,000 for the basic management fee (based on a percentage of the net
assets of the fund as expressed above) plus $21,075,000 (based on a percentage
of the fund's gross income as expressed above), for a total fee of $47,820,000.
For the fiscal years ended July 31, 1996 and 1995, management fees paid by the
fund amounted to $42,065,000 and $35,698,000, respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the Principal
Underwriter) is the principal underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 8000 IH-10 West, San Antonio, TX
78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240, and 5300
Robin Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of Distribution
(the Plan), pursuant to rule 12b-1 under the 1940 Act. The Principal
Underwriter receives amounts payable pursuant to the Plan (see below) and
commissions consisting of that portion of the sales charge remaining after the
discounts which it allows to investment dealers. Commissions retained by the
Principal Underwriter on sales of fund shares during the fiscal year ended July
31, 1997 amounted to $10,140,000 after allowance of $49,612,000 to dealers.
During the fiscal years ended 1996 and 1995, the Principal Underwriter received
$11,114,000 and $7,246,000, after allowance of $56,184,000 and $36,662,000,
respectively.
As required by rule 12b-1 and the 1940 Act, the Plan (together with the
Principal Underwriting Agreement) has been approved by the full Board of
Directors, and separately by a majority of the directors who are not interested
persons of the fund and who have no direct or indirect financial interest in
the operation of the Plan or the Principal Underwriting Agreement, and the Plan
has been approved by the vote of a majority of the outstanding voting
securities of the fund. The officers and directors who are "interested"
persons of the fund may be considered to have a direct or indirect financial
interest in the operation of the Plan due to present or past affiliations with
the Investment Adviser and related companies. Potential benefits of the Plan
to the fund include improved shareholder services, savings to the fund in
transfer agency costs, savings to the fund in advisory fees and other expenses,
benefits to the investment process from growth or stability of assets and
maintenance of a financially healthy management organization. The selection
and nomination of directors who are not "interested persons" of the fund are
committed to the discretion of the directors who are not interested persons
during the existence of the Plan. The Plan is reviewed quarterly and must be
renewed annually by the Board of Directors.
Under the Plan the fund may expend up to 0.25% of its net assets annually to
finance any activity which is primarily intended to result in the sale of fund
shares, provided the fund's Board of Directors has approved the category of
expenses for which payment is being made. These include service fees for
qualified dealers and dealer commissions and wholesaler compensation on sales
of shares exceeding $1 million (including purchases by any employer-sponsored
403(b) plan or purchases by any defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 100
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, 1997, the fund paid or accrued $38,906,000 for
compensation to dealers under the Plan.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit commercial banks from engaging in the business of
underwriting, selling or distributing securities, but permit banks to make
shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries or affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer adverse financial consequences as a result of any of
these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements, and has elected the tax status
of, a "regulated investment company," under the provisions of Subchapter M of
the Internal Revenue Code of 1986, as amended, (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) for taxable years beginning on or before August 5, 1997, derive
less than 30% of its gross income from the gains on sale or other disposition
of stock or securities held less than three months; and (c) diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of the fund's assets is represented by cash, cash items, U.S.
Government securities, securities of other regulated investment companies, and
other securities (but such other securities must be limited, in respect of any
one issuer, to an amount not greater than 5% of the fund's assets and 10% of
the outstanding voting securities of such issuer), and (ii) not more than 25%
of the value of its assets is invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies), or in two or more issuers which the fund controls and
which are engaged in the same or similar trades or businesses or related trades
or businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gains (both long-term and
short-term) for the one-year period ending on October 31 (as though the
one-year period ending on October 31 were the regulated investment company's
taxable year), and (iii) the sum of any untaxed, undistributed net investment
income and net capital gains of the regulated investment company for prior
periods. The term "distributed amount" generally means the sum of (i) amounts
actually distributed by the fund from its current year's ordinary income and
capital gain net income and (ii) any amount on which the fund pays income tax
during the periods described above. The fund intends to distribute net
investment income and net capital gains so as to minimize or avoid the excise
tax liability.
The fund also intends to continue distributing to shareholders all of the
excess of net long-term capital gain over net short-term capital loss on sales
of securities. If the net asset value of shares of the fund should, by reason
of a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made payable
to shareholders of record in such a month are treated as paid and are thereby
taxable as of December 31, provided that the fund pays the dividend no later
than the end of January of the following year.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, or the shareholder does
not respond to mailings from American Funds Service Company with regard to
uncashed distribution checks, the shareholder's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares.
Corporate shareholders of the fund may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gain distributions) paid
by the fund to the extent the fund's income is derived from dividends (which
if received directly would qualify for such deduction) received from domestic
corporations. In order to qualify for the dividends-received deduction, a
corporate shareholder must hold the fund shares paying the dividends upon which
the deduction is based for at least 46 days.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation or foreign
partnership (a foreign shareholder) will be subject to U.S. withholding tax (at
a rate of 30% or lower treaty rate). Withholding will not apply if a dividend
paid by the fund to a foreign shareholder is "effectively connected" with a
U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents, or domestic
corporations will apply. Distributions of net long-term capital gains not
effectively connected with a U.S. trade or business are not subject to tax
withholding, but in the case of a foreign shareholder who is a nonresident
alien individual, such distributions ordinarily will be subject to U.S. income
tax at a rate of 30% if the individual is physically present in the U.S. for
more than 182 days during the taxable year.
Income and dividends received by the fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Because not more than 50% of the value of the
total assets of the fund is expected to consist of securities of foreign
issuers, the fund will not be eligible to elect to "pass through" foreign tax
credits to shareholders.
As of the date of this statement of additional information, the maximum
federal individual stated tax rate applicable to ordinary income is 39.6%
(effective tax rates may be higher for some individuals due to phase out of
exemptions and elimination of deductions); the maximum individual tax rate
applicable to net capital gains on assets held more than eighteen months or
20%, and on assets held more than one year and not more than eighteen months is
28%; and the maximum corporate tax applicable to ordinary income and net
capital gains is 35%. However, to eliminate the benefit of lower marginal
corporate income tax rates, corporations which have taxable income in excess of
$100,000 for a taxable year will be required to pay an additional amount of tax
of up to $11,750 and corporations which have taxable income in excess of
$15,000,000 for a taxable year will be required to pay an additional amount of
tax of up to $100,000. Naturally, the amount of tax payable by a shareholder
with respect to either distributions from the fund or disposition of fund
shares will be affected by a combination of tax law rules covering, E.G.,
deductions, credits, deferrals, exemptions, sources of income and other
matters. Under the Code, an individual is entitled to establish an IRA each
year (prior to the tax return filing deadline for the year) whereby earnings on
investments are tax-deferred. In addition, in some cases, the IRA contribution
itself may be deductible.
The foregoing is limited to a summary of federal taxation and should not be
viewed as a comprehensive discussion of all provisions of the Code relevant to
investors. Dividends and capital gain distributions may also be subject to
state or local taxes. Shareholders should consult their own tax advisers for
additional details as to their particular tax status.
PURCHASE OF SHARES
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METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums and Fund $50 minimum (except where a lower minimum is
Numbers" for initial investment noted under "Investment Minimums and Fund
minimums. Numbers").
By contacting Visit any investment dealer who is Mail directly to your investment
your registered in the state where the dealer's address printed on your
investment purchase is made and who has a account statement.
dealer sales agreement with American
Funds Distributors.
By mail Make your check payable to the fund Fill out the account additions form at the bottom of
and mail to the address indicated on a recent account statement, make your check
the account application. Please payable to the fund, write your account number on
indicate an investment dealer on the your check, and mail the check and form in the
account application. envelope provided with your account statement.
By telephone Please contact your investment Complete the "Investments by Phone" section on
dealer to open account, then follow the account application or American FundsLink
the procedures for additional Authorization Form. Once you establish the
investments. privilege, you, your financial advisor or any person
with your account information can call American
FundsLine(R) and make investments by telephone
(subject to conditions noted in "Telephone and
Computer Purchases, Redemptions and Exchanges"
below).
By computer Please contact your investment Complete the American FundsLink Authorization
dealer to open account, then follow Form. Once you establish the privilege, you, your
the procedures for additional financial advisor or any person with your account
investments. information may access American FundsLine(R) on
the Internet and make investments by computer
(subject to conditions noted in "Telephone and
Computer Purchases, Redemptions and Exchanges"
below).
By wire Call 800/421-0180 to obtain your Your bank should wire your additional investments
account number(s), if necessary. in the same manner as described under "Initial
Please indicate an investment dealer Investment."
on the account. Instruct your bank to
wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the account of:
American Funds Service Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER.
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INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial
investments required by the funds in The American Funds Group along with fund
numbers for use with our automated phone line, American FundsLine(R) (see
description below):
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FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R) 02
$1,000
American Balanced Fund(R) 11
500
American Mutual Fund(R) 03
250
Capital Income Builder(R) 12
1,000
Capital World Growth and Income Fund(SM) 33
1,000
EuroPacific Growth Fund(R) 16
250
Fundamental Investors(SM) 10
250
The Growth Fund of America(R) 05
1,000
The Income Fund of America(R) 06
1,000
The Investment Company of America(R) 04
250
The New Economy Fund(R) 14
1,000
New Perspective Fund(R) 07
250
SMALLCAP World Fund(R) 35
1,000
Washington Mutual Investors Fund(SM) 01
250
BOND FUNDS
American High-Income Municipal Bond Fund(R) 40
1,000
American High-Income Trust(SM) 21
1,000
The Bond Fund of America(SM) 08
1,000
Capital World Bond Fund(R) 31
1,000
Intermediate Bond Fund of America(SM) 23
1,000
Limited Term Tax-Exempt Bond Fund of America(SM) 43
1,000
The Tax-Exempt Bond Fund of America(R) 19
1,000
The Tax-Exempt Fund of California(R)* 20
1,000
The Tax-Exempt Fund of Maryland(R)* 24
1,000
The Tax-Exempt Fund of Virginia(R)* 25
1,000
U.S. Government Securities Fund(SM) 22
1,000
MONEY MARKET FUNDS
The Cash Management Trust of America(R) 09
2,500
The Tax-Exempt Money Fund of America(SM) 39
2,500
The U.S. Treasury Money Fund of America(SM) 49
2,500
___________
*Available only in certain states.
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For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
DEALER COMMISSIONS - The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
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AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND FUNDS
Less than $50,000 6.10% 5.75% 5.00%
$50,000 but less than $100,000 4.71 4.50 3.75
BOND FUNDS
Less than $25,000 4.99 4.75 4.00
$25,000 but less than $50,000 4.71 4.50 3.75
$50,000 but less than $100,000 4.17 4.00 3.25
STOCK, STOCK/BOND, AND BOND
FUNDS
$100,000 but less than $250,000 3.63 3.50 2.75
$250,000 but less than $500,000 2.56 2.50 2.00
$500,000 but less than $1,000,000 2.04 2.00 1.60
$1,000,000 or more none none (see below)
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Commissions of up to 1% will be paid to dealers who initiate and are
responsible for purchases of $1 million or more, for purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $50 million or more: 1.00% on amounts of $1 million
to $2 million, 0.80% on amounts over $2 million to $3 million, 0.50% on amounts
over $3 million to $50 million, 0.25% on amounts over $50 million to $100
million, and 0.15% on amounts over $100 million. The level of dealer
commissions will be determined based on sales made over a 12-month period
commencing from the date of the first sale at net asset value.
American Funds Distributors, at its expense (from a designated percentage of
its income), will, during calendar year 1998, provide additional compensation
to dealers. Currently these payments are limited to the top one hundred dealers
who have sold shares of the fund or other funds in The American Funds Group.
These payments will be based on a pro rata share of a qualifying dealer's
sales. American Funds Distributors will, on an annual basis, determine the
advisability of continuing these payments.
Any employer-sponsored 403(b) plan or defined contribution plan qualified
under Section 401(a) of the Internal Revenue Code including a "401(k)" plan
with 100 or more eligible employees or any other purchaser investing at least
$1 million in shares of the fund (or in combination with shares of other funds
in The American Funds Group other than the money market funds) may purchase
shares at net asset value; however, a contingent deferred sales charge of 1% is
imposed on certain redemptions made within twelve months of the purchase. (See
"Redeeming Shares--Contingent Deferred Sales Charge.") Investments by
retirement plans, foundations or endowments with $50 million or more in assets
may be made with no sales charge and are not subject to a contingent deferred
sales charge.
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
NET ASSET VALUE PURCHASES - The stock, stock/bond and bond funds may sell
shares at net asset value to: (1) current or retired directors, trustees,
officers and advisory board members of the funds managed by Capital Research
and Management Company, employees of Washington Management Corporation,
employees and partners of The Capital Group Companies, Inc. and its affiliated
companies, certain family members of the above persons, and trusts or plans
primarily for such persons; (2) current registered representatives, retired
registered representatives with respect to accounts established while active,
or full-time employees (and their spouses, parents, and children) of dealers
who have sales agreements with American Funds Distributors (or who clear
transactions through such dealers) and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer; (4) trustees or other fiduciaries purchasing shares for
certain retirement plans of organizations with retirement plan assets of $50
million or more; (5) insurance company separate accounts; (6) accounts managed
by subsidiaries of The Capital Group Companies, Inc.; and (7) The Capital Group
Companies, Inc., its affiliated companies and Washington Management
Corporation. Shares are offered at net asset value to these persons and
organizations due to anticipated economies in sales effort and expense.
STATEMENT OF INTENTION - The reduced sales charges and offering prices set
forth in the Prospectus apply to purchases of $50,000 or more made within a
13-month period subject to the following statement of intention (the Statement)
terms. The Statement is not a binding obligation to purchase the indicated
amount. When a shareholder elects to utilize the Statement in order to qualify
for a reduced sales charge, shares equal to 5% of the dollar amount specified
in the Statement will be held in escrow in the shareholder's account out of the
initial purchase (or subsequent purchases, if necessary) by the Transfer Agent.
All dividends and any capital gain distributions on shares held in escrow will
be credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the specified
13-month period, the purchaser will remit to the Principal Underwriter the
difference between the sales charge actually paid and the sales charge which
would have been paid if the total of such purchases had been made at a single
time. If the difference is not paid within 45 days after written request by
the Principal Underwriter or the securities dealer, the appropriate number of
shares held in escrow will be redeemed to pay such difference. If the proceeds
from this redemption are inadequate, the purchaser will be liable to the
Principal Underwriter for the balance still outstanding. The Statement may be
revised upward at any time during the 13-month period, and such a revision will
be treated as a new Statement, except that the 13-month period during which the
purchase must be made will remain unchanged and there will be no retroactive
reduction of the sales charges paid on prior purchases. Existing holdings
eligible for rights of accumulation (see the prospectus and account
application) may be credited toward satisfying the Statement. During the
Statement period reinvested dividends and capital gain distributions,
investments in money market funds, and investments made under a right of
reinstatement will not be credited toward satisfying the Statement.
In the case of purchase orders by the trustees of certain retirement plans by
payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: The regular monthly payroll
deduction investment will be multiplied by 13 and then multiplied by 1.5. The
current value of existing American Funds investments (other than money market
fund investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period are
added to the figure determined above. The sum is the Statement amount and
applicable breakpoint level. On the first investment and all other investments
made pursuant to the Statement, a sales charge will be assessed according to
the sales charge breakpoint thus determined. There will be no retroactive
adjustments in sales charges on investments previously made during the 13-month
period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the Investment Company Act of 1940, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company. This offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. In case of orders sent directly to the fund or American Funds
Service Company, an investment dealer MUST be indicated. The dealer is
responsible for promptly transmitting purchase orders to the Principal
Underwriter. Orders received by the investment dealer, the Transfer Agent, or
the fund after the time of the determination of the net asset value will be
entered at the next calculated offering price. Prices which appear in the
newspaper are not always indicative of prices at which you will be purchasing
and redeeming shares of the fund, since such prices generally reflect the
previous day's closing price whereas purchases and redemptions are made at the
next calculated price.
The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily at the close of trading
(currently 4:00 p.m., New York time) each day the New York Stock Exchange is
open. The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Martin Luther King Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas Day.
All portfolio securities of funds managed by Capital Research and Management
Company are valued, and the net asset value per share is determined, as
follows:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, 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 quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
Securities with original maturities of one year or less having 60 days or less
to maturity are amortized to maturity based on their cost if acquired within 60
days of maturity or, if already held on the 60th day, based on the value
determined on the 61st day. Forward currency contracts are valued at the mean
of representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board; The fair value of all other assets is
added to the value of securities to arrive at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share.
Any purchase order may be rejected by the Principal Underwriter or the fund.
The Principal Underwriter will not knowingly sell fund shares directly,
indirectly, or through a unit investment trust to any other investment company,
or to any person or entity, where, after the sale, such investment company,
person, or entity would own beneficially, directly, indirectly, or through a
unit investment trust, more than 4.5% of the outstanding shares of the fund
without the consent of a majority of the fund's directors.
REDEEMING SHARES
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By writing to American Send a letter of instruction specifying the name of the fund,
Funds Service Company (at the number of shares or dollar amount to be sold, your
the appropriate address name and account number. You should also enclose any
indicated under "Principal share certificates you wish to redeem. For redemptions
Underwriter and Transfer over $50,000 and for certain redemptions of $50,000 or less
Agent" in the prospectus) (see below), your signature must be guaranteed by a bank,
savings association, credit union, or member firm of a
domestic stock exchange or the National Association of
Securities Dealers, Inc. that is an eligible guarantor
institution. You should verify with the institution that it is an
eligible guarantor prior to signing. Additional documentation
may be required for redemption of shares held in corporate,
partnership or fiduciary accounts. Notarization by a Notary
Public is not an acceptable signature guarantee.
By contacting your If you redeem shares through your investment dealer, you
investment dealer may be charged for this service. SHARES HELD FOR YOU IN
YOUR INVESTMENT DEALER'S STREET NAME MUST BE REDEEMED
THROUGH THE DEALER.
You may have a You may use this option, provided the account is registered
redemption check sent to in the name of an individual(s), a UGMA/UTMA custodian,
you by using American or a non-retirement plan trust. These redemptions may not
FundsLine(R) or American exceed $50,000 per shareholder each day and the check
FundsLine OnLine(SM) or must be made payable to the shareholder(s) of record and
by telephoning, faxing, or be sent to the address of record provided the address has
telegraphing American been used with the account for at least 10 days. See
Funds Service Company "Transfer Agent" and "Exchange Privilege" below for the
(subject to the conditions appropriate telephone or fax number.
noted in this section and in
"Telephone and Computer
Purchases, Redemptions and
Exchanges" below)
In the case of the money Upon request (use the account application for the money
market funds, you may market funds) you may establish telephone redemption
have redemptions wired to privileges (which will enable you to have a redemption sent
your bank by telephoning to your bank account) and/or check writing privileges. If you
American Funds Service request check writing privileges, you will be provided with
Company ($1,000 or more) checks that you may use to draw against your account.
or by writing a check ($250 These checks may be made payable to anyone you
or more) designate and must be signed by the authorized number of
registered shareholders exactly as indicated on your
checking account signature card.
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A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY REDEMPTION OF $50,000
OR LESS PROVIDED THE REDEMPTION CHECK IS MADE PAYABLE TO THE REGISTERED
SHAREHOLDER(S) AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE ADDRESS HAS
BEEN USED WITH THE ACCOUNT FOR AT LEAST 10 DAYS.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares. Shares held
for the longest period are assumed to be redeemed first for purposes of
calculating this charge. The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer-sponsored
retirement plan; for distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 591/2; for tax-free returns of excess
contributions to IRAs; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
REDEMPTION OF SHARES - The fund's Articles of Incorporation permits the fund
to direct the Transfer Agent to redeem the shares of any shareholder for their
then current net asset value per share if at such time the shareholder owns of
record, shares having an aggregate net asset value of less than the minimum
initial investment amount required of new shareholders as set forth in the
fund's current registration statement under the 1940 Act, and subject to such
further terms and conditions as the Board of Directors of the fund may from
time to time adopt.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the dates you select. Bank accounts will be
charged on the day or a few days before investments are credited, depending on
the bank's capabilities, and shareholders will receive a confirmation statement
at least quarterly. Participation in the plan will begin within 30 days after
receipt of the account application. If the shareholder's bank account cannot
be charged due to insufficient funds, a stop-payment order or the closing of
the account, the plan may be terminated and the related investment reversed.
The shareholder may change the amount of the investment or discontinue the plan
at any time by writing to the Transfer Agent.
AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the paying fund) into any other fund in The
American Funds Group (the receiving fund) subject to the following conditions:
(i) the aggregate value of the shareholder's account(s) in the paying fund(s)
must equal or exceed $5,000 (this condition is waived if the value of the
account in the receiving fund equals or exceeds that fund's minimum initial
investment requirement), (ii) as long as the value of the account in the
receiving fund is below that fund's minimum initial investment requirement,
dividends and capital gain distributions paid by the receiving fund must be
automatically reinvested in the receiving fund, and (iii) if this privilege is
discontinued with respect to a particular receiving fund, the value of the
account in that fund must equal or exceed the fund's minimum initial investment
requirement or the fund shall have the right, if the shareholder fails to
increase the value of the account to such minimum within 90 days after being
notified of the deficiency, automatically to redeem the account and send the
proceeds to the shareholder. These cross-reinvestments of dividends and
capital gain distributions will be at net asset value (without sales charge).
EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLine(R) or American FundsLine OnLine(SM) (see "American FundsLine(R) and
American FundsLine OnLine(SM)" below), or by telephoning 800/421-0180
toll-free, faxing (see "Principal Underwriter and Transfer Agent" in the
prospectus for the appropriate fax numbers) or telegraphing American Funds
Service Company. (See "Telephone and Computer Purchases, Redemptions and
Exchanges" below.) Shares held in corporate-type retirement plans for which
Capital Guardian Trust Company serves as trustee may not be exchanged by
telephone, fax or telegraph. Exchange redemptions and purchases are processed
simultaneously at the share prices next determined after the exchange order is
received. (See "Purchase of Shares--Price of Shares.") THESE TRANSACTIONS HAVE
THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES - You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS - Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments and dividend reinvestments, will be reflected on regular
confirmation statements from American Funds Service Company. Purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINE(SM)- You may check your
share balance, the price of your shares, or your most recent account
transaction, redeem shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(R) or American
FundsLine OnLine(SM). To use this service, call 800/325-3590 from a
TouchTone(TM) telephone or access the American Funds Web site on the Internet
at www.americanfunds.com. Redemptions and exchanges through American
FundsLine(R) or American FundsLine OnLine(SM) are subject to the conditions
noted above and in "Shareholder Account Services and Privileges --Telephone and
Computer Purchases, Redemptions and Exchanges" below. You will need your fund
number (see the list of funds in The American Funds Group under "Purchase of
Shares--Investment Minimums and Fund Numbers"), personal identification number
(the last four digits of your Social Security number or other tax
identification number associated with your account) and account number.
TELEPHONE AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES - By using the
telephone or computer (including American FundsLine(R) or American FundsLine
OnLine(SM)), fax or telegraph redemption and/or exchange options, you agree to
hold the fund, American Funds Service Company, any of its affiliates or mutual
funds managed by such affiliates, and each of their respective directors,
trustees, officers, employees and agents harmless from any losses, expenses,
costs or liability (including attorney fees) which may be incurred in
connection with the exercise of these privileges. Generally, all shareholders
are automatically eligible to use these options. However, you may elect to opt
out of these options by writing American Funds Service Company (you may also
reinstate them at any time by writing American Funds Service Company). If
American Funds Service Company does not employ reasonable procedures to confirm
that the instructions received from any person with appropriate account
information are genuine, the fund may be liable for losses due to unauthorized
or fraudulent instructions. In the event that shareholders are unable to reach
the fund by telephone or computer because of technical difficulties, market
conditions, or a natural disaster, redemption and exchange requests may be made
in writing only.
EXECUTION OF PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by the
Investment Adviser. The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through their
correspondent clearing agents) is in a position to obtain the best price and
execution, the order is placed with that broker. This may or may not be a
broker who has provided investment research, statistical, or other related
services to the Investment Adviser or has sold shares of the fund or other
funds served by the Investment Adviser. The fund does not consider that it has
an obligation to obtain the lowest available commission rate to the exclusion
of price, service and qualitative considerations.
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.
Brokerage commissions paid on portfolio transactions during the fiscal years
ended July 31, 1997, 1996 and 1995, amounted to $9,637,000, $7,865,000 and
$5,001,000 respectively.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including
proceeds from the sale of shares of the fund and of securities in the fund's
portfolio, are held by The Chase Manhattan Bank., One Chase Manhattan Plaza,
New York, NY 10081, as Custodian. Non-U.S. securities may be held by the
Custodian pursuant to sub-custodial arrangements in non-U.S. banks or foreign
branches of U.S. banks.
TRANSFER AGENT - American Funds Service Company, a wholly-owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee
of $8,402,000 for the fiscal year ended July 31, 1997.
INDEPENDENT AUDITORS - Deloitte & Touche LLP located at 1000 Wilshire
Boulevard, Los Angeles, CA 90017, serves as the fund's independent auditors
providing audit services, preparation of tax returns and review of certain
documents of the fund to be filed with the Securities and Exchange Commission.
The financial statements included in this statement of additional information
from the annual report have been so included in reliance on the report of
Deloitte & Touche LLP given on the authority of said firm as experts in
accounting and auditing.
REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on July 31. Shareholders
are provided at least semi-annually with reports showing the investment
portfolio, financial statements and other information. The annual financial
statements are audited by the fund's independent auditors, Deloitte & Touche
LLP, whose selection is determined by the Board of Directors.
PERSONAL INVESTING POLICY - Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions.
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, 1997
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $18.59
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) $19.72
</TABLE>
REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any director or directors from office and may elect a successor
or successors to fill any resulting vacancies for the unexpired terms of
removed directors. The fund has made an undertaking, at the request of the
staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of directors as
though the fund were a common-law trust. Accordingly, the directors of the
fund shall promptly call a meeting of shareholders for the purpose of voting
upon the question of removal of any director when requested in writing to do so
by the record holders of not less than 10% of the outstanding shares.
INVESTMENT RESULTS
The fund's yield is 4.32% based on a 30-day (or one month) period ended July
31, 1997, 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, 1997 was +21.84%, +12.92% and +12.04%, respectively.
The average annual total return (T) is computed by equating the value at the
end of the period (ERV) with a hypothetical initial investment of $1,000 (P)
over a period of years (n) according to the following formula as required by
the Securities and Exchange Commission: P(1+T)/n/ = ERV.
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) deduction of the maximum sales load of
5.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated.
The fund may also, at times, calculate total return based on net asset value
per share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the computation. Consequently,
total return calculated in this manner will be higher. These total returns may
be calculated over periods in addition to those described above. Total return
for the unmanaged indices will be calculated assuming reinvestment of dividends
and interest, but will not reflect any deductions for advisory fees, brokerage
costs or administrative expenses.
The fund may also calculate a distribution rate on a taxable and tax
equivalent basis. The distribution rate is computed by dividing the dividends
paid by the fund over the last 12 months by the sum of the month-end net asset
value or maximum offering price and the capital gains paid over the last 12
months. The distribution rate may differ from the yield.
The fund may include information on its investment results and/or comparisons
of its investment results to various unmanaged indices (such as The Dow Jones
Average of 30 Industrial Stocks, The Standard & Poor's 500 Stock Composite
Index, the Lehman Brothers Corporate Bond Index, the Lehman Brothers Aggregate
Bond Index and the Salomon Brothers High-Grade Corporate Bond Index) or results
of other mutual funds or investment or savings vehicles in advertisements or in
reports furnished to present or prospective shareholders.
The fund may refer to results compiled by organizations such as CDA Investment
Services, Ibbotson Associates, Lipper Analytical Services and Morningstar, Inc.
and by the U.S. Department of Commerce. Additionally, the fund may, from time
to time, refer to results published in various newspapers and periodicals,
including Barrons, Forbes, Fortune, Institutional Investor, Kiplinger's
Personal Finance Magazine, Money, U.S. News and World Report and The Wall
Street Journal.
The fund may, from time to time, illustrate the benefits of tax-deferral by
comparing taxable investments to investments made through tax-deferred
retirement plans.
The fund may, from time to time, compare its investment results with the
Consumer Price Index, which is a measure of the average change in prices over
time in a fixed market basket of goods and services (E.G. food, clothing,
fuels, transportation, and other goods and services that people buy for
day-to-day living).
The investment results for the fund set forth below were calculated as
described in the fund's prospectus. Data contained in Salomon's Market
Performance and Lehman Brothers' The Bond Market Report are used to calculate
cumulative total return from their base period (12/31/68 and 12/31/72,
respectively) for each index. The percentage increases shown in the table
below or used in published reports of the fund are obtained by subtracting the
index results at the beginning of the period from the index results at the end
of the period and dividing the difference by the index results at the beginning
of the period.
IFA vs. Various Unmanaged Indices
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lehman
10-Year Lehman Lehman Brothers Average
Period Brothers Brothers Government/ Salomon Savings
8/1 - 7/31 IFA DJIA/1/ S&P 500/2/ Corporate/3/ Aggregate/4/ Corporate/5/ High-Grade/6/ Account/7/
1987 - 1997 +212% +336% +303% +157% +139% +138% +177% +65%
1986 - 1996 +181 +330 +269 +141 +126 +123 +149 +69
1985 - 1995 +197 +391 +306 +179 +160 +158 +206 + 74
1984 - 1994 +241 +385 +327 +217 +193 +189 +254 + 83
1983 - 1993 +254 +333 +294 +241 +218 +213 +281 + 94
1982 - 1992 +351 +528 +478 +295 +251 +242 +330 +106
1981 - 1991 +298 +392 +343 +304 +269 +256 +329 +117
1980 - 1990 +293 +392 +344 +235 +217 +209 +239 +124
1979 - 1989 +317 +409 +416 +202 +201 +197 +202 +125
1978 - 1988 +267 +308 +326 +180 +178 +175 +166 +125
1977 - 1987 +283 +388 +417 +159 +164 +162 +146 +125
1976 - 1986 +265 +209 +271 +184 +181 +180 +177 +124
1975 - 1985 +295 +177 +250 +161 N/A +158 +134 +121
1974 - 1984 +270 +153 +210 +136 N/A +136 +112 +116
1973#- 1983 +237 +147 +172 + 95 N/A +105 + 76 +106
</TABLE>
________________
# From December 1, 1973
/1/ The Dow Jones Average of 30 Industrial Stocks is comprised of 30 industrial
companies such as General Motors and General Electric.
/2/ The Standard & Poor's 500 Stock Composite Index is comprised of industrial,
transportation, public utilities, and financial stocks and represents a large
portion of the value of issues traded on the New York Stock Exchange. Selected
issues traded on the American Stock Exchange are also included.
/3/ The Lehman Brothers Corporate Bond Index is comprised of all public, fixed
rate, non-convertible investment grade domestic corporate debt. Issues
included in this index are rated at least Baa by Moody's Investors Service, BBB
by Standard & Poor's Corporation or, in the case of bank bonds not rated by
either of the previously mentioned services, BBB by Fitch Investors Service.
/4/ The Lehman Brothers Aggregate Bond Index covers all sectors of the fixed
income market and is a combination of the Lehman Brothers Treasury Bond Index,
the Agency Bond Index, the Corporate Bond Index, the Yankee Bond Index and the
Mortgage Backed Securities Index. Its inception date is December 31, 1975.
/5/ The Lehman Brothers Government/Corporate Bond Index is comprised of all
public obligations of the U.S. Treasury, all publicly issued debt of U.S.
Government agencies, and corporate debt guaranteed by the U.S. Government
(excluding mortgage-backed securities). It also includes all U.S. dollar
denominated, SEC registered, public, non-convertible debt issued or guaranteed
by foreign or international governments/agencies. Also included are all
public, fixed-rate non-convertible investment grade domestic corporate debt.
/6/ The Salomon Brothers High-Grade Corporate Bond Index is comprised of a
sample of high-grade corporate bonds which have a rating of AAA or AA by
Standard & Poor's Corporation.
/7/ Based on figures supplied by the U.S. League of Savings Institutions and
the Federal Reserve Board which reflect all kinds of savings deposits,
including longer-term certificates. Savings accounts offer a guaranteed return
of principal, but no opportunity for capital growth. During a portion of the
period, the maximum rates paid on some savings deposits were fixed by law.
<TABLE>
<CAPTION>
<S> <C>
If you are considering IFA for an
Individual Retirement Account. . .
Here's how much you would have if you had invested $2,000 a year on August 1
of each year in IFA over the past 5 and 10 years:
5 years 10 years
(8/1/92-7/31/97) (8/1/87-7/31/97)
$15,431 $42,105
</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 . . . 7/31/97
<S> <C> <C>
| |
Number Periods
of Years 8/1 - 7/31 Value
1 1996 - 1997
$12,184
2 1995 - 1997
13,825
3 1994 - 1997
16,094
4 1993 - 1997
16,416
1992 - 1997
5 18,360
6 1991 - 1997
21,869
7 1990 - 1997
24,548
8 1989 - 1997
24,830
9 1988 - 1997
30,661
10 1987 - 1997
31,171
1986 - 1997
11 36,376
12 1985 - 1997
43,616
13 1984 - 1997
58,178
14 1983 - 1997
61,718
15 1982 - 1997
87,843
16 1981 - 1997
92,472
17 1980 - 1997
103,092
18 1979 - 1997
109,826
19 1978 - 1997
119,482
20 1977 - 1997
126,848
21 1976 - 1997
140,939
22 1975 - 1997
182,545
23 1974 - 1997
228,663
24 1973#- 1997
220,586
</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, 1997)
<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
1985 3,365 19,752 29,752 18,236 2,637 26,804 47,677
1986 3,909 23,661 33,661 18,907 6,434 31,807 57,148
1987 4,431 28,092 38,092 19,578 9,644 37,452 66,674
1988 4,479 32,571 42,571 17,955 10,904 38,957 67,816
1989 5,338 37,909 47,909 20,609 12,515 50,578 83,702
1990 5,269 43,178 53,178 18,907 13,755 51,497 84,159
1991 6,311 49,489 59,489 19,578 14,787 60,070 94,435
1992 6,578 56,067 66,067 21,764 17,093 73,764 112,621
1993 6,995 63,062 73,062 22,592 19,653 83,771 126,016
1994 7,471 70,533 80,533 21,218 21,364 85,868 128,450
1995 8,046 78,579 88,579 23,294 24,107 102,984 150,385
1996 8,581 87,160 97,160 24,809 27,526 118,291 170,626
1997 10,075 97,235 107,235 29,024 42,085 149,477 220,586
</TABLE>
# From December 1, 1973
The dollar amount of capital gain distributions during the period was $29,988.
EXPERIENCE OF INVESTMENT ADVISER - Capital Research and Management Company
manages nine common stock funds that are at least 10 years old. In the rolling
10-year periods since January 1, 1967 (127 in all), those funds have had better
total returns than the Standard & Poor's 500 Composite Stock Index in 91 of the
127 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."
Moody's supplies numerical indicators 1, 2 and 3 to rating categories. The
modifier 1 indicates that the obligation ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and 3 indicates
a ranking toward the lower end of that generic rating category.
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."
Standard & Poor's applies indicators "+", no character and "-" to its rating
categories. The indicators show relative standing within the major rating
categories.
<PAGE>
<TABLE>
The Income Fund of America
Investment Portfolio July 31, 1997
- ---------------------------------- --- --- ---
Shares or Market Percent
Principal Value of Net
Equity-Type Securities Amount (000) Assets
- ---------------------------------- --- --- ---
<S> <C> <C> <C>
Energy Sources - 9.94%
Atlantic Richfield Co. 6,100,000 456,356 2.43%
Texaco Inc. 2,350,000 272,747 1.45
USX-Marathon Group 8,400,000 270,375 1.44
Amoco Corp. 2,375,000 223,250 1.19
Phillips Petroleum Co. 4,225,000 194,614 1.03
Sun Co., Inc. 2,305,000 82,548
Sun Co., Inc., Series A, $1.80 TARGETS, cumulative preferred 2,495,000 81,867 .88
Occidental Petroleum Corp. 2,000,000 50,125
Occidental Petroleum Corp. $3.875 convertible
preferred (1) 300,000 17,475 .36
Exxon Corp. 1,000,000 64,250 .34
Chevron Corp. 635,000 50,244 .27
Unocal Capital Trust $3.125 convertible preferred 600,000 34,800 .17
Ashland Inc. $3.125 convertible preferred 570,000 30,281 .16
Cyprus Amax Minerals Co. $4.00 convertible preferred,
Series A 465,000 25,807 .14
CalEnergy Capital Trust II 6.25% convertible preferred (1) 270,000 15,525 .08
-------- -----
1,870,264 9.94
-------- -----
Banking - 7.70%
CoreStates Financial Corp 3,810,000 235,029 1.25
Bankers Trust New York Corp. 1,910,200 193,288 1.03
First Chicago NBD Corp. 1,645,000 124,814 .66
J.P. Morgan & Co. Inc. 1,000,000 115,875 .62
Westpac Banking Corp. 14,570,000 95,017 .51
Bank of New York Co., Inc. 1,800,000 87,412 .46
First Union Corp. 800,000 81,150 .43
Commonwealth Bank of Australia 7,650,277 77,198 .41
National Bank of Canada 5,700,000 74,483 .40
PNC Bank Corp. 1,500,000 68,625 .36
Banc One Corp. 1,037,000 58,202 .31
Bank of Nova Scotia 1,200,000 57,495 .31
KeyCorp 900,000 55,969 .30
Fleet Financial Group, Inc. 770,000 52,264 .28
First Security Corp. 1,060,000 28,487 .15
Central Fidelity Banks, Inc. 675,000 26,916 .14
California Federal Bank, FSB 11.50% preferred 100,000 11,275 .06
Banco Nacional de Mexico, SA 11.00% exchangeable notes
2003 (1) $4,175,000 4,488 .02
-------- -----
1,447,987 7.70
-------- -----
Utilities: Electric & Gas - 7.19%
MCN Energy Group Inc. 2,913,000 92,306 .49
DTE Energy Co. 3,050,000 91,309 .48
Union Electric Co. 2,150,000 82,775 .44
National Power PLC 8,855,000 78,589 .42
FPL Group, Inc. 1,500,000 71,812 .38
Carolina Power & Light Co. 2,000,000 71,250 .38
Florida Progress Corp. 2,200,000 70,812 .37
Consolidated Edison Co. of New York, Inc. 2,100,000 66,412 .35
Southern Co. 2,800,000 61,425 .33
Long Island Lighting Co. 2,400,000 58,950 .31
Duke Energy Corp. (formerly Duke Power Co.) 1,150,000 58,291 .31
PECO Energy Co. 2,300,000 54,050 .29
Houston Industries Inc. 2,500,000 52,344 .28
Scottish Power PLC 7,200,000 50,908 .27
Peoples Energy Corp. 1,190,000 45,666 .24
Equitable Resources, Inc. 1,500,000 44,719 .24
Hongkong Electric Holdings Ltd. 10,000,000 40,814 .21
SCANA Corp. 1,415,000 35,375 .19
AGL Resources Inc. 1,525,000 31,930 .17
Wisconsin Energy Corp. 1,150,000 29,397 .16
GPU Inc. 840,400 29,151 .15
Southern Electric PLC 3,692,307 27,076 .14
Puget Sound Energy, Inc. (formerly Puget Sound Power & Light Co.) 900,000 24,019 .13
New Jersey Resources Corp. 750,000 23,719 .13
Brooklyn Union Gas Co. 606,000 18,218 .10
El Paso Natural Gas Co. 190,000 10,984 .06
Citizens Utilities Trust 5.00% EPPICS convertible preferred
2036 250,000 10,859 .06
CIPSCO Inc. 250,000 9,469 .05
Northern States Power Co. 100,000 5,138 .03
Public Service Enterprise Group Inc. 200,000 4,950 .03
-------- -----
1,352,717 7.19
-------- -----
Telecommunications - 5.19%
U S WEST Communications Group 6,200,000 226,688
U S WEST Communications Group 0% convertible debentures
2011 $80,000,000 29,800 1.36
AT&T Corp. 5,550,000 204,309 1.09
Hong Kong Telecommunications Ltd. 64,670,000 168,305 .89
Ameritech Corp. 1,810,400 122,089 .65
Bell Atlantic Corp. 871,700 63,253 .34
British Telecommunications PLC 8,000,000 55,974 .30
NYNEX Corp. 900,000 49,894 .26
SBC Communications Inc. 7.75% DECS exchangeable notes 2001 $463,000 24,365 .13
Telecom Italia SpA, nonconvertible savings shares 5,000,000 17,895 .10
International CableTel Inc. 7.00% convertible debentures
2008 (1) $15,000,000 13,425 .07
Globalstar Telecommunications Ltd. warrants, expire 2004 (1) (2) 5,500 330 .00
Comunicacion Celular SA, Class B, warrants,
expire 2003 (1)(2) 31,000 171 .00
ICG Holdings, Inc. warrants, expire 2005 (1) (2) 19,800 111 .00
NEXTEL Communications, Inc. warrants, expire
1999 (2)(3) 51,912 0 .00
-------- -----
976,609 5.19
-------- -----
Insurance - 4.57%
Lincoln National Corp. 2,540,000 180,657 .96
American General Corp. 2,664,200 141,869 .76
St. Paul Companies, Inc. 1,280,000 100,400
St. Paul Capital LLC 6.00% MIPS convertible
preferred 190,000 13,419 .60
Ohio Casualty Corp. (4) 2,280,000 107,160 .57
Aetna Inc., Class C, 6.25% convertible preferred 700,000 70,525 .38
Italy (Republic of) 5.00% PENs 2001
(exchangeable into INA SpA) $67,000,000 68,139 .36
SAFECO Corp. 1,310,000 62,716 .33
GIO Australia Holdings Ltd. 18,500,500 57,130 .30
U S WEST, Inc. 7.625% DECS exchangeable notes 1998 433,300 18,524 .10
Allstate Corp. 6.76% exchangeable notes 1998 370,000 18,176 .10
Mutual Risk Management Ltd. 0% convertible
debentures 2015 (1) $22,000,000 11,963 .06
CIGNA Corp. 50,000 9,975 .05
-------- -----
860,653 4.57
-------- -----
Health & Personal Care - 2.95%
Bristol-Myers Squibb Co. 2,015,000 158,052 .84
Glaxo Wellcome PLC 6,270,000 132,843 .71
Pharmacia & Upjohn, Inc. 3,100,000 117,025 .62
American Home Products Corp. 900,000 74,194 .40
Eli Lilly and Co. 600,000 67,800 .36
Glycomed Inc. 7.50% convertible debentures 2003 $5,000,000 4,350 .02
-------- -----
554,264 2.95
-------- -----
Automobiles - 2.65%
Chrysler Corp. 8,000,000 297,000 1.58
Ford Motor Co. 3,400,000 138,975 .74
General Motors Corp. 1,000,000 61,875 .33
-------- -----
497,850 2.65
-------- -----
Chemicals - 2.50%
Dow Chemical Co. 1,831,200 173,964 .92
Imperial Chemical Industries PLC (American Depositary Receipts) 1,200,000 80,850 .43
Lyondell Petrochemical Co. 1,700,000 44,731 .24
Witco Corp. 975,000 44,484 .24
E.I. du Pont de Nemours and Co. 500,000 33,469 .18
Ethyl Corp. 3,500,000 31,719 .17
Eastman Chemical Co. 450,000 27,225 .14
ICI Australia Ltd. 2,108,000 21,227 .11
Atlantic Richfield Co. DECS convertible
preferred 500,000 12,312 .07
Sterling Chemicals Holdings, Inc. warrants,
expire 2008 (2) 4,000 140 .00
-------- -----
470,121 2.50
-------- -----
Beverages & Tobacco - 2.38%
Philip Morris Companies Inc. 4,200,000 189,525 1.01
RJR Nabisco Holdings Corp. 4,400,000 144,375 .77
Southcorp Holdings Ltd. 20,145,000 73,027 .39
UST Inc. 1,400,000 40,687 .21
-------- -----
447,614 2.38
-------- -----
Merchandising - 2.28%
J.C. Penney Co., Inc. 5,200,000 304,200 1.62
Giant Food Inc., Class A 2,340,000 78,536 .42
Staples, Inc. 4.50% convertible debentures 2000 (1) $17,000,000 21,420 .11
Home Shopping Network, Inc. 5.875% convertible
debentures 2006 (1) $10,000,000 13,950 .07
Kmart Financing I Trust 7.75% convertible preferred 190,000 10,355 .06
-------- -----
428,461 2.28
-------- -----
Forest Products & Paper - 2.27%
Weyerhaeuser Co. 2,305,000 143,486 .76
Union Camp Corp. 1,810,000 105,998 .56
James River Corp. of Virginia 550,000 22,653
James River Corp. of Virginia $1.55 DECS convertible
preferred 1998 1,665,000 63,062 .46
UPM-Kymmene Corp. 2,000,000 48,584 .26
Sonoco Products Co. $2.25 convertible preferred 345,000 23,719 .12
Stora Kopparbergs Bergslags AB, Class B 1,250,000 20,488 .11
-------- -----
427,990 2.27
-------- -----
Business & Public Services - 1.86%
United Utilities PLC 5,150,000 59,605 .32
Moore Corp. Ltd. 1,900,000 41,206 .22
Browning-Ferris Industries, Inc. 100,000 3,700
Browning-Ferris Industries, Inc. 7.25% ACES convertible
preferred 1998 1,000,000 34,125 .20
Alexander & Baldwin, Inc. 1,267,500 34,222 .18
Thames Water PLC 2,500,000 32,974 .18
Tenet Healthcare Corp. 6.00% exchangeable notes 2005 $25,000,000 30,813 .16
Cognizant Corp. 500,000 21,312 .11
IKON Office Solutions Inc. 202,000 5,896
IKON Office Solutions Inc. $5.04 ACES convertible preferred 1998 200,000 14,750 .11
Ceridian Corp. (2) 374,000 16,362 .09
Vivra Inc. 5.00% convertible debentures 2001 (1) $15,000,000 14,963 .08
Omnicom Group Inc. 4.25% convertible
debentures 2007 (1) $11,000,000 13,929 .08
Integrated Health Services, Inc. 6.00%
convertible debentures 2003 $10,500,000 11,918 .06
PacifiCare Health Systems, Inc., Series A, $1.00
convertible preferred 392,500 11,039 .06
Unisource Worldwide, Inc. 100,000 1,862 .01
Protection One Alarm Monitoring, Inc.
warrants, expire 2005 (1)(2) 57,600 691 .00
-------- -----
349,367 1.86
-------- -----
Broadcasting & Publishing - 1.57%
Time Warner Inc., Series M, 10.25% exchangeable preferred 38,787 43,926
Time Warner Financing Trust 4.00% PERCS 1997 400,000 18,150
Time Warner Inc. 0% convertible debentures 2012 $25,000,000 9,813
Time Warner Inc. 0% convertible debentures 2013 $65,000,000 31,281 .55
Houston Industries Inc. 7.00% ACES 2000 1,780,000 95,452 .51
Comcast Corp. 1.125% convertible debentures 2007 $54,000,000 31,995 .17
Cablevision Systems Corp., Series I, $2.125 cumulative convertible
exchangeable preferred 660,000 19,140 .10
Reader's Digest Assn., Inc., Class A 680,000 16,958 .09
Tele-Communications International 4.50% convertible
debentures 2006 $15,000,000 12,338 .07
U S WEST Communications, Inc., Series D, 4.50%
convertible preferred 225,000 11,756 .06
Seat SpA (2) 4,000,000 1,428
Seat SpA, nonconvertible savings shares (2) 5,000,000 1,168 .02
Heartland Wireless Communications, Inc. warrants, expire
2000 (1)(2)(3) 18,000 0 .00
-------- -----
293,405 1.57
-------- -----
Miscellaneous Materials & Commodities - 0.82%
English China Clays PLC (4) 19,933,300 71,124 .38
Crown Cork & Seal Co., Inc. 4.50% convertible preferred 1,005,000 48,868 .26
Cooper Industries, Inc. 6.00% DECS convertible preferred 1999 1,500,000 34,500 .18
-------- -----
154,492 .82
-------- -----
Multi-Industry - 0.77%
Tenneco Inc. 1,672,100 77,962 .41
Imasco Ltd. 1,820,000 53,774 .29
Swire Pacific Capital Limited 8.84% cumulative
guaranteed perpetual capital securities (1) 340,000 9,323
Swire Pacific Offshore Financing Ltd. 9.33% cumulative
guaranteed perpetual capital securities (1) 140,000 3,948 .07
-------- -----
145,007 .77
-------- -----
Food & Household Products - 0.61%
General Mills, Inc. 1,675,000 115,784 .61
-------- -----
Real Estate - 0.58%
Security Capital Pacific Trust 1,830,000 41,861
Security Capital Group (1)(2)(3) 18,680 23,835
Security Capital Group 12.00% convertible debentures
2014 (1)(3) $14,150,100 17,260 .44
Weingarten Realty Investors 485,000 21,158 .11
New Plan Realty Trust 7.80%
cumulative step-up premium rate 112,500 5,892 .03
-------- -----
110,006 .58
-------- -----
Leisure & Tourism - 0.52%
Host Marriott Financial Trust 6.75% QUIPS convertible
preferred 2026 800,000 50,400 .27
Wendy's Financing I 5.00% TECONS convertible preferred 2026 350,000 20,256 .11
Compass Group PLC 5.75% convertible debentures 2007 $12,000,000 19,194 .10
Station Casinos, Inc. 7.00% convertible preferred 180,000 7,560 .04
-------- -----
97,410 .52
-------- -----
Financial Services - 0.50%
Beneficial Corp. 1,200,000 87,000 .46
United Companies Financial Corp. 6.75% PRIDES
convertible preferred 2000 159,000 7,870 .04
-------- -----
94,870 .50
-------- -----
Metals: Nonferrous - 0.49%
Freeport McMoRan Copper & Gold Inc., Class A 900,000 24,525
Freeport McMoRan Copper & Gold Inc., Class B 300,000 8,775
Freeport McMoRan Copper & Gold Inc., Series A, $1.75 convertible
preferred 1,400,000 38,238 .38
Inco Ltd. 5.75% convertible debentures 2004 $17,250,000 20,937 .11
-------- -----
92,475 .49
-------- -----
Metals: Steel - 0.29%
Carpenter Technology Corp. 500,000 23,750 .13
USX Corp. 5.75% convertible debentures 2001 $21,000,000 20,370 .11
Bethlehem Steel Corp. $3.50 convertible preferred (1) 250,000 10,313 .05
-------- -----
54,433 .29
-------- -----
Electronic Components & Instruments - 0.27%
EMC Corp. 3.25% convertible subordinated notes 2002 (1) $20,000,000 25,700 .14
National Semiconductor Corp. 6.50% convertible
debentures 2002 (1) $15,000,000 15,844 .08
Maxtor Corp. 5.75% convertible debentures 2012 $7,500,000 5,250 .03
VLSI Technology, Inc. 8.25% convertible debentures 2005 $4,500,000 4,596 .02
-------- -----
51,390 .27
-------- -----
Recreation & Other Consumer Products - 0.21%
Jostens, Inc. 1,580,000 40,784 .21
-------- -----
Electrical & Electronics - 0.19%
Premier Farnell PLC $1.35 convertible preferred
(American Depositary Receipts) 1,570,000 35,914 .19
-------- -----
Energy Equipment - 0.18%
Cooper Industries, Inc. 600,000 33,337 .18
-------- -----
Industrial Components - 0.17%
Dana Corp. 700,000 31,806 .17
-------- -----
Machinery & Engineering - 0.13%
Thermo Electron Corp. 4.25% convertible debentures 2003 (1) $23,000,000 25,070 .13
-------- -----
Data Processing & Reproduction - 0.10%
Wang Laboratories, Inc., Series B, 6.50% convertible preferred
depositary shares (1) 170,000 8,309 .05
AST Research, Inc. 0% convertible debentures 2013 $15,000,000 6,150 .03
Data General Corp. 7.75% convertible debentures 2001 $2,210,000 3,426 .02
-------- -----
17,885 .10
-------- -----
MISCELLANEOUS: Equity-type securities
in initial period of acquisition 610,206 3.24
-------- -----
TOTAL EQUITY-TYPE SECURITIES (cost: $8,691,114,000) 11,688,171 62.12
-------- -----
- ---------------------------------- ---
Principal
Bonds & Notes Amount
(000)
- ---------------------------------- ---
Broadcasting, Advertising & Publishing - 2.74%
Time Warner Inc. 7.45% 1998 $ 10,000 10,057
Time Warner Inc., Pass-Through Asset Trust, 1997-2, 4.90%
1999 (1) (5) 10,000 9,744
Time Warner Inc., Pass-Through Asset Trust, 1997-1, 6.10%
2001 (1)(5) 12,000 11,721
Time Warner Inc. 7.75% 2005 5,000 5,259
Time Warner Inc. 10.15% 2012 7,000 8,866
Time Warner Inc. 9.125% 2013 20,000 23,272 .36
International CableTel Inc. 0%/10.875% 2003 (6) 20,075 17,867
International CableTel Inc. 0%/12.75% 2005 (6) 22,000 17,160
NTL Inc., Series B, 10.00% 2007 10,000 10,275 .24
Chancellor Broadcasting Co. 9.375% 2004 28,000 29,330
Chancellor Broadcasting Co. 8.75% 2007 9,500 9,761 .20
Bell Cablemedia PLC 0%/11.95% 2004 (6) 39,750 35,974 .19
Videotron Holdings PLC 0%/11.125% 2004 (6) 37,500 34,453 .18
TKR Cable I, Inc. 10.50% 2007 30,000 33,259 .18
Comcast Cable Communications, Inc. 8.125% 2004 (1) 5,000 5,387
Comcast Cable Communications, Inc. 8.375% 2007 (1) 17,000 18,753
Comcast Cable Communications, Inc. 8.875% 2017 (1) 3,000 3,489 .15
TeleWest PLC 9.625% 2006 5,000 5,275
TeleWest PLC 0%/11.00% 2007 (6) 24,500 18,253 .13
American Media Operations, Inc. 11.625% 2004 16,000 17,600 .09
Viacom International Inc. 9.125% 1999 4,000 4,095
Viacom International Inc. 10.25% 2001 9,500 10,403 .08
Tele-Communications, Inc. 10.125% 2001 5,000 5,553
Tele-Communications, Inc. 9.25% 2023 8,000 8,606 .08
Comcast UK Cable Partners Ltd. 0%/11.20% 2007 (6) 18,500 14,153 .08
Comcast Corp. 10.25% 2001 12,600 13,923 .07
News America Holdings Inc. 10.125% 2012 5,000 5,957
News America Holdings Inc. 7.43% 2026 7,500 7,868 .07
Radio One, Inc. 12.00% 2004 (1) 13,750 12,839 .07
American Radio Systems Corp. 9.75% 2005 5,500 5,995
American Radio Systems Corp. 9.00% 2006 6,500 6,792 .07
Grupo Televisa, SA, Series A, 11.375% 2003 3,750 4,177
Grupo Televisa, SA 11.875% 2006 2,500 2,888
Grupo Televisa, SA 0%/13.25% 2008 (6) 7,250 5,320 .07
Cablevision Systems Corp. 9.875% 2013 11,500 12,132 .06
Sun Media Corp. 9.50% 2007 (1) 9,500 9,761
Sun Media Corp. 9.50% 2007 (1) 500 516 .05
Multicanal Participacoes SA, Series B, 12.625% 2004 8,750 9,986 .05
STC Broadcasting, Inc. 11.00% 2007 (1) 7,500 8,119 .04
RBS Participacoes SA, 11.00% 2007 (1) 7,250 7,649 .04
Summit Communications Group, Inc. 10.50% 2005 6,655 7,204 .04
TV Azteca SA de CV 10.125% 2004 5,545 5,864 .03
Young Broadcasting Inc. 11.75% 2004 1,000 1,123
Young Broadcasting Inc. 10.125% 2005 3,750 3,984 .03
Century Communications Corp. 9.75% 2002 4,500 4,747 .03
Rogers Communications Inc. 10.875% 2004 3,500 3,666 .02
Adelphia Communications Corp. 10.50% 2004 (1) 3,000 3,191 .02
Continental Cablevision, Inc. 8.50% 2001 2,000 2,147 .01
Heartland Wireless Communications, Inc. 13.00% 2003 3,000 990 .01
-------- -----
515,403 2.74
-------- -----
Telecommunications - 1.72%
MFS Communications Co., Inc. 9.375% 2004 56,915 61,841
MFS Communications Co., Inc. 8.875% 2006 19,555 21,324 .44
Orion Network Systems, Inc. 11.25% 2007 61,500 64,575 .34
TCI Communications, Inc. 9.875% 1998 7,100 7,264
TCI Communications, Inc. 8.00% 2005 5,000 5,254
TCI Communications, Inc. 9.80% 2012 12,500 15,063
TCI Communications, Inc. 8.75% 2015 6,500 7,202
TCI Communications, Inc. 8.75% 2023 8,000 8,278 .23
Omnipoint Corp. 11.625% 2006 35,800 34,636 .18
U S WEST Capital Funding, Inc. 6.85% 2002 7,000 7,131
U S WEST Capital Funding, Inc. 6.95% 2037 19,500 20,127 .15
Mobile Telecommunication Technologies Corp. 13.50% 2002 19,875 21,664 .12
Qwest Communications International Inc. 10.875% 2007 (1) 12,000 13,320 .07
Comtel Brasileira Ltda. 10.75% 2004 (1) 9,200 9,959 .05
Teleport Communications Group Inc. 9.875% 2006 7,500 8,194 .04
Globalstar, LP 11.375% 2004 (1) 5,500 5,253 .03
Iridium LLC Units 13.00% 2005 (1) 4,000 4,040 .02
COLT Telecom Group PLC Units 0%/12.00% 2006 (6) 5,000 3,325 .02
Telecom Argentina STET-France Telecom SA 12.00% 2002 2,500 2,965 .02
Brooks Fiber Properties, Inc. 0%/10.875% 2006 (6) 3,500 2,590 .01
-------- -----
324,005 1.72
-------- -----
Wireless Communications - 1.61%
NEXTEL Communications, Inc. 0%/11.50% 2003 (6) 18,000 16,560
NEXTEL Communications, Inc. 0%/9.75% 2004 (6) 22,000 18,040
NEXTEL Communications, Inc. 0%/10.125% 2004 (formerly
CenCall Communications Corp.) (6) 35,000 29,575
NEXTEL Communications, Inc. 0%/12.25% 2004 (formerly Dial
Call Communications Corp.) (6) 12,000 10,500 .41
Comcast Cellular Corp. 9.50% 2007 (1) 37,000 38,573 .20
PriCellular Wireless Corp. 0%/14.00% 2001 (6) 12,000 12,930
PriCellular Wireless Corp. 0%/12.25% 2003 (6) 14,550 14,077
PriCellular Wireless Corp. 10.75% 2004 7,500 7,950 .18
Centennial Cellular Corp. 8.875% 2001 26,000 26,260
Centennial Cellular Corp. 10.125% 2005 3,000 3,195 .16
Comunicacion Celular SA 0%/13.125% 2003 (6) 31,000 23,715 .13
Cellular Communications International, Inc.,
units consisting of notes and warrants, 0% 2000 24,500 18,988
Cellular Communications International, Inc. 0% 2000 1,000 768 .10
Cellular, Inc. 0%/11.75% 2003 (6) 18,000 17,415 .09
McCaw International, Ltd. Units 0%/13.00% 2007 (1) (6) 31,500 17,325 .09
Cellular Communications of Puerto Rico, Inc. 10.00% 2007 (1) 14,000 14,210 .07
InterCel, Inc. 0%/12.00% 2006 (6) 6,000 3,930
InterCel, Inc. 11.125% 2007 (1) 6,250 6,438 .05
Sprint Spectrum LP, Sprint Spectrum Finance Corp. 11.00% 2006 6,000 6,735 .04
Geotek Communications, Inc., Series B, 0%/15.00% 2005 (6) 8,000 5,000 .03
Commnet Cellular Inc. 11.25% 2005 3,000 3,457 .02
Rogers Cantel Inc. 9.375% 2008 3,000 3,255 .02
Vanguard Cellular Systems, Inc. 9.375% 2006 3,000 3,120 .02
-------- -----
302,016 1.61
-------- -----
Transportation - 1.32%
USAir, Inc., Series 1993-A1, 8.625% 1998 5,000 5,069
USAir, Inc. 9.625% 2001 19,679 20,466
USAir, Inc. 10.00% 2003 8,250 8,498
USAir, Inc., enhanced equipment notes, Class C, 8.93%
2008 7,697 8,656
USAir, Inc., pass-through trust, Series 1993-A3, 10.375%
2013 (5) 19,495 21,639 .34
Jet Equipment Trust, Series 1994-A, Class B1, 10.91%
2006 (1) 6,806 8,019
Jet Equipment Trust, Series 1995-B, Certificates,
10.91% 2014 (1) 4,750 5,980
Jet Equipment Trust, Series 1995-B, Class A, 7.63%
2015 (1) 13,907 14,702
Jet Equipment Trust, Series 1995-A, Class B, 8.64%
2015 (1) 14,430 16,205
Jet Equipment Trust, Series 1995-B, Class C, 9.71%
2015 (1) 5,500 6,633
Jet Equipment Trust, Series 1995-A, Class C, 10.69%
2015 (1) 5,000 6,408 .31
Continental Airlines, Inc. 9.50% 2001 16,750 17,839
Continental Airlines, Inc., pass-through certificates,
Series 1996-A, 6.94% 2015 (5) 8,824 8,930
Continental Airlines, Inc., pass-through certificates,
Series 1996-C, 9.50% 2015 (5) 12,745 14,773 .22
Airplanes Pass Through Trust, pass-through certificates,
Series 1, Class B, 6.780% 2019 (5)(7) 7,105 7,132
Airplanes Pass Through Trust, pass-through certificates,
Series 1, Class C, 8.15% 2019 (5) 15,000 15,870
Airplanes Pass Through Trust, pass-through certificates,
Series 1, Class D, 10.875% 2019 (5) 4,300 5,031 .15
United Air Lines, Inc. 9.00% 2003 8,000 8,948
United Air Lines, Inc., pass-through certificates,
Series 1996-A2, 7.87% 2019 (5) 5,000 5,140 .07
Delta Air Lines, Inc. 9.875% 1998 6,750 6,854
Delta Air Lines, Inc., pass-through certificates,
Series 1992-A2, 9.20% 2014 (5) 5,000 5,839 .07
Northwest Airlines, Inc. 8.375% 2004 3,000 3,103
Northwest Airlines, Inc. 8.70% 2007 3,000 3,136
NWA Trust No. 2, Class D, 13.875% 2008 5,000 5,975 .07
Teekay Shipping Corp. 8.32% 2008 10,820 10,982 .06
MC-Cuernavaca Trust 9.25% 2001 (1) 6,721 6,385 .03
-------- -----
248,212 1.32
-------- -----
Energy Sources and Energy Equipment & Services - 1.30%
California Energy Co., Inc. 9.875% 2003 5,000 5,459
California Energy Co., Inc. 10.25% 2004 47,300 51,542 .30
Oryx Energy Co. 9.50% 1999 20,500 21,665
Oryx Energy Co. 8.375% 2004 12,500 13,367
Oryx Energy Co. 8.125% 2005 3,500 3,683 .21
J. Ray McDermott, SA 9.375% 2006 18,500 19,286 .10
Cliffs Drilling Co., Series B, 10.25% 2003 14,250 15,532 .08
Global Marine, Inc. 12.75% 1999 13,500 14,175 .07
Falcon Drilling Co., Inc., Series B, 9.75% 2001 6,000 6,345
Falcon Drilling Co., Inc., Series B, 8.875% 2003 7,000 7,438 .07
Ocean Energy, Inc. 8.875% 2007 (1) 11,250 11,503 .06
Petro Stopping Centers, LP 10.50% 2007 (1) 10,500 10,946 .06
Mariner Energy, Inc. 10.50% 2006 8,250 8,621 .05
OXYMAR 7.50% 2016 (1) 8,000 8,040 .04
Forcenergy Inc 9.50% 2006 7,400 7,751 .04
Lomak Petroleum, Inc. 8.75% 2007 7,000 7,000 .04
Mesa Operating Co. 10.625% 2006 6,000 6,885 .04
Kelley Oil & Gas Corp. 10.375% 2006 6,000 6,315 .03
Parker & Parsley Petroleum Co. 8.25% 2007 5,000 5,485 .03
Dual Drilling Co. 9.875% 2004 3,500 3,771 .02
Abraxas Petroleum Corp. 11.50% 2004 3,000 3,285 .02
Petrozuata Finance Inc. 7.63% 2009 (1) 3,000 3,130 .02
Petroleo Brasileiro SA-PETROBRAS 10.40% Eurobonds 1998 (7) 2,500 2,569 .01
Chesapeake Energy Corp. 10.50% 2002 900 958 .01
-------- -----
244,751 1.30
-------- -----
Business & Public Services - 1.07%
Integrated Health Services, Inc. 10.75% 2006 (1) 16,900 18,294
Integrated Health Services, Inc. 9.50% 2007 (1) 9,250 9,805 .15
Paracelsus Healthcare Corp. 10.00% 2006 27,000 27,270 .14
Federal Express Corp., Series B, 10.00% 1998 4,000 4,165
Federal Express Corp. 9.875% 2002 7,000 7,944
Federal Express Corp., pass-through
certificates, Series 1994-A310, Class A1, 7.53% 2006 (5) 11,439 11,851 .12
Protection One Alarm Monitoring, Inc.
0%/13.625% 2005 (6) 18,000 19,710 .10
Vencor, Inc. 8.625% 2007 (1) 19,250 19,683 .10
Sun Healthcare Group, Inc. 9.50% 2007 (1) 19,000 19,570 .10
Allied Waste North America, Inc. 10.25% 2006 (1) 17,000 18,615 .10
Mariner Health Group, Inc. 9.50% 2006 12,750 13,451 .07
Borg-Warner Security Corp. 9.625% 2007 (1) 9,000 9,315 .05
Regency Health Services, Inc. 12.25% 2003 6,750 7,661 .04
Merit Behavioral Care Corp. 11.50% 2005 6,750 7,425 .04
Tenet Healthcare Corp. 8.00% 2005 7,000 7,245 .04
Unison Health 13.00% 2006 (1) 4,000 3,380 .02
-------- -----
205,384 1.07
-------- -----
Banking & Insurance - 0.74%
Capital One Capital I 7.15% 2006 10,000 10,186
Capital One Capital I 7.409% 2027 (1)(7) 13,500 12,879 .12
First Nationwide Holdings Inc. 10.625% 2003 9,250 10,244
First Nationwide Holdings Inc. 12.50% 2003 9,500 10,806 .11
Chase Capital II Global Floating Rate Capital 6.359% 2027 (7) 15,000 14,670 .08
Aetna Services, Inc. 6.97% 2036 12,000 12,526 .07
BTC Capital Trust I 6.531% 2026 (7) 12,500 12,444 .07
Integon Capital I 10.75% 2027 9,000 11,002 .06
Riggs Capital Trust II 8.875% 2027 10,000 10,705 .06
Advanta Corp. 6.60% 2000 4,000 3,953
Advanta National Bank 6.45% 2000 5,000 4,897 .05
Midland American Capital Corp. 12.75% 2003 6,000 6,479 .03
First Union Corp. 6.824%/7.574% 2026 (6) 5,000 5,156 .03
Dime Bancorp, Inc. 10.50% 2005 4,000 4,350 .02
Chevy Chase Savings Bank, FSB 9.25% 2005 4,000 4,030 .02
Coast Federal Bank 13.00% 2002 3,500 3,789 .02
Banco General SA 7.70% 2002 (1) 500 502 .00
-------- -----
138,618 .74
-------- -----
Leisure & Tourism - 0.60%
Rio Hotel & Casino, Inc. 10.625% 2005 2,000 2,180
Rio Hotel & Casino, Inc. 9.50% 2007 19,750 20,738 .12
Station Casinos, Inc., Series A, 9.625% 2003 11,150 10,983
Station Casinos, Inc., Series B, 9.625% 2003 10,500 10,395 .11
HMH Properties, Inc. 8.875% 2007 (1) 19,000 19,712 .10
Boyd Gaming Corp. 9.25% 2003 12,000 12,390
Boyd Gaming Corp. 9.50% 2007 (1) 3,000 3,030 .09
Foodmaker, Inc. 9.25% 1999 5,000 5,125
Foodmaker, Inc. 9.75% 2002 9,300 9,579 .08
KSL Recreation Group Inc. 10.25% 2007 (1) 9,000 9,540 .05
Mirage Resorts, Inc. 7.25% 2006 5,000 5,099 .03
California Hotel Finance Corp. 11.00% 2002 4,000 4,240 .02
-------- -----
113,011 .60
-------- -----
Utilities: Electric & Gas - 0.50%
Long Island Lighting Co. 7.30% 1999 18,990 19,295
Long Island Lighting Co. 7.50% 2007 15,000 15,452
Long Island Lighting Co. 7.90% 2008 20,000 20,507
Long Island Lighting Co. 8.90% 2019 5,000 5,410
Long Island Lighting Co. 9.00% 2022 17,000 19,199 .41
Colorado Interstate Gas Co. 6.85% 2037 5,000 5,132 .03
Bridas Corp. 12.50% 1999 4,500 5,012 .03
SFP Pipeline Holdings, Inc. 11.16% 2010 3,000 3,769 .02
CMS Energy Corp., Series A, 9.50% 1997 3,000 3,045 .02
-------- -----
96,821 .51
-------- -----
Forest Products & Paper - 0.51%
Container Corp. of America, Series B, 10.75% 2002 1,000 1,109
Container Corp. of America 9.75% 2003 44,550 48,114
Container Corp. of America, Series A, 11.25% 2004 14,000 15,523 .34
Copamex Industrias, SA de CV 11.375% 2004 (1) 16,200 18,023 .10
Grupo Industrial Durango, SA de CV 12.00% 2001 6,000 6,675
Grupo Industrial Durango, SA de CV 12.625% 2003 3,500 4,016 .06
Pacific Lumber Co. 10.50% 2003 1,500 1,564 .01
-------- -----
95,024 .51
-------- -----
Metals: Steel & Nonferrous - 0.47%
Kaiser Aluminum & Chemical Corp. 9.875% 2002 9,000 9,360
Kaiser Aluminum & Chemical Corp. 12.75% 2003 8,000 8,720
Kaiser Aluminum & Chemical Corp., Series B, 10.875% 2006 23,000 24,898
Kaiser Aluminum & Chemical Corp. 10.875% 2006 6,500 7,053 .27
Acme Metals Inc. 12.50% 2002 3,000 3,300
Acme Metals Inc. 0%/13.50% 2004 (6) 10,500 11,865 .08
Inco Ltd. 9.875% 2019 6,500 7,043
Inco Ltd. 9.60% 2022 2,625 2,998 .05
Altos Hornos de Mexico 11.375% 2002 (1) 3,000 3,218
Altos Hornos de Mexico 11.875% 2004 (1) 2,000 2,180 .03
UCAR Global Enterprises Inc. 12.00% 2005 4,250 4,861 .02
AK Steel Corp. 10.75% 2004 2,750 2,997 .02
-------- -----
88,493 .47
-------- -----
General Retailing & Merchandising - 0.38%
Barnes & Noble, Inc., Series B, 11.875% 2003 22,500 24,356 .13
Woolworth Corp., Series A, 7.00% 2002 7,800 7,892
Woolworth Corp. 8.50% 2022 4,000 4,454 .07
LifeStyle Furnishings International Ltd. 10.875% 2006 11,025 12,293 .07
May Department Stores Co. 8.375% 2024 10,000 10,904 .06
Dayton Hudson Corp. 9.50% 2015 5,000 6,153 .03
Loehmann's, Inc. 11.875% 2003 2,500 2,500 .01
AnnTaylor, Inc. 8.75% 2000 2,250 2,267 .01
-------- -----
70,819 .38
-------- -----
Food Retailing, Food Products & Beverages - 0.38%
Canandaigua Wine Co., Inc. 8.75% 2003 17,500 17,675
Canandaigua Wine Co., Inc., Series C, 8.75% 2003 3,500 3,544 .11
Stater Brothers Holdings Inc. 11.00% 2001 16,000 17,640 .09
Bruno's, Inc. 10.50% 2005 11,000 11,234 .06
Dr Pepper Bottling Co. of Texas 10.25% 2000 6,500 6,727 .04
Carr-Gottstein Foods Co. 12.00% 2005 5,000 5,575 .03
Allied Supermarkets Inc. (Vons) 6.625% 1998 4,465 4,432 .03
Quality Food Centers, Inc. 8.70% 2007 (1) 2,000 2,060 .01
Star Markets Co., Inc. 13.00% 2004 1,500 1,710 .01
-------- -----
70,597 .38
-------- -----
Real Estate - 0.33%
B.F. Saul Real Estate Investment Trust 11.625% 2002 23,000 24,610 .13
ERP Operating LP 7.95% 2002 3,750 3,948
ERP Operating LP 7.57% 2026 7,500 7,972 .07
Irvine Co., Series A, 7.46% 2006 (1)(3) 10,000 9,962 .05
Beverly Finance Corp. 8.36% 2004 (1) 5,000 5,344 .03
Shopping Center Associates 6.75% 2004 (1) 5,000 5,006 .03
Security Capital Industrial Trust 7.95% 2008 4,000 4,305 .02
-------- -----
61,147 .33
-------- -----
Chemicals - 0.32%
Millennium America Inc. 7.00% 2006 16,000 16,092 .09
Polymer Group, Inc. 9.00% 2007 (1) 12,500 12,875 .07
Sterling Chemicals Holdings, Inc. 11.75% 2006 7,750 8,467
Sterling Chemicals Holdings, Inc. 0%/13.50% 2008 (6) 4,000 2,740 .06
Texas Petrochemicals Corp. 11.125% 2006 10,500 11,182 .06
Huntsman Co. 9.094% 2007 (1) (7) 8,000 8,280 .04
-------- -----
59,636 .32
-------- -----
Data Processing & Reproduction - 0.18%
Digital Equipment Corp. 8.625% 2012 16,000 16,853 .09
Unisys Corp. 12.00% 2003 12,000 13,260
Unisys Corp. 11.75% 2004 2,000 2,205 .08
Apple Computer, Inc. 6.50% 2004 2,920 2,438 .01
-------- -----
34,756 .18
-------- -----
Recreation, Other Consumer Products - 0.17%
Mattel, Inc. 10.125% 2002 18,700 19,448 .10
AMF Group Inc. 0%/12.25% 2006 (6) 10,000 7,225
AMF Group Inc. 10.875% 2006 5,000 5,463 .07
-------- -----
32,136 .17
-------- -----
Financial Services - 0.17%
Ford Capital BV 10.125% 2000 5,500 6,116 .03
Caterpillar Inc. 8.01% 2002 5,000 5,326 .03
Wilshire Financial Services Group Inc. 13.00% 2004 5,000 5,062 .03
DVI, Inc. 9.875% 2004 5,000 5,025 .03
General Electric Capital Corp. 8.875% 2009 4,000 4,748 .02
General Motors Acceptance Corp. 7.00% 2000 3,000 3,059 .02
Indah Kiat Finance Mauritius Ltd. 10.00% 2007 (1) 2,250 2,244 .01
-------- -----
31,580 .17
-------- -----
Electronic Components - 0.16%
Hyundai Semiconductor America, Inc. 8.25% 2004 (1) 5,000 5,191
Hyundai Semiconductor America, Inc. 8.625% 2007 (1) 22,500 23,715 .16
-------- -----
28,906 .16
-------- -----
Health & Personal Care - 0.09%
Allegiance Corp. 7.00% 2026 9,000 9,218 .05
Revlon Worldwide Corp. 0% 2001 (1) 11,450 8,187 .04
-------- -----
17,405 .09
-------- -----
Construction & Building Materials - 0.09%
M.D.C. Holdings, Inc. 11.125% 2003 9,050 9,887 .06
Nortek, Inc. 9.25% 2007 3,825 3,873 .02
Johns Manville International Group 10.875% 2004 2,000 2,242 .01
-------- -----
16,002 .09
-------- -----
Aerospace, Automotive Parts and Machinery - 0.05%
Newport News Shipbuilding Inc. 9.25% 2006 9,000 9,450 .05
-------- -----
Appliances & Household Durables - 0.04%
Philips Electronics NV 7.20% 2026 6,000 6,223 .03
The Knoll Group, Inc. 10.875% 2006 649 719 .01
-------- -----
6,942 .04
-------- -----
Miscellaneous - 0.72%
Freeport McMoRan Copper & Gold Inc. 7.50% 2006 10,000 10,258
Freeport McMoRan Copper & Gold Inc. 7.20% 2026 16,000 16,196 .14
Pan Pacific Industrial Investments PLC 0% 2007 (1) 33,500 15,955 .09
Anchor Glass Container Corp. 11.25% 2005 (1) 12,750 13,674 .07
Hutchison Whampoa Finance Ltd. 6.988% 2037 (1) 12,500 12,690 .07
Owens-Illinois, Inc. 7.85% 2004 6,000 6,252
Owens-Illinois, Inc. 8.10% 2007 5,750 6,061 .06
Newsquest Capital PLC, Series B, 11.00% 2006 2,000 2,185
Newsquest Capital PLC 11.00% 2006 8,500 9,286 .06
Reliance Industries Ltd. 8.25% 2027 (1) 10,000 10,438 .06
Consumers International Inc. 10.25% 2005 (1) 7,000 7,560 .04
Printpack, Inc. 10.625% 2006 7,000 7,542 .04
Innova, S. de R.L. 12.875% 2007 (1) 5,000 5,300 .03
U.S. Can Corp. 10.125% 2006 4,000 4,220 .02
WestPoint Stevens Inc. 8.75% 2001 4,000 4,150 .02
Tenneco Inc. 8.075% 2002 2,000 2,142 .01
DGS International Finance Co. BV 10.00% 2007 (1) 1,250 1,298 .01
-------- -----
135,207 .72
-------- -----
Collateralized Mortgage/Asset-Backed Obligations (5)
(excluding those issued by federal agencies) - 1.53%
UCFC Acceptance Corp., home-equity loan pass-through
certificates, Series 1996-B1, Class A-2, 7.075% 2010 15,000 15,140
UCFC Acceptance Corp., home-equity loan pass-through
certificates, Series 1996-D1, Class A-2, 6.381% 2011 25,700 25,746
UCFC Acceptance Corp., home-equity loan pass-through
certificates, Series 1996-D1, Class A-4, 6.776% 2016 8,000 8,060
UCFC Acceptance Corp., home-equity loan pass-through
certificates, Series 1995-B1, Class A-3, 6.75% 2017 10,965 11,054 .32
Collateralized Mortgage Obligation Trust, Series 63,
Class Z, 9.00% 2020 53,811 58,923 .31
Green Tree Financial Corp., Net Interest Margin Trust,
Series 1994-A, 6.90% 2004 4,123 4,141
Green Tree Financial Corp., Net Interest Margin Trust,
Series 1995-A, 7.25% 2005 2,437 2,446
Green Tree Financial Corp., Seller and Servicer
Manufactured Housing Contract, Series 1993-2, Class B,
8.00% 2018 14,000 14,757
Green Tree Financial Corp., Seller and Servicer
Manufactured Housing Contract, Series 1995-1, Class A-3,
7.95% 2025 4,834 4,867
Green Tree Financial Corp., Seller and Servicer
Manufactured Housing Contract, Series 1995-9, Class A-5,
6.80% 2027 4,000 4,074
Green Tree Financial Corp., Seller and Servicer
Manufactured Housing Contract, Series 1996-10, Class A-6,
7.30% 2028 3,000 3,064 .18
Resolution Trust Corp., Series 1992-CHF, Class E,
8.25% 2020 10,666 10,769
Resolution Trust Corp., Series 1993-C1, Class D,
9.45% 2024 6,143 6,203
Resolution Trust Corp., Series 1993-C1, Class E,
9.50% 2024 1,147 1,155
Resolution Trust Corp., Series 1993-C2, Class C,
8.00% 2025 3,000 3,034
Resolution Trust Corp., Series 1993-C2, Class D,
8.50% 2025 3,290 3,335
Resolution Trust Corp., Series 1993-C2, Class E,
8.50% 2025 134 134 .14
FIRSTPLUS Home Loan Owner Trust 1996-4, Class A-2, 6.14% 2006 10,240 10,234
FIRSTPLUS Home Loan Owner Trust 1996-4, Class A-3, 6.28% 2009 4,000 3,998
FIRSTPLUS Home Loan Owner Trust 1997-1 Class A-6, 6.95% 2015 10,000 10,138 .12
Merrill Lynch Mortgage Investors, Inc., Seller
Manufactured Housing Contract, Series 1992-B, Class A2,
8.05% 2012 62 62
Merrill Lynch Mortgage Investors, Inc., Seller
Manufactured Housing Contract, Series 1995-C2,
Class A-1, 7.383% 2021 (7) 15,911 16,216
Merrill Lynch Mortgage Investors, Inc., mortgage pass-through
certificates, Series 1996-C2, Class A-1, 6.69% 2028 3,161 3,196 .10
Residential Reinsurance Ltd., Class A-2, 11.44% (1) (7) 13,750 13,839 .07
Aames Capital Corp., home-equity loan pass-through certificates,
Series 1996-D, Class A-1B, 6.34% 2012 5,000 5,003
Aames Capital Corp., home-equity loan pass-through certificates,
Series 1996-D, Class A-1E, 6.87% 2024 7,000 7,017 .07
Chase Manhattan Bank, NA, Series 1993-I, Class 2A5,
7.25% 2024 9,910 9,984 .05
The Money Store Inc., home-equity loan pass-through certificates,
Series 1996-C, Class A-3, 7.07% 2016 8,000 8,125 .04
GE Capital Mortgage Services, Inc., Series 1994-9, Class
A9, 6.50% 2024 6,034 5,471 .03
Standard Credit Card Master Trust I, credit card
participation certificates, Series 1994-2A, 7.25% 2008 5,000 5,228 .03
Banco Nacional de Mexico, SA 0% 2002 (1) 6,435 5,196 .03
CSFB Finance Co. Ltd., Series 1995-A, 5.00%/10.00% 2005 (1)(6) 5,000 5,064 .03
Prudential Home Mortgage Securities Co., Inc.,
Series 1992-37, Class A6, 7.00% 2022 2,969 2,964 .01
-------- -----
288,637 1.53
-------- -----
Federal Agency Obligations: Mortgage Pass-Throughs (5)
- 2.20%
Government National Mortgage Assn. 5.00% 2026 (7) 6,961 6,980
Government National Mortgage Assn. 6.00% 2023 2,834 2,710
Government National Mortgage Assn. 6.00% 2025 (7) 3,750 3,821
Government National Mortgage Assn. 6.50% 2024-2026 15,293 15,029
Government National Mortgage Assn. 6.875% 2022 (7) 10,769 11,076
Government National Mortgage Assn. 7.00% 2008-2027 25,476 25,611
Government National Mortgage Assn. 7.00% 2023-2024 (7) 69,808 71,318
Government National Mortgage Assn. 7.125% 2023 (7) 10,608 10,858
Government National Mortgage Assn. 7.375% 2022-2024 (7) 11,202 11,531
Government National Mortgage Assn. 7.50% 2017-2026 31,416 32,129
Government National Mortgage Assn. 8.00% 2017 5,590 5,857
Government National Mortgage Assn. 8.50% 2017-2026 31,943 33,534
Government National Mortgage Assn. 9.00% 2008-2025 11,577 12,425
Government National Mortgage Assn. 9.50% 2009-2021 16,293 17,694
Government National Mortgage Assn. 10.00% 2016-2019 1,329 1,474
Government National Mortgage Assn. 10.50% 2018-2019 201 226
Government National Mortgage Assn. 11.00% 2015 95 108 1.39
Federal National Mortgage Assn. 6.074% 2028 (7) 10,954 10,882
Federal National Mortgage Assn. 7.50% 2007-2023 23,170 23,708
Federal National Mortgage Assn. 8.00% 2009-2024 10,194 10,585
Federal National Mortgage Assn. 8.50% 2014-2025 14,700 15,336
Federal National Mortgage Assn. 9.00% 2008-2025 9,706 10,348
Federal National Mortgage Assn. 9.50% 2022 9,190 9,917
Federal National Mortgage Assn. 10.00% 2005-2025 28,181 30,876 .60
Federal Home Loan Mortgage Corp. 8.00% 2025 7,979 8,241
Federal Home Loan Mortgage Corp. 8.50% 2008-2020 20,160 21,039
Federal Home Loan Mortgage Corp. 9.00% 2007-2021 10,686 11,297
Federal Home Loan Mortgage Corp. 10.00% 2019 123 134
Federal Home Loan Mortgage Corp. 11.50% 2000 12 13 .21
-------- -----
414,757 2.20
-------- -----
Federal Agency Obligations: Collateralized Mortgage
Obligations - 0.12% (5)
Federal National Mortgage Assn., Series 1996-4,
Class ZA, 6.50% 2022 5,807 5,490
Federal National Mortgage Assn., Series 1991-78,
Class PK, 8.50% 2020 8,278 8,648 .08
Federal Home Loan Mortgage Corp., Series 1673, Class SA,
5.03% 2024 (8) 6,000 3,626
Federal Home Loan Mortgage Corp., Series 178,
Class Z, 9.25% 2021 4,104 4,425 .04
-------- -----
22,189 .12
-------- -----
Other Federal Agency Obligations - 0.44%
Federal Home Loan Mortgage Corp. 5.74% 2003 5,000 4,836
Federal Home Loan Mortgage Corp. 6.39% 2003 7,750 7,651
Federal Home Loan Mortgage Corp. 6.44% 2003 3,000 2,958
Federal Home Loan Mortgage Corp. 6.50% 2003 5,000 4,952
Federal Home Loan Mortgage Corp. 6.59% 2003 6,000 5,954
Federal Home Loan Mortgage Corp. 6.19% 2004 12,750 12,429
Federal Home Loan Mortgage Corp. 6.27% 2004 5,635 5,534 .24
Federal Home Loan Banks 6.41% 2003 10,000 9,863
Federal Home Loan Banks 6.16% 2004 13,000 12,683
Federal Home Loan Banks 6.27% 2004 6,000 5,888 .15
FNSM Principal STRIPS 0%/8.62% 2022 (6) 10,000 9,627 .05
-------- -----
82,375 .44
-------- -----
Governments and Governmental Authorities
(excluding U.S. government) - 0.70%
Argentina (Republic of), Series L, 6.75% Eurobonds 2005 (7) 22,101 21,041
Argentina (Republic of) 11.00% 2006 45,750 52,613
Argentina (Republic of) 11.375% 2017 11,750 13,968 .47
United Mexican States 7.875% 2001 (1)(7) 8,000 8,006
United Mexican States Units, Series A, 6.25% Eurobonds 2019 1,000 827
United Mexican States, Series C, 6.82% 2019 (7) 1,000 948
United Mexican States, Series C, 0% 2003 (3) 1,538 0
United Mexican States, Series A, 0% 2003 (3) 1,000 0
United Mexican States 11.375% 2016 9,000 10,742 .11
Venezuela (Republic of) 6.75% 2007 (7) 10,000 9,330 .04
Brazil (Republic of) Debt Conversion Bond 6.938% 2012 (7) 6,000 5,028 .03
Philippine Front-Loaded Interest Reduction
Bond, Series B, 5.00% 2008 (7) 5,000 4,710 .03
Ontario (Province of) 7.75% 2002 2,500 2,662 .01
Ecuador (Republic of) Past Due Interest Bonds 6.438% 2015 (7) 538 386
Ecuador (Republic of) Past Due Interest Bonds 6.438% 2025 (7) 1,500 1,185 .01
-------- -----
131,446 .70
-------- -----
Floating Rate Eurodollar Notes (Undated) (7) - 0.19%
Standard Chartered Bank 6.00% 15,000 13,060 .07
Bank of Nova Scotia 5.75% 10,000 8,963 .05
Canadian Imperial Bank of Commerce 5.688% 10,000 8,937 .05
Midland Bank PLC 6.125% 5,000 4,546 .02
-------- -----
35,506 .19
-------- -----
U.S. Treasury Obligations - 5.55%
5.625% August 1997 50,000 49,985 .26
8.625% August 1997 50,000 50,055 .27
5.50% September 1997 50,000 50,000 .27
5.75% October 1997 50,000 50,024 .27
8.75% October 1997 25,000 25,160 .13
6.00% November 1997 50,000 50,078 .27
7.875% January 1998 50,000 50,524 .27
9.25% August 1998 10,000 10,361 .06
8.875% February 1999 42,000 43,956 .23
9.125% May 1999 10,000 10,570 .06
5.875% November 1999 10,000 10,027 .05
8.75% August 2000 22,500 24,321 .13
8.50% November 2000 20,000 21,591 .11
7.75% February 2001 68,000 72,154 .38
3.626% July 2002 (9) 10,000 10,010 .05
11.625% November 2002 38,000 47,797 .25
10.75% February 2003 19,500 23,878 .13
7.25% May 2004 120,000 128,513 .68
11.625% November 2004 40,500 53,751 .29
6.50% May 2005 30,000 30,891 .16
10.75% August 2005 9,000 11,661 .06
3.412% January 2007 (9) 7,000 6,938 .04
8.875% August 2017 55,000 70,520 .37
7.125% February 2023 65,250 71,367 .38
6.50% November 2026 70,000 71,553 .38
-------- -----
1,045,685 5.55
-------- -----
TOTAL BONDS & NOTES (cost: $4,739,859,000) 4,966,916 26.40
-------- -----
- ---------------------------------- --- --- ---
Principal Market Percent
Short-Term Securities Amount Value of Net
(000) (000) Assets
- ---------------------------------- --- --- ---
Corporate Short-Term Notes - 8.96%
Ameritech Corp. 5.47% due 10/23-10/29/97 40,775 40,218
Ameritech Corp. 5.47%-5.53% due 9/22-10/24/97 (1) 64,300 63,694 .55
PepsiCo, Inc. 5.45%-5.52% due 8/8-9/19/97 89,250 88,820 .47
J.C. Penney Funding Corp. 5.48%-5.54% due 8/8-10/8/97 (1) 88,500 87,844 .47
Coca-Cola Co. 5.50%-5.52% due 8/6-8/29/97 83,400 83,151 .44
Sara Lee Corp. 5.48%-5.49% due 9/24-9/25/97 82,000 81,302 .43
Procter & Gamble Co. 5.45%-5.52% due 8/25-10/20/97 78,100 77,540 .41
Monsanto Co. 5.47%-5.48% due 8/18-10/9/97 54,200 53,829
Monsanto Co. 5.53%-5.54% due 8/11-10/3/97 (1) 20,300 20,179 .40
General Electric Capital Corp. 5.50%-5.60% due 8/11-10/17/97 73,400 72,755 .39
Lucent Technologies Inc. 5.48%-5.52% due 8/13-9/29/97 71,000 70,598 .38
Ford Motor Credit Co. 5.49%-5.53% due 8/5-10/10/97 66,400 65,947 .35
Xerox Corp. 5.48%-5.55% due 8/6-9/23/97 64,800 64,536 .34
E.I. du Pont de Nemours and Co. 5.45%-5.50% due 8/4-10/16/97 57,700 57,323 .31
Motorola, Inc. 5.46%-5.49% due 8/18-9/19/97 57,600 57,196 .30
American Express Credit Corp. 5.49%-5.54%
due 8/20-9/26/97 56,000 55,681 .30
Hershey Foods Corp. 5.47%-5.51% due 9/2-10/21/97 55,600 55,090 .29
A.I. Credit Corp. 5.48%-5.53% due 9/18-11/6/97 52,700 52,125 .28
Walt Disney Co. 5.52% due 9/8-9/10/97 50,000 49,695 .26
Beneficial Corp. 5.49%-5.55% due 8/1-9/3/97 48,800 48,671 .26
Southwestern Bell Telephone Co. 5.52%-5.53%
due 8/26-8/27/97 47,100 46,906 .25
International Lease Finance Corp. 5.48%-5.53%
due 9/18-10/14/97 45,700 45,280 .24
Shell Oil Co. 5.47% due 9/5/97 45,000 44,769 .24
IBM Credit Corp. 5.48%-5.54% due 9/4-9/15/97 41,300 41,029 .22
Commercial Credit Co. 5.49%-5.54% due 8/25-9/2/97 40,000 39,825 .21
Avco Financial Services, Inc. 5.47%-5.53% due 8/7-10/1/97 40,000 39,789 .21
Atlantic Richfield Co. 5.53%-5.55% due 9/24-10/2/97 40,000 39,644 .21
CPC International Inc. 5.61% due 9/9/97 (1) 39,000 38,760 .21
Ciesco LP 5.53% due 9/11/97 35,000 34,774 .18
Amoco Corp. 5.48%-5.50% due 9/3-10/8/97 32,800 32,482 .17
Schering-Plough Corp. 5.51% due 9/16/97 25,100 24,919 .13
Gannett Co., Inc. 5.45% due 8/29/97 (1) 10,400 10,354 .06
-------- -----
1,684,725 8.96
-------- -----
Federal Agency Short-Term Obligations - 1.81%
Federal National Mortgage Assn.
5.35%-5.49% due 8/26-10/30/97 190,700 189,265 1.01
Federal Home Loan Mortgage Corp. 5.45%-5.57%
due 8/12-9/5/97 119,800 119,470 .63
Federal Home Loan Banks 5.48% due 8/14/97 32,200 32,132 .17
-------- -----
340,867 1.81
-------- -----
TOTAL SHORT-TERM SECURITIES (cost: $2,025,664,000) 2,025,592 10.77
-------- -----
TOTAL INVESTMENT SECURITIES (cost: $15,456,637,000) 18,680,679 99.29
Excess of cash and receivables over payables 133,534 .71
-------- -----
NET ASSETS $18,814,213 100.00%
======== =====
(1) Purchased in a private placement transaction;
resale to the public may require registration or sale
only to qualified institutional buyers.
(2) Non-income-producing security.
(3) Valued under procedures established by the
Board of Directors.
(4) The fund owns 6.64% and 6.48% of the outstanding voting
securities of Ohio Casualty and English China Clays,
respectively, and thus is considered an affiliate as
defined in the Investment Company Act of 1940.
(5) Pass-through securities backed by a pool of
mortgages or other loans on which principal payments
are periodically made. Therefore, the effective
maturity is shorter than the stated maturity.
(6) Step bond; coupon rate will increase at a later date.
(7) Coupon rate changes periodically.
(8) Inverse floater, which is a floating
rate note whose interest rate moves in the opposite
direction of prevailing interest rates.
(9) Index-linked bond, which is a floating rate bond
whose principal amount moves with a government retail
price index.
See Notes to Financial Statements
</TABLE>
<TABLE>
The Income Fund of America
Financial Statements
- ----------------------------------------- --------- ---------
<S> <C> <C>
Statement of Assets and Liabilities (dollars in
at July 31, 1997 thousands)
- ---------------------------------------- --------- ---------
ASSETS:
Investment securities at market
(cost: $15,456,637) $18,680,679
Cash 832
Receivables for-
Sales of investments $ 79,617
Sales of fund's shares 22,272
Dividends and accrued interest 127,696 229,585
--------- ---------
18,911,096
LIABILITIES:
Payables for-
Purchases of investments 71,135
Repurchases of fund's shares 14,368
Management services 4,319
Accrued expenses 7,061 96,883
--------- ---------
NET ASSETS AT JULY 31, 1997-
Equivalent to $18.59 per share on
1,012,112,230 shares of $1 par value
capital stock outstanding (authorized
capital stock--1,200,000,000 shares) $18,814,213
============
- ---------------------------------------- --------- ---------
Statement of Operations (dollars in
for the year ended July 31, 1997 thousands)
- ----------------------------------------- --------- ---------
INVESTMENT INCOME:
Income:
Dividends $ 414,874
Interest 521,773 $ 936,647
---------
Expenses:
Management services fee 47,820
Distribution expenses 38,906
Transfer agent fee 8,402
Reports to shareholders 768
Registration statement and
prospectus 1,019
Postage, stationery and supplies 1,650
Directors' fees 152
Auditing and legal fees 56
Custodian fee 811
Taxes other than federal income tax 2
Other expenses 136 99,722
--------- ---------
Net investment income 836,925
---------
REALIZED GAIN AND UNREALIZED
APPRECIATION ON INVESTMENTS:
Net realized gain 1,592,597
Net increase in unrealized appreciation on
investments 1,817,752
---------
Net realized gain and unrealized
appreciation on investments 3,410,349
---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $4,247,274
============
- ---------------------------------------- --------- ---------
Statement of Changes in Net Assets (dollars in
thousands)
- ----------------------------------------- --------- ---------
Year ended July 31
1997 1996
--------- ---------
OPERATIONS:
Net investment income $ 836,925 $ 767,059
Net realized gain on investments 1,592,597 630,886
Net increase in unrealized appreciation
on investments 1,817,752 276,975
--------- ---------
Net increase in net assets
resulting from operations 4,247,274 1,674,920
--------- ---------
DIVIDENDS AND DISTRIBUTIONS
PAID TO SHAREHOLDERS:
Dividends from net investment income (857,023) (718,292)
Distributions from net realized
gain on investments (748,006) (152,790)
--------- ---------
Total dividends and distributions (1,605,029) (871,082)
--------- ---------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
131,090,765 and 143,040,894
shares, respectively 2,235,951 2,275,579
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions of
net realized gain on investments:
83,876,277 and 46,413,197
shares, respectively 1,403,146 734,433
Cost of shares repurchased:
112,767,826 and 103,371,820
shares, respectively (1,926,293) (1,644,843)
--------- ---------
Net increase in net assets
resulting from capital share
transactions 1,712,804 1,365,169
--------- ---------
TOTAL INCREASE IN NET ASSETS 4,355,049 2,169,007
NET ASSETS:
Beginning of year 14,459,164 12,290,157
--------- ---------
End of year (including undistributed
net investment income: $139,013
and $159,002, respectively) $18,814,213 $14,459,164
=========== ===========
See Notes to Financial Statements
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. The Income Fund of America, Inc. (the "fund") is registered under the
Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks current income while secondarily striving
for capital growth through investments in stocks and fixed-income securities.
The following paragraphs summarize the significant accounting policies
consistently followed by the fund in the preparation of its financial
statements:
Equity-type securities traded on a national securities exchange (or
reported on the Nasdaq national market) and securities traded in the
over-the-counter market are stated at the last reported sales price on the day
of valuation; other securities, and securities for which no sale was reported
on that date, are stated at the last quoted bid price. Bonds and notes are
valued at prices obtained from a bond-pricing service provided by a major
dealer in bonds, when such prices are available; however, in circumstances
where the investment adviser deems it appropriate to do so, such securities
will be valued at the mean of their representative quoted bid and asked prices
or, if such prices are not available, at prices for securities of comparable
maturity, quality and type. Short-term securities with original or remaining
maturities in excess of 60 days are valued at the mean of their quoted bid and
asked prices. Short-term securities with 60 days or less to maturity are valued
at amortized cost, which approximates market value. Securities for which market
quotations are not readily available are valued at fair value by the Board of
Directors or a committee thereof.
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
and premiums on securities purchased are amortized over the life of the
respective securities. Dividends and distributions paid to shareholders are
recorded on the ex-dividend date.
Investment securities and other assets and liabilities denominated in
non-U.S. currencies are recorded in the financial statements after translation
into U.S. dollars utilizing rates of exchange on the last business day of the
year. Purchases and sales of investment securities, income and expenses are
calculated using the prevailing exchange rate as accrued. The effects of
changes in foreign currency exchange rates on investment securities are
included with the net realized gain and unrealized appreciation on investment
securities.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $811,000 includes $358,000 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, 1997, net unrealized appreciation on investments for
federal income tax purposes aggregated $3,224,085,000, of which $3,320,558,000
related to appreciated securities and $96,473,000 related to depreciated
securities. During the year ended July 31, 1997, the fund realized, on a tax
basis, a net capital gain of $1,592,536,000 on securities transactions. Net
losses related to non-U.S. currency and other transactions of $61,000 were
treated as an adjustment to ordinary income for federal income tax purposes.
The cost of portfolio securities for federal income tax purposes was
$15,456,594,000 at July 31, 1997.
3. The fee of $47,820,000 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.24% of the first $1 billion of average net assets; 0.20%
of such assets in excess of $1 billion but not exceeding $2 billion; 0.18% of
such assets in excess of $2 billion but not exceeding $3 billion; 0.165% of
such assets in excess of $3 billion but not exceeding $5 billion; 0.155% of
such assets in excess of $5 billion but not exceeding $8 billion; 0.15% of such
assets in excess of $8 billion but not exceeding $13 billion; 0.147% of such
assets in excess of $13 billion but not exceeding $21 billion; and 0.145% of
such assets in excess of $21 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, 1997,
distribution expenses under the Plan were $38,906,000. As of July 31, 1997,
accrued and unpaid distribution expenses were $6,548,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $8,402,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $10,140,000 (after
allowances to dealers) as its portion of the sales charges paid by purchasers
of the fund's shares. Such sales charges are not an expense of the fund and,
hence, are not reflected in the accompanying statement of operations.
Directors who are unaffiliated with CRMC may elect to defer part or all of
the fees earned for services as members of the Board. Amounts deferred are not
funded and are general unsecured liabilities of the fund. As of July 31, 1997,
aggregate amounts deferred and earnings thereon were $366,000.
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, 1997, accumulated undistributed net realized gain on
investments was $1,370,339,000 and additional paid-in capital was
$13,068,866,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $6,199,103,000 and $6,570,329,000, respectively,
during the year ended July 31, 1997.
Net realized currency losses on dividends, interest and withholding taxes
reclaimable were $17,000 for the year ended July 31, 1997.
The fund reclassified $109,000 to undistributed net investment income from
undistributed net realized gains for the year ended July 31, 1997.
<TABLE>
Per-Share Data and Ratios
Year ended July 31
------- ------- ------- -------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $15.89 $14.92 $13.59 $14.47 $13.94
------- ------- ------- ------- -------
Income from Investment
Operations:
Net investment income .86 .87 .85 .83 .85
Net realized gain and change in
unrealized appreciation on investments 3.55 1.11 1.29 (.53) .74
------- ------- ------- ------- -------
Total income from
investment operations 4.41 1.98 2.14 .30 1.59
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment
income (.90) (.83) (.75) (.83) (.84)
Distributions from net
realized gains (.81) (.18) (.06) (.35) (.22)
------- ------- ------- ------- -------
Total distributions (1.71) (1.01) (.81) (1.18) (1.06)
------- ------- ------- ------- -------
Net Asset Value, End of Year $18.59 $15.89 $14.92 $13.59 $14.47
======= ======= ======= ======= =======
Total Return (1) 29.28% 13.46% 16.42% 1.98% 11.88%
Ratios/Supplemental Data:
Net assets, end of year (in
millions) $18,814 $14,459 $12,290 $10,537 $9,045
Ratio of expenses to average
net assets .61% .62% .65% .63% .62%
Ratio of net income to average
net assets 5.09% 5.56% 6.12% 5.92% 6.05%
Average commissions paid per share (2) 3.21 c 4.63 c 6.20 c 6.40 c 7.14 c
Portfolio turnover rate 40.92% 37.77% 26.26% 26.42% 29.18%
(1) Calculated without deducting a sales
charge. The maximum sales charge is
5.75% of the fund's offering price.
(2) Brokerage commissions paid on
portfolio transactions increase the cost
of securities purchased or reduce the
proceeds of securities sold, and are not
reflected in the fund's statement of
operations. Shares traded on a principal
basis without commissions, such as most
over-the-counter and fixed-income
transactions, are excluded. Generally,
non-U.S. commissions are lower than U.S.
commissions when expressed as cents per
share but higher when expressed as a
percentage of transactions because of the
lower per-share prices of many non-U.S.
securities.
</TABLE>
Independent Auditors' Report
To the Board of Directors and Shareholders of
The Income Fund of America, Inc.:
We have audited the accompanying statement of assets and liabilities of
The Income Fund of America, Inc., including the schedule of portfolio
investments as of July 31, 1997, 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
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
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 as of July
31, 1997 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, 1997, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the per-share data and
ratios for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
September 5, 1997
TAX INFORMATION (UNAUDITED)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of distributions received by shareholders
during such fiscal year. The distributions made during the fiscal year by the
fund were earned from the following sources:
Dividends and Distributions per Share
<TABLE>
<CAPTION>
To Shareholders Payment Date From Net From Net From Net
of Record Investment Realized Realized
Income Short-Term Gains Long-Term
Gains
<S> <C> <C> <C> <C>
September 20, 1996 September 23, 1996 $0.20 - -
December 26, 1996 December 27, 1996 0.30 $0.074 $0.736
March 21, 1997 March 24, 1997 0.20 - -
June 20, 1997 June 23, 1997 0.20 - -
</TABLE>
Corporate shareholders may exclude up to 70% of qualifying dividends
received during the year. For purposes of computing this exclusion, 37% of the
dividends paid by the fund from net investment income represent qualifying
dividends.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans, and 403(b) plans need not be reported as taxable income.
However, many plan retirement trusts may need this information for their annual
information reporting.
Certain states may exempt from income taxation that portion of the
dividends paid from net investment income that was derived from direct U.S.
Treasury obligations. For purposes of computing this exclusion, 10% of the
dividends paid by the fund from net investment income was derived from interest
on direct U.S. Treasury obligations.
SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FUND'S FISCAL YEAR AND NOT
THE CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099 DIV OR OTHER
TAX INFORMATION WHICH WILL BE MAILED IN JANUARY 1998 TO DETERMINE THE CALENDAR
YEAR AMOUNTS TO BE INCLUDED ON THEIR RESPECTIVE 1997 TAX RETURNS. SHAREHOLDERS
SHOULD CONSULT THEIR TAX ADVISERS.
