[THE AMERICAN FUNDS GROUP (R)]
THE INCOME FUND OF AMERICA
ANNUAL REPORT FOR THE YEAR ENDED JULY 31, 1997
[graphic: caricature of three individuals with different instruments of
measure]
THREE WAYS TO MEASURE YOUR IFA INVESTMENT
THE INCOME FUND OF AMERICA (R) SEEKS CURRENT INCOME WHILE SECONDARILY STRIVING
FOR CAPITAL GROWTH THROUGH INVESTMENTS IN STOCKS AND FIXED-INCOME SECURITIES.
The Income Fund of America is one of the 28 mutual funds in The American Funds
Group(R), a family of funds managed by Capital Research and Management Company.
With a history dating back to 1931, The American Funds Group has more than $150
billion in assets.
A LOOK AT IFA'S DIVIDEND RATE
Compared with the average of equity-income funds and Standard & Poor's 500
Stock Composite Index.
[begin line graph]
<TABLE>
<CAPTION>
The Income Fund Average of equity-
Date of America income funds S&P 500
<S> <C> <C> <C>
7/31/92 6.05 3.74 2.89
1/31/93 6.44 3.42 2.83
7/31/93 6.19 3.13 2.79
1/31/94 5.56 2.93 2.64
7/31/94 6.06 3.01 2.80
1/31/95 6.14 3.12 2.81
7/31/95 5.55 2.85 2.41
1/31/96 5.07 2.49 2.18
7/31/96 5.19 2.43 2.28
1/31/97 5.09 2.08 1.89
7/31/97 4.74 1.80 1.48
</TABLE>
[end line graph]
ALL NUMBERS CALCULATED BY LIPPER ANALYTICAL SERVICES.
The 12-month dividend rate is calculated by taking the total of the trailing 12
months' dividends and dividing by the month-end net asset value adjusted for
capital gains.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS. SHARE PRICE AND RETURN WILL
VARY, SO YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE SHORTER THE TIME
PERIOD OF YOUR INVESTMENT, THE GREATER THE POSSIBILITY OF LOSS. FUND SHARES ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR GUARANTEED BY, THE U.S.
GOVERNMENT, ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER AGENCY, ENTITY OR PERSON.
FELLOW SHAREHOLDERS:
The INCOME FUND OF AMERICA CONTINUED TO PROVIDE ABOVE-AVERAGE CURRENT INCOME
FOR THE FISCAL YEAR JUST ENDED. AS OF JULY 31, IFA'S DIVIDEND RATE WAS
SIGNIFICANTLY HIGHER THAN THAT OF MOST OTHER EQUITY-INCOME FUNDS. IT ALSO FAR
EXCEEDED THE AVERAGE YIELD OF STOCKS IN GENERAL. AS A RESULT OF THE SOARING
STOCK MARKET, IFA'S SHARE PRICE ALSO SAW A SOLID GAIN.
HIGH-INCOME RETURNS IN A LOW-INCOME MARKET
The IFA dividend rate of 4.7% was more than twice the 1.8% average of the 174
funds in the "equity-income" fund category as reported by Lipper Analytical
Services. It was almost three times higher than the annualized 1.6% yield of
Standard & Poor's 500 Composite Index, which was at an all-time low in 71 years
of S&P recordkeeping. This yield advantage has been the case for an extended
period of time, as shown in the chart on the inside front cover.
Mathematically, dividend yields on stocks go down any time stock prices go up -
if dividend increases don't keep pace. That's exactly what happened during the
past year; stock prices soared and dividend payments increased only moderately.
In this situation, high valuations and the goal of maintaining the fund's
income per share prompted us to sell many lower yielding stocks in the
portfolio. As a result, we expect to pay a larger-than-usual capital gain in
mid-November of 7% to 8% of net asset value (as of July 31). As you may know,
the new tax law created several new rates and holding periods for capital gains
applicable to the current year. We will advise shareholders about the details
of this capital gain distribution at a later date.
Most financial advisers encourage investors to reinvest their capital gain
distributions and dividends, if possible, and the majority of IFA's
shareholders do. (The growing benefit of reinvesting these distributions is
clearly shown in the chart on pages 4-5.)
SECONDARY GOAL OF CAPITAL GROWTH
IFA also continued to meet its secondary goal of growth of your investment. In
an up market of truly remarkable proportions, IFA's total return for the 12
months ended July 31 was 29.3% with dividends reinvested. That is well above
the 10.8% increase in the Lehman Brothers Aggregate Bond Index, but much less
than the S&P 500's 52.1% gain. Since IFA invests in a combination of stocks and
bonds to meet its objectives, its results often fall between these two
unmanaged indexes. However, the gap between IFA's total return and that of the
S&P 500 on this occasion warrants a reminder of the different nature of each.
- - As investors have learned over the years, IFA's focus on income, with part
of its portfolio in bonds and cash as well as in high-yielding stocks, may
cause it to lag rapidly rising stock markets. IFA, therefore, could not keep up
with the very strong market of the past 12 months as represented by the S&P
500, which is 100% invested in equities at all times.
- - For the same reasons, IFA has tended to hold up better than the S&P 500 and
other stock indexes in market declines. This is discussed in greater detail in
our feature beginning on page 6.
- - The S&P 500's unusual gain was primarily driven by the largest 100 companies
in the index. They rose almost 56% for the period but yielded less than 2%.
Some paid no dividends at all. Stocks in the index yielding 3% to 6% had a
total return of 40.8% (about what the equities in IFA's portfolio delivered)
while stocks with a dividend yield over 6% had a total return of 15.7%.
- - IFA also didn't match the average total return of the Lipper equity-income
fund category. While we have always viewed IFA as an equity-income fund, we no
longer consider the Lipper average as fully representative of this type of
fund. A number of funds included in this category have yields below or only
slightly better than the S&P 500. To make comparisons as meaningful as
possible, it makes sense to look at total returns from two other mutual fund
groupings - Morningstar Inc.'s "domestic hybrid" category (up 27.8% for IFA's
fiscal year) and The Wall Street Journal "stock/bond blend" category (also up
27.8% for the period). While not perfect, we believe these measures are more
indicative of funds with objectives similar to IFA.
DIVIDENDS AND SUSTAINABLE GAINS
This decade's stock market rise of 223% since October 11, 1990 has been the
century's longest without a decline of 10% or more. Historically, therefore, a
market correction of at least 10% would seem overdue. Whenever the market turns
downward, and for however long it may do so, there are safeguards in
income-producing securities which can help to protect the conservative
investor. This income stream of stock dividends and bond interest payments can
sometimes be the only source of positive total return when stock and bond
markets are flat or declining. They help provide a cushion in market declines.
The discipline of investing for income also helps keep your fund's management
grounded, since losing touch with reality can be a hazard of extended bull
markets. When the prices of stocks in IFA's portfolio rise to levels which
result in yields below what IFA is seeking, we frequently take profits.
Reinvestment elsewhere enables us to maintain a stable dividend per share and
to grow it over time.
These safeguards have worked well in the past. IFA's conservative
dividend-oriented investment approach, besides having provided steady,
above-average income, has produced an average annual compound total return of
14.3% since December 1, 1973, when Capital Research and Management Company
became the fund's investment adviser. That is about the same as the S&P 500's
average annual compound return of 14.6% for the same period.
IFA'S CURRENT PORTFOLIO
COMMON STOCKS AND THEIR EQUIVALENTS, such as convertible securities, made up
62.1% of IFA's portfolio at year-end, up from 60.7% a year earlier. Our
exposure to U.S. stocks, however, went down as we took advantage of our new
flexibility to invest up to 10% of the fund's assets outside the U.S. The
non-U.S. percentage, now 9.4%, enabled us to benefit from higher yields
elsewhere.
HEALTH AND PERSONAL CARE (3.0% of IFA holdings at July 31, down from 6.1% a
year ago) is a good example of a group where sharply higher share prices with
much lower yields led us to reduce our exposure during the year. Despite
reducing our holdings, several of these companies provided high total returns
to the fund.* They include Bristol-Myers Squibb and Eli Lilly (both with
returns of close to 50%). Of our health care holdings, only Pharmacia & Upjohn
declined on poor earnings reports. We added to that position when the price was
down, and the stock has since rebounded.
*Total return to the fund reflects changes in size of holdings, dividends
received and price changes at month-ends. It assumes any net proceeds are
reinvested at a 5% short-term rate.
BANKING, IFA's single largest industry holding a year ago at 11.3%, was another
area where we reduced our exposure, to 7.7% at fiscal year-end. Again, even
with the reduction, bank stocks were still the largest contributor to IFA's
total return for the year. Leaders included PNC Bank, CoreStates Financial and
HSBC Holdings, which delivered total returns in the range of 40% to 50%.
ENERGY SOURCES, now IFA's largest industry sector (9.9%, up from 8.7%), also
provided a strong total return. Some of the best results were from
USX-Marathon, Amoco and Texaco with returns to the fund of 30% to 40%.
TELECOMMUNICATIONS (5.2%, up from 3.2%) is now one of IFA's five largest
industry holdings. Two of the companies - AT&T and U S WEST Communications -
are now among IFA's ten largest holdings. We also added Hong Kong Telecom to
the portfolio after investor concern over the company's local growth prospects
had penalized the share price. It has rebounded sharply as investor focus has
shifted to the market potential of mainland China.
ELECTRIC AND GAS UTILITIES increased to 7.2% from 4.2% a year ago. We added to
our holdings outside the U.S. of high-income-producing utilities such as
National Power, Scottish Power and Hongkong Electric. We also purchased several
U.S. gas utilities and selectively added to our investments in U.S. electric
utilities. One U.S. holding, Long Island Lighting, rose sharply on news of a
merger with Brooklyn Union Gas. We are hopeful that future restructurings and
mergers will make this a profitable area in which to invest.
FIXED-INCOME SECURITIES fell from 32.9% of IFA's portfolio to 26.4%. With the
economy moving closer to full capacity in 1997, we became more concerned about
a potential increase in inflation and possibly higher interest rates. As a
result, we reduced the portfolio's exposure to bonds and increased its cash
reserves. (Cash and short-term securities are now 11.5% of assets, up from
6.4%.) Well over half of our bond holdings are now in high-yield corporate
issues. This was the best bond category for the period, both for income
generation and capital growth. Recent price appreciation, however, has made
valuations less compelling although we continue to find attractive
opportunities on a selective basis.
ABOVE-AVERAGE INCOME AND THE LONG TERM
Over the 23-1/2 years that IFA has been managed by Capital Research and
Management Company, the fund has delivered superior income and a good total
return - and it has done so in a relatively stable manner.
We have found that disciplined, well-researched investments meeting our
income-producing standards have also provided capital growth over the long
term, while reducing price fluctuation in down markets. Whatever the future may
hold, we believe that IFA's emphasis on income and the intensive research
backing our investment decisions should continue to yield long-term successful
investment results for our shareholders.
We thank you for your support.
Cordially,
[/s/ Walter P. Stern[ [/s/ Janet A. McKinley]
Walter P. Stern Janet A. McKinley
Chairman of the Board President
September 18, 1997
FOLLOWING THE COURSE OF AN INVESTMENT IN IFA
Here's how a $10,000 investment in IFA grew between December 1, 1973 - the day
that Capital Research and Management Company became the fund's investment
adviser - and July 31, 1997, the end of the fund's latest fiscal year.
As you can see, the $10,000 would have grown to $220,586 with all distributions
reinvested, an average increase of 14.0% a year.
The IFA figures, unlike those shown elsewhere in this report, reflect payment
of the maximum sales charge of 5.75% on the $10,000 investment. Thus, the net
amount invested was $9,425. As outlined in the prospectus, sales charges are
lower for accounts of $50,000 or more. There is no sales charge on dividends or
capital gain distributions that are reinvested in additional shares. No
adjustment has been made for income or capital gain taxes.
The fund's 30-day yield as of August 31, 1997, calculated in accordance with
the Securities and Exchange Commission formula, was 4.34%.
The fund's year-by-year results appear in the table under the chart. You can
use this table to estimate how much the value of your own holdings has grown.
AVERAGE ANNUAL COMPOUND RETURNS*
<TABLE>
<CAPTION>
Periods Ended
July 31, 1997 June 30, 1997
<S> <C> <C>
Ten years +12.04% +11.62%
Five years +12.92 +12.59
One year +21.84 +14.10
</TABLE>
*Assumes reinvestment of all distributions and payment of the 5.75% sales
charge at the beginning of the stated periods.
HOW A $10,000 INVESTMENT HAS GROWN
[begin line graph]
HOW A $10,000 INVESTMENT HAS GROWN
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year ended July 31 1974 # 1975 1976 1977 1978
VALUE OF DIVIDENDS
Dividends in Cash $344 735 860 780 842
Dividends Reinvested $347 785 998 969 1,117
VALUE OF INVESTMENT
Dividends in Cash $8,767 10,141 12,155 12,701 12,584
Dividends Reinvested $9,088 11,391 14,751 16,392 17,404
IFA TOTAL RETURN (9.1)% 25.3 29.5 11.1 6.2
Year ended July 31 1979 1980 1981 1982 1983
VALUE OF DIVIDENDS
Dividends in Cash 936 952 1,047 1,202 1,280
Dividends Reinvested 1,333 1,463 1,743 2,187 2,549
VALUE OF INVESTMENT
Dividends in Cash 12,693 12,490 12,818 12,256 16,112
Dividends Reinvested 18,921 20,162 22,485 23,664 33,685
IFA TOTAL RETURN 8.7 6.6 11.5 5.2 42.3
Year ended July 31 1984 1985 1986 1987 1988
VALUE OF DIVIDENDS
Dividends in Cash 1,344 4,438 1,550 1,636 1,543
Dividends Reinvested 2,896 3,365 3,909 4,431 4,479
VALUE OF INVESTMENT
Dividends in Cash 15,738 19,443 21,668 23,568 22,341
Dividends Reinvested 35,722 47,677 57,148 66,674 67,816
IFA TOTAL RETURN 6.0 33.5 19.9 16.7 1.7
Year ended July 31 1989 1990 1991 1992 1993
VALUE OF DIVIDENDS
Dividends in Cash 1,711 1,578 1,764 1,715 1,713
Dividends Reinvested 5,338 5,269 6,311 6,578 6,995
VALUE OF INVESTMENT
Dividends in Cash 25,644 24,351 25,390 28,370 29,917
Dividends Reinvested 83,702 84,643 95,050 113,242 126,686
IFA TOTAL RETURN 23.4 1.1 12.3 19.1 11.9
Year ended July 31 1994 1995 1996 1997
VALUE OF DIVIDENDS
Dividends in Cash 1,726 1,751 1,766 1,968
Dividends Reinvested 7,471 8,046 8,581 10,075
VALUE OF INVESTMENT
Dividends in Cash 28,788 31,571 34,007 41,731
Dividends Reinvested 129,177 150,385 170,626 220,586
IFA TOTAL RETURN 2.0 16.4 13.5 29.3
</TABLE>
$251,525 Standard & Poor's 500 Composite Index with dividends reinvested
$220,586 /1/ IFA with dividends reinvested
$83,417 Lehman Bros. Aggregate Bond Index /2/ with interest compounded
$41,731 /3/ IFA not including dividends
$10,000 original investment
Average annual compound return for 23-1/2 years 14.0%
[end line graph]
/#/ For the period December 1, 1973 (when Capital Research and Management
Company became the fund's investment adviser) through July 31, 1974.
/1/ Includes reinvested dividends of $97,235 and reinvested capital gain
distributions of $29,988. From April 1990 to September 1994 the fund declared
daily dividends; therefore, total values for this period were adjusted for
cumulative dividends ex- but not yet paid. After this period, quarterly
dividends were resumed.
/2/ From December 1, 1973 through December 31, 1975, the Lehman Brothers
Government/Corporate Bond Index was used because the Lehman Brothers Aggregate
Bond Index did not exist. From January 1, 1976 through July 31, 1997, the
Lehman Brothers Aggregate Bond Index was used.
/3/ Includes capital gain distributions of $8,591 but does not reflect income
dividends of $32,181 taken in cash.
The indexes are unmanaged and do not reflect sales charges, commissions or
expenses.
Past results are not predictive of future results.
THREE WAYS TO MEASURE YOUR IFA INVESTMENT.
INVESTMENT PROFESSIONALS ARE ALWAYS TRYING TO DEVELOP BETTER WAYS TO MEASURE
HOW AN INVESTMENT HAS DONE. THREE IMPORTANT BENCHMARKS TO ASSESS ANY FUND'S
RESULTS SHOULD INCLUDE: HAS IT MET ITS OBJECTIVE? HOW DID THE FUND DO IN UP
MARKETS? HOW DID IT DO IN DOWN MARKETS?
How can you judge how well your mutual fund is doing? When comparing
investments, many people begin and end their analysis with the total return -
the change in price plus dividends received. Total return is important, but it
is an incomplete picture because it ignores how much risk your fund took to get
that return. Investment professionals and financial researchers are attempting
to come up with better definitions of fund results that include risk and other
elements. Meanwhile, it's worth looking at how your fund is doing from your own
perspective.
HAS IFA MET ITS OBJECTIVE?
One way to measure your fund's results is to see whether it lives up to your
reasons for investing in it. The Income Fund of America, for example, has
always focused on income first, with capital appreciation as the secondary
objective. With that in mind, let's see how IFA has done in providing
above-average income.
There are a number of ways to measure IFA's income results. Mutual funds are
often measured against the unmanaged Standard & Poor's 500 Composite Index. As
of June 30, 1997, IFA's dividend rate was nearly 5% - almost three times the
dividend rate of the S&P 500. Another benchmark is the group Lipper Analytical
Services calls equity-income funds. IFA's dividend rate clearly outdistanced
the 1.9% dividend rate of the average of the equity-income mutual fund group,
as reported by Lipper.
Why is there such a disparity between IFA and its peers? A number of financial
publications and investment professionals have noted that many equity-income
funds no longer emphasize income. Some funds have shifted their investments
away from high-yielding stocks toward lower yielding growth stocks to
capitalize on the market's rapid rise. Yield and growth, although not mutually
exclusive, frequently require some trade-offs. Growth companies usually
reinvest most earnings internally and thus pay little or no dividends.
High-yield companies pay out earnings as dividends to shareholders rather than
reinvesting all of them.
INVESTING FOR INCOME: IFA VS. THE S&P 500 (1974-1996)
$100,000 INITIAL INVESTMENT, $6,000 WITHDRAWAL INCREASING 6% ANNUALLY
[begin bar charts]
TOTAL DIVIDEND INCOME
S&P 500 $123,150
IFA $441,830
TOTAL WITHDRAWALS
S&P 500 $281,975
IFA $281,975
REMAINING INVESTMENT VALUE
S&P 500 $282,949
IFA $661,200
[end bar charts]
The chart compares 23-year withdrawal programs in The Income Fund of America
and the unmanaged S&P 500 Index, based on hypothetical $100,000 initial
investments made in each on January 1, 1974 through December 31, 1996, and
reflects payment of all applicable sales charges. The first withdrawal on
December 15, 1974 of $6,000 is increased by 6% annually to cover inflation.
HOW DOES YOUR FUND FARE WHEN YOU MAKE REGULAR WITHDRAWALS?
To understand how this works, let's look at two hypothetical investors. One
invests $100,000 on January 1, 1974 in IFA, while the other invests the same
amount in the S&P 500. They decide to withdraw 6% of their investment each year
- - and to increase their withdrawals by 6% each year. The date January 1, 1974
is chosen because that was the start of IFA's first calendar year after Capital
Research and Management Company became the fund's investment adviser.
So how did the two investors fare? As the chart above shows, they both took
total withdrawals of $281,975 over those 23 years. But at the end of the
period, the IFA investor had a remaining investment value of $661,200 - far
outdistancing the $282,949 remaining for the S&P 500 investor.
The key to IFA's success over this period was the high income it provided
compared with the S&P 500. In the early years of the withdrawal program, when
the market went down more than IFA and generated less income, the S&P 500
investor would have had to dip into principal in order to continue the
withdrawals. IFA, however, provided income in excess of withdrawals. The
compounding on the reinvested income made a significant difference in the value
of the remaining investment after withdrawals.
[photo: John Brooks Slaughter]
[Begin sidebar]
PROVIDING LIFETIME INCOME FOR COLLEGE DONORS
John Brooks Slaughter is in his 10th year as president of Occidental College, a
nationally recognized liberal arts college in Los Angeles. His achievements
include forging a closer connection between the college and Los Angeles,
completing a $65 million campaign, increasing the college's diversity and
maintaining its high academic quality. Donations and gifts are a big part of
making this happen, Dr. Slaughter says, and IFA plays a key role in the
college's deferred gifts program. Occidental uses IFA as one of the funds to
provide lifetime income for alumni and others who have donated money to the
college in charitable trusts and similar gift programs. People who donate money
or property to the college receive lifetime income and a charitable income tax
deduction for their gift. In return, the college receives what's left of the
gift at the end of the donor's life. IFA works especially well for this purpose
because it produces high current income, which covers all or most of the
monthly or quarterly payments to donors. Historically, IFA has fallen less than
stocks generally in market declines and it has participated in up markets
- -another plus for colleges who will ultimately receive the remaining value of
the donation.
[End sidebar]
HOW HAS YOUR IFA INVESTMENT DONE IN UP MARKETS?
ONE OF THE LONGEST BULL MARKETS IN STOCK MARKET HISTORY IS THE ONE THAT BEGAN
IN THE SUMMER OF 1982 AND HAS PERSISTED (WITH BRIEF INTERRUPTIONS IN 1987 AND
1990) THROUGH JUNE 30, 1997, THE MOST RECENT QUARTERLY PERIOD FOR WHICH RESULTS
ARE AVAILABLE. HOW DID IFA DO OVER THOSE 15 YEARS COMPARED WITH SIMILAR MUTUAL
FUNDS?
INCOME RECORD IN A LONG UP MARKET
Let's first look at income generated by similar funds in existence over the
entire 15 years. These income-oriented funds include all equity-income funds,
balanced funds and income funds in existence for the entire period. If we start
with a hypothetical $10,000 invested on January 1, 1982 and total up the income
generated by that investment over 15 years, IFA generated a total of $19,522
- -compared with the average income total of $11,073 for the peer group of funds.
IFA ranked first of the 49 funds in producing income for the 15-year period.
(This assumes that dividends were paid in cash and that capital gain
distributions were reinvested.)
It's not difficult to understand how IFA generated more income than its
competitors. Dividend rates tell the story. On June 30, 1982, IFA had a
12-month dividend rate of 8.9%, slightly above the average of 8.4% paid by the
other funds. As of June 30, 1997, IFA continued to pay above-average dividends
while many other funds in the peer group didn't keep up the pace. In mid-1997,
IFA provided an annual dividend rate of almost 5%, compared with the average of
3.1% paid by the other funds.
TOTAL RETURNS IN THE PAST 15 YEARS
IFA also delivered a strong total return over the past 15 years when compared
with similar funds. IFA's compound annual total return over the period was
15.9%, compared with 14.9% for the average of the peer group.
Not surprisingly, IFA was not able to match the 18.9% average annual compound
return of the S&P 500, which is 100% invested in stocks at all times. IFA
trailed the S&P 500 primarily because of the fund's lower exposure to stocks.
As of June 30, 1997, for example, IFA had about 62% invested in stocks.
Moreover, in this strong bull market, the fund's focus on
above-average-yielding stocks dampened investment results. Companies that pay
above-average dividends are often mature, and don't see their share prices rise
as fast as aggressive growth stocks in a bull market.
[photo: Marie Reese]
[Begin sidebar]
USING IFA FOR PERSONAL AND BUSINESS RETIREMENT ACCOUNTS
Marie Reese of Virginia Beach, Virginia, is an energetic entrepreneur who owns
a thriving daycare center in this seaside community. Marie began investing in
IFA in 1991 after she had launched her Lotus Pond Learning Center. "I decided
that I had better plan for my own retirement since starting a new business is a
leap into the unknown," she recalls. Her financial adviser suggested she invest
some of her money in IFA because it was a conservative equity-oriented
investment with a good long-term record. "When I started, I didn't know
anything about investing," she says. "I thought it was all Wall Street people
and you had to have a lot of money." Marie, who is married with two children,
found that regular investments add up and she now has a significant retirement
account. She also began a SIMPLE IRA plan for her 23 employees at the daycare
center, in which IFA is one of several options. Benefits like a retirement plan
are one way to attract and keep childcare employees. "It's hard to find
trained people - and when you hire them, you want to do everything possible to
keep them happy," she says.
[End sidebar]
TOTAL INCOME GENERATED BY A $10,000 INVESTMENT OVER 15 YEARS: IFA VS. A PEER
GROUP OF FUNDS
[Begin bar chart]
Average of Peer Group of Funds $11,073
IFA $19,522
[End bar chart]
A comparison of income generated over the 15-year lifetime of a $10,000
investment made on January 1, 1982 and ending on December 31, 1996. The chart
compares IFA's income with that of a peer group of funds in existence for the
entire 15 years. The peer group includes equity-income funds, balanced funds
and income funds (as classified by Lipper Analytical Services), all of which
invest in a mix of stocks and bonds, as does IFA.
ANNUALIZED RETURNS FOR THE PAST 15 YEARS: IFA VS. A PEER GROUP OF FUNDS
[Begin bar chart]
Average of Peer Group of Funds 14.9%
IFA 15.9%
[End bar chart]
A comparison of annualized returns for IFA versus a peer group of funds in
existence for the entire 15-year period from June 30, 1982 to June 30, 1997.
The peer group includes equity-income funds, balanced funds and income funds as
classified by Lipper Analytical Services.
HOW HAS YOUR IFA INVESTMENT DONE IN DOWN MARKETS?
HOW A FUND DOES IN DOWN MARKETS IS IMPORTANT TO ALL SHAREHOLDERS, ESPECIALLY
THOSE INVESTING FOR RETIREMENT. PRESERVING CAPITAL IN DOWN MARKETS CAN BE AS
CRITICAL TO LONG-TERM TOTAL RETURNS AS GAINING GROUND IN UP MARKETS.
Although IFA doesn't typically match growth funds in an up market, it has shown
resilience in down markets when many growth stocks have suffered steep
declines. The above-average dividend yield on IFA's portfolio and its
significant bond investments have helped IFA hold up well in the four major
extended stock market declines during its lifetime. As the charts on page 11
show, IFA did much better than the S&P 500 in each of the four declines.
Sometimes, IFA even showed a gain while the S&P 500 fell.
[Photo: Ann Sweeney]
[Begin sidebar]
HOLDING THE COURSE IN DOWN MARKETS
Ann Sweeney, a retired pediatric nurse who lives on a farm in western
Pennsylvania, says she invests for the long term - and believes in "putting the
money in and letting it work." In November 1973, her husband, Edward, died of a
heart attack. On the advice of her financial adviser, Ann took $10,000 of the
proceeds from her husband's insurance policy and invested it in The Income Fund
of America. Since then the money has multiplied many times, and Ann held the
course during several down markets. "I am in it for the long run," she says,
"and don't plan to sell when the market goes down."
Ann has earmarked the investment for her two daughters and her son and
grandchildren and doesn't need to use the income for her daily living expenses.
She is the sixth generation of her family to live on the farm and thoroughly
enjoys her retirement. "I like to garden, cook, travel and play cards," she
says. She also studies the history of her county in western Pennsylvania. "This
is very old country," she says. "We live near an old stage line that once ran
from Philadelphia to Pittsburgh."
[End sidebar]
IFA also showed resilience in three of the four major bond market declines
during its lifetime. Its blend of high-dividend stocks, bonds and cash helped
the fund hold up in periods of rising interest rates. As you can see in the
charts, in two bond market declines IFA showed positive returns.
An example of the arithmetic of loss shows the importance of investing in a
fund that is relatively consistent through good - and bad - markets. If you
were in a fund that gained 10% for three years in a row, your average annual
compound return would be 10%. But if in the fourth year the market declined and
your fund experienced a 10% loss, your average annual compound return for the
four-year period would drop to 4.6%. To return to an average annual return of
10%, you would need a gain of 34.4% in the fifth year - a difficult challenge
for any investment strategy, especially a conservative one.
THE BOTTOM LINE OF MEASURING YOUR FUND
What's the bottom line of this analysis of ways to measure your IFA investment?
Any measurement is useless if the scale you use isn't appropriate. For
investors, that means carefully choosing a scale that will relate the fund's
results to the risk that was undertaken to achieve the return. In addition, a
fund's investment results should be judged relative to funds with a similar
investment objective. Measuring whether your fund met its objective and how it
has done in both up and down markets should give you an accurate assessment of
your fund's results. On that basis, The Income Fund of America has met the
needs of many investors.
[Begin bar charts]
RESILIENCE IN DOWN MARKETS
Here are the four largest stock market declines over IFA's lifetime.* The fund
lost ground during two of those declines, but did better than the market all
four times.
9/21/76 - 3/6/78
S&P 500 -13.4%
IFA + 1.9%
11/28/80 - 8/12/82
S&P 500 -20.0%
IFA +19.0%
8/25/87 - 12/4/87
S&P 500 -32.4%
IFA -13/6%
7/16/90 - 10/11/90
S&P 500 -19.2%
IFA -10.2%
Here are the four largest bond market declines during the same period. The fund
lost ground during two of the declines, but did better than the market three of
the four times and matched it once.
12/31/76-3/31/80
Lehman Bros. Aggregate Bond Index -2.8%
IFA +3.6%
6/30/80 - 9/30/81
Lehman Bros. Aggregate Bond Index -9.0%
IFA +8.8%
4/30/83 - 5/31/84
Lehman Bros. Aggregate Bond Index -0.9%
IFA -0.9%
8/31/93 - 11/30/94
Lehman Bros. Aggregate Bond Index -3.3%
IFA -1.6%
Stock market declines for periods shown exceeded 15% on a principal basis,
excluding dividends. Bond market declines for periods shown exceeded 10% on a
principal basis, excluding interest. Results are shown on a total return basis
with dividends reinvested or interest compounded.
*IFA's lifetime begins on December 1, 1973, when Capital Research and
Management Company became the fund's investment adviser.
[End bar charts]
THE INCOME FUND OF AMERICA AT A GLANCE
RESULTS AT A GLANCE (with dividends reinvested or interest compounded)
<TABLE>
<CAPTION>
Total Returns for Periods
Ended July 31, 1997
12 Months Ten Years Lifetime/1/
<S> <C> <C> <C>
The Income Fund of America +29.3% +230.8% +2,241.1%
Standard & Poor's 500 Stock +52.1 +302.5 +2,415.3
Composite Index
Salomon Brothers Long-Term +20.9 +216.4 --
High-Yield Bond Index
Lehman Brothers Aggregate Bond +10.8 +139.3 +734.2
Index/2/
Consumer Price Index +2.2 +41.0 +249.7
(inflation)/3/
Average Savings Institution/4/ +3.8 +56.1 +338.1
</TABLE>
/1/ Since December 1, 1973, when Capital Research and Management Company became
IFA's investment adviser.
/2/ From December 1, 1973 through December 31, 1975, the Lehman Brothers
Government/Corporate Bond Index was used because the Lehman Brothers Aggregate
Bond Index did not yet exist.
/3/ Computed from data supplied by the U.S. Department of Labor, Bureau of
Labor Statistics.
/4/ Based on figures supplied by the U.S. League of Savings Institutions and
the Federal Reserve Board that reflect all kinds of savings deposits, including
longer term certificates. Unlike investments in the fund, such deposits are
insured and, if held to maturity, offer a guaranteed return of principal and a
fixed rate of interest, but no opportunity for capital growth. Maximum
allowable interest rates were imposed by law until 1983.
GROWTH OF ONE SHARE through July 31, 1997
<TABLE>
<CAPTION>
With Capital Gains Reinvested
and Income Dividends:
Reinvested in Value of
Year Ended July 31 Net Asset Value Taken in Cash Additional Shares Investment**
<S> <C> <C> <C> <C>
1974* $11.23 $.44 $.44 $11.65
1975 12.99 .94 1.01 14.59
1976 15.57 1.10 1.28 18.89
1977 16.27 1.00 1.25 21.00
1978 8.06 .78 1.43 22.31
1979 8.13 .60 1.71 24.25
1980 8.00 .61 1.89 25.86
1981 8.21 .67 2.24 28.84
1982 7.85 .77 2.81 30.36
1983 10.32 .82 3.27 43.21
1984 9.77 .84 3.71 45.81
1985 11.68 .87 4.32 61.13
1986 12.11 .88 5.01 73.27
1987 12.54 .88 5.68 85.47
1988 11.50 .80 5.74 86.95
1989 13.20 .88 6.85 107.33
1990 12.11 .80 6.76 107.91
1991 12.54 .88 8.09 121.09
1992 13.94 .85 8.43 144.39
1993 14.47 .84 8.96 161.56
1994 13.59 .83 9.57 164.66
1995 14.92 .83 10.31 192.77
1996 15.89 .83 11.00 218.73
1997 18.59 .90 12.91 282.74
Total $19.64 $124.67
</TABLE>
*For the period December 1, 1973, when Capital Research and Management Company
became IFA's investment adviser, through July 31, 1974.
**Assumes all dividends and capital gains reinvested.
<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>
<PAGE>
<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>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. The Income Fund of America, Inc. (the "fund") is registered under the
Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks current income while secondarily striving
for capital growth through investments in stocks and fixed-income securities.
The following paragraphs summarize the significant accounting policies
consistently followed by the fund in the preparation of its financial
statements:
Equity-type securities traded on a national securities exchange (or
reported on the Nasdaq national market) and securities traded in the
over-the-counter market are stated at the last reported sales price on the day
of valuation; other securities, and securities for which no sale was reported
on that date, are stated at the last quoted bid price. Bonds and notes are
valued at prices obtained from a bond-pricing service provided by a major
dealer in bonds, when such prices are available; however, in circumstances
where the investment adviser deems it appropriate to do so, such securities
will be valued at the mean of their representative quoted bid and asked prices
or, if such prices are not available, at prices for securities of comparable
maturity, quality and type. Short-term securities with original or remaining
maturities in excess of 60 days are valued at the mean of their quoted bid and
asked prices. Short-term securities with 60 days or less to maturity are valued
at amortized cost, which approximates market value. Securities for which market
quotations are not readily available are valued at fair value 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.
<PAGE>
<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>
<PAGE>
Independent Auditors' Report
To the Board of Directors and Shareholders of
The Income Fund of America, Inc.:
We have audited the accompanying statement of assets and liabilities of
The Income Fund of America, Inc., including the schedule of portfolio
investments as of July 31, 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.
<PAGE>
BOARD OF DIRECTORS
ROBERT A. FOX
Livingston, California
President and Chief Executive Officer, Foster Farms Inc.
ROBERTA L. HAZARD
McLean, Virginia
Consultant; Rear Admiral, U.S. Navy (Retired)
LEONADE D. JONES
Burlingame, California
Former Treasurer, The Washington Post Company
JOHN G. MCDONALD
Stanford, California
The IBJ Professor of Finance, Graduate School of Business, Stanford University
JAMES W. RATZLAFF
San Francisco, California
Senior Partner, The Capital Group Partners L.P.
HENRY E. RIGGS
Claremont, California
President, Graduate Institute of Applied Life Sciences at Claremont
WALTER P. STERN
New York, New York
Chairman of the Board of the fund
Chairman of the Board, Capital Group International, Inc.
PATRICIA K. WOOLF
Princeton, New Jersey
Private investor; lecturer, Department of Molecular Biology, Princeton
University
RICHARD H. M. HOLMES retired from the Board of Directors effective December 31,
1996. He had been a Director of the fund since 1982 and was President of the
fund from 1976-85.
THEODORE D. NIERENBERG retired from the Board of Directors effective May 31,
1997. He had been a Director of the fund since 1970.
The Directors wish to thank them for their many contributions to the fund.
OTHER OFFICERS
JANET A. MCKINLEY
New York, New York
President of the fund
Senior Vice President, Capital Research Company
STEPHEN E. BEPLER
New York, New York
Senior Vice President of the fund
Senior Vice President, Capital Research Company
ABNER D. GOLDSTINE
Los Angeles, California
Senior Vice President of the fund
Senior Vice President and Director,
Capital Research and Management Company
PAUL G. HAAGA, JR.
Los Angeles, California
Senior Vice President of the fund
Executive Vice President and Director,
Capital Research and Management Company
RICHARD T. SCHOTTE
Los Angeles, California
Senior Vice President of the fund
Senior Vice President, Capital Research and Management Company
DINA N. PERRY
Washington, D.C.
Vice President of the fund
Vice President, Capital Research and Management Company
JOHN H. SMET
Los Angeles, California
Vice President of the fund
Vice President, Capital Research and Management Company
PATRICK F. QUAN
San Francisco, California
Secretary of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
MARY C. HALL
Brea, California
Treasurer of the fund
Senior Vice President - Fund Business Management Group,
Capital Research and Management Company
R. MARCIA GOULD
Brea, California
Assistant Treasurer of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
STEVEN N. KEARSLEY retired as a Vice President of the fund effective May 20,
1997. He had been an officer of the fund since 1973.
We thank him for his many contributions to the fund.
OFFICE OF THE FUND
One Market
Steuart Tower, Suite 1800
Mailing Address: P.O. Box 7650
San Francisco, California 94120-7650
INVESTMENT ADVISER
Capital Research and Management Company
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5804
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071-2371
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180, OR VISIT WWW.AMERICANFUNDS.COM ON THE
WORLD WIDE WEB.
This report is for the information of shareholders of The Income Fund of
America, but it may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details about charges,
expenses, investment objectives and operating policies of the fund. If used as
sales material after September 30, 1997, this report must be accompanied by an
American Funds Group Statistical Update for the most recently completed
calendar quarter.
Litho in USA BDA/AL/3212
Lit. No. IFA-011-0997
Printed on recycled paper
[The American Funds Group (R)]
