THE INCOME FUND OF AMERICA, INC.
Part B
Statement of Additional Information
DECEMBER 1, 1996
(as amended June 2, 1997)
This document is not a prospectus but should be read in conjunction with the
current Prospectus of The Income Fund of America, Inc. (the fund or IFA) dated
December 1, 1996. The Prospectus may be obtained from your investment dealer
or financial planner or by writing to the fund at the following address:
THE INCOME FUND OF AMERICA, INC.
ATTENTION: SECRETARY
ONE MARKET, STEUART TOWER
P.O. BOX 7650
SAN FRANCISCO, CA 94120
TELEPHONE: (415) 421-9360
The fund has two forms of prospectuses. Each reference to the prospectus in
this statement of additional information includes both of the fund's
Prospectuses. Shareholders who purchase shares at net asset value through
eligible retirement plans should note that not all of the services or features
described below may be available to them, and they should contact their
employer for details.
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Table of Contents
Item Page No.
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Description of Certain Securities 1
Certain Risk Factors Relating to Below Investment Grade Bonds 4
Fundamental Policies and Investment Restrictions 5
Fund Officers and Directors 7
Management 11
Dividends, Distributions and Federal Taxes 13
Purchase of Shares 16
Redeeming Shares 22
Shareholder Account Services and Privileges 23
Execution of Portfolio Transactions 25
General Information 25
Investment Results 27
Description of Bond Ratings 32
Financial Statements Attached
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DESCRIPTION OF CERTAIN SECURITIES
CASH EQUIVALENTS - These securities include (1) commercial paper (short-term
notes up to 9 months in maturity which may be direct obligations of
corporations or governmental bodies or obligations of special purpose issuers
which represent an interest in a pool of financial assets), (2) commercial bank
obligations (E.G., certificates of deposit, bankers' acceptances (time drafts
on a commercial bank where the bank accepts an irrevocable obligation to pay at
maturity) and documented discount notes (corporate promissory discount notes
accompanied by a commercial bank guarantee to pay at maturity)), (3) savings
association and savings bank obligations (E.G., certificates of deposit issued
by savings banks or savings associations), (4) securities of the U.S.
Government, its agencies or instrumentalities that mature, or may be redeemed,
in one year or less, and (5) corporate bonds and notes that mature, or that may
be redeemed, in one year or less.
U.S. GOVERNMENT SECURITIES Securities guaranteed by the U.S. Government
include: (1) direct obligations of the U.S. Treasury (such as Treasury bills,
notes and bonds) and (2) federal agency obligations guaranteed as to principal
and interest by the U.S. Treasury.
Certain securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the
Treasury. However, they generally involve federal sponsorship in one way or
another: some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; and others are supported only by the credit of the issuing government
agency or instrumentality.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES - Certificates issued by
the Government National Mortgage Association (GNMA) are mortgage-backed
securities representing part ownership of a pool of mortgage loans, which are
issued by lenders such as mortgage bankers, commercial banks and savings and
loan associations, and are either insured by the Federal Housing Administration
or guaranteed by the Veterans Administration. A pool of these mortgages is
assembled and, after being approved by GNMA, is offered to investors through
securities dealers. The timely payment of interest and principal on each
mortgage is guaranteed by GNMA and backed by the full faith and credit of the
U.S. Government.
Principal is paid back monthly by the borrower over the term of the loan.
Reinvestment of prepayments may occur at higher or lower rates than the
original yield on the certificates. Due to the prepayment feature and the need
to reinvest prepayments of principal at current market rates, GNMA certificates
can be less effective than typical bonds of similar maturities at "locking in"
yields during periods of declining interest rates. GNMA certificates typically
appreciate or decline in market value during periods of declining or rising
interest rates, respectively. Due to the regular repayment of principal and
the prepayment feature, the effective maturities of mortgage pass-through
securities are shorter than stated maturities, will vary based on market
conditions and cannot be predicted in advance. The effective maturities of
newly-issued GNMA certificates backed by relatively new loans at or near the
prevailing interest rates are generally assumed to range between approximately
9 and 12 years.
FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS - Federal National Mortgage
Association (FNMA), a federally chartered and privately-owned corporation,
issues pass-through securities representing interests in a pool of conventional
mortgage loans. FNMA guarantees the timely payment of principal and interest
but this guarantee is not backed by the full faith and credit of the U.S.
Government.
Federal Home Loan Mortgage Corporation (FHLMC), a corporate instrumentality of
the U.S. Government, issues participation certificates which represent an
interest in a pool of conventional mortgage loans. FHLMC guarantees the timely
payment of interest and the ultimate collection of principal, and maintains
reserves to protect holders against losses due to default, but the certificates
are not backed by the full faith and credit of the U.S. Government.
As is the case with GNMA certificates, the actual maturity of and realized
yield on particular FNMA and FHLMC pass-through securities will vary based on
the prepayment experience of the underlying pool of mortgages.
OTHER MORTGAGE-RELATED SECURITIES - The fund may invest in mortgage-related
securities issued by financial institutions such as commercial banks, savings
and loan associations, mortgage bankers and securities broker-dealers (or
separate trusts or affiliates of such institutions established to issue these
securities). These securities include mortgage pass-through certificates,
collateralized mortgage obligations (including real estate mortgage investment
conduits as authorized under the Internal Revenue Code of 1986) (CMOs) or
mortgage-backed bonds. Each class of bonds in a CMO series may have a
different effective maturity, bear a different coupon, and have a different
priority in receiving payments. All principal payments, both regular principal
payments as well as any prepayment of principal, are passed through to the
holders of the various CMO classes dependent on the characteristics of each
class. In some cases, all payments are passed through first to the holders of
the class with the shortest stated maturity until it is completely retired.
Thereafter, principal payments are passed through to the next class of bonds in
the series, until all the classes have been paid off. In other cases, payments
are passed through to holders of whichever class first has the shortest
effective maturity at the time payments are made. As a result, an acceleration
in the rate of prepayments that may be associated with declining interest rates
shortens the expected life of each class. The impact of an acceleration in
prepayments affects the expected life of each class differently depending on
the unique characteristics of that class. In the case of some CMO series, each
class may receive a differing proportion of the monthly interest and principal
repayments on the underlying collateral. In these series the classes would be
more affected by an acceleration (or slowing) in the rate of prepayments than
CMOs which share principal and interest proportionally.
Mortgage-backed bonds are general obligations of the issuer fully
collateralized directly or indirectly by a pool of mortgages. The mortgages
serve as collateral for the issuer's payment obligations on the bonds, but
interest and principal payments on the mortgages are not passed through either
directly (as with GNMA certificates and FNMA and FHLMC pass-through securities)
or on a modified basis (as with CMOs). Accordingly, a change in the rate of
prepayments on the pool of mortgages could change the effective maturity of a
CMO but not that of a mortgage-backed bond (although, like many bonds,
mortgage-backed bonds can provide that they are callable by the issuer prior to
maturity).
REINSURANCE RELATED NOTES AND BONDS - The fund may invest in reinsurance
related notes and bonds. These instruments, which are typically issued by
special purpose reinsurance companies, transfer an element of insurance risk to
the note or bond holders. For example, the reinsurance company would not be
required to repay all or a portion of the principal value of the notes or bonds
if losses due to a catastrophic event under the policy (such as a major
hurricane) exceed certain dollar thresholds. Consequently, the fund may lose
the entire amount of its investment in such bonds or notes if such an event
occurs and losses exceed certain dollar thresholds. In this instance,
investors would have no recourse against the insurance company. These
instruments may be issued with fixed or variable interest rates and rated in a
variety of credit quality categories by the rating agencies.
INVERSE FLOATING RATE NOTES - The fund may invest to a very limited extent (no
more than 11/2% of its assets) in inverse floating rate notes (a type of
derivative instrument). These notes have rates that move in the opposite
direction of prevailing interest rates. A change in prevailing interest rates
will often result in a greater change in the instruments' interest rates.
Therefore, these securities have a greater degree of volatility than other
types of interest-bearing securities.
WHEN-ISSUED SECURITIES, FIRM COMMITMENT AGREEMENTS AND "ROLL TRANSACTIONS" -
The fund may purchase securities on a when-issued or delayed-delivery basis or
sell them on a delayed-delivery basis and enter into firm commitment
agreements. These are trading practices in which payment and delivery for the
securities take place at a future date. The fund as purchaser assumes the risk
of any decline in value of the security beginning on the date of the agreement
or purchase. When the fund sells such securities, it does not participate in
further gains or losses with respect to the security. If the other party to a
delayed delivery transaction fails to deliver or pay for securities, the fund
could miss a favorable price or yield opportunity, or could experience a loss.
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly increases.
The fund will identify liquid assets which will be marked to market daily in
an amount sufficient to meet its payment obligations in these transactions.
Although these transactions will not be entered into for leveraging purposes,
to the extent the fund's aggregate commitments under these transactions exceed
its segregated assets, the fund temporarily could be in a leveraged position
(because it may have an amount greater than its net assets subject to market
risk). Should market values of the fund's portfolio securities decline while
the fund is in a leveraged position, greater depreciation of its net assets
will likely occur than were it not in such a position. The fund will not
borrow money to settle these transactions and, therefore, will liquidate other
portfolio securities in advance of settlement if necessary to generate
additional cash to meet its obligations thereunder.
The fund also may enter into "roll" transactions, which consist of the sale of
securities together with a commitment (for which the fund typically receives a
fee) to purchase similar, but not identical, securities at a later date. The
fund intends to treat roll transactions as two separate transactions: one
involving the purchase of a security and a separate transaction involving the
sale of a security. Since the fund does not intend to enter into roll
transactions for financing purposes, it may treat these transactions as not
falling within the definition of "borrowing" set forth in Section 2(a)(23) of
the Investment Company Act of 1940.
CURRENCY TRANSACTIONS - The fund has the ability to purchase and sell
currencies to facilitate securities transactions and to enter into forward
currency contracts to hedge against changes in currency exchange rates. The
fund purchases or sells currency in connection with settling transactions
involving securities denominated in currencies other than the U.S. dollar. A
forward currency contract is an obligation to purchase or sell a specific
currency at a future date and price, both of which are set at the time of the
contract. For example, the fund might sell a currency on a forward basis to
hedge against an anticipated decline in the currency in which a portfolio
security is denominated. Although this strategy could minimize the risk of
loss due to a decline in the value of the hedged currency, it could also limit
any potential gain which might result from an increase in the value of the
currency.
CERTAIN RISK FACTORS RELATING TO BELOW INVESTMENT GRADE BONDS
Certain risk factors relating to investing in below investment grade
securities ("high-yield, high-risk bonds") are discussed below.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high-risk
bonds are very sensitive to adverse economic changes and corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers or issuers whose revenue is very
sensitive to economic conditions may experience financial stress that would
adversely affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaults on its obligations to pay interest
or principal or enters into bankruptcy proceedings, the fund may incur losses
or expenses in seeking recovery of amounts owed to it. In addition, periods of
economic uncertainty and changes can be expected to result in increased
volatility of market prices of high-yield, high-risk bonds.
PAYMENT EXPECTATIONS - High-yield, high-risk bonds, like other bonds, may
contain redemption or call provisions. If an issuer exercised these provisions
in a declining interest rate market, the fund would have to replace the
security with a lower yielding security, resulting in a decreased return for
investors. Conversely, a high-yield, high-risk bond's value is likely to
decrease in a rising interest rate market, as is generally true with all bonds.
LIQUIDITY AND VALUATION - There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
The fund may invest no more than 20% of its total assets in securities rated
BB and Ba or below (or unrated but considered of similar quality). The 20%
limit shall not apply to debt securities that have equity conversion or
purchase rights. In addition, the fund has no current intention of holding
more than 25% of its total assets in high-yield, high-risk bonds, INCLUDING
those that have equity conversion or purchase rights.
The fund's investment adviser, Capital Research and Management Company,
attempts to reduce the fund's risks through diversification of the portfolio by
credit analysis of each issuer as well as by monitoring broad economic trends
and corporate developments, but there can be no assurance that it will be
successful in doing so. The fund's investment policy with respect to investing
in high-yield, high-risk securities is a "non-fundamental" policy and thus may
be changed by the board of directors at any time.
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
The fund has adopted certain fundamental policies and investment restrictions
which cannot be changed without shareholder approval. Approval requires the
affirmative vote of 67% or more of the voting securities present at a meeting
of shareholders, provided more than 50% of such securities are represented at
the meeting, or the vote of more than 50% of the outstanding voting securities,
whichever is less.
The fund may not:
1. Act as underwriter of securities issued by other persons.
2. Invest more than 10% of the value of its total assets in securities that
are illiquid.
3. Borrow amounts in excess of 5% of its gross assets taken at cost or market
value, whichever is lower, determined at the time of borrowing, and then only
from banks as a temporary measure for extraordinary or emergency purposes; or
pledge, mortgage, or hypothecate its assets taken at market value to any extent
greater than 15% of its gross assets taken at cost or market value, whichever
is lower, at the time of such action.
4. Purchase real estate (including limited partnership interests but excluding
securities of companies, such as real estate investment trusts, which deal in
real estate or interests therein) or purchase oil, gas, or other mineral
leases.
5. Purchase or deal in commodities or commodity contracts.
6. Make loans to other persons, except by making time or demand deposits with
banks or by purchasing a portion of an issue (not prohibited by any investment
restriction set forth herein) of bonds, debentures, commercial paper or other
debt securities at original issue or otherwise.
7. Purchase securities of any company for the purpose of exercising control or
management.
8. Purchase securities of any other managed investment company.
9. Purchase any securities on "margin", except that it may obtain such
short-term credit as may be necessary for the clearance of purchases of
securities.
10. Sell or contract to sell any security which it does not own unless by
virtue of its ownership of other securities it has at the time of sale a right
to obtain securities, without payment of further consideration, equivalent in
kind and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions.
11. Purchase or sell puts, calls, straddles, or spreads, but this restriction
shall not prevent the purchase or sale of rights represented by warrants or
convertible securities.
12. Purchase any securities of any issuer, except the U.S. Government (or its
instrumentalities), if immediately after and as a result of such investment (1)
the market value of the securities of such other issuer shall exceed 5% of the
market value of the total assets of the fund, or (2) the fund shall own more
than 10% of the outstanding voting securities of such issuer, provided that
this restriction shall apply only as to 75% of the fund's total assets.
13. Purchase any securities (other than securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities) if immediately after and
as a result of such purchase 25% or more of the market value of the total
assets of the fund would be invested in securities of companies in any one
industry.
14. Purchase securities of companies (other than real estate investment
trusts) which, with their predecessors, have a record of less than three years'
continuous operations, if such purchase would cause more than 5% of the fund's
total assets to be invested in the securities of such companies.
For purposes of Investment Restriction #2, restricted securities are treated
as illiquid by the fund, with the exception of those securities that have been
determined to be liquid pursuant to procedures adopted by the fund's Board of
Directors. Notwithstanding Investment Restriction #8, the fund may invest in
securities of other investment companies if deemed advisable by its officers in
connection with the administration of a deferred compensation plan adopted by
directors pursuant to an exemptive order granted by the Securities and Exchange
Commission.
The fund has also agreed that it will not purchase any warrants if immediately
after and as a result of such purchase more than 5% of the market value of the
total assets of the fund would be invested in such warrants, with no more than
2% being unlisted on the New York or American Stock Exchanges. These are not
fundamental policies of the fund and may be changed without shareholder
approval.
FUND OFFICERS AND DIRECTORS
DIRECTORS AND DIRECTOR COMPENSATION
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NAME, ADDRESS POSITION PRINCIPAL OCCUPATION(S) DURING AGGREGATE COMPENSATION TOTAL COMPENSATION FROM TOTAL NUMBER
AND AGE WITH PAST 5 YEARS (POSITIONS WITHIN (INCLUDING VOLUNTARILY ALL FUNDS MANAGED BY OF FUND BOARDS
REGISTRANT THE ORGANIZATIONS LISTED MAY DEFERRED CAPITAL RESEARCH AND ON WHICH
HAVE CHANGED DURING THIS COMPENSATION/1/) MANAGEMENT COMPANY DIRECTOR SERVES/3/
PERIOD) FROM THE FUND FOR THE YEAR ENDED
DURING FISCAL YEAR ENDED 7/31/96/2/
7/31/96
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Robert A. Fox Director President and Chief Executive $ 17,000/4/ $ 80,550/4/ 5
P.O. Box 457 Officer,
1000 Davis Street Foster Farms; former President,
Livingston, CA 95334 Revlon International
Age: 59
Roberta L. Hazard Director Consultant; Rear Admiral, United $ 17,000 $ 42,650 3
1419 Audmar Drive States Navy (Retired)
McLean, VA 22101
Age: 61
Leonade D. Jones Director Former Treasurer, The Washington $ 16,400/4/ $ 69,100/4/ 5
1536 Los Montes Drive Post Company
Burlingame, CA 94010
Age: 49
John G. McDonald Director The IBJ Professor of Finance, $ 17,900/4/ $ 138,950/4/ 7
Stanford University Graduate School of Business,
Stanford, CA 94305 Stanford University
Age: 59
+James W. Ratzlaff Director Senior Partner, The Capital Group None/5/ None/5/ 8
P.O. Box 7650 Partners L.P.
San Francisco, CA 94120
Age: 60
Henry E. Riggs Director President, Graduate Institute of $ 17,900/4/ $ 71,750/4/ 5
1263 North Dartmouth Applied Life Sciences at Claremont;
Claremont, CA 91711 former President and Professor of
Age: 61 Engineering, Harvey Mudd College
+Walter P. Stern Chairman of Chairman, Capital Group None/5/ None/5/ 8
630 Fifth Avenue the Board International, Inc.; Vice Chairman,
New York, NY 10111 Capital Research International;
Age: 68 Chairman, Capital International, Inc.;
Director, Temple-Inland Inc. (forest
products)
Patricia K. Woolf Director Private investor; Lecturer, $ 17,300 $ 70,500 5
506 Quaker Road Department of Molecular Biology,
Princeton, NJ 08540 Princeton University
Age: 62
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+ "Interested persons" within the meaning of the Investment Company Act of 1940
(the 1940 Act) on the basis of their affiliation with the fund's Investment
Adviser, Capital Research and Management Company or the parent company of the
Investment Adviser, The Capital Group Companies, Inc.
/1/ Amounts may be deferred by eligible directors under a non-qualified
deferred compensation plan adopted by the fund in 1993. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more of
the funds in The American Funds Group as designated by the director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, Inc., American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management
Trust of America, Capital Income Builder, Inc., Capital World Growth and Income
Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America.
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U.S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc. Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serve as the underlying investment vehicles for certain
variable insurance contracts; and Bond Portfolio for Endowments, Inc. and
Endowments, Inc. whose shares may be owned only by tax-exempt organizations.
/3/ Includes funds managed by Capital Research and Management Company and
affiliates.
/4/ Since the plan's adoption, the total amounts of deferred compensation
accrued by the fund (plus earnings thereon) for participating directors are as
follows: Robert A. Fox ($86,692), Leonade D. Jones ($27,833), John G. McDonald
($45,767) and Henry E. Riggs ($52,352). Amounts deferred and accumulated
earnings thereon are not funded and are general unsecured liabilities of the
fund until paid to the director.
/5/ James W. Ratzlaff and Walter P. Stern are affiliated with the Investment
Adviser and, accordingly, receive no compensation from the fund.
OFFICERS
(with their principal occupations for the past five years)#
Walter P. Stern, Chairman of the Board.
Fund officers whose other positions are not described above are:
Stephen E. Bepler, Senior Vice President /2/; Senior Vice President and
Director, Capital Research Company.
Abner D. Goldstine, Senior Vice President /3/; Senior Vice President and
Director, Capital Research and Management Company.
Paul G. Haaga, Jr., Senior Vice President, 333 South Hope Street, Los Angeles,
CA 90071; Executive Vice President and Director, Capital Research and
Management Company; Director, American Funds Service Company.
Richard T. Schotte, Senior Vice President /3/; Senior Vice President, Capital
Research and Management Company.
Janet A. McKinley, President /2/; Senior Vice President, Capital Research
Company.
Dina N. Perry, Vice President, 3000 K Street, N.W., Washington, D.C. 20007;
Vice President, Capital Research and Management Company.
John H. Smet, Vice President /3/; Vice President, Capital Research and
Management Company.
Patrick F. Quan, Secretary /1/; Vice President - Fund Business Management
Group, Capital Research and Management Company.
Mary C. Hall, Treasurer /4/; Senior Vice President - Fund Business Management
Group, Capital Research and Management Company.
R. Marcia Gould, Assistant Treasurer /4/; Vice President - Fund Business
Management Group, Capital Research and Management Company.
/1/ Address is P.O. Box 7650, San Francisco, CA 94120.
/2/ Address is 630 Fifth Avenue, New York, NY 10111.
/3/ Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025.
/4/ Address is 135 South State College Boulevard, Brea, CA 92821.
# Positions within the organizations listed may have changed during this
period.
All of the directors and officers are also officers and/or directors and/or
trustees of one or more of the other funds for which Capital Research and
Management Company serves as Investment Adviser. No compensation is paid by
the fund to any officer or director who is a director, officer or employee of
the Investment Adviser or affiliated companies. The fund pays fees of $12,000
per annum to directors who are not affiliated with the Investment Adviser, plus
$700 for each Board of Directors meeting attended, plus $300 for each meeting
attended as a member of a committee of the Board of Directors. The directors
may elect, on a voluntary basis, to defer all or a portion of these fees
through a deferred compensation plan in effect for the fund. The fund also
reimburses certain expenses of the directors who are not affiliated with the
Investment Adviser. As of July 31, 1996 the officers and directors of the fund
and their families, as a group, owned beneficially or of record less than 1% of
the outstanding shares.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience. The Investment Adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821.
The Investment Adviser's research professionals travel several million miles a
year, making more than 5,000 research visits in more than 50 countries around
the world. The Investment Adviser believes that it is able to attract and
retain quality personnel. The Investment Adviser is a wholly owned subsidiary
of The Capital Group Companies, Inc.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for managing more than $100 billion of
stocks, bonds and money market instruments and serves over five million
investors of all types. These investors include privately owned businesses and
large corporations as well as schools, colleges, foundations and other
non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and
Service Agreement (the Agreement) between the fund and the Investment Adviser,
dated January 1, 1994, and approved by the shareholders on December 14, 1993,
was amended by the Board of Directors on April 1, 1996. The Agreement shall be
in effect until the close of business on November 30, 1997 and may be renewed
from year to year thereafter, provided that any such renewal has been
specifically approved at least annually by (i) the Board of Directors of the
fund, or by the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the fund, and (ii) the vote of a majority of
directors who are not parties to the Agreement or interested persons (as
defined in said Act) of any such party, cast in person, at a meeting called for
the purpose of voting on such approval. The Agreement also provides that
either party has the right to terminate it without penalty, upon 60 days'
written notice to the other party, and that the Agreement automatically
terminates in the event of its assignment (as defined in said Act).
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the fund, and provides suitable office space, necessary small office equipment
and utilities, as well as general purpose accounting forms, supplies, and
postage to be used at the offices of the fund relating to the services
furnished by the Investment Adviser. The fund pays all expenses not
specifically assumed by the Investment Adviser, including, but not limited to,
custodian, stock transfer and dividend disbursing fees and expenses; costs of
designing, printing and mailing reports, prospectuses, proxy statements, and
notices to shareholders; taxes; expenses for the issuance and redemption of
shares of the fund (including stock certificates, registration and
qualification fees and expenses); expenses pursuant to the fund's Plan of
Distribution (described below); legal and auditing expenses; compensation,
fees, and expenses paid to directors unaffiliated with the Investment Adviser;
association dues; costs of stationery and forms prepared exclusively for the
fund; and costs of assembling and storing shareholder account data.
The management fee is based upon the net assets of the fund and monthly gross
investment income. Gross investment income means gross income, computed
without taking account of gains or losses from sales of capital assets, but
including original issue discount as defined for federal income tax purposes.
The Internal Revenue Code in general defines original issue discount to mean
the difference between the issue price and the stated redemption price at
maturity of certain debt obligations. The holder of such indebtedness is in
general required to treat as ordinary income the proportionate part of the
original issue discount attributable to the period during which the holder held
the indebtedness. The management fee is based upon the annual rates of 0.24%
on the first $1 billion of the fund's net assets, 0.20% on net assets in excess
of $1 billion but not exceeding $2 billion, 0.18% on net assets in excess of $2
billion but not exceeding $3 billion, 0.165% on net assets in excess of $3
billion but not exceeding $5 billion, 0.155% on net assets in excess of $5
billion but not exceeding $8 billion, 0.15% on net assets in excess of $8
billion but not exceeding $13 billion, and 0.147% on net assets in excess of
$13 billion, plus 2.25% of the fund's gross investment income for the preceding
month. Assuming net assets of $14 billion and gross investment income levels of
3%, 4%, 5%, 6%, 7% and 8%, management fees would be 0.23%, 0.26%, 0.28%, 0.30%,
0.32% and 0.35% of net assets, respectively.
The Agreement provides for a management fee reduction to the extent that the
fund's annual ordinary operating expenses exceed 1-1/2% of the first $30
million of the net assets of the fund and 1% of the net assets in excess
thereof. Expenses which are not subject to this limitation are interest,
taxes, and extraordinary expenses. Expenditures, including costs incurred in
connection with the purchase or sale of portfolio securities, which are
capitalized in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital items and not
as expenses.
For the fiscal year ended July 31, 1996, the Investment Adviser received
$22,874,000 for the basic management fee (based on a percentage of the net
assets of the fund as expressed above) plus $19,191,000 (based on a percentage
of the fund's gross income as expressed above), for a total fee of $42,065,000.
For the fiscal years ended July 31, 1995 and 1994, management fees paid by the
fund amounted to $35,698,000 and $32,273,000, respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the Principal
Underwriter) is the principal underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 8000 IH-10 West, San Antonio, TX
78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240, and 5300
Robin Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of Distribution
(the Plan), pursuant to rule 12b-1 under the 1940 Act, The Principal
Underwriter receives amounts payable pursuant to the Plan (see below) and
commissions consisting of that portion of the sales charge remaining after the
discounts which it allows to investment dealers. Commissions retained by the
Principal Underwriter on sales of fund shares during the fiscal year ended July
31, 1996 amounted to $11,114,000 after allowance of $56,184,000 to dealers.
During the fiscal years ended 1995 and 1994, the Principal Underwriter received
$7,246,000 and $15,331,000, after allowance of $36,662,000 and $79,611,000,
respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by the full Board of Directors, and separately by
a majority of the directors who are not interested persons of the fund and who
have no direct or indirect financial interest in the operation of the Plan or
the Principal Underwriting Agreement, and the Plan has been approved by the
vote of a majority of the outstanding voting securities of the fund. The
officers and directors who are "interested" persons of the fund may be
considered to have a direct or indirect financial interest in the operation of
the Plan due to present or past affiliations with the Investment Adviser and
related companies. Potential benefits of the Plan to the fund include improved
shareholder services, savings to the fund in transfer agency costs, savings to
the fund in advisory fees and other expenses, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management organization. The selection and nomination of directors who
are not "interested persons" of the fund are committed to the discretion of the
directors who are not interested persons during the existence of the Plan. The
Plan is reviewed quarterly and must be renewed annually by the Board of
Directors.
Under the Plan the fund may expend up to 0.25% of its net assets annually to
finance any activity which is primarily intended to result in the sale of fund
shares, provided the fund's Board of Directors has approved the category of
expenses for which payment is being made. These include service fees for
qualified dealers and dealer commissions and wholesaler compensation on sales
of shares exceeding $1 million (including purchases by any employer-sponsored
403(b) plan or purchases by any defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200
or more eligible employees). Only expenses incurred during the preceding 12
months and accrued while the Plan is in effect may be paid by the fund. During
the fiscal year ended July 31, 1996, the fund paid or accrued $31,409,000 for
compensation to dealers under the Plan.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit commercial banks from engaging in the business of
underwriting, selling or distributing securities, but permit banks to make
shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries or affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer adverse financial consequences as a result of any of
these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements, and has elected the tax status
of, a "regulated investment company," under the provisions of Subchapter M of
the Internal Revenue Code of 1986 (the Code). Under Subchapter M, if the fund
distributes within specified times at least 90% of the sum of its investment
company taxable income (net investment income and the excess of net short-term
capital gains over net long-term capital losses) and its tax-exempt interest,
if any, it will be taxed only on that portion of such investment company
taxable income that it retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities, currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) derive less than 30% of its gross income from the gains on sale
or other disposition of stock or securities held less than three months; and
(c) diversify its holdings so that, at the end of each fiscal quarter, (i) at
least 50% of the market value of the fund's assets is represented by cash, cash
items, U.S. Government securities, securities of other regulated investment
companies, and other securities (but such other securities must be limited, in
respect of any one issuer, to an amount not greater than 5% of the fund's
assets and 10% of the outstanding voting securities of such issuer), and (ii)
not more than 25% of the value of its assets is invested in the securities of
any one issuer (other than U.S. Government securities or the securities of
other regulated investment companies), or in two or more issuers which the fund
controls and which are engaged in the same or similar trades or businesses or
related trades or businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gains (both long-term and
short-term) for the one-year period ending on October 31 (as though the
one-year period ending on October 31 were the regulated investment company's
taxable year), and (iii) the sum of any untaxed, undistributed net investment
income and net capital gains of the regulated investment company for prior
periods. The term "distributed amount" generally means the sum of (i) amounts
actually distributed by the fund from its current year's ordinary income and
capital gain net income and (ii) any amount on which the fund pays income tax
during the periods described above. The fund intends to distribute net
investment income and net capital gains so as to minimize or avoid the excise
tax liability.
The fund also intends to continue distributing to shareholders all of the
excess of net long-term capital gain over net short-term capital loss on sales
of securities. If the net asset value of shares of the fund should, by reason
of a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made payable
to shareholders of record in such a month are treated as paid and are thereby
taxable as of December 31, provided that the fund pays the dividend no later
than the end of January of the following year.
Corporate shareholders of the fund may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gain distributions) paid
by the fund to the extent the fund's income is derived from dividends (which
if received directly would qualify for such deduction) received from domestic
corporations. In order to qualify for the dividends-received deduction, a
corporate shareholder must hold the fund shares paying the dividends upon which
the deduction is based for at least 46 days.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation or foreign
partnership (a foreign shareholder) will be subject to U.S. withholding tax (at
a rate of 30% or lower treaty rate). Withholding will not apply if a dividend
paid by the fund to a foreign shareholder is "effectively connected" with a
U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents, or domestic
corporations will apply. Distributions of net long-term capital gains not
effectively connected with a U.S. trade or business are not subject to tax
withholding, but in the case of a foreign shareholder who is a nonresident
alien individual, such distributions ordinarily will be subject to U.S. income
tax at a rate of 30% if the individual is physically present in the U.S. for
more than 182 days during the taxable year.
Income and dividends received by the fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Because not more than 50% of the value of the
total assets of the fund is expected to consist of securities of foreign
issuers, the fund will not be eligible to elect to "pass through" foreign tax
credits to shareholders.
As of the date of this statement of additional information, the maximum
federal individual stated tax rate applicable to ordinary income is 39.6%
(effective tax rates may be higher for some individuals due to phase out of
exemptions and elimination of deductions); the maximum individual tax rate
applicable to net capital gains is 28%; and the maximum corporate tax
applicable to ordinary income and net capital gains is 35%. However, to
eliminate the benefit of lower marginal corporate income tax rates,
corporations which have taxable income in excess of $100,000 for a taxable year
will be required to pay an additional amount of tax of up to $11,750 and
corporations which have taxable income in excess of $15,000,000 for a taxable
year will be required to pay an additional amount of tax of up to $100,000.
Naturally, the amount of tax payable by a shareholder with respect to either
distributions from the fund or disposition of fund shares will be affected by a
combination of tax law rules covering, E.G., deductions, credits, deferrals,
exemptions, sources of income and other matters. Under the Code, an individual
is entitled to establish an IRA each year (prior to the tax return filing
deadline for the year) whereby earnings on investments are tax-deferred. In
addition, in some cases, the IRA contribution itself may be deductible.
The foregoing is limited to a summary of federal taxation and should not be
viewed as a comprehensive discussion of all provisions of the Code relevant to
investors. Dividends and capital gain distributions may also be subject to
state or local taxes. Shareholders should consult their own tax advisers for
additional details as to their particular tax status.
PURCHASE OF SHARES
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METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums and $50 minimum (except where a lower
Fund Numbers" for initial minimum is noted under "Investment
investment minimums. Minimums and Fund Numbers").
By contacting Visit any investment dealer who Mail directly to your investment
your is registered in the state where dealer's address printed on your
investment the purchase is made and who account statement.
dealer has a sales agreement with
American Funds Distributors.
By mail Make your check payable to the Fill out the account additions form at the
fund and mail to the address bottom of a recent account statement, make
indicated on the account your check payable to the fund, write your
application. Please indicate an account number on your check, and mail
investment dealer on the account the check and form in the envelope
application. provided with your account statement.
By telephone Please contact your investment Complete the "Investments by Phone"
dealer to open account, then section on the account application or
follow the procedures for American FundsLink Authorization Form.
additional investments. Once you establish the privilege, you, your
financial advisor or any person with your
account information can call American
FundsLine(R) and make investments by
telephone (subject to conditions noted in
"Telephone Purchases, Redemptions and
Exchanges" below).
By wire Call 800/421-0180 to obtain Your bank should wire your additional
your account number(s), if investments in the same manner as
necessary. Please indicate an described under "Initial Investment."
investment dealer on the
account. Instruct your bank to
wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the account of:
American Funds Service
Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER.
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INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial
investments required by the funds in The American Funds Group along with fund
numbers for use with our automated phone line, American FundsLine(R) (see
description below):
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FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R) $1,000 02
American Balanced Fund(R) 500 11
American Mutual Fund(R) 250 03
Capital Income Builder(R) 1,000 12
Capital World Growth and Income Fund(SM) 1,000 33
EuroPacific Growth Fund(R) 250 16
Fundamental Investors(SM) 250 10
The Growth Fund of America(R) 1,000 05
The Income Fund of America(R) 1,000 06
The Investment Company of America(R) 250 04
The New Economy Fund(R) 1,000 14
New Perspective Fund(R) 250 07
SMALLCAP World Fund(R) 1,000 35
Washington Mutual Investors Fund(SM) 250 01
BOND FUNDS
American High-Income Municipal Bond Fund(R) 1,000 40
American High-Income Trust(SM) 1,000 21
The Bond Fund of America(SM) 1,000 08
Capital World Bond Fund(R) 1,000 31
Intermediate Bond Fund of America(SM) 1,000 23
Limited Term Tax-Exempt Bond Fund of America(SM) 1,000 43
The Tax-Exempt Bond Fund of America(R) 1,000 19
The Tax-Exempt Fund of California(R)* 1,000 20
The Tax-Exempt Fund of Maryland(R)* 1,000 24
The Tax-Exempt Fund of Virginia(R)* 1,000 25
U.S. Government Securities Fund(SM) 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of America(R) 2,500 09
The Tax-Exempt Money Fund of America(SM) 2,500 39
The U.S. Treasury Money Fund of America(SM) 2,500 49
___________
*Available only in certain states.
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For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
DEALER COMMISSIONS - The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
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AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND FUNDS
Less than $50,000 6.10% 5.75% 5.00%
$50,000 but less than $100,000 4.71 4.50 3.75
BOND FUNDS
Less than $25,000 4.99 4.75 4.00
$25,000 but less than $50,000 4.71 4.50 3.75
$50,000 but less than $100,000 4.17 4.00 3.25
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000 3.63 3.50 2.75
$250,000 but less than $500,000 2.56 2.50 2.00
$500,000 but less than $1,000,000 2.04 2.00 1.60
$1,000,000 or more none none (see below)
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Commissions of up to 1% will be paid to dealers who initiate and are
responsible for purchases of $1 million or more, for purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $100 million or more: 1.00% on amounts of $1 million
to $2 million, 0.80% on amounts over $2 million to $3 million, 0.50% on amounts
over $3 million to $50 million, 0.25% on amounts over $50 million to $100
million, and 0.15% on amounts over $100 million. The level of dealer
commissions will be determined based on sales made over a 12-month period
commencing from the date of the first sale at net asset value.
American Funds Distributors, at its expense (from a designated percentage of
its income), will, during calendar year 1997, provide additional compensation
to dealers. Currently these payments are limited to the top one hundred dealers
who have sold shares of the fund or other funds in The American Funds Group.
These payments will be based on a pro rata share of a qualifying dealer's
sales. American Funds Distributors will, on an annual basis, determine the
advisability of continuing these payments.
Any employer-sponsored 403(b) plan or defined contribution plan qualified
under Section 401(a) of the Internal Revenue Code including a "401(k)" plan
with 200 or more eligible employees or any other purchaser investing at least
$1 million in shares of the fund (or in combination with shares of other funds
in The American Funds Group other than the money market funds) may purchase
shares at net asset value; however, a contingent deferred sales charge of 1% is
imposed on certain redemptions made within twelve months of the purchase. (See
"Redeeming Shares--Contingent Deferred Sales Charge.")
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
NET ASSET VALUE PURCHASES - The stock, stock/bond and bond funds may sell
shares at net asset value to: (1) current or retired directors, trustees,
officers and advisory board members of the funds managed by Capital Research
and Management Company, employees of Washington Management Corporation,
employees and partners of The Capital Group Companies, Inc. and its affiliated
companies, certain family members of the above persons, and trusts or plans
primarily for such persons; (2) current registered representatives, retired
registered representatives with respect to accounts established while active,
or full-time employees (and their spouses, parents, and children) of dealers
who have sales agreements with American Funds Distributors (or who clear
transactions through such dealers) and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer; (4) trustees or other fiduciaries purchasing shares for
certain retirement plans of organizations with retirement plan assets of $100
million or more; (5) insurance company separate accounts; (6) accounts managed
by subsidiaries of The Capital Group Companies, Inc.; and (7) The Capital Group
Companies, Inc., its affiliated companies and Washington Management
Corporation. Shares are offered at net asset value to these persons and
organizations due to anticipated economies in sales effort and expense.
STATEMENT OF INTENTION - The reduced sales charges and offering prices set
forth in the Prospectus apply to purchases of $50,000 or more made within a
13-month period subject to the following statement of intention (the Statement)
terms. The Statement is not a binding obligation to purchase the indicated
amount. When a shareholder elects to utilize the Statement in order to qualify
for a reduced sales charge, shares equal to 5% of the dollar amount specified
in the Statement will be held in escrow in the shareholder's account out of the
initial purchase (or subsequent purchases, if necessary) by the Transfer Agent.
All dividends and any capital gain distributions on shares held in escrow will
be credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the specified
13-month period, the purchaser will remit to the Principal Underwriter the
difference between the sales charge actually paid and the sales charge which
would have been paid if the total of such purchases had been made at a single
time. If the difference is not paid within 45 days after written request by
the Principal Underwriter or the securities dealer, the appropriate number of
shares held in escrow will be redeemed to pay such difference. If the proceeds
from this redemption are inadequate, the purchaser will be liable to the
Principal Underwriter for the balance still outstanding. The Statement may be
revised upward at any time during the 13-month period, and such a revision will
be treated as a new Statement, except that the 13-month period during which the
purchase must be made will remain unchanged and there will be no retroactive
reduction of the sales charges paid on prior purchases. Existing holdings
eligible for rights of accumulation (see the prospectus and account
application) may be credited toward satisfying the Statement. During the
Statement period reinvested dividends and capital gain distributions,
investments in money market funds, and investments made under a right of
reinstatement will not be credited toward satisfying the Statement.
In the case of purchase orders by the trustees of certain retirement plans by
payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: The regular monthly payroll
deduction investment will be multiplied by 13 and then multiplied by 1.5. The
current value of existing American Funds investments (other than money market
fund investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period are
added to the figure determined above. The sum is the Statement amount and
applicable breakpoint level. On the first investment and all other investments
made pursuant to the Statement, a sales charge will be assessed according to
the sales charge breakpoint thus determined. There will be no retroactive
adjustments in sales charges on investments previously made during the 13-month
period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the Investment Company Act of 1940, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company. This offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. In case of orders sent directly to the fund or American Funds
Service Company, an investment dealer MUST be indicated. The dealer is
responsible for promptly transmitting purchase orders to the Principal
Underwriter. Orders received by the investment dealer, the Transfer Agent, or
the fund after the time of the determination of the net asset value will be
entered at the next calculated offering price. Prices which appear in the
newspaper are not always indicative of prices at which you will be purchasing
and redeeming shares of the fund, since such prices generally reflect the
previous day's closing price whereas purchases and redemptions are made at the
next calculated price.
The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily at the close of trading
(currently 4:00 p.m., New York time) each day the New York Stock Exchange is
open. The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The net
asset value per share is determined as follows:
1. Equity-type securities traded on a national securities exchange (or
reported on the NASDAQ national market) and securities traded in the
over-the-counter market are stated at the last reported sales price on the day
of valuation; other securities, and securities for which no sale was reported
on that date, are stated at the last quoted bid price.
Bonds and notes are valued at prices obtained from a bond-pricing service
provided by a major dealer in bonds, when such prices are available; however,
in circumstances where the investment adviser deems it appropriate to do so,
such securities will be valued at the mean of their representative quoted bid
and asked prices or, if such prices are not available, at prices for securities
of comparable maturity, quality, and type.
Short-term securities with original or remaining maturities in excess of 60
days are valued at the mean of their quoted bid and asked prices. Short-term
securities with 60 days or less to maturity are valued at amortized cost, which
approximates market value. Securities for which market quotations are not
readily available are valued at fair value as determined in good faith by the
Valuation Committee of the Board of Directors.
2. There are deducted from the total assets, thus determined, the
liabilities, including proper accruals of taxes and other expense items; and
3. The value of the net assets so obtained is then divided by the total
number of shares outstanding, and the result, rounded to the nearer cent, is
the net asset value per share.
Any purchase order may be rejected by the Principal Underwriter or the fund.
The Principal Underwriter will not knowingly sell fund shares directly,
indirectly, or through a unit investment trust to any other investment company,
or to any person or entity, where, after the sale, such investment company,
person, or entity would own beneficially, directly, indirectly, or through a
unit investment trust, more than 4.5% of the outstanding shares of the fund
without the consent of a majority of the fund's directors.
REDEEMING SHARES
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By writing to American Funds Send a letter of instruction specifying the name of the fund, the
Service Company (at the number of shares or dollar amount to be sold, your name and
appropriate address indicated account number. You should also enclose any share certificates
under "Principal Underwriter you wish to redeem. For redemptions over $50,000 and for
and Transfer Agent" in the certain redemptions of $50,000 or less (see below), your
prospectus) signature must be guaranteed by a bank, savings association,
credit union, or member firm of a domestic stock exchange or the
National Association of Securities Dealers, Inc. that is an eligible
guarantor institution. You should verify with the institution that
it is an eligible guarantor prior to signing. Additional
documentation may be required for redemption of shares held in
corporate, partnership or fiduciary accounts. Notarization by a
Notary Public is not an acceptable signature guarantee.
By contacting your investment If you redeem shares through your investment dealer, you may be
dealer charged for this service. SHARES HELD FOR YOU IN YOUR
INVESTMENT DEALER'S STREET NAME MUST BE REDEEMED THROUGH THE
DEALER.
You may have a redemption You may use this option, provided the account is registered in the
check sent to you by using name of an individual(s), a UGMA/UTMA custodian, or a non-
American FundsLine(R) or by retirement plan trust. These redemptions may not exceed
telephoning, faxing, or $10,000 per day, per fund account and the check must be made
telegraphing American Funds payable to the shareholder(s) of record and be sent to the address
Service Company (subject to of record provided the address has been used with the account for
the conditions noted in this at least 10 days. See "Transfer Agent" and "Exchange Privilege"
section and in "Telephone below for the appropriate telephone or fax number.
Purchases, Redemptions and
Exchanges" below)
In the case of the money Upon request (use the account application for the money market
market funds, you may have funds) you may establish telephone redemption privileges (which
redemptions wired to your will enable you to have a redemption sent to your bank account)
bank by telephoning American and/or check writing privileges. If you request check writing
Funds Service Company privileges, you will be provided with checks that you may use to
($1,000 or more) or by draw against your account. These checks may be made payable
writing a check ($250 or to anyone you designate and must be signed by the authorized
more) number of registered shareholders exactly as indicated on your
checking account signature card.
</TABLE>
A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY REDEMPTION OF $50,000
OR LESS PROVIDED THE REDEMPTION CHECK IS MADE PAYABLE TO THE REGISTERED
SHAREHOLDER(S) AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE ADDRESS HAS
BEEN USED WITH THE ACCOUNT FOR AT LEAST 10 DAYS.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares. Shares held
for the longest period are assumed to be redeemed first for purposes of
calculating this charge. The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer-sponsored
retirement plan; for distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 59 1/2; for tax-free returns of excess
contributions to IRAs; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the dates you select. Bank accounts will be
charged on the day or a few days before investments are credited, depending on
the bank's capabilities, and shareholders will receive a confirmation statement
at least quarterly. Participation in the plan will begin within 30 days after
receipt of the account application. If the shareholder's bank account cannot
be charged due to insufficient funds, a stop-payment order or the closing of
the account, the plan may be terminated and the related investment reversed.
The shareholder may change the amount of the investment or discontinue the plan
at any time by writing to the Transfer Agent.
AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the paying fund) into any other fund in The
American Funds Group (the receiving fund) subject to the following conditions:
(i) the aggregate value of the shareholder's account(s) in the paying fund(s)
must equal or exceed $5,000 (this condition is waived if the value of the
account in the receiving fund equals or exceeds that fund's minimum initial
investment requirement), (ii) as long as the value of the account in the
receiving fund is below that fund's minimum initial investment requirement,
dividends and capital gain distributions paid by the receiving fund must be
automatically reinvested in the receiving fund, and (iii) if this privilege is
discontinued with respect to a particular receiving fund, the value of the
account in that fund must equal or exceed the fund's minimum initial investment
requirement or the fund shall have the right, if the shareholder fails to
increase the value of the account to such minimum within 90 days after being
notified of the deficiency, automatically to redeem the account and send the
proceeds to the shareholder. These cross-reinvestments of dividends and
capital gain distributions will be at net asset value (without sales charge).
EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLine(R) (see "American FundsLine(R)" below), or by telephoning
800/421-0180 toll-free, faxing (see "Transfer Agent" below for the appropriate
fax numbers) or telegraphing American Funds Service Company. (See "Telephone
Redemptions and Exchanges" below.) Shares held in corporate-type retirement
plans for which Capital Guardian Trust Company serves as trustee may not be
exchanged by telephone, fax or telegraph. Exchange redemptions and purchases
are processed simultaneously at the share prices next determined after the
exchange order is received. (See "Purchase of Shares--Price of Shares.") THESE
TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES - You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS - Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments and dividend reinvestments, will be reflected on regular
confirmation statements from American Funds Service Company. Purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
AMERICAN FUNDSLINE(R) - You may check your share balance, the price of your
shares, or your most recent account transaction, redeem shares (up to $10,000
per fund, per account each day), or exchange shares around the clock with
American FundsLine(R). To use this service, call 800/325-3590 from a
TouchTone(TM)telephone. Redemptions and exchanges through American
FundsLine(R) are subject to the conditions noted above and in "Redeeming
Shares--Telephone Redemptions and Exchanges" below. You will need your fund
number (see the list of funds in The American Funds Group under "Purchase of
Shares--Investment Minimums and Fund Numbers"), personal identification number
(the last four digits of your Social Security number or other tax
identification number associated with your account) and account number.
TELEPHONE REDEMPTIONS AND EXCHANGES - By using the telephone (including
American FundsLine(R)), fax or telegraph redemption and/or exchange options,
you agree to hold the fund, American Funds Service Company, any of its
affiliates or mutual funds managed by such affiliates, and each of their
respective directors, trustees, officers, employees and agents harmless from
any losses, expenses, costs or liability (including attorney fees) which may be
incurred in connection with the exercise of these privileges. Generally, all
shareholders are automatically eligible to use these options. However, you may
elect to opt out of these options by writing American Funds Service Company
(you may also reinstate them at any time by writing American Funds Service
Company). If American Funds Service Company does not employ reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine, the fund may be liable for losses
due to unauthorized or fraudulent instructions. In the event that shareholders
are unable to reach the fund by telephone because of technical difficulties,
market conditions, or a natural disaster, redemption and exchange requests may
be made in writing only.
EXECUTION OF PORTFOLIO TRANSACTIONS
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner. The fund will not pay a mark-up for
research in principal transactions.
The fund is required to disclose information regarding investments in the
securities of broker-dealers which have certain relationships with the fund.
During the last fiscal year, General Electric Capital Corp., Lehman Commercial
Paper Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., and J.P. Morgan & Co.
Inc. were among the top 10 dealers that acted as principals in portfolio
transactions; and Lehman Brothers Inc., an affiliate of American Express Co.
was among the top 10 dealers receiving commissions due to portfolio
transactions. The fund held equity securities of American Express Co. and J.P.
Morgan & Co. Inc. in the amounts of $10,937,000 and $56,760,000, respectively,
and debt securities of American Express Credit Corp., GE Capital Mortgage
Services, General Electric Capital Corp., and Merrill Lynch Mortgage Investors
Inc. in the amounts of $43,257,000, $8,145,000, $4,563,000, and $19,807,000,
respectively, as of the close of its most recent fiscal year.
Brokerage commissions paid on portfolio transactions during the fiscal years
ended July 31, 1996, 1995 and 1994, amounted to $7,865,000, $5,001,000, and
$4,923,000, respectively.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including
proceeds from the sale of shares of the fund and of securities in the fund's
portfolio, are held by The Chase Manhattan Bank., One Chase Manhattan Plaza,
New York, NY 10081, as Custodian.
TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee
of $8,735,000 for the fiscal year ended July 31, 1996.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
<TABLE>
<CAPTION>
<S> <C> <C>
SERVICE AREA ADDRESS AREAS SERVED
WESTERN P.O. Box 2205 AK, AZ, CA, HI, ID, MT, NV, OR,
Brea, CA 92822-2205 UT, WA and outside the U.S.
Fax: 714/671-7080
WESTERN- P.O. Box 659522 AR, CO, IA, KS, LA, MN, MO, ND,
CENTRAL San Antonio, TX 78265-9522 NE, NM, OK, SD, TX and WY
Fax: 210/530-4050
EASTERN-CENTRAL P.O. Box 6007 AL, IL, IN, KY, MI, MS, OH, TN and
Indianapolis, IN 46206-6007 WI
Fax: 317/735-6620
EASTERN P.O. Box 2280 CT, DE, FL, GA, MA, MD, ME, NC,
Norfolk, VA 23501-2280 NH, NJ, NY, PA, RI, SC, VA, VT,
Fax: 804/670-4773 WV and Washington, D.C.
All shareholders may call American Funds Service Company at 800/421-0180 for service.
</TABLE>
INDEPENDENT AUDITORS - Deloitte & Touche LLP located at 1000 Wilshire
Boulevard, Los Angeles, CA 90017, serves as the fund's independent auditors
providing audit services, preparation of tax returns and review of certain
documents of the fund to be filed with the Securities and Exchange Commission.
The financial statements included in this statement of additional information
from the annual report have been so included in reliance on the report of
Deloitte & Touche LLP given on the authority of said firm as experts in
accounting and auditing.
REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on July 31. Shareholders
are provided at least semi-annually with reports showing the investment
portfolio, financial statements and other information. The annual financial
statements are audited annually by the fund's independent auditors, Deloitte &
Touche LLP, whose selection is determined by the Board of Directors.
PERSONAL INVESTING POLICY - Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions. You may obtain a summary of
the personal investing policy by contacting the Secretary of the fund.
The financial statements including the investment portfolio and the report of
Independent Auditors contained in the annual report are included in this
statement of additional information. The following information is not included
in the annual report:
<TABLE>
<CAPTION>
<S> <C>
DETERMINATION OF NET ASSET VALUE,
REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE--JULY 31, 1996
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $15.89
Maximum offering price per share
(100/94.25 of net asset value per share
which takes into account the fund's current
maximum sales charge) $16.86
</TABLE>
REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any director or directors from office and may elect a successor
or successors to fill any resulting vacancies for the unexpired terms of
removed directors. The fund has made an undertaking, at the request of the
staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of directors as
though the fund were a common-law trust. Accordingly, the directors of the
fund shall promptly call a meeting of shareholders for the purpose of voting
upon the question of removal of any director when requested in writing to do so
by the record holders of not less than 10% of the outstanding shares.
INVESTMENT RESULTS
The fund's yield is 4.98% based on a 30-day (or one month) period ended July
31, 1996, computed by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last day of
the period, according to the following formula:
YIELD = 2[(a-b/cd+1)/6/-1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
The fund's average annual total return for the one-, five- and ten-year
periods ended on July 31, 1996 was +6.94%, +11.09% and +10.90%, respectively.
The average annual total return (T) is computed by equating the value at the
end of the period (ERV) with a hypothetical initial investment of $1,000 (P)
over a period of years (n) according to the following formula as required by
the Securities and Exchange Commission: P(1+T)/n/ = ERV.
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) deduction of the maximum sales load of
5.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated.
The fund may also, at times, calculate total return based on net asset value
per share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the computation. Consequently,
total return calculated in this manner will be higher. These total returns may
be calculated over periods in addition to those described above. Total return
for the unmanaged indices will be calculated assuming reinvestment of dividends
and interest, but will not reflect any deductions for advisory fees, brokerage
costs or administrative expenses.
The fund may also calculate a distribution rate on a taxable and tax
equivalent basis. The distribution rate is computed by dividing the dividends
paid by the fund over the last 12 months by the sum of the month-end net asset
value or maximum offering price and the capital gains paid over the last 12
months. The distribution rate may differ from the yield.
The fund may include information on its investment results and/or comparisons
of its investment results to various unmanaged indices (such as The Dow Jones
Average of 30 Industrial Stocks, The Standard & Poor's 500 Stock Composite
Index, the Lehman Brothers Corporate Bond Index, the Lehman Brothers Aggregate
Bond Index and the Salomon Brothers High-Grade Corporate Bond Index) or results
of other mutual funds or investment or savings vehicles in advertisements or in
reports furnished to present or prospective shareholders.
The fund may refer to results compiled by organizations such as CDA Investment
Technologies, Ibbotson Associates, Lipper Analytical Services, Morningstar,
Inc., and Wiesenberger Investment Companies Services and by the U.S. Department
of Commerce. Additionally, the fund may, from time to time, refer to results
published in various newspapers and periodicals, including Barrons, Forbes,
Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine, Money,
U.S. News and World Report and The Wall Street Journal.
The fund may, from time to time, illustrate the benefits of tax-deferral by
comparing taxable investments to investments made through tax-deferred
retirement plans.
The fund may, from time to time, compare its investment results with the
Consumer Price Index, which is a measure of the average change in prices over
time in a fixed market basket of goods and services (E.G. food, clothing,
fuels, transportation, and other goods and services that people buy for
day-to-day living).
The investment results for the fund set forth below were calculated as
described in the fund's prospectus. Data contained in Salomon's Market
Performance and Lehman Brothers' The Bond Market Report are used to calculate
cumulative total return from their base period (12/31/68 and 12/31/72,
respectively) for each index. The percentage increases shown in the table
below or used in published reports of the fund are obtained by subtracting the
index results at the beginning of the period from the index results at the end
of the period and dividing the difference by the index results at the beginning
of the period.
IFA vs. Various Unmanaged Indices
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lehman
10-Year Lehman Lehman Brothers Average
Period Brothers Brothers Government/ Salomon Savings
8/1 - 7/31 IFA DJIA/1/ S&P 500/2/ Corporate/3/ Aggregate/4/ Corporate/5/ High-Grade/6/ Account/7/
1986 - 1996 +181% +330% +269% +141% +126% +123% +149% +69%
1985 - 1995 +197 +391 +306 +179 +160 +158 +206 + 74
1984 - 1994 +241 +385 +327 +217 +193 +189 +254 + 83
1983 - 1993 +254 +333 +294 +241 +218 +213 +281 + 94
1982 - 1992 +351 +528 +478 +295 +251 +242 +330 +106
1981 - 1991 +298 +392 +343 +304 +269 +256 +329 +117
1980 - 1990 +293 +392 +344 +235 +217 +209 +239 +124
1979 - 1989 +317 +409 +416 +202 +201 +197 +202 +125
1978 - 1988 +267 +308 +326 +180 +178 +175 +166 +125
1977 - 1987 +283 +388 +417 +159 +164 +162 +146 +125
1976 - 1986 +265 +209 +271 +184 +181 +180 +177 +124
1975 - 1985 +295 +177 +250 +161 N/A +158 +134 +121
1974 - 1984 +270 +153 +210 +136 N/A +136 +112 +116
1973#- 1983 +237 +147 +172 + 95 N/A +105 + 76 +106
</TABLE>
________________
# From December 1, 1973
/1/ The Dow Jones Average of 30 Industrial Stocks is comprised of 30 industrial
companies such as General Motors and General Electric.
/2/ The Standard & Poor's 500 Stock Composite Index is comprised of industrial,
transportation, public utilities, and financial stocks and represents a large
portion of the value of issues traded on the New York Stock Exchange. Selected
issues traded on the American Stock Exchange are also included.
/3/ The Lehman Brothers Corporate Bond Index is comprised of all public, fixed
rate, non-convertible investment grade domestic corporate debt. Issues
included in this index are rated at least Baa by Moody's Investors Service, BBB
by Standard & Poor's Corporation or, in the case of bank bonds not rated by
either of the previously mentioned services, BBB by Fitch Investors Service.
/4/ The Lehman Brothers Aggregate Bond Index covers all sectors of the fixed
income market and is a combination of the Lehman Brothers Treasury Bond Index,
the Agency Bond Index, the Corporate Bond Index, the Yankee Bond Index and the
Mortgage Backed Securities Index. Its inception date is December 31, 1975.
/5/ The Lehman Brothers Government/Corporate Bond Index is comprised of all
public obligations of the U.S. Treasury, all publicly issued debt of U.S.
Government agencies, and corporate debt guaranteed by the U.S. Government
(excluding mortgage-backed securities). It also includes all U.S. dollar
denominated, SEC registered, public, non-convertible debt issued or guaranteed
by foreign or international governments/agencies. Also included are all
public, fixed-rate non-convertible investment grade domestic corporate debt.
/6/ The Salomon Brothers High-Grade Corporate Bond Index is comprised of a
sample of high-grade corporate bonds which have a rating of AAA or AA by
Standard & Poor's Corporation.
/7/ Based on figures supplied by the U.S. League of Savings Institutions and
the Federal Reserve Board which reflect all kinds of savings deposits,
including longer-term certificates. Savings accounts offer a guaranteed return
of principal, but no opportunity for capital growth. During a portion of the
period, the maximum rates paid on some savings deposits were fixed by law.
<TABLE>
<CAPTION>
<S> <C>
If you are considering IFA for an
Individual Retirement Account. . .
Here's how much you would have if you had invested $2,000 a year on August 1
of each year in IFA over the past 5 and 10 years:
5 years 10 years
(8/1/91-7/31/96) (8/1/86-7/31/96)
$13,456 $36,311
</TABLE>
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
. . . and had taken all
dividends and capital
gain distributions
in shares, your
If you had investment would
invested $10,000 have been worth
in IFA this many this much at
years ago . . . 7/31/96
<S> <C> <C>
| |
Number Periods
of Years 8/1 - 7/31 Value
1 1995 - 1996 $10,694
2 1994 - 1996 12,449
3 1993 - 1996 12,698
4 1992 - 1996 14,202
1991 - 1996 16,916
5
6 1990 - 1996 18,989
7 1989 - 1996 19,206
8 1988 - 1996 23,717
9 1987 - 1996 24,111
10 1986 - 1996 28,137
1985 - 1996 33,737
11
12 1984 - 1996 45,001
13 1983 - 1996 47,739
14 1982 - 1996 67,948
15 1981 - 1996 71,528
16 1980 - 1996 79,743
17 1979 - 1996 84,952
18 1978 - 1996 92,420
19 1977 - 1996 98,119
20 1976 - 1996 109,018
21 1975 - 1996 141,200
22 1974 - 1996 176,874
23 1973#- 1995 170,626
</TABLE>
# From December 1, 1973
Illustration of a $10,000 investment in IFA with
dividends reinvested and capital gain distributions taken in shares
(for the period December 1, 1973 through July 31, 1996)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
COST OF SHARES VALUE OF SHARES
Year Annual Dividends Total From Initial From From Total
Ended Dividends (cumulative) Investment Investment Capital Gains Dividends Value
July 31 Cost Reinvested Reinvested
1974# $ 347 $ 347 $10,347 $ 8,767 - $ 321 $ 9,088
1975 785 1,132 11,132 10,141 - 1,250 11,391
1976 998 2,130 12,130 12,155 - 2,596 14,751
1977 969 3,099 13,099 12,701 - 3,691 16,392
1978 1,117 4,216 14,216 12,584 - 4,820 17,404
1979 1,333 5,549 15,549 12,693 - 6,228 18,921
1980 1,463 7,012 17,012 12,490 - 7,672 20,162
1981 1,743 8,755 18,755 12,818 - 9,667 22,485
1982 2,187 10,942 20,942 12,256 - 11,408 23,664
1983 2,549 13,491 23,491 16,112 - 17,573 33,685
1984 2,896 16,387 26,387 15,254 $1,013 19,455 35,722
1985 3,365 19,752 29,752 18,236 2,637 26,804 47,677
1986 3,909 23,661 33,661 18,907 6,434 31,807 57,148
1987 4,431 28,092 38,092 19,578 9,644 37,452 66,674
1988 4,479 32,571 42,571 17,955 10,904 38,957 67,816
1989 5,338 37,909 47,909 20,609 12,515 50,578 83,702
1990 5,269 43,178 53,178 18,907 13,755 51,497 84,159
1991 6,311 49,489 59,489 19,578 14,787 60,070 94,435
1992 6,578 56,067 66,067 21,764 17,093 73,764 112,621
1993 6,995 63,062 73,062 22,592 19,653 83,771 126,016
1994 7,471 70,533 80,533 21,218 21,364 85,868 128,450
1995 8,046 78,579 88,579 23,294 24,107 102,984 150,385
1996 8,581 87,160 97,160 24,809 27,526 118,291 170,626
</TABLE>
# From December 1, 1973
The dollar amount of capital gain distributions during the period was $21,184.
EXPERIENCE OF INVESTMENT ADVISER - Capital Research and Management Company
manages nine common stock funds that are at least 10 years old. In the rolling
10-year periods since January 1, 1966 (121 in all), those funds have had better
total returns than the Standard & Poor's 500 Composite Stock Index in 94 of the
121 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
DESCRIPTION OF BOND RATINGS
Corporate Debt Securities
MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by
various entities from "Aaa" to "C" according to quality.
"AAA -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large, or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
"AA -- High quality by all standards. They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
"A -- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
"BAA -- Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
"BA -- Have speculative elements; future cannot be considered as well assured.
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
"B -- Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"CAA -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"CA -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
STANDARD & POOR'S CORPORATION rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality.
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
"A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is in
arrears."
<TABLE>
INCOME FUND OF AMERICA
July 31, 1996
- ---------------------------- ------------- --------------
Asset Mix Comparison of Fiscal 1996 Investment Investment
to Fiscal 1995 Portfolio Portfolio
July 31, 1996 July 31, 1995
- ---------------------------- ------------- -------------
<S> <C> <C> <C>
U.S. Equity-Type Securities* 56.7%U.S. Equity-Type Securities 53.4%
Non-U.S. Equity-Type Securities 4.0 Non-U.S. Equity-Type Securi 0.4
Corporate Bonds 19.8 Corporate Bonds 23.3
Government Bonds 13.1 Government Bonds 17.2
Cash & Equivalents 6.4 Cash & Equivalents 5.7
*Also includes 0.4% (1996) and 0.3% (1995)
in Canadian equities which are part of the
S&P 500.
- ---------------------------- ---------- -------------------------------------
Ten Largest Equity Holdings Percent of Ten Largest Equity HoldingsPercent of
July 31, 1996 Net Assets July 31, 1995 Net Assets
- ---------------------------- ---------- -------------------------------------
Philip Morris 1.81% Eli Lilly 1.91%
Atlantic Richfield 1.72 Bristol-Myers Squibb 1.59
J.C. Penney 1.67 Philip Morris 1.46
American Home Products 1.63 American Home Products 1.30
Bristol-Myers Squibb 1.51 Upjohn 1.17
Ford Motor 1.33 Occidental Petroleum .87
First Union 1.25 Lincoln National .85
Phillips Petroleum 1.25 Ford Motor .78
Texaco 1.23 Phillips Petroleum .78
PNC Bank 1.12 U S WEST .77
- ---------------------------- ---------------------------------------------------
Five Largest Industry Holdings Five Largest Industry Holdings
in Equities Percent of in Equities Percent of
July 31, 1996 Net Assets July 31, 1995 Net Assets
- ---------------------------- --------------------------------------------------
Banking 11.30% Banking 7.65%
Energy Sources 8.65 Health & Personal Care 7.63
Health & Personal Care 6.11 Energy Sources 6.14
Utilities: Electric & Gas 4.23 Insurance 4.03
Insurance 3.55 Telecommunications 3.42
</TABLE>
<TABLE>
The Income Fund of America
Investment Portfolio July 31, 1996
- ---------------------------------- --- --- ---
Shares or Market Percent
Principal Value of Net
Equity-Type Securities Amount (000) Assets
- ---------------------------------- --- --- ---
<S> <C> <C> <C>
Banking - 11.30%
First Union Corp. 2,850,000 180,975 1.25%
PNC Bank Corp. 5,580,000 162,518 1.12
CoreStates Financial Corp. 3,810,000 149,543 1.03
Bankers Trust New York Corp. 1,910,200 137,296 .95
Bank of New York Co., Inc. 1,600,000 82,400
Bank of New York Co., Inc. 7.50% convertible debentures
2001$13,000,000 34,229 .83
Chase Manhattan Corp. (New) 1,554,000 108,003 .74
Boatmen's Bancshares, Inc. 2,522,500 100,900 .70
Royal Bank of Canada 3,250,000 78,602 .54
First Security Corp. 2,400,000 61,200 .42
Banc One Corp. 1,650,000 57,131 .40
J.P. Morgan & Co. Inc. 660,000 56,760 .39
Fleet Financial Group, Inc. 1,325,000 53,663 .37
Comerica Inc. 1,080,000 47,385 .33
National Bank of Canada 5,275,000 42,590 .29
Westpac Banking Corp. 9,042,400 40,542 .28
First Chicago NBD Corp. 1,045,000 40,232 .28
Bancorp Hawaii, Inc. 1,000,000 34,875 .24
NationsBank Corp. 350,000 30,056 .21
Regions Financial Corp. 630,000 27,484 .19
U.S. Bancorp 800,000 27,400 .19
Barnett Banks, Inc. 300,000 18,412 .13
National City Corp. 500,000 17,312 .12
Central Fidelity Banks, Inc. 675,000 14,681 .10
Commonwealth Bank of Australia (1) 2,890,000 14,162 .10
First Nationwide Bank, FSB preferred 100,000 10,900 .07
Banco Nacional de Mexico, SA 11.00% exchangeable notes
2003 (1) $4,175,000 3,966 .03
-------- -----
1,633,217 11.30
-------- -----
Energy Sources - 8.65%
Atlantic Richfield Co. 2,150,000 249,400 1.72
Phillips Petroleum Co. 4,574,000 180,673 1.25
Texaco Inc. 2,100,000 178,500 1.23
Chevron Corp. 2,005,000 116,039 .80
Amoco Corp. 1,634,000 109,274 .76
Sun Co., Inc. 1,037,613 26,848
Sun Co., Inc. $1.80 TARGETS, cumulative preferred,
Series A 2,495,000 65,806 .64
USX-Marathon Group 3,500,000 71,750 .50
Occidental Petroleum Corp. 2,000,000 44,750
Occidental Petroleum Corp. $3.875 convertible
preferred (1) 300,000 16,800 .43
Unocal Corp. $3.50 convertible preferred 750,000 42,000 .29
Exxon Corp. 500,000 41,125 .28
Ashland Inc. $3.125 convertible preferred 600,000 35,700 .25
Enterprise Oil PLC 3,600,000 26,702 .18
Cyprus Amax Minerals Co. $4.00 convertible preferred,
Series A 465,000 24,412 .17
Valero Energy Corp. $3.125 convertible preferred 345,000 16,387 .11
Santa Fe Energy Resources, Inc. $0.732 DECS
convertible preferred, Series A 500,000 5,125 .04
-------- -----
1,251,291 8.65
-------- -----
Health & Personal Care - 6.11%
American Home Products Corp. 4,160,000 236,080 1.63
Bristol-Myers Squibb Co. 2,515,000 217,862 1.51
Pharmacia & Upjohn, Inc. 3,580,000 147,675 1.02
Eli Lilly and Co. 2,462,800 137,917 .95
Warner-Lambert Co. 1,550,000 84,475 .58
Tambrands Inc. 1,300,000 52,975 .37
Glycomed Inc. 7.50% convertible debentures 2003 $5,000,000 4,150 .03
McKesson Corp. 4.50% convertible debentures 2004 $2,650,000 2,292 .02
-------- -----
883,426 6.11
-------- -----
Utilities: Electric & Gas - 4.23%
Southern Co. 2,300,000 52,037 .36
DTE Energy Co. 1,750,000 50,312 .35
National Power PLC 8,140,000 50,061 .35
Public Service Enterprise Group Inc. 1,825,000 47,678 .33
Entergy Corp. 1,850,000 47,175 .33
Consolidated Edison Co. of New York, Inc. 1,700,000 45,900 .32
Union Electric Co. 1,175,000 44,209 .31
Long Island Lighting Co. 2,450,000 41,650 .29
Equitable Resources, Inc. 1,500,000 38,063 .26
Peoples Energy Corp. 1,080,000 33,615 .23
General Public Utilities Corp. 1,023,900 33,277 .23
American Electric Power Co., Inc. 780,000 32,370 .22
Houston Industries Inc. 1,300,000 29,413 .20
AGL Resources, Inc. 1,340,000 24,455 .17
Puget Sound Power & Light Co. 700,000 15,925 .11
Pacific Gas and Electric Co. 435,000 8,591 .06
PECO Energy Co. 275,000 6,462 .05
Eastern Utilities Associates 387,100 6,145 .04
Unicom Corp. 150,000 3,525 .02
-------- -----
610,863 4.23
-------- -----
Insurance - 3.55%
Lincoln National Corp. 2,540,000 108,267 .75
American General Corp. 2,500,000 86,875 .60
St. Paul Companies, Inc. 1,280,000 66,240 .46
Ohio Casualty Corp. (2) 1,830,400 58,115 .40
SAFECO Corp. 1,500,000 51,656 .36
Italy (Republic of) 5.00% PENs 2001
(exchangeable into INA SpA) $51,000,000 50,939 .35
USF&G Corp. 1,300,000 20,638
USF&G Corp. 0% convertible debentures 2009 $10,000,000 5,900 .18
CIGNA Corp. 200,000 21,300 .15
Allstate Corp. 6.76% exchangeable notes 1998 370,000 15,771 .11
Alexander & Alexander Services Inc. $3.625 convertible
preferred, Series A (1) 220,000 10,230 .07
St. Paul Capital LLC 6.00% MIPS convertible preferred 190,000 9,856 .07
Mutual Risk Management Ltd. 0% convertible debentures
2015 (1) $22,000,000 7,700 .05
-------- -----
513,487 3.55
-------- -----
Telecommunications - 3.21%
U S WEST Communications Group 4,400,000 133,650
U S WEST Communications Group 0% convertible debentures
2011 $70,000,000 24,500 1.09
Ameritech Corp. 1,492,200 82,817 .57
Pacific Telesis Group 2,435,000 81,877 .57
Bell Atlantic Corp. 1,100,000 65,038 .45
NYNEX Corp. 900,000 40,387 .28
International CableTel Inc. 7.25% convertible
notes 2005 (1) $8,000,000 8,540
International CableTel Inc. 7.00% convertible debentures
2008 (1) $15,000,000 13,538 .15
ALLTEL Corp. 500,000 13,687 .10
IntelCom Group (USA), Inc. warrants, expire 2005
(1)(3) 19,800 252 .00
Comunicacion Celular SA warrants, expire 2003 (1)(3) 31,000 155 .00
NEXTEL Communications, Inc. warrants (formerly Dial Page, Inc.)
(3)(4) 51,912 0 .00
-------- -----
464,441 3.21
-------- -----
Beverages & Tobacco - 2.81%
Philip Morris Companies Inc. 2,500,000 261,562 1.81
RJR Nabisco Holdings Corp. 3,200,000 98,400 .68
UST Inc. 1,400,000 46,550 .32
-------- -----
406,512 2.81
-------- -----
Merchandising - 2.41%
J.C. Penney Co., Inc. 4,864,300 241,999 1.67
Giant Food Inc., Class A 2,340,000 78,682 .54
Staples, Inc. 4.50% convertible debentures 2000 (1) $17,000,000 16,957 .12
Home Shopping Network, Inc. 5.875% convertible debentures
2006 (1) $10,000,000 9,700 .07
Thrifty PayLess, Inc., Class B (3) 57,000 798 .01
-------- -----
348,136 2.41
-------- -----
Forest Products & Paper - 2.08%
Union Camp Corp. 1,660,000 79,680 .55
Weyerhaeuser Co. 1,805,000 75,359 .52
UPM-Kymmene Corp. 2,628,300 57,724 .40
James River Corp. of Virginia 550,000 13,887
James River Corp. of Virginia $1.55 DECS convertible
preferred 1,665,000 40,376 .37
Sonoco Products Co. $2.25 convertible preferred 345,000 21,131 .15
Bowater Inc. 7.00% PRIDES convertible preferred
depositary shares, Series B 485,000 13,156 .09
-------- -----
301,313 2.08
-------- -----
Chemicals - 2.03%
E.I. du Pont de Nemours and Co. 1,820,000 146,965 1.02
Dow Chemical Co. 900,000 66,937 .46
Ethyl Corp. 5,200,000 46,800 .33
Eastman Chemical Co. 450,000 23,513 .16
Atlantic Richfield Co. DECS convertible preferred 400,000 9,150 .06
-------- -----
293,365 2.03
-------- -----
Automobiles - 1.55%
Ford Motor Co. 5,932,700 192,813 1.33
General Motors Corp. 650,000 31,687 .22
-------- -----
224,500 1.55
-------- -----
Business & Public Services - 1.43%
Dun & Bradstreet Corp. 750,000 43,125 .30
Moore Corp. Ltd. 1,900,000 33,012 .23
Browning-Ferris Industries, Inc. 7.25% ACES convertible
preferred 1,000,000 26,625 .18
Alco Standard Corp. 201,612 8,821
Alco Standard Corp. 6.50% ACES convertible preferred 200,000 16,600 .18
Tenet Healthcare Corp. 6.00% exchangeable notes 2005 $25,000,000 24,250 .17
FHP International Corp. convertible preferred, Series A 785,000 19,061 .13
Ceridian Corp. $2.75 cumulative convertible
exchangeable preferred 170,000 16,235 .11
Vivra Inc. 5.00% convertible debentures 2001 (1) $15,000,000 14,550 .10
Electronic Data Systems Holding Corp. 78,546 4,153 .03
Protection One Alarm Monitoring, Inc. warrants (1)(3) 57,600 562 .00
-------- -----
206,994 1.43
-------- -----
Broadcasting & Publishing - 1.20%
Time Warner Financing Trust 4.00% PERCS 1997 790,000 28,144
Time Warner Inc. exchangeable preferred, Series K (1) 30,668 30,362
Time Warner Inc. 0% convertible debentures 2012 $36,000,000 13,050
Time Warner Inc. 0% convertible debentures 2013 $57,500,000 24,006 .66
Comcast Corp. 1.125% convertible debentures 2007 $54,000,000 23,962 .17
Turner Broadcasting System, Inc. 0% convertible
debentures 2007 (1) $45,000,000 21,375 .15
Reader's Digest Assn., Inc., Class A 500,000 20,688 .14
Tele-Communications International 4.50% convertible
debentures 2006 $15,000,000 12,375 .08
Heartland Wireless Communications, Inc. warrants, expire
2000 (1)(3) 18,000 72 .00
-------- -----
174,034 1.20
-------- -----
Multi-Industry - 0.94%
Tenneco Inc. 2,051,300 101,027 .70
Minnesota Mining and Manufacturing Co. 400,000 26,000 .18
Harsco Corp. 160,000 9,480 .06
-------- -----
136,507 .94
-------- -----
Food & Household Products - 0.84%
General Mills, Inc. 1,435,000 77,849 .54
H.J. Heinz Co. 1,300,000 43,062 .30
-------- -----
120,911 .84
-------- -----
Miscellaneous Materials & Commodities - 0.79%
English China Clays PLC (2) 17,932,600 72,920 .50
Cooper Industries, Inc. 6.00% DECS convertible preferred 1,500,000 24,000 .17
Olin Corp. 203,100 17,213 .12
-------- -----
114,133 .79
-------- -----
Real Estate - 0.71%
Security Capital Realty, Inc. (1)(3)(4) 18,680 19,696
Security Capital Realty, Inc. 12.00% convertible
debentures 2014 (1)(4) $14,150,000 14,263 .23
Security Capital Pacific Trust 830,000 17,222
Security Capital Pacific Trust $1.75
convertible preferred, Series A 600,000 15,225 .23
Weingarten Realty Investors 685,000 27,571 .19
Western Investment Real Estate Trust 710,000 8,875 .06
-------- -----
102,852 .71
-------- -----
Financial Services - 0.66%
Beneficial Corp. 1,200,000 64,800 .45
American Express Co. 250,000 10,937 .08
First USA, Inc. 6.25% PRIDES convertible preferred 250,000 10,625 .07
United Companies Financial Corp. 6.75% PRIDES
convertible preferred 159,000 8,904 .06
-------- -----
95,266 .66
-------- -----
Transportation: Airlines - 0.54%
Continental Airlines Finance Trust 8.50% convertible
TOPrS (1) 450,000 27,000
Continental Airlines, Inc. 6.75% convertible debentures
2006 (1) $18,500,000 18,454 .31
Delta Air Lines, Inc. 309,752 21,644 .15
Airborne Freight Corp. 6.75% convertible debentures 2001 $6,500,000 6,435 .05
Alaska Air Group, Inc. 6.50% convertible debentures 2005 $4,000,000 4,820 .03
-------- -----
78,353 .54
-------- -----
Recreation & Other Consumer Products - 0.52%
Eastman Kodak Co. 600,000 44,775 .31
Jostens, Inc. 1,580,000 30,218 .21
-------- -----
74,993 .52
-------- -----
Industrial Components - 0.44%
Goodyear Tire & Rubber Co. 1,000,000 44,250 .31
Dana Corp. 700,000 19,512 .13
-------- -----
63,762 .44
-------- -----
Metals: Steel - 0.42%
USX Corp. $3.25 convertible preferred 350,000 15,006
USX Corp. 5.75% convertible debentures 2001 $21,000,000 19,110 .24
Carpenter Technology Corp. 500,000 16,625 .11
Bethlehem Steel Corp. $3.50 convertible preferred (1) 250,000 9,750 .07
-------- -----
60,491 .42
-------- -----
Energy Equipment - 0.30%
Cooper Industries, Inc. 1,100,000 43,313 .30
-------- -----
43,313 .30
-------- -----
Metals: Nonferrous - 0.29%
Inco Ltd. 5.75% convertible debentures 2004 $15,000,000 18,150 .13
Alumax Inc. $4.00 convertible preferred, Series A 90,000 11,385 .08
Freeport-McMoRan Copper & Gold Inc., Class B 299,991 8,887 .06
Kaiser Aluminum Corp. 8.255% PRIDES convertible
preferred 260,000 2,892 .02
-------- -----
41,314 .29
-------- -----
Machinery & Engineering - 0.18%
Thermo Electron Corp. 5.00% convertible debentures
2001 (1) $1,900,000 3,401
Thermo Electron Corp. 4.25% convertible debentures 2003
(1) $20,000,000 22,800 .18
-------- -----
26,201 .18
-------- -----
Data Processing & Reproduction - 0.15%
Data General Corp. 7.75% convertible debentures 2001 $10,000,000 9,000 .06
Wang Laboratories, Inc. 6.50% convertible preferred
depositary shares, Series B (1) 170,000 7,650 .06
AST Research, Inc. 0% convertible debentures 2013 $15,000,000 4,575 .03
-------- -----
21,225 .15
-------- -----
Electronic Components & Instruments - 0.09%
Seagate Technology 5.00% convertible debentures 2003 (1) $3,365,000 6,259 .04
Maxtor Corp. 5.75% convertible debentures 2012 $7,500,000 5,175 .04
Geotek Communications, Inc. warrants, expire 2005 (1)(3) 300,000 1,500 .01
-------- -----
12,934 .09
-------- -----
MISCELLANEOUS: Equity-type securities
in initial period of acquisition 470,471 3.26
-------- -----
TOTAL EQUITY-TYPE SECURITIES (cost: $7,328,943,000) 8,774,305 60.69
-------- -----
- ---------------------------------- ---
Principal
Bonds & Notes Amount
(000)
- ---------------------------------- ---
Broadcasting, Advertising & Publishing - 3.92%
Time Warner Inc. 7.45% 1998 $ 10,000 10,093
Time Warner Inc. 9.625% 2002 24,000 26,317
Time Warner Inc. 10.15% 2012 12,000 13,753
Time Warner Inc. 9.125% 2013 20,000 20,820 .49
Bell Cablemedia PLC 0%/11.95% 2004 (5) 53,750 38,700 .27
News America Holdings Inc. 10.125% 2012 20,000 22,365
News America Holdings Inc. 9.25% 2013 7,500 8,111
News America Holdings Inc. 8.45% 2034 7,500 7,913 .27
Continental Cablevision, Inc. 8.50% 2001 20,200 21,062
Continental Cablevision, Inc. 10.625% 2002 5,500 5,926
Continental Cablevision, Inc. 8.875% 2005 7,000 7,497 .24
Cablevision Systems Corp. 10.75% 2004 18,000 18,090
Cablevision Systems Corp. 9.875% 2013 11,500 10,580
Cablevision Systems Corp. 9.875% 2023 6,000 5,370 .24
TKR Cable I, Inc. 10.50% 2007 30,000 32,687 .23
International CableTel Inc. 0%/10.875% 2003 (5) 20,075 14,755
International CableTel Inc. 0%/12.75% 2005 (5) 22,000 14,135 .20
Videotron Holdings PLC 0%/11.125% 2004 (5) 37,500 27,375 .19
Chancellor Broadcasting Co. 9.375% 2004 24,000 23,160
Chancellor Broadcasting Co. 12.50% 2004 2,000 2,210 .18
Marvel Holdings Inc. 0% 1998 24,250 19,279 .13
Univision Television Group, Inc. 11.75% 2001 17,000 18,105 .13
American Media Operations, Inc. 11.625% 2004 17,750 18,016 .12
Tele-Communications, Inc. 9.875% 1998 7,100 7,420
Tele-Communications, Inc. 10.125% 2001 5,000 5,456
Tele-Communications, Inc. 9.25% 2023 3,500 3,360 .11
Comcast Corp. 10.25% 2001 12,600 13,041
Comcast Corp. 9.375% 2005 3,000 2,940 .11
TeleWest plc 9.625% 2006 5,000 4,863
TeleWest plc 0%/11.00% 2007 (5) 18,000 10,530 .11
Century Communications Corp. 9.50% 2000 3,500 3,518
Century Communications Corp. 9.75% 2002 7,000 7,070
Century Communications Corp. 11.875% 2003 4,400 4,664 .10
Viacom International Inc. 9.125% 1999 4,000 4,110
Viacom International Inc. 10.25% 2001 9,500 10,201 .10
Insight Communications Co., LP 11.25% 2000 (6) 12,750 12,846 .09
Comcast UK Cable Partners Ltd. 0%/11.20% 2007 (5) 18,500 11,192 .08
Infinity Broadcasting Corp. 10.375% 2002 10,250 10,814 .07
Young Broadcasting Inc. 10.125% 2005 10,500 10,185 .07
Multicanal Participacoes SA 12.625% 2004 (1) 8,750 9,100 .06
TCI Communications, Inc. 8.75% 2015 8,000 7,677 .05
Grupo Televisa, SA, Series A, 11.375% 2003 (1) 3,750 3,802
Grupo Televisa, SA 0%/13.25% 2008 (1)(5) 6,500 3,510 .05
Summitt Communications 10.50% 2005 6,655 7,221 .05
Storer Communications, Inc. 10.00% 2003 6,000 6,000 .04
Adelphia Communications Corp. 9.875% 2005 6,500 5,915 .04
American Radio Systems Corp. 9.00% 2006 4,000 3,810 .03
Rogers Communications Inc. 10.875% 2004 3,500 3,570 .02
Heartland Wireless Communications, Inc. 13.00% 2003 3,000 3,210 .02
CAI Wireless Systems, Inc. 12.25% 2002 3,000 3,105 .02
EZ Communications, Inc. 9.75% 2005 2,000 1,970 .01
-------- -----
567,419 3.92
-------- -----
Wireless Communications - 2.22%
NEXTEL Communications, Inc. 0%/11.50% 2003 (5) 40,500 26,325
NEXTEL Communications, Inc. 0%/9.75% 2004 (5) 61,000 34,160
NEXTEL Communications, Inc. 0%/10.125% 2004
(formerly CenCall) (5) 44,250 25,886
NEXTEL Communications, Inc. 0%/12.25% 2004
(formerly Dial Call) (5) 32,500 19,906 .74
360 Communications Co. 7.125% 2003 22,500 21,660
360 Communications Co. 7.50% 2006 14,000 13,357 .24
Centennial Cellular Corp. 8.875% 2001 28,000 26,040
Centennial Cellular Corp. 10.125% 2005 3,000 2,880 .20
Comcast Cellular Corp., Series A, 0% 2000 14,500 9,896
Comcast Cellular Corp., Series B, 0% 2000 25,300 17,394 .19
PriCellular Wireless Corp. 0%/14.00% 2001 (5) 10,000 8,950
PriCellular Wireless Corp. 0%/12.25% 2003 (5) 14,550 11,494 .14
Comunicacion Celular SA 0%/13.125% 2003 (5) 31,000 18,600 .13
Cellular Communications International, Inc.,
units consisting of notes and warrants, 0% 2000 (3) 24,500 15,067 .10
Cellular, Inc. 0%/11.75% 2003 (5) 18,000 14,760 .10
Horizon Cellular Telephone Co., LP, Series B,
0%/11.375% 2000 (5) 15,000 14,100 .10
Paging Network, Inc. 11.75% 2002 10,500 11,366 .08
InterCel, Inc. 0%/12.00% 2006 (5) 17,500 9,406 .06
Geotek Communications, Inc., Series B, 0%/15.00% 2005
(5) 10,000 6,150 .04
MobileMedia Communications, Inc. 0%/10.50% 2003 (5) 8,000 5,620 .04
Commnet Cellular Inc. 11.25% 2005 3,000 3,165 .02
Rogers Cantel Inc. 9.375% 2008 3,000 2,910 .02
Vanguard Cellular Systems, Inc. 9.375% 2006 3,000 2,895 .02
-------- -----
321,987 2.23
-------- -----
Transportation - 1.90%
Jet Equipment Trust, Series 1994-A, Class B1, 10.91%
2006 (1) 6,965 7,923
Jet Equipment Trust, Series 1995-B, Certificates,
10.91% 2014 (1) 4,750 5,166
Jet Equipment Trust, Series 1995-A, Class B, 8.64%
2015 (1) 14,756 15,633
Jet Equipment Trust, Series 1995-A, Class C, 10.69%
2015 (1) 5,000 5,829
Jet Equipment Trust, Series 1995-B, Class A, 7.63%
2015 (1) 14,241 14,290
Jet Equipment Trust, Series 1995-B, Class C, 9.71%
2015 (1) 5,500 5,947 .38
Airplanes Pass Through Trust, pass-through certificates,
Class B, 6.596% 2019 (6)(7) 7,396 7,451
Airplanes Pass Through Trust, pass-through certificates,
Class C, 8.15% 2019 (7) 15,000 14,963
Airplanes Pass Through Trust, pass-through certificates,
Class D, 10.875% 2019 (7) 22,800 23,740 .32
Delta Air Lines, Inc. 9.875% 1998 6,750 7,033
Delta Air Lines, Inc. 10.375% 2022 13,000 15,511
Delta Air Lines, Inc., pass-through certificates,
Series 1992-A2, 9.20% 2014 (7) 5,000 5,402
Delta Air Lines, Inc., pass-through certificates,
Series 1993-A2, 10.50% 2016 (7) 6,000 7,057 .24
USAir, Inc. 9.625% 2001 13,179 12,256
USAir, Inc., enhanced equipment notes, Class C, 8.93%
2008 (1) 7,000 7,245
USAir, Inc., pass-through trust, Series 1993-A3, 10.375%
2013 (7) 10,000 9,912 .21
Continental Airlines, pass-through certificates,
Series 1996-2C, 10.22% 2014 (1)(7) 4,250 4,802
Continental Airlines, pass-through certificates,
Series 1996-A, 6.94% 2015 (1)(7) 9,000 8,663
Continental Airlines, pass-through certificates,
Series 1996-C, 9.50% 2015 (1)(7) 13,000 14,056 .19
United Air Lines, Inc. 9.00% 2003 8,000 8,369
United Air Lines, Inc., pass-through certificates,
Series 1993-A3, 8.39% 2011 (7) 7,500 7,541
United Airlines, Inc., pass-through certificates,
Series 1996-A2 7.87% 2019 (7) 5,000 4,692 .14
Northwest Airlines, Inc. 12.0916% 2000 9,663 9,735
NWA Trust No. 2, Class D, 13.875% 2008 9,000 10,440 .14
TNT Transport (Euro) PLC/TNT (USA) Inc. 11.50% 2004 11,750 11,956 .08
Atlas Air, pass-through certificates, 12.25% 2002 (7) 10,000 10,600 .07
Teekay Shipping Corp. 8.32% 2008 9,820 9,231 .06
MC-Cuernavaca Trust 9.25% 2001 (1) 7,730 5,295 .04
SFP Pipeline Holdings, Inc. 11.16% 2010 3,000 3,544 .03
-------- -----
274,282 1.91
-------- -----
Energy Sources and Energy Equipment & Services - 1.70%
California Energy Co., Inc. 9.875% 2003 5,000 5,075
California Energy Co., Inc. 0%/10.25% 2004 (5) 61,300 60,687 .45
Oryx Energy Co. 9.50% 1999 15,000 15,733
Oryx Energy Co. 8.375% 2004 8,000 8,020
Oryx Energy Co. 8.125% 2005 3,500 3,434 .19
Mesa Capital Corp. 12.75% 1998 15,000 15,038
Mesa Operating Co. 0%/11.625% 2006 (5) 8,500 5,142
Mesa Operating Co. 10.625% 2006 2,000 2,045 .15
Global Marine, Inc. 12.75% 1999 17,500 18,900 .13
J. Ray McDermott, SA 9.375% 2006 17,000 16,745 .12
Cliffs Drilling Co. 10.25% 2003 (1) 14,250 14,250 .10
Flores & Rucks, Inc. 13.50% 2004 12,000 13,800 .10
Occidental Petroleum Corp. 9.25% 2019 11,400 13,273 .09
Falcon Drilling Co., Inc. 9.75% 2001 6,000 6,060
Falcon Drilling Co., Inc. 8.875% 2003 5,000 4,800 .08
Chesapeake Energy Corp. 10.50% 2002 3,850 4,067
Chesapeake Energy Corp. 9.125% 2006 6,000 5,880 .07
Dual Drilling Co. 9.875% 2004 8,550 8,978 .06
OXYMAR 7.50% 2016 (1) 8,000 7,270 .05
Subic Power Corp. 9.50% 2008 (1) 6,552 6,552 .05
Noble Drilling Corp. 9.25% 2003 2,750 2,764 .02
Petroleo Brasileiro SA-PETROBRAS 10.15% 1998 (6) 2,500 2,584 .02
Parker & Parsley Petroleum Co. 8.25% 2007 2,000 2,073 .01
TransTexas Gas Corp. 11.50% 2002 2,000 1,990 .01
-------- -----
245,160 1.70
-------- -----
Utilities - Electric & Gas - 1.50%
Long Island Lighting Co. 7.30% 1999 41,240 40,051
Long Island Lighting Co. 6.25% 2001 9,000 8,103
Long Island Lighting Co. 7.125% 2005 10,000 8,817
Long Island Lighting Co. 7.50% 2007 15,000 13,205
Long Island Lighting Co. 7.90% 2008 20,000 19,105
Long Island Lighting Co. 8.90% 2019 32,000 29,326
Long Island Lighting Co. 9.00% 2022 17,000 15,778
Long Island Lighting Co. 8.20% 2023 22,500 19,909
Long Island Lighting Co. 9.625% 2024 22,250 22,040 1.22
Midland Cogeneration Venture LP, Secured Lease
Obligation Bonds, Series C-91 10.33% 2002 5,656 5,854
Midland Cogeneration Venture LP, Secured Lease
Obligation Bonds, Series C-94 10.33% 2002 8,650 8,953 .10
Columbia Gas System, Inc., Series F 7.42% 2015 12,000 11,118 .08
Bridas Corp. 12.50% 1999 6,000 6,240 .04
El Paso Electric Co., Series A, 7.25% 1999 5,431 5,340 .04
CMS Energy Corp. 9.50% 1997 3,000 3,053 .02
-------- -----
216,892 1.50
-------- -----
Telecommunications - 1.05%
MFS Communications Co., Inc. 0%/9.375% 2004 (5) 97,800 73,350
MFS Communications Co., Inc. 0%/8.875% 2006 (5) 43,250 25,409 .68
IntelCom Group (USA), Inc. 0%/13.50% 2005 (5) 8,000 4,780
IntelCom Group (USA), Inc. 0%/12.5% 2006 (1)(5) 22,500 11,925 .12
Brooks Fiber Properties, Inc. 0%/10.875% 2006 (1)(5) 29,000 15,225 .11
PanAmSat, LP 9.75% 2000 10,300 10,712 .07
Teleport Communications 9.875% 2006 7,500 7,181 .05
Telecom Argentina STET-France Telecom SA 12.00% 2002 2,500 2,637 .02
-------- -----
151,219 1.05
-------- -----
Business & Public Services - 0.82% .
Federal Express Corp. 10.00% 1998 4,000 4,260
Federal Express Corp. 9.875% 2002 7,000 7,843
Federal Express Corp. 7.53% 2006 13,287 13,275
Federal Express Corp, pass-through certificates,
Series 1996-A1, 7.85% 2015 (7) 10,000 10,034 .24
Integrated Health Services, Inc. 10.75% 2004 5,175 5,330
Integrated Health Services, Inc. 10.25% 2006 (1) 16,900 16,942 .15
Protection One Alarm Monitoring, Inc.
0%/13.625% 2005 (5) 18,000 15,435 .11
Neodata Services, Inc. 12.00% 2003 11,000 10,973 .08
Mariner Health Group, Inc. 9.50% 2006 (1) 11,000 10,780 .07
Regency Health Services, Inc. 9.875% 2002 5,000 4,850
Regency Health Services, Inc. 12.25% 2003 (1) 5,000 5,150 .07
ADT Operations 9.25% 2003 7,000 7,315 .05
Merit Behavioral Care Corp. 11.50% 2005 6,750 7,054 .05
-------- -----
119,241 .82
-------- -----
Forest Products & Paper - 0.78%
Container Corp. of America 10.75% 2002 1,000 1,035
Container Corp. of America 9.75% 2003 49,050 48,560
Container Corp. of America 11.25% 2004 23,000 23,920 .51
Fort Howard Corp. 9.25% 2001 9,500 9,548
Fort Howard Corp. 8.25% 2002 4,500 4,297 .10
Tjiwi Kimia International Finance Co. 13.25% 2001 6,750 7,594 .05
Grupo Industrial Durango, SA de CV 12.00% 2001 6,000 6,067 .04
Repap Wisconsin 9.875% 2006 6,325 5,787 .04
Four M Corp., Series A, 12.00% 2006 (1) 4,000 4,080 .03
Pacific Lumber Co. 10.50% 2003 1,500 1,470 .01
-------- -----
112,358 .78
-------- -----
Food Retailing and Food Products & Beverages - 0.54%
Canandaigua Wine Co., Inc. 8.75% 2003 17,500 17,063 .12
Stater Brothers Holdings Inc. 11.00% 2001 16,000 16,640 .11
Star Markets Co., Inc. 13.00% 2004 9,750 10,189 .07
Dr Pepper Bottling Co. of Texas 10.25% 2000 7,500 7,687 .05
Allied Supermarkets Inc. (Vons) 6.625% 1998 7,443 7,369 .05
Smith's Food & Drug Centers, Inc., pass-through
certificates, Series 94-A2, 8.64% 2012 (7) 8,000 6,400 .04
Carr-Gottstein Foods Co. 12.00% 2005 5,000 5,100 .04
Bruno's, Inc. 10.50% 2005 5,000 4,987 .03
Safeway Inc. 10.00% 2002 3,500 3,885 .03
-------- -----
79,320 .54
-------- -----
General Retailing & Merchandising - 0.49%
Barnes & Noble, Inc. 11.875% 2003 22,500 24,244 .17
AnnTaylor, Inc. 8.75% 2000 13,696 12,635 .09
May Department Stores Co. 8.375% 2024 10,000 10,165 .07
Thrifty PayLess, Inc. 12.25% 2004 6,491 7,205 .05
Woolworth Corp., Series A, 7.00% 2002 6,800 6,635 .05
Dayton Hudson Corp. 9.50% 2015 5,000 5,719 .04
Loehmann's Inc. 11.875% 2003 3,250 3,376 .02
-------- -----
69,979 .49
-------- -----
Banking and Insurance - 0.46%
SFFED Corp. 11.20% 2004 (1) 10,000 11,500 .08
The Equitable Life Assurance Society of the
United States 7.70% 2015 (1) 10,000 9,656 .07
Metropolitan Life Insurance Co. 7.45% 2023 (1) 10,000 9,073 .06
Midland American Capital 12.75% 2003 6,000 6,740 .05
Bank of Scotland 8.80% 2004 (1) 5,000 5,375 .04
New American Capital, Inc. 9.60% 1999 (1) 5,000 5,212 .03
Dime Bancorp, Inc. 10.50% 2005 4,000 4,320 .03
First Nationwide Holdings Inc. 12.50% 2003 4,000 4,200 .03
Coast Federal Bank 13.00% 2002 3,500 3,885 .03
Chevy Chase Savings Bank, FSB 9.25% 2005 4,000 3,770 .02
Fairfax Financial Holdings Ltd. 8.25% 2015 3,000 2,979 .02
-------- -----
66,710 .46
-------- -----
Metals: Steel & Nonferrous - 0.46%
Kaiser Aluminum and Chemical Corp. 9.875% 2002 5,000 4,900
Kaiser Aluminum and Chemical Corp. 12.75% 2003 9,000 9,405 .10
Acme Metals Inc. 12.50% 2002 3,000 3,030
Acme Metals Inc. 0%/13.50% 2004 (5) 10,500 9,555 .09
Inco Ltd. 9.60% 2022 1,625 1,693
Inco Ltd. 9.875% 2019 6,500 7,013 .06
Pohang Iron & Steel Co., Ltd. 7.375% 2005 7,000 6,842 .05
Ispat Mexicana, SA de CV, 10.375% 2001 (1) 2,000 1,940
Ispat Mexicana, SA de CV, 10.375% 2001 4,000 3,880 .04
USX Corp. 9.125% 2013 5,000 5,393 .04
UCAR Global Enterprises Inc. 12.00% 2005 4,250 4,802 .03
Oregon Steel Mills, Inc. 11.00% 2003 4,250 4,441 .03
AK Steel Corp. 10.75% 2004 2,750 2,977 .02
-------- -----
65,871 .46
-------- -----
Data Processing & Reproduction - 0.36%
Digital Equipment Corp. 8.625% 2012 25,314 24,607 .17
Apple Computer, Inc. 6.50% 2004 18,920 14,947 .10
Unisys Corp. 12.00% 2003 12,000 12,060 .09
-------- -----
51,614 .36
-------- -----
Real Estate - 0.35%
B.F. Saul Real Estate Investment Trust 11.625% 2002 23,000 23,575 .16
Irvine Co. 7.46% 2006 (1)(4) 10,000 9,300 .06
Beverly Finance Corp. 8.36% 2004 (1) 5,000 5,144 .04
Shopping Center Associates 6.75% 2004 (1) 5,000 4,719 .03
Security Capital Industrial Trust 7.95% 2008 4,000 3,948 .03
ERP Operating LP 7.95% 2002 3,750 3,784 .03
-------- -----
50,470 .35
-------- -----
Financial Services - 0.33%
General Motors Acceptance Corp. 7.00% 2000 3,000 3,007
General Motors Acceptance Corp. 9.625% 2001 20,000 22,174
General Motors Acceptance Corp. 8.75% 2005 5,000 5,389 .21
Ford Capital BV 10.125% 2000 5,500 6,120 .04
General Electric Capital Corp. 8.875% 2009 4,000 4,563 .03
Credit Foncier de France 8.00% 2002 4,000 4,095 .03
HomeSide, Inc. 11.25% 2003 (1) 3,000 3,128 .02
-------- -----
48,476 .33
-------- -----
Leisure & Tourism - 0.31%
Foodmaker, Inc. 9.25% 1999 8,750 8,662
Foodmaker, Inc. 9.75% 2002 3,550 3,390 .08
Trump Atlantic City Funding, Inc. 11.25% 2006 11,750 11,456 .08
Harrah's Operating Co. Inc. 8.75% 2000 4,000 4,030
Harrah's Operating Co. Inc. 10.875% 2002 5,000 5,325 .07
Station Casinos, Inc. 9.625% 2003 7,650 7,277 .05
Rio Hotel & Casino, Inc. 10.625% 2005 2,000 2,100 .01
Four Seasons Hotels Inc. 9.125% 2000 (1) 2,000 1,993 .01
Plitt Theatres, Inc. 10.875% 2004 1,000 1,011 .01
-------- -----
45,244 .31
-------- -----
Automobiles - 0.31%
General Motors Corp. 9.45% 2011 5,000 5,722
General Motors Corp. 8.80% 2021 35,000 38,957 .31
-------- -----
44,679 .31
-------- -----
Construction & Building Materials - 0.29%
M.D.C. Holdings, Inc. 11.125% 2003 12,000 11,520 .08
Del Webb Corp. 9.75% 2003 10,500 10,185 .07
The Ryland Group, Inc. 10.50% 2006 7,500 7,388 .05
Building Materials Corp. 0%/11.75% 2004 (5) 7,500 5,644 .04
Continental Homes Holding Corp. 10.00% 2006 5,000 4,750 .03
Schuller International Group, Inc. 10.875% 2004 2,000 2,160 .02
-------- -----
41,647 .29
-------- -----
Aerospace, Automotive Parts and Machinery - 0.22%
Coltec Industries Inc 9.75% 1999 5,500 5,638
Coltec Industries Inc 9.75% 2000 8,500 8,712 .10
AGCO Corp. 8.50% 2006 (1) 10,000 9,925 .07
Caterpillar Inc. 8.01% 2002 5,000 5,207 .04
MagneTek, Inc. 10.75% 1998 2,000 1,995 .01
-------- -----
31,477 .22
-------- -----
Recreation, Other Consumer Products - 0.18%
Tyco Toys, Inc. 10.125% 2002 18,700 17,952 .12
AMF Group Inc. 0%/12.25% 2006 (1)(5) 10,000 5,600
AMF Group Inc. 10.875% 2006 (1) 3,000 2,985 .06
-------- -----
26,537 .18
-------- -----
Appliances & Household Durables - 0.07%
Samsung Electronics Co., Ltd. 8.50% 2002 (1) 6,000 6,272 .04
The Knoll Group, Inc. 10.875% 2006 3,750 3,816 .03
-------- -----
10,088 .07
-------- -----
Miscellaneous - 0.23%
Newsquest Capital plc 11.00% 2006 (1) 8,500 8,500 .06
Swire Pacific Ltd. 8.50% 2004 (1) 7,500 7,765 .05
Owens-Illinois, Inc. 11.00% 2003 6,000 6,465 .05
WestPoint Stevens Inc. 8.75% 2001 4,000 3,970 .03
Tenneco Inc. 10.00% 1998 1,500 1,593
Tenneco Inc. 7.875% 2002 2,000 2,049 .02
Lifestyle Furnishings International Ltd. 10.875% 2006 3,000 3,000 .02
-------- -----
33,342 .23
-------- -----
Collateralized Mortgage/Asset-Backed Obligations (7)
(excluding those issued by federal agencies) - 1.08%
Green Tree Financial Corp., Net Interest Margin Trust,
Series 1994-A, 6.90% 2004 4,979 4,923
Green Tree Financial Corp., Seller and Servicer
Manufactured Housing Contract, Series 1993-2, Class B,
8.00% 2018 14,000 13,821
Green Tree Financial Corp., Seller and Servicer
Manufactured Housing Contract, Series 1995-1, Class A-3,
7.95% 2025 5,000 5,081
Green Tree Financial Corp., Seller and Servicer
Manufactured Housing Contract, Series 1995-9, Class A-5,
6.80% 2027 4,000 3,837 .19
Resolution Trust Corp., Series 1992-CHF, Class E,
8.25% 2020 10,825 10,420
Resolution Trust Corp., Series 1993-C1, Class D,
9.45% 2024 6,143 6,288
Resolution Trust Corp., Series 1993-C1, Class E,
9.50% 2024 1,712 1,691
Resolution Trust Corp., Series 1993-C2, Class C,
8.00% 2025 3,000 3,005
Resolution Trust Corp., Series 1993-C2, Class D,
8.50% 2025 3,290 3,307
Resolution Trust Corp., Series 1993-C2, Class E,
8.50% 2025 677 666 .18
Merrill Lynch Mortgage Investors, Inc., Seller
Manufactured Housing Contract, Series 1992-B, Class A2,
8.05% 2012 1,834 1,845
Merrill Lynch Mortgage Investors, Inc., Seller
Manufactured Housing Contract, Series 1995-C2,
Class A-1, 7.251% 2021 (6) 17,953 17,962 .14
Electronic Transfer Master Trust 9.35% 2002 (1) 15,000 15,135 .10
UCFC Acceptance Corp., home-equity loan pass-through
certificates, Series 1996-B1, Class A-2 7.075% 2010 15,000 15,038 .10
Chase Manhattan Bank, NA, Series 1993-I, Class 2A5,
7.25% 2024 9,910 9,427 .07
GE Capital Mortgage Services, Inc., Series 94-2, Class
A15, 5.442% 2009 (8) 6,310 3,549
GE Capital Mortgage Services, Inc., Series 94-9, Class
A9, 6.50% 2024 5,657 4,596 .06
Banco Nacional de Mexico 0% 2002 (1) 7,680 5,910 .04
Prudential Home Mortgage Securities Co., Inc.,
Series 1992-37, Class A6, 7.00% 2022 5,856 5,842 .04
Citicorp Mortgage Securities, Inc., Series 1992-20,
Class A3, 7.50% 2006 5,432 5,436 .04
Fifth Avenue Capital Trust, Class C, 12.36% 2007 (1) 5,000 5,312 .04
Standard Credit Card Master Trust I, credit card
participation certificates, Series 1994-2A, 7.25% 2008 5,000 4,958 .03
CSFB Finance Co. Ltd. 7.00% 2005 (1)(6) 5,000 4,813 .03
CMC Securities Corp. I, Series 1993-E, Class S9,
6.50% 2008 2,801 2,538 .02
Bank of America 9.50% 2008 73 74 .00
-------- -----
155,474 1.08
-------- -----
Federal Agency Obligations: Mortgage Pass-Throughs (7)
- 2.83%
Government National Mortgage Assn. 5.00% 2025 (6) 3,975 3,888
Government National Mortgage Assn. 6.00% 2023 3,003 2,703
Government National Mortgage Assn. 6.00% 2024 (6) 7,164 7,224
Government National Mortgage Assn. 6.50% 2024 4,663 4,326
Government National Mortgage Assn. 6.50% 2023-2024 (6) 88,518 88,830
Government National Mortgage Assn. 7.00% 2008-2023 25,941 24,900
Government National Mortgage Assn. 7.00% 2022 (6) 17,369 17,569
Government National Mortgage Assn. 7.50% 2017-2026 34,940 34,506
Government National Mortgage Assn. 8.00% 2017 6,152 6,309
Government National Mortgage Assn. 8.50% 2017-2026 43,942 45,208
Government National Mortgage Assn. 9.00% 2008-2025 13,983 14,775
Government National Mortgage Assn. 9.50% 2009-2021 15,343 16,495
Government National Mortgage Assn. 10.00% 2016-2019 1,732 1,883
Government National Mortgage Assn. 10.50% 2018-2019 258 286
Government National Mortgage Assn. 11.00% 2015 118 132 1.86
Federal National Mortgage Assn. 7.50% 2007-2023 26,557 26,597
Federal National Mortgage Assn. 8.00% 2009-2024 12,004 12,217
Federal National Mortgage Assn. 8.50% 2014-2023 3,194 3,298
Federal National Mortgage Assn. 9.00% 2008-2025 12,768 13,409
Federal National Mortgage Assn. 10.00% 2008-2025 32,469 35,235 .63
Federal Home Loan Mortgage Corp. 8.00% 2025 8,928 8,986
Federal Home Loan Mortgage Corp. 8.50% 2008-2020 25,348 26,069
Federal Home Loan Mortgage Corp. 9.00% 2007-2021 13,002 13,546
Federal Home Loan Mortgage Corp. 10.00% 2019 124 134
Federal Home Loan Mortgage Corp. 11.50% 2000 15 16 .34
-------- -----
408,541 2.83
-------- -----
Federal Agency Obligations: Collateralized Mortgage
Obligations - 0.16%
Federal National Mortgage Assn., Series 1993-234,
Class SC, 5.829% 2008 (8) 8,754 5,493
Federal National Mortgage Assn., Series 1991-78,
Class PK, 8.50% 2020 8,278 8,531
Federal National Mortgage Assn., Series 1996-4,
Class ZA, 6.50% 2022 5,443 4,341 .13
Federal Home Loan Mortgage Corp., Series 1475, Class SA,
9.118% 2008 (8) 2,168 1,599
Federal Home Loan Mortgage Corp., Series 1673, Class SA,
5.116% 2024 (8) 6,000 2,586 .03
-------- -----
22,550 .16
-------- -----
Other Federal Agency Obligations - 0.54%
Federal Home Loan Mortgage Corp. 5.74% 2003 5,000 4,639
Federal Home Loan Mortgage Corp. 6.39% 2003 7,750 7,417
Federal Home Loan Mortgage Corp. 6.44% 2003 3,000 2,873
Federal Home Loan Mortgage Corp. 6.50% 2003 5,000 4,770
Federal Home Loan Mortgage Corp. 6.59% 2003 6,000 5,765
Federal Home Loan Mortgage Corp. 6.19% 2004 12,750 11,979
Federal Home Loan Mortgage Corp. 6.27% 2004 5,450 5,157 .29
Federal Home Loan Bank 6.41% 2003 10,000 9,547
Federal Home Loan Bank 6.16% 2004 13,000 12,265
Federal Home Loan Bank 6.27% 2004 6,000 5,675 .19
FNSM Principal STRIPS 0%/8.62% 2022 (5) 10,000 8,647 .06
-------- -----
78,734 .54
-------- -----
Governments and Governmental Authorities
(excluding U.S. government) - 0.87%
Argentina (Republic of) 8.375% 2003 13,000 11,018
Argentina (Republic of) Eurobond Series L, 6.312% 2005
(6) 40,343 30,559 .29
Venezuela (Republic of) 6.625% 2007 (6) 45,000 32,850 .22
United Mexican States Government 7.687% 2001 (1)(6) 15,000 14,962
United Mexican States Government 9.75% 2001 5,000 4,963
United Mexican States Government 6.25% Eurobonds 2019 1,000 645 .14
British Columbia Hydro & Power Authority 12.50% 2014 10,000 11,621 .08
Philippine Front-Loaded Interest Reduction Bond,
Series B 5.00% 2008 (6) 8,000 7,260 .05
Brazil (Republic of) Debt Conversion Bond 6.562%
2012 (6) 8,000 5,440 .04
Italy (Republic of) 6.875% 2023 5,000 4,517 .03
Ontario (Province of) 7.75% 2002 2,500 2,598 .02
-------- -----
126,433 .87
-------- -----
Floating Rate Eurodollar Notes (Undated) (6) - 0.23%
Standard Chartered Bank 6.062% 15,000 12,336 .08
Canadian Imperial Bank of Commerce 5.375% 10,000 8,437 .06
Bank of Nova Scotia 5.375% 10,000 8,250 .06
Midland Bank 6.00% 5,000 4,294 .03
-------- -----
33,317 .23
-------- -----
U.S. Treasury Obligations - 8.69%
7.25% August 1996 50,000 50,047 .35
7.25% November 1996 50,000 50,235 .35
8.00% January 1997 50,000 50,524 .35
6.75% February 1997 4,000 4,024 .03
6.875% April 1997 50,000 50,375 .35
8.50% May 1997 6,000 6,121 .04
8.50% July 1997 4,000 4,094 .03
5.625% August 1997 50,000 49,781 .34
8.625% August 1997 50,000 51,320 .36
5.50% September 1997 50,000 49,726 .34
5.75% October 1997 50,000 49,836 .35
8.75% October 1997 25,000 25,781 .18
6.00% November 1997 50,000 49,969 .35
7.875% January 1998 50,000 51,242 .35
8.125% February 1998 30,000 30,867 .21
9.25% August 1998 55,000 58,111 .40
8.875% February 1999 42,000 44,448 .31
9.125% May 1999 10,000 10,688 .07
6.75% June 1999 50,000 50,461 .35
8.75% August 2000 22,500 24,261 .17
8.50% November 2000 20,000 21,453 .15
7.75% February 2001 50,000 52,320 .36
11.625% November 2002 38,000 47,601 .33
10.75% February 2003 19,500 23,656 .16
7.25% May 2004 100,000 103,109 .71
11.625% November 2004 26,500 34,562 .24
6.50% May 2005 55,000 54,029 .37
10.75% August 2005 9,000 11,367 .08
10.375% November 2012 6,000 7,572 .05
8.875% August 2017 61,500 73,368 .51
7.125% February 2023 65,250 65,546 .45
-------- -----
1,256,494 8.69
-------- -----
TOTAL BONDS & NOTES (cost: $4,794,755,000) 4,755,555 32.89
-------- -----
- ---------------------------------- --- --- ---
Principal Market Percent
Short-Term Securities Amount Value of Net
(000) (000) Assets
- ---------------------------------- --- --- ---
Corporate Short-Term Notes - 4.95%
Hewlett-Packard Co. 5.33%-5.42% due 9/23-10/25/96 104,757 103,682 .72
International Lease Finance Corp. 5.27%-5.47%
due 8/14-10/8/96 90,600 90,107 .62
Walt Disney Co. 5.26%-5.32% due 8/16-9/18/96 70,400 70,043 .48
Lucent Technologies Inc. 5.28%-5.38% due 8/2-8/28/96 52,500 52,368 .36
Weyerhaeuser Co. 5.27%-5.38% due 8/14-9/17/96 50,000 49,727 .34
American Express Credit Corp. 5.29%-5.33%
due 8/1-9/16/96 43,400 43,257 .30
Ameritech Corp. 5.26%-5.36% due 8/13-8/29/96 (1) 43,400 43,248 .30
National Rural Utilities Cooperative Finance Corp.
5.35%-5.39% due 8/23-10/02/96 40,000 39,801 .28
J.C. Penney Funding Corp. 5.34%-5.40% due 8/29-10/11/96 39,300 38,966 .27
E.I. du Pont de Nemours and Co. 5.27% due 8/7/96 (1) 30,000 29,969
E.I. du Pont de Nemours and Co. 5.35% due 9/4/96 5,000 4,974 .24
CIT Group Holdings, Inc. 5.31%-5.35% due 8/1-9/19/96 32,500 32,355 .22
Beneficial Corp. 5.35% due 8/15/96 30,000 29,933 .21
A.I. Credit Corp. 5.27% due 8/12/96 20,000 19,964 .14
BellSouth Telecommunications, Inc. 5.34% due 8/13/96 14,900 14,871 .10
AT&T Corp. 5.27%-5.35% due 8/6-8/26/96 13,700 13,671 .09
American Brands, Inc. 5.47% due 10/1/96 10,000 9,906 .07
Eli Lilly and Co. 5.42% due 10/7/96 9,900 9,798 .07
Xerox Corp. 5.36% due 10/11/96 8,600 8,507 .06
Southwestern Bell Telephone Co. 5.40% due 10/15/96 7,500 7,414 .05
Monsanto Co. 5.38% due 9/20/96 4,200 4,168 .03
-------- -----
716,729 4.95
-------- -----
Certificates of Deposit - 0.21%
Mellon Bank Corp. 5.35% due 8/6/96 30,000 30,000 .21
-------- -----
Federal Agency Short-Term Obligations - 0.51%
Federal National Mortgage Assn.
5.21%-5.35% due 8/8-10/30/96 44,550 44,262 .31
Federal Home Loan Mortgage Corp. 5.21% due 8/16/96 23,000 22,946 .16
Federal Home Loan Bank 5.35% due 10/28/96 6,500 6,414 .04
-------- -----
73,622 .51
-------- -----
TOTAL SHORT-TERM SECURITIES (cost: $820,392,000) 820,351 5.67
-------- -----
TOTAL INVESTMENT SECURITIES (cost: $12,944,090,000) 14,350,211 99.25
Excess of cash and receivables over payables 108,953 .75
-------- -----
NET ASSETS $14,459,164 ######
======== =====
(1) Purchased in a private placement transaction;
resale to the public may require registration or sale
only to qualified institutional buyers.
(2) The fund owns 5.18% and 5.85% of the outstanding voting
securities of Ohio Casualty and English China Clays,
respectively, which represent investments in an affiliate as
defined in the Investment Company Act of 1940.
(3) Non-income-producing securities.
(4) Valued under procedures established by the
Board of Directors.
(5) Represents a zero coupon bond which will convert
to an interest-bearing security at a later date.
(6) Coupon rates may change periodically.
(7) Pass-through securities backed by a pool of
mortgages or other loans on which principal payments
are periodically made. Therefore, the effective
maturity of these securities is shorter than the
stated maturity.
(8) Represents an inverse floater, which is a floating
rate note whose interest rate moves in the opposite
direction of prevailing interest rates.
See Notes to Financial Statements
</TABLE>
<TABLE>
The Income Fund of America
Financial Statements
- ----------------------------------------- --------- ------------------
Statement of Assets and Liabilities (dollars in
July 31, 1996 thousands)
- ---------------------------------------- --------- ------------------
<S> <C> <C>
ASSETS:
Investment securities at market
(cost: $12,944,090) $14,350,211
Cash 4,819
Receivables for-
Sales of investments $ 72,536
Sales of fund's shares 13,807
Dividends and accrued interest 128,072 214,415
--------- ------------------
14,569,445
LIABILITIES:
Payables for-
Purchases of investments 63,447
Repurchases of fund's shares 37,847
Management services 3,902
Accrued expenses 5,085 110,281
--------- ------------------
NET ASSETS AT JULY 31, 1996-
Equivalent to $15.89 per share on
909,913,014 shares of $1 par value
capital stock outstanding (authorized
capital stock--1,200,000,000 shares) $14,459,164
=================
Statement of Operations (dollars in
for the year ended July 31, 1996 thousands)
- ----------------------------------------- --------- ------------------
INVESTMENT INCOME:
Income:
Dividends $ 328,343
Interest 524,572 $ 852,915
---------
Expenses:
Management services fee 42,065
Distribution expenses 31,409
Transfer agent fee 8,735
Reports to shareholders 879
Registration statement and
prospectus 426
Postage, stationery and supplies 1,701
Directors' fees 149
Auditing and legal fees 58
Custodian fee 312
Taxes other than federal income tax 2
Other expenses 120 85,856
--------- ----------------
Net investment income 767,059
-----------------
REALIZED GAIN AND UNREALIZED
APPRECIATION ON INVESTMENTS:
Net realized gain 630,886
Net increase in unrealized appreciation on
investments 276,975
Net realized gain and unrealized -----------------
appreciation on investments 907,861
----------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $1,674,920
================
- ---------------------------------------- ----------------
Statement of Changes in Net Assets (dollars in
thousands)
- ----------------------------------------- ------------------
Year ended July 31
-----------------
1996 1995
----------------- ----------------
OPERATIONS:
Net investment income $ 767,059 $ 680,297
Net realized gain on investments 630,886 50,302
Net increase in unrealized appreciation
on investments 276,975 994,833
--------- ---------
Net increase in net assets
resulting from operations 1,674,920 1,725,432
--------- ---------
DIVIDENDS AND DISTRIBUTIONS
PAID TO SHAREHOLDERS:
Dividends from net investment income (718,292) (598,609)
Distributions from net realized
gain on investments (152,790) (47,119)
--------- ---------
Total dividends and distributions (871,082) (645,728)
--------- ---------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
143,040,894 and 118,485,003
shares, respectively 2,275,579 1,645,595
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions of
net realized gain on investments:
46,413,197 and 42,687,032
shares, respectively 734,433 586,118
Cost of shares repurchased:
103,371,820 and 112,581,008
shares, respectively (1,644,843) (1,558,083)
--------- ---------
Net increase in net assets
resulting from capital share
transactions 1,365,169 673,630
--------- ---------
TOTAL INCREASE IN NET ASSETS 2,169,007 1,753,334
NET ASSETS:
Beginning of year 12,290,157 10,536,823
--------- ---------
End of year (including undistributed
net investment income: $159,002
and $110,419, respectively) $14,459,164 $12,290,157
=========== ===========
See Notes to Financial Statements
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. The Income Fund of America, Inc. (the "fund") is registered under the
Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks current income while secondarily striving
for capital growth through investments in stocks and fixed-income securities.
The following paragraphs summarize the significant accounting policies
consistently followed by the fund in the preparation of its financial
statements:
Equity-type securities traded on a national securities exchange (or reported
on the NASDAQ national market) and securities traded in the over-the-counter
market are stated at the last-reported sales price on the day of valuation;
other securities, and securities for which no sale was reported on that date,
are stated at the last quoted bid price.
Bonds and notes are valued at prices obtained from a bond-pricing service
provided by a major dealer in bonds, when such prices are available; however,
in circumstances where the investment adviser deems it appropriate to do so,
such securities will be valued at the mean of their representative quoted bid
and asked prices or, if such prices are not available, at prices for securities
of comparable maturity, quality, and type.
Short-term securities with original or remaining maturities in excess of 60
days are valued at the mean of their quoted bid and asked prices. Short-term
securities with 60 days or less to maturity are valued at amortized cost, which
approximates market value.
Securities for which market quotations are not readily available are valued
at fair value as determined in good faith by the Valuation Committee of the
Board of Directors.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Dividend and interest income is reported on the accrual basis. Discounts
on securities purchased are amortized over the life of the respective
securities. The fund does not amortize premiums on securities purchased.
Dividends and distributions paid to shareholders are recorded on the
ex-dividend date.
Investment securities and other assets and liabilities denominated in
non-U.S. currencies are recorded in the financial statements after translation
into U.S. dollars utilizing rates of exchange on the last business day of the
year. Purchases and sales of investment securities, income and expenses are
calculated using the prevailing exchange rate as accrued. The effects of
changes in foreign currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $312,000 includes $248,000 that was paid by these credits
rather than in cash.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of July 31, 1996, net unrealized appreciation on investments for federal
income tax purposes aggregated $1,406,195,000, of which $1,661,133,000 related
to appreciated securities and $254,938,000 related to depreciated securities.
During the year ended July 31, 1996, the fund realized, on a tax basis, a net
capital gain of $631,096,000 on securities transactions. The cost of portfolio
securities for federal income tax purposes was $12,944,016,000 at July 31,
1996.
3. The fee of $42,065,000 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.24% of the first $1 billion of average net assets; 0.20%
of such assets in excess of $1 billion but not exceeding $2 billion; 0.18% of
such assets in excess of $2 billion but not exceeding $3 billion; 0.165% of
such assets in excess of $3 billion but not exceeding $5 billion; 0.155% of
such assets in excess of $5 billion but not exceeding $8 billion; 0.15% of such
assets in excess of $8 billion but not exceeding $13 billion; 0.147% of such
assets in excess of $13 billion; plus 2.25% of monthly gross investment
income.
Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Directors. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the year ended July 31, 1996,
distribution expenses under the Plan were $31,409,000. As of July 31, 1996,
accrued and unpaid distribution expenses were $4,779,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $8,735,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $11,114,000 (after
allowances to dealers) as its portion of the sales charges paid by purchasers
of the fund's shares. Such sales charges are not an expense of the fund and,
hence, are not reflected in the accompanying statement of operations.
Directors who are unaffiliated with CRMC may elect to defer part or all of
the fees earned for services as members of the Board. Amounts deferred are not
funded and are general unsecured liabilities of the fund. As of July 31, 1996,
aggregate amounts deferred and earnings thereon were $213,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Directors and officers of the fund
are or may be considered to be affiliated with CRMC, AFS and AFD. No such
persons received any remuneration directly from the fund.
4. As of July 31, 1996, accumulated undistributed net realized gain on
investments was $525,840,000 and additional paid-in capital was
$11,458,261,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $5,557,992,000 and $4,871,034,000, respectively,
during the year ended July 31, 1996.
Net realized currency losses on dividends and withholding taxes reclaimable
were $26,000 for the year ended July 31, 1996.
The fund reclassified $184,000 from undistributed net investment income to
undistributed net realized gains for the year ended July 31, 1996.
<TABLE>
Per-Share Data and Ratios
Year ended July 31
1996 1995 1994 1993 1992
------- ----------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $14.92 $13.59 $14.47 $13.94 $12.54
------- ----------------------------
Income from Investment
Operations:
Net investment income .87 .85 .83 .85 .85
Net realized and unrealized
gain (loss) on investments 1.11 1.29 (.53) .74 1.48
------- ----------------------------
Total income from
investment operations 1.98 2.14 .30 1.59 2.33
------- ----------------------------
Less Distributions:
Dividends from net investment
income (.83) (.75) (.83) (.84) (.85)
Distributions from net
realized gains (.18) (.06) (.35) (.22) (.08)
------- ----------------------------
Total distributions (1.01) (.81) (1.18) (1.06) (.93)
------- ----------------------------
Net Asset Value, End of Year $15.89 $14.92 $13.59 $14.47 $13.94
======= ============================
Total Return1 13.46% 16.42% 1.98% 11.88% 19.16%
Ratios/Supplemental Data:
Net assets, end of year (in
millions) $14,459 $12,290 $10,537 $9,045 $5,121
Ratio of expenses to average
net assets .62% .65% .63% .62% .66%
Ratio of net income to average
net assets 5.56% 6.12% 5.92% 6.05% 6.40%
Portfolio turnover rate 37.77% 26.26% 26.42% 29.18% 22.71%
1Calculated without
deducting a sales charge.
The maximum sales charge is
5.75% of the fund's offering
price.
</TABLE>
Independent Auditors' Report
To the Board of Directors and Shareholders of
The Income Fund of America, Inc.:
We have audited the accompanying statement of assets and liabilities of The
Income Fund of America, Inc., including the schedule of portfolio investments
as of July 31, 1996, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the per-share data and ratios for each of the five years
in the period then ended. These financial statements and the per-share data
and ratios are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the per-share data
and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
per-share data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at July 31, 1996 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of the Income Fund of America, Inc. as of July 31, 1996, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the per-share data and
ratios for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Los Angeles, California
August 30, 1996
Tax Information (unaudited)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of distributions received by shareholders
during such fiscal year. The distributions made during the fiscal year by the
fund were earned from the following sources:
Dividends and Distributions per Share
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
To Shareholders of Record Payment Date From Net Investment Income From Net Realized Short-Term Gains From Net
Realized Long-Term Gains
September 22, 1995 September 25, 1995 $0.20 - -
December 26, 1995 December 27, 1995 0.23 - $0.18
March 22, 1996 March 25, 1996 0.20 - -
June 21, 1996 June 24, 1996 0.20 - -
</TABLE>
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 40% of the dividends
paid by the fund from net investment income represent qualifying dividends.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans, and 403(b) plans need not be reported as taxable income.
However, many plan retirement trusts may need this information for their annual
information reporting.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 15% of the dividends
paid by the fund from net investment income was derived from interest on direct
U.S. Treasury obligations.
SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FUND'S FISCAL YEAR AND NOT THE
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099 DIV OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 1997 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR RESPECTIVE 1996 TAX RETURNS. SHAREHOLDERS
SHOULD CONSULT THEIR TAX ADVISERS.
