THE INCOME FUND OF AMERICA, INC.
Part B
Statement of Additional Information
OCTOBER 1, 1998
(as amended January 1, 1999)
This document is not a prospectus but should be read in conjunction with the
current Prospectus of The Income Fund of America, Inc. (the fund or IFA) dated
October 1, 1998. 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
Shareholders who purchase shares at net asset value through eligible
retirement plans should note that not all of the services or features described
below may be available to them, and they should contact their employer for
details.
Table of Contents
Item Page No.
CERTAIN INVESTMENT LIMITATIONS 2
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES 3
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS 8
FUND ORGANIZATION AND VOTING RIGHTS 10
FUND OFFICERS AND DIRECTORS 11
MANAGEMENT 15
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 18
PURCHASE OF SHARES 21
SELLING SHARES 28
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 29
EXECUTION OF PORTFOLIO TRANSACTIONS 32
GENERAL INFORMATION 32
INVESTMENT RESULTS AND RELATED STATISTICS 34
DESCRIPTION OF BOND RATINGS 39
FINANCIAL STATEMENTS ATTACHED
CERTAIN INVESTMENT LIMITATIONS
The following limitations and guidelines are considered at the time of
purchase, under normal market conditions, and are based on a percentage of the
fund's net assets unless otherwise noted. This summary is not intended to
reflect all of the fund's investment limitations.
OBJECTIVE
- - The fund will invest at least 65% of its assets in income producing
securities.
EQUITY SECURITIES
- - The fund will generally invest at least 60% of its assets in equity
securities. However, at times the fund may be substantially invested in equity
or fixed-income securities (i.e., more than 60%) or may be solely invested in
equity or fixed-income securities (i.e., 100%).
DEBT SECURITIES
- - The fund may invest up to 20% of its assets in straight debt securities rated
below BBB/Baa or unrated but determined to be of equivalent quality.
- - The fund may invest up to 25% of its assets in straight debt securities,
including those with equity conversion or purchase rights rated below BBB/Baa
or unrated but determined to be of equivalent quality.
- - The fund may invest up to 11/2% of its assets in inverse floating rate notes.
- - The fund may invest up to 5% of its assets in reinsurance related notes and
bonds.
SECURITIES OF ISSUERS DOMICILED OUTSIDE THE U.S.
- - The fund may invest up to 15% of its assets in equity securities of issuers
domiciled outside the U.S. and not included in the Standard & Poor's 500
Composite Index.
- - The fund may invest up to 10% of its assets in fixed-income securities of
issuers domiciled outside the U.S. (must be U.S. dollar denominated).
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
The fund may experience difficulty liquidating certain portfolio securities
during significant market declines or periods of heavy redemptions. The
descriptions below are intended to supplement the material in the prospectus
under "Investment Objectives, Strategies and Risks."
EQUITY SECURITIES - The fund will invest in equity securities. Equity
securities represent an ownership position in a company. These securities may
include common stocks and securities with equity conversion or purchase rights.
The prices of equity securities fluctuate based on changes in the financial
condition of their issuers and on market and economic conditions. The fund's
results will be related to the overall market for these securities. Smaller
capitalization stocks purchased by the fund may involve large price swings and
potential for loss.
INVESTING IN SMALLER CAPITALIZATION STOCKS The fund may invest from time to
time in the stocks of smaller companies (typically companies with market
capitalizations of less than $1.2 billion at the time of purchase). Capital
Research and Management Company believes that the issuers of smaller
capitalization stocks often provide attractive investment opportunities.
However, investing in smaller capitalization stocks can involve greater risk
than is customarily associated with investing in stocks of larger, more
established companies. For example, smaller companies often have limited
product lines, markets, or financial resources, may be dependent for management
on one or a few key persons, and can be more susceptible to losses. Also,
their securities may be thinly traded (and therefore have to be sold at a
discount from current prices or sold in small lots over an extended period of
time), may be followed by fewer investment research analysts, and may be
subject to wider price swings thus creating a greater chance of loss than
securities or larger capitalization companies.
DEBT SECURITIES - The fund will invest in debt securities. Bonds and other
debt securities are used by issuers to borrow money. Issuers pay investors
interest and generally must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values. The prices of debt securities
fluctuate depending on such factors as interest rates, credit quality, and
maturity. In general their prices decline when interest rates rise and vice
versa.
The fund may invest up to 20% of its assets in debt securities rated Ba and BB
or below by Moody's Investors Service, Inc. or Standard & Poor's Corporation or
in unrated securities that are determined to be of equivalent quality by
Capital Research and Management Company, the fund's investment adviser. The
20% limit shall not apply to debt securities that have equity conversion or
purchase rights. In addition, the fund has no current intention of holding
more than 25% of its assets in high-yield, high-risk bonds, INCLUDING those
that have equity conversion or purchase rights. The fund's high-yield,
high-risk securities may be rated as low as Ca by Moody's or CC by S&P which
are described by the rating agencies as "speculative in a high degree; often in
default or [having] other marked shortcomings." See "Description of Bond
Ratings" for a complete description of the bond ratings.
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'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.
SECURITIES WITH EQUITY AND DEBT CHARACTERISTICS - The fund may invest in
securities that have a combination of equity and debt characteristics such as
non-convertible preferred stocks and convertible securities. These securities
may at times resemble equity more than debt and vice versa. Non-convertible
preferred stocks are similar to debt in that they have a stated dividend rate
like the coupon of a bond or note even though they are often classified as
equity securities. The prices and yields of non-convertible preferred stocks
generally move with changes in interest rates and the issuer's credit quality,
similar to the factors affecting debt securities.
Bonds, preferred stocks, and other securities may sometimes be converted into
shares of common stock or other securities at a stated exchange ratio. These
securities prior to conversion pay a fixed rate of interest or a dividend.
Because convertible securities have both debt and equity characteristics their
value varies in response to many factors, including the value of the underlying
equity, general market and economic conditions, convertible market valuations,
as well as changes in interest rates, credit spreads, and the credit quality of
the issuer.
INFLATION-INDEXED BONDS - The fund may invest in inflation-indexed bonds
issued by governments, their agencies or instrumentalities, or corporations.
The principal value of this type of bond is periodically adjusted according to
changes in the rate of inflation. The interest rate is generally fixed at
issuance; however, interest payments are based on an inflation adjusted
principal value. For example, in a period of deflation, principal value will
be adjusted downward, reducing the interest payable.
Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation indexed bonds,
even during a period of deflation. However, the current market value of the
bonds is not guaranteed, and will fluctuate. The fund may also invest in other
bonds which may or may not provide a similar guarantee. If a guarantee of
principal is not provided, the adjusted principal value of the bond repaid at
maturity may be less than the original principal.
REINSURANCE RELATED NOTES AND BONDS - The fund may invest up to 5% of its
assets in reinsurance related notes and bonds. These instruments, which are
typically issued by special purpose reinsurance companies, transfer an element
of insurance risk to the note or bond holders. For example, the reinsurance
company would not be required to repay all or a portion of the principal value
of the notes or bonds if losses due to a catastrophic event under the policy
(such as a major hurricane) exceed certain dollar thresholds. Consequently,
the fund may lose the entire amount of its investment in such bonds or notes if
such an event occurs and losses exceed certain dollar thresholds. In this
instance, investors would have no recourse against the insurance company.
These instruments may be issued with fixed or variable interest rates and rated
in a variety of credit quality categories by the rating agencies.
INVERSE FLOATING RATE NOTES - The fund may invest to a very limited extent (no
more than 11/2% of its assets) in inverse floating rate notes (a type of
derivative instrument). These notes have rates that move in the opposite
direction of prevailing interest rates. A change in prevailing interest rates
will often result in a greater change in the instruments' interest rates.
Therefore, these securities have a greater degree of volatility than other
types of interest-bearing securities.
SECURITIES SUBJECT TO RESTRICTIONS ON RESALE - The fund may purchase
securities subject to restrictions on resale. All such securities whose
principal trading market is in the U.S. will be considered illiquid unless they
have been specifically determined to be liquid under procedures which have been
adopted by the fund's board of directors, taking into account factors such as
the frequency and volume of trading, the commitment of dealers to make markets
and the availability of qualified investors, all of which can change from time
to time. The fund may incur certain additional costs in disposing of illiquid
securities.
PASS-THROUGH SECURITIES - The fund may invest in various debt obligations
backed by a pool of mortgages or other assets including loans on single family
residences, home equity loans, mortgages on commercial buildings, credit card
receivables, and leases on airplanes or other equipment. Principal and interest
payments made on the underlying asset pools backing these obligations are
typically passed through to investors. Pass-through securities may have either
fixed or adjustable coupons. These securities include those discussed below.
"Mortgage-backed securities" are issued both by U.S. government agencies,
including the Government National Mortgage Association (GNMA), the Federal
National Mortgage Association (FNMA), and the Federal Home Loan Mortgage
Corporation (FHLMC), and by private entities. The payment of interest and
principal on securities issued by U.S. government agencies is guaranteed by the
full faith and credit of the U.S. government (in the case of GNMA securities)
or the issuer (in the case of FNMA and FHLMC securities). However, the
guarantees do not apply to the market prices and yields of these securities,
which vary with changes in interest rates.
Mortgage-backed securities issued by private entities are structured similarly
to mortgage-backed securities issued by GNMA, FNMA, and FHLMC. These securities
and the underlying mortgages are not guaranteed by government agencies.
However, these securities generally are structured with one or more types of
credit enhancement by a third party. Mortgage-backed securities permit
borrowers to prepay their underlying mortgages. Prepayments by borrowers on
underlying obligations can alter the effective maturity of these instruments.
"Collateralized mortgage obligations" (CMOs) are also backed by a pool of
mortgages or mortgage loans, which are divided into two or more separate bond
issues. CMOs issued by U.S. government agencies are backed by agency mortgages,
while privately issued CMOs may be backed by either government agency mortgages
or private mortgages. Payments of principal and interest are passed through to
each bond at varying schedules resulting in bonds with different coupons,
effective maturities, and sensitivities to interest rates. In fact, some CMOs
may be structured in a way that when interest rates change the impact of
changing prepayment rates on these securities' effective maturities is
magnified.
"Commercial mortgage-backed securities" are backed by mortgages of commercial
property, such as hotels, office buildings, retail stores, hospitals, and other
commercial buildings. These securities may have a lower prepayment risk than
other mortgage-related securities because commercial mortgage loans generally
prohibit or impose penalties on prepayments of principal. In addition,
commercial mortgage-related securities often are structured with some form of
credit enhancement to protect against potential losses on the underlying
mortgage loans. Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate securing the
underlying mortgage loans, including the effects of local and other economic
conditions on real estate markets, the ability of tenants to make loan
payments, and the ability of a property to attract and retain tenants.
"Asset-backed securities" are backed by other assets such as credit card,
automobile or consumer loan receivables, retail installment loans, or
participations in pools of leases. Credit support for these securities may be
based on the underlying assets and/or provided through credit enhancements by a
third party. The values of these securities are sensitive to changes in the
credit quality of the underlying collateral, the credit strength of the credit
enhancement, changes in interest rates, and at times the financial condition of
the issuer. Some asset-backed securities also may receive prepayments which can
change the bonds' effective maturities.
Although the fund has no current intention to do so (at least during the next
12 months) the fund may also invest in real estate investment conduits which
are issued in portions or tranches with varying maturities and characteristics;
some tranches may only receive the interest paid on the underlying mortgages
(IOs) and others may only receive the principal payments (POs); the values of
IOs and POs are extremely sensitive to interest rate fluctuations and
prepayment rates, and IOs are also subject to the risk of early repayment of
the underlying mortgages which will substantially reduce or eliminate interest
payments. The fund does not intend to invest more than 5% of its assets in IOs
and POs.
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.
The fund may invest in notes and bonds issued by the U.S. Treasury and federal
agencies whose interest payments vary with the rate of inflation.
SECURITIES OF ISSUERS DOMICILED OUTSIDE THE U.S. - The fund may invest in
securities of issuers domiciled outside the U.S. Up to 15% of the fund's assets
may be invested in equity-type securities of non-U.S. issuers which are not
included in the Standard & Poor's 500 Composite Index, and up to 10% may be
invested in debt securities of non-U.S. issuers payable in U.S. dollars.
Investing outside the U.S. involves special risks, particularly in certain
developing countries, caused by, among other things: currency controls,
fluctuating currency values; differing accounting, auditing and financial
reporting regulations and practices in some countries; changing local and
regional economic, political, and social conditions; greater market volatility;
differing securities market structures; and various administrative difficulties
such as delays in clearing and settling portfolio transactions or in receiving
payment of dividends. However, in the opinion of Capital Research and
Management Company, investing outside the U.S. also can reduce certain
portfolio risks due to greater diversification opportunities.
The risks described above are potentially heightened in connection with
investments in developing countries. Although there is no universally accepted
definition, a developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a low per capita
gross national product. For example, political and/or economic structures in
these countries may be in their infancy and developing rapidly. Historically,
the markets of developing countries have been more volatile than the markets of
developed countries. The fund may only invest in securities of issuers in
developing countries to a limited extent.
Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. The fund can purchase and sell currencies to
facilitate transactions in securities denominated in currencies other than the
U.S. dollar. Brokerage commissions may be higher outside the U.S., and the fund
may bear certain expenses in connection with currency transactions.
Furthermore, increased custodian costs may be associated with the maintenance
of assets in certain jurisdictions.
CASH AND CASH EQUIVALENTS - The fund may invest in cash and cash equivalents.
These securities include (1) commercial paper (short-term notes issued by
corporations or governmental bodies), (2) commercial bank obligations (E.G.,
certificates of deposit (interest bearing time deposits), and bankers'
acceptances (time drafts on a commercial bank where the bank accepts an
irrevocable obligation to pay at maturity), (3) savings association and savings
bank obligations (E.G., certificates of deposit issued by savings banks or
savings associations), (4) securities of the U.S. Government, its agencies or
instrumentalities that mature at the time of purchase, or may be redeemed, in
one year or less, and (5) corporate bonds and notes that mature at the time of
purchase, or that may be redeemed, in one year or less.
CURRENCY TRANSACTIONS - The fund has the ability to enter into forward
currency contracts to protect against changes in currency exchange rates. A
forward currency contract is an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. Forward currency contracts entered into by the fund will involve the
purchase or sale of a currency against the U.S. dollar. The fund will
segregate liquid assets which will be marked to market daily to meet its
forward contract commitments to the extent required by the Securities and
Exchange Commission.
Certain provisions of the Internal Revenue Code may affect the extent to which
the fund may enter into forward contracts. Such transactions may also affect,
for U.S. federal income tax purposes, the character and timing of income, gain
or loss recognized by the fund.
FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell
securities at a future date. When a fund purchases such securities it assumes
the risk of any decline in value of the security beginning on the date of the
agreement. When the fund agrees to sell such securities, it does not
participate in further gains or losses with respect to the securities. If the
other party to such a transaction fails to deliver or pay for the securities,
the fund could miss a favorable price or yield opportunity, or could experience
a loss.
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly may increase. The fund will not use these
transactions for the purpose of leveraging and will segregate liquid assets
which will be marked to market daily in an amount sufficient to meet its
payment obligations in these transactions. Although these transactions will
not be entered into for leveraging purposes, to the extent the fund's aggregate
commitments under these transactions exceed its segregated assets, the fund
temporarily could be in a leveraged position (because it will have an amount
greater than its net assets subject to market risk). Should market values of
the fund's portfolio securities decline while the fund is in a leveraged
position, greater depreciation of its net assets would likely occur than were
it not in such a position. The fund will not borrow money to settle these
transactions and, therefore, will liquidate other portfolio securities in
advance of settlement if necessary to generate additional cash to meet its
obligations thereunder.
The fund also may enter into "roll" transactions, which consist of the sale of
mortgage-backed securities or other securities together with a commitment to
purchase similar, but not identical, securities at a future date. The fund
assumes the rights and risks of ownership, including the risk of price and
yield fluctuations as of the time of the agreement. 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.
- - -
PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the
length of time particular investments may have been held. Short-term trading
profits are not the fund's objective and changes in its investments are
generally accomplished gradually, though short-term transactions may
occasionally be made. High portfolio turnover (100% or more) involves
correspondingly greater transaction costs in the form of dealer spreads or
brokerage commissions, and may result in the realization of net capital gains,
which are taxable when distributed to shareholders. Fixed-income securities
are generally traded on a net basis and usually neither brokerage commissions
nor transfer taxes are involved. The fund's portfolio turnover rate would
equal 100% if each security in the fund's portfolio were replaced once per
year. Under normal circumstances, it is anticipated that portfolio turnover
for common stocks in the fund's portfolio will not exceed 100% on an annual
basis, and that portfolio turnover for other securities will not exceed 100% on
an annual basis.
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. In addition, the fund may not invest more than 15% of the value of
its net assets in securities that are illiquid. 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. In addition, the fund may
not issue senior securities.
FUND ORGANIZATION AND VOTING RIGHTS
The fund is an open-end, diversified management investment company. It was
organized as a Delaware corporation on March 8, 1969 and reorganized as a
Maryland corporation on December 16, 1983.
All fund operations are supervised by the fund's board of directors. The
board meets periodically and performs duties required by applicable state and
federal laws. Members of the board who are not employed by Capital Research
and Management Company or its affiliates are paid certain fees for services
rendered to the fund as described in "Directors and Director Compensation"
below. They may elect to defer all or a portion of these fees through a
deferred compensation plan in effect for the fund.
The fund does not hold annual meetings of shareholders. However, significant
matters which require shareholder approval, such as certain elections of board
members or a change in a fundamental investment policy, will be presented to
shareholders at a meeting called for such purpose. Shareholders have one vote
per share owned. At the request of the holders of at least 10% of the shares,
the fund will hold a meeting at which any member of the board could be removed
by a majority vote.
FUND OFFICERS AND DIRECTORS
DIRECTORS AND DIRECTOR COMPENSATION
<TABLE>
<CAPTION>
NAME, POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
ADDRESS WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER
AND AGE REGISTRANT DURING PAST (INCLUDING (INCLUDING OF FUND
5 YEARS VOLUNTARILY VOLUNTARILY BOARDS
(POSITIONS DEFERRED DEFERRED ON WHICH
WITHIN THE COMPENSATION/1/) COMPENSATION/1/) DIRECTOR
ORGANIZATIONS FROM THE FUND FROM ALL FUNDS SERVES/3/
LISTED MAY DURING FISCAL MANAGED BY
HAVE YEAR ENDED CAPITAL RESEARCH
CHANGED 7/31/98 AND
DURING THIS MANAGEMENT
PERIOD) COMPANY OR ITS
AFFILIATES/2/
FOR THE YEAR
ENDED 7/31/98
<S> <C> <C> <C> <C> <C>
Robert Director President and $ 20,800/4/ $101,117/4/ 6
A. Fox Chief
P.O. Box Executive
457 Officer,
1000 Foster Farms
Davis
Street
Livingston, CA
95334
Age: 61
Roberta Director Consultant; $ 21,067 $ 63,517 4
L. Rear Admiral,
Hazard United
1419 States Navy
Audmar (Retired)
Drive
McLean,
VA 22101
Age: 63
Leonade Director Former $ 20,800/4/ $94,567/4/ 6
D. Jones Treasurer,
1536 Los The
Montes Washington
Drive Post Company
Burlingame, CA
94010
Age: 50
John G. Director The IBJ $ 21,900/4/ $166,600/4/ 7
McDonald Professor of
Stanford Finance,
University Graduate
Stanford, CA School of
94305 Business,
Age: 61 Stanford
University
+Janet President Director, None/5/ None/5/ 1
A. and Capital
McKinley Director Research and
630 Management
Fifth Company;
Avenue Senior Vice
New President,
York, NY Capital
10111 Research
Age: 43 Company
+James Director Senior None/5/ None/5/ 8
W. Partner, The
Ratzlaff Capital Group
333 Partners L.P.
South
Hope
Street
Los
Angeles,
CA
90071
Age: 62
Henry E. Director President, $ 21,700/4/ $81,033/4/ 5
Riggs Keck Graduate
1263 Institute of
North Applied Life
Dartmouth Sciences;
Claremont, CA former
91711 President and
Age: 63 Professor of
Engineering,
Harvey Mudd
College
+Walter Chairman Chairman, None/5/ None/5/ 5
P. Stern of Capital Group
630 the Board International, Inc.; Vice
Fifth Chairman,
Avenue Capital
New Research
York, NY International;
10111 Chairman,
Age: 70 Capital
International, Inc.;
Director,
Temple-Inland
Inc. (forest
products)
Patricia Director Private $ 21,700 $ 98,450 6
K. Woolf investor;
506 Lecturer,
Quaker Department of
Road Molecular
Princeton, NJ Biology,
08540 Princeton
Age: 64 University;
Corporate
Director
</TABLE>
+ "Interested persons" within the meaning of the Investment Company Act of 1940
(the 1940 Act) on the basis of their affiliation with the fund's Investment
Adviser, Capital Research and Management Company or the parent company of the
Investment Adviser, The Capital Group Companies, Inc.
/1/ Amounts may be deferred by eligible directors under a non-qualified
deferred compensation plan adopted by the fund in 1993. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more of
the funds in The American Funds Group as designated by the director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, Inc., American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management
Trust of America, Capital Income Builder, Inc., Capital World Growth and Income
Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America.
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U.S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc. Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serve as the underlying investment vehicles for certain
variable insurance contracts; and Endowments whose shareholders are limited to
(i) any entity exempt from taxation under Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended ("501(c)(3) organization"); (ii) any trust,
the present or future beneficiary of which is a 501(c)(3) organization, and
(iii) any other entity formed for the primary purpose of benefiting a 501(c)(3)
organization. An affiliate of Capital Research and Management Company, Capital
International, Inc., manages Emerging Markets Growth Fund, Inc.
/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 ($183,375), Leonade D. Jones ($70,633), John G.
McDonald ($102,562) and Henry E. Riggs ($130,523). Amounts deferred and
accumulated earnings thereon are not funded and are general unsecured
liabilities of the fund until paid to the director.
/5/ Janet A. McKinley, James W. Ratzlaff and Walter P. Stern are affiliated
with the Investment Adviser and, accordingly, receive no compensation from the
fund.
OFFICERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) HELD PRINCIPAL OCCUPATION(S) DURING
WITH REGISTRANT PAST 5 YEARS (POSITIONS WITHIN
THE ORGANIZATIONS MAY HAVE
CHANGED DURING THIS PERIOD)
<S> <C> <C> <C>
Walter P. Stern
(see above)
Janet A. McKinley
(see above)
Stephen E. Bepler 57 Senior Vice Senior Vice President, Capital
630 Fifth Avenue President Research Company
New York, NY 10111
Abner D. Goldstine 68 Senior Vice Senior Vice President and
11100 Santa Monica Boulevard President Director, Capital Research and
Los Angeles, CA 90025 Management Company
Paul G. Haaga, Jr. 49 Senior Vice Executive Vice President and
333 South Hope Street President Director, Capital Research and
Los Angeles, CA 90071 Management Company; Director,
American Funds Service Company;
Director, American Funds
Distributors, Inc.
Dina N. Perry 58 Senior Vice Senior Vice President, Capital
3000 K Street, N.W. President Research and Management Company
Washington, D.C. 20007
Hilda L. Applbaum 37 Vice President Vice President, Capital Research
P.O. Box 7650 Company
San Francisco, CA 94120
David C. Barclay 42 Vice President Senior Vice President, Capital
11100 Santa Monica Boulevard Research Company
Los Angeles, CA 90025
Darcy B. Kopcho 44 Vice President Executive Vice President and
333 South Hope Street Research Director, Capital
Los Angeles, CA 90071 Research Company
John H. Smet 42 Vice President Director, Capital Research Company;
11100 Santa Monica Boulevard Vice President, Capital Research
Los Angeles, CA 90025 and Management Company
Patrick F. Quan 40 Secretary Vice President - Fund Business
P.O. Box 7650 Management Group, Capital
San Francisco, CA 94120 Research and Management Company
Anthony W. Hynes, Jr. 35 Treasurer Vice President - Fund Business
135 South State College Blvd. Management Group, Capital
Brea, CA 92821 Research and Management Company
R. Marcia Gould 44 Assistant Vice President - Fund Business
135 South State College Treasurer Management Group, Capital
Boulevard Research and Management Company
Brea, CA 92821
</TABLE>
All of the directors and officers are also officers and/or directors and/or
trustees of one or more of the other funds for which Capital Research and
Management Company serves as Investment Adviser. No compensation is paid by
the fund to any officer or director who is a director, officer or employee of
the Investment Adviser or affiliated companies. The fund pays fees of $18,000
per annum to directors who are not affiliated with the Investment Adviser, plus
$1,000 for each Board of Directors meeting attended, plus $500 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, 1998 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 $175 billion of
stocks, bonds and money market instruments and serves over eight million
investors of all types. These investors include privately owned businesses and
large corporations as well as schools, colleges, foundations and other
non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and
Service Agreement (the Agreement) between the fund and the Investment Adviser,
dated January 1, 1994, and approved by the shareholders on December 14, 1993,
was amended by the Board of Directors effective on November 1, 1997 and on
January 1, 1999. Its renewal was approved by the unanimous vote of the Board
of Directors of the fund on December 9, 1998. The Agreement will be in effect
until the close of business on December 31, 1999 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 0.25%
on the first $500 million of the fund's net assets, 0.23% on net assets in
excess of $500 million but not exceeding $1 billion, 0.21% on net assets in
excess of $1 billion but not exceeding $1.5 billion, 0.19% on net assets in
excess of $1.5 billion but not exceeding $2.5 billion, 0.17% on net assets in
excess of $2.5 billion but not exceeding $4 billion, 0.16% on net assets in
excess of $4 billion but not exceeding $6.5 billion, 0.15% on net assets in
excess of $6.5% billion but not exceeding $10.5 billion, 0.145% on net assets
in excess of $10.5 billion but not exceeding $17 billion, 0.14% on net assets
in excess of $17 billion but not exceeding $27.5 billion, and 0.135% on net
assets in excess of $27.5 billion, plus 2.25% of the fund's gross investment
income for the preceding month. Assuming net assets of $22 billion and gross
investment income levels of 3%, 4%, 5%, 6%, 7% and 8%, management fees would be
0.22%, 0.25%, 0.27%, 0.29%, 0.31% and 0.34% of net assets, respectively. In
connection with the approval of the Agreement by the fund's Board of Directors,
the Investment Adviser has agreed to waive any fees to the extent they would
exceed those payable under the rate structure contained in its previous
agreement. The fee structure referenced above is lower than that in the
previous agreement except in the event that the fund's net assets were to fall
below $8 billion when fees are equal to, or higher than, that in the previous
agreement.
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, 1998, the Investment Adviser received
$32,836,000 for the basic management fee (based on a percentage of the net
assets of the fund as expressed above) plus $24,813,000 (based on a percentage
of the fund's gross income as expressed above), for a total fee of $57,649,000.
For the fiscal years ended July 31, 1997 and 1996, management fees paid by the
fund amounted to $47,820,000 and $42,065,000, 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, 3500 Wiseman Boulevard, San
Antonio, TX 78251, 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.
Thecontingent deferred 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, 1998 amounted to $17,111,000 after
allowance of $82,972,000 to dealers. During the fiscal years ended 1997 and
1996, the Principal Underwriter received $10,140,000 and $11,114,000, after
allowance of $49,612,000 and $56,184,000 to dealers, respectively.
As required by rule 12b-1 and the 1940 Act, the Plan (together with the
Principal Underwriting Agreement) has been approved by the full Board of
Directors, and separately by a majority of the directors who are not interested
persons of the fund and who have no direct or indirect financial interest in
the operation of the Plan or the Principal Underwriting Agreement, and the Plan
has been approved by the vote of a majority of the outstanding voting
securities of the fund. The officers and directors who are "interested"
persons of the fund may be considered to have a direct or indirect financial
interest in the operation of the Plan due to present or past affiliations with
the Investment Adviser and related companies. Potential benefits of the Plan
to the fund include improved shareholder services, savings to the fund in
transfer agency costs, savings to the fund in advisory fees and other expenses,
benefits to the investment process from growth or stability of assets and
maintenance of a financially healthy management organization. The selection
and nomination of directors who are not "interested persons" of the fund are
committed to the discretion of the directors who are not interested persons
during the existence of the Plan. The Plan is reviewed quarterly and must be
renewed annually by the Board of Directors.
Under the Plan the fund may expend up to 0.25% of its net assets annually to
finance any activity which is primarily intended to result in the sale of fund
shares, provided the fund's Board of Directors has approved the category of
expenses for which payment is being made. These include service fees for
qualified dealers and dealer commissions and wholesaler compensation on sales
of shares exceeding $1 million (including purchases by any employer-sponsored
403(b) plan, any defined contribution plan qualified under Section 401(a) of
the Internal Revenue Code including a "401(k)" plan with 100 or more eligible
employees, or a community foundation).
Commissions 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 any
"401(k)" plan with 100 or more eligible employees) in excess of the Plan
limitation not reimbursed during the most recent fiscal quarter are recoverable
for five quarters, provided that such commissions do not exceed the annual
expense limit. After five quarters, commissions are not recoverable. During
the fiscal year ended July 31, 1998, the fund paid or accrued $49,269,000 for
compensation to dealers under the Plan.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit commercial banks from engaging in the business of
underwriting, selling or distributing securities, but permit banks to make
shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries or affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer adverse financial consequences as a result of any of
these occurrences. In addition, state securities laws on this issue may differ
from the interpretations of federal law expressed herein and certain banks and
financial institutions may be required to be registered as dealers pursuant to
state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements, and has elected the tax status
of, a "regulated investment company," under the provisions of Subchapter M of
the Internal Revenue Code of 1986, as amended, (the Code). Under Subchapter M,
if the fund distributes within specified times at least 90% of the sum of its
investment company taxable income (net investment income and the excess of net
short-term capital gains over net long-term capital losses) and its tax-exempt
interest, if any, it will be taxed only on that portion of such investment
company taxable income that it retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities, currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; and (b) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the fund's assets is
represented by cash, cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities (but such other
securities must be limited, in respect of any one issuer, to an amount not
greater than 5% of the fund's assets and 10% of the outstanding voting
securities of such issuer), and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies), or in two or more issuers which the fund controls and which are
engaged in the same or similar trades or businesses or related trades or
businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gains (both long-term and
short-term) for the one-year period ending on October 31 (as though the
one-year period ending on October 31 were the regulated investment company's
taxable year), and (iii) the sum of any untaxed, undistributed net investment
income and net capital gains of the regulated investment company for prior
periods. The term "distributed amount" generally means the sum of (i) amounts
actually distributed by the fund from its current year's ordinary income and
capital gain net income and (ii) any amount on which the fund pays income tax
during the periods described above. The fund intends to distribute net
investment income and net capital gains so as to minimize or avoid the excise
tax liability.
The fund also intends to continue distributing to shareholders all of the
excess of net long-term capital gain over net short-term capital loss on sales
of securities. If the net asset value of shares of the fund should, by reason
of a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made payable
to shareholders of record in such a month are treated as paid and are thereby
taxable as of December 31, provided that the fund pays the dividend no later
than the end of January of the following year.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, or the shareholder does
not respond to mailings from American Funds Service Company with regard to
uncashed distribution checks, the shareholder's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares.
Corporate shareholders of the fund may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gain distributions) paid
by the fund to the extent the fund's income is derived from dividends (which
if received directly would qualify for such deduction) received from domestic
corporations. In order to qualify for the dividends-received deduction, a
corporate shareholder must hold the fund shares paying the dividends upon which
the deduction is based for at least 46 days.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation or foreign
partnership (a foreign shareholder) will be subject to U.S. withholding tax (at
a rate of 30% or lower treaty rate). Withholding will not apply if a dividend
paid by the fund to a foreign shareholder is "effectively connected" with a
U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents, or domestic
corporations will apply. Distributions of net long-term capital gains not
effectively connected with a U.S. trade or business are not subject to tax
withholding, but in the case of a foreign shareholder who is a nonresident
alien individual, such distributions ordinarily will be subject to U.S. income
tax at a rate of 30% if the individual is physically present in the U.S. for
more than 182 days during the taxable year.
Income and dividends received by the fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Because not more than 50% of the value of the
total assets of the fund is expected to consist of securities of foreign
issuers, the fund will not be eligible to elect to "pass through" foreign tax
credits to shareholders.
As of the date of this statement of additional information, the maximum
federal individual stated tax rate applicable to ordinary income is 39.6%
(effective tax rates may be higher for some individuals due to phase out of
exemptions and elimination of deductions); the maximum individual tax rate
generally applicable to net capital gains on assets held more than one year is
20%, 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 Individual
Retirement Account ("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
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
<S> <C> <C>
See "Investment Minimums and Fund $50 minimum (except where a lower
Numbers" for initial investment minimum is noted under "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 has account statement.
dealer a sales agreement with American
Funds Distributors.
By mail Make your check payable to the Fill out the account additions form
fund and mail to the address at the bottom of a recent account
indicated on the account statement, make your check payable
application. Please indicate an to the fund, write your account
investment dealer on the account number on your check, and mail the
application. check and form in the envelope
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
follow the procedures for or American FundsLink Authorization
additional investments. Form. 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
and Computer Purchases, Redemptions
and Exchanges" below).
By computer Please contact your investment Complete the American FundsLink
dealer to open account, then Authorization Form. Once you
follow the procedures for establish the privilege, you, your
additional investments. financial advisor or any person
with your account information may
access American FundsLine
Online(sm) on the Internet and make
investments by computer (subject to
conditions noted in "Telephone and
Computer
By wire Call 800/421-0180 to obtain your Your bank should wire your
account number(s), if necessary. additional investments in the same
Please indicate an investment manner as described under "Initial
dealer on the account. Instruct Investment."
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.
</TABLE>
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):
<TABLE>
<CAPTION>
FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
<S> <C> <C>
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.
</TABLE>
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).
SALES CHARGES - 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.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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 2.04 2.00 1.60
$1,000,000
$1,000,000 or more none none (see below)
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES - Investments of $1 million or more and
investments made by employer-sponsored defined contribution-type plans with 100
or more eligible employees are sold with no initial sales charge. A contingent
deferred sales charge may be imposed on certain redemptions by these accounts
made within one year of purchase. Investments by retirement plans, foundations
or endowments with $50 million or more in assets may be made with no sales
charge and are not subject to a contingent deferred sales charge.
In addition, the stock, stock/bond and bond funds may sell shares at net asset
value to:
(1) current or retired directors, trustees, officers and advisory board members
of the funds managed by Capital Research and Management Company, employees of
Washington Management Corporation, employees and partners of The Capital Group
Companies, Inc. and its affiliated companies, certain family members of the
above persons, and trusts or plans primarily for such persons;
(2) current registered representatives, retired registered representatives with
respect to accounts established while active, or full-time employees (and their
spouses, parents, and children) of dealers who have sales agreements with
American Funds Distributors (or who clear transactions through such dealers)
and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer;
(4) trustees or other fiduciaries purchasing shares for certain retirement
plans of organizations with retirement plan assets of $50 million or more;
(5) insurance company separate accounts;
(6) accounts managed by subsidiaries of The Capital Group Companies, Inc.; and
(7) The Capital Group Companies, Inc., its affiliated companies and Washington
Management Corporation. Shares are offered at net asset value to these persons
and organizations due to anticipated economies in sales effort and expense.
DEALER COMMISSIONS - Commissions of up to 1% will be paid to dealers who
initiate and are responsible for purchases of $1 million or more, for purchases
by any employer-sponsored 403(b) plan or purchases by any defined contribution
plan qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $50 million or more: 1.00% on amounts of $1 million
to $2 million, 0.80% on amounts over $2 million to $3 million, 0.50% on amounts
over $3 million to $50 million, 0.25% on amounts over $50 million to $100
million, and 0.15% on amounts over $100 million. The level of dealer
commissions will be determined based on sales made over a 12-month period
commencing from the date of the first sale at net asset value.
OTHER COMPENSATION TO DEALERS - American Funds Distributors, at its expense
(from a designated percentage of its income), currently provides 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.
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.
REDUCING YOUR SALES CHARGE - You and your immediate family may combine
investments to reduce your costs. You must let your investment dealer or
American Funds Service Company know if you qualify for a reduction in your
sales charge using one or any combination of the methods described below.
STATEMENT OF INTENTION - You may enter into a non-binding commitment to
purchase shares of a fund(s) over a 13-month period and receive the same sales
charge as if all shares had been purchased at once. This includes purchases
made during the previous 90 days, but does not include appreciation of your
investment or reinvested distributions. 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 use 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 American
Funds Service Company (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 pay 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.
When the trustees of certain retirement plans purchase shares 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.
CONCURRENT PURCHASES - You may combine purchases of two or more funds in The
American Funds Group, except direct purchases of the money market funds.
Shares of money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
RIGHT OF ACCUMULATION - You may take into account the current value of your
existing holdings in The American Funds Group, as well as your holdings in
Endowments (shares of which may be owned only by tax-exempt organizations), to
determine your sales charge on investments in accounts eligible to be
aggregated, or when making a gift to an individual or charity. Direct
purchases of the money market funds are excluded.
PRICE OF SHARES - Shares are purchased at the offering price next determined
after the purchase order is received and accepted 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 do not always indicate the 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 4:00 p.m., New York time each
day the New York Stock Exchange is open. For example, if the Exchange closes
at 1:00 p.m. on one day and at 4:00 p.m. on the next, the fund's share price
would be determined as of 4:00 p.m. New York time on both days. The New York
Stock Exchange is currently closed on weekends and on the following holidays:
New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas Day.
All portfolio securities of funds managed by Capital Research and Management
Company are valued, and the net asset value per share is determined, as
follows:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
Securities with original maturities of one year or less having 60 days or less
to maturity are amortized to maturity based on their cost if acquired within 60
days of maturity or, if already held on the 60th day, based on the value
determined on the 61st day. Forward currency contracts are valued at the mean
of representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of non-U.S. currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board; the fair value of all other assets is
added to the value of securities at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share.
Any purchase order may be rejected by the Principal Underwriter or the fund.
The Principal Underwriter will not knowingly sell fund shares directly,
indirectly, or through a unit investment trust to any other investment company,
or to any person or entity, where, after the sale, such investment company,
person, or entity would own beneficially, directly, indirectly, or through a
unit investment trust, more than 4.5% of the outstanding shares of the fund
without the consent of a majority of the fund's directors.
SELLING SHARES
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. You may sell
(redeem) shares in your account in any of the following ways:
THROUGH YOUR DEALER (certain charges may apply)
- - Shares held for you in your dealer's street name must be sold through the
dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- - Requests must be signed by the registered shareholder(s)
- - A signature guarantee is required if the redemption is:
- -- Over $50,000;
- -- Made payable to someone other than the registered shareholder(s); or
- -- Sent to an address that has not been used with the account for at least 10
days.
Your signature may be guaranteed by a domestic stock exchange or the National
Association of Securities Dealers, Inc., bank, savings association or credit
union that is an eligible guarantor institution.
- - Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
- - You must include any shares you wish to sell that are in certificate form.
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE(R) OR AMERICAN FUNDSLINE ONLINE(SM)
- - Redemptions by telephone or fax (including American FundsLine(r) and American
FundsLine OnLine(sm)) are limited to $50,000 per shareholder each day.
- - Checks must be made payable to the registered shareholder(s).
- - Checks must be mailed to an address of record that has been used with the
account for at least 10 days.
MONEY MARKET FUNDS
- - You may have redemptions of $1,000 or more wired to your bank by writing
American Funds Service Company.
- - You may establish check writing privileges (use the money market funds
application)
- -- If you request check writing privileges, you will be provided with checks
that you may use to draw against your account. These checks may be made
payable to anyone you designate and must be signed by the authorized number or
registered shareholders exactly as indicated on your checking account signature
card.
Redemption proceeds will not be mailed until sufficient time has passed to
provide reasonable assurance that checks or drafts (including certified or
cashier's checks) for shares purchased have cleared (which may take up to 15
calendar days from the purchase date). Except for delays relating to clearance
of checks for share purchases or in extraordinary circumstances (and as
permissible under the Investment Company Act of 1940), sale proceeds will be
paid on or before the seventh day following receipt and acceptance of an order.
Interest will not accrue or be paid on amounts that represent uncashed
distribution or redemption checks.
The fund may, with 60 days' written notice, close your account if due to a
sale of shares the account has a value of less than the minimum required
initial investment.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Redemption
proceeds of shares representing direct purchases in the money market funds are
excluded. Proceeds will be reinvested at the next calculated net asset value
after your request is received and accepted by American Funds Service Company.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions from funds other than the money market funds
made within twelve months of purchase on investments of $1 million or more
(other than redemptions by employer-sponsored retirement plans). 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 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; and, for redemptions through certain automatic
withdrawals not exceeding 10% of the amount that would otherwise be subject to
the charge.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - An automatic investment plan enables you to make
monthly or quarterly investments into the American Funds through automatic
debits from your bank account. To set up a plan you must fill out an account
application and specify the amount you would like to invest ($50 minimum) and
the date on which you would like your investments to occur. The plan will
begin within 30 days after your account application is received. Your bank
account will be debited on the day or a few days before your investment is
made, depending on the bank's capabilities. American Funds Service Company will
then invest your money into the fund you specified on or around the date you
specified. If your account cannot be debited due to insufficient funds, a
stop-payment, or the closing of the account, the plan may be terminated and the
related investment reversed. You may change the amount of the investment or
discontinue the plan at any time by writing to American Funds Service Company.
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 - You may cross-reinvest
dividends and capital gains ("distributions") into any other fund in The
American Funds Group at net asset value, subject to the following conditions:
a) The aggregate value of your account(s) in the fund(s) paying distributions
equals or exceeds $5000 (this is waived if the value of the account in the fund
receiving the distributions equals or exceeds that fund's minimum initial
investment requirement),
b) If the value of the account of the fund receiving distributions is below
the minimum initial investment requirement, distributions must be automatically
reinvested,
c) If you discontinue the cross-reinvestment of distributions, the value of
the account of the fund receiving distribution must equal or exceed the minimum
initial investment requirement. If you do not meet this requirement within 90
days of notification, the fund has the right to automatically redeem the
account.
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 the Transfer Agent (see "Redeeming
Shares"), by contacting your investment dealer, by using American FundsLine(r)
or American FundsLine OnLine(sm) (see "American FundsLine(r) and American
FundsLine OnLine(sm)" below), or by telephoning 800/421-0180 toll-free, faxing
(see "Principal Underwriter and Transfer Agent" in the prospectus for the
appropriate fax numbers) or telegraphing the Transfer Agent. (See "Telephone
and Computer Purchases, Redemptions and Exchanges" below.) Shares held in
corporate-type retirement plans for which Capital Guardian Trust Company serves
as trustee may not be exchanged by telephone, computer, 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 (a) meet the minimum initial investment
requirement for the receiving fund, or (b) the originating fund's balance must
be at least $5000 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 will be reflected on regular confirmation statements from the
Transfer Agent. Dividend and capital gain reinvestments and purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINE(SM) - You may check your
share balance, the price of your shares, or your most recent account
transaction, redeem shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(r) or American
FundsLine OnLine(sm). To use this service, call 800/325-3590 from a TouchTonet
telephone or access the American Funds Web site on the Internet at
www.americanfunds.com. Redemptions and exchanges through American FundsLine(r)
and American FundsLine OnLine(sm) are subject to the conditions noted above and
in "Shareholder Account Services and Privileges -- Telephone and Computer
Purchases, Redemptions and Exchanges" below. You will need your fund number
(see the list of funds in The American Funds Group under "Purchase of
Shares--Investment Minimums and Fund Numbers"), personal identification number
(the last four digits of your Social Security number or other tax
identification number associated with your account) and account number.
TELEPHONE AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES -- By using the
telephone (including American FundsLine(r)) or computer (including American
FundsLine OnLine(sm)), fax or telegraph purchase, redemption and/or exchange
options, you agree to hold the fund, the Transfer Agent, 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 the Transfer Agent (you may also reinstate them
at any time by writing the Transfer Agent). If the Transfer Agent 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.
SHARE CERTIFICATES - Shares are credited to your account and certificates are
not issued unless you request them by writing to American Funds Service
Company.
REDEMPTION OF SHARES - The fund's Articles of Incorporation permits the fund
to direct the Transfer Agent to redeem the shares of any shareholder for their
then current net asset value per share if at such time the shareholder owns of
record shares having an aggregate net asset value of less than the minimum
initial investment amount required of new shareholders as set forth in the
fund's current registration statement under the 1940 Act, and subject to such
further terms and conditions as the Board of Directors of the fund may from
time to time adopt.
EXECUTION OF PORTFOLIO TRANSACTIONS
The Investment Adviser places orders for the fund's portfolio securities
transactions. The Investment Adviser strives to obtain the best available
prices in its portfolio transactions taking into account the costs and
promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through their
correspondent clearing agents) is in a position to obtain the best price and
execution, the order is placed with that broker. This may or may not be a
broker who has provided investment research, statistical, or other related
services to the Investment Adviser or has sold shares of the fund or other
funds served by the Investment Adviser. The fund does not have an obligation
to obtain the lowest available commission rate to the exclusion of price,
service and qualitative considerations.
Portfolio transactions for the fund may be executed as part of concurrent
authorizations to purchase or sell the same security for other funds served by
the Investment Adviser, or for trusts or other accounts served by affiliated
companies of the Investment Adviser. Although such concurrent authorizations
potentially could be either advantageous or disadvantageous to the fund, they
are effected only when the Investment Adviser believes that to do so is in the
interest of the fund. When such concurrent authorizations occur, the objective
is to allocate the executions in an equitable manner. The fund will not pay a
mark-up for research in principal transactions.
Brokerage commissions paid on portfolio transactions during the fiscal years
ended July 31, 1998, 1997 and 1996, amounted to $6,212,000, $9,637,000 and
$7,865,000, respectively.
The fund is required to disclose information regarding investments in the
securities of broker-dealers (or parents of broker-dealers that derive more
than 15% of their revenue from broker-dealer activities) which have certain
relationships with the fund. During the last fiscal year, J.P. Morgan & Co.
Inc. was among the top 10 dealers that received the largest amount of brokerage
commissions and that acted as principals in portfolio transactions. The fund
held equity securities of J.P. Morgan & Co. Inc. in the amount of $81,900,000
as of the close of its most recent fiscal year.
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. The Custodian may hold non-U.S. securities
pursuant to sub-custodial arrangements in non-U.S. banks or foreign branches of
U.S. banks.
TRANSFER AGENT - American Funds Service Company, a wholly-owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee
of $8,974,000 for the fiscal year ended July 31, 1998.
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. It provides
shareholders at least semi-annually with reports showing the investment
portfolio, financial statements and other information. The annual financial
statements are audited by the fund's independent auditors, Deloitte & Touche
LLP, whose selection is determined by the Board of Directors. In an effort to
reduce the volume of mail shareholders receive from the fund when a household
owns more than one account, the Transfer Agent has taken steps to eliminate
duplicate mailings of shareholder reports. To receive additional copies of a
report shareholders should contact the Transfer Agent.
YEAR 2000 - The fund and its shareholders depend on the proper functioning of
computer systems maintained by the Investment Adviser and its affiliates and
other key service providers. Many computer systems in use today will require
reprogramming or replacement prior to the year 2000 because of the way they
store dates and make date-related calculations. The fund understands that
these service providers are taking steps to address the "Year 2000 problem".
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the fund. In addition, the fund's investments could be
adversely affected by the Year 2000 problem. For example, the markets for
securities in which the fund invests could experience settlement problems and
liquidity issues. Corporate and governmental data processing errors may cause
losses for individual companies and overall economic uncertainties. Earnings of
individual issuers are likely to be affected by the costs of addressing the
problem, which may be substantial and may be reported inconsistently.
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; blackout periods on
personal investing for certain investment personnel; ban on short-term trading
profits for investment personnel; limitations on service as a director of
publicly traded companies; and disclosure of personal securities transactions.
The financial statements including the investment portfolio and the report of
Independent Auditors contained in the annual report are included in this
statement of additional information. The following information is not included
in the annual report:
<TABLE>
<CAPTION>
DETERMINATION OF NET ASSET VALUE,
REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE--JULY 31, 1998
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $18.25
Maximum offering price per share
(100/94.25 of net asset value per share
which takes into account the fund's current
maximum sales charge) $19.36
</TABLE>
REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly
called and at which a quorum is present, shareholders holding a majority of the
votes entitled to be cast, 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 agreed, 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 will promptly call a meeting of shareholders for the purpose of voting
upon the removal of any director when requested in writing to do so by the
record holders of at least 10% of the outstanding shares.
Investment Results and Related Statistics
The fund's yield is 4.50% based on a 30-day (or one month) period ended July
31, 1998, 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, 1998 was +4.94%, +12.81% and +13.06%, respectively.
The average annual total return (T) is computed by equating the value at the
end of the period (ERV) with a hypothetical initial investment of $1,000 (P)
over a period of years (n) according to the following formula as required by
the Securities and Exchange Commission: P(1+T)/n/ = ERV. The fund's average
annual total return at net asset value for the one-, five- and ten-year periods
ended on July 31, 1998 was +11.32%, +14.16% and +13.73%, respectively.
In calculating average annual total return, the fund assumes: (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. 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
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, in advertisements or in reports furnished to present or
prospective shareholders, 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. The fund
may also, from time to time, combine its results with those of other funds in
The American Funds Group for purposes of illustrating investment strategies
involving multiple funds.
The fund may refer to results and surveys compiled by organizations such as
CDA Investment Services, Ibbotson Associates, Lipper Analytical Services and
Morningstar, Inc. and by the U.S. Department of Commerce. Additionally, the
fund may 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 illustrate the benefits of tax-deferral by comparing taxable
investments to investments made through tax-deferred retirement plans.
The fund may 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>
Lehman Salomon
10-Year Lehman Lehman Brothers Smith Average
Period Brothers Brothers Government/ Barney Savings
8/1- IFA DJIA/1/ S&P 500/2/ Corporate/3/ Aggregate/4/ Corporate/5/ High- Account/7/
7/31 Grade/6/
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1988 - +241% +458% +443% +154% +140% +140% +178% +62%
1998
1987 - +212 +336 +303 +157 +139 +138 +177 +64
1997
1986 - +181 +330 +269 +141 +126 +123 +149 +68
1996
1985 - +197 +391 +306 +179 +160 +158 +206 +73
1995
1984 - +241 +385 +327 +217 +193 +189 +254 +82
1994
1983 - +254 +333 +294 +241 +218 +213 +281 +93
1993
1982 - +351 +528 +478 +295 +251 +242 +330 +104
1992
1981 - +298 +392 +343 +304 +269 +256 +329 +116
1991
1980 - +293 +392 +344 +235 +217 +209 +239 +122
1990
1979 - +317 +409 +416 +202 +201 +197 +202 +124
1989
1978 - +267 +308 +326 +180 +178 +175 +166 +124
1988
1977 - +283 +388 +417 +159 +164 +162 +146 +124
1987
1976 - +265 +209 +271 +184 +181 +180 +177 +124
1986
1975 - 295 +177 +250 +161 N/A +158 +134 +121
1985
1974 - +270 +153 +210 +136 N/A +136 +112 +116
1984
1973#- +237 +147 +172 + 95 N/A +105 + 76 +106
1983
</TABLE>
/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 Smith Barney 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
(8/1/93-7/31/98) (8/1/88-7/31/98)
$15,166 $42,030
</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 . . . 7/31/98
<S> <C> <C>
| |
Number Periods
of Years 8/1 - 7/31 Value
1 1997 - 1998 $10,494
2 1996 - 1998 13,563
3 1995 - 1998 15,390
4 1994 - 1998 17,915
5 1993 - 1998 18,274
6 1992 - 1998 20,438
7 1991 - 1998 24,344
8 1990 - 1998 27,327
9 1989 - 1998 27,641
10 1988 - 1998 34,131
11 1987 - 1998 34,698
12 1986 - 1998 40,493
13 1985 - 1998 48,552
14 1984 - 1998 64,762
15 1983 - 1998 68,703
16 1982 - 1998 97,785
17 1981 - 1998 102,938
18 1980 - 1998 114,760
19 1979 - 1998 122,256
20 1978 - 1998 133,005
21 1977 - 1998 141,205
22 1976 - 1998 156,891
23 1975 - 1998 203,205
24 1974 - 1998 254,544
25 1973#- 1998 245,553
</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, 1998)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES
Year Annual Dividends Total From From From Total
Ended Dividends (cumulative) Investment Initial Capital Dividends Value
July 31 Cost Investment Gains Reinvested
Reinvested
<S> <C> <C> <C> <C> <C> <C> <C>
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
1997 10,075 97,235 107,235 29,024 42,085 149,477 220,586
1998 10,531 107,766 117,766 28,493 59,845 157,215 245,553
</TABLE>
# From December 1, 1973
The dollar amount of capital gain distributions during the period was $47,736.
EXPERIENCE OF INVESTMENT ADVISER - The Investment Adviser manages nine growth
and growth-income funds that are at least 10 years old. In the rolling 10-year
periods since January 1, 1968 (133 in all), those funds have had better total
returns than their comparable Lipper indexes in 124 of 133 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
DESCRIPTION OF BOND RATINGS
Corporate Debt Securities
MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by
various entities from "Aaa" to "C" according to quality.
"AAA -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large, or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
"AA -- High quality by all standards. They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
"A -- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
"BAA -- Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
"BA -- Have speculative elements; future cannot be considered as well assured.
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
"B -- Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"CAA -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"CA -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
Moody's supplies numerical indicators 1, 2 and 3 to rating categories. The
modifier 1 indicates that the obligation ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and 3 indicates
a ranking toward the lower end of that generic rating category.
STANDARD & POOR'S CORPORATION rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality.
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
"A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is in
arrears."
Standard & Poor's applies indicators "+", no character and "-" to its rating
categories. The indicators show relative standing within the major rating
categories.
<TABLE>
<S> <C> <C> <C>
The Income Fund of America Investment Portfolio July 31, 1998
Shares or Market Percent
Principal Value of Net
Equity Securities Amount (000) Assets
Energy Sources - 8.73%
Atlantic Richfield Co. 6,700,000 453,925 2.05
Texaco Inc. 5,325,000 323,827 1.46
Phillips Petroleum Co. 5,828,500 257,547 1.16
Amoco Corp. 5,450,000 227,538 1.03
USX-Marathon Group 4,100,000 139,912 .63
Sun Co., Inc. 3,232,000 120,998 .55
Occidental Petroleum Corp. 4,200,000 93,450 .42
Exxon Corp. 1,000,000 70,125 .32
Mobil Corp. 900,000 62,775 .28
Unocal Capital Trust $3.125 convertible preferred 1,040,000 54,080 .25
Ultramar Diamond Shamrock Corp. 1,750,000 45,828 .21
Ashland Inc. 570,000 29,569 .13
Chevron Corp. 320,000 26,440 .12
Loews Corp. 3.125% convertible debentures 2007 $15,000,000 12,984 .06
CalEnergy Capital Trust II 6.25% convertible preferred 2012 270,000 12,352 .06
1,931,350 8.73
Utilities: Electric & Gas - 8.13%
MarketSpan Corp. 5,910,000 162,894 .74
Florida Progress Corp. 3,685,000 143,254 .65
DTE Energy Co. 3,350,000 134,419 .61
Wisconsin Energy Corp. 4,310,000 122,566 .55
Consolidated Edison, Inc. 2,700,000 114,244 .52
Ameren Corp. 2,407,500 91,034 .41
Scottish Power PLC 7,200,000 69,764 .31
PECO Energy Co. 2,300,000 68,856 .31
SCANA Corp. 2,315,000 66,701 .30
MCN Energy Group Inc. 2,550,000 63,272 .29
BEC Energy (formerly Boston Edison Co.) 1,600,000 61,200 .28
Carolina Power & Light Co. 1,500,000 61,031 .28
Sempra Energy 2,366,938 59,617 .27
Peoples Energy Corp. 1,585,000 55,475 .25
Entergy Corp. 2,000,000 54,750 .25
Southern Co. 2,000,000 51,000 .23
National Power PLC 4,580,000 38,732 .17
Equitable Resources, Inc. 1,500,000 36,938 .17
Southern Electric PLC 3,692,307 33,576 .15
GPU, Inc. 840,400 30,044 .13
Duke Energy Corp. 500,000 28,563 .13
Consolidated Natural Gas Co. 530,000 27,394 .12
New Jersey Resources Corp. 750,000 25,688 .12
DQE, Inc. 730,000 25,459 .11
OGE Energy Corp. 950,000 24,759 .11
TECO Energy, Inc. 934,300 23,708 .11
AGL Resources Inc. 1,240,000 23,328 .10
Puget Sound Energy, Inc. 900,000 22,781 .10
MDU Resources Group, Inc. 600,000 13,613 .06
El Paso Natural Gas Co. 380,000 12,920 .06
South Jersey Industries, Inc. 500,000 12,906 .06
Citizens Utilities Trust 5.00% EPPICS convertible preferred 2036 250,000 10,984 .05
Western Resources, Inc. 275,000 10,725 .05
DPL Inc. 600,000 10,238 .05
WICOR, Inc. 266,400 5,711 .03
1,798,144 8.13
Banking - 8.01%
First Union Corp. 9,145,100 550,992 2.49
Bankers Trust New York Corp. 1,755,200 196,692 .89
SB Treasury Company LLC, Series A, 9.40% noncumulative
preferred securities, perpetual (1) 134,000,000 134,399 .61
National Bank of Canada 5,700,000 102,183 .46
Commonwealth Bank of Australia 7,949,978 99,248 .45
Westpac Banking Corp. 14,886,411 94,143 .43
J.P. Morgan & Co. Inc. 650,000 81,900 .37
PNC Bank Corp. 1,300,000 70,119 .32
First Hawaiian Bank (2) 1,900,000 62,937 .29
KeyCorp 1,800,000 61,200 .28
Banc One Corp. 1,140,700 58,960 .27
Bank of Nova Scotia 2,400,000 53,900 .24
Tokai Preferred Capital Co. LLC, Series A, 9.98% noncumulative preferred (1) 50,500,000 46,965 .21
First Security Corp. 1,590,000 34,930 .16
Keystone Financial, Inc. 1,000,000 33,438 .15
Bank of New York Co., Inc. 500,000 32,000 .14
Fuji JGB Investment LLC, Series A, 9.87% noncumulative preferred
securities, perpetual (1) 19,000,000 16,530 .07
NB Capital Corp. 8.35% exchangeable depositary shares 520,000 13,554 .06
IBJ Preferred Capital Co. LLC, Series A, 8.79% noncumulative
preferred securities, perpetual (1) 13,000,000 12,060 .05
California Federal Bank, FSB 11.50% preferred 100,000 11,375 .05
Banco Nacional de Mexico, SA 11.00% exchangeable notes 2003 (1) $4,175,000 4,259 .02
1,771,784 8.01
Telecommunications - 6.29%
U S WEST, Inc. 6,800,000 362,950 1.64
AT&T Corp. 4,950,000 300,094 1.36
Ameritech Corp. 3,650,800 179,574 .81
British Telecommunications PLC 11,280,000 163,348 .74
Hong Kong Telecommunications Ltd. 73,954,916 139,361 .63
Bell Atlantic Corp. 2,200,000 99,825 .45
Telecom Italia SpA nonconvertible savings shares 5,000,000 29,484 .14
Telecom Corp. of New Zealand Ltd. 9,647,600 23,938 .11
NTL Inc. 7.00% convertible debentures 2008 (1) $15,000,000 22,425 .10
SBC Communications Inc. 7.75% DECS exchangeable notes 2001 463,000 21,877 .10
France Telecom, SA 260,000 17,710 .08
Koninklijke PTT Nederland NV 330,000 14,472 .07
Deutsche Telekom AG 201,500 5,866 .03
NEXTEL Communications, Inc., Class A (3) 111,547 2,987
NEXTEL Communications, Inc. warrants, expire 1999 (3,4) 51,912 124 .01
Comunicacion Celular SA, Class B, warrants, expire 2003 (1,3) 31,000 2,108 .01
COLT Telecom Group PLC warrants, expire 2006 (1,3) 5,000 1,600 .01
Orion Network Systems, Inc. warrants, expire 2007 (3) 61,000 1,075 .00
Cellular Communications International, Inc. warrants, expire 2003 (3) 24,500 857 .00
Iridium World Communications Ltd. warrants, expire 2005 (1,3) 4,000 740 .00
CellNet Data Systems, Inc. warrants, expire 2007 (1,3) 15,450 464 .00
Allegiance Telecom, Inc. warrants, expire 2008 (1,3) 20,000 400 .00
ICG Holdings, Inc. warrants, expire 2005 (1,3) 19,800 376 .00
McCaw International, Ltd. warrants, expire 2007 (1,3) 31,500 118 .00
Conecel Holdings Ltd., Class B, warrants, expire 2000 (1,3,4) 39,825 60 .00
1,391,833 6.29
Insurance - 3.89%
Lincoln National Corp. 1,970,000 188,628 .85
American General Corp. 2,664,200 181,998 .82
Italy (Republic of) 5.00% PENs 2001 (exchangeable into INA SpA) 84,000,000 156,240 .71
St. Paul Companies, Inc. 2,560,000 92,640
St. Paul Capital LLC 6.00% MIPS convertible preferred 190,000 12,160 .48
Ohio Casualty Corp. (2) 2,280,000 97,185 .44
Aetna Inc., Class C, 6.25% convertible preferred 886,000 60,912 .28
MediaOne Group, Inc. (formerly U S WEST, Inc.) 7.625%
DECS exchangeable notes 1998 433,300 23,073 .10
PMI Group, Inc. 303,000 20,528 .09
Mutual Risk Management Ltd. 0% convertible debentures 2015 (1) $22,000,000 17,930 .08
CIGNA Corp. 120,200 7,941 .04
859,235 3.89
Automobiles - 3.44%
Chrysler Corp. 7,045,000 416,976 1.89
Ford Motor Co. 5,018,300 285,729 1.29
General Motors Corp. 800,000 57,850 .26
760,555 3.44
Health & Personal Care - 2.45%
Glaxo Wellcome PLC 6,270,000 193,263 .87
Pharmacia & Upjohn, Inc. 2,900,000 137,388 .62
Bristol-Myers Squibb Co. 815,000 92,859 .42
American Home Products Corp. 800,000 41,200 .19
Eli Lilly and Co. 600,000 40,350 .18
Dura Pharmaceuticals, Inc. 3.50% convertible subordinated notes 2002 $25,000,000 21,500 .10
Sepracor Inc. 6.25% convertible subordinated debentures 2005 (1) $7,350,000 10,106 .05
Glycomed Inc. 7.50% convertible debentures 2003 $5,000,000 4,550 .02
541,216 2.45
Merchandising - 2.22%
J.C. Penney Co., Inc. 6,000,000 352,125 1.59
Coles Myer Ltd. 17,400,700 65,011 .29
Thorn PLC 8,873,042 35,346 .16
PETsMart, Inc. 6.75% convertible subordinated notes 2004 (1) $17,500,000 21,110 .10
Staples, Inc. 4.50% convertible debentures 2000 (1) $7,500,000 17,025 .08
490,617 2.22
Beverages & Tobacco - 1.93%
Philip Morris Companies Inc. 4,200,000 184,012 .83
RJR Nabisco Holdings Corp. 3,300,000 80,644 .37
Southcorp Ltd. (formerly Southcorp Holdings Ltd.) 24,318,000 65,445 .30
UST Inc. 1,400,000 37,800 .17
Imperial Tobacco Ltd. 4,000,000 33,795 .15
Gallaher Group PLC 3,800,000 24,257 .11
425,953 1.93
Forest Products & Paper - 1.72%
Weyerhaeuser Co. 3,200,000 134,400 .61
Union Camp Corp. 1,810,000 76,812 .35
UPM-Kymmene Corp. 2,000,000 51,043 .23
Potlatch Corp. 1,200,000 45,825 .21
APP Finance (VI) Mauritius Ltd. 0% convertible preferred 2012 $144,000,000 27,360 .12
Georgia-Pacific Corp., Timber Group 1,200,000 26,925 .12
Stora Kopparbergs Bergslags AB, Class B 1,250,000 17,463 .08
379,828 1.72
Business & Public Services - 1.55%
United Utilities PLC 5,240,000 76,266 .34
Thames Water PLC 2,500,000 45,713 .21
Alexander & Baldwin, Inc. 1,375,000 33,988 .15
Browning-Ferris Industries, Inc. 942,500 33,164 .15
Budget Group, Inc. 6.25% TIDES convertible preferred 2005 (1) 600,000 32,700 .15
Hyder PLC 1,875,000 30,902 .14
Tenet Healthcare Corp. 6.00% exchangeable notes 2005 $25,000,000 21,563 .10
Moore Corp. Ltd. 1,900,000 20,425 .09
Omnicom Group Inc. 4.25% convertible debentures 2007 (1) $11,000,000 19,360 .09
Integrated Health Services, Inc. 280,000 8,680 .04
TNT Post Groep NV 330,000 7,894 .04
IKON Office Solutions, Inc. $5.04 ACES convertible preferred 1998 200,000 5,450 .03
Nationwide Health Properties Inc., Series A, 7.677% preferred cumulative
step-up premium rate 50,000 4,786 .02
Unisource Worldwide, Inc. 100,000 925 .00
341,816 1.55
Chemicals - 1.49%
Dow Chemical Co. 1,604,200 145,581 .66
Imperial Chemical Industries PLC (American Depositary Receipts) 2,050,000 107,497 .49
E.I. du Pont de Nemours and Co. 500,000 31,000 .14
Witco Corp. 1,002,000 24,173 .11
DSM NV 210,000 21,454 .09
329,705 1.49
Real Estate - 1.36%
Boston Properties, Inc. 2,634,600 85,131 .39
Equity Residential Properties Trust 1,190,000 49,980
Equity Residential Properties Trust, Series G, 7.25% convertible preferred 545,000 12,739 .28
Prologis Trust, Series D, 7.92% preferred 1,080,000 26,325 .12
CarrAmerica Realty Corp. 585,000 15,759
CarrAmerica Realty Corp., Series B, 8.57% cumulative redeemable preferred 280,000 6,982 .10
Weingarten Realty Investors 485,000 18,278 .08
Glenborough Realty Trust Inc., Series A, 7.75% convertible preferred 2049 800,000 17,600 .08
Duke Realty Investments, Inc., Series B, 7.99% preferred cumulative step-up premi 300,000 15,150 .07
Simon DeBartolo Group, Inc., Series C, 7.89% preferred cumulative step-up premium 300,000 14,596 .07
AMB Property Corp. 600,000 14,325 .06
Archstone Communities Trust (formerly Security Capital Pacific Trust) 564,000 11,844 .05
IAC Capital Trust, Series A, 8.25% TOPRS preferred 300,000 7,406 .03
New Plan Realty Trust, Series A, 7.80% preferred cumulative step-up premium rate 112,500 5,611 .03
301,726 1.36
Broadcasting & Publishing - 1.11%
Houston Industries Inc. 7.00% ACES convertible preferred 2000 1,780,000 139,285 .63
CSC Holdings, Inc. (formerly Cablevision Systems Corp.), Series I,
$2.125 cumulative convertible exchangeable preferred 760,000 49,590 .23
Tele-Communications International 4.50% convertible debentures 2006 $34,000,000 34,000 .15
MediaOne Group Inc. (formerly U S WEST Communications, Inc.),
Series D, 4.50% convertible preferred 225,000 22,908 .10
245,783 1.11
Electronic Components & Instruments - 0.80%
Micron Technology, Inc. 7.00% convertible subordinated notes 2004 $50,000,000 49,125 .22
EMC Corp. 3.25% convertible subordinated notes 2002 (1) $18,000,000 40,590 .19
Advanced Micro Devices, Inc. 6.00% convertible subordinated notes 2005 $40,000,000 31,500 .14
Western Digital Corp. 0% convertible subordinated debentures 2018 (1) $112,500,000 27,351 .12
National Semiconductor Corp. 6.50% convertible debentures 2002 (1) $15,000,000 13,575 .06
Thermo Instrument Systems Inc. 4.00% convertible subordinated debentures 2005 $10,000,000 9,500 .05
Maxtor Corp. 5.75% convertible debentures 2012 $7,500,000 4,875 .02
176,516 .80
Industrial Components - 0.75%
Federal-Mogul Corp. 7.00% convertible preferred 2027 (1) 1,000,000 67,875 .31
Tomkins PLC 6,750,000 34,824 .16
Tower Auto Capital Trust 6.75% convertible preferred 2018 (1) 450,000 23,006 .10
TXI Capital Trust I 5.50% convertible preferred 2028 450,000 19,125 .09
BTI Capital Trust 6.50% convertible preferred 2027 (1) 500,000 20,000 .09
164,830 .75
Financial Services - 0.55%
Household International, Inc. 2,453,280 122,051 .55
Food & Household Products - 0.53%
General Mills, Inc. 1,885,000 116,752 .53
Miscellaneous Materials & Commodities - 0.49%
English China Clays PLC (2) 18,224,000 55,016 .25
Crown Cork & Seal Co., Inc. 4.50% convertible preferred 2000 1,005,000 39,069 .17
Cooper Industries, Inc. 6.00% convertible preferred DECS 1999 1,000,000 15,000 .07
109,085 .49
Leisure & Tourism - 0.35%
Host Marriott Financial Trust 6.75% QUIPS convertible preferred 2026 (1) 600,000 30,150 .14
Premier Parks Inc. 7.50% PIES convertible preferred 2001 450,000 28,463 .13
AMF Bowling, Inc. 0% convertible debentures 2018 (1) $90,000,000 14,175 .06
Royal Caribbean Cruises Ltd., Series A, 7.25% convertible preferred 45,000 5,276 .02
78,064 .35
Metals: Nonferrous - 0.30%
Freeport-McMoRan Copper & Gold Inc., Series A, $1.75 convertible preferred 1,400,000 26,162
Freeport-McMoRan Copper & Gold Inc., Class B 300,000 4,444 .14
Cyprus Amax Minerals Co., Series A, $4.00 convertible preferred 465,000 20,692 .09
Inco Ltd. 5.75% convertible debentures 2004 $17,250,000 15,245 .07
66,543 .30
Machinery & Engineering - 0.25%
Ingersoll-Rand Co. 6.75% PRIDES convertible preferred 2049 1,400,000 34,650 .15
Thermo Electron Corp. 4.25% convertible subordinated debentures 2003 (1) $23,000,000 21,620 .10
56,270 .25
Transportation: Rail & Road - 0.20%
Union Pacific Capital Trust 6.25% TIDES convertible preferred 976,200 43,929 .20
Appliances & Household Durables- 0.18%
Newell Financial Trust 5.25% QUIPS convertible preferred 2027 668,000 40,080 .18
Protection One Alarm Monitoring, Inc. warrants, expire 2005 (1,3) 57,600 662 .00
40,742 .18
Recreation & Other Consumer Products - 0.16%
Jostens, Inc. 1,580,000 35,649 .16
Transportation: Airlines - 0.15%
Qantas Airways Ltd. 22,462,027 33,978 .15
Other Industries - 0.30%
Swire Pacific Capital Ltd. 8.84% cumulative guaranteed perpetual capital securiti 600,000 11,076
Swire Pacific Offshore Financing Ltd. 9.33% cumulative
guaranteed perpetual capital securities (1) 400,000 7,792 .08
Courtaulds Textiles PLC 4,500,000 17,412 .08
Bethlehem Steel Corp. $3.50 convertible preferred 250,000 10,875 .05
Wang Laboratories, Inc., Series B, 6.50% convertible preferred depositary shares 170,000 8,500 .04
Diamond Offshore Drilling, Inc. 3.75% convertible debentures 2007 $5,481,000 5,714 .03
Daewoo Corp. 0.50% Eurodollar convertible debentures 2007 (1) $5,000,000 3,650 .02
65,019 .30
MISCELLANEOUS: Other equity securities in initial period of acquisition 487,926 2.21
TOTAL EQUITY SECURITIES (cost: $10,060,003,000) 13,166,899 59.54
Shares or Market Percent
Principal Value of Net
Bonds & Notes Amount (000) Assets
Broadcasting, Advertising & Publishing - 3.04%
Time Warner Inc., Pass-Through Asset Trust 1997-2, 4.90% 1999 (1,5) 10,000 9,864
Time Warner Inc., Pass-Through Asset Trust 1997-1, 6.10% 2001 (1,5) 12,000 11,938
Time Warner Inc. 7.75% 2005 9,500 10,180
Time Warner Inc. 8.18% 2007 20,000 22,194
Time Warner Inc. 9.125% 2013 5,000 6,034
Time Warner Inc. 7.25% 2017 39,500 40,784 .46
Chancellor Radio Broadcasting Co. 9.375% 2004 28,000 29,400
Chancellor Radio Broadcasting Co. 8.125% 2007 39,500 40,092
Chancellor Radio Broadcasting Co., Series B, 8.75% 2007 4,500 4,680 .34
Comcast Cable Communications, Inc. 10.25% 2001 12,600 13,816
Comcast Cable Communications, Inc. 8.125% 2004 8,000 8,653
Comcast Cable Communications, Inc. 8.375% 2007 10,000 11,147
Comcast Cable Communications, Inc. 8.875% 2017 15,000 17,939 .23
CSC Holdings, Inc. (formerly Cablevision
Systems Corp.) 7.25% 2008 8,000 7,942
CSC Holdings, Inc. 8.125% 2009 18,250 19,436
CSC Holdings, Inc. 9.875% 2013 11,500 12,707 .18
Fox/Liberty Networks, LLC, FLN Finance, Inc. 0%/9.75% 2007 (6) 27,250 19,484
Fox/Liberty Networks, LLC, FLN Finance, Inc. 8.875% 2007 16,850 17,313 .17
NTL Inc. 0%/12.75% 2005 (6) 22,000 19,580
NTL Inc., Series B, 10.00% 2007 10,000 10,825
NTL Inc. 0%/9.75% 2008 (1,6) 5,000 3,350 .15
Falcon Holding Group, LP 0%/9.285% 2010 (1,6) 24,000 15,810
Falcon Holding Group, LP 8.375% 2010 (1) 15,000 15,450 .14
American Radio Systems Corp. 9.75% 2005 7,500 8,156
American Radio Systems Corp. 9.00% 2006 17,550 18,866 .12
Hearst-Argyle Television, Inc. 7.00% 2018 25,750 25,780 .12
Century Communications Corp. 8.75% 2007 13,200 14,124
Century Communications Corp. 0% 2008 23,250 10,986 .11
TeleWest PLC 9.625% 2006 5,000 5,375
TeleWest PLC 0%/11.00% 2007 (6) 20,500 17,271 .10
American Media Operations, Inc. 11.625% 2004 18,250 19,801 .09
Radio One, Inc. 7.00%/12.00% 2004 (6) 16,500 16,665 .08
Comcast UK Cable Partners Ltd. 0%/11.20% 2007 (6) 18,500 15,725 .07
News America Holdings Inc. 6.625% 2008 4,500 4,477
News America Holdings Inc. 10.125% 2012 5,000 5,793
News America Holdings Inc. 7.43% 2026 5,000 5,290 .07
TVN Entertainment 4.00% 2008 14,750 14,824 .07
Lenfest Communications, Inc. 7.625% 2008 (1) 2,000 2,060
Lenfest Communications, Inc. 8.25% 2008 (1) 10,500 11,078 .06
STC Broadcasting, Inc. 11.00% 2007 11,500 12,708 .06
Newsquest Capital PLC 11.00% 2006 8,700 9,831
Newsquest Capital PLC, Series B, 11.00% 2006 1,200 1,356 .05
TKR Cable I, Inc. 10.50% 2007 10,000 10,974 .05
Adelphia Communications Corp. 8.125% 2003 6,500 6,484
Adelphia Communications Corp. 10.50% 2004 3,000 3,315 .04
Multicanal Participacoes SA, Series B, 12.625% 2004 8,750 8,838 .04
Ziff-Davis Inc. 8.50% 2008 8,250 8,415 .04
V2 Music (Holdings) PLC, Dollar Units, 0%/14.00% 2008 (1,6) 14,750 7,818 .04
Sun Media Corp. 9.50% 2007 7,071 7,428 .03
RBS Participacoes SA 11.00% 2007 (1) 6,750 6,041 .03
Young Broadcasting Inc. 11.75% 2004 1,000 1,105
Young Broadcasting Inc. 10.125% 2005 3,750 4,059
Young Broadcasting Inc., Series B, 8.75% 2007 750 788 .03
Antenna TV SA 9.00% 2007 5,250 5,289 .02
Grupo Televisa, SA 11.875% 2006 750 833
Grupo Televisa, SA 0%/13.25% 2008 (6) 5,000 4,075 .02
Fox Family Worldwide, Inc. 0%/10.25% 2007 (6) 2,000 1,320
Fox Family Worldwide, Inc. 9.25% 2007 1,750 1,728 .01
Gray Communication Systems, Inc. 10.625% 2006 2,500 2,738 .01
Continental Cablevision, Inc. 8.50% 2001 2,000 2,120 .01
672,152 3.04
Telecommunications - 2.68%
NEXTEL Communications, Inc. 9.95% 2008 190,000 124,925 .56
Orion Network Systems, Inc. 11.25% 2007 61,000 66,795 .30
Omnipoint Corp. 8.875% 2006 14,950 14,950
Omnipoint Corp. 11.625% 2006 34,800 37,236 .24
WorldCom, Inc. 9.375% 2004 38,154 39,994
WorldCom, Inc. 8.875% 2006 7,747 8,381 .22
Tele-Communications, Inc. 10.125% 2001 5,000 5,534
TCI Communications, Inc. 8.00% 2005 15,000 16,308
TCI Communications, Inc. 8.75% 2015 6,500 7,728
TCI Communications, Inc. 8.75% 2023 8,000 8,762
Tele-Communications, Inc. 9.25% 2023 4,500 5,117 .20
Cable & Wireless Communications PLC, 6.625% 2005 26,500 26,628
Cable & Wireless Communications PLC, 6.75% 2008 10,000 10,028 .16
Qwest Communications International Inc. 0%/9.47% 2007 (6) 15,000 11,588
Qwest Communications International Inc. 10.875% 2007 12,000 13,920
QWest Communications International Inc. 0%/8.29% 2008 (6) 12,500 9,312 .16
SkyTel Communications Inc. (formerly Mobile Telecommunication
Technologies Corp.) 13.50% 2002 19,875 23,055 .10
Spectrasite Holdings 0%/12.00% 2008 (1,6) 36,000 21,600 .10
Time Warner Telecommunications 9.75% 2008 20,000 20,450 .09
Viatel, Inc., Units, 11.25% 2008 (1) 14,500 15,877 .07
Level 3 Communications, Inc. 9.125% 2008 (1) 13,000 12,805 .06
US Xchange LLC 15.00% 2008 (1) 10,500 10,999 .05
IMPSAT Corp. 12.375% 2008 (1) 10,000 10,225 .05
Netia Holdings BV 0%/11.25% 2007 (6) 10,500 6,772
Netia Holdings BV 10.25% 2007 3,625 3,426 .05
Allegiance Telecom, Inc. 0%/11.75% 2008 (6) 20,000 10,150 .05
CellNet Data Systems, Inc. 0%/14.00% 2007 (6) 18,450 10,147 .04
ICO Global Communications, Units, 15.00% 2005 10,000 10,000 .04
Comtel Brasileira Ltda. 10.75% 2004 (1) 9,200 9,131 .04
COLT Telecom Group PLC 0%/12.00% 2006 (6) 7,500 6,113 .03
Teligent, Inc. 11.50% 2007 4,500 4,579 .02
Iridium LLC, Series A, 13.00% 2005 4,000 4,080 .02
PanAmSat Corp. 6.125% 2005 4,000 3,935 .02
Conecel Holdings Ltd., Series A, 14.00% 2000 2,950 2,861 .01
593,411 2.68
Wireless Communications - 1.50%
NEXTEL Communications, Inc. 0%/9.75% 2004 (6) 35,500 35,589
NEXTEL Communications, Inc. 0%/10.125% 2004 (6) 5,000 5,063
NEXTEL Communications, Inc. 0%/9.75% 2007 (6) 61,500 41,205
NEXTEL Communications, Inc. 0%/10.65% 2007 (6) 9,000 6,188
NEXTEL Communications, Inc. 0%/12.125% 2008 (1,6) 33,200 19,920 .49
Comcast Cellular Corp., Series B, 9.50% 2007 32,500 34,206 .15
McCaw International, Ltd. 0%/13.00% 2007 (6) 46,850 31,155 .14
Centennial Cellular Corp. 8.875% 2001 23,500 25,086
Centennial Cellular Corp. 10.125% 2005 3,000 3,615 .13
Comunicacion Celular SA 0%/13.125% 2003 (6) 31,000 23,870 .11
Clearnet Communications 0%/14.75% 2005 (6) 23,000 19,838 .09
CCPR Services, Inc. 10.00% 2007 18,000 17,460 .08
PageMart Wireless, Inc. 0%/11.25% 2008 (6) 21,500 13,545 .06
American Cellular Corp. 10.50% 2008 (1) 12,500 12,687 .06
NEXTLINK Communications, Inc. 9.625% 2007 4,000 4,120
NEXTLINK Communications, Inc. 9.00% 2008 (1) 6,250 6,281 .05
Sprint Spectrum LP, Sprint Spectrum Finance Corp. 11.00% 2006 6,000 6,930 .03
Sygnet Wireless, Inc. 11.50% 2006 5,000 5,800 .03
Price Communications Cellular Holdings, Inc. 11.25% 2008 5,000 5,012 .02
Pinnacle Holdings Inc. 0%/10.00% 2008 (1,6) 6,700 4,489 .02
Esat Telecom Group PLC 0%/12.50% 2007 (6) 5,000 3,675 .02
Vanguard Cellular Systems, Inc. 9.375% 2006 3,000 3,210 .01
PTC International Finance BV 0%/10.75% 2007 (6) 4,000 2,780 .01
Geotek Communications, Inc., Series B, 0%/15.00% 2005 (6,7) 7,220 758 .00
332,482 1.50
Business & Public Services - 1.46%
Integrated Health Services, Inc. 10.25% 2006 16,900 17,745
Integrated Health Services, Inc., Series A, 9.50% 2007 28,985 29,710
Integrated Health Services, Inc., Series A, 9.25% 2008 36,250 36,794 .38
Columbia/HCA Healthcare Corp. 6.87% 2003 10,575 10,327
Columbia/HCA Healthcare Corp. 7.15% 2004 6,000 5,916
Columbia/HCA Healthcare Corp. 6.91% 2005 10,750 10,295
Columbia/HCA Healthcare Corp. 8.85% 2007 16,770 17,891
Columbia/HCA Healthcare Corp. 8.70% 2010 9,500 10,105 .25
Paracelsus Healthcare Corp. 10.00% 2006 30,100 30,551 .14
Allied Waste North America, Inc. 10.25% 2006 21,000 23,205 .11
Laidlaw Environmental Services, Inc. 9.25% 2008 (1) 22,000 22,550 .10
Waste Management, Inc. 7.00% 2005 5,000 5,162
Waste Management, Inc. 7.00% 2006 15,000 15,468 .09
Tenet Healthcare Corp. 8.00% 2005 9,500 9,737
Tenet Healthcare Corp. 8.125% 2008 (1) 10,000 10,138 .09
Katz Media Corp., Series B, 10.50% 2007 15,050 16,856 .08
Mariner Health Group, Inc. 9.50% 2006 12,750 13,770 .06
Protection One Alarm Monitoring, Inc. 13.625% 2005 11,685 13,438 .06
Federal Express Corp., pass-through certificates, Series 1994-A310,
Class A1, 7.53% 2006 9,450 9,880 .04
Omega Healthcare Investors, Inc. 6.95% 2002 5,000 4,995 .02
Allegiance Corp. 7.00% 2026 4,000 4,064 .02
Unison HealthCare Corp. 13.00% 1999 (1,7) 2,000 2,000
Unison HealthCare Corp. 13.00% 2006 (1,7) 4,000 1,780 .02
Iron Mountain Inc. 8.75% 2009 1,000 1,030 .00
323,407 1.46
Energy Sources and Energy Equipment & Services - 1.08%
CalEnergy Co., Inc. 9.875% 2003 5,000 5,334
CalEnergy Co., Inc. 0%/10.25% 2004 (6) 36,300 38,621 .20
Oryx Energy Co. 9.50% 1999 10,000 10,354
Oryx Energy Co. 8.00% 2003 5,345 5,615
Oryx Energy Co. 8.375% 2004 12,750 13,708
Oryx Energy Co. 8.125% 2005 8,500 9,012 .17
Pioneer Natural Resources Co. (formerly Parker &
Parsley Petroleum Co.) 8.25% 2007 5,000 5,289
Pioneer Natural Resources Co. 7.20% 2028 26,500 24,198 .13
Clark Refining & Marketing, Inc. 8.875% 2007 29,250 28,665 .13
J. Ray McDermott, SA 9.375% 2006 18,500 20,073 .09
Forcenergy Inc 9.50% 2006 10,000 10,100
Forcenergy Inc 8.50% 2007 3,750 3,563 .06
Petro Stopping Centers, LP 10.50% 2007 11,500 12,305 .06
Benton Oil and Gas Co. 9.375% 2007 10,000 9,725 .04
Cross Timbers Oil Co. 8.75% 2009 8,000 8,000 .04
OXYMAR 7.50% 2016 (1) 8,000 7,972 .04
Lomak Petroleum, Inc. 8.75% 2007 7,000 6,913 .03
Kelley Oil & Gas Corp. 10.375% 2006 6,000 6,150 .03
Newfield Exploration Co., Series B, 7.45% 2007 6,000 6,077 .03
Ocean Energy, Inc. 8.875% 2007 3,500 3,675 .02
Petrozuata Finance, Inc., Series A, 7.63% 2009 3,000 3,005 .01
238,354 1.08
Banking - 1.14%
MBNA Corp., MBNA Capital A, Series A, 8.278% 2026 10,000 10,458
MBNA Corp., MBNA Capital B, Series B, 6.519% 2027 (8) 32,000 31,014 .19
BNP U.S. Funding LLC, Series A, 7.738% 2049 (1) 32,500 32,356 .15
Riggs Capital Trust II 8.625% 2026 (1) 1,500 1,630
Riggs Capital Trust II 8.875% 2027 (1) 23,000 25,325
Riggs Capital Trust II 8.875% 2027 2,000 2,202 .13
Capital One Capital I 7.15% 2006 10,000 10,122
Capital One Capital I 7.268% 2027 (1,8) 13,500 13,905 .11
Advanta Corp., Series D, 6.60% 2000 4,000 3,859
Advanta Corp., Series D, 6.65% 2000 5,000 4,830
Advanta Corp. 7.50% 2000 4,000 3,870
Advanta Corp. 6.91% 2002 5,000 4,545
Advanta Corp. 6.925% 2002 5,000 4,547 .10
Dime Bancorp, Inc. 10.50% 2005 4,000 4,240
Dime Capital Trust I, Dime Bancorp, Inc., Series A, 9.33% 2027 11,300 13,093 .08
Chase Capital II, Global Floating Rate Capital Securities, Series B, 6.219% 2027 15,000 14,414 .07
BT Capital Trust I 6.438% 2026 (8) 12,500 12,500 .05
Washington Mutual Capital I Subordinated Capital Income Securities 8.375% 2027 10,000 10,999 .04
Ahmanson Capital Trust I Capital Securities, Series A, 8.36% 2026 (1) 8,000 8,641 .04
HSBC Americas, Inc. 7.808% 2026 (1) 8,000 8,032 .04
First Nationwide Holdings Inc. 12.50% 2003 5,500 6,353 .03
Midland American Capital Corp. 12.75% 2003 6,000 6,107 .03
Komercni Finance BV 9.00%/10.75% 2008 (1,6) 6,000 5,700 .02
First Union Corp. 6.82%/7.57% 2026 (6) 5,000 5,353 .02
BCI US Funding 8.01% (1) 5,000 4,952 .02
Chevy Chase Bank, FSB 9.25% 2005 4,000 4,050 .02
253,097 1.14
Transportation - 0.96%
Jet Equipment Trust, Series 1994-A, Class B1, 10.91% 2006 (1) 6,535 7,732
Jet Equipment Trust, Series 1995-B, 10.91% 2014 4,750 6,118
Jet Equipment Trust, Series 1995-B, Class A, 7.63% 2015 (1) 3,737 3,988
Jet Equipment Trust, Series 1995-A, Class B, 8.64% 2015 (1) 14,075 15,789
Jet Equipment Trust, Series 1995-B, Class C, 9.71% 2015 (1) 5,500 6,754
Jet Equipment Trust, Series 1995-A, Class C, 10.69% 2015 (1) 5,000 6,459 .21
USAir, Inc., pass-through certificates, Series 1993-A1, 8.625% 1998 8,500 8,500
USAir, Inc. 9.625% 2001 8,204 8,594
USAir, Inc., enhanced equipment notes, Class C, 8.93% 2009 7,517 8,459
USAir, Inc., pass-through trust, Series 1993-A3, 10.375% 2013 (5) 17,000 19,117 .20
Continental Airlines, Inc. 9.50% 2001 4,500 4,792
Continental Airlines, Inc., pass-through certificates, Series 1996-A, 6.94% 2015 8,650 8,964
Continental Airlines, Inc., pass-through certificates, Series 1996-C, 9.50% 2015 12,494 14,399 .13
Atlas Air, Inc., Pass-Through Trusts, Series 1998-1, Class A, 7.38% 2018 (1,5) 33,400 33,914 .15
Airplanes Pass Through Trust, pass-through certificates, Series 1, Class C, 8.15% 14,892 15,666 .07
United Air Lines, Inc. 9.00% 2003 8,000 8,875
United Air Lines, Inc., pass-through certificates, Series 1996-A2, 7.87% 2019 (5) 5,000 5,294 .07
Teekay Shipping Corp. 8.32% 2008 10,820 11,145 .05
Northwest Airlines, Inc. 7.625% 2005 7,500 7,345 .03
Delta Air Lines, Inc., pass-through certificates, Series 1992-A2, 9.20% 2014 (5) 5,000 5,949 .03
MC-Cuernavaca Trust 9.25% 2001 (1,5) 5,313 5,114 .02
212,967 .96
Forest Products & Paper - 0.69%
Container Corp. of America 9.75% 2003 45,550 48,739
Container Corp. of America, Series A, 11.25% 2004 19,500 21,158 .32
Pindo Deli Finance Mauritius Ltd. 10.25% 2002 11,000 7,535
Pindo Deli Finance Mauritius Ltd. 10.75% 2007 25,025 17,079 .11
Scotia Pacific 7.11% 2015 (1) 16,000 15,757 .07
Copamex Industrias, SA de CV, Series B, 11.375% 2004 13,450 13,551 .06
Grupo Industrial Durango, SA de CV 12.00% 2001 6,000 6,255
Grupo Industrial Durango, SA de CV 12.625% 2003 3,500 3,710 .04
Advance Agro PCL 13.00% 2007 8,000 7,960 .04
Paperboard Industries International Inc. 8.375% 2007 5,000 5,062 .02
Norampac Inc. 9.50% 2008 (1) 3,250 3,364 .02
Indah Kiat Finance Mauritius Ltd. 11.875% 2002 700 483
Indah Kiat Finance Mauritius Ltd. 10.00% 2007 3,050 2,059 .01
152,712 .69
Financial Services - 0.67%
AT&T Capital Corp. 6.60% 2005 24,000 24,105 .11
Wilshire Financial Services Group Inc. 13.00% 2004 20,750 22,359 .10
Capital One Bank 7.25% 2003 10,000 10,156
Capital One Bank 7.125% 2008 10,000 9,910 .09
GS Escrow Corp. 7.125% 2005 (1) 20,000 19,905 .09
AMRESCO, Inc. 9.875% 2005 17,000 17,255 .08
MBNA Corp. 6.75% 2008 12,500 12,630 .06
Wharf Capital International, Ltd. 8.875% 2004 10,000 9,020 .04
Ford Capital BV 10.125% 2000 5,500 5,974 .03
DVI, Inc. 9.875% 2004 5,000 5,325 .03
General Electric Capital Corp. 8.875% 2009 4,000 4,884 .02
ContiFinancial Corp. 8.125% 2008 3,250 3,139 .01
Green Tree Financial Corp. 6.50% 2002 2,635 2,597 .01
147,259 .67
Real Estate - 0.59%
SocGen Real Estate Co. LLC, Series A, 7.64%/8.40% 2049 (6) 45,000 44,382 .20
Security Capital Pacific Trust 7.15% 2007 17,500 17,389
Security Capital Pacific Trust 7.65% 2010 1,000 1,055
Security Capital Pacific Trust 7.20% 2013 15,000 14,633
Security Capital Pacific Trust 7.90% 2016 1,000 1,032 .15
Prologis Trust (formerly Security Capital Industrial Trust) 7.05% 2006 12,000 12,038
Prologis Trust 7.95% 2008 10,000 10,523 .10
Irvine Co., Series A, 7.46% 2006 (1,4) 10,000 10,202 .05
Beverly Finance Corp. 8.36% 2004 5,000 5,429 .03
EOP Operating LP 6.625% 2005 5,250 5,211 .02
Shopping Center Associates 6.75% 2004 (1) 5,000 4,994 .02
ERP Operating LP 7.95% 2002 3,750 3,942 .02
130,830 .59
Metals: Steel & Nonferrous - 0.47%
Kaiser Aluminum & Chemical Corp. 9.875% 2002 7,000 7,210
Kaiser Aluminum & Chemical Corp. 12.75% 2003 8,000 8,500
Kaiser Aluminum & Chemical Corp., Series B, 10.875% 2006 25,000 27,000 .19
Doe Run Co. 11.25% 2005 31,000 31,465 .14
Freeport-McMoRan Copper & Gold Inc. 7.50% 2006 9,500 7,315
Freeport-McMoRan Copper & Gold Inc. 7.20% 2026 16,000 12,480 .09
Inco Ltd. 9.875% 2019 6,500 6,860
Inco Ltd. 9.60% 2022 2,625 2,926 .05
103,756 .47
General Retailing & Merchandising - 0.47%
Fred Meyer, Inc. 7.375% 2005 21,000 21,012
Fred Meyer, Inc. 7.45% 2008 19,000 19,166 .18
Lifestyle Furnishings International Ltd. 10.875% 2006 21,100 24,054 .11
Boyds Collection 9.00% 2008 (1) 23,500 23,617 .11
May Department Stores Co. 8.375% 2024 10,000 10,908 .05
Venator Group Inc. (formerly Woolworth Corp.) 8.50% 2022 4,000 4,291 .02
103,048 .47
Utilities: Electric & Gas - 0.35%
Israel Electric Corp. Ltd. 7.70% 2018 (1) 22,500 22,333
Israel Electric Corp. Ltd. 8.10% 2096 (1) 7,500 7,298 .13
Tennessee Gas Pipeline Co. 7.625% 2037 17,750 18,970 .09
Long Island Lighting Co. 7.50% 2007 15,000 15,542 .07
Transener SA 9.25% 2008 (1) 13,500 13,044 .06
77,187 .35
Food Retailing: Food Products & Beverages - 0.35%
Stater Bros. Holdings Inc. 11.00% 2001 16,000 17,200 .08
Canandaigua Wine Co., Inc. 8.75% 2003 6,250 6,422
Canandaigua Wine Co., Inc., Series C, 8.75% 2003 2,500 2,569 .04
Friendly Ice Cream Corp. 10.50% 2007 7,750 7,905 .04
Gruma, SA de CV 7.625% 2007 7,750 7,508 .03
AKI Inc. 10.50% 2008 (1) 7,000 7,070 .03
Home Products International, Inc. 9.625% 2008 (1) 7,000 6,965 .03
Favorite Brands International, Inc. 10.75% 2006 (1) 6,750 6,176 .03
Carr-Gottstein Foods Co. 12.00% 2005 5,000 5,625 .03
Sparkling Spring Water Group Ltd. 11.50% 2007 4,000 4,140 .02
Randall's Food Markets, Inc. 9.375% 2007 2,000 2,130 .01
Star Markets Co., Inc. 13.00% 2004 1,500 1,699 .01
DGS International Finance Co. BV 10.00% 2007 (1) 1,250 987
DGS International Finance Co. BV 10.00% 2007 275 217 .00
76,613 .35
Leisure & Tourism - 0.24%
FelCor Suites LP 7.375% 2004 10,750 10,471
FelCor Suites LP 7.625% 2007 5,000 4,879 .07
Boyd Gaming Corp. 9.25% 2003 7,000 7,385 .04
Royal Caribbean Cruises Ltd. 7.00% 2007 7,000 7,141 .03
Aztar Corp. 11.00% 2002 6,000 6,150 .03
HMH Properties, Inc., Series B, 8.875% 2007 4,500 5,118 .02
CapStar Hotel Co. 8.75% 2007 4,900 5,096 .02
Mirage Resorts, Inc. 6.75% 2007 5,000 4,869 .02
KSL Recreation Group, Inc. 10.25% 2007 2,500 2,706 .01
53,815 .24
Electronic Components - 0.24%
Hyundai Semiconductor America, Inc. 8.25% 2004 (1) 6,650 5,453
Hyundai Semiconductor America, Inc. 8.625% 2007 (1) 20,700 16,146 .10
Flextronics International Ltd. 8.75% 2007 13,000 13,097 .06
Zilog, Inc. 9.50% 2005 (1) 16,000 12,480 .06
Advanced Micro Devices, Inc. 11.00% 2003 5,000 5,125 .02
52,301 .24
Other Industries - 1.61%
CBS Corp. 7.15% 2005 82,000 82,090 .37
PDVSA Finance Ltd. 7.40% 2016 (1) 34,000 32,301 .15
BREED Technologies Inc. 9.25% 2008 (1) 29,250 28,958 .13
AMF Group Inc. 0%/12.25% 2006 (6) 5,437 3,752
AMF Group Inc. 10.875% 2006 17,155 16,297 .09
Reliance Industries Ltd. 8.25% 2027 (1) 10,000 9,087
Reliance Industries Ltd. 10.50% 2046 5,750 5,373
Reliance Industries Ltd., Series B, 10.25% 2097 5,000 4,545 .09
Tultex Corp. 10.625% 2005 11,750 11,691
Tultex Corp. 9.625% 2007 7,000 6,650 .08
Hutchison Whampoa Finance (CI) Ltd., Series D, 6.988% 2037 (1) 21,000 17,958 .08
WestPoint Stevens Inc. 7.875% 2005 (1) 17,000 17,340 .08
Anchor Glass Container Corp. 11.25% 2005 12,750 13,674 .06
Owens-Illinois, Inc. 7.85% 2004 6,000 6,247
Owens-Illinois, Inc. 8.10% 2007 5,750 6,051 .06
Pan Pacific Industrial Investments PLC 0% 2007 (1) 33,500 11,444 .05
Texas Petrochemicals Corp. 11.125% 2006 8,750 9,406 .04
Graham Packaging Co., GPC Capital Corp. I, 8.75% 2008 (1) 3,975 4,015
Graham Packaging Co. 0%/10.75% 2009 (1,6) 8,000 5,120 .04
Unisys Corp., Series B, 12.00% 2003 5,000 5,656
Unisys Corp. 11.75% 2004 2,000 2,320 .04
Consumers International Inc. 10.25% 2005 7,000 7,542 .04
Printpack, Inc. 10.625% 2006 7,000 7,472 .03
Tekni-Plex, Inc. 9.25% 2008 7,250 7,341 .03
Philips Electronics NV 7.20% 2026 6,000 6,216 .03
Jefferson Pilot Corp. 8.14% 2046 (1) 5,000 5,330 .03
Innova, S de RL 12.875% 2007 5,000 5,100 .02
M.D.C. Holdings, Inc. 8.375% 2008 5,000 5,063 .02
Huntsman Corp. 9.031% 2007 (1,8) 5,000 5,025 .02
Samsung Electronics Co., Ltd. 7.45% 2002 (1) 5,000 4,200 .02
Tenneco Inc. 8.075% 2002 2,000 2,115 .01
355,379 1.61
Collateralized Mortgage/Asset-Backed Obligations (5) (excluding those
issued by federal agencies) - 2.08%
Collateralized Mortgage Obligation Trust, Series 63, Class Z, 9.00% 2020 58,858 61,875 .28
Green Tree Financial Corp., pass-through certificates, Series 1994-A,
Class NIM, 6.90% 2004 3,267 3,266
Green Tree Financial Corp., pass-through certificates, Series 1995-A,
Class NIM, 7.25% 2005 2,247 2,241
Green Tree Financial Corp., pass-through certificates, Series 1993-2,
Class B, 8.00% 2018 14,000 14,061
Green Tree Financial Corp., pass-through certificates, Series 1995-4,
Class B-2, 7.70% 2025 1,900 1,842
Green Tree Financial Corp., pass-through certificates, Series 1995-1,
Class B-2, 9.20% 2025 5,500 5,797
Green Tree Financial Corp., pass-through certificates, Series 1995-9,
Class A-5, 6.80% 2027 4,000 4,056
Green Tree Financial Corp., pass-through certificates, Series 1996-2,
Class B-2, 7.90% 2027 3,500 3,528
Green Tree Financial Corp., Series 1996-10, Class A-6, 7.30% 2028 3,000 3,117
Green Tree Financial Corp., pass-through certificates, Series 1998-3,
Class B-2, 8.07% 2028 5,000 5,025
Green Tree Financial Corp., pass-through certificates, Series 1998-4,
Class B-2, 8.11% 2028 6,650 6,677 .22
Gramercy, Series 1998-A, Class C, 8.95% 2002 (1) 35,000 34,755 .16
G3 Mortgage Reinsurance, Class B, 6.956% 2008 (1,8) 9,000 9,003
G3 Mortgage Reinsurance, Class A, 8.50% 2008 (1) 10,500 10,503
G3 Mortgage Reinsurance, Class C, 8.506% 2008 (1,8) 10,000 9,950 .13
Chase Commercial Mortgage Securities Corp., Series 1998-1,
Class D, 6.56% 2008 10,000 9,763
Chase Commercial Mortgage Securities Corp., Series 1998-1, Class A1, 6.34% 2030 14,845 14,938 .11
Morgan Stanley Capital I, Inc., Series 1998-WF1, Class A-1, 6.25% 2007 12,809 12,835
Morgan Stanley Capital I, Inc., Series 1998-WF2, Class A-1, 6.34% 2030 9,948 10,008 .10
MBNAM, Series 98-E, Class C, 6.60% 2010 (1) 22,500 22,455 .10
Deutsche Mortgage & Asset Receiving Corp., Series 1998-C1,
Class A-1, 6.22% 2031 4,915 4,921
Deutsche Mortgage & Asset Receiving Corp., Series 1998-C1,
Class B, 6.664% 2031
Deutsche Mortgage & Asset Receiving Corp., Series 1998-C1, 10,000 10,150
Class D, 7.231% 2031 5,000 5,047 .09
First Union Lehman, Series 1998-C2, Class A1, 6.28% 2035 19,837 19,915 .09
Resolution Trust Corp., Series 1992-CHF, Class E, 8.25% 2020 6,420 6,416
Resolution Trust Corp., Series 1993-C1, Class D, 9.45% 2024 6,143 6,143
Resolution Trust Corp., Series 1993-C1, Class E, 9.50% 2024 646 646
Resolution Trust Corp., Series 1993-C2, Class C, 8.00% 2025 3,000 3,000
Resolution Trust Corp., Series 1993-C2, Class D, 8.50% 2025 2,942 2,942 .09
UCFC Acceptance Corp., home-equity loan pass-through certificates,
Series 1995-B1, Class A-3, 6.75% 2016 10,965 11,035
UCFC Acceptance Corp., home-equity loan pass-through certificates,
Series 1996-D1, Class A-4, 6.776% 2016 4,250 4,276 .07
SMA, Series 1998-C1, Class A1, 6.27% 2005 (1) 14,815 14,861 .07
Residential Reinsurance, Series 1998-A, Class A, 9.848% 1999 (1,8) 15,000 14,850 .07
Merrill Lynch Mortgage Investors, Inc., Seller Manufactured Housing Contract, Series 1995-C2,
Class A-1, 7.157% 2021 11,003 11,227
Merrill Lynch Mortgage Investors, Inc., Mortgage Pass-Through Certificates, Series 1996-C2,
Class A-1, 6.69% 2028 (8) 2,994 3,040 .06
FIRSTPLUS Home Loan Owner Trust, Series 1996-4, Class A-3, 6.28% 2009 4,000 4,002
FIRSTPLUS Home Loan Owner Trust, Series 1997-1, Class A-6, 6.95% 2015 10,000 10,193 .06
DLJ Mortgage Acceptance Corp., Series 1997-CF1, Class A1A, 7.40% 2006 (1) 6,820 7,121
DLJ Mortgage Acceptance Corp., Series 1996-CF2, Class A1A, 6.86% 2021 (1) 5,248 5,371 .06
Mortgage Capital Funding, Inc., Series 1998-MC1, Class E, 7.06% 2030 10,000 10,113 .05
FMAC, Series 1998-A, Class A3, 6.69% 2020 10,100 10,084 .05
CSFB, Series 1998-FL1, Class E, 6.51% 2013 (1,8) 10,000 10,000 .05
Chase Manhattan Bank, NA, Series 1993-I, Class 2A5, 7.25% 2024 8,913 9,021 .04
GE Capital Mortgage Services, Inc., Series 1994-9, Class A9, 6.50% 2024 6,437 6,151 .03
Standard Credit Card Master Trust I, credit card participation certificates,
Series 1994-2A, 7.25% 2008 5,000 5,322 .02
NEBHELP Trust, Series I, Class A, 6.68% 2016 (1) 5,000 5,026 .02
Metropolitan Asset, Series 1998-A, Class B1, 7.728% 2014 (1) 4,669 4,683 .02
Grupo Financiero Banamex Accival, SA de CV 0% 2002 (1) 5,189 4,480 .02
SASCO, Series 1998-RF, Class 1, 8.712% 2021 (1) 2,415 2,592 .01
Trinity Trust, Class A1, 7.58% 1998 (1) 2,084 2,069 .01
460,392 2.08
Federal Agency Obligations: Mortgage Pass-Throughs 5 - 1.86%
Government National Mortgage Assn. 6.00% 2023-2028 17,590 17,156
Government National Mortgage Assn. 6.50% 2028 15,006 14,959
Government National Mortgage Assn. 6.875% 2023-2024 (8) 50,268 51,070
Government National Mortgage Assn. 7.00% 2008-2027 22,345 22,721
Government National Mortgage Assn. 7.00% 2022-2024 (8) 18,502 18,815
Government National Mortgage Assn. 7.375% 2022 - 2024 (8) 5,471 5,573
Government National Mortgage Assn. 7.50% 2017-2026 26,138 26,936
Government National Mortgage Assn. 8.00% 2017 4,146 4,336
Government National Mortgage Assn. 8.50% 2017-2027 23,586 24,935
Government National Mortgage Assn. 9.00% 2008-2025 8,542 9,151
Government National Mortgage Assn. 9.50% 2009-2021 11,989 12,971
Government National Mortgage Assn. 10.00% 2016-2019 1,008 1,109
Government National Mortgage Assn. 10.50% 2018-2019 99 110
Government National Mortgage Assn. 11.00% 2015 62 70 .95
Fannie Mae 6.00% 2013 - 2028 51,665 50,798
Fannie Mae 6.169% 2028 (8) 9,329 9,375
Fannie Mae 6.50% 2013 - 2028 23,873 23,830
Fannie Mae 7.00% 2028 3,000 3,042
Fannie Mae 7.50% 2007 - 2028 28,585 29,350
Fannie Mae 8.00% 2009 - 2024 8,152 8,478
Fannie Mae 8.50% 2014 - 2025 9,414 9,830
Fannie Mae 9.00% 2008 - 2025 7,466 7,934
Fannie Mae 9.50% 2022 6,780 7,280
Fannie Mae 10.00% 2005 - 2025 19,312 21,109
Fannie Mae 13.00% 2015 3,268 3,923
Fannie Mae 15.00% 2028 1,302 1,639 .80
Freddie Mac 8.50% 2008 - 2020 14,416 15,030
Freddie Mac 9.00% 2007 - 2021 8,009 8,429
Freddie Mac 10.00% 2019 121 132
Freddie Mac 11.50% 2000 8 8 .11
410,099 1.86
Federal Agency Obligations: Collateralized Mortgage Obligations 5 - 0.11%
Fannie Mae, Series 1996-4, Class ZA, 6.50% 2022 6,196 6,047
Fannie Mae, Series 1994-4, 6.50% 2024 5,248 4,995
Fannie Mae, Series 1991-78, Class PK, 8.50% 2020 4,714 4,793 .07
Freddie Mac, Series 1673, Class SA, 4.994% 2024 (9) 6,000 4,358
Freddie Mac, Series 178, Class Z, 9.25% 2021 3,202 3,418 .04
23,611 .11
Other Federal Agency Obligations - 0.12%
Federal Home Loan Banks 6.16% 2004 13,000 12,852
Federal Home Loan Banks 6.27% 2004 6,000 5,956 .08
Freddie Mac, 6.27% 2004 5,635 5,595
Freddie Mac, 6.44% 2003 3,000 2,984 .04
27,387 .12
Governments and Governmental Authorities (excluding U.S. government) - 1.40%
Venezuela (Republic of) Eurobond 6.625% 2007 (8) 5,881 4,593
Venezuela (Republic of) 9.25% 2027 160,000 109,040 .51
Argentina (Republic of), Series L, Eurobonds 6.625% 2005 (8) 2,850 2,579
Argentina (Republic of) 11.00% 2006 43,250 47,088
Argentina (Republic of) 11.375% 2017 14,250 15,625
Argentina (Republic of) 9.75% 2027 10,000 9,600 .34
United Mexican States Government Eurobonds, Series C, 0% 2003 (4) 2,307 0
United Mexican States Government Eurobonds, Global, 11.375% 2016 14,000 15,785
United Mexican States Government Eurobonds, Units, Series C, 6.617% 2019 (8) 1,500 1,355
United Mexican States Government Eurobonds, Global, 11.50% 2026 18,500 21,645 .18
Panama (Republic of) Past Due Interest Eurobond 6.688% 2016 (8) 527 412
Panama (Republic of) 8.875% 2027 21,500 20,183 .09
Philippines (Republic of) 8.875% 2008 17,250 16,603 .08
Poland (Republic of), Past Due Interest Bond, Bearer 4.00% 2014 (8) 13,750 12,633 .06
Mendoza (Province of) 10.00% 2007 (1) 12,250 11,515 .05
Korea (Republic of) 8.875% 2008 10,000 9,397 .04
Brazil (Federal Republic of), Debt Conversion Bond, Series L, 6.688% 2012 (8) 5,750 4,162
Brazil (Federal Republic of) Bearer 8.00% 2014 3,771 2,886 .03
Ontario (Province of) 7.75% 2002 2,500 2,648 .01
Ecuador (Republic of) Past Due Interest Bearer Bond 6.625% 2015 (8) 500 298
Ecuador (Republic of) Past Due Interest Discount Bond 6.625% 2025 (8) 1,556 1,093 .01
Peru (Republic of) Front-Loaded Interest Reduction Eurobond 3.25% 2017 (8) 250 144
Peru (Republic of) Past Due Interest Eurobond 4.00% 2017 (8) 1,250 786 .00
310,070 1.40
Floating Rate Eurodollar Notes (undated) (8) - 0.14%
Standard Chartered Bank 5.875% 15,000 10,087 .04
Canadian Imperial Bank of Commerce 5.813% 10,000 8,750 .04
Bank of Nova Scotia 5.813% 10,000 8,713 .04
Midland Bank PLC 6.00% 5,000 4,246 .02
31,796 .14
U.S. Treasury Obligations - 3.92%
9.25% August 1998 10,000 10,010 .05
8.875% February 1999 42,000 42,748 .19
9.125% May 1999 10,000 10,273 .05
8.75% August 2000 22,500 23,875 .11
8.50% November 2000 20,000 21,262 .10
7.75% February 2001 68,000 71,538 .32
8.00% May 2001 7,000 7,440 .03
3.711% July 2002 (10) 10,165 10,066 .04
11.625% November 2002 38,000 46,627 .21
10.75% February 2003 19,500 23,482 .11
7.25% May 2004 115,500 125,047 .56
11.625% November 2004 43,500 57,230 .26
7.50% February 2005 40,000 44,162 .20
6.50% May 2005 30,000 31,580 .14
10.75% August 2005 9,000 11,657 .05
3.493% January 2007 (10) 7,115 6,959 .03
6.125% August 2007 1,465 1,520 .01
10.00% May 2010 18,000 22,314 .10
7.50% November 2016 32,000 38,065 .17
8.875% August 2017 79,500 107,387 .49
7.125% February 2023 65,250 76,332 .35
6.50% November 2026 70,000 76,836 .35
866,410 3.92
TOTAL BONDS & NOTES (cost:$5,925,484,000) 6,008,535
Short-Term Securities
Corporate Short-Term Notes - 10.10%
Lucent Technologies Inc. 5.48% - 5.52% due 9/11 - 9/28/98 109,100 108,263 .49
General Motors Acceptance Corp. 5.49% - 5.52% due 8/5 - 10/22/98 99,000 97,995 .44
Coca-Cola Co. 5.48% - 5.50% due 8/14 - 9/22/98 95,000 94,579 .43
Emerson Electric Co. 5.47% - 5.53% due 8/18 - 9/2/98 87,700 87,336 .39
E.I. du Pont de Nemours and Co. 5.48% - 5.51% due 8/25 - 10/26/98 85,700 84,998 .38
Gillette Co. 5.46% - 5.47% due 8/31 - 10/27/98 (1) 85,500 84,862 .38
American Express Credit Corp. 5.50% - 5.51% due 8/26 - 9/21/98 84,000 83,494 .38
Procter & Gamble Co. 5.48% due 8/12 - 9/3/98 82,000 81,738 .37
General Electric Capital Corp. 5.51% - 5.53% due 8/17 - 9/16/98 81,400 80,906 .37
Monsanto Co. 5.49% - 5.52% due 8/24 - 11/17/98 (1) 81,300 80,149 .37
Xerox Corp. 5.47% - 5.50% due 8/10 - 9/4/98 78,700 78,478 .35
Ford Motor Credit Co. 5.49% - 5.52% due 8/31 - 10/8/98 79,000 78,239 .35
Motorola Inc. 5.48% - 5.50% due 8/4 - 10/22/98 77,700 77,444 .35
Ameritech Corp. 5.47% - 5.48% due 8/28 - 9/11/98 46,200 45,926
Ameritech Capital Funding Corp. 5.49% due 8/12/98 (1) 27,000 26,951 .33
Duke Energy Corp. 5.47% - 5.48% due 8/10 - 10/22/98 71,200 70,582 .32
Chrysler Financial Corp. 5.50% - 5.53% due 8/20 - 10/1/98 67,000 66,684 .30
National Rural Utilities Cooperative Finance Corp. 5.48% - 5.50% due 8/14 - 10/27 67,000 66,428 .30
Colgate-Palmolive Co. 5.50% - 5.52% due 9/10 - 9/29/98 (1) 66,000 65,460 .30
CIT Group Holdings Inc. 5.48% - 5.51% due 8/6 - 8/13/98 60,100 60,006 .27
Associates Corp. of North America 5.50% - 5.52% due 8/19 - 8/21/98 59,100 58,921 .27
Gannett Co., Inc. 5.48% - 5.55% due 8/3 - 8/25/98 (1) 57,900 57,788 .26
Chevron USA Inc. 5.49% - 5.51% due 8/17 - 9/14/98 57,800 57,557 .26
Commercial Credit Co. 5.50% due 8/18 - 10/15/98 55,900 55,514 .25
Amoco Co. 5.42% - 5.47% due 8/3 - 9/22/98 55,000 54,784 .25
Atlantic Richfield Co. 5.50% - 5.51% due 8/14 - 9/3/98 (1) 54,600 54,393 .25
A.I. Credit Corp. 5.47% - 5.51% due 8/24 - 10/5/98 50,900 50,588 .23
IBM Credit Corp. 5.47% due 8/7/98 50,000 49,946 .23
Minnesota Mining and Manufacturing Co. 5.44% - 5.48% due 8/11 - 8/20/98 48,800 48,677 .22
BellSouth Telecommunications, Inc. 5.49% due 8/11 - 8/26/98 48,300 48,163 .22
International Lease Finance Corp. 5.48% - 5.52% due 8/24 - 10/23/98 45,500 45,196 .20
H.J. Heinz Co. 5.49% - 5.54% due 8/6 - 9/9/98 40,300 40,147 .18
American General Finance Corp. 5.52% due 8/5/98 25,000 24,981
American General Corp. 5.55% due 8/18/98 15,000 14,958 .18
Kimberly-Clark Corp. 5.48% due 9/29/98 (1) 31,900 31,608 .14
Hershey Foods Corp. 5.47% due 9/11/98 20,000 19,871 .09
2,233,610 10.10
Federal Agency Short-Term Obligations - 3.20%
Freddie Mac 5.37% - 5.435% due 8/4 - 10/9/98 393,434 390,915 1.77
Fannie Mae 5.41% - 5.45% due 9/8 - 10/30/98 290,400 287,670 1.30
International Bank Reconstruction and Development 5.36% due 10/20/98 30,000 29,631 .13
708,216 3.20
Certificates of Deposit - 0.23%
Mellon Financial Co. 5.57% due 9/2/98 50,000 50,000 .23
TOTAL SHORT-TERM SECURITIES (cost: $2,991,931,000) 2,991,826 13.53
TOTAL INVESTMENT SECURITIES (cost: $18,977,418,000) 22,167,260 100.24
Excess of payables and cash over receivables 54,284 .24
NET ASSETS 22,112,976 100.00
(1) Purchased in a private placement transaction; resale to the public may require registration or sale
only to qualified institutional buyers.
(2) The fund owns 6.10%, 6.79% and 5.91% of the outstanding voting securities of First Hawaiian, Ohio
Casualty and English China Clays, respectively, and thus is considered an affiliate as defined in the
Investment Company Act of 1940.
(3) Non-income-producing security.
(4) Valued under procedures established by the Board of Directors.
(5) Pass-through securities backed by a pool of mortgages or other loans on which principal payments are
periodically made. Therefore, the effective maturities are shorter than the stated maturities.
(6) Step bond; coupon rate will increase at a later date.
(7) Company is not making interest payments; bankruptcy proceedings pending.
(8) Coupon rate may change periodically.
(9) Inverse floater, which is a floating rate note whose interest rate moves in the opposite direction of
prevailing interest rates.
(10) Index-linked bond whose principal amount moves with a government retail price index.
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C>
The Income Fund of America
Financial Statements
- -------------------------------- --------- ---------
Statement of Assets and Liabilities (dollars in
at July 31, 1998 thousands)
- -------------------------------- --------- ---------
Assets:
Investment securities at market
(cost: $18,977,418) $22,167,260
Cash 5,521
Receivables for-
Sales of investments $ 50,991
Sales of fund's shares 36,679
Dividends and accrued interest 153,195 240,865
--------- ---------
22,413,646
Liabilities:
Payables for-
Purchases of investments 269,719
Repurchases of fund's shares 17,536
Management services 5,080
Accrued expenses 8,335 300,670
--------- ---------
Net Assets at July 31, 1998-
Equivalent to $18.25 per share on
1,211,356,826 shares of $1 par value
capital stock outstanding (authorized
capital stock--1,600,000,000 shares) $22,112,976
============
- -------------------------------- --------- ---------
Statement of Operations (dollars in
for the year ended July 31, 1998 thousands)
- -------------------------------- --------- ---------
Investment Income:
Income:
Dividends $ 460,595
Interest 642,216 $ 1,102,811
---------
Expenses:
Management services fee 57,649
Distribution expenses 49,269
Transfer agent fee 8,974
Reports to shareholders 551
Registration statement and
prospectus 1,101
Postage, stationery and supplies 2,101
Directors' fees 135
Auditing and legal fees 60
Custodian fee 888
Taxes other than federal income tax 2
Other expenses 145 120,875
--------- ---------
Net investment income 981,936
---------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 1,220,942
Net change in unrealized appreciation on
investments (34,156)
---------
Net realized gain and unrealized
appreciation on investments 1,186,786
---------
Net Increase in Net Assets Resulting
From Operations $2,168,722
============
- -------------------------------- --------- ---------
Statement of Changes in Net Assets (dollars in
thousands)
- -------------------------------- --------- ---------
Year ended July 31
1998 1997
Operations: --------- ---------
Net investment income
Net realized gain on investments $ 981,936 $ 836,925
Net change in unrealized appreciation 1,220,942 1,592,597
on investments
(34,156) 1,817,752
Net increase in net assets --------- ---------
resulting from operations
2,168,722 4,247,274
Dividends and Distributions --------- ---------
Paid to Shareholders:
Dividends from net investment income
Distributions from net realized (922,159) (857,023)
gain on investments
(1,524,937) (748,006)
Total dividends and distributions --------- ---------
(2,447,096) (1,605,029)
Capital Share Transactions: --------- ---------
Proceeds from shares sold:
205,557,632 and 131,090,765
shares, respectively
Proceeds from shares issued in 3,777,990 2,235,951
reinvestment of net investment
income dividends and distributions of
net realized gain on investments:
122,751,251 and 83,876,277
shares, respectively
Cost of shares repurchased: 2,182,454 1,403,146
129,064,287 and 112,767,826
shares, respectively
(2,383,307) (1,926,293)
Net increase in net assets --------- ---------
resulting from capital share
transactions
3,577,137 1,712,804
Total Increase in Net Assets --------- ---------
3,298,763 4,355,049
Net Assets:
Beginning of year
18,814,213 14,459,164
End of year (including undistributed --------- ---------
net investment income: $198,455
and $139,013, respectively)
$22,112,976 $18,814,213
=========== ===========
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 securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the investment adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the investment adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type. Securities with
original maturities of one year or less having 60 days or less to maturity are
amortized to maturity based on their cost if acquired within 60 days of
maturity or, if already held on the 60th day, based on the value determined on
the 61st day. Assets or liabilities initially expressed in terms of non-U.S.
currencies are translated into U.S. dollars at the prevailing market rates at
the end of the reporting period. Purchases and sales of securities and income
and expenses are translated into U.S. dollars at the prevailing market rates on
the dates of such transactions. The effects of changes in non-U.S. currency
exchange rates on investment securities are included with the net realized and
unrealized gain or loss on investment securities. Securities and assets for
which representative market quotations are not readily available are valued at
fair value as determined in good faith by a committee appointed by 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. In the event
the fund purchases securities on a delayed delivery or "when-issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in these transactions. Realized gains and losses from
securities transactions are reported on an identified cost basis. Dividend and
interest income is reported on the accrual basis. Discounts and premiums on
securities purchased are amortized. Dividends and distributions paid to
shareholders are recorded on the ex-dividend date.
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, 1998, net unrealized appreciation on investments for federal
income tax purposes aggregated $3,189,885,000, of which $3,732,617,000 related
to appreciated securities and $542,732,000 related to depreciated securities.
During the year ended July 31, 1998, the fund realized, on a tax basis, a net
capital gain of $1,221,231,000 on securities transactions. Net losses related
to non-U.S. currency and other transactions of $51,000 were treated as an
adjustment to ordinary income for federal income tax purposes. The cost of
portfolio securities for federal income tax purposes was $18,977,375,000 at
July 31, 1998.
3. The fee of $57,649,000 for management services was incurred 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; 0.145% of such
assets in excess of $13 billion but not exceeding $21 billion; and 0.14% of
such assets in excess of $21 billion; plus 2.25% of monthly gross investment
income.
Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Directors. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the year ended July 31, 1998,
distribution expenses under the Plan were $49,269,000. As of July 31, 1998,
accrued and unpaid distribution expenses were $7,698,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $8,974,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $17,111,000 (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, 1998,
aggregate amounts deferred and earnings thereon were $487,000.
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, 1998, accumulated undistributed net realized gain on
investments was $1,066,672,000 and additional paid-in capital was
$16,446,722,000. The fund reclassified $332,000 of currency losses from
undistributed net realized gains to undistributed net investment income, $3,000
from undistributed net investment income to additional paid-in capital and
$39,000 from additional paid-in capital to undistributed net realized gains for
the year ended July 31, 1998.
The fund made purchases and sales of investment securities of $7,351,142,000
and $6,157,867,000, respectively, during the year ended July 31, 1998.
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 $888,000 includes $485,000 that was paid by these credits
rather than in cash.
Net realized currency losses on dividends, interest, withholding taxes
reclaimable, and sales of non-U.S. bonds and notes, on a book basis, were
$395,000 for the year ended July 31, 1998.
<TABLE>
<S> <C> <C> <C> <C> <C>
Per-Share Data and Ratios
Year ended July 31
------- ------- ------- ------- -------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
Net Asset Value, Beginning of Year $18.59 $15.89 $14.92 $13.59 $14.47
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income .85 .86 .87 .85 .83
Net realized gain and change in
unrealized appreciation on investments 1.11 3.55 1.11 1.29 (.53)
------- ------- ------- ------- -------
Total income From
investment operations 1.96 4.41 1.98 2.14 .30
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment
income (.82) (.90) (.83) (.75) (.83)
Distributions from net
realized gains (1.48) (.81) (.18) (.06) (.35)
------- ------- ------- ------- -------
Total distributions (2.30) (1.71) (1.01) (.81) (1.18)
------- ------- ------- ------- -------
Net Asset Value, End of Year $18.25 $18.59 $15.89 $14.92 $13.59
======= ======= ======= ======= =======
Total Return* 11.32% 29.28% 13.46% 16.42% 1.98%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $22,113 $18,814 $14,459 $12,290 $10,537
Ratio of expenses to average net assets .59% .61% .62% .65% .63%
Ratio of net income to average net assets 4.75% 5.09% 5.56% 6.12% 5.92%
Portfolio turnover rate 34.68% 40.92% 37.77% 26.26% 26.42%
* Excludes maximum sales of charge of 5.75%.
</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. (the "Fund"), including the investment portfolio,
as of July 31, 1998, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the per-share data and ratios for each of the five years
in the period then ended. These financial statements and per-share data and
ratios are the responsibility of the Fund's management. Our responsibility is
to express an opinion on these financial statements and per-share data and
ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per-share data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1998, by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing 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. at July 31, 1998, 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 28, 1998
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:
<TABLE>
<CAPTION>
<S> <C>
Dividends and Distributions per Share
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
To Shareholders Payment Date From Net From Net From Net Realized
of Record Investment Realized Long-term Gains
Income Short-term
Gains
September 19, 1997 September 22, 1997 $0.20 - -
November 17, 1997 November 18, 1997 - $0.126 $1.354*
December 26, 1997 December 29, 1997 0.22 - -
March 20, 1998 March 23, 1998 0.20 - -
June 19, 1998 June 22, 1998 0.20 - -
</TABLE>
*INCLUDES $0.853 LONG-TERM CAPITAL GAINS TAXED AT A MAXIMUM RATE OF 28%.
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 37% of the dividends
paid by the fund from net investment income represent qualifying dividends.
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, 6% of the dividends paid
by the fund from net investment income were derived from interest on direct
U.S. Treasury obligations.
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.
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 1999 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 1998 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
