[THE AMERICAN FUNDS GROUP(R)]
THE INCOME FUND OF AMERICA
SEMI-ANNUAL REPORT FOR THE
SIX MONTHS ENDED JANUARY 31, 1998
[cover: cartoon drawing of three individuals holding instruments of measure]
The Income Fund of America(r) seeks current income while secondarily striving
for capital growth through investments in stocks and fixed-income securities.
[Begin chart]
12-Month Dividend Rates for IFA
Compared with the average of equity-income funds and Standard & Poor's 500
Stock Composite Index.
<TABLE>
<CAPTION>
Average of
The Income Fund equity-income
Date of America funds S&P 500
<S> <C> <C> <C>
01/31/93 6.44 3.37 2.83
07/31/93 6.19 3.08 2.79
01/31/94 5.56 2.87 2.64
07/31/94 6.06 2.96 2.80
01/31/95 6.14 3.08 2.81
07/31/95 5.55 2.82 2.41
01/31/96 5.07 2.48 2.18
07/31/96 5.19 2.42 2.28
01/31/97 5.09 2.04 1.89
07/31/97 4.74 1.77 1.61
01/31/98 4.27 1.70 1.58
</TABLE>
ALL NUMBERS CALCULATED BY LIPPER ANALYTICAL SERVICES.
The 12-month dividend rate is calculated by taking the total of the trailing 12
months' dividends and dividing by the month-end net asset value adjusted for
capital gains.
[End chart]
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS AND ARE NOT PREDICTIVE OF
FUTURE RESULTS. SHARE PRICE AND RETURN WILL VARY, SO YOU MAY LOSE MONEY BY
INVESTING IN THE FUND. THE SHORTER THE TIME PERIOD OF YOUR INVESTMENT, THE
GREATER THE POSSIBILITY OF LOSS. FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR INSURED OR GUARANTEED BY, THE U.S. GOVERNMENT, ANY FINANCIAL
INSTITUTION, THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY OTHER AGENCY,
ENTITY OR PERSON.
FELLOW SHAREHOLDERS:
The Income Fund of America again met its primary objective of providing
above-average current income to shareholders for the six months ended January
31, 1998. As of that date, IFA's dividend rate was higher than that of almost
all other equity-income funds. It also far surpassed the average yield of
stocks in general.
Even with yields on stocks at an all-time low, IFA was able to deliver a 4.27%
dividend rate as of January 31 - more than double the 1.72% average rate of the
192 equity-income funds tracked by Lipper Analytical Services. IFA's rate was
also more than double the 1.58% annual yield of the unmanaged Standard & Poor's
500 Stock Composite Index.
IFA also met its secondary objective of capital growth by producing a total
return of 5.9%, with dividends reinvested, during the six-month period. The
fund outpaced the 3.6% total return of U.S. stocks, as measured by the S&P 500.
It also exceeded the 4.9% total return of the Lehman Brothers Aggregate Bond
Index. Sharp price gains by the fund's telecommunications and utility stocks
and a strong contribution from its long-term government and corporate bond
investments enabled the fund to surpass both unmanaged indexes.
IFA's showing was helped by the fund's resilience during several periods of
market decline during the last six months. For example, in August 1997, the S&P
500 Index fell 5.7%, but IFA's price declined only 1.4%.
IFA paid regular quarterly dividends of 20 cents a share in September and
December 1997 plus a special dividend of 2 cents a share in December. In
addition, IFA paid a larger-than-usual capital gain distribution of $1.48 a
share, 8.5% of the fund's net asset value, in November. This resulted in part
from the sale of stocks which had appreciated to such an extent that their
yields were no longer sufficient to meet the fund's income requirements.
Investors have been concerned by the recent financial crisis in Asia.
Fortunately, IFA has had very little Asian exposure because it concentrates
mostly on mature U.S. companies with solid dividends. The fund's non-U.S.
equity exposure was just under 10% of net assets at January 31. IFA's overseas
investments were dominated by strongly appreciating stocks of companies in the
United Kingdom such as National Power and British Telecom. The fund's primary
Asian equity holding, Hong Kong Telecom, declined 20% during the last six
months, but its stock price at January 31 was still above the price purchased
at in 1996.
TELECOMMUNICATIONS STOCKS RISE
Looking at industry sectors, telecommunications companies, which constitute
6.3% of the fund's net assets, did well because of investors' belief that these
were secure stocks with solid dividends and attractive growth prospects. AT&T,
the fund's third-largest holding, rose 70.1% in price during the six months.
Investors reacted favorably to AT&T's appointment of a highly regarded new
chief executive who announced cost-cutting measures and new strategic
initiatives, including the purchase of a New York telephone company. Other
strong price gains were made by British Telecom (up 36.3%), U S WEST
Communications Group (up 31.6%) and Bell Atlantic (up 27.6%).
Electric and gas utilities, which make up 7.3% of net assets, were also
perceived as safe places to invest. They also benefited from a favorable bond
market. Boston Edison increased 32.4% in price, Consolidated Edison was up
30.6% and Florida Progress rose 19.0%.
Banks, which comprise 7.4% of net assets, provided a positive total
contribution even though some experienced volatility because of investors'
concerns over loans they have made in Asia. Other strong contributors were Ford
Motor, now the fund's fifth-largest holding (up 24.8%), and pharmaceutical
concerns Bristol-Myers Squibb (up 27.1%) and Glaxo Wellcome (up 26.7%).
Energy sources, the fund's largest industry holding at 8.8%, experienced a
difficult period. Oil output increased but demand fell because of the Asian
economic crisis. The price of oil fell about 15% over the six months, and share
prices reacted negatively. Atlantic Richfield, the fund's largest individual
holding, fell 0.6% in price. Other large energy investments also declined,
including Phillips Petroleum (off 4.5%), Texaco (down 10.3%) and Amoco (13.4%
lower). We continue to find long-term prospects for these companies attractive.
They have solid cash flow and sound balance sheets, and the stocks provide good
income.
IFA's investments in high-yield bonds and long-term government and corporate
bonds were another factor in the fund's good results. Over the recent six
months, prices of 10-year U.S. Treasury bonds rose as yields fell from 6.2% to
5.5%. Low inflation and turmoil in Asian financial markets drove the U.S. bond
market higher as investors sought a safe haven in U.S. fixed-income
instruments. Strong U.S. economic growth and good corporate profits helped
high-yield corporate bonds, whose fortunes are largely tied to the strength of
the individual issuers. High-yield bonds now make up about 12% of the
portfolio.
At the end of January this year, 60.1% of the fund's total assets were invested
in equity securities, 24.7% in fixed-income securities and 15.2% in cash and
equivalents. The portfolio continues to have a large portion in bonds and cash
because of our cautious outlook on the U.S. stock market and our focus on the
fund's income objective.
We welcome the many new investors who have joined The Income Fund of America in
recent months. IFA shareholder accounts now number close to 660,000 and fund
assets have grown to $20.4 billion from $16.6 billion in the past 12 months. We
recognize the importance you place on income, stability and the long-term
growth of your investment. As part of the fund's annual report in autumn, we
will report to you in more detail on how IFA is meeting your goals.
Cordially,
/s/Walter P. Stern /s/Janet A. McKinley
Walter P. Stern Janet A. McKinley
Chairman of the Board President
March 11, 1998
RESULTS AT A GLANCE (for periods ended 1/31/98, with distributions reinvested
or interest compounded)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Average Annual
Compound
Six Return Over
Months One Year 10 Years Lifetime/1/ Lifetime/1/
THE INCOME FUND
OF AMERICA +5.9% 19.4% +261.2% +2,379.7% +14.2%
Standard & Poor's 500 Stock
Composite Index +3.6 +26.9 +408.5 +2,505.4 +14.4
Salomon Brothers Long-Term
High-Yield Bond Index +7.8 +19.6 +233.9 - -
Lehman Brothers Aggregate
Bond Index +4.9 +10.7 +135.4 +775.1/2/ +9.4/2/
Average Savings Institution/3/ +1.9 +3.8 +54.9 +346.3 +6.4
Consumer Price Index/4/ +0.7 +1.6 +39.7 +252.1 +5.3
</TABLE>
/1/Since December 1, 1973, when Capital Research and Management Company became
IFA's investment adviser.
/2/From December 1, 1973 through December 31, 1975, the Lehman Brothers
Government/Corporate Bond Index was used.
/3/Based on figures from the U.S. League of Savings Institutions and the
Federal Reserve Board, reflecting all kinds of savings deposits (maximum
allowable interest rates imposed by law until 1983). Savings accounts are
guaranteed; the fund is not.
/4/Computed from data supplied by the U.S. Department of Labor, Bureau of Labor
Statistics.
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are the total returns and average annual compound
returns with all distributions reinvested for periods ended December 31, 1997
(the most recent calendar quarter), assuming payment of the 5.75% maximum sales
charge at the beginning of the stated periods:
10 Years 5 Years 12 Months
+261.51% +90.41% +15.12%
(+13.71% ANNUALLY) (+13.75% ANNUALLY)
Sales charges are lower for accounts of $50,000 or more. The fund's 30-day
yield as of February 28, 1998, calculated in accordance with the Securities and
Exchange Commission formula, was 4.08%.
ASSET MIX COMPARISON (Unaudited for January 31, 1998)
January 31, 1998
[begin pie chart] Percent of
INVESTMENT PORTFOLIO Net Assets
U.S. Equity Securities/+/ 50.5%
Non-U.S. Equity Securities 9.6
Other Fixed-Income Securities 17.4
Government Bonds 7.3
Cash & Equivalents 15.2
/+/Includes 0.2% in Canadian equities that are part of the S&P 500.
[end pie chart]
TEN LARGEST INDUSTRIES Percent of
IN EQUITY HOLDINGS Net Assets
Energy Sources 8.8%
Banking 7.4
Utilities: Electric & Gas 7.3
Telecommunications 6.3
Insurance 4.2
Automobiles 3.1
Health & Personal Care 3.0
Merchandising 2.8
Chemicals 2.4
Beverages & Tobacco 2.1
July 31, 1997
[begin pie chart] Percent of
INVESTMENT PORTFOLIO Net Assets
U.S. Equity Securities/++/ 52.7%
Non-U.S. Equity Securities 9.4
Other Fixed-Income Securities 17.4
Government Bonds 9.0
Cash & Equivalents 11.5
/++/Includes 0.3% in Canadian equities that are part of the S&P 500.
[end pie chart]
TEN LARGEST INDUSTRIES Percent of
IN EQUITY HOLDINGS Net Assets
Energy Sources 9.9%
Banking 7.7
Utilities: Electric & Gas 7.2
Telecommunications 5.2
Insurance 4.6
Health & Personal Care 3.0
Automobiles 2.7
Chemicals 2.5
Beverages & Tobacco 2.4
Merchandising 2.3
<TABLE>
The Income Fund of America
<S> <C> <C> <C>
Investment Portfolio January 31, 1998
- ---------------------------------- --- --- ---
Shares or Market Percent
Principal Value of Net
Equity Securities Amount (000) Assets
- ---------------------------------- --- --- ---
Energy Sources - 8.76%
Atlantic Richfield Co. 6,663,000 $495,561 2.43
Texaco Inc. 5,000,000 260,312 1.27
Phillips Petroleum Co. 4,940,000 217,360 1.06
Amoco Corp. 2,375,000 193,266 .95
USX-Marathon Group 4,200,000 140,962 .69
Sun Co., Inc., Series A, $1.80 TARGETS, cumulative preferred 2,495,000 87,013 .67
Sun Co., Inc. 1,285,028 49,795
Occidental Petroleum Corp. 3,800,000 96,900 .47
Exxon Corp. 1,000,000 59,312 .29
Unocal Capital Trust $3.125 convertible preferred 1,040,000 56,030 .27
Ashland Inc. 570,000 30,067 .15
Ultramar Diamond Shamrock Corp. 800,000 26,650 .13
Chevron Corp. 320,000 23,940 .12
Cyprus Amax Minerals Co., Series A, $4.00 convertible preferred 465,000 22,320 .11
Mobil Corp. 262,300 17,869 .09
CalEnergy Capital Trust II 6.25% convertible preferred 270,000 11,779 .06
-------- -----
1,789,136 8.76
-------- -----
Banking - 7.44%
CoreStates Financial Corp 3,447,900 263,764 1.29
Bankers Trust New York Corp. 1,755,200 183,089 .90
J.P. Morgan & Co. Inc. 1,500,000 151,781 .74
Westpac Banking Corp. 14,570,000 99,804 .49
Commonwealth Bank of Australia 7,949,978 99,384 .49
First Union Corp. 1,967,700 94,573 .46
National Bank of Canada 5,700,000 88,354 .43
Bank of New York Co., Inc. 1,529,500 82,880 .40
PNC Bank Corp. 1,300,000 67,031 .33
First Hawaiian Bank (1) 1,800,000 65,475 .32
KeyCorp 900,000 58,500 .29
Banc One Corp. 1,037,000 57,942 .28
Fleet Financial Group, Inc. 770,000 55,151 .27
Bank of Nova Scotia 1,200,000 52,552 .26
First Chicago NBD Corp. 621,250 46,361 .23
First Security Corp. 1,060,000 36,967 .18
California Federal Bank, FSB 11.50% preferred 100,000 11,400 .06
Banco Nacional de Mexico, SA 11.00% exchangeable notes
2003 (2) $4,175,000 4,426 .02
-------- -----
1,519,434 7.44
-------- -----
Utilities: Electric & Gas - 7.29%
DTE Energy Co. 3,350,000 120,181 .59
MCN Energy Group Inc. 2,913,000 107,781 .53
Wisconsin Energy Corp. 3,650,000 100,603 .49
Long Island Lighting Co. 3,400,000 99,025 .49
Ameren Corp. 2,407,500 88,175 .43
Consolidated Edison, Inc. 2,100,000 86,756 .43
Florida Progress Corp. 2,200,000 84,288 .41
SCANA Corp. 2,265,000 63,845 .31
Scottish Power PLC 7,200,000 62,033 .30
Carolina Power & Light Co. 1,500,000 60,938 .30
Boston Edison Co. 1,600,000 59,600 .29
Peoples Energy Corp. 1,401,300 52,899 .26
National Power PLC 4,579,933 49,894 .24
Equitable Resources, Inc. 1,500,000 49,313 .24
Southern Co. 2,000,000 48,625 .24
PECO Energy Co. 2,300,000 43,556 .21
Enova Corp. 1,600,000 40,600 .20
GPU, Inc. 840,400 33,038 .16
Southern Electric PLC 3,692,307 32,204 .16
Entergy Corp. 1,000,000 28,625 .14
Duke Energy Corp. 500,000 27,094 .13
New Jersey Resources Corp. 750,000 26,625 .13
Puget Sound Energy, Inc. 900,000 25,200 .12
OGE Energy Corp. 475,000 24,848 .12
AGL Resources Inc. 1,240,000 24,567 .12
KeySpan Energy Corp. (formerly Brooklyn Union Gas Co.) 606,000 20,642 .10
El Paso Natural Gas Co. 190,000 12,148 .06
Citizens Utilities Trust 5.00% EPPICS convertible preferred
2036 250,000 12,031 .06
Northern States Power Co. 96,500 5,175 .03
-------- -----
1,490,309 7.29
-------- -----
Telecommunications - 6.28%
AT&T Corp. 5,250,000 328,781 1.61
U S WEST Communications Group 6,800,000 327,250 1.60
Ameritech Corp. 3,620,800 155,468 .76
Hong Kong Telecommunications Ltd. 71,698,895 149,209 .73
Bell Atlantic Corp. 1,371,700 126,968 .62
British Telecommunications PLC 8,300,000 79,169 .39
France Telecom 1,090,000 46,498 .23
Telecom Italia SpA, nonconvertible savings shares 5,000,000 24,692 .12
SBC Communications Inc. 7.75% DECS exchangeable notes 2001 463,000 21,356 .11
NTL Inc. (formerly International CableTel Inc.) 7.00% convertible debentures
2008 (2) $15,000,000 16,275 .08
NEXTEL Communications, Inc., Class A (3) 111,547 3,047
NEXTEL Communications, Inc. warrants, expire
1999 (3)(4) 51,912 0 .02
Comunicacion Celular SA, Class B, warrants,
expire 2003 (2)(3) 31,000 2,170 .01
Iridium World Communications Ltd. warrants, expire 2005 (2)(3) 4,000 528 .00
CellNet Data Systems, Inc. warrants, expire 2007 (2)(3) 15,450 525 .00
ICG Holdings, Inc. warrants, expire 2005 (2)(3) 19,800 267 .00
McCaw International, Ltd. warrants, exprires 2007 (2)(3) 31,500 79 .00
-------- -----
1,282,282 6.28
-------- -----
Insurance - 4.15%
Lincoln National Corp. 2,540,000 192,246 .94
American General Corp. 2,664,200 150,194 .74
St. Paul Companies, Inc. 1,280,000 111,360
St. Paul Capital LLC 6.00% MIPS convertible
preferred 190,000 14,404 .62
Italy (Republic of) 5.00% PENs 2001
(exchangeable into INA SpA) $84,000,000 108,612 .53
Ohio Casualty Corp. (1) 2,280,000 103,313 .51
Aetna Inc., Class C, 6.25% convertible preferred 700,000 52,981 .26
GIO Australia Holdings Ltd. 18,500,500 49,678 .24
Allstate Corp. 6.76% exchangeable notes 1998 370,000 20,836 .10
U S WEST, Inc. 7.625% DECS exchangeable notes 1998 433,300 20,690 .10
Mutual Risk Management Ltd. 0% convertible
debentures 2015 (2) $22,000,000 14,190 .07
CIGNA Corp. 50,000 8,478 .04
-------- -----
846,982 4.15
-------- -----
Automobiles - 3.08%
Ford Motor Co. 5,618,300 286,533 1.40
Chrysler Corp. 8,200,000 285,463 1.40
General Motors Corp. 1,000,000 57,938 .28
-------- -----
629,934 3.08
-------- -----
Health & Personal Care - 3.01%
Glaxo Wellcome PLC 6,270,000 168,256 .82
Bristol-Myers Squibb Co. 1,615,000 160,995 .79
Pharmacia & Upjohn, Inc. 3,400,000 130,688 .64
Eli Lilly and Co. 1,070,800 72,279 .36
American Home Products Corp. 600,000 57,263 .28
Dura Pharmaceuticals, Inc. 3.50% convertible subordinate notes
2002 $20,372,000 20,983 .10
Glycomed Inc. 7.50% convertible debentures 2003 $5,000,000 4,600 .02
-------- -----
615,064 3.01
-------- -----
Merchandising - 2.82%
J.C. Penney Co., Inc. 5,250,000 353,719 1.73
Coles Myer Ltd. 17,400,491 87,738 .43
Giant Food Inc., Class A 2,340,000 76,196 .37
Staples, Inc. 4.50% convertible debentures 2000 (2) $17,000,000 21,930 .11
PETsMart, Inc. 6.75% convertible notes 2004 (2) $17,500,000 18,506 .09
Home Shopping Network, Inc. 5.875% convertible
debentures 2006 (2) $10,000,000 18,150 .09
-------- -----
576,239 2.82
-------- -----
Chemicals - 2.41%
Dow Chemical Co. 1,875,000 168,750 .83
Imperial Chemical Industries PLC (American Depositary Receipts) 2,050,000 124,794 .61
Lyondell Petrochemical Co. 2,095,000 53,423 .26
Millennium Chemicals Inc. 2,175,000 50,841 .25
Witco Corp. 975,000 39,487 .19
E.I. du Pont de Nemours and Co. 500,000 28,312 .14
Eastman Chemical Co. 450,000 26,803 .13
-------- -----
492,410 2.41
-------- -----
Beverages & Tobacco - 2.12%
Philip Morris Companies Inc. 4,200,000 174,300 .85
RJR Nabisco Holdings Corp. 3,300,000 103,950 .51
Southcorp Holdings Ltd. 20,514,536 77,288 .38
UST Inc. 1,400,000 48,300 .24
Imperial Tobacco Ltd. 4,000,000 29,203 .14
-------- -----
433,041 2.12
-------- -----
Forest Products & Paper - 1.87%
Weyerhaeuser Co. 2,305,000 114,818 .56
Union Camp Corp. 1,810,000 103,510 .51
Potlatch Corp. 1,200,000 53,400 .26
UPM-Kymmene Corp. 2,000,000 44,051 .22
App Finance (VI) Mauritius Ltd. 0% convertible debentures 2012 $144,000,00 29,700 .14
Georgia-Pacific Corp., Timber Group 893,000 20,762 .10
Stora Kopparbergs Bergslags AB, Class B 1,250,000 15,724 .08
-------- -----
381,965 1.87
-------- -----
Business & Public Services - 1.75%
United Utilities PLC 5,150,000 68,848 .34
Alexander & Baldwin, Inc. 1,375,000 38,672 .19
Thames Water PLC 2,500,000 35,933 .18
Browning-Ferris Industries, Inc. 7.25% ACES convertible
preferred 1998 1,000,000 32,313 .16
Hyder PLC 1,875,000 30,318 .15
Moore Corp. Ltd. 1,900,000 28,500 .14
Tenet Healthcare Corp. 6.00% exchangeable notes 2005 $25,000,000 23,875 .12
Thorn PLC 9,762,542 22,801 .11
IKON Office Solutions, Inc. $5.04 ACES convertible preferred 1998 200,000 14,612
IKON Office Solutions, Inc. 202,000 6,363 .10
Cognizant Corp. 395,200 17,932 .09
Omnicom Group Inc. 4.25% convertible
debentures 2007 (2) $11,000,000 15,359 .07
Integrated Health Services, Inc. 6.00%
convertible debentures 2003 $10,500,000 10,907 .05
PacifiCare Health Systems, Inc., Series A, $1.00
convertible preferred 392,500 9,371 .04
Unisource Worldwide, Inc. 100,000 1,419 .01
Protection One Alarm Monitoring, Inc.
warrants, expire 2005 (2)(3) 57,600 634 .00
-------- -----
357,857 1.75
-------- -----
Broadcasting & Publishing - 1.53%
Houston Industries Inc. 7.00% ACES convertible preferred 2000 1,780,000 105,020 .51
Time Warner Inc., Series M, 10.25% exchangeable preferred 40,799 47,021
Time Warner Inc. 0% convertible debentures 2013 $65,000,000 34,206 .40
Comcast Corp. 1.125% convertible debentures 2007 $54,000,000 36,585 .18
Tele-Communications International 4.50% convertible
debentures 2006 $34,000,000 30,600 .15
Cablevision Systems Corp., Series I, $2.125 cumulative convertible
exchangeable preferred 760,000 28,073 .14
Reader's Digest Assn., Inc., Class A 680,000 16,277 .08
U S WEST Communications, Inc., Series D, 4.50%
convertible preferred 2016 225,000 14,344 .07
Heartland Wireless Communications, Inc. warrants, expire
2000 (2)(3)(4) 18,000 0 .00
-------- -----
312,126 1.53
-------- -----
Real Estate - 0.75%
Equity Residential Properties Trust 1,040,000 53,170
Equity Residential Properties Trust, Series G, 7.25% convertible
preferred 500,000 13,156 .32
Security Capital Pacific Trust 1,830,000 43,119
Security Capital Group Inc., Class B, warrants, expire 1998 (3) 35,000 122 .21
Weingarten Realty Investors 485,000 21,340 .10
AMB Property Corp. 387,900 9,406 .05
CarrAmerica Realty Corp., Series B, 8.57% preferred 280,000 7,175 .04
New Plan Realty Trust 7.80%
cumulative step-up premium rate 112,500 5,822 .03
-------- -----
153,310 .75
-------- -----
Industrial Components - 0.73%
Federal-Mogul Corp. 7.00% convertible preferred 2027 (2) 1,000,000 54,500 .27
Dana Corp. 700,000 35,088 .17
Tomkins PLC 6,387,700 34,429 .17
BTI Capital Trust 6.50% convertible preferred 2027 (2) 500,000 24,250 .12
-------- -----
148,267 .73
-------- -----
Miscellaneous Materials & Commodities - 0.70%
English China Clays PLC (1) 19,933,300 74,719 .36
Crown Cork & Seal Co., Inc. 4.50% convertible preferred 1,005,000 46,544 .23
Cooper Industries, Inc. 6.00% DECS convertible preferred 1999 1,450,000 22,656 .11
-------- -----
143,919 .70
-------- -----
Food & Household Products - 0.61%
General Mills, Inc. 1,675,000 124,683 .61
-------- -----
Electronic Components & Instruments - 0.57%
Micron Technology, Inc. 7.00% convertible debentures 2004 $50,000,000 49,625 .24
EMC Corp. 3.25% convertible subordinated notes 2002 (2) $20,000,000 31,500 .16
National Semiconductor Corp. 6.50% convertible
debentures 2002 (2) $15,000,000 15,169 .07
Thermo Instrument Systems Inc. 4.00% convertible debentures 2005 $10,000,000 10,175 .05
Maxtor Corp. 5.75% convertible debentures 2012 $7,500,000 5,250 .03
VLSI Technology, Inc. 8.25% convertible debentures 2005 $4,500,000 4,551 .02
-------- -----
116,270 .57
-------- -----
Leisure & Tourism - 0.40%
Host Marriott Financial Trust 6.75% QUIPS convertible
preferred 2026 (2) 800,000 43,100 .21
Wendy's Financing I 5.00% TECONS convertible preferred 2026 350,000 18,507 .09
Royal Caribbean Cruises Ltd., Series A, 7.25% convertible
preferred 135,000 11,264 .05
Station Casinos, Inc. 7.00% convertible preferred 180,000 9,506 .05
-------- -----
82,377 .40
-------- -----
Financial Services - 0.40%
Beneficial Corp. 981,400 76,181 .37
United Companies Financial Corp. 6.75% PRIDES
convertible preferred 2000 159,000 5,168 .03
-------- -----
81,349 .40
-------- -----
Recreation & Other Consumer Products - 0.28%
Jostens, Inc. 1,580,000 35,649 .18
Hasbro, Inc. 600,000 20,700 .10
-------- -----
56,349 .28
-------- -----
Metals: Nonferrous - 0.25%
Freeport-McMoRan Copper & Gold Inc., Series A, $1.75 convertible
preferred 1,400,000 29,488
Freeport-McMoRan Copper & Gold Inc., Class B 300,000 4,406 .17
Inco Ltd. 5.75% convertible debentures 2004 $17,250,000 16,927 .08
-------- -----
50,821 .25
-------- -----
Electrical & Electronics - 0.16%
Premier Farnell PLC $1.35 convertible preferred 2016
(American Depositary Receipts) 1,570,000 33,559 .16
-------- -----
Appliances & Household Durables- 0.14%
Newell Trust Quip 5.25% 2027(2) 546,000 28,529 .14
-------- -----
Machinery & Engineering - 0.13%
Thermo Electron Corp. 4.25% convertible debentures 2003 (2) $23,000,000 26,306 .13
-------- -----
Metals: Steel - 0.12%
Carpenter Technology Corp. 325,600 14,143 .07
Bethlehem Steel Corp. $3.50 convertible preferred (2) 250,000 10,313 .05
-------- -----
24,456 .12
-------- -----
Other Industries - 0.19%
Swire Pacific Capital Ltd. 8.84% cumulative
guaranteed perpetual capital securities (2) 340,000 7,098
Swire Pacific Offshore Financing Ltd. 9.33% cumulative
guaranteed perpetual capital securities (2) 140,000 3,097 .05
Wang Laboratories, Inc., Series B, 6.50% convertible preferred
depositary shares (2) 170,000 9,116 .04
Diamond Offshore Drilling, Inc. 3.75% convertible debentures 2007 $5,481,000 6,824 .03
Imasco Ltd. 169,800 6,196 .03
Daewoo Corp. 0.50% Eurodollar convertible debentures 2007 (2) $5,000,000 3,850 .02
Raytheon Co., Class A 63,770 3,260 .02
-------- -----
39,441 .19
-------- -----
MISCELLANEOUS: Equity securities
in initial period of acquisition 435,372 2.13
-------- -----
TOTAL EQUITY SECURITIES (cost: $9,112,345,000) 12,271,78760.07
-------- -----
-------- -----
- ---------------------------------- --- --- ---
Principal Market Percent
Bonds & Notes Amount Value of Net
(000) (000) Assets
- ---------------------------------- --- --- ---
Broadcasting, Advertising & Publishing - 3.13%
Time Warner Inc. 7.45% 1998 $ 10,000 9,984
Time Warner Inc., Pass-Through Asset Trust, 1997-2, 4.90%
1999 (2)(5) 10,000 9,823
Time Warner Inc., Pass-Through Asset Trust, 1997-1, 6.10%
2001 (2)(5) 12,000 11,893
Time Warner Inc. 7.75% 2005 5,000 5,335
Time Warner Inc. 9.125% 2013 5,000 6,016
Time Warner Inc. 7.25% 2017 37,000 37,606 .40
Chancellor Radio Broadcasting Co. 9.375% 2004 28,000 29,400
Chancellor Radio Broadcasting Co. 8.125% 2007 (2) 31,500 31,736
Chancellor Radio Broadcasting Co. 8.75% 2007 4,500 4,646 .32
NTL Inc. (formerly International CableTel Inc.) 0%/10.875% 2003 (6) 20,075 19,272
NTL Inc. (formerly International CableTel Inc.) 0%/12.75% 2005 (6) 22,000 18,700
NTL Inc., Series B, 10.00% 2007 10,000 10,725 .24
TKR Cable I, Inc. 10.50% 2007 30,000 34,273 .17
Cablevision Systems Corp. 8.125% 2009 18,250 19,162
Cablevision Systems Corp. 9.875% 2013 11,500 12,736 .16
Fox/Liberty Networks, LLC 0%/9.75% 2007 (2)(6) 27,250 18,053
Fox/Liberty Networks, LLC 8.875% 2007 (2) 9,000 9,202 .13
American Radio Systems Corp. 9.75% 2005 7,500 8,269
American Radio Systems Corp. 9.00% 2006 17,550 18,735 .13
Videotron Holdings PLC 0%/11.125% 2004 (6) 26,500 25,475 .12
TeleWest PLC 9.625% 2006 5,000 5,350
TeleWest PLC 0%/11.00% 2007 (6) 24,500 19,355 .12
Century Communications Corp. 8.75% 2007 13,200 13,662
Century Communications Corp. 0% 2008 (1) 23,250 9,881 .12
Comcast Cable Communications, Inc. 8.125% 2004 8,000 8,689
Comcast Cable Communications, Inc. 8.375% 2007 10,000 11,158
Comcast Cable Communications, Inc. 8.875% 2017 3,000 3,563 .12
Bell Cablemedia PLC 0%/11.95% 2004 (6) 21,250 20,169 .10
American Media Operations, Inc. 11.625% 2004 18,250 19,893 .10
Viacom International Inc. 9.125% 1999 4,000 4,053
Viacom International Inc. 10.25% 2001 9,500 10,549
Viacom International Inc. 7.625% 2016 5,000 5,153 .10
Radio One, Inc. 7.00%/12.00% 2004 (6) 16,500 16,583 .08
Comcast UK Cable Partners Ltd. 0%/11.20% 2007 (6) 18,500 15,170 .07
Tele-Communications, Inc. 10.125% 2001 5,000 5,568
Tele-Communications, Inc. 9.25% 2023 8,000 8,930 .07
Comcast Corp. 10.25% 2001 12,600 14,053 .07
News America Holdings Inc. 10.125% 2012 5,000 5,858
News America Holdings Inc. 7.43% 2026 7,500 8,112 .07
Adelphia Communications Corp. 9.25% 2002 8,500 8,840
Adelphia Communications Corp. 10.50% 2004 3,000 3,315 .06
Sun Media Corp. 9.50% 2007 1,000 1,088
Sun Media Corp. 9.50% 2007 9,500 10,260 .06
Grupo Televisa, SA, Series A, 11.375% 2003 3,750 4,116
Grupo Televisa, SA 11.875% 2006 1,500 1,706 .04
Grupo Televisa, SA 0%/13.25% 2008 (6) 5,000 3,850
Multicanal Participacoes SA, Series B, 12.625% 2004 8,750 9,100 .04
TV Azteca, SA de CV 10.125% 2004 8,545 8,908 .04
Lenfest Communications, Inc. 8.25% 2008 (2) 8,500 8,477 .04
STC Broadcasting, Inc. 11.00% 2007 7,500 8,344 .04
TCI Communications, Inc. 6.375% 1999 7,000 7,036 .03
RBS Participacoes SA 11.00% 2007 (2) 6,750 6,261 .03
Young Broadcasting Inc. 11.75% 2004 1,000 1,115
Young Broadcasting Inc. 10.125% 2005 3,750 4,059
Young Broadcasting Inc., Series B, 8.75% 2007 750 772 .03
Fox Kids Worldwide, Inc. 0%/10.25% 2007 (2)(6) 2,000 1,230
Fox Kids Worldwide, Inc. 9.25% 2007 (2) 1,750 1,741 .01
Continental Cablevision, Inc. 8.50% 2001 2,000 2,147 .01
Heartland Wireless Communications, Inc. 13.00% 2003 3,000 840 .00
-------- -----
639,995 3.13
-------- -----
Telecommunications - 1.89%
WorldCom, Inc. 9.375% 2004 56,915 60,714
WorldCom, Inc. 8.875% 2006 19,554 21,445
WorldCom, Inc. 7.75% 2007 3,000 3,238 .42
Orion Network Systems, Inc. 11.25% 2007 61,000 71,522 .35
TCI Communications, Inc. 9.875% 1998 7,100 7,141
TCI Communications, Inc. 8.00% 2005 5,000 5,389
TCI Communications, Inc. 9.80% 2012 12,500 15,567
TCI Communications, Inc. 8.75% 2015 6,500 7,497
TCI Communications, Inc. 8.75% 2023 8,000 8,552 .22
Omnipoint Corp. 11.625% 2006 37,300 40,844
Omnipoint Corp. 11.625% 2006 1,750 1,916 .21
Qwest Communications International Inc. 0%/9.47% 2007 (2)(6) 15,000 10,594
Qwest Communications International Inc. 10.875% 2007 12,000 13,800
Qwest Communications International Inc. 0%/8.29% 2008 (2)(6) 25,500 17,021 .20
Mobile Telecommunication Technologies Corp. 13.50% 2002 19,875 23,105 .11
U S WEST Capital Funding, Inc. 6.95% 2037 12,000 12,488 .06
Allegiance Telecom, Inc. Units, 0%/11.75% 2008 (2)(6) 20,000 11,400 .06
Comtel Brasileira Ltda. 10.75% 2004 (2) 9,200 9,131 .04
Teleport Communications Group Inc. 9.875% 2006 7,500 8,625 .04
CellNet Data Systems, Inc. 0%/14.00% 2007 (2)(6) 15,450 7,570 .04
Teligent, Inc. 11.50% 2007 4,500 4,725 .02
Iridium LLC Units, 13.00% 2005 4,000 4,335 .02
COLT Telecom Group PLC Units, 0%/12.00% 2006 (6) 5,000 4,313 .02
PanAmSat Corp. 6.125% 2005 (2) 4,000 3,963 .02
Conecel Holdings Ltd., Series A, Units 14.00% 2000 (2) 2,950 3,061 .02
Brooks Fiber Properties, Inc. 0%/10.875% 2006 (6) 3,500 2,958 .02
Telecom Argentina STET-France Telecom SA 12.00% 2002 2,500 2,919 .01
United Defense Industries, Inc. 8.75% 2007 (2) 2,000 2,045 .01
-------- -----
385,878 1.89
-------- -----
Wireless Communications - 1.80%
NEXTEL Communications, Inc. 0%/9.75% 2004 (6) 35,500 33,903
NEXTEL Communications, Inc. (formerly CenCall Communications Corp.)
0%/10.125% 2004 (6) 36,000 34,740
NEXTEL Communications, Inc. (formerly Dial Call Communications Inc.)
0%/12.25% 2004 (6) 12,000 11,820
NEXTEL Communications, Inc. 0%/9.75% 2007 (6) 61,500 39,206
NEXTEL Communications, Inc. 0%/10.65% 2007 (6) 4,000 2,630 .60
PriCellular Wireless Corp. 14.00% 2001 12,000 13,230
PriCellular Wireless Corp. 0%/12.25% 2003 (6) 14,550 15,132
PriCellular Wireless Corp. 10.75% 2004 7,500 8,269 .18
Comcast Cellular Corp. 9.50% 2007 32,500 34,247 .17
Centennial Cellular Corp. 8.875% 2001 26,000 26,910
Centennial Cellular Corp. 10.125% 2005 3,000 3,360 .15
McCaw International, Ltd. 0%/13.00% 2007 (6) 42,250 26,829 .13
Comunicacion Celular SA 0%/13.125% 2003 (6) 31,000 23,870 .11
Cellular Communications International, Inc. 0% 2000 25,500 21,074 .10
CoreComm Inc. (formerly Cellular Communications of Puerto Rico, Inc.) 10 14,000 13,650 .07
Cellular, Inc. 0%/11.75% 2003 (6) 13,000 13,293 .06
Powertel, Inc. 0%/12.00% 2006 (6) 6,000 4,560
Powertel, Inc. 11.125% 2007 6,250 6,906 .06
PageMart Wireless, Inc. 0%/11.25% 2008 (6) 15,000 9,038 .04
Sprint Spectrum LP, Sprint Spectrum Finance Corp. 11.00% 2006 6,000 6,885 .03
NEXTLINK Communications, Inc. 9.625% 2007 4,000 4,270 .02
Geotek Communications, Inc., Series B, 0%/15.00% 2005 (6) 8,000 3,760 .02
Esat Telecom Group PLC 0%/12.50% 2007 (6) 5,000 3,712 .02
Commnet Cellular Inc. 11.25% 2005 3,000 3,510 .02
Vanguard Cellular Systems, Inc. 9.375% 2006 3,000 3,180 .02
-------- -----
367,984 1.80
-------- -----
Transportation - 1.34%
USAir, Inc., Series 1993-A1, 8.625% 1998 8,500 8,585
USAir, Inc. 9.625% 2001 19,679 20,540
USAir, Inc. 10.00% 2003 8,250 8,745
USAir, Inc., enhanced equipment notes, Class C, 8.93%
2008 7,602 8,715
USAir, Inc., pass-through trust, Series 1993-A3, 10.375%
2013 (5) 19,495 22,016 .33
Jet Equipment Trust, Series 1994-A, Class B1, 10.91%
2006 (2) 6,535 7,825
Jet Equipment Trust, Series 1995-B, Certificates,
10.91% 2014 (2) 4,750 6,199
Jet Equipment Trust, Series 1995-B, Class A, 7.63%
2015 (2) 13,759 14,998
Jet Equipment Trust, Series 1995-A, Class B, 8.64%
2015 (2) 14,233 16,134
Jet Equipment Trust, Series 1995-B, Class C, 9.71%
2015 (2) 5,500 6,766
Jet Equipment Trust, Series 1995-A, Class C, 10.69%
2015 (2) 5,000 6,641 .29
Atlas Air, Inc., Pass Through Trusts, Series 1998-1,
Class A, 7.38% 2018 (5) 33,400 34,180 .17
Continental Airlines, Inc. 9.50% 2001 4,500 4,849
Continental Airlines, Inc., pass-through certificates,
Series 1996-A, 6.94% 2015 (5) 8,650 8,966
Continental Airlines, Inc., pass-through certificates,
Series 1996-C, 9.50% 2015 (5) 12,494 14,600 .14
Clark Refining & Marketing, Inc. 8.875% 2007 (2) 24,000 24,570 .12
Airplanes Pass Through Trust, pass-through certificates,
Series 1, Class B, 7.08% 2019 (5)(7) 6,785 6,794
Airplanes Pass Through Trust, pass-through certificates,
Series 1, Class C, 8.15% 2019 (5) 15,000 15,788 .11
United Air Lines, Inc. 9.00% 2003 8,000 8,963
United Air Lines, Inc., pass-through certificates,
Series 1996-A2, 7.87% 2019 (5) 5,000 5,281 .07
Teekay Shipping Corp. 8.32% 2008 10,820 11,253 .05
Delta Air Lines, Inc., pass-through certificates,
Series 1992-A2, 9.20% 2014 (5) 5,000 6,013 .03
MC-Cuernavaca Trust 9.25% 2001 (2) 6,081 5,899 .03
-------- -----
274,320 1.34
-------- -----
Business & Public Services - 1.34%
Integrated Health Services, Inc. 10.25% 2006 16,900 18,252
Integrated Health Services, Inc. 9.50% 2007 13,250 14,012
Integrated Health Services, Inc. 9.25% 2008 (2) 33,500 35,175 .33
Paracelsus Healthcare Corp. 10.00% 2006 28,000 28,840 .14
Federal Express Corp., Series B, 10.00% 1998 4,000 4,097
Federal Express Corp. 9.875% 2002 7,000 7,925
Federal Express Corp., pass-through certificates,
Series 1994-A310, Class A1, 7.53% 2006 (5) 10,463 11,004 .11
Columbia/HCA Healthcare Corp. 6.91% 2005 10,750 10,440
Columbia/HCA Healthcare Corp. 8.85% 2007 10,000 10,949 .10
Sun Healthcare Group, Inc. 9.50% 2007 (2) 19,000 19,998 .10
Protection One Alarm Monitoring, Inc.
0%/13.625% 2005 (6) 18,000 19,980 .10
Allied Waste North America, Inc. 10.25% 2006 17,500 19,556 .09
Katz Media Corp., Series B, 10.50% 2007 15,050 16,931 .08
Mariner Health Group, Inc. 9.50% 2006 12,750 13,483 .07
Vencor, Inc. 8.625% 2007 13,000 13,390 .07
Tenet Healthcare Corp. 8.00% 2005 3,000 3,101
Tenet Healthcare Corp. 8.625% 2007 6,250 6,555 .05
Borg-Warner Security Corp. 9.625% 2007 9,000 9,495 .05
Unison HealthCare Corp. 13.00% 1999 (2) 2,000 2,020
Unison HealthCare Corp. 13.00% 2006 (2) 4,000 3,300 .03
Waste Management, Inc. 7.00% 2005 5,000 5,092 .02
-------- -----
273,595 1.34
-------- -----
Energy Sources and Energy Equipment & Services - 1.12%
CalEnergy Co., Inc. (formerly California Energy Co., Inc.) 9.875% 2003 5,000 5,405
CalEnergy Co., Inc. (formerly California Energy Co., Inc.) 10.25% 2004 47,300 50,931 .27
Oryx Energy Co. 9.50% 1999 10,000 10,519
Oryx Energy Co. 8.375% 2004 12,500 13,652
Oryx Energy Co. 8.125% 2005 3,500 3,779 .14
Pioneer Natural Resources Co. 7.20% 2028 26,500 26,209 .13
J. Ray McDermott, SA 9.375% 2006 18,500 19,795 .10
Forcenergy Inc 9.50% 2006 10,000 10,500
Forcenergy Inc 8.50% 2007 3,750 3,778 .07
Falcon Drilling Co., Inc., Series B, 9.75% 2001 6,000 6,270
Falcon Drilling Co., Inc., Series B, 8.875% 2003 7,000 7,385 .06
Petro Stopping Centers, LP 10.50% 2007 11,500 12,305 .06
Benton Oil and Gas Co. 9.375% 2007 (2) 10,000 10,325 .05
OXYMAR 7.50% 2016 (2) 8,000 8,222 .04
Lomak Petroleum, Inc. 8.75% 2007 7,000 7,123 .03
Ocean Energy, Inc. 8.875% 2007 6,500 6,841 .03
Kelley Oil & Gas Corp. 10.375% 2006 6,000 6,240 .03
Newfield Exploration Co., Series B, 7.45% 2007 6,000 6,077 .03
Parker & Parsley Petroleum Co. 8.25% 2007 5,000 5,568 .03
Abraxas Petroleum Corp. 11.50% 2004 3,000 3,225 .02
Petrozuata Finance Inc. 7.63% 2009 (2) 3,000 3,090 .02
Petroleo Brasileiro SA-PETROBRAS 10.525% Eurobonds 1998 (7) 2,500 2,524 .01
-------- -----
229,763 1.12
-------- -----
Finance - 0.97%
Riggs Capital Trust II 8.625% 2026 (2) 1,500 1,613
Riggs Capital Trust II 8.875% 2027 20,000 22,249 .12
Capital One Capital I 7.15% 2006 10,000 10,188
Capital One Capital I 7.30% 2027 (2)(7) 13,500 13,128 .11
First Nationwide Holdings Inc. 10.625% 2003 9,250 10,360
First Nationwide Holdings Inc. 12.50% 2003 9,500 10,759 .10
MBNA Capital B, MBNA Corp., Series B, 6.55% 2027 (7) 20,000 18,274 .09
BNP U.S. Funding LLC, Series A, 7.738% 2049 (2) 15,000 14,961 .07
Chase Capital II Global Floating Rate Capital Securities
6.25% 2027 (7) 15,000 14,300 .07
Advanta Corp., Series D, 6.65% 2000 5,000 4,850
Advanta Corp. 6.60% 2000 4,000 3,875
Advanta National Bank 6.45% 2000 5,000 4,924 .07
Aetna Services, Inc. 6.97% 2036 12,000 12,557 .06
BT Capital Trust I 6.656% 2026 (7) 12,500 12,154 .06
Korea Development Bank 9.60% 2000 1,500 1,438
Korea Development Bank 6.50% 2002 10,970 9,761 .06
Dime Bancorp, Inc. 10.50% 2005 4,000 4,290
Dime Capital Trust I, Dime Bancorp, Inc., Series A, 9.33% 2027 6,000 6,856 .05
Midland American Capital Corp. 12.75% 2003 6,000 6,299 .03
Merita Bank Ltd 7.15% (undated) (7) 6,000 6,170 .03
First Union Corp. 6.82%/7.57% 2026 (6) 5,000 5,313 .03
Chevy Chase Bank (formerly Chevy Chase Savings Bank, FSB) 9.25% 2005 4,000 4,160 .02
Banco General SA 7.70% 2002 (2) 500 478 .00
-------- -----
198,957 .97
-------- -----
Forest Products & Paper - 0.68%
Container Corp. of America, Series B, 10.75% 2002 1,000 1,103
Container Corp. of America 9.75% 2003 44,550 48,225
Container Corp. of America, Series A, 11.25% 2004 19,000 20,758 .34
Pindo Deli Finance Mauritius Ltd. 10.25% 2002 (2) 11,000 8,360
Pindo Deli Finance Mauritius Ltd. 10.75% 2007 (2) 18,525 14,542
Pindo Deli Finance Mauritius Ltd. 10.75% 2007 (2) 1,100 864 .12
Copamex Industrias, SA de CV 11.375% 2004 16,200 17,739 .09
Grupo Industrial Durango, SA de CV 12.00% 2001 6,000 6,555
Grupo Industrial Durango, SA de CV 12.625% 2003 3,500 3,938 .05
Advance Agro PCL 13.00% 2007 (2) 8,000 6,960 .03
U.S. Timberlands Klamath Falls, LLC and U.S. Timberlands
Finance Corp. 9.625% 2007 4,000 4,200 .02
Norampac Inc. 9.50% 2008 (2) 3,250 3,323 .02
Pacific Lumber Co. 10.50% 2003 1,500 1,547 .01
-------- -----
138,114 .68
-------- -----
Leisure & Tourism - 0.59%
Rio Hotel & Casino, Inc. 10.625% 2005 2,000 2,200
Rio Hotel & Casino, Inc. 9.50% 2007 19,750 21,626 .12
HMH Properties, Inc., Series B, 8.875% 2007 19,000 20,188 .10
Boyd Gaming Corp. 9.25% 2003 12,000 12,960
Boyd Gaming Corp. 9.50% 2007 3,000 3,240 .08
Station Casinos, Inc., Series A, 9.625% 2003 3,650 3,810
Station Casinos, Inc., Series B, 9.625% 2003 10,500 10,959 .07
Foodmaker, Inc. 9.25% 1999 3,572 3,635
Foodmaker, Inc. 9.75% 2002 9,300 9,486 .06
KSL Recreation Group, Inc. 10.25% 2007 9,000 9,810 .05
Royal Caribbean Cruises Ltd. 7.00% 2007 7,000 7,186 .03
Aztar Corp. 11.00% 2002 6,000 6,203 .03
Mirage Resorts, Inc. 7.25% 2006 5,000 5,185 .03
Felcor Suites LP 7.375% 2004 (2) 4,750 4,831 .02
-------- -----
121,319 .59
-------- -----
Metals: Steel & Nonferrous - 0.43%
Kaiser Aluminum & Chemical Corp. 9.875% 2002 9,000 9,293
Kaiser Aluminum & Chemical Corp. 12.75% 2003 8,000 8,500
Kaiser Aluminum & Chemical Corp., Series B, 10.875% 2006 22,000 23,870
Kaiser Aluminum & Chemical Corp., Series D, 10.875% 2006 2,500 2,713 .22
Freeport-McMoRan Copper & Gold Inc. 7.50% 2006 12,000 9,655
Freeport-McMoRan Copper & Gold Inc. 7.20% 2026 16,000 13,488 .11
Inco Ltd. 9.875% 2019 6,500 6,956
Inco Ltd. 9.60% 2022 2,625 3,043 .05
Altos Hornos de Mexico, SA de CV 11.375% 2002 3,000 3,090
Altos Hornos de Mexico, SA de CV 11.875% 2004 2,000 2,070 .03
AK Steel Corp. 10.75% 2004 2,750 2,956 .01
UCAR Global Enterprises Inc. 12.00% 2005 2,645 2,943 .01
-------- -----
88,577 .43
-------- -----
Real Estate - 0.36%
B.F. Saul Real Estate Investment Trust 11.625% 2002 23,000 24,437 .12
ERP Operating LP 7.95% 2002 7,500 8,082
ERP Operating LP 7.57% 2026 5,000 5,453 .06
SocGen Real Estate Co. LLC, Series A, 7.64% 2049 (2) 12,500 12,556 .06
Irvine Co. 7.46% 2006 (2)(4) 10,000 10,261 .05
Beverly Finance Corp. 8.36% 2004 (2) 5,000 5,117 .03
Shopping Center Associates 6.75% 2004 (2) 4,000 4,389 .02
Security Capital Industrial Trust 7.95% 2008 3,750 3,976 .02
-------- -----
74,271 .36
-------- -----
Food Retailing, Food Products & Beverages - 0.33%
Stater Bros. Holdings Inc. 11.00% 2001 16,000 17,680 .09
Canandaigua Wine Co., Inc. 8.75% 2003 11,250 11,700
Canandaigua Wine Co., Inc., Series C, 8.75% 2003 2,500 2,584 .07
Gruma, SA de CV 7.625% 2007 (2) 10,750 10,696 .05
Carr-Gottstein Foods Co. 12.00% 2005 5,000 5,575 .03
Friendly Ice Cream Corp. 10.50% 2007 4,000 4,225 .02
Sparkling Spring Water Group Ltd. 11.50% 2007 (2) 4,000 4,220 .02
Bruno's, Inc. 10.50% 2005 11,625 3,139 .02
Quality Food Centers, Inc., Series B, 8.70% 2007 2,000 2,220 .01
Randall's Food Markets, Inc. 9.375% 2007 (2) 2,000 2,080 .01
Star Markets Co., Inc. 13.00% 2004 1,500 1,703 .01
Eagle Family Foods, Inc. 8.75% 2008 (2) 1,000 1,012 .00
-------- -----
66,834 .33
-------- -----
Financial Services - 0.29%
Wilshire Financial Services Group Inc. 13.00% 2004 (2) 10,000 10,500
Wilshire Financial Services Group Inc. 13.00% 2004 8,000 8,400 .09
Capital One Bank 7.25% 2003 10,000 10,198 .05
Netia Holdings BV 0%/11.25% 2007 (2) (6) 1,250 825
Netia Holdings BV 10.25% 2007 (2) 7,750 7,769 .04
Ford Capital BV 10.125% 2000 5,500 6,094 .03
DVI, Inc. 9.875% 2004 5,000 5,075 .03
General Electric Capital Corp. 8.875% 2009 4,000 4,903 .02
General Motors Acceptance Corp. 7.00% 2000 3,000 3,066 .02
Indah Kiat Finance Mauritius Ltd. 11.875% 2002 2,400 1,848
Indah Kiat Finance Mauritius Ltd. 10.00% 2007 500 433 .01
-------- -----
59,111 .29
-------- -----
Utilities: Electric & Gas - 0.24%
Long Island Lighting Co. 7.50% 2007 15,000 15,536
Long Island Lighting Co. 9.00% 2022 9,000 10,159 .12
Tennessee Gas Pipeline Co. 7.625% 2037 17,750 18,939 .09
SFP Pipeline Holdings, Inc. 11.16% 2010 3,000 5,160 .03
-------- -----
49,794 .24
-------- -----
Electronic Components - 0.17%
Hyundai Semiconductor America, Inc. 8.25% 2004 (2) 5,150 4,352
Hyundai Semiconductor America, Inc. 8.625% 2007 (2) 20,700 17,336 .11
Flextronics International Ltd. 8.75% 2007 (2) 13,000 13,162 .06
-------- -----
34,850 .17
-------- -----
General Retailing & Merchandising - 0.16%
Lifestyle Furnishings International Ltd. 10.875% 2006 11,025 12,320 .06
May Department Stores Co. 8.375% 2024 10,000 10,936 .06
Woolworth Corp. 8.50% 2022 4,000 4,575 .02
Loehmann's, Inc. 11.875% 2003 4,250 4,208 .02
-------- -----
32,039 .16
-------- -----
Recreation, Other Consumer Products - 0.13%
AMF Group Inc. 0%/12.25% 2006 (6) 6,842 5,482
AMF Group Inc. 10.875% 2006 12,500 13,906 .09
CLN Holdings Inc. 0% 2001 11,650 7,631 .04
-------- -----
27,019 .13
-------- -----
Data Processing & Reproduction - 0.13%
Digital Equipment Corp. 8.625% 2012 16,000 17,858 .09
Unisys Corp., Series B, 12.00% 2003 5,000 5,700
Unisys Corp. 11.75% 2004 2,000 2,323 .04
-------- -----
25,881 .13
-------- -----
Chemicals - 0.10%
Texas Petrochemicals Corp. 11.125% 2006 13,250 14,509 .07
Huntsman Co. 9.094% 2007 (2) (7) 5,000 5,100 .03
-------- -----
19,609 .10
-------- -----
Other Industries - 0.77%
Hutchison Whampoa Finance Ltd. 6.988% 2037 (2) 21,000 19,389 .09
Anchor Glass Container Corp. 11.25% 2005 (2) 12,750 14,121 .07
Pan Pacific Industrial Investments PLC 0% 2007 (2) 33,500 14,082 .07
Reliance Industries Ltd. 8.25% 2027 (2) 10,000 8,967
Reliance Industries Ltd., Series B, 10.25% 2097 5,000 4,518 .07
Owens-Illinois, Inc. 7.85% 2004 6,000 6,387
Owens-Illinois, Inc. 8.10% 2007 5,750 6,166 .06
Newsquest Capital PLC 11.00% 2006 8,700 9,787
Newsquest Capital PLC, Series B, 11.00% 2006 1,200 1,350 .06
Tultex Corp. 10.625% 2005 2,550 2,671
Tultex Corp. 9.625% 2007 7,000 7,105 .05
Consumers International Inc. 10.25% 2005 (2) 7,000 7,770 .04
Printpack, Inc. 10.625% 2006 7,000 7,490 .04
Philips Electronics NV 7.20% 2026 6,000 6,369 .03
Innova, S de RL 12.875% 2007 5,000 5,350 .03
M.D.C. Holdings, Inc. 8.375% 2008 5,000 5,037 .03
Samsung Electronics Co., Ltd. 7.45% 2002 (2) 5,000 4,413 .02
U.S. Can Corp. 10.125% 2006 4,000 4,240 .02
Allegiance Corp. 7.00% 2026 4,000 4,205 .02
WestPoint Stevens Inc. 8.75% 2001 4,000 4,180 .02
Antenna TV SA 9.00% 2007 3,500 3,561 .02
Graham Packaging 0%/10.75% 2009 (2)(6) 5,000 3,138 .01
Johns Manville International Group, Inc. 10.875% 2004 2,000 2,222 .01
Tenneco Inc. 8.075% 2002 2,000 2,143 .01
DGS International Finance Co. BV 10.00% 2007 (2) 1,250 987 .00
-------- -----
155,648 .77
-------- -----
Collateralized Mortgage/Asset-Backed Obligations (5)
(excluding those issued by federal agencies) - 1.34%
Collateralized Mortgage Obligation Trust, Series 63,
Class Z, 9.00% 2020 56,278 60,903 .30
UCFC Acceptance Corp., home-equity loan pass-through
certificates, Series 1996-D1, Class A-2, 6.381% 2011 25,700 25,726
UCFC Acceptance Corp., home-equity loan pass-through
certificates, Series 1996-D1, Class A-4, 6.776% 2016 4,250 4,303
UCFC Acceptance Corp., home-equity loan pass-through
certificates, Series 1995-B1, Class A-3, 6.75% 2017 10,965 11,081 .20
Green Tree Financial Corp., Net Interest Margin Trust,
Series 1994-A, 6.90% 2004 3,682 3,719
Green Tree Financial Corp., Net Interest Margin Trust,
Series 1995-A, 7.25% 2005 2,349 2,279
Green Tree Financial Corp., Seller and Servicer
Manufactured Housing Contract, Series 1993-2, Class B,
8.00% 2018 14,000 14,070
Green Tree Financial Corp., Seller and Servicer
Manufactured Housing Contract, Series 1995-1, Class A-3,
7.95% 2025 1,337 1,338
Green Tree Financial Corp., Seller and Servicer
Manufactured Housing Contract, Series 1995-9, Class A-5,
6.80% 2027 4,000 4,090
Green Tree Financial Corp., Seller and Servicer
Manufactured Housing Contract, Series 1996-10, Class A-6,
7.30% 2028 3,000 3,096 .14
FIRSTPLUS Home Loan Owner Trust 1996-4, Class A-2, 6.14% 2006 10,240 10,242
FIRSTPLUS Home Loan Owner Trust 1996-4, Class A-3, 6.28% 2009 4,000 4,012
FIRSTPLUS Home Loan Owner Trust 1997-1, Class A-6, 6.95% 2015 10,000 10,209 .12
Resolution Trust Corp., Series 1992-CHF, Class E,
8.25% 2020 10,606 10,633
Resolution Trust Corp., Series 1993-C1, Class D,
9.45% 2024 6,143 6,193
Resolution Trust Corp., Series 1993-C1, Class E,
9.50% 2024 875 880
Resolution Trust Corp., Series 1993-C2, Class C,
8.00% 2025 3,000 3,013
Resolution Trust Corp., Series 1993-C2, Class D,
8.50% 2025 3,199 3,216 .12
California Infrastructure and Economic Development Bank Special
Purpose Trust PG&E-1, Series 1997-1, Class A-6, 6.32% 2005 10,250 10,458
California Infrastructure and Economic Development Bank Special
Purpose Trust SDGE-1, Series 1997-1, Class A-6, 6.31% 2008 12,500 12,720 .11
Merrill Lynch Mortgage Investors, Inc., Seller
Manufactured Housing Contract, Series 1995-C2,
Class A-1, 7.38% 2021 13,130 13,472
Merrill Lynch Mortgage Investors, Inc., mortgage pass-through
certificates, Series 1996-C2, Class A-1, 6.69% 2028 3,068 3,137 .08
Residential Reinsurance Ltd., Class A-2, 11.377% 1998 (2) (7) 13,750 13,995 .07
Chase Manhattan Bank, NA, Series 1993-I, Class 2A5,
7.25% 2024 9,910 10,009 .05
The Money Store Inc., home-equity loan pass-through certificates,
Series 1996-C, Class A-3, 7.07% 2016 8,000 8,085 .04
GE Capital Mortgage Services, Inc., Series 1994-9, Class
A9, 6.50% 2024 6,233 5,791 .03
Standard Credit Card Master Trust I, credit card
participation certificates, Series 1994-2A, 7.25% 2008 5,000 5,353 .03
CSFB Finance Co. Ltd., Series 1995-A, 5.00%/10.00% 2005 (2)(6) 5,000 4,975 .02
Banco Nacional de Mexico, SA 0% 2002 (2) 5,812 4,946 .02
Prudential Home Mortgage Securities Co., Inc.,
Series 1992-37, Class A6, 7.00% 2022 1,319 1,315 .01
-------- -----
273,259 1.34
-------- -----
Federal Agency Obligations: Mortgage Pass-Throughs (5)
- 1.76%
Government National Mortgage Assn. 6.00% 2023 2,812 2,745
Government National Mortgage Assn. 6.50% 2028 15,098 15,037
Government National Mortgage Assn. 7.00% 2008-2027 24,000 24,425
Government National Mortgage Assn. 7.00% 2022-2024 (7) 81,453 83,238
Government National Mortgage Assn. 7.375% 2022-2024 (7) 6,622 6,802
Government National Mortgage Assn. 7.50% 2017-2026 28,888 29,852
Government National Mortgage Assn. 8.00% 2017 5,249 5,515
Government National Mortgage Assn. 8.50% 2017-2026 28,682 30,352
Government National Mortgage Assn. 9.00% 2008-2025 10,331 11,168
Government National Mortgage Assn. 9.50% 2009-2021 14,196 15,461
Government National Mortgage Assn. 10.00% 2016-2019 1,227 1,373
Government National Mortgage Assn. 10.50% 2018-2019 151 171
Government National Mortgage Assn. 11.00% 2015 78 90 1.11
Fannie Mae (formerly Federal National Mortgage Assn.) 6.192% 2028 (7) 10,185 10,249
Fannie Mae 6.50% 2028 3,000 2,986
Fannie Mae 7.00% 2028 3,000 3,042
Fannie Mae 7.50% 2007-2023 19,649 20,278
Fannie Mae 8.00% 2009-2024 9,440 9,861
Fannie Mae 8.50% 2014-2025 12,722 13,287
Fannie Mae 9.00% 2008-2025 8,846 9,450
Fannie Mae 9.50% 2022 8,088 8,718
Fannie Mae 10.00% 2005-2025 23,731 25,954 .51
Freddie Mac (formerly Federal Home Loan Mortgage Corp. 8.50%
2008-2020 17,710 18,507
Freddie Mac 9.00% 2007-2021 9,485 10,052
Freddie Mac 10.00% 2019 122 133
Freddie Mac 11.50% 2000 10 11 .14
-------- -----
358,757 1.76
-------- -----
Federal Agency Obligations: Collateralized Mortgage
Obligations (5) - 0.13%
Fannie Mae, Series 1996-4,
Class ZA, 6.50% 2022 5,998 5,788
Fannie Mae, Series 94-4, Class ZA, 6.50% 2024 5,080 4,817
Fannie Mae, Series 1991-78,
Class PK, 8.50% 2020 7,508 7,773 .09
Freddie Mac, Series 1673, Class SA,
4.851% 2024 (8) 6,000 4,101
Freddie Mac, Series 178, Class Z, 9.25% 2021 3,692 4,005 .04
-------- -----
26,484 .13
-------- -----
Other Federal Agency Obligations - 0.60%
SLM Holding Corp. 0% 1998 (7) 44,000 43,991 .22
Freddie Mac 5.74% 2003 5,000 4,918
Freddie Mac 6.19% 2004 12,750 12,611
Freddie Mac 6.27% 2004 5,635 5,602
Freddie Mac 6.39% 2003 7,750 7,723
Freddie Mac 6.44% 2003 3,000 2,986
Freddie Mac 6.59% 2003 6,000 5,993 .19
Federal Home Loan Banks 6.16% 2004 13,000 12,870
Federal Home Loan Banks 6.27% 2004 6,000 5,964
Federal Home Loan Banks 6.41% 2003 10,000 9,970 .14
FNSM Principal STRIPS 0%/8.62% 2022 (6) 10,000 9,945 .05
-------- -----
122,573 .60
-------- -----
Governments and Governmental Authorities
(excluding U.S. government) - 0.71%
Argentina (Republic of), Series L, 6.688% Eurobonds 2005 (7) 6,994 6,273
Argentina (Republic of) 11.00% 2006 43,250 47,467
Argentina (Republic of) 11.375% 2017 11,750 12,925 .33
Panama (Republic of) Past Due Interest Eurobonds 6.562% 2017 (7) 500 411
Panama (Republic of) Past Due Interest Eurobonds 6.562% 2017 (7) 14 11
Panama (Republic of) 8.875% 2027 17,500 17,150 .09
United Mexican States, Series C, 0% 2003 (4) 11,500 13,605
United Mexican States 11.375% 2016 1,500 1,396
United Mexican States, Series C, 6.82% 2019 (7) 1,000 848
United Mexican States Units, Series A, 6.25% Eurobonds 2019 1,538 0 .08
Mendoza (Province of) 10.00% 2007 (2) 12,250 11,576 .06
Venezuela (Republic of) 6.812% 2007 (7) 10,476 9,076 .04
Brazil (Republic of) Debt Conversion Bonds 6.75% 2012 (7) 5,750 4,281
Brazil (Republic of) Debt Conversion Bonds 8.00% 2014 1,750 1,372
Brazil (Republic of) Debt Conversion Bonds 8.00% 2014 245 192
Brazil (Republic of) 10.125% 2027 1,500 1,414 .03
Thailand (Kingdom of) 7.75% 2007 5,000 4,326 .02
Philippine Front-Loaded Interest Reduction
Bonds, Series B, 5.00% 2008 (7) 5,000 4,244 .02
Poland (Republic of) Past Due Interest Bonds, Bearer 4.00% 2014 (7) 4,750 4,156 .02
Ontario (Province of) 7.75% 2002 2,500 2,684 .01
Ecuador (Republic of) Past Due Interest Bonds 6.688% 2015 (7) 47 29
Ecuador (Republic of) Past Due Interest Bonds 6.688% 2015 (7) 500 306
Ecuador (Republic of) Past Due Interest Bonds 6.438% 2025 (7) 1,500 1,099 .01
Peru (Republic of) Past Due Interest Bonds 3.25% 2017 (7) 250 149 .00
Peru (Republic of) Front-Loaded Interest Reduction Bonds 3.25% 2017 (7) 750 495 .00
-------- -----
145,485 .71
-------- -----
Floating Rate Eurodollar Notes (undated) (7) - 0.15%
Standard Chartered Bank 5.625% 15,000 9,750 .05
Bank of Nova Scotia 6.00% 10,000 8,550 .04
Canadian Imperial Bank of Commerce 5.688% 10,000 8,550 .04
Midland Bank PLC 6.188% 5,000 4,204 .02
-------- -----
31,054 .15
-------- -----
U.S. Treasury Obligations - 4.10%
9.25% August 1998 10,000 10,200 .05
8.875% February 1999 42,000 43,450 .21
9.125% May 1999 10,000 10,458 .05
8.75% August 2000 22,500 24,289 .12
8.50% November 2000 20,000 21,600 .11
7.75% February 2001 68,000 72,484 .35
8.00% May 2001 7,000 7,539 .04
3.625% July 2002 (9) 10,084 10,042 .05
11.625% November 2002 38,000 47,738 .23
10.75% February 2003 19,500 23,976 .12
7.25% May 2004 89,500 97,905 .48
11.625% November 2004 43,500 58,337 .29
6.50% May 2005 30,000 31,748 .16
10.75% August 2005 9,000 11,845 .06
3.375% January 2007 (9) 7,136 6,986 .03
7.50% November 2016 30,000 35,508 .17
8.875% August 2017 127,500 171,548 .84
7.125% February 2023 65,250 75,649 .37
6.50% November 2026 70,000 76,059 .37
-------- -----
837,361 4.10
-------- -----
TOTAL BONDS & NOTES (cost: $4,826,411,000) 5,058,531 24.76
-------- -----
- ---------------------------------- --- --- ---
Principal Market Percent
Short-Term Securities Amount Value of Net
(000) (000) Assets
- ---------------------------------- --- --- ---
Corporate Short-Term Notes - 7.26%
General Electric Capital Corp. 5.45%-5.70% due 2/10-3/19/98 126,100 125,563 .61
E.I. du Pont de Nemours and Co. 5.70%-5.75% due 2/5-2/25/98 (2) 70,600 70,429
E.I. du Pont de Nemours and Co. 5.40%-5.53% due 2/10-3/3/98 30,600 30,536 .49
Ford Motor Credit Co. 5.43%-5.72% due 2/18-4/3/98 100,700 100,006 .49
Ameritech Capital Funding Corp. 5.42%-5.52% due 3/4-3/10/98 60,000 59,682
Ameritech Corp. 5.55%-5.68% due 2/5-3/11/98 38,300 38,142 .48
H.J. Heinz Co. 5.44%-5.80% due 2/3-3/24/98 96,500 96,124 .47
Procter & Gamble Co. 5.53%-5.70% due 2/6-2/27/98 96,000 95,663 .47
Walt Disney Co. 5.45%-5.53% due 2/2-3/23/98 94,200 93,984 .46
IBM Credit Corp. 5.44%-5.71% due 2/2-4/6/98 89,700 89,160 .44
AT&T Corp. 5.39%-5.69% due 2/27-3/30/98 86,900 86,190 .42
Coca-Cola Co. 5.41%-5.69% due 3/5-3/27/98 80,000 79,443 .39
International Lease Finance Corp. 5.37%-5.49% due 3/9-4/20/98 75,000 74,271 .36
Hewlett-Packard Co. 5.41%-5.43% due 2/6-4/13/98 74,600 73,981 .36
National Rural Utilities Cooperative Finance Corp. 5.42%-5.69%
due 2/12-4/21/98 65,000 64,522 .32
BellSouth Telecommunications, Inc. 5.39%-5.72% due 2/4-3/11/98 60,000 59,750 .29
Amoco Co. 5.51%-5.52% due 2/9-2/23/98 55,000 54,865 .27
Beneficial Corp. 5.43%-5.66% due 2/11-3/17/98 45,500 45,342 .22
Southwestern Bell Telephone Co. 5.68% due 2/4-2/5/98 (2) 45,000 44,968 .22
Minnesota Mining and Manufacturing Co. 5.43%-5.65% due 2/19-4/20/98 36,000 35,761 .18
Electronic Data Systems Corp. 5.75% due 2/9/98 (2) 33,000 32,953 .16
Avco Financial Services, Inc. 5.42%-5.55% due 2/26-4/22/98 32,300 32,042 .16
-------- -----
1,483,377 7.26
-------- -----
Federal Agency Short-Term Obligations - 6.85%
Freddie Mac 5.30%-5.66% due 2/12-4/15/98 549,700 546,548 2.67
Fannie Mae 5.37%-5.65% due 2/3-4/29/98 537,352 533,434 2.61
Federal Home Loan Banks 5.34%-5.38% due 2/20-4/29/98 164,957 163,530 .80
International Bank Reconstruction and Development
5.34%-5.38% due 4/8-4/30/98 158,305 156,556 .77
-------- -----
1,400,068 6.85
-------- -----
U. S. Treasury Short-Term Securities - 0.60%
U.S. Treasury Bills 5.12% due 3/5/98 73,000 72,673 .36
U.S. Treasury Bills 5.035% due 5/7/98 50,000 49,340 .24
-------- -----
122,013 .60
-------- -----
TOTAL SHORT-TERM SECURITIES (cost: $3,005,505,000) 3,005,458 14.71
-------- -----
TOTAL INVESTMENT SECURITIES (cost: $16,944,261,000) 20,335,77699.54
Excess of cash and receivables over payables 92,951 .46
-------- -----
NET ASSETS $20,428,72100.00
======== =====
(1) The fund owns 5.65%, 6.73% and 6.48% 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.
(2) Purchased in a private placement transaction; resale to the
public may require registration or sale only to qualified
institutional buyers.
(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
maturity is shorter than the stated maturity.
(6) Step bond; coupon rate will increase at a later date.
(7) Coupon rate changes periodically.
(8) Inverse floater, which is a floating
rate note whose interest rate moves in the opposite
direction of prevailing interest rates.
(9) Index-linked bond 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 (Unaudited)
Financial Statements
- -------------------------------------- --------- ---------
Statement of Assets and Liabilities (dollars in
at January 31, 1998 thousands)
- -------------------------------------- --------- ---------
ASSETS:
Investment securities at market
(cost: $16,944,261) $20,335,776
Cash 22,702
Receivables for-
Sales of investments $ 86,790
Sales of fund's shares 46,081
Dividends and accrued interest 131,359 264,230
--------- ---------
20,622,708
LIABILITIES:
Payables for-
Purchases of investments 169,740
Repurchases of fund's shares 11,992
Management services 4,495
Accrued expenses 7,754 193,981
--------- ---------
NET ASSETS AT JANUARY 31, 1998-
Equivalent to $17.74 per share on
1,151,674,916 shares of $1 par value
capital stock outstanding (authorized
capital stock--1,200,000,000 shares) $20,428,727
============
(Unaudited)
- -------------------------------------- --------- ---------
Statement of Operations (dollars in
for the six months ended January 31, 1998 thousands)
- -------------------------------------- --------- ---------
INVESTMENT INCOME:
Income:
Dividends $ 222,676
Interest 296,419 $ 519,095
---------
Expenses:
Management services fee 27,335
Distribution expenses 23,252
Transfer agent fee 4,106
Reports to shareholders 640
Registration statement and
prospectus 797
Postage, stationery and supplies 709
Directors' fees 79
Auditing and legal fees 58
Custodian fee 491
Taxes other than federal income tax 1
Other expenses 71 57,539
--------- ---------
Net investment income 461,556
---------
REALIZED GAIN AND UNREALIZED
APPRECIATION ON INVESTMENTS:
Net realized gain 491,586
Net increase in unrealized appreciation on
investments
Beginning of period 3,223,926
End of period 3,391,395 167,469
Net realized gain and unrealized --------- ---------
appreciation on investments 659,055
---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $1,120,611
============
- -------------------------------------- --------- ---------
Statement of Changes in Net Assets (dollars in
thousands)
- -------------------------------------- --------- ---------
Six months Year ended
ended January 3 July 31,
1998* 1997
--------- ---------
OPERATIONS:
Net investment income $ 461,556 $ 836,925
Net realized gain on investments 491,586 1,592,597
Net increase in unrealized appreciation
on investments 167,469 1,817,752
--------- ---------
Net increase in net assets
resulting from operations 1,120,611 4,247,274
--------- ---------
DIVIDENDS AND DISTRIBUTIONS
PAID TO SHAREHOLDERS:
Dividends from net investment income (450,525) (857,023)
Distributions from net realized
gain on investments (1,524,938) (748,006)
--------- ---------
Total dividends and distributions (1,975,463) (1,605,029)
--------- ---------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
95,078,141 and 131,090,765
shares, respectively 1,725,207 2,235,951
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions of
net realized gain on investments:
101,462,933 and 83,876,277
shares, respectively 1,785,806 1,403,146
Cost of shares repurchased:
56,978,388 and 112,767,826
shares, respectively (1,041,647) (1,926,293)
--------- ---------
Net increase in net assets
resulting from capital share
transactions 2,469,366 1,712,804
--------- ---------
TOTAL INCREASE IN NET ASSETS 1,614,514 4,355,049
NET ASSETS:
Beginning of period 18,814,213 14,459,164
--------- ---------
End of period (including undistributed
net investment income: $150,044
and $139,013, respectively) $20,428,727 $18,814,213
=========== ===========
* Unaudited
See Notes to Financial Statements
</TABLE>
Notes to Financial Statements
(unaudited)
1. The Income Fund of America, Inc.(the "fund") is registered under the
Investment Company Act of 1940 as an open-end, diversified management
investment company. The following paragraphs summarize the significant
accounting policies consistently followed by the fund in the preparation of its
financial statements:
Equity 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 foreign
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 foreign 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 January 31, 1998, net unrealized appreciation on investments for
federal income tax purposes aggregated $3,391,558,000, of which $3,566,399,000
related to appreciated securities and $174,841,000 related to depreciated
securities. During the six months ended January 31, 1998, the fund realized, on
a tax basis, a net capital gain of $491,531,000 on securities transactions. Net
gains related to non-U.S. currency and other transactions of $337,000 were
treated as ordinary income for federal income tax purposes. The cost of
portfolio securities for federal income tax purposes was $16,944,218,000 at
January 31, 1998.
3. The fee of $27,335,000 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, in effect through October 31, 1997, provided
for monthly fees, accrued daily, based on an annual rate of 0.24% of the first
$1 billion of average net assets; 0.20% of such assets in excess of $1 billion
but not exceeding $2 billion; 0.18% of such assets in excess of $2 billion but
not exceeding $3 billion; 0.165% of such assets in excess of $3 billion but not
exceeding $5 billion; 0.155% of such assets in excess of $5 billion but not
exceeding $8 billion; 0.15% of such assets in excess of $8 billion but not
exceeding $13 billion; 0.147% of such assets in excess of $13 billion but not
exceeding $21 billion; and 0.145% of such assets in excess of $21 billion; plus
2.25% of monthly gross investment income. The Board of Directors approved an
amended agreement effective November 1, 1997 reducing the fee to 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.
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 six months ended January 31,
1998, distribution expenses under the Plan were $23,252,000. As of January 31,
1998, accrued and unpaid distribution expenses were $7,168,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $4,106,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $7,750,000 (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 January 31,
1998, aggregate amounts deferred and earnings thereon were $427,000.
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 January 31, 1998, accumulated undistributed net realized gain on
investments was $337,069,000 and additional paid-in capital was
$15,398,638,000. The fund reclassified $31,000 to undistributed net realized
gains from additional paid-in capital for the period ended January 31, 1998.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $2,702,927,000 and $2,753,210,000, respectively,
during the six months ended January 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 $491,000 includes $167,000 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
$231,000 for the six months ended January 31, 1998.
<TABLE>
Per-Share Data and Ratios
<S> <C> <C> <C> <C> <C> <C>
Year ended July 31
Six months
ended ------- -------------------------
January 31, 1997 1996 1995 1994 1993
1998 (1)
------- ------- -------------------------
Net Asset Value, Beginning of Period $18.59 $15.89 $14.92$13.59$14.47$13.94
------- ------- -------------------------
Income from Investment
Operations:
Net investment income .41 .86 .87 .85 .83 .85
Net realized gain and change in
unrealized appreciation on investme .64 3.55 1.11 1.29 (.53) .74
------- ------- -------------------------
Total income from
investment operations 1.05 4.41 1.98 2.14 .30 1.59
------- ------- -------------------------
Less Distributions:
Dividends from net investment
income (.42) (.90) (.83) (.75) (.83) (.84)
Distributions from net
realized gains (1.48) (.81) (.18) (.06) (.35) (.22)
------- ------- -------------------------
Total distributions (1.90) (1.71)(1.01) (.81)(1.18)(1.06)
------- ------- -------------------------
Net Asset Value, End of Period $17.74 $18.59 $15.89$14.92$13.59$14.47
======= ======= =========================
Total Return (2) 5.92%(3) 29.28% 13.46% 16.42 % 1.98 %11.88%
Ratios/Supplemental Data:
Net assets, end of period (in
millions) $20,429 $18,814$14,45$12,29$10,53$9,045
Ratio of expenses to average
net assets .30% (3) .61% .62% .65% .63% .62%
Ratio of net income to average
net assets 2.37% (3) 5.09% 5.56% 6.12% 5.92% 6.05%
Average commissions paid per share ( 2.17c 3.21c 4.63c 6.20c 6.40c 7.14c
Portfolio turnover rate 16.04%(3) 40.92%37.77%26.26%26.42%29.18%
(1) Unaudited
(2) Excludes maximum sales charge of 5.75%.
(3) Based on operations for the period
shown and, accordingly, not representative
of a full year's operations.
(4) Brokerage commissions paid on
portfolio transactions increase the cost
of securities purchased or reduce the
proceeds of securities sold and are not
separately reflected in the fund's
statement of operations. Shares traded on
a principal basis (without commissions),
such as most over-the-counter and fixed-
income transactions, are excluded.
Generally, non-U.S. commissions are lower
than U.S. commissions when expressed as
cents per share but higher when expressed
as a percentage of transactions because
of the lower per-share prices of many
non-U.S. securities.
</TABLE>
[THE AMERICAN FUNDS GROUP(R)]
THE INCOME FUND OF AMERICA(R) IS ONE OF THE 28 MUTUAL FUNDS IN THE AMERICAN
FUNDS GROUP,(R) MANAGED BY CAPITAL RESEARCH AND MANAGEMENT COMPANY. SINCE 1931,
CAPITAL HAS INVESTED WITH A LONG-TERM FOCUS BASED ON THOROUGH RESEARCH AND
ATTENTION TO RISK.
OFFICE OF THE FUND
One Market
Steuart Tower, Suite 1800
Mailing Address: P.O. Box 7650
San Francisco, California 94120-7650
INVESTMENT ADVISER
Capital Research and Management Company
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5804
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071-2371
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180 OR VISIT WWW.AMERICANFUNDS.COM ON THE WORLD
WIDE WEB.
This report is for the information of shareholders of The Income Fund of
America, but it may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details about charges,
expenses, investment objectives and operating policies of the fund. If used as
sales material after March 31, 1998, this report must be accompanied by an
American Funds Group Statistical Update for the most recently completed
calendar quarter.
Printed on recycled paper
Litho in USA BDA/AL/3717
Lit. No. IFA-013-0398
