INCOME FUND OF AMERICA INC
497, 1998-05-27
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<PAGE>
 
 
                     [LOGO OF THE AMERICAN FUNDS GROUP(R)]
 
- --------------------------------------------------------------------------------
 
 
                                The Income Fund
                                 of America(R)
 
                                   Prospectus
 
    
                                OCTOBER 1, 1997
                             (AMENDED JUNE 1, 1998)
    
<PAGE>
 
THE INCOME FUND OF AMERICA
One Market
Steuart Tower, Suite 1800
San Francisco, CA 94105
<TABLE>
<CAPTION>  
- ---------------------------------------------------------------------------------------------
TABLE OF CONTENTS
<S>                                             <C>
Expenses                                    3  Investment Results                          12
 .............................................  ..............................................
Financial Highlights                        4  Dividends, Distributions and Taxes          14
 .............................................  ..............................................
Investment Policies and Risks               5  Fund Organization and Management            14
 .............................................  ..............................................
Securities and Investment Techniques        5  Shareholder Services                        17
 .............................................  
Multiple Portfolio Counselor System        10
- ---------------------------------------------------------------------------------------------
</TABLE>
 
The fund's investment objective is to emphasize current income while
secondarily striving to attain capital growth. The fund strives to accomplish
this objective by investing in a broadly diversified portfolio of securities
including stocks and bonds.
 
This prospectus presents information you should know before investing in the
fund. You should keep it on file for future reference.
 
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU INVEST FOR A SHORTER PERIOD OF TIME. YOUR INVESTMENT IN THE FUND IS NOT
A DEPOSIT OR OBLIGATION OF, OR INSURED OR GUARANTEED BY, ANY ENTITY OR PERSON
INCLUDING THE U.S. GOVERNMENT AND THE FEDERAL DEPOSIT INSURANCE CORPORATION.
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
 
06-010-1097 
 
<PAGE>
 
- --------------------------------------------------------------------------------
EXPENSES
The effect of the expenses described below is reflected in the fund's share
price and return.
   
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Operating expenses are paid by the fund.    
 
SHAREHOLDER TRANSACTION EXPENSES
 
Maximum sales charge on purchases
(as a percentage of offering price)                                5.75%
 ................................................................................
 
SALES CHARGES ARE REDUCED OR ELIMINATED FOR LARGER PURCHASES. There is no sales
charge on reinvested dividends, and no deferred sales charge or redemption or
exchange fees. A contingent deferred sales charge of 1% applies on certain
redemptions made within 12 months following purchases without a sales charge.
 
FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
- --------------------------------------------------------------------------------
<S>                                                                 <C>
Management fees                                                     .29%
 ................................................................................
12b-1 expenses                                                      .24%*
 ................................................................................
Other expenses                                                      .08%
 ................................................................................
Total fund operating expenses                                       .61%
</TABLE>
 
* 12b-1 expenses may not exceed 0.25% of the fund's average net assets
  annually.
 
EXAMPLES
 
Assuming a hypothetical annual return of 5% and shareholder transaction and
operating expenses as described above, for every $1,000 you invested, you would
pay the following total expenses over the following periods:
- --------------------------------------------------------------------------------
<TABLE>
<S>                                                              <C>
One year                                                           $ 63
 ................................................................................
Three years                                                        $ 76
 ................................................................................
Five years                                                         $ 90
 ................................................................................
Ten years                                                          $129
</TABLE>
 
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY. YOUR EXPENSES WILL BE LESS IF YOU QUALIFY TO PURCHASE
SHARES AT A REDUCED OR NO SALES CHARGE.
 
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997               3
 
<PAGE>
 
 
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
 
The following information has been audited by Deloitte and Touche llp,
independent auditors. This table should be read together with the financial
statements which are included in the statement of additional information and
annual report.
 
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
                                                    YEARS ENDED JULY 31
                                                     ..................
                          1997     1996     1995     1994     1993    1992    1991    1990    1989    1988
             -----------------------------------------------------------------------------------------------
<S>                      <C>      <C>      <C>      <C>      <C>     <C>     <C>     <C>     <C>     <C>
Net asset value,
beginning of year         $15.89   $14.92   $13.59   $14.47  $13.94  $12.54  $12.11  $13.20  $11.50  $12.54
- ------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income        .86      .87      .85      .83     .85     .85     .86     .82     .90     .82
 ............................................................................................................
Net realized gain and
change in unrealized
appreciation on
investments                 3.55     1.11     1.29     (.53)    .74    1.48     .53    (.67)   1.68    (.68)
 ............................................................................................................
Total income
from  investment
operations                  4.41     1.98     2.14      .30    1.59    2.33    1.39     .15    2.58     .14
- ------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net
investment income           (.90)    (.83)    (.75)    (.83)   (.84)   (.85)   (.89)   (.87)   (.88)   (.80)
 ............................................................................................................
Distributions from net
realized gains              (.81)    (.18)    (.06)    (.35)   (.22)   (.08)   (.07)   (.37)    (--)   (.38)
 ............................................................................................................
Total distributions        (1.71)   (1.01)    (.81)   (1.18)  (1.06)   (.93)   (.96)  (1.24)   (.88)  (1.18)
 ............................................................................................................
Net asset value,
end of year               $18.59   $15.89   $14.92   $13.59  $14.47  $13.94  $12.54  $12.11  $13.20  $11.50
- ------------------------------------------------------------------------------------------------------------
Total return/1/           29.28%   13.46%   16.42%    1.98%  11.88%  19.16%  12.24%   1.12%  23.43%   1.71%
- ------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in millions)            $18,814  $14,459  $12,290  $10,537  $9,045  $5,121  $2,771  $2,110  $1,271  $  925
 ............................................................................................................
Ratio of expenses to
average net assets          .61%     .62%     .65%     .63%    .62%    .66%    .73%    .67%    .69%    .55%
 ............................................................................................................
Ratio of net income to
average net assets         5.09%    5.56%    6.12%    5.92%   6.05%   6.40%   7.23%   7.36%   7.45%   7.14%
 ............................................................................................................
Average commission
paid/2/                    3.21c    4.63c    6.20c    6.40c   7.14c   7.05c   7.40c   7.37c   7.46c   7.03c
 ............................................................................................................
Portfolio turnover rate   40.92%   37.77%   26.26%   26.42%  29.18%  22.71%  23.35%  18.90%  34.38%  42.83%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Excludes maximum sales charge of 5.75%.
/2/ 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.
 
- --------------------------------------------------------------------------------
4                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997
 
<PAGE>
 
 
- --------------------------------------------------------------------------------
INVESTMENT POLICIES AND RISKS
The investment objective of the fund is to emphasize current income while
secondarily striving to attain capital growth.
   
The portfolio of the fund is managed to earn current income on, and to
anticipate long-term capital growth of, the portfolio as a whole rather than
any individual security in it. Generally, substantially all of the fund's
portfolio will be invested in income-producing securities; however, the fund
under normal market conditions will maintain at least 65% of the value of its
assets in income-producing securities. The relative percentages of each type of
security in the portfolio may be expected to fluctuate. Normally, at least 60%
of the fund will be invested in equity-type securities; however, at times the
fund may be invested solely in debt securities or solely in equity-type
securities including securities convertible into common stock. Assets may also
be held in cash or cash equivalents (such as certain short-term securities,
including commercial paper). In addition, the fund may invest in reinsurance
related notes and bonds and notes and bonds issued by governments, their
agencies or instrumentalities or corporations in which the principal value
and/or interest payments vary with the rate of inflation. The fund may also
invest to a limited extent (no more than 1 1/2% of its assets), in inverse
floating rate notes. Limits on the fund's investment policies are determined at
the time of purchase and are based on the fund's net assets, unless otherwise
stated. MORE INFORMATION ON THE FUND'S INVESTMENT POLICIES IS CONTAINED IN ITS
STATEMENT OF ADDITIONAL INFORMATION.    
 
The fund's fundamental investment restrictions (described in the statement of
additional information) and objective may not be changed without shareholder
approval.
 
THE FUND MAY NOT ACHIEVE ITS INVESTMENT OBJECTIVE DUE TO MARKET CONDITIONS AND
OTHER FACTORS.
- --------------------------------------------------------------------------------
SECURITIES AND INVESTMENT TECHNIQUES
 
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.
 
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
 
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997             5
 
interest, but are purchased at a discount from their face values. The prices of
 
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997             5
 
<PAGE>
 
 
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. These
securities are commonly known as "high-yield, high-risk" or "junk" bonds. High-
yield, high-risk bonds are described by the rating agencies as speculative and
involve greater risk of default or price changes due to changes in the issuer's
creditworthiness than higher rated bonds, or they may already be in default.
The market prices of these securities may fluctuate more than higher quality
securities and may decline significantly. It may be more difficult to dispose
of, or to determine the value of, high-yield, high-risk bonds. 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 the statement of
additional information for a complete description of the bond ratings. The 20%
limit shall not apply to debt securities that have equity conversion or
purchase rights.
 
Capital Research and Management Company attempts to reduce the risks described
above through diversification of the portfolio and by credit analysis of each
issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
 
During the fiscal year ended July 31, 1997, the monthly average percentage of
the fund's net assets in debt investments was 30%. The average monthly
composition of the fund's portfolio based on the higher of Moody's or S&P
ratings for the fiscal year was as follows:
<TABLE>
- --------------------------------------------------------------------------------
<S>                                                                   <C>
Aaa/AAA                                                                 9.15%
 ................................................................................
Aa/AA                                                                   0.28%
 ................................................................................
A/A                                                                     1.54%
 ................................................................................
Baa/BBB                                                                 4.13%
 ................................................................................
Ba/BB                                                                   5.63%
 ................................................................................
B/B                                                                     8.44%
 ................................................................................
Caa/CCC                                                                 0.20%
 ................................................................................
Non-rated                                                               0.66%
</TABLE>
 
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   6             THE INCOME FUND OF AMERICA / PROSPECTUS 1997 
 
 
<PAGE>
 
 
Some or all of these non-rated securities were determined to be equivalent to
securities rated by Moody's or S&P as follows:
<TABLE>
- --------------------------------------------------------------------------------
<S>                                                                 <C>
A/A                                                                  0.09%
 ................................................................................
Baa/BBB                                                              0.13%
 ................................................................................
Ba/BB                                                                0.13%
 ................................................................................
B/B                                                                  0.24%
 ................................................................................
Caa/CCC                                                              0.07%
 ................................................................................
</TABLE>
 
Money market instruments and cash made up an average of 10.14% of the fund's
portfolio.
 
OTHER SECURITIES
 
The fund may also 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 akin to 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.
   
RESTRICTED SECURITIES AND LIQUIDITY
 
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.    
 
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997            7
 
<PAGE>
 
 
 
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 generally
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
 
 
- --------------------------------------------------------------------------------
   8             THE INCOME FUND OF AMERICA / PROSPECTUS 1997 
 
<PAGE>
 
 
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.
 
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.    
 
FORWARD COMMITMENTS
   
The fund may enter into commitments to purchase or sell securities at a future
date. When the fund agrees to purchase such securities it assumes the risk of
any decline in value of the securities 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.    
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997           9
 
<PAGE>
 
   
The fund also may enter into "roll" transactions which are the sale of
mortgage-backed securities or other securities together with a commitment to
purchase similar, but not identical, securities at a later 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.    
 
INVESTING IN VARIOUS COUNTRIES
   
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: fluctuating
currency values; differing accounting, auditing and financial reporting
regulations and practices in some countries; changing local and regional
economic, political, and social conditions; expropriation and confiscatory
taxation; 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.    
 
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.
- --------------------------------------------------------------------------------
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
   
The basic investment philosophy of Capital Research and Management Company is
to seek fundamental values at reasonable prices. Capital Research and
Management Company utilizes a system of multiple portfolio counselors in
managing mutual fund assets. Under this system the portfolio of the fund is
divided into segments which are managed by individual counselors. Counselors
decide how their respective segments will be invested (within the limits
provided by the fund's objective and policies and by Capital Research and
Management Company's investment committee). In addition, Capital Research and
Management Company's research professionals may make investment decisions with
respect to a portion of a fund's portfolio. The primary individual portfolio
counselors for the fund are listed on the following page.    
 
- --------------------------------------------------------------------------------
   10            THE INCOME FUND OF AMERICA / PROSPECTUS 1997
 
<PAGE>
 
 
   
<TABLE>
<CAPTION>
                                                                      YEARS OF EXPERIENCE AS
                                                                     INVESTMENT PROFESSIONAL
                                                                          (APPROXIMATE)
                                                                    ..........................
                                            YEARS OF EXPERIENCE
                                          AS PORTFOLIO COUNSELOR     WITH CAPITAL
                                        (AND RESEARCH PROFESSIONAL,  RESEARCH AND
PORTFOLIO COUNSELORS                      IF APPLICABLE) FOR THE      MANAGEMENT
FOR THE INCOME FUND                       INCOME FUND OF AMERICA      COMPANY OR
     OF AMERICA       PRIMARY TITLE(S)         (APPROXIMATE)        ITS AFFILIATES TOTAL YEARS
- ----------------------------------------------------------------------------------------------
<S>                   <C>               <C>                         <C>            <C>
DAVID C.              Vice President,   2 years                     10 years       17 years
BARCLAY               Capital
                      Research and
                      Management
                      Company
- ----------------------------------------------------------------------------------------------
STEPHEN E.            Senior Vice       13 years (in                25 years       31 years
BEPLER                President         addition to 11
                      of the fund.      years as a
                      Senior Vice       research
                      President,        professional
                      Capital           prior to
                      Research          becoming a
                      Company*          portfolio
                                        counselor for
                                        the fund)
- ----------------------------------------------------------------------------------------------
ABNER D.              Senior Vice       24 years                    30 years       45 years
GOLDSTINE             President
                      of the fund.
                      Senior Vice
                      President and
                      Director,
                      Capital
                      Research and
                      Management
                      Company
- ----------------------------------------------------------------------------------------------
GREGG E.              Vice President,   8 years (in                 24 years       24 years
IRELAND               Capital           addition to
                      Research and      5 years as a
                      Management        research
                      Company           professional
                                        prior to
                                        becoming a
                                        portfolio
                                        counselor for
                                        the fund)
- ----------------------------------------------------------------------------------------------
JANET A.              President and     4 years (in                 15 years       21 years
MCKINLEY              Director of the   addition to
                      fund. Director,   8 years as a
                      Capital           research
                      Research and      professional
                      Management        prior to
                      Company; Senior   becoming a
                      Vice President,   portfolio
                      Capital           counselor for
                      Research          the fund)
                      Company*
- ----------------------------------------------------------------------------------------------
DINA N.               Vice President    5 years                     6 years        31 years
PERRY                 of the fund.
                      Vice President,
                      Capital
                      Research and
                      Management
                      Company
- ----------------------------------------------------------------------------------------------
JOHN H.               Vice President    5 years                     14 years       15 years
SMET                  of the fund.
                      Vice President,
                      Capital
                      Research and
                      Management
                      Company
- ----------------------------------------------------------------------------------------------
</TABLE>
 *Company affiliated with Capital Research and Management Company.
    
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997        11
 
<PAGE>
 
 
- --------------------------------------------------------------------------------
INVESTMENT RESULTS
The fund may from time to time compare investment results to various indices or
other mutual funds. Fund results may be calculated on a total return, yield,
and/or distribution rate basis. Results calculated without a sales charge will
be higher.
 
[X] TOTAL RETURN is the change in value of an investment in the fund over a
    given period, assuming reinvestment of any dividends and capital gain
    distributions.
 
[X] YIELD is computed by dividing the net investment income per share earned by
    the fund over a given period of time by the maximum offering price per share
    on the last day of the period, according to a formula mandated by the
    Securities and Exchange Commission. A yield calculated using this formula
    may be different than the income actually paid to shareholders.
 
[X] DISTRIBUTION RATE reflects dividends that were paid by the fund. The
    distribution rate is calculated by dividing the dividends paid by the fund's
    price for the 12 month period.
 
                               INVESTMENT RESULTS
                       (FOR PERIODS ENDED JUNE 30, 1997)
 
<TABLE>
<CAPTION>
                   THE FUND
AVERAGE ANNUAL      AT NET     THE FUND AT MAXIMUM
TOTAL RETURN    ASSET VALUE/1/ SALES CHARGE/1/,/2/ BOND INDEX/3/ S&P 500/4/
- --------------------------------------------------------------------------------
<S>             <C>            <C>                 <C>           <C>
One year            21.07%           14.10%            8.15%       34.63%
 ................................................................................
Five years          13.93%           12.59%            7.12%       19.74%
 ................................................................................
Ten years           12.28%           11.62%            8.82%       14.62%
 ................................................................................
Lifetime/5/         14.09%           13.80%            9.29%/6/    14.29%
- --------------------------------------------------------------------------------
</TABLE>
   
Yield/1/,/2/: 4.46%
Distribution Rate/2/: 5.02%    
   
/1/ These fund results were calculated according to a standard formula that is
    required for all stock and bond funds.    
/2/ The maximum sales charge has been deducted.
/3/ Lehman Brothers Aggregate Bond Index represents investment grade debt. This
    index is unmanaged and does not reflect sales charges, commissions or
    expenses.
/4/ The Standard & Poor's 500 Index represents stocks. This index is unmanaged
    and does not reflect sales charges, commissions or expenses.
/5/ For the period beginning December 1, 1973 (when Capital Research and
    Management Company became the fund's investment adviser).
/6/ From December 1, 1973 through December 31, 1975, the Lehman Brothers
    Government/Corporate Bond Index was used because the Lehman Brothers
    Aggregate Bond Index did not yet exist.
 
- --------------------------------------------------------------------------------
   12            THE INCOME FUND OF AMERICA / PROSPECTUS 1997
 
<PAGE>
 
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997
- --------------------------------------------------------------------------------
 
                       [PERFORMANCE GRAPH APPEARS HERE]
 
                           The Fund's Dividend Rates
             as compared with the Dividend Rates of the S&P 500/1/
 
 
<TABLE> 
<CAPTION> 
                          Dividend Rate          Percent
Period                    IFA                    S&P 500
- ------                    -------------          -------
<S>                          <C>                 <C> 
FYE  7/31/87                  6.70                 2.67
FYE  7/31/88                  6.94                 3.27
FYE  7/31/89                  6.67                 3.04
FYE  7/31/90                  7.07                 3.31
FYE  7/31/91                  7.09                 3.11
FYE  7/31/92                  6.06                 2.89
FYE  7/31/93                  6.19                 2.79
FYE  7/31/94                  6.06                 2.80
FYE  7/31/95                  5.55                 2.41
FYE  7/31/96                  5.19                 2.28
FYE  7/31/97                  4.74                 1.61
</TABLE> 
 
/1/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. All numbers are calculated by Lipper Analytical Services.
 
Here are the fund's annual total returns calculated without a sales charge. This
information is being supplied on a calendar year basis for comparative purposes.
The fund recorded positive returns in each of the last ten fiscal years (which
end in July).
 
                             [GRAPH APPEARS HERE]
<TABLE>
<S>     <C> 
1987  -   0.72
1988  -  14.79
1989  -  22.99 
1990  -  (3.03)
1991  -  23.78
1992  -  12.03
1993  -  14.01 
1994  -  (2.50)
1995  -  29.08
1996  -  15.23
</TABLE>
 
 
Past results are not an indication of future results.
 
                                                                              13
 
<PAGE>
 
 
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
 
DIVIDENDS AND DISTRIBUTIONS
 
The fund pays dividends, which may fluctuate, four times each year usually in
March, June, September and December. Capital gains, if any, are usually
distributed in December. When a dividend or capital gain is distributed, the
net asset value per share is reduced by the amount of the payment.
   
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.    
 
FEDERAL TAXES
 
In any fiscal year in which the fund qualifies as a regulated investment
company and distributes to shareholders all of its net investment income and
net capital gains, the fund itself is relieved of federal income tax.
 
Generally, all dividends and capital gains are taxable whether they are
reinvested or received in cash -- unless you are exempt from taxation or
entitled to tax deferral. Early each year, you will be notified as to the
amount and federal tax status of all income distributions paid during the prior
year. Such distributions may also be subject to state or local taxes. The tax
treatment of redemptions from a retirement plan account may differ from
redemptions from an ordinary shareholder account.
 
YOU MUST PROVIDE THE FUND WITH A CERTIFIED CORRECT TAXPAYER IDENTIFICATION
NUMBER (GENERALLY YOUR SOCIAL SECURITY NUMBER) AND CERTIFY THAT YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING. IF YOU FAIL TO DO SO THE IRS CAN REQUIRE THE
FUND TO WITHHOLD 31% OF YOUR TAXABLE DISTRIBUTIONS AND REDEMPTIONS. Federal law
also requires the fund to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
 
This is a brief summary of some of the tax laws that affect your investment in
the fund. Please see the statement of additional information and your tax
adviser for further information.
- --------------------------------------------------------------------------------
FUND ORGANIZATION AND MANAGEMENT
 
FUND ORGANIZATION AND VOTING RIGHTS
 
The fund, an open-end, diversified management investment company, was organized
as a Delaware corporation in 1969 and reorganized as a Maryland corporation in
1983. All fund operations are supervised by the fund's board of directors who
meet periodically and perform duties required by applicable state
 
- --------------------------------------------------------------------------------
   14            THE INCOME FUND OF AMERICA / PROSPECTUS 1997 
 
<PAGE>
 
 
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 the statement of additional information.
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.
 
THE INVESTMENT ADVISER
 
Capital Research and Management Company, a large and experienced investment
management organization founded in 1931, is the investment adviser to the fund
and other funds, including those in The American Funds Group. Capital Research
and Management Company, a wholly owned subsidiary of The Capital Group
Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA
90071. Capital Research and Management Company manages the investment portfolio
and business affairs of the fund. The management fee paid by the fund to
Capital Research and Management Company is composed of a basic management fee
which may not exceed 0.24% of the fund's average net assets annually and
declines at certain asset levels and 2.25% of the fund's gross investment
income for the preceding month. The total management fee paid by the fund, as a
percentage of average net assets, for the previous fiscal year is discussed
earlier under "Expenses."
 
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has also been
incorporated into the fund's code of ethics.
 
PLAN OF DISTRIBUTION
   
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the board. The 12b-1 fee paid by the fund,
as a percentage of average net assets, for the previous fiscal year is
discussed earlier under "Expenses." Since these fees are paid out of the fund's
assets on an ongoing basis, over time they will increase the cost of an
investment and may cost you more than paying higher sales loads in lieu of
these fees.    
 
PORTFOLIO TRANSACTIONS
 
Orders for the fund's portfolio securities transactions are placed by Capital
Research and Management Company, which strives to obtain the best available
prices, taking into account the costs and quality of executions. Fixed-income
securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price
of the
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997      15
 
<PAGE>
 
 
security usually includes a profit to the dealer. In underwritten offerings,
securities are usually purchased at a fixed price which includes an amount of
compensation to the dealer, generally referred to as a concession or discount.
On occasion, securities may be purchased directly from an issuer, in which case
no commissions or discounts are paid. In the over-the-counter market, purchases
and sales are transacted directly with principal market-makers except in those
circumstances where it appears better prices and executions are available
elsewhere.
 
Subject to the above policy, when two or more brokers (either directly or
through their correspondent clearing agents) are in a position to offer
comparable prices and executions, preference may be given to brokers who have
sold shares of the fund or have provided investment research, statistical, and
other related services for the benefit of the fund and/or other funds served by
Capital Research and Management Company.
 
PRINCIPAL UNDERWRITER AND TRANSFER AGENT
 
American Funds Distributors, Inc. and American Funds Service Company serve as
the principal underwriter and transfer agent for the fund, respectively. They
are headquartered at 333 South Hope Street, Los Angeles, CA 90071 and 135 South
State College Boulevard, Brea, CA 92821, respectively.
 
                  AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
 
                    CALL TOLL-FREE FROM ANYWHERE IN THE U.S.
                             (8 A.M. TO 8 P.M. ET):
                                  800/421-0180
 
                     [MAP OF THE UNITED STATES APPEARS HERE] 
 
<TABLE>
    <S>                    <C>                    <C>                      <C>
    WESTERN SERVICE        WESTERN CENTRAL        EASTERN CENTRAL          EASTERN SERVICE
      CENTER               SERVICE CENTER         SERVICE CENTER           CENTER
    American Funds         American Funds         American Funds           American Funds
    Service Company        Service Company        Service Company          Service Company
    P.O. Box 2205          P.O. Box 659522        P.O. Box 6007            P.O. Box 2280
    Brea, California       San Antonio, Texas     Indianapolis, Indiana    Norfolk, Virginia
    92822-2205             78265-9522             46206-6007               23501-2280
    Fax: 714/671-7080      Fax: 210/530-4050      Fax: 317/735-6620        Fax: 757/670-4773
</TABLE>
 
 
- --------------------------------------------------------------------------------
   16            THE INCOME FUND OF AMERICA / PROSPECTUS 1997
 
<PAGE>
 
 
SHAREHOLDER SERVICES
 
The fund offers you a valuable array of services you can use to alter your
investment program as your needs and circumstances change. These services,
which are summarized below, are available only in states where they may be
legally offered and may be terminated or modified at any time upon 60 days'
written notice. A COMPLETE DESCRIPTION OF SHAREHOLDER SERVICES AND ACCOUNT
POLICIES IS CONTAINED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION. In
addition, an easy-to-read guide to owning a fund in The American Funds Group
titled "Welcome to the Family" is sent to new shareholders and is available by
writing or calling American Funds Service Company.
 
THE SERVICES DESCRIBED MAY NOT BE AVAILABLE THROUGH SOME RETIREMENT PLANS OR
ACCOUNTS HELD BY INVESTMENT DEALERS. IF YOU ARE INVESTING IN SUCH A MANNER, YOU
SHOULD CONTACT YOUR PLAN ADMINISTRATOR/TRUSTEE OR DEALER ABOUT WHAT SERVICES
ARE AVAILABLE AND WITH QUESTIONS ABOUT YOUR ACCOUNT.
- --------------------------------------------------------------------------------
PURCHASING SHARES
 
HOW TO PURCHASE SHARES
 
Generally, you may open an account by contacting any investment dealer
authorized to sell the fund's shares. You may add to your account through your
dealer or directly through American Funds Service Company by mail, computer,
wire, or bank debit. You may also establish or add to your account by
exchanging shares from any of your other accounts in The American Funds Group.
The fund and American Funds Distributors reserve the right to reject any
purchase order for any reason. This includes exchange purchase orders that may
place an unfair burden on other shareholders due to their frequency.
 
Various purchase options are available as described below subject to certain
investment minimums and limitations described in the statement of additional
information and "Welcome to the Family."
 
[X] Automatic Investment Plan
 
    You may invest monthly or quarterly through automatic withdrawals from your
    bank account.
 
[X] Automatic Reinvestment
 
    You may reinvest your dividends and capital gain distributions into the fund
    (with no sales charge). This will be done automatically unless you elect to
    have the dividends and/or capital gain distributions paid to you in cash.
 
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997       17
 
<PAGE>
 
 
[X] Cross-Reinvestment
 
    You may invest your dividends and capital gain distributions into any other
    fund in The American Funds Group.
 
[X] Exchange Privilege
   
    You may exchange your shares into other funds in The American Funds Group
    generally with no sales charge. Exchanges of shares from the money market
    funds that were initially purchased with no sales charge will generally be
    subject to the appropriate sales charge. You may also elect to automatically
    exchange shares among any of the funds in The American Funds Group. Exchange
    requests may be made in writing, by telephone including American
    FundsLine(R), by computer using American FundsLine OnLine(SM) (see below) or
    by fax. EXCHANGES HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND
    PURCHASES.    
 
[X] Retirement Plans
 
    You may invest in the fund through various retirement plans. For further
    information contact your investment dealer or American Funds Distributors.
 
SHARE PRICE
   
The fund's share price, also called net asset value, is determined as of 4:00
p.m. New York time which is the normal close of trading on the New York Stock
Exchange, every day the Exchange is open. The fund calculates its net asset
value per share, generally using market prices, by dividing the total value of
its assets after subtracting liabilities by the number of its shares
outstanding. Shares are purchased at the offering price next determined after
your investment is received and accepted by American Funds Service Company. The
offering price is the net asset value plus a sales charge, if applicable.    
 
SHARE CERTIFICATES
 
Shares are credited to your account and certificates are not issued unless you
request them by writing to American Funds Service Company.
 
INVESTMENT MINIMUMS
<TABLE>
- ----------------------------------------------------------------
<S>                                                       <C>
To establish an account                                   $1,000
 For a retirement plan account                            $  250
 For a retirement plan account through payroll deduction  $   25
To add to an account                                      $   50
 For a retirement plan account through payroll deduction  $   25
</TABLE>
 
- --------------------------------------------------------------------------------
   18            THE INCOME FUND OF AMERICA / PROSPECTUS 1997
 
<PAGE>
 
 
SALES CHARGES
 
A sales charge may apply, as described below, when purchasing shares. Sales
charges may be reduced for larger purchases as indicated below.
<TABLE>
<CAPTION>
                                     SALES CHARGE AS A
                                       PERCENTAGE OF
                                     ..................
                                                           DEALER
                                                  NET    CONCESSION AS
                                      OFFERING  AMOUNT  % OF OFFERING
INVESTMENT                             PRICE   INVESTED     PRICE
- --------------------------------------------------------------------------------
<S>                                    <C>       <C>      <C>    
Less than $50,000                      5.75%     6.10%     5.00%
 ................................................................................
$50,000 but less than $100,000         4.50%     4.71%     3.75%
 ................................................................................
$100,000 but less than $250,000        3.50%     3.63%     2.75%
 ................................................................................
$250,000 but less than $500,000        2.50%     2.56%     2.00%
 ................................................................................
$500,000 but less than $1 million      2.00%     2.04%     1.60%
 ................................................................................
$1 million or more and certain
other investments described below  see below see below 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 1% 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. A dealer concession of up to 1% may be
paid by the fund under its Plan of Distribution and/or by American Funds
Distributors on investments made with no initial sales charge. Investments by
certain individuals and entities including employees and other associated
persons of dealers authorized to sell shares of the fund and Capital Research
and Management Company and its affiliated companies are not subject to a sales
charge.    
 
ADDITIONAL DEALER COMPENSATION
   
In addition to the concessions listed, up to 0.25% of average net assets is
paid annually to qualified dealers for providing certain services pursuant to
the fund's Plan of Distribution. American Funds Distributors currently provides
additional compensation to the top 100 dealers who have sold shares of funds in
The American Funds Group based on the pro rata share of a qualifying dealer's
sales.    
 
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997     19
 
<PAGE>
 
 
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.
 
[X] Aggregation
 
    Investments that may be aggregated include those made by you, your spouse
    and your children under the age of 21, if all parties are purchasing shares
    for their own account(s), including any business account solely "controlled
    by," as well as any retirement plan or trust account solely for the benefit
    of, these individuals. Investments made for multiple employee benefit plans
    of a single employer or "affiliated" employers may be aggregated provided
    they are not also aggregated with individual accounts. Finally, investments
    made by a common trust fund or other diversified pooled account not
    specifically formed for the purpose of accumulating fund shares may be
    aggregated.
 
    Purchases made for nominee or street name accounts will generally not be
    aggregated with those made for other accounts unless qualified as described
    above.
 
[X] Concurrent Purchases
 
    You may combine concurrent purchases of two or more funds in The American
    Funds Group, except direct purchases of the money market funds. Shares of
    the money market funds purchased through an exchange, reinvestment or cross-
    reinvestment from a fund having a sales charge do qualify.
 
[X] 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 and Bond
    Portfolio for 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.    
 
[X] Statement of Intention
   
    You may enter into a non-binding commitment to invest a certain amount
    (which, at your request, may include purchases made during the previous 90
    days) in non-money market fund shares over a 13-month period (excludes
    appreciation and reinvested distributions). A portion of your account may be
    held in escrow to cover additional sales charges which may be due if your
    total investments over the statement period are insufficient to qualify for
    the applicable sales charge reduction.    
 
- --------------------------------------------------------------------------------
    20           THE INCOME FUND OF AMERICA / PROSPECTUS 1997
 
<PAGE>
 
 
- --------------------------------------------------------------------------------
SELLING SHARES
 
HOW TO SELL SHARES
 
You may sell (redeem) shares in your account by contacting your investment
dealer or American Funds Service Company. You may also use American
FundsLine(R) or American FundsLine OnLine(SM) (see below). In addition, you may
sell shares in amounts of $50 or more automatically. If you sell shares through
your investment dealer you may be charged for this service. Shares held for you
in your dealer's street name must be sold through the dealer.
   
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. Sale requests may be
made in writing, by telephone (including American FundsLine(R)) by computer
using American FundsLine OnLine(SM), or by fax. Sales by telephone, computer or
fax are limited to $50,000 in accounts registered to individual(s) (including
non-retirement trust accounts). In addition, checks must be made payable to the
registered shareholder(s) and mailed to an address of record that has been used
with the account for at least 10 days.    
 
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.
   
Generally, written requests to sell shares must be signed by you and must
include any shares you wish to sell that are in certificate form. Your
signature must be guaranteed by a member firm of a domestic stock exchange or
the National Association of Securities Dealers, Inc., bank, savings association
or credit union that is an eligible guarantor institution. A signature
guarantee is not currently required for any sale of $50,000 or less provided
the check is made payable to the registered shareholder(s) and is mailed to the
address of record on the account, and provided the address has been used with
the account for at least 10 days. Additional documentation may be required for
sales of shares held in corporate, partnership or fiduciary accounts.    
 
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997        21
 
<PAGE>
 
 
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. Reinvestment will be at the next calculated net asset value after
receipt and acceptance by American Funds Service Company.
- --------------------------------------------------------------------------------
OTHER IMPORTANT THINGS TO REMEMBER
 
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINE(SM)
 
You may check your share balance, the price of your shares, or your most recent
account transactions, sell 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 these services, call 800/325-3590 from a
TouchTone(TM) telephone or access The American Funds Web site on the Internet
at www.americanfunds.com.
 
TELEPHONE AND COMPUTER PURCHASES, SALES AND EXCHANGES
 
Unless you opt out of the telephone or computer (including American
FundsLine(R) or American FundsLine OnLine(SM)) or fax purchase, sale and/or
exchange options (see below), you agree to hold the fund, American Funds
Service Company, any of its affiliates or mutual funds managed by such
affiliates, and each of their respective directors, trustees, officers,
employees and agents harmless from any losses, expenses, costs or liabilities
(including attorney fees) which may be incurred in connection with the exercise
of these privileges provided American Funds Service Company employs reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine. If reasonable procedures are not
employed, the fund may be liable for losses due to unauthorized or fraudulent
instructions.
 
Generally, all shareholders are automatically eligible to use these options.
However, you may elect to opt out of these options by writing American Funds
Service Company. (You may also reinstate them at any time by writing to
American Funds Service Company.)
- --------------------------------------------------------------------------------
   22            THE INCOME FUND OF AMERICA / PROSPECTUS 1997 
 
<PAGE>
 
ACCOUNT STATEMENTS
   
You will receive regular confirmation statements reflecting transactions in
your account. Dividend and capital gain reinvestments and purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.    
 
YEAR 2000
 
The date-related computer issue known as the "Year 2000 problem" could have an
adverse impact on the quality of services provided to the fund and its
shareholders. However, the fund understands that its key service providers --
including the investment adviser and its affiliates -- are taking steps to
address the issue. In addition, the Year 2000 problem may adversely affect the
companies in which the fund invests. For example, companies may incur
substantial costs to address the problem. They may also suffer losses caused by
corporate and governmental data processing errors. The fund and its investment
adviser will continue to monitor developments relating to this issue.
   
EURO INTRODUCTION
 
On January 1, 1999, the European Union will introduce a single European
currency, the Euro. The first group of countries that will begin to convert
their currencies to the Euro include Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain. The
expected introduction of the Euro presents unique uncertainties, including:
whether the payment and operational systems of banks and other financial
institutions will be ready by the scheduled launch date; the legal treatment of
certain outstanding financial contracts after January 1, 1999 that refer to
existing currencies rather than the Euro; and the creation of suitable clearing
and settlement payment systems for the new currency. These or other factors,
including political and economic risks, could cause market disruptions before
or after the introduction of the Euro. The fund understands that the investment
adviser and other key service providers are taking steps to address Euro-
related issues.    
 
- --------------------------------------------------------------------------------
                            THE INCOME FUND OF AMERICA / PROSPECTUS 1997      23
 
 
<PAGE>
 
 
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
  FOR SHAREHOLDER            FOR RETIREMENT PLAN               FOR DEALER
  SERVICES                   SERVICES                          SERVICES
  <S>                        <C>                               <C>
  American Funds             Call your employer or             American Funds
  Service Company            plan administrator                Distributors
  800/421-0180 ext. 1                                          800/421-9900 ext. 11
                            FOR 24-HOUR INFORMATION
 
       American                                   American Funds
       FundsLine(R)                               Internet Web site
       800/325-3590                               http://www.americanfunds.com
 
</TABLE> 
 Telephone conversations may be recorded or monitored for
 verification, recordkeeping and quality assurance purposes.
- --------------------------------------------------------------------------------
 MULTIPLE TRANSLATIONS
 
 This prospectus may be translated into other languages. In
 the event of any inconsistency or ambiguity as to the
 meaning of any word or phrase in a translation, the English
 text will prevail.
- --------------------------------------------------------------------------------
 OTHER FUND INFORMATION
 
 ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
 
 Includes financial statements, detailed performance
 information, portfolio holdings, a statement from portfolio
 management and the independent accountants' report (in the
 annual report).
 
 STATEMENT OF ADDITIONAL INFORMATION (SAI)
 
 Contains more detailed information on all aspects of the
 fund, including the fund's financial statements.
 
 A current SAI has been filed with the Securities and
 Exchange Commission ("SEC"). It is incorporated by
 reference into this prospectus and is available along with
 other related materials on the SEC's Internet Web site at
 http://www.sec.gov.
 
 CODE OF ETHICS
 
 Includes a description of the fund's personal investing
 policy.
 
 To request a free copy of any of the documents above:
 
 Call American Funds   or        Write to the Secretary
 Service Company                 of the fund
 800/421-0180 ext. 1             P.O. Box 7650
                                 San Francisco, CA 94120
- --------------------------------------------------------------------------------
 
This prospectus has been printed on recycled paper.
                                                    [LOGO OF RECYCLED PAPER]
- --------------------------------------------------------------------------------
    24           THE INCOME FUND OF AMERICA / PROSPECTUS 1997
 
 
THE FUND PROVIDES SPANISH TRANSLATIONS IN CONNECTION WITH THE PUBLIC OFFERING
AND SALE OF ITS SHARES.  THE FOLLOWING IS A FAIR AND ACCURATE ENGLISH
TRANSLATION OF A SPANISH LANGUAGE PROSPECTUS FOR THE FUND.
 
/s/ Patrick F. Quan    
Patrick F. Quan
Secretary
 
 
<PAGE>
                        THE INCOME FUND OF AMERICA, INC.
 
<PAGE>
 
 
                     [LOGO OF THE AMERICAN FUNDS GROUP(R)]
 
- --------------------------------------------------------------------------------
 
 
                                The Income Fund
                                 of America(R)
 
                                   Prospectus
 
    
                                OCTOBER 1, 1997
                             (AMENDED JUNE 1, 1998)
    
<PAGE>
 
THE INCOME FUND OF AMERICA
One Market
Steuart Tower, Suite 1800
San Francisco, CA 94105
<TABLE>
<CAPTION>  
- ---------------------------------------------------------------------------------------------
TABLE OF CONTENTS
<S>                                             <C>
Expenses                                    3  Investment Results                          12
 .............................................  ..............................................
Financial Highlights                        4  Dividends, Distributions and Taxes          14
 .............................................  ..............................................
Investment Policies and Risks               5  Fund Organization and Management            14
 .............................................  ..............................................
Securities and Investment Techniques        5  Shareholder Services                        17
 .............................................  
Multiple Portfolio Counselor System        10
- ---------------------------------------------------------------------------------------------
</TABLE>
 
The fund's investment objective is to emphasize current income while
secondarily striving to attain capital growth. The fund strives to accomplish
this objective by investing in a broadly diversified portfolio of securities
including stocks and bonds.
 
This prospectus presents information you should know before investing in the
fund. You should keep it on file for future reference.
 
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU INVEST FOR A SHORTER PERIOD OF TIME. YOUR INVESTMENT IN THE FUND IS NOT
A DEPOSIT OR OBLIGATION OF, OR INSURED OR GUARANTEED BY, ANY ENTITY OR PERSON
INCLUDING THE U.S. GOVERNMENT AND THE FEDERAL DEPOSIT INSURANCE CORPORATION.
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
 
06-010-1097 
 
<PAGE>
 
- --------------------------------------------------------------------------------
EXPENSES
The effect of the expenses described below is reflected in the fund's share
price and return.
   
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Operating expenses are paid by the fund.    
 
SHAREHOLDER TRANSACTION EXPENSES
 
Maximum sales charge on purchases
(as a percentage of offering price)                                5.75%
 ................................................................................
 
SALES CHARGES ARE REDUCED OR ELIMINATED FOR LARGER PURCHASES. There is no sales
charge on reinvested dividends, and no deferred sales charge or redemption or
exchange fees. A contingent deferred sales charge of 1% applies on certain
redemptions made within 12 months following purchases without a sales charge.
 
FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
- --------------------------------------------------------------------------------
<S>                                                                 <C>
Management fees                                                     .29%
 ................................................................................
12b-1 expenses                                                      .24%*
 ................................................................................
Other expenses                                                      .08%
 ................................................................................
Total fund operating expenses                                       .61%
</TABLE>
 
* 12b-1 expenses may not exceed 0.25% of the fund's average net assets
  annually.
 
EXAMPLES
 
Assuming a hypothetical annual return of 5% and shareholder transaction and
operating expenses as described above, for every $1,000 you invested, you would
pay the following total expenses over the following periods:
- --------------------------------------------------------------------------------
<TABLE>
<S>                                                              <C>
One year                                                           $ 63
 ................................................................................
Three years                                                        $ 76
 ................................................................................
Five years                                                         $ 90
 ................................................................................
Ten years                                                          $129
</TABLE>
 
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY. YOUR EXPENSES WILL BE LESS IF YOU QUALIFY TO PURCHASE
SHARES AT A REDUCED OR NO SALES CHARGE.
 
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997               3
 
<PAGE>
 
 
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
 
The following information has been audited by Deloitte and Touche llp,
independent auditors. This table should be read together with the financial
statements which are included in the statement of additional information and
annual report.
 
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
                                                    YEARS ENDED JULY 31
                                                     ..................
                          1997     1996     1995     1994     1993    1992    1991    1990    1989    1988
             -----------------------------------------------------------------------------------------------
<S>                      <C>      <C>      <C>      <C>      <C>     <C>     <C>     <C>     <C>     <C>
Net asset value,
beginning of year         $15.89   $14.92   $13.59   $14.47  $13.94  $12.54  $12.11  $13.20  $11.50  $12.54
- ------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income        .86      .87      .85      .83     .85     .85     .86     .82     .90     .82
 ............................................................................................................
Net realized gain and
change in unrealized
appreciation on
investments                 3.55     1.11     1.29     (.53)    .74    1.48     .53    (.67)   1.68    (.68)
 ............................................................................................................
Total income
from  investment
operations                  4.41     1.98     2.14      .30    1.59    2.33    1.39     .15    2.58     .14
- ------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net
investment income           (.90)    (.83)    (.75)    (.83)   (.84)   (.85)   (.89)   (.87)   (.88)   (.80)
 ............................................................................................................
Distributions from net
realized gains              (.81)    (.18)    (.06)    (.35)   (.22)   (.08)   (.07)   (.37)    (--)   (.38)
 ............................................................................................................
Total distributions        (1.71)   (1.01)    (.81)   (1.18)  (1.06)   (.93)   (.96)  (1.24)   (.88)  (1.18)
 ............................................................................................................
Net asset value,
end of year               $18.59   $15.89   $14.92   $13.59  $14.47  $13.94  $12.54  $12.11  $13.20  $11.50
- ------------------------------------------------------------------------------------------------------------
Total return/1/           29.28%   13.46%   16.42%    1.98%  11.88%  19.16%  12.24%   1.12%  23.43%   1.71%
- ------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in millions)            $18,814  $14,459  $12,290  $10,537  $9,045  $5,121  $2,771  $2,110  $1,271  $  925
 ............................................................................................................
Ratio of expenses to
average net assets          .61%     .62%     .65%     .63%    .62%    .66%    .73%    .67%    .69%    .55%
 ............................................................................................................
Ratio of net income to
average net assets         5.09%    5.56%    6.12%    5.92%   6.05%   6.40%   7.23%   7.36%   7.45%   7.14%
 ............................................................................................................
Average commission
paid/2/                    3.21c    4.63c    6.20c    6.40c   7.14c   7.05c   7.40c   7.37c   7.46c   7.03c
 ............................................................................................................
Portfolio turnover rate   40.92%   37.77%   26.26%   26.42%  29.18%  22.71%  23.35%  18.90%  34.38%  42.83%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Excludes maximum sales charge of 5.75%.
/2/ 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.
 
- --------------------------------------------------------------------------------
4                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997
 
<PAGE>
 
 
- --------------------------------------------------------------------------------
INVESTMENT POLICIES AND RISKS
The investment objective of the fund is to emphasize current income while
secondarily striving to attain capital growth.
   
The portfolio of the fund is managed to earn current income on, and to
anticipate long-term capital growth of, the portfolio as a whole rather than
any individual security in it. Generally, substantially all of the fund's
portfolio will be invested in income-producing securities; however, the fund
under normal market conditions will maintain at least 65% of the value of its
assets in income-producing securities. The relative percentages of each type of
security in the portfolio may be expected to fluctuate. Normally, at least 60%
of the fund will be invested in equity-type securities; however, at times the
fund may be invested solely in debt securities or solely in equity-type
securities including securities convertible into common stock. Assets may also
be held in cash or cash equivalents (such as certain short-term securities,
including commercial paper). In addition, the fund may invest in reinsurance
related notes and bonds and notes and bonds issued by governments, their
agencies or instrumentalities or corporations in which the principal value
and/or interest payments vary with the rate of inflation. The fund may also
invest to a limited extent (no more than 1 1/2% of its assets), in inverse
floating rate notes. Limits on the fund's investment policies are determined at
the time of purchase and are based on the fund's net assets, unless otherwise
stated. MORE INFORMATION ON THE FUND'S INVESTMENT POLICIES IS CONTAINED IN ITS
STATEMENT OF ADDITIONAL INFORMATION.    
 
The fund's fundamental investment restrictions (described in the statement of
additional information) and objective may not be changed without shareholder
approval.
 
THE FUND MAY NOT ACHIEVE ITS INVESTMENT OBJECTIVE DUE TO MARKET CONDITIONS AND
OTHER FACTORS.
- --------------------------------------------------------------------------------
SECURITIES AND INVESTMENT TECHNIQUES
 
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.
 
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
 
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997             5
 
interest, but are purchased at a discount from their face values. The prices of
 
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997             5
 
<PAGE>
 
 
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. These
securities are commonly known as "high-yield, high-risk" or "junk" bonds. High-
yield, high-risk bonds are described by the rating agencies as speculative and
involve greater risk of default or price changes due to changes in the issuer's
creditworthiness than higher rated bonds, or they may already be in default.
The market prices of these securities may fluctuate more than higher quality
securities and may decline significantly. It may be more difficult to dispose
of, or to determine the value of, high-yield, high-risk bonds. 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 the statement of
additional information for a complete description of the bond ratings. The 20%
limit shall not apply to debt securities that have equity conversion or
purchase rights.
 
Capital Research and Management Company attempts to reduce the risks described
above through diversification of the portfolio and by credit analysis of each
issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
 
During the fiscal year ended July 31, 1997, the monthly average percentage of
the fund's net assets in debt investments was 30%. The average monthly
composition of the fund's portfolio based on the higher of Moody's or S&P
ratings for the fiscal year was as follows:
<TABLE>
- --------------------------------------------------------------------------------
<S>                                                                   <C>
Aaa/AAA                                                                 9.15%
 ................................................................................
Aa/AA                                                                   0.28%
 ................................................................................
A/A                                                                     1.54%
 ................................................................................
Baa/BBB                                                                 4.13%
 ................................................................................
Ba/BB                                                                   5.63%
 ................................................................................
B/B                                                                     8.44%
 ................................................................................
Caa/CCC                                                                 0.20%
 ................................................................................
Non-rated                                                               0.66%
</TABLE>
 
- --------------------------------------------------------------------------------
   6             THE INCOME FUND OF AMERICA / PROSPECTUS 1997 
 
 
<PAGE>
 
 
Some or all of these non-rated securities were determined to be equivalent to
securities rated by Moody's or S&P as follows:
<TABLE>
- --------------------------------------------------------------------------------
<S>                                                                 <C>
A/A                                                                  0.09%
 ................................................................................
Baa/BBB                                                              0.13%
 ................................................................................
Ba/BB                                                                0.13%
 ................................................................................
B/B                                                                  0.24%
 ................................................................................
Caa/CCC                                                              0.07%
 ................................................................................
</TABLE>
 
Money market instruments and cash made up an average of 10.14% of the fund's
portfolio.
 
OTHER SECURITIES
 
The fund may also 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 akin to 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.
   
RESTRICTED SECURITIES AND LIQUIDITY
 
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.    
 
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997            7
 
<PAGE>
 
 
 
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 generally
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
 
 
- --------------------------------------------------------------------------------
   8             THE INCOME FUND OF AMERICA / PROSPECTUS 1997 
 
<PAGE>
 
 
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.
 
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.    
 
FORWARD COMMITMENTS
   
The fund may enter into commitments to purchase or sell securities at a future
date. When the fund agrees to purchase such securities it assumes the risk of
any decline in value of the securities 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.    
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997           9
 
<PAGE>
 
   
The fund also may enter into "roll" transactions which are the sale of
mortgage-backed securities or other securities together with a commitment to
purchase similar, but not identical, securities at a later 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.    
 
INVESTING IN VARIOUS COUNTRIES
   
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: fluctuating
currency values; differing accounting, auditing and financial reporting
regulations and practices in some countries; changing local and regional
economic, political, and social conditions; expropriation and confiscatory
taxation; 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.    
 
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.
- --------------------------------------------------------------------------------
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
   
The basic investment philosophy of Capital Research and Management Company is
to seek fundamental values at reasonable prices. Capital Research and
Management Company utilizes a system of multiple portfolio counselors in
managing mutual fund assets. Under this system the portfolio of the fund is
divided into segments which are managed by individual counselors. Counselors
decide how their respective segments will be invested (within the limits
provided by the fund's objective and policies and by Capital Research and
Management Company's investment committee). In addition, Capital Research and
Management Company's research professionals may make investment decisions with
respect to a portion of a fund's portfolio. The primary individual portfolio
counselors for the fund are listed on the following page.    
 
- --------------------------------------------------------------------------------
   10            THE INCOME FUND OF AMERICA / PROSPECTUS 1997
 
<PAGE>
 
 
   
<TABLE>
<CAPTION>
                                                                      YEARS OF EXPERIENCE AS
                                                                     INVESTMENT PROFESSIONAL
                                                                          (APPROXIMATE)
                                                                    ..........................
                                            YEARS OF EXPERIENCE
                                          AS PORTFOLIO COUNSELOR     WITH CAPITAL
                                        (AND RESEARCH PROFESSIONAL,  RESEARCH AND
PORTFOLIO COUNSELORS                      IF APPLICABLE) FOR THE      MANAGEMENT
FOR THE INCOME FUND                       INCOME FUND OF AMERICA      COMPANY OR
     OF AMERICA       PRIMARY TITLE(S)         (APPROXIMATE)        ITS AFFILIATES TOTAL YEARS
- ----------------------------------------------------------------------------------------------
<S>                   <C>               <C>                         <C>            <C>
DAVID C.              Vice President,   2 years                     10 years       17 years
BARCLAY               Capital
                      Research and
                      Management
                      Company
- ----------------------------------------------------------------------------------------------
STEPHEN E.            Senior Vice       13 years (in                25 years       31 years
BEPLER                President         addition to 11
                      of the fund.      years as a
                      Senior Vice       research
                      President,        professional
                      Capital           prior to
                      Research          becoming a
                      Company*          portfolio
                                        counselor for
                                        the fund)
- ----------------------------------------------------------------------------------------------
ABNER D.              Senior Vice       24 years                    30 years       45 years
GOLDSTINE             President
                      of the fund.
                      Senior Vice
                      President and
                      Director,
                      Capital
                      Research and
                      Management
                      Company
- ----------------------------------------------------------------------------------------------
GREGG E.              Vice President,   8 years (in                 24 years       24 years
IRELAND               Capital           addition to
                      Research and      5 years as a
                      Management        research
                      Company           professional
                                        prior to
                                        becoming a
                                        portfolio
                                        counselor for
                                        the fund)
- ----------------------------------------------------------------------------------------------
JANET A.              President and     4 years (in                 15 years       21 years
MCKINLEY              Director of the   addition to
                      fund. Director,   8 years as a
                      Capital           research
                      Research and      professional
                      Management        prior to
                      Company; Senior   becoming a
                      Vice President,   portfolio
                      Capital           counselor for
                      Research          the fund)
                      Company*
- ----------------------------------------------------------------------------------------------
DINA N.               Vice President    5 years                     6 years        31 years
PERRY                 of the fund.
                      Vice President,
                      Capital
                      Research and
                      Management
                      Company
- ----------------------------------------------------------------------------------------------
JOHN H.               Vice President    5 years                     14 years       15 years
SMET                  of the fund.
                      Vice President,
                      Capital
                      Research and
                      Management
                      Company
- ----------------------------------------------------------------------------------------------
</TABLE>
 *Company affiliated with Capital Research and Management Company.
    
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997        11
 
<PAGE>
 
 
- --------------------------------------------------------------------------------
INVESTMENT RESULTS
The fund may from time to time compare investment results to various indices or
other mutual funds. Fund results may be calculated on a total return, yield,
and/or distribution rate basis. Results calculated without a sales charge will
be higher.
 
[X] TOTAL RETURN is the change in value of an investment in the fund over a
    given period, assuming reinvestment of any dividends and capital gain
    distributions.
 
[X] YIELD is computed by dividing the net investment income per share earned by
    the fund over a given period of time by the maximum offering price per share
    on the last day of the period, according to a formula mandated by the
    Securities and Exchange Commission. A yield calculated using this formula
    may be different than the income actually paid to shareholders.
 
[X] DISTRIBUTION RATE reflects dividends that were paid by the fund. The
    distribution rate is calculated by dividing the dividends paid by the fund's
    price for the 12 month period.
 
                               INVESTMENT RESULTS
                       (FOR PERIODS ENDED JUNE 30, 1997)
 
<TABLE>
<CAPTION>
                   THE FUND
AVERAGE ANNUAL      AT NET     THE FUND AT MAXIMUM
TOTAL RETURN    ASSET VALUE/1/ SALES CHARGE/1/,/2/ BOND INDEX/3/ S&P 500/4/
- --------------------------------------------------------------------------------
<S>             <C>            <C>                 <C>           <C>
One year            21.07%           14.10%            8.15%       34.63%
 ................................................................................
Five years          13.93%           12.59%            7.12%       19.74%
 ................................................................................
Ten years           12.28%           11.62%            8.82%       14.62%
 ................................................................................
Lifetime/5/         14.09%           13.80%            9.29%/6/    14.29%
- --------------------------------------------------------------------------------
</TABLE>
   
Yield/1/,/2/: 4.46%
Distribution Rate/2/: 5.02%    
   
/1/ These fund results were calculated according to a standard formula that is
    required for all stock and bond funds.    
/2/ The maximum sales charge has been deducted.
/3/ Lehman Brothers Aggregate Bond Index represents investment grade debt. This
    index is unmanaged and does not reflect sales charges, commissions or
    expenses.
/4/ The Standard & Poor's 500 Index represents stocks. This index is unmanaged
    and does not reflect sales charges, commissions or expenses.
/5/ For the period beginning December 1, 1973 (when Capital Research and
    Management Company became the fund's investment adviser).
/6/ From December 1, 1973 through December 31, 1975, the Lehman Brothers
    Government/Corporate Bond Index was used because the Lehman Brothers
    Aggregate Bond Index did not yet exist.
 
- --------------------------------------------------------------------------------
   12            THE INCOME FUND OF AMERICA / PROSPECTUS 1997
 
<PAGE>
 
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997
- --------------------------------------------------------------------------------
 
                       [PERFORMANCE GRAPH APPEARS HERE]
 
                           The Fund's Dividend Rates
             as compared with the Dividend Rates of the S&P 500/1/
 
 
<TABLE> 
<CAPTION> 
                          Dividend Rate          Percent
Period                    IFA                    S&P 500
- ------                    -------------          -------
<S>                          <C>                 <C> 
FYE  7/31/87                  6.70                 2.67
FYE  7/31/88                  6.94                 3.27
FYE  7/31/89                  6.67                 3.04
FYE  7/31/90                  7.07                 3.31
FYE  7/31/91                  7.09                 3.11
FYE  7/31/92                  6.06                 2.89
FYE  7/31/93                  6.19                 2.79
FYE  7/31/94                  6.06                 2.80
FYE  7/31/95                  5.55                 2.41
FYE  7/31/96                  5.19                 2.28
FYE  7/31/97                  4.74                 1.61
</TABLE> 
 
/1/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. All numbers are calculated by Lipper Analytical Services.
 
Here are the fund's annual total returns calculated without a sales charge. This
information is being supplied on a calendar year basis for comparative purposes.
The fund recorded positive returns in each of the last ten fiscal years (which
end in July).
 
                             [GRAPH APPEARS HERE]
<TABLE>
<S>     <C> 
1987  -   0.72
1988  -  14.79
1989  -  22.99 
1990  -  (3.03)
1991  -  23.78
1992  -  12.03
1993  -  14.01 
1994  -  (2.50)
1995  -  29.08
1996  -  15.23
</TABLE>
 
 
Past results are not an indication of future results.
 
                                                                              13
 
<PAGE>
 
 
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
 
DIVIDENDS AND DISTRIBUTIONS
 
The fund pays dividends, which may fluctuate, four times each year usually in
March, June, September and December. Capital gains, if any, are usually
distributed in December. When a dividend or capital gain is distributed, the
net asset value per share is reduced by the amount of the payment.
   
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.    
 
FEDERAL TAXES
 
In any fiscal year in which the fund qualifies as a regulated investment
company and distributes to shareholders all of its net investment income and
net capital gains, the fund itself is relieved of federal income tax.
 
Generally, all dividends and capital gains are taxable whether they are
reinvested or received in cash -- unless you are exempt from taxation or
entitled to tax deferral. Early each year, you will be notified as to the
amount and federal tax status of all income distributions paid during the prior
year. Such distributions may also be subject to state or local taxes. The tax
treatment of redemptions from a retirement plan account may differ from
redemptions from an ordinary shareholder account.
 
YOU MUST PROVIDE THE FUND WITH A CERTIFIED CORRECT TAXPAYER IDENTIFICATION
NUMBER (GENERALLY YOUR SOCIAL SECURITY NUMBER) AND CERTIFY THAT YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING. IF YOU FAIL TO DO SO THE IRS CAN REQUIRE THE
FUND TO WITHHOLD 31% OF YOUR TAXABLE DISTRIBUTIONS AND REDEMPTIONS. Federal law
also requires the fund to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
 
This is a brief summary of some of the tax laws that affect your investment in
the fund. Please see the statement of additional information and your tax
adviser for further information.
- --------------------------------------------------------------------------------
FUND ORGANIZATION AND MANAGEMENT
 
FUND ORGANIZATION AND VOTING RIGHTS
 
The fund, an open-end, diversified management investment company, was organized
as a Delaware corporation in 1969 and reorganized as a Maryland corporation in
1983. All fund operations are supervised by the fund's board of directors who
meet periodically and perform duties required by applicable state
 
- --------------------------------------------------------------------------------
   14            THE INCOME FUND OF AMERICA / PROSPECTUS 1997 
 
<PAGE>
 
 
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 the statement of additional information.
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.
 
THE INVESTMENT ADVISER
 
Capital Research and Management Company, a large and experienced investment
management organization founded in 1931, is the investment adviser to the fund
and other funds, including those in The American Funds Group. Capital Research
and Management Company, a wholly owned subsidiary of The Capital Group
Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA
90071. Capital Research and Management Company manages the investment portfolio
and business affairs of the fund. The management fee paid by the fund to
Capital Research and Management Company is composed of a basic management fee
which may not exceed 0.24% of the fund's average net assets annually and
declines at certain asset levels and 2.25% of the fund's gross investment
income for the preceding month. The total management fee paid by the fund, as a
percentage of average net assets, for the previous fiscal year is discussed
earlier under "Expenses."
 
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has also been
incorporated into the fund's code of ethics.
 
PLAN OF DISTRIBUTION
   
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the board. The 12b-1 fee paid by the fund,
as a percentage of average net assets, for the previous fiscal year is
discussed earlier under "Expenses." Since these fees are paid out of the fund's
assets on an ongoing basis, over time they will increase the cost of an
investment and may cost you more than paying higher sales loads in lieu of
these fees.    
 
PORTFOLIO TRANSACTIONS
 
Orders for the fund's portfolio securities transactions are placed by Capital
Research and Management Company, which strives to obtain the best available
prices, taking into account the costs and quality of executions. Fixed-income
securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price
of the
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997      15
 
<PAGE>
 
 
security usually includes a profit to the dealer. In underwritten offerings,
securities are usually purchased at a fixed price which includes an amount of
compensation to the dealer, generally referred to as a concession or discount.
On occasion, securities may be purchased directly from an issuer, in which case
no commissions or discounts are paid. In the over-the-counter market, purchases
and sales are transacted directly with principal market-makers except in those
circumstances where it appears better prices and executions are available
elsewhere.
 
Subject to the above policy, when two or more brokers (either directly or
through their correspondent clearing agents) are in a position to offer
comparable prices and executions, preference may be given to brokers who have
sold shares of the fund or have provided investment research, statistical, and
other related services for the benefit of the fund and/or other funds served by
Capital Research and Management Company.
 
PRINCIPAL UNDERWRITER AND TRANSFER AGENT
 
American Funds Distributors, Inc. and American Funds Service Company serve as
the principal underwriter and transfer agent for the fund, respectively. They
are headquartered at 333 South Hope Street, Los Angeles, CA 90071 and 135 South
State College Boulevard, Brea, CA 92821, respectively.
 
                  AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
 
                    CALL TOLL-FREE FROM ANYWHERE IN THE U.S.
                             (8 A.M. TO 8 P.M. ET):
                                  800/421-0180
 
                     [MAP OF THE UNITED STATES APPEARS HERE] 
 
<TABLE>
    <S>                    <C>                    <C>                      <C>
    WESTERN SERVICE        WESTERN CENTRAL        EASTERN CENTRAL          EASTERN SERVICE
      CENTER               SERVICE CENTER         SERVICE CENTER           CENTER
    American Funds         American Funds         American Funds           American Funds
    Service Company        Service Company        Service Company          Service Company
    P.O. Box 2205          P.O. Box 659522        P.O. Box 6007            P.O. Box 2280
    Brea, California       San Antonio, Texas     Indianapolis, Indiana    Norfolk, Virginia
    92822-2205             78265-9522             46206-6007               23501-2280
    Fax: 714/671-7080      Fax: 210/530-4050      Fax: 317/735-6620        Fax: 757/670-4773
</TABLE>
 
 
- --------------------------------------------------------------------------------
   16            THE INCOME FUND OF AMERICA / PROSPECTUS 1997
 
<PAGE>
 
 
SHAREHOLDER SERVICES
 
The fund offers you a valuable array of services you can use to alter your
investment program as your needs and circumstances change. These services,
which are summarized below, are available only in states where they may be
legally offered and may be terminated or modified at any time upon 60 days'
written notice. A COMPLETE DESCRIPTION OF SHAREHOLDER SERVICES AND ACCOUNT
POLICIES IS CONTAINED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION. In
addition, an easy-to-read guide to owning a fund in The American Funds Group
titled "Welcome to the Family" is sent to new shareholders and is available by
writing or calling American Funds Service Company.
 
THE SERVICES DESCRIBED MAY NOT BE AVAILABLE THROUGH SOME RETIREMENT PLANS OR
ACCOUNTS HELD BY INVESTMENT DEALERS. IF YOU ARE INVESTING IN SUCH A MANNER, YOU
SHOULD CONTACT YOUR PLAN ADMINISTRATOR/TRUSTEE OR DEALER ABOUT WHAT SERVICES
ARE AVAILABLE AND WITH QUESTIONS ABOUT YOUR ACCOUNT.
- --------------------------------------------------------------------------------
PURCHASING SHARES
 
HOW TO PURCHASE SHARES
 
Generally, you may open an account by contacting any investment dealer
authorized to sell the fund's shares. You may add to your account through your
dealer or directly through American Funds Service Company by mail, computer,
wire, or bank debit. You may also establish or add to your account by
exchanging shares from any of your other accounts in The American Funds Group.
The fund and American Funds Distributors reserve the right to reject any
purchase order for any reason. This includes exchange purchase orders that may
place an unfair burden on other shareholders due to their frequency.
 
Various purchase options are available as described below subject to certain
investment minimums and limitations described in the statement of additional
information and "Welcome to the Family."
 
[X] Automatic Investment Plan
 
    You may invest monthly or quarterly through automatic withdrawals from your
    bank account.
 
[X] Automatic Reinvestment
 
    You may reinvest your dividends and capital gain distributions into the fund
    (with no sales charge). This will be done automatically unless you elect to
    have the dividends and/or capital gain distributions paid to you in cash.
 
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997       17
 
<PAGE>
 
 
[X] Cross-Reinvestment
 
    You may invest your dividends and capital gain distributions into any other
    fund in The American Funds Group.
 
[X] Exchange Privilege
   
    You may exchange your shares into other funds in The American Funds Group
    generally with no sales charge. Exchanges of shares from the money market
    funds that were initially purchased with no sales charge will generally be
    subject to the appropriate sales charge. You may also elect to automatically
    exchange shares among any of the funds in The American Funds Group. Exchange
    requests may be made in writing, by telephone including American
    FundsLine(R), by computer using American FundsLine OnLine(SM) (see below) or
    by fax. EXCHANGES HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND
    PURCHASES.    
 
[X] Retirement Plans
 
    You may invest in the fund through various retirement plans. For further
    information contact your investment dealer or American Funds Distributors.
 
SHARE PRICE
   
The fund's share price, also called net asset value, is determined as of 4:00
p.m. New York time which is the normal close of trading on the New York Stock
Exchange, every day the Exchange is open. The fund calculates its net asset
value per share, generally using market prices, by dividing the total value of
its assets after subtracting liabilities by the number of its shares
outstanding. Shares are purchased at the offering price next determined after
your investment is received and accepted by American Funds Service Company. The
offering price is the net asset value plus a sales charge, if applicable.    
 
SHARE CERTIFICATES
 
Shares are credited to your account and certificates are not issued unless you
request them by writing to American Funds Service Company.
 
INVESTMENT MINIMUMS
<TABLE>
- ----------------------------------------------------------------
<S>                                                       <C>
To establish an account                                   $1,000
 For a retirement plan account                            $  250
 For a retirement plan account through payroll deduction  $   25
To add to an account                                      $   50
 For a retirement plan account through payroll deduction  $   25
</TABLE>
 
- --------------------------------------------------------------------------------
   18            THE INCOME FUND OF AMERICA / PROSPECTUS 1997
 
<PAGE>
 
 
SALES CHARGES
 
A sales charge may apply, as described below, when purchasing shares. Sales
charges may be reduced for larger purchases as indicated below.
<TABLE>
<CAPTION>
                                     SALES CHARGE AS A
                                       PERCENTAGE OF
                                     ..................
                                                           DEALER
                                                  NET    CONCESSION AS
                                      OFFERING  AMOUNT  % OF OFFERING
INVESTMENT                             PRICE   INVESTED     PRICE
- --------------------------------------------------------------------------------
<S>                                    <C>       <C>      <C>    
Less than $50,000                      5.75%     6.10%     5.00%
 ................................................................................
$50,000 but less than $100,000         4.50%     4.71%     3.75%
 ................................................................................
$100,000 but less than $250,000        3.50%     3.63%     2.75%
 ................................................................................
$250,000 but less than $500,000        2.50%     2.56%     2.00%
 ................................................................................
$500,000 but less than $1 million      2.00%     2.04%     1.60%
 ................................................................................
$1 million or more and certain
other investments described below  see below see below 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 1% 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. A dealer concession of up to 1% may be
paid by the fund under its Plan of Distribution and/or by American Funds
Distributors on investments made with no initial sales charge. Investments by
certain individuals and entities including employees and other associated
persons of dealers authorized to sell shares of the fund and Capital Research
and Management Company and its affiliated companies are not subject to a sales
charge.    
 
ADDITIONAL DEALER COMPENSATION
   
In addition to the concessions listed, up to 0.25% of average net assets is
paid annually to qualified dealers for providing certain services pursuant to
the fund's Plan of Distribution. American Funds Distributors currently provides
additional compensation to the top 100 dealers who have sold shares of funds in
The American Funds Group based on the pro rata share of a qualifying dealer's
sales.    
 
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997     19
 
<PAGE>
 
 
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.
 
[X] Aggregation
 
    Investments that may be aggregated include those made by you, your spouse
    and your children under the age of 21, if all parties are purchasing shares
    for their own account(s), including any business account solely "controlled
    by," as well as any retirement plan or trust account solely for the benefit
    of, these individuals. Investments made for multiple employee benefit plans
    of a single employer or "affiliated" employers may be aggregated provided
    they are not also aggregated with individual accounts. Finally, investments
    made by a common trust fund or other diversified pooled account not
    specifically formed for the purpose of accumulating fund shares may be
    aggregated.
 
    Purchases made for nominee or street name accounts will generally not be
    aggregated with those made for other accounts unless qualified as described
    above.
 
[X] Concurrent Purchases
 
    You may combine concurrent purchases of two or more funds in The American
    Funds Group, except direct purchases of the money market funds. Shares of
    the money market funds purchased through an exchange, reinvestment or cross-
    reinvestment from a fund having a sales charge do qualify.
 
[X] 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 and Bond
    Portfolio for 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.    
 
[X] Statement of Intention
   
    You may enter into a non-binding commitment to invest a certain amount
    (which, at your request, may include purchases made during the previous 90
    days) in non-money market fund shares over a 13-month period (excludes
    appreciation and reinvested distributions). A portion of your account may be
    held in escrow to cover additional sales charges which may be due if your
    total investments over the statement period are insufficient to qualify for
    the applicable sales charge reduction.    
 
- --------------------------------------------------------------------------------
    20           THE INCOME FUND OF AMERICA / PROSPECTUS 1997
 
<PAGE>
 
 
- --------------------------------------------------------------------------------
SELLING SHARES
 
HOW TO SELL SHARES
 
You may sell (redeem) shares in your account by contacting your investment
dealer or American Funds Service Company. You may also use American
FundsLine(R) or American FundsLine OnLine(SM) (see below). In addition, you may
sell shares in amounts of $50 or more automatically. If you sell shares through
your investment dealer you may be charged for this service. Shares held for you
in your dealer's street name must be sold through the dealer.
   
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. Sale requests may be
made in writing, by telephone (including American FundsLine(R)) by computer
using American FundsLine OnLine(SM), or by fax. Sales by telephone, computer or
fax are limited to $50,000 in accounts registered to individual(s) (including
non-retirement trust accounts). In addition, checks must be made payable to the
registered shareholder(s) and mailed to an address of record that has been used
with the account for at least 10 days.    
 
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.
   
Generally, written requests to sell shares must be signed by you and must
include any shares you wish to sell that are in certificate form. Your
signature must be guaranteed by a member firm of a domestic stock exchange or
the National Association of Securities Dealers, Inc., bank, savings association
or credit union that is an eligible guarantor institution. A signature
guarantee is not currently required for any sale of $50,000 or less provided
the check is made payable to the registered shareholder(s) and is mailed to the
address of record on the account, and provided the address has been used with
the account for at least 10 days. Additional documentation may be required for
sales of shares held in corporate, partnership or fiduciary accounts.    
 
- --------------------------------------------------------------------------------
                 THE INCOME FUND OF AMERICA / PROSPECTUS 1997        21
 
<PAGE>
 
 
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. Reinvestment will be at the next calculated net asset value after
receipt and acceptance by American Funds Service Company.
- --------------------------------------------------------------------------------
OTHER IMPORTANT THINGS TO REMEMBER
 
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINE(SM)
 
You may check your share balance, the price of your shares, or your most recent
account transactions, sell 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 these services, call 800/325-3590 from a
TouchTone(TM) telephone or access The American Funds Web site on the Internet
at www.americanfunds.com.
 
TELEPHONE AND COMPUTER PURCHASES, SALES AND EXCHANGES
 
Unless you opt out of the telephone or computer (including American
FundsLine(R) or American FundsLine OnLine(SM)) or fax purchase, sale and/or
exchange options (see below), you agree to hold the fund, American Funds
Service Company, any of its affiliates or mutual funds managed by such
affiliates, and each of their respective directors, trustees, officers,
employees and agents harmless from any losses, expenses, costs or liabilities
(including attorney fees) which may be incurred in connection with the exercise
of these privileges provided American Funds Service Company employs reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine. If reasonable procedures are not
employed, the fund may be liable for losses due to unauthorized or fraudulent
instructions.
 
Generally, all shareholders are automatically eligible to use these options.
However, you may elect to opt out of these options by writing American Funds
Service Company. (You may also reinstate them at any time by writing to
American Funds Service Company.)
- --------------------------------------------------------------------------------
   22            THE INCOME FUND OF AMERICA / PROSPECTUS 1997 
 
<PAGE>
 
ACCOUNT STATEMENTS
   
You will receive regular confirmation statements reflecting transactions in
your account. Dividend and capital gain reinvestments and purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.    
 
YEAR 2000
 
The date-related computer issue known as the "Year 2000 problem" could have an
adverse impact on the quality of services provided to the fund and its
shareholders. However, the fund understands that its key service providers --
including the investment adviser and its affiliates -- are taking steps to
address the issue. In addition, the Year 2000 problem may adversely affect the
companies in which the fund invests. For example, companies may incur
substantial costs to address the problem. They may also suffer losses caused by
corporate and governmental data processing errors. The fund and its investment
adviser will continue to monitor developments relating to this issue.
   
EURO INTRODUCTION
 
On January 1, 1999, the European Union will introduce a single European
currency, the Euro. The first group of countries that will begin to convert
their currencies to the Euro include Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain. The
expected introduction of the Euro presents unique uncertainties, including:
whether the payment and operational systems of banks and other financial
institutions will be ready by the scheduled launch date; the legal treatment of
certain outstanding financial contracts after January 1, 1999 that refer to
existing currencies rather than the Euro; and the creation of suitable clearing
and settlement payment systems for the new currency. These or other factors,
including political and economic risks, could cause market disruptions before
or after the introduction of the Euro. The fund understands that the investment
adviser and other key service providers are taking steps to address Euro-
related issues.    
 
- --------------------------------------------------------------------------------
                            THE INCOME FUND OF AMERICA / PROSPECTUS 1997      23
 
 
<PAGE>
 
 
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
  FOR SHAREHOLDER            FOR RETIREMENT PLAN               FOR DEALER
  SERVICES                   SERVICES                          SERVICES
  <S>                        <C>                               <C>
  American Funds             Call your employer or             American Funds
  Service Company            plan administrator                Distributors
  800/421-0180 ext. 1                                          800/421-9900 ext. 11
                            FOR 24-HOUR INFORMATION
 
       American                                   American Funds
       FundsLine(R)                               Internet Web site
       800/325-3590                               http://www.americanfunds.com
 
</TABLE> 
 Telephone conversations may be recorded or monitored for
 verification, recordkeeping and quality assurance purposes.
- --------------------------------------------------------------------------------
 MULTIPLE TRANSLATIONS
 
 This prospectus may be translated into other languages. In
 the event of any inconsistency or ambiguity as to the
 meaning of any word or phrase in a translation, the English
 text will prevail.
- --------------------------------------------------------------------------------
 OTHER FUND INFORMATION
 
 ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
 
 Includes financial statements, detailed performance
 information, portfolio holdings, a statement from portfolio
 management and the independent accountants' report (in the
 annual report).
 
 STATEMENT OF ADDITIONAL INFORMATION (SAI)
 
 Contains more detailed information on all aspects of the
 fund, including the fund's financial statements.
 
 A current SAI has been filed with the Securities and
 Exchange Commission ("SEC"). It is incorporated by
 reference into this prospectus and is available along with
 other related materials on the SEC's Internet Web site at
 http://www.sec.gov.
 
 CODE OF ETHICS
 
 Includes a description of the fund's personal investing
 policy.
 
 To request a free copy of any of the documents above:
 
 Call American Funds   or        Write to the Secretary
 Service Company                 of the fund
 800/421-0180 ext. 1             P.O. Box 7650
                                 San Francisco, CA 94120
- --------------------------------------------------------------------------------
 
This prospectus has been printed on recycled paper.
                                                    [LOGO OF RECYCLED PAPER]
- --------------------------------------------------------------------------------
    24           THE INCOME FUND OF AMERICA / PROSPECTUS 1997
 
 
                                     Part B
                      Statement of Additional Information
 
                                OCTOBER 1, 1997
                            (as amended June 1, 1998)    
   
 This document is not a prospectus but should be read in conjunction with the
current Prospectus of The Income Fund of America, Inc. (the fund or IFA) dated
October 1, 1997 and amended June 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
                           TELEPHONE:  (415) 421-9360
 
 Shareholders who purchase shares at net asset value through eligible
retirement plans should note that not all of the services or features described
below may be available to them, and they should contact their employer for
details.
 
                               Table of Contents       
Item                                                             Page No.
DESCRIPTION OF CERTAIN SECURITIES                                     1
CERTAIN RISK FACTORS RELATING TO BELOW INVESTMENT GRADE BONDS         3
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS                      4
FUND OFFICERS AND DIRECTORS                                           6
MANAGEMENT                                                           10
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES                           12
PURCHASE OF SHARES                                                   15
REDEEMING SHARES                                                     21
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES                          22
EXECUTION OF PORTFOLIO TRANSACTIONS                                  24
GENERAL INFORMATION                                                  24
INVESTMENT RESULTS                                                   26
DESCRIPTION OF BOND RATINGS                                          31
FINANCIAL STATEMENTS                                            ATTACHED
 
                       DESCRIPTION OF CERTAIN SECURITIES
 
 The descriptions below are intended to supplement the material in the
prospectus under "Investment Policies and Risks." 
 
 CASH AND CASH EQUIVALENTS - These securities include (1) commercial paper
(short-term notes issued by corporations or governmental bodies), (2)
commercial bank obligations (E.G., certificates of deposit (interest bearing
time deposits), and bankers' acceptances (time drafts on a commercial bank
where the bank accepts an irrevocable obligation to pay at maturity), (3)
savings association and savings bank obligations (E.G., certificates of deposit
issued by savings banks or savings associations), (4) securities of the U.S.
Government, its agencies or instrumentalities that mature at the time of
purchase, or may be redeemed, in one year or less, and (5) corporate bonds and
notes that mature at the time of purchase, or that may be redeemed, in one year
or less.
 
 OTHER MORTGAGE-RELATED SECURITIES - Although the fund has no current intention
to do so (at least during the next 12 months) the fund may also invest in real
estate investment conduits which are issued in portions or tranches with
varying maturities and characteristics; some tranches may only receive the
interest paid on the underlying mortgages (IOs) and others may only receive the
principal payments (POs); the values of IOs and POs are extremely sensitive to
interest rate fluctuations and prepayment rates, and IOs are also subject to
the risk of early repayment of the underlying mortgages which will
substantially reduce or eliminate interest payments.  The fund does not intend
to invest more than 5% of its assets in IOs and POs.
   
 INFLATION-INDEXED BONDS - The fund may invest in inflation-indexed bonds
issued by 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 falling inflation, principal
value will be adjusted downward, reducing the interest payable.    
 
 Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation indexed bonds,
even during a period of deflation.  However, the current market value of the
bonds is not guaranteed, and will fluctuate.  The fund may also invest in other
bonds which may or may not provide a similar guarantee.  If a guarantee of
principal is not provided, the adjusted principal value of the bond repaid at
maturity may be less than the original principal.
 
 REINSURANCE RELATED NOTES AND BONDS - The fund may invest up to 5% of its
assets in reinsurance related notes and bonds.  These instruments, which are
typically issued by special purpose reinsurance companies, transfer an element
of insurance risk to the note or bond holders.  For example, the reinsurance
company would not be required to repay all or a portion of the principal value
of the notes or bonds if losses due to a catastrophic event under the policy
(such as a major hurricane) exceed certain dollar thresholds.  Consequently,
the fund may lose the entire amount of its investment in such bonds or notes if
such an event occurs and losses exceed certain dollar thresholds.  In this
instance, investors would have no recourse against the insurance company. 
These instruments may be issued with fixed or variable interest rates and rated
in a variety of credit quality categories by the rating agencies.
 
 INVERSE FLOATING RATE NOTES - The fund may invest to a very limited extent (no
more than 11/2% of its assets) in inverse floating rate notes (a type of
derivative instrument).  These notes have rates that move in the opposite
direction of prevailing interest rates.  A change in prevailing interest rates
will often result in a greater change in the instruments' interest rates. 
Therefore, these securities have a greater degree of volatility than other
types of interest-bearing securities.
 
 FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell
securities at a future date.  When a fund purchases such securities it assumes
the risk of any decline in value of the security beginning on the date of the
agreement.  When a fund sells such securities it does not participate in
further gains or losses with respect to such securities beginning on the date
of the agreement.   If the other party to such a transaction fails to deliver
or pay for the securities, the fund could miss a favorable price or yield
opportunity or could experience a loss.
 
 As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly may increase.  The fund will not use these
transactions for the purpose of leveraging and will segregate liquid assets
which will be marked to market daily  in an amount sufficient to meet its
payment obligations in these transactions.  Although these transactions will
not be entered into for leveraging purposes, to the extent the fund's aggregate
commitments under these transactions exceed its segregated assets, the fund
temporarily could be in a leveraged position (because it will have an amount
greater than its net assets subject to market risk).  Should market values of
the fund's portfolio securities decline while the fund is in a leveraged
position, greater depreciation of its net assets would likely occur than were
it not in such a position.  The fund will not borrow money to settle these
transactions and, therefore, will liquidate other portfolio securities in
advance of settlement if necessary to generate additional cash to meet its
obligations thereunder.
   
 The fund also may enter into "roll" transactions, which consist of the sale of
mortgage-backed securities or other securities together with a commitment to
purchase similar, but not identical, securities at a future date.  The fund
intends to treat roll transactions as two separate transactions: one involving
the purchase of a security and a separate transaction involving the sale of a
security.  Since the fund does not intend to enter into roll transactions for
financing purposes, it may treat these transactions as not falling within the
definition of "borrowing" set forth in Section 2(a)(23) of the Investment
Company Act of 1940.    
 
 CURRENCY TRANSACTIONS - The fund has the ability to enter into forward
currency contracts to protect against changes in currency exchange rates.  A
forward currency contract is an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract.  Forward currency contracts entered into by the fund will involve the
purchase or sale of a currency against the U.S. dollar.  The fund will
segregate liquid assets which will be marked to market daily to meet its
forward contract commitments to the extent required by the Securities and
Exchange Commission.
 
 Certain provisions of the Internal Revenue Code may affect the extent to which
the fund may enter into forward contracts.  Such transactions may also affect,
for U.S. federal income tax purposes, the character and timing of income, gain
or loss recognized by the fund. 
 
 PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the
length of time particular investments may have been held.  Short-term trading
profits are not the fund's objective and changes in its investments are
generally accomplished gradually, though short-term transactions may
occasionally be made.  High portfolio turnover (100% or more) involves
correspondingly greater transaction costs in the form of dealer spreads or
brokerage commissions, and may result in the realization of net capital gains,
which are taxable when distributed to shareholders.  Fixed-income securities
are generally traded on a net basis and usually neither brokerage commissions
nor transfer taxes are involved.  The fund's portfolio turnover rate would
equal 100% if each security in the fund's portfolio were replaced once per
year.  Under normal circumstances, it is anticipated that portfolio turnover
for common stocks in the fund's portfolio will not exceed 100% on an annual
basis, and that portfolio turnover for other securities will not exceed 100% on
an annual basis.
 
         CERTAIN RISK FACTORS RELATING TO BELOW INVESTMENT GRADE BONDS
 
 Certain risk factors relating to investing in below investment grade
securities ("high-yield, high-risk bonds") are discussed below.
 
 SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high-risk
bonds are very sensitive to adverse economic changes and corporate
developments.  During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers or issuers whose revenue is very
sensitive to economic conditions may experience financial stress that would
adversely affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing.  If the issuer of a bond defaults on its obligations to pay interest
or principal or enters into bankruptcy proceedings, the fund may incur losses
or expenses in seeking recovery of amounts owed to it.  In addition, periods of
economic uncertainty and changes can be expected to result in increased
volatility of market prices of high-yield, high-risk bonds.
 
 PAYMENT EXPECTATIONS - High-yield, high-risk bonds, like other bonds, may
contain redemption or call provisions.  If an issuer exercised these provisions
in a declining interest rate market, the fund would have to replace the
security with a lower yielding security, resulting in a decreased return for
investors.  Conversely, a high-yield, high-risk bond's value is likely to
decrease in a rising interest rate market, as is generally true with all bonds.
 
 LIQUIDITY AND VALUATION - There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds.  Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
 
 The fund may invest no more than 20% of its total assets in securities rated
BB and Ba or below (or unrated but considered of similar quality).  The 20%
limit shall not apply to debt securities that have equity conversion or
purchase rights.  In addition, the fund has no current intention of holding
more than 25% of its assets in high-yield, high-risk bonds, INCLUDING those
that have equity conversion or purchase rights.
 
 The fund's investment adviser, Capital Research and Management Company,
attempts to reduce the fund's risks through diversification of the portfolio by
credit analysis of each issuer as well as by monitoring broad economic trends
and corporate developments, but there can be no assurance that it will be
successful in doing so.  The fund's investment policy with respect to investing
in high-yield, high-risk securities is a "non-fundamental" policy and thus may
be changed by the board of directors at any time.
 
                FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
 
 The fund has adopted certain fundamental policies and investment restrictions
which cannot be changed without shareholder approval.  Approval requires the
affirmative vote of 67% or more of the voting securities present at a meeting
of shareholders, provided more than 50% of such securities are represented at
the meeting, or the vote of more than 50% of the outstanding voting securities,
whichever is less.
 
The fund may not:
 
 1. Act as underwriter of securities issued by other persons.
 
 2. Invest more than 10% of the value of its total assets in securities that
are illiquid.
 
 3. Borrow amounts in excess of 5% of its gross assets taken at cost or market
value, whichever is lower, determined at the time of borrowing, and then only
from banks as a temporary measure for extraordinary or emergency purposes; or
pledge, mortgage, or hypothecate its assets taken at market value to any extent
greater than 15% of its gross assets taken at cost or market value, whichever
is lower, at the time of such action.
 
 4. Purchase real estate (including limited partnership interests but excluding
securities of companies, such as real estate investment trusts, which deal in
real estate or interests therein) or purchase oil, gas, or other mineral
leases.
 
 5. Purchase or deal in commodities or commodity contracts.
 
 6. Make loans to other persons, except by making time or demand deposits with
banks or by purchasing a portion of an issue (not prohibited by any investment
restriction set forth herein) of bonds, debentures, commercial paper or other
debt securities at original issue or otherwise.
 
 7. Purchase securities of any company for the purpose of exercising control or
management.
 
 8. Purchase securities of any other managed investment company.
 
 9. Purchase any securities on "margin", except that it may obtain such
short-term credit as may be necessary for the clearance of purchases of
securities.
 
 10. Sell or contract to sell any security which it does not own unless by
virtue of its ownership of other securities it has at the time of sale a right
to obtain securities, without payment of further consideration, equivalent in
kind and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions.
 
 11. Purchase or sell puts, calls, straddles, or spreads, but this restriction
shall not prevent the purchase or sale of rights represented by warrants or
convertible securities.
 
 12. Purchase any securities of any issuer, except the U.S. Government (or its
instrumentalities), if immediately after and as a result of such investment (1)
the market value of the securities of such other issuer shall exceed 5% of the
market value of the total assets of the fund, or (2) the fund shall own more
than 10% of the outstanding voting securities of such issuer, provided that
this restriction shall apply only as to 75% of the fund's total assets.
 
 13. Purchase any securities (other than securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities) if immediately after and
as a result of such purchase 25% or more of the market value of the total
assets of the fund would be invested in securities of companies in any one
industry.
 
 14. Purchase securities of companies (other than real estate investment
trusts) which, with their predecessors, have a record of less than three years'
continuous operations, if such purchase would cause more than 5% of the fund's
total assets to be invested in the securities of such companies.
 
 For purposes of Investment Restriction #2, restricted securities are treated
as illiquid by the fund, with the exception of those securities that have been
determined to be liquid pursuant to procedures adopted by the fund's Board of
Directors.  Notwithstanding Investment Restriction #8, the fund may invest in
securities of other investment companies if deemed advisable by its officers in
connection with the administration of a deferred compensation plan adopted by
directors pursuant to an exemptive order granted by the Securities and Exchange
Commission.
 
                          FUND OFFICERS AND DIRECTORS
                      DIRECTORS AND DIRECTOR COMPENSATION
 
<TABLE>
<CAPTION>
NAME,                     POSITION         PRINCIPAL                AGGREGATE             TOTAL                TOTAL           
ADDRESS                   WITH             OCCUPATION(S)            COMPENSATION          COMPENSATION         NUMBER          
AND AGE                   REGISTRANT       DURING PAST              (INCLUDING            FROM ALL FUNDS       OF FUND         
                                           5 YEARS                  VOLUNTARILY           MANAGED BY           BOARDS          
                                           (POSITIONS               DEFERRED              CAPITAL              ON WHICH        
                                           WITHIN THE               COMPENSATION          RESEARCH AND         DIRECTOR        
                                           ORGANIZATIONS            /1/) FROM THE         MANAGEMENT           SERVES/3/       
                                           LISTED MAY HAVE          FUND DURING           COMPANY FOR                          
                                           CHANGED DURING           FISCAL YEAR           THE YEAR ENDED                       
                                           THIS PERIOD)             ENDED 7/31/97         7/31/97  /2/                         
 
<S>                       <C>              <C>                      <C>                   <C>                  <C>             
Robert A. Fox             Director         President and            $ 20,000/4/           $ 84,600/4/          5               
P.O. Box 457                               Chief Executive                                                                     
1000 Davis Street                          Officer, Foster                                                                     
Livingston, CA                             Farms; former                                                                       
95334                                      President, Revlon                                                                   
Age: 60                                    International                                                                       
 
Roberta L. Hazard         Director         Consultant; Rear         $ 19,400              $ 46,400             3               
1419 Audmar Drive                          Admiral, United                                                                     
McLean, VA 22101                           States Navy                                                                         
Age: 62                                    (Retired)                                                                           
 
Leonade D. Jones          Director         Former Treasurer,        $ 19,700/4/           $ 78,500/4/          5               
1536 Los Montes                            The Washington                                                                      
Drive                                      Post Company                                                                        
Burlingame, CA                                                                                                                 
94010                                                                                                                          
Age: 49                                                                                                                        
 
John G. McDonald          Director         The IBJ Professor        $ 21,200/4/           $ 144,400/4/         7               
Stanford                                   of Finance,                                                                         
University                                 Graduate School                                                                     
Stanford, CA                               of Business,                                                                        
94305                                      Stanford                                                                            
Age: 60                                    University                                                                          
 
+Janet A.                 President        Director, Capital        None/5/               None/5/              1               
McKinley                  and              Research and                                                                        
630 Fifth Avenue          Director         Management                                                                          
New York, NY                               Company; Senior                                                                     
10111                                      Vice President,                                                                     
Age: 42                                    Capital Research                                                                    
                                           Company                                                                             
 
+James W.                 Director         Senior Partner,          None/5/               None/5/              8               
Ratzlaff                                   The Capital Group                                                                   
P.O. Box 7650                              Partners L.P.                                                                       
San Francisco, CA                                                                                                              
94120                                                                                                                          
Age: 61                                                                                                                        
 
Henry E. Riggs            Director         President, Keck          $ 20,300/4/           $ 78,300/4/          5               
1263 North                                 Graduate                                                                            
Dartmouth                                  Institute of                                                                        
Claremont, CA                              Applied Life                                                                        
91711                                      Sciences; former                                                                    
Age: 62                                    President and                                                                       
                                           Professor of                                                                        
                                           Engineering,                                                                        
                                           Harvey Mudd                                                                         
                                           College                                                                             
 
+Walter P. Stern          Chairman         Chairman, Capital        None/5/               None/5/              8               
630 Fifth Avenue          of               Group                                                                               
New York, NY              the Board        International,                                                                      
10111                                      Inc.; Vice                                                                          
Age: 69                                    Chairman,                                                                           
                                           Capital Research                                                                    
                                           International;                                                                      
                                           Chairman, Capital                                                                   
                                           International,                                                                      
                                           Inc.; Director,                                                                     
                                           Temple-Inland                                                                       
                                           Inc. (forest                                                                        
                                           products)                                                                           
 
Patricia K. Woolf         Director         Private investor;        $ 20,600              $ 79,600             5               
506 Quaker Road                            Lecturer,                                                                           
Princeton, NJ                              Department of                                                                       
08540                                      Molecular                                                                           
Age: 63                                    Biology,                                                                            
                                           Princeton                                                                           
                                           University                                                                          
 
</TABLE>
 
+ "Interested persons" within the meaning of the Investment Company Act of 1940
(the 1940 Act) on the basis of their affiliation with the fund's Investment
Adviser, Capital Research and Management Company or the parent company of the
Investment Adviser, The Capital Group Companies, Inc.
 
 /1/ Amounts may be deferred by eligible directors under a non-qualified
deferred compensation plan adopted by the fund in 1993.  Deferred amounts
accumulate at an earnings rate determined by the total return of one or more of
the funds in The American Funds Group as designated by the director.
 
 /2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, Inc., American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management
Trust of America, Capital Income Builder, Inc., Capital World Growth and Income
Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America.
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U.S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc.  Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serve as the underlying investment vehicles for certain
variable insurance contracts; and Bond Portfolio for Endowments, Inc. and
Endowments, Inc. whose shares may be owned only by tax-exempt organizations.
 
/3/ Includes funds managed by Capital Research and Management Company and
affiliates.
 
/4/ Since the plan's adoption, the total amounts of deferred compensation
accrued by the fund (plus earnings thereon) for participating directors are as
follows:  Robert A. Fox ($141,587), Leonade D. Jones ($58,309), John G.
McDonald ($71,813) and Henry E. Riggs ($93,944).  Amounts deferred and
accumulated earnings thereon are not funded and are general unsecured
liabilities of the fund until paid to the director.
 
/5/ 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)             
                                       WITH REGISTRANT          DURING PAST 5 YEARS                 
 
<S>                           <C>      <C>                      <C>                                 
Stephen E. Bepler             55       Senior Vice              Senior Vice President,              
630 Fifth Avenue                       President                Capital Research Company            
New York, NY 10111                                                                                  
 
Abner D. Goldstine            67       Senior Vice              Senior Vice President and           
11100 Santa Monica                     President                Director, Capital Research          
Boulevard                                                       and Management Company              
Los Angeles, CA 90025                                                                               
 
Paul G. Haaga, Jr.            48       Senior Vice              Executive Vice President and        
333 South Hope Street                  President                Director, Capital Research          
Los Angeles, CA 90071                                           and Management Company;             
                                                                Director, American Funds            
                                                                Service Company; Director,          
                                                                American Funds Distributors,        
                                                                Inc.                                
 
Richard T. Schotte            55       Senior Vice              Senior Vice President,              
11100 Santa Monica                     President                Capital Research and                
Boulevard                                                       Management Company                  
Los Angeles, CA 90025                                                                               
 
Hilda L. Applbaum             39       Vice President           Vice President, Capital             
P.O. Box 7650                                                   Research Company                    
San Francisco, CA                                                                                   
94120                                                                                               
 
Dina N. Perry                 57       Vice President           Vice President, Capital             
3000 K Street, N.W.                                             Research and Management             
Washington, D.C. 20007                                          Company                             
 
John H. Smet                  41       Vice President           Director, Capital Research          
11100 Santa Monica                                              Company; Vice President,            
Boulevard                                                       Capital Research and                
Los Angeles, CA 90025                                           Management Company                  
 
Patrick F. Quan               39       Secretary                Vice President - Fund               
P.O. Box 7650                                                   Business Management Group,          
San Francisco, CA                                               Capital Research and                
94120                                                           Management Company                  
 
Mary C. Hall                  39       Treasurer                Senior Vice President - Fund        
135 South State                                                 Business Management Group,          
College Boulevard                                               Capital Research and                
Brea, CA 92821                                                  Management Company                  
 
R. Marcia Gould               43       Assistant                Vice President - Fund               
135 South State                        Treasurer                Business Management Group,          
College Boulevard                                               Capital Research and                
Brea, CA 92821                                                  Management Company                  
 
Anthony W. Hynes, Jr.         34       Assistant                Vice President - Fund               
135 South State                        Treasurer                Business Management Group,          
College Blvd.                                                   Capital Research and                
Brea, CA 92821                                                  Management Company                  
 
</TABLE>
    
 All of the directors and officers are also officers and/or directors and/or
trustees of one or more of the other funds for which Capital Research and
Management Company serves as Investment Adviser.  No compensation is paid by
the fund to any officer or director who is a director, officer or employee of
the Investment Adviser or affiliated companies.  The fund pays fees of $15,000
per annum to directors who are not affiliated with the Investment Adviser, plus
$700 for each Board of Directors meeting attended, plus $300 for each meeting
attended as a member of a committee of the Board of Directors.  The directors
may elect, on a voluntary basis, to defer all or a portion of these fees
through a deferred compensation plan in effect for the fund.  The fund also
reimburses certain expenses of the directors who are not affiliated with the
Investment Adviser.  As of July 31, 1997 the officers and directors of the fund
and their families, as a group, owned beneficially or of record less than 1% of
the outstanding shares.
 
                                   MANAGEMENT
 
 INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience.  The Investment Adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821.
The Investment Adviser's research professionals travel several million miles a
year, making more than 5,000 research visits in more than 50 countries around
the world.  The Investment Adviser believes that it is able to attract and
retain quality personnel.  The Investment Adviser is a wholly owned subsidiary
of The Capital Group Companies, Inc.
 
 An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
   
 The Investment Adviser is responsible for managing more than $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.  Its
renewal was approved by the unanimous vote of the Board of Directors of the
fund on October 22, 1997.  The Agreement shall be in effect until the close of
business on December 31, 1997 and may be renewed from year to year thereafter,
provided that any such renewal has been specifically approved at least annually
by (i) the Board of Directors of the fund, or by the vote of a majority (as
defined in the 1940 Act) of the outstanding voting securities of the fund, and
(ii) the vote of a majority of directors who are not parties to the Agreement
or interested persons (as defined in said Act) of any such party, cast in
person, at a meeting called for the purpose of voting on such approval.  The
Agreement also provides that either party has the right to terminate it without
penalty, upon 60 days' written notice to the other party, and that the
Agreement automatically terminates in the event of its assignment (as defined
in said Act).
 
 The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the fund, and provides suitable office space, necessary small office equipment
and utilities, as well as general purpose accounting forms, supplies, and
postage to be used at the offices of the fund relating to the services
furnished by the Investment Adviser.  The fund pays all expenses not
specifically assumed by the Investment Adviser, including, but not limited to,
custodian, stock transfer and dividend disbursing fees and expenses; costs of
designing, printing and mailing reports, prospectuses, proxy statements, and
notices to shareholders; taxes; expenses for the issuance and redemption of
shares of the fund (including stock certificates, registration and
qualification fees and expenses); expenses pursuant to the fund's Plan of
Distribution (described below); legal and auditing expenses; compensation,
fees, and expenses paid to directors unaffiliated with the Investment Adviser;
association dues; costs of stationery and forms prepared exclusively for the
fund; and costs of assembling and storing shareholder account data.
 
 The management fee is based upon the net assets of the fund and monthly gross
investment income.  Gross investment income means gross income, computed
without taking account of gains or losses from sales of capital assets, but
including original issue discount as defined for federal income tax purposes. 
The Internal Revenue Code in general defines original issue discount to mean
the difference between the issue price and the stated redemption price at
maturity of certain debt obligations.  The holder of such indebtedness is in
general required to treat as ordinary income the proportionate part of the
original issue discount attributable to the period during which the holder held
the indebtedness.  The management fee is based upon the annual rates of 0.24%
on the first $1 billion of the fund's net assets, 0.20% on net assets in excess
of $1 billion but not exceeding $2 billion, 0.18% on net assets in excess of $2
billion but not exceeding $3 billion, 0.165% on net assets in excess of $3
billion but not exceeding $5 billion, 0.155% on net assets in excess of $5
billion but not exceeding $8 billion, 0.15% on net assets in excess of $8
billion but not exceeding $13 billion, 0.145% on net assets in excess of $13
billion but not exceeding $21 billion, and 0.14% on net assets in excess of $21
billion, plus 2.25% of the fund's gross investment income for the preceding
month. Assuming net assets of $19 billion and gross investment income levels of
3%, 4%, 5%, 6%, 7% and 8%, management fees would be 0.39%, 0.42%, 0.45%, 0.48%,
0.52% and 0.55% of net assets, respectively.
 
 The Agreement provides for a management  fee reduction to the extent that the
fund's annual ordinary operating expenses exceed 1-1/2% of the first $30
million of the net assets of the fund and 1% of the net assets in excess
thereof.  Expenses which are not subject to this limitation are interest,
taxes, and extraordinary expenses.  Expenditures, including costs incurred in
connection with the purchase or sale of portfolio securities, which are
capitalized in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital items and not
as expenses.
 
 For the fiscal year ended July 31, 1997, the Investment Adviser received
$26,745,000 for the basic management fee (based on a percentage of the net
assets of the fund as expressed above) plus $21,075,000 (based on a percentage
of the fund's gross income as expressed above), for a total fee of $47,820,000. 
For the fiscal years ended July 31, 1996 and 1995, management fees paid by the
fund amounted to $42,065,000 and  $35,698,000, respectively.
 
 PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the Principal
Underwriter) is the principal underwriter of the fund's shares.  The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 8000 IH-10 West, San Antonio, TX
78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240, and 5300
Robin Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of Distribution
(the Plan), pursuant to rule 12b-1 under the 1940 Act. The Principal
Underwriter receives amounts payable pursuant to the Plan (see below) and
commissions consisting of that portion of the sales charge remaining after the
discounts which it allows to investment dealers.  Commissions retained by the
Principal Underwriter on sales of fund shares during the fiscal year ended July
31, 1997 amounted to $10,140,000 after allowance of $49,612,000 to dealers. 
During the fiscal years ended 1996 and 1995, the Principal Underwriter received
$11,114,000 and $7,246,000, after allowance of $56,184,000 and $36,662,000,
respectively.
 
 As required by rule 12b-1 and the 1940 Act, the Plan (together with the
Principal Underwriting Agreement) has been approved by the full Board of
Directors, and separately by a majority of the directors who are not interested
persons of the fund and who have no direct or indirect financial interest in
the operation of the Plan or the Principal Underwriting Agreement, and the Plan
has been approved by the vote of a majority of the outstanding voting
securities of the fund.  The officers and directors who are "interested"
persons of the fund may be considered to have a direct or indirect financial
interest in the operation of the Plan due to present or past affiliations with
the Investment Adviser and related companies.  Potential benefits of the Plan
to the fund include improved shareholder services, savings to the fund in
transfer agency costs, savings to the fund in advisory fees and other expenses,
benefits to the investment process from growth or stability of assets and
maintenance of a financially healthy management organization.  The selection
and nomination of directors who are not "interested persons" of the fund are
committed to the discretion of the directors who are not interested persons
during the existence of the Plan.  The Plan is reviewed quarterly and must be
renewed annually by the Board of Directors.
   
 Under the Plan the fund may expend up to 0.25% of its net assets annually to
finance any activity which is primarily intended to result in the sale of fund
shares, provided the fund's Board of Directors has approved the category of
expenses for which payment is being made.  These include service fees for
qualified dealers and dealer commissions and wholesaler compensation on sales
of shares exceeding $1 million (including purchases by any employer-sponsored
403(b) plan or purchases by any defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 100
or more eligible employees).  During the fiscal year ended July 31, 1997, the
fund paid or accrued $38,906,000 for compensation to dealers under the
Plan.    
 
 The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit commercial banks from engaging in the business of
underwriting, selling or distributing securities, but permit banks to make
shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions.  However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries or affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities.  If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought.  In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank.  It is not expected that
shareholders would suffer adverse financial consequences as a result of any of
these occurrences.
 
 In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
 
                   DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
 
 The fund intends to meet all the requirements, and has elected the tax status
of, a "regulated investment company," under the provisions of Subchapter M of
the Internal Revenue Code of 1986, as amended, (the Code).  Under Subchapter M,
if the fund distributes within specified times at least 90% of the sum of its
investment company taxable income (net investment income and the excess of net
short-term capital gains over net long-term capital losses) and its tax-exempt
interest, if any, it will be taxed only on that portion of such investment
company taxable income that it retains.
 
 To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities, currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) for taxable years beginning on or before August 5, 1997, derive
less than 30% of its gross income from the gains on sale or other disposition
of stock or securities held less than three months; and (c) diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of the fund's assets is represented by cash, cash items, U.S.
Government securities, securities of other regulated investment companies, and
other securities (but such other securities must be limited, in respect of any
one issuer, to an amount not greater than 5% of the fund's assets and 10% of
the outstanding voting securities of such issuer), and (ii) not more than 25%
of the value of its assets is invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies), or in two or more issuers which the fund controls and
which are engaged in the same or similar trades or businesses or related trades
or businesses.
 
 Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year.  The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gains (both long-term and
short-term) for the one-year period ending on October 31 (as though the
one-year period ending on October 31 were the regulated investment company's
taxable year), and (iii) the sum of any untaxed, undistributed net investment
income and net capital gains of the regulated investment company for prior
periods.  The term "distributed amount" generally means the sum of (i) amounts
actually distributed by the fund from its current year's ordinary income and
capital gain net income and (ii) any amount on which the fund pays income tax
during the periods described above.  The fund intends to distribute net
investment income and net capital gains so as to minimize or avoid the excise
tax liability.
 
 The fund also intends to continue distributing to shareholders all of the
excess of net long-term capital gain over net short-term capital loss on sales
of securities.  If the net asset value of shares of the fund should, by reason
of a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes.
 
 Dividends generally are taxable to shareholders at the time they are paid. 
However, dividends declared in October, November and December and made payable
to shareholders of record in such a month are treated as paid and are thereby
taxable as of December 31, provided that the fund pays the dividend no later
than the end of January of the following year.
 
  If a shareholder has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, or the shareholder does
not respond to mailings from American Funds Service Company with regard to
uncashed distribution checks, the shareholder's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares.
 
 Corporate shareholders of the fund may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gain distributions) paid
by the fund to the extent the fund's income is derived from dividends (which 
if received directly would qualify for such deduction) received from domestic
corporations.  In order to qualify for the dividends-received deduction, a
corporate shareholder must hold the fund shares paying the dividends upon which
the deduction is based for at least 46 days.
 
 If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares.  Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
 
 Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation or foreign
partnership (a foreign shareholder) will be subject to U.S. withholding tax (at
a rate of 30% or lower treaty rate).  Withholding will not apply if a dividend
paid by the fund to a foreign shareholder is "effectively connected" with a
U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents, or domestic
corporations will apply.  Distributions of net long-term capital gains not
effectively connected with a U.S. trade or business are not subject to tax
withholding, but in the case of a foreign shareholder who is a nonresident
alien individual, such distributions ordinarily will be subject to U.S. income
tax at a rate of 30% if the individual is physically present in the U.S. for
more than 182 days during the taxable year.
 
 Income and dividends received by the fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries.  Tax conventions between certain countries and the United States may
reduce or eliminate such taxes.  Because not more than 50% of the value of the
total assets of the fund is expected to consist of securities of foreign
issuers, the fund will not be eligible to elect to "pass through" foreign tax
credits to shareholders.
 
 As of the date of this statement of additional information, the maximum
federal individual stated tax rate applicable to ordinary income is 39.6%
(effective tax rates may be higher for some individuals due to phase out of
exemptions and elimination of deductions); the maximum individual tax rate
applicable to net capital gains on assets held more than eighteen months or
20%, and on assets held more than one year and not more than eighteen months is
28%; and the maximum corporate tax applicable to ordinary income and net
capital gains is 35%.  However, to eliminate the benefit of lower marginal
corporate income tax rates, corporations which have taxable income in excess of
$100,000 for a taxable year will be required to pay an additional amount of tax
of up to $11,750 and corporations which have taxable income in excess of
$15,000,000 for a taxable year will be required to pay an additional amount of
tax of up to $100,000.  Naturally, the amount of tax payable by a shareholder
with respect to either distributions from the fund or disposition of fund
shares will be affected by a combination of tax law rules covering, E.G.,
deductions, credits, deferrals, exemptions, sources of income and other
matters.  Under the Code, an individual is entitled to establish an IRA each
year (prior to the tax return filing deadline for the year) whereby earnings on
investments are tax-deferred.  In addition, in some cases, the IRA contribution
itself may be deductible.
 
 The foregoing is limited to a summary of federal taxation and should not be
viewed as a comprehensive discussion of all provisions of the Code relevant to
investors.  Dividends and capital gain distributions may also be subject to
state or local taxes.  Shareholders should consult their own tax advisers for
additional details as to their particular tax status.
 
                               PURCHASE OF SHARES
 
<TABLE>
<CAPTION>
<S>                  <C>                                 <C>                                     
METHOD               INITIAL INVESTMENT                  ADDITIONAL INVESTMENTS                  
 
                     See "Investment Minimums and        $50 minimum (except where a             
                     Fund Numbers" for initial           lower minimum is noted under            
                     investment minimums.                "Investment Minimums and Fund           
                                                         Numbers").                              
 
By contacting        Visit any investment dealer         Mail directly to your investment        
your                 who is registered in the            dealer's address printed on your        
investment           state where the purchase is         account statement.                      
dealer               made and who has a sales                                                    
                     agreement with American                                                     
                     Funds Distributors.                                                         
 
By mail              Make your check payable to          Fill out the account additions          
                     the fund and mail to the            form at the bottom of a recent          
                     address indicated on the            account statement, make your            
                     account application.  Please        check payable to the fund, write        
                     indicate an investment              your account number on your             
                     dealer on the account               check, and mail the check and           
                     application.                        form in the envelope provided           
                                                         with your account statement.            
 
By telephone         Please contact your                 Complete the "Investments by            
                     investment dealer to open           Phone" section on the account           
                     account, then follow the            application or American                 
                     procedures for additional           FundsLink Authorization Form.           
                     investments.                        Once you establish the                  
                                                         privilege, you, your financial          
                                                         advisor or any person with your         
                                                         account information can call            
                                                         American FundsLine(r) and make          
                                                         investments by telephone                
                                                         (subject to conditions noted in         
                                                         "Telephone and Computer Purchases,   
                                                         Redemptions and Exchanges" below).   
 
By computer          Please contact your                 Complete the American FundsLink         
                     investment dealer to open           Authorization Form.  Once you           
                     account, then follow the            establish the privilege, you,           
                     procedures for additional           your financial advisor or any           
                     investments.                        person with your account                
                                                         information may access American         
                                                         FundsLine(r) on the Internet and        
                                                         make investments by computer            
                                                         (subject to conditions noted in         
                                                         "Telephone and Computer                 
                                                         Purchases, Redemptions and              
                                                         Exchanges" below).                      
 
By wire              Call 800/421-0180 to obtain         Your bank should wire your              
                     your account number(s), if          additional investments in the           
                     necessary.  Please indicate         same manner as described under          
                     an investment dealer on the         "Initial Investment."                   
                     account.  Instruct your bank                                                
                     to wire funds to:                                                           
                     Wells Fargo Bank                                                            
                     155 Fifth Street                                                            
                     Sixth Floor                                                                 
                     San Francisco, CA 94106                                                     
                     (ABA #121000248)                                                            
                     For credit to the account                                                   
                     of:                                                                         
                     American Funds Service                                                      
                     Company                                                                     
                     a/c #4600-076178                                                            
                     (fund name)                                                                 
                     (your fund acct. no.)                                                       
 
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY                                                           
                   
PURCHASE ORDER.                                                                                  
 
</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>
<S>                                          <C>                     <C>         
FUND                                         MINIMUM                 FUND        
                                             INITIAL                 NUMBER      
                                             INVESTMENT                          
 
STOCK AND STOCK/BOND FUNDS                                                       
 
AMCAP Fund(r)                                $1,000                  02          
 
American Balanced Fund(r)                    500                     11          
 
American Mutual Fund(r)                      250                     03          
 
Capital Income Builder(r)                    1,000                   12          
 
Capital World Growth and Income Fund(sm)     1,000                   33          
 
EuroPacific Growth Fund(r)                   250                     16          
 
Fundamental Investors(sm)                    250                     10          
 
The Growth Fund of America(r)                1,000                   05          
 
The Income Fund of America(r)                1,000                   06          
 
The Investment Company of America(r)         250                     04          
 
The New Economy Fund(r)                      1,000                   14          
 
New Perspective Fund(r)                      250                     07          
 
SMALLCAP World Fund(r)                       1,000                   35          
 
Washington Mutual Investors Fund(sm)         250                     01          
 
BOND FUNDS                                                                       
 
American High-Income Municipal Bond Fund(r)   1,000                   40          
 
American High-Income Trust(sm)               1,000                   21          
 
The Bond Fund of America(sm)                 1,000                   08          
 
Capital World Bond Fund(r)                   1,000                   31          
 
Intermediate Bond Fund of America(sm)        1,000                   23          
 
Limited Term Tax-Exempt Bond Fund of         1,000                   43          
America(sm)                                                                      
 
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).
 
 DEALER COMMISSIONS - The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below. 
The money market funds of The American Funds Group are offered at net asset
value.  (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
 
<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                              
$1,000,000                                                         1.60             
 
$1,000,000 or more               none             none             (see below)      
                                                                    
 
</TABLE>
  Commissions of up to 1% will be paid to dealers who initiate and are
responsible for purchases of $1 million or more, of purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $50 million or more: 1.00% on amounts of $1 million
to $2 million, 0.80% on amounts over $2 million to $3 million, 0.50% on amounts
over $3 million to $50 million, 0.25% on amounts over $50 million to $100
million, and 0.15% on amounts over $100 million.  The level of dealer
commissions will be determined based on sales made over a 12-month period
commencing from the date of the first sale at net asset value.
 
 American Funds Distributors, at its expense (from a designated percentage of
its income), will, during calendar year 1998, provide additional compensation
to dealers. Currently these payments are limited to the top one hundred dealers
who have sold shares of the fund or other funds in The American Funds Group.
These payments will be based on a pro rata share of a qualifying dealer's
sales. American Funds Distributors will, on an annual basis, determine the
advisability of continuing these payments.
 
 Any employer-sponsored 403(b) plan or defined contribution plan qualified
under Section 401(a) of the Internal Revenue Code including a "401(k)" plan
with 100 or more eligible employees or any other purchaser investing at least
$1 million in shares of the fund (or in combination with shares of other funds
in The American Funds Group other than the money market funds) may purchase
shares at net asset value; however, a contingent deferred sales charge of 1% is
imposed on certain redemptions made within twelve months of the purchase. (See
"Redeeming Shares--Contingent Deferred Sales Charge.")  Investments by
retirement plans, foundations or endowments with $50 million or more in assets
may be made with no sales charge and are not subject to a contingent deferred
sales charge.
 
 
 Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services.  These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
 
 NET ASSET VALUE PURCHASES - The stock, stock/bond and bond funds may sell
shares at net asset value to: (1) current or retired directors, trustees,
officers and advisory board members of the funds managed by Capital Research
and Management Company, employees of Washington Management Corporation,
employees and partners of The Capital Group Companies, Inc. and its affiliated
companies, certain family members of the above persons, and trusts or plans
primarily for such persons; (2) current registered representatives, retired
registered representatives with respect to accounts established while active,
or full-time employees (and their spouses, parents, and children) of dealers
who have sales agreements with American Funds Distributors (or who clear
transactions through such dealers) and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer; (4) trustees or other fiduciaries purchasing shares for
certain retirement plans of organizations with retirement plan assets of $50
million or more; (5) insurance company separate accounts; (6) accounts managed
by subsidiaries of The Capital Group Companies, Inc.; and (7) The Capital Group
Companies, Inc., its affiliated companies and Washington Management
Corporation. Shares are offered at net asset value to these persons and
organizations due to anticipated economies in sales effort and expense. 
 
 STATEMENT OF INTENTION - The reduced sales charges and offering prices set
forth in the Prospectus apply to purchases of $50,000 or more made within a
13-month period subject to the following statement of intention (the Statement)
terms.  The Statement is not a binding obligation to purchase the indicated
amount.  When a shareholder elects to utilize the Statement in order to qualify
for a reduced sales charge, shares equal to 5% of the dollar amount specified
in the Statement will be held in escrow in the shareholder's account out of the
initial purchase (or subsequent purchases, if necessary) by the Transfer Agent. 
All dividends and any capital gain distributions on shares held in escrow will
be credited to the shareholder's account in shares (or paid in cash, if
requested).  If the intended investment is not completed within the specified
13-month period, the purchaser will remit to the Principal Underwriter the
difference between the sales charge actually paid and the sales charge which
would have been paid if the total of such purchases had been made at a single
time.  If the difference is not paid within 45 days after written request by
the Principal Underwriter or the securities dealer, the appropriate number of
shares held in escrow will be redeemed to pay such difference.  If the proceeds
from this redemption are inadequate, the purchaser will be liable to the
Principal Underwriter for the balance still outstanding.  The Statement may be
revised upward at any time during the 13-month period, and such a revision will
be treated as a new Statement, except that the 13-month period during which the
purchase must be made will remain unchanged and there will be no retroactive
reduction of the sales charges paid on prior purchases.  Existing holdings
eligible for rights of accumulation (see the prospectus and account
application) may be credited toward satisfying the Statement.  During the
Statement period reinvested dividends and capital gain distributions,
investments in money market funds, and investments made under a right of
reinstatement will not be credited toward satisfying the Statement.
 
 In the case of purchase orders by the trustees of certain retirement plans by
payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows:  The regular monthly payroll
deduction investment will be multiplied by 13 and then multiplied by 1.5.  The
current value of existing American Funds investments (other than money market
fund investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period are
added to the figure determined above.  The sum is the Statement amount and
applicable breakpoint level.  On the first investment and all other investments
made pursuant to the Statement, a sales charge will be assessed according to
the sales charge breakpoint thus determined.  There will be no retroactive
adjustments in sales charges on investments previously made during the 13-month
period.
 
 Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
 
 AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the Investment Company Act of 1940, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
 
 PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company.  This offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business.  In case of orders sent directly to the fund or American Funds
Service Company, an investment dealer MUST be indicated.  The dealer is
responsible for promptly transmitting purchase orders to the Principal
Underwriter.  Orders received by the investment dealer, the Transfer Agent, or
the fund after the time of the determination of the net asset value will be
entered at the next calculated offering price.  Prices which appear in the
newspaper are not always indicative of prices at which you will be purchasing
and redeeming shares of the fund, since such prices generally reflect the
previous day's closing price whereas purchases and redemptions are made at the
next calculated price.
   
 The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily at 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 foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.  
 
 Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board; The fair value of all other assets is
added to the value of securities at the total assets;
 
 2.  Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
 
 3.  Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share.
 
 Any purchase order may be rejected by the Principal Underwriter or the fund. 
The Principal Underwriter will not knowingly sell fund shares directly,
indirectly, or through a unit investment trust to any other investment company,
or to any person or entity, where, after the sale, such investment company,
person, or entity would own beneficially, directly, indirectly, or through a
unit investment trust, more than 4.5% of the outstanding shares of the fund
without the consent of a majority of the fund's directors.
 
                                REDEEMING SHARES
 
<TABLE>
<CAPTION>
<S>                            <C>                                                       
By writing to American         Send a letter of instruction specifying the name of the fund,   
Funds Service Company (at      the number of shares or dollar amount to be sold, your name   
the appropriate address        and account number.  You should also enclose any share    
indicated under "Principal     certificates you wish to redeem.  For redemptions over    
Underwriter and Transfer       $50,000 and for certain redemptions of $50,000 or less (see   
Agent" in the prospectus)      below), your signature must be guaranteed by a bank, savings   
                               association, credit union, or member firm of a domestic stock   
                               exchange or the National Association of Securities Dealers,   
                               Inc. that is an eligible guarantor institution.  You should verify   
                               with the institution that it is an eligible guarantor prior to   
                               signing.  Additional documentation may be required for    
                               redemption of shares held in corporate, partnership or    
                               fiduciary accounts.  Notarization by a Notary Public is not an   
                               acceptable signature guarantee.                           
 
By contacting your             If you redeem shares through your investment dealer, you   
investment dealer              may be charged for this service.  SHARES HELD FOR YOU IN   
                               YOUR INVESTMENT DEALER'S STREET NAME MUST BE REDEEMED     
                               THROUGH THE DEALER.                                       
 
You may have a redemption      You may use this option, provided the account is registered in   
check sent to you by using     the name of an individual(s), a UGMA/UTMA custodian, or a   
American FundsLine(r) or       non-retirement plan trust.  These redemptions may not     
American FundsLine             exceed $50,000 per shareholder each day and the check     
OnLine(sm) or by               must be made payable to the shareholder(s) of record and be   
telephoning, faxing, or        sent to the address of record provided the address has been   
telegraphing American          used with the account for at least 10 days.  See "Transfer   
Funds Service Company          Agent" and "Exchange Privilege" below for the appropriate   
(subject to the conditions     telephone or fax number.                                  
noted in this section and in                                                             
"Telephone and Computer                                                                  
Purchases, Redemptions                                                                   
and Exchanges" below)                                                                    
 
In the case of the money       Upon request (use the account application for the money   
market funds, you may have     market funds) you may establish telephone redemption      
redemptions wired to your      privileges (which will enable you to have a redemption sent to   
bank by telephoning            your bank account) and/or check writing privileges.  If you   
American Funds Service         request check writing privileges, you will be provided with   
Company ($1,000 or more)       checks that you may use to draw against your account.     
or by writing a check ($250    These checks may be made payable to anyone you designate   
or more)                       and must be signed by the authorized number of registered   
                               shareholders exactly as indicated on your checking account   
                               signature card.                                           
 
</TABLE>
 
 A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY REDEMPTION OF $50,000
OR LESS PROVIDED THE REDEMPTION CHECK IS MADE PAYABLE TO THE REGISTERED
SHAREHOLDER(S) AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE ADDRESS HAS
BEEN USED WITH THE ACCOUNT FOR AT LEAST 10 DAYS.
 
 CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares.  Shares held
for the longest period are assumed to be redeemed first for purposes of
calculating this charge.  The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer-sponsored
retirement plan; for distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 591/2; for tax-free returns of excess
contributions to IRAs; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
 
 REDEMPTION OF SHARES - The fund's Articles of Incorporation permits the fund
to direct the Transfer Agent to redeem the shares of any shareholder for their
then current net asset value per share if at such time the shareholder owns of
record, shares having an aggregate net asset value of less than the minimum
initial investment amount required of new shareholders as set forth in the
fund's current registration statement under the 1940 Act, and subject to such
further terms and conditions as the Board of Directors of the fund may from
time to time adopt.
 
                  SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
 
 AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts.  With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the dates you select.  Bank accounts will be
charged on the day or a few days before investments are credited, depending on
the bank's capabilities, and shareholders will receive a confirmation statement
at least quarterly.  Participation in the plan will begin within 30 days after
receipt of the account application.  If the shareholder's bank account cannot
be charged due to insufficient funds, a stop-payment order or the closing of
the account, the plan may be terminated and the related investment reversed. 
The shareholder may change the amount of the investment or discontinue the plan
at any time by writing to the Transfer Agent.
 
 AUTOMATIC REINVESTMENT  - Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application.  You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
 
 CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the paying fund) into any other fund in The
American Funds Group (the receiving fund) subject to the following conditions: 
(i) the aggregate value of the shareholder's account(s) in the paying fund(s)
must equal or exceed $5,000 (this condition is waived if the value of the
account in the receiving fund equals or exceeds that fund's minimum initial
investment requirement), (ii) as long as the value of the account in the
receiving fund is below that fund's minimum initial investment requirement,
dividends and capital gain distributions paid by the receiving fund must be
automatically reinvested in the receiving fund, and (iii) if this privilege is
discontinued with respect to a particular receiving fund, the value of the
account in that fund must equal or exceed the fund's minimum initial investment
requirement or the fund shall have the right, if the shareholder fails to
increase the value of the account to such minimum within 90 days after being
notified of the deficiency, automatically to redeem the account and send the
proceeds to the shareholder.  These cross-reinvestments of dividends and
capital gain distributions will be at net asset value (without sales charge).  
 
 EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
 
 You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLine(r) or American FundsLine OnLine(sm) (see "American FundsLine(r) and
American FundsLine OnLine(sm)" below), or by telephoning 800/421-0180
toll-free, faxing (see "Principal Underwriter and Transfer Agent"  in the
prospectus for the appropriate fax numbers) or telegraphing American Funds
Service Company. (See "Telephone and Computer Purchases, Redemptions and
Exchanges" below.) Shares held in corporate-type retirement plans for which
Capital Guardian Trust Company serves as trustee may not be exchanged by
telephone, fax or telegraph. Exchange redemptions and purchases are processed
simultaneously at the share prices next determined after the exchange order is
received. (See "Purchase of Shares--Price of Shares.") THESE TRANSACTIONS HAVE
THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
 
 AUTOMATIC EXCHANGES - You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
 
 AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income.  Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals.  Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account.  The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
 
 ACCOUNT STATEMENTS -Your account is opened in accordance with your
registration instructions.  Transactions in the account, such as additional
investments will be reflected on regular confirmation statements from American
Funds Service Company.  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
TouchTone(tm) telephone or access the American Funds Web site on the Internet
at www.americanfunds.com.  Redemptions and exchanges through American
FundsLine(r) or American FundsLine OnLine(sm) are subject to the conditions
noted above and in "Shareholder Account Services and Privileges --Telephone and
Computer Purchases, Redemptions and Exchanges" below. You will need your fund
number (see the list of funds in The American Funds Group under "Purchase of
Shares--Investment Minimums and Fund Numbers"), personal identification number
(the last four digits of your Social Security number or other tax
identification number associated with your account) and account number.
 
 TELEPHONE AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES - By using the
telephone or computer (including American FundsLine(r) or American FundsLine
OnLine(sm)), fax or telegraph redemption and/or exchange options, you agree to
hold the fund, American Funds Service Company, any of its affiliates or mutual
funds managed by such affiliates, and each of their respective directors,
trustees, officers, employees and agents harmless from any losses, expenses,
costs or liability (including attorney fees) which may be incurred in
connection with the exercise of these privileges. Generally, all shareholders
are automatically eligible to use these options. However, you may elect to opt
out of these options by writing American Funds Service Company (you may also
reinstate them at any time by writing American Funds Service Company). If
American Funds Service Company does not employ reasonable procedures to confirm
that the instructions received from any person with appropriate account
information are genuine, the fund may be liable for losses due to unauthorized
or fraudulent instructions. In the event that shareholders are unable to reach
the fund by telephone or computer because of technical difficulties, market
conditions, or a natural disaster, redemption and exchange requests may be made
in writing only.
 
                      EXECUTION OF PORTFOLIO TRANSACTIONS
 
 Orders for the fund's portfolio securities transactions are placed by the
Investment Adviser.  The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions.  When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through their
correspondent clearing agents) is in a position to obtain the best price and
execution, the order is placed with that broker.  This may or may not be a
broker who has provided investment research, statistical, or other related
services to the Investment Adviser or has sold shares of the fund or other
funds served by the Investment Adviser.  The fund does not consider that it has
an obligation to obtain the lowest available commission rate to the exclusion
of price, service and qualitative considerations.
 
 There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser. 
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund.  When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner.  The fund will not pay a mark-up for
research in principal transactions.
 
 Brokerage commissions paid on portfolio transactions during the fiscal years
ended July 31, 1997, 1996 and 1995, amounted to $9,637,000, $7,865,000 and
$5,001,000 respectively.
 
                              GENERAL INFORMATION
 
 CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including
proceeds from the sale of shares of the fund and of securities in the fund's
portfolio, are held by The Chase Manhattan Bank., One Chase Manhattan Plaza,
New York, NY 10081, as Custodian.  Non-U.S. securities may be held by the
Custodian pursuant to sub-custodial arrangements in non-U.S. banks or foreign
branches of U.S. banks.
 
 TRANSFER AGENT - American Funds Service Company, a wholly-owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions.  American Funds Service Company was paid a fee
of $8,402,000 for the fiscal year ended July 31, 1997.
 
 INDEPENDENT AUDITORS - Deloitte & Touche LLP located at 1000 Wilshire
Boulevard, Los Angeles, CA 90017, serves as the fund's independent auditors
providing audit services, preparation of tax returns and review of certain
documents of the fund to be filed with the Securities and Exchange Commission. 
The financial statements included in this statement of additional information
from the annual report have been so included in reliance on the report of
Deloitte & Touche LLP given on the authority of said firm as experts in
accounting and auditing.
 
 REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on July 31. Shareholders
are provided at least semi-annually with reports showing the investment
portfolio, financial statements and other information.  The annual financial
statements are audited by the fund's independent auditors, Deloitte & Touche
LLP, whose selection is determined by the Board of Directors.
   
 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; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions.  
 
 The financial statements including the investment portfolio and the report of
Independent Auditors contained in the annual report are included in this
statement of additional information.  The following information is not included
in the annual report:
 
<TABLE>
<CAPTION>
<S>                                                        <C>      
DETERMINATION OF NET ASSET VALUE,                                   
 
REDEMPTION PRICE AND                                                
 
MAXIMUM OFFERING PRICE PER SHARE--JULY 31, 1997                     
 
                                                                    
 
Net asset value and redemption price per share                      
 
  (Net assets divided by shares outstanding)               $18.59   
 
Maximum offering price per share                                    
 
  (100/94.25 of net asset value per share                           
 
   which takes into account the fund's current                      
 
   maximum sales charge)                                   $19.72    
 
</TABLE>
 
 REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any director or directors from office and may elect a successor
or successors to fill any resulting vacancies for the unexpired terms of
removed directors.  The fund has made an undertaking, at the request of the
staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of directors as
though the fund were a common-law trust.  Accordingly, the directors of the
fund shall promptly call a meeting of shareholders for the purpose of voting
upon the question of removal of any director when requested in writing to do so
by the record holders of not less than 10% of the outstanding shares.
 
                               INVESTMENT RESULTS
 
 The fund's yield is 4.32% based on a 30-day (or one month) period ended July
31, 1997, computed by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last day of
the period, according to the following formula:
 
YIELD = 2[(a-b/cd+1)/6/-1]
 
Where:  a = dividends and interest earned during the period.
        b = expenses accrued for the period (net of reimbursements).
        c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
        d = the maximum offering price per share on the last day of the period.
 
 The fund's average annual total return for the one-, five- and ten-year
periods ended on July 31, 1997 was +21.84%, +12.92% and +12.04%, respectively. 
The average annual total return (T) is computed by equating the value at the
end of the period (ERV) with a hypothetical initial investment of $1,000 (P)
over a period of years (n) according to the following formula as required by
the Securities and Exchange Commission:  P(1+T)/n/ = ERV.
 
 The following assumptions will be reflected in computations made in accordance
with the formula stated above:  (1) deduction of the maximum sales load of
5.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated.
 
 The fund may also, at times, calculate total return based on net asset value
per share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the computation.  Consequently,
total return calculated in this manner will be higher.  These total returns may
be calculated over periods in addition to those described above.  Total return
for the unmanaged indices will be calculated assuming reinvestment of dividends
and interest, but will not reflect any deductions for advisory fees, brokerage
costs or administrative expenses.
 
 The fund may also calculate a distribution rate on a taxable and tax
equivalent basis.  The distribution rate is computed by dividing the dividends
paid by the fund over the last 12 months by the sum of the month-end net asset
value or maximum offering price and the capital gains paid over the last 12
months.   The distribution rate may differ from the yield.
 
 The fund may include information on its investment results and/or comparisons
of its investment results to various unmanaged indices (such as The Dow Jones
Average of 30 Industrial Stocks, The Standard & Poor's 500 Stock Composite
Index, the Lehman Brothers Corporate Bond Index, the Lehman Brothers Aggregate
Bond Index and the Salomon Brothers High-Grade Corporate Bond Index) or results
of other mutual funds or investment or savings vehicles in advertisements or in
reports furnished to present or prospective shareholders.
 
 The fund may refer to results compiled by organizations such as CDA Investment
Services,  Ibbotson Associates, Lipper Analytical Services and Morningstar,
Inc. and by the U.S. Department of Commerce.  Additionally, the fund may, from
time to time, refer to results published in various newspapers and periodicals,
including Barrons, Forbes, Fortune, Institutional Investor, Kiplinger's
Personal Finance Magazine, Money, U.S. News and World Report and The Wall
Street Journal.
 
 The fund may, from time to time, illustrate the benefits of tax-deferral by
comparing taxable investments to investments made through tax-deferred
retirement plans.
 
 The fund may, from time to time, compare its investment results with the
Consumer Price Index, which is a measure of the average change in prices over
time in a fixed market basket of goods and services (E.G. food, clothing,
fuels, transportation, and other goods and services that people buy for
day-to-day living).
 
 The investment results for the fund set forth below were calculated as
described in the fund's prospectus.  Data contained in Salomon's Market
Performance and Lehman Brothers' The Bond Market Report are used to calculate
cumulative total return from their base period (12/31/68 and 12/31/72,
respectively) for each index.  The percentage increases shown in the table
below or used in published reports of the fund are obtained by subtracting the
index results at the beginning of the period from the index results at the end
of the period and dividing the difference by the index results at the beginning
of the period.
 
                       IFA vs. Various Unmanaged Indices
 
<TABLE>
<CAPTION>
<S>           <C>        <C>        <C>         <C>          <C>          <C>          <C>          <C>        
                                                                          Lehman                               
 
10-Year                                         Lehman       Lehman       Brothers                  Average    
 
Period                                          Brothers     Brothers     Government/   Salomon      Savings    
 
8/1 -  7/31    IFA       DJIA/1/    S&P 500/2/   Corporate/3/   Aggregate/4/   Corporate/5/   High-Grade/6/   Account/7/   
 
                                                                                                               
 
1987 - 1997   +212%      +336%      +303%       +157%        +139%        +138%        +177%        +65%       
 
1986 - 1996   +181       +330       +269        +141         +126         +123         +149         +69        
 
1985 - 1995   +197       +391       +306        +179         +160         +158         +206         + 74       
 
1984 - 1994   +241       +385       +327        +217         +193         +189         +254         + 83       
 
1983 - 1993   +254       +333       +294        +241         +218         +213         +281         + 94       
 
1982 - 1992   +351       +528       +478        +295         +251         +242         +330         +106       
 
1981 - 1991   +298       +392       +343        +304         +269         +256         +329         +117       
 
1980 - 1990   +293       +392       +344        +235         +217         +209         +239         +124       
 
1979 - 1989   +317       +409       +416        +202         +201         +197         +202         +125       
 
1978 - 1988   +267       +308       +326        +180         +178         +175         +166         +125       
 
1977 - 1987   +283       +388       +417        +159         +164         +162         +146         +125       
 
1976 - 1986   +265       +209       +271        +184         +181         +180         +177         +124       
 
1975 - 1985   +295       +177       +250        +161         N/A          +158         +134         +121       
 
1974 - 1984   +270       +153       +210        +136         N/A          +136         +112         +116       
 
1973#- 1983   +237       +147       +172        + 95         N/A          +105         + 76         +106       
 
</TABLE>
 
________________
#  From December 1, 1973  
 
/1/  The Dow Jones Average of 30 Industrial Stocks is comprised of 30
industrial companies such as General Motors and General Electric.
 
/2/  The Standard & Poor's 500 Stock Composite Index is comprised of
industrial, transportation, public utilities, and financial stocks and
represents a large portion of the value of issues traded on the New York Stock
Exchange.  Selected issues traded on the American Stock Exchange are also
included.
 
/3/  The Lehman Brothers Corporate Bond Index is comprised of all public, fixed
rate, non-convertible investment grade domestic corporate debt.  Issues
included in this index are rated at least Baa by Moody's Investors Service, BBB
by Standard & Poor's Corporation or, in the case of bank bonds not rated by
either of the previously mentioned services, BBB by Fitch Investors Service.
 
/4/  The Lehman Brothers Aggregate Bond Index covers all sectors of the fixed
income market and is a combination of the Lehman Brothers Treasury Bond Index,
the Agency Bond Index, the Corporate Bond Index, the Yankee Bond Index and the
Mortgage Backed Securities Index.  Its inception date is December 31, 1975.
 
/5/  The Lehman Brothers Government/Corporate Bond Index is comprised of all
public obligations of the U.S. Treasury, all publicly issued debt of U.S.
Government agencies, and corporate debt guaranteed by the U.S. Government
(excluding mortgage-backed securities).  It also includes all U.S. dollar
denominated, SEC registered, public, non-convertible debt issued or guaranteed
by foreign or international governments/agencies.  Also included are all
public, fixed-rate non-convertible investment grade domestic corporate debt.
 
/6/  The Salomon Brothers High-Grade Corporate Bond Index is comprised of a
sample of high-grade corporate bonds which have a rating of AAA or AA by
Standard & Poor's Corporation.
 
/7/  Based on figures supplied by the U.S. League of Savings Institutions and
the Federal Reserve Board which reflect all kinds of savings deposits,
including longer-term certificates. Savings accounts offer a guaranteed return
of principal, but no opportunity for capital growth.  During a portion of the
period, the maximum rates paid on some savings deposits were fixed by law.
 
<TABLE>
<CAPTION>
<S>                                    <C>                                    
If you are considering IFA for an                                             
 
Individual Retirement Account. . .                                            
 
                                                                              
 
Here's how much you would have if you had invested $2,000 a year on August 1                                          
 
of each year in IFA over the past 5 and 10 years:                                          
 
                                                                              
 
5 years                                10 years                               
 
(8/1/92-7/31/97)                       (8/1/87-7/31/97)                       
 
                                                                              
 
$15,431                                $42,105                                
 
                                                                              
 
</TABLE>
 
           SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
 
<TABLE>
<CAPTION>
                                          . . . and had taken all   
 
                                          dividends and capital   
 
                                          gain distributions      
 
                                          in shares, your         
 
If you had                                investment would        
 
invested $10,000                          have been worth         
 
in IFA this many                          this much at            
 
 years ago . . .                               7/31/97            
 
<S>                    <C>                <C>                     
|                                         |                       
 
Number                 Periods                                    
 
of Years               8/1  - 7/31        Value                   
 
1                      1996 - 1997        $12,184                 
 
2                      1995 - 1997        13,825                  
 
3                      1994 - 1997        16,094                  
 
4                      1993 - 1997        16,416                  
 
                       1992 - 1997        18,360                  
5                                                                 
 
6                      1991 - 1997        21,869                  
 
7                      1990 - 1997        24,548                  
 
8                      1989 - 1997        24,830                  
 
9                      1988 - 1997        30,661                  
 
10                     1987 - 1997        31,171                  
 
                       1986 - 1997        36,376                  
11                                                                
 
12                     1985 - 1997        43,616                  
 
13                     1984 - 1997        58,178                  
 
14                     1983 - 1997        61,718                  
 
15                     1982 - 1997        87,843                  
 
16                     1981 - 1997        92,472                  
 
17                     1980 - 1997        103,092                 
 
18                     1979 - 1997        109,826                 
 
19                     1978 - 1997        119,482                 
 
20                     1977 - 1997        126,848                 
 
21                     1976 - 1997        140,939                 
 
22                     1975 - 1997        182,545                 
 
23                     1974 - 1997        228,663                 
 
24                     1973#- 1997        220,586                 
 
</TABLE>
 
#  From December 1, 1973
 
Illustration of a $10,000 investment in IFA with
dividends reinvested and capital gain distributions taken in shares
(for the period December 1, 1973 through July 31, 1997)
 
<TABLE>
<CAPTION>
<S>            <C>            <C>            <C>            <C>            <C>            <C>            <C>            
COST OF SHARES                                              VALUE OF SHARES                                                         
                      
 
                                                                                                                        
 
Year           Annual         Dividends      Total          From Initial   From           From           Total          
Ended          Dividends      (cumulative)   Investment     Investment     Capital Gains   Dividends      Value          
July 31                                      Cost                          Reinvested     Reinvested                    
 
                                                                                                                        
 
1974#          $  347         $  347         $10,347        $ 8,767        -              $   321        $ 9,088        
 
1975           785            1,132          11,132         10,141         -              1,250          11,391         
 
1976           998            2,130          12,130         12,155         -              2,596          14,751         
 
1977           969            3,099          13,099         12,701         -              3,691          16,392         
 
1978           1,117          4,216          14,216         12,584         -              4,820          17,404         
 
1979           1,333          5,549          15,549         12,693         -              6,228          18,921         
 
1980           1,463          7,012          17,012         12,490         -              7,672          20,162         
 
1981           1,743          8,755          18,755         12,818         -              9,667          22,485         
 
1982           2,187          10,942         20,942         12,256         -              11,408         23,664         
 
1983           2,549          13,491         23,491         16,112         -              17,573         33,685         
 
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        
 
</TABLE>
 
# From December 1, 1973
 
The dollar amount of capital gain distributions during the period was $29,988.
 
 EXPERIENCE OF INVESTMENT ADVISER - Capital Research and Management Company
manages nine common stock funds that are at least 10 years old.  In the rolling
10-year periods since January 1, 1967 (127 in all), those funds have had better
total returns than the Standard & Poor's 500 Composite Stock Index in 91 of the
127 periods.
 
 Note that past results are not an indication of future investment results. 
Also, the fund has different investment policies than the funds mentioned
above.  These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
 
                          DESCRIPTION OF BOND RATINGS
                           Corporate Debt Securities
 
 MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by
various entities from "Aaa" to "C" according to quality.
 
"Aaa -- Best quality.  These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge."  Interest payments are
protected by a large, or by an exceptionally stable margin and principal is
secure.  While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
 
"Aa -- High quality by all standards.  They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
 
"A -- Upper medium grade obligations.  These bonds possess many favorable
investment attributes.  Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
 
"Baa -- Medium grade obligations.  Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time.  Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
 
"Ba -- Have speculative elements; future cannot be considered as well assured. 
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future. 
Bonds in this class are characterized by uncertainty of position."
 
"B -- Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
 
"Caa -- Of poor standing.  Issues may be in default or there may be present
elements of danger with respect to principal or interest."
 
"Ca -- Speculative in a high degree; often in default or have other marked
shortcomings."
 
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
 
 Moody's supplies numerical indicators 1, 2 and 3 to rating categories.  The
modifier 1 indicates that the obligation ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and 3 indicates
a ranking toward the lower end of that generic rating category.
 
 STANDARD & POOR'S CORPORATION rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality.
 
"AAA -- Highest rating.  Capacity to pay interest and repay principal is
extremely strong."
 
"AA -- High grade.  Very strong capacity to pay interest and repay principal. 
Generally, these bonds differ from AAA issues only in a small degree."
 
"A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
 
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal.  These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
 
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation.  BB indicates the lowest degree of speculation and C
the highest degree of speculation.  While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
 
"C1 -- Reserved for income bonds on which no interest is being paid."
 
"D -- In default and payment of interest and/or repayment of principal is in
arrears."
 
 Standard & Poor's applies indicators "+", no character and "-" to its rating
categories.  The indicators show relative standing within the major rating
categories.
 
<TABLE>
The Income Fund of America
 
 
Investment Portfolio July 31, 1997
- ----------------------------------                                           ---           ---      ---
                                                                       Shares or        Market  Percent
                                                                       Principal         Value   of Net
Equity-Type Securities                                                    Amount         (000)   Assets
- ----------------------------------                                           ---           ---      ---
<S>                                                                 <C>          <C>           <C>
Energy Sources - 9.94%
Atlantic Richfield Co.                                                 6,100,000       456,356     2.43%
Texaco Inc.                                                            2,350,000       272,747     1.45
USX-Marathon Group                                                     8,400,000       270,375     1.44
Amoco Corp.                                                            2,375,000       223,250     1.19
Phillips Petroleum Co.                                                 4,225,000       194,614     1.03
Sun Co., Inc.                                                          2,305,000        82,548
Sun Co., Inc., Series A, $1.80 TARGETS, cumulative preferred           2,495,000        81,867      .88
Occidental Petroleum Corp.                                             2,000,000        50,125
Occidental Petroleum Corp. $3.875 convertible
 preferred (1)                                                           300,000        17,475      .36
Exxon Corp.                                                            1,000,000        64,250      .34
Chevron Corp.                                                            635,000        50,244      .27
Unocal Capital Trust $3.125 convertible preferred                        600,000        34,800      .17
Ashland Inc. $3.125 convertible preferred                                570,000        30,281      .16
Cyprus Amax Minerals Co. $4.00 convertible preferred,
 Series A                                                                465,000        25,807      .14
CalEnergy Capital Trust II 6.25% convertible preferred (1)               270,000        15,525      .08
                                                                                      --------    -----
                                                                                     1,870,264     9.94
                                                                                      --------    -----
 
 
Banking - 7.70%
CoreStates Financial Corp                                              3,810,000       235,029     1.25
Bankers Trust New York Corp.                                           1,910,200       193,288     1.03
First Chicago NBD Corp.                                                1,645,000       124,814      .66
J.P. Morgan & Co. Inc.                                                 1,000,000       115,875      .62
Westpac Banking Corp.                                                 14,570,000        95,017      .51
Bank of New York Co., Inc.                                             1,800,000        87,412      .46
First Union Corp.                                                        800,000        81,150      .43
Commonwealth Bank of Australia                                         7,650,277        77,198      .41
National Bank of Canada                                                5,700,000        74,483      .40
PNC Bank Corp.                                                         1,500,000        68,625      .36
Banc One Corp.                                                         1,037,000        58,202      .31
Bank of Nova Scotia                                                    1,200,000        57,495      .31
KeyCorp                                                                  900,000        55,969      .30
Fleet Financial Group, Inc.                                              770,000        52,264      .28
First Security Corp.                                                   1,060,000        28,487      .15
Central Fidelity Banks, Inc.                                             675,000        26,916      .14
California Federal Bank, FSB 11.50% preferred                            100,000        11,275      .06
Banco Nacional de Mexico, SA 11.00% exchangeable notes
 2003 (1)                                                             $4,175,000         4,488      .02
                                                                                      --------    -----
                                                                                     1,447,987     7.70
                                                                                      --------    -----
 
 
 
Utilities: Electric & Gas - 7.19%
MCN Energy Group Inc.                                                  2,913,000        92,306      .49
DTE Energy Co.                                                         3,050,000        91,309      .48
Union Electric Co.                                                     2,150,000        82,775      .44
National Power PLC                                                     8,855,000        78,589      .42
FPL Group, Inc.                                                        1,500,000        71,812      .38
Carolina Power & Light Co.                                             2,000,000        71,250      .38
Florida Progress Corp.                                                 2,200,000        70,812      .37
Consolidated Edison Co. of New York, Inc.                              2,100,000        66,412      .35
Southern Co.                                                           2,800,000        61,425      .33
Long Island Lighting Co.                                               2,400,000        58,950      .31
Duke Energy Corp. (formerly Duke Power Co.)                            1,150,000        58,291      .31
PECO Energy Co.                                                        2,300,000        54,050      .29
Houston Industries Inc.                                                2,500,000        52,344      .28
Scottish Power PLC                                                     7,200,000        50,908      .27
Peoples Energy Corp.                                                   1,190,000        45,666      .24
Equitable Resources, Inc.                                              1,500,000        44,719      .24
Hongkong Electric Holdings Ltd.                                       10,000,000        40,814      .21
SCANA Corp.                                                            1,415,000        35,375      .19
AGL Resources Inc.                                                     1,525,000        31,930      .17
Wisconsin Energy Corp.                                                 1,150,000        29,397      .16
GPU Inc.                                                                 840,400        29,151      .15
Southern Electric PLC                                                  3,692,307        27,076      .14
Puget Sound Energy, Inc. (formerly Puget Sound Power & Light Co.)        900,000        24,019      .13
New Jersey Resources Corp.                                               750,000        23,719      .13
Brooklyn Union Gas Co.                                                   606,000        18,218      .10
El Paso Natural Gas Co.                                                  190,000        10,984      .06
Citizens Utilities Trust 5.00% EPPICS convertible preferred
 2036                                                                    250,000        10,859      .06
CIPSCO Inc.                                                              250,000         9,469      .05
Northern States Power Co.                                                100,000         5,138      .03
Public Service Enterprise Group Inc.                                     200,000         4,950      .03
                                                                                      --------    -----
                                                                                     1,352,717     7.19
                                                                                      --------    -----
 
 
Telecommunications - 5.19%
U S WEST Communications Group                                          6,200,000       226,688
U S WEST Communications Group 0% convertible debentures
 2011                                                                $80,000,000        29,800     1.36
AT&T Corp.                                                             5,550,000       204,309     1.09
Hong Kong Telecommunications Ltd.                                     64,670,000       168,305      .89
Ameritech Corp.                                                        1,810,400       122,089      .65
Bell Atlantic Corp.                                                      871,700        63,253      .34
British Telecommunications PLC                                         8,000,000        55,974      .30
NYNEX Corp.                                                              900,000        49,894      .26
SBC Communications Inc. 7.75% DECS exchangeable notes 2001              $463,000        24,365      .13
Telecom Italia SpA, nonconvertible savings shares                      5,000,000        17,895      .10
International CableTel Inc. 7.00% convertible debentures
 2008 (1)                                                            $15,000,000        13,425      .07
Globalstar Telecommunications Ltd. warrants, expire 2004 (1) (2)           5,500           330      .00
Comunicacion Celular SA, Class B, warrants,
 expire 2003 (1)(2)                                                       31,000           171      .00
ICG Holdings, Inc. warrants, expire 2005 (1) (2)                          19,800           111      .00
NEXTEL Communications, Inc. warrants, expire
 1999 (2)(3)                                                              51,912             0      .00
                                                                                      --------    -----
                                                                                       976,609     5.19
                                                                                      --------    -----
 
 
Insurance - 4.57%
Lincoln National Corp.                                                 2,540,000       180,657      .96
American General Corp.                                                 2,664,200       141,869      .76
St. Paul Companies, Inc.                                               1,280,000       100,400
St. Paul Capital LLC 6.00% MIPS convertible
 preferred                                                               190,000        13,419      .60
Ohio Casualty Corp. (4)                                                2,280,000       107,160      .57
Aetna Inc., Class C, 6.25% convertible preferred                         700,000        70,525      .38
Italy (Republic of) 5.00% PENs 2001
 (exchangeable into INA SpA)                                         $67,000,000        68,139      .36
SAFECO Corp.                                                           1,310,000        62,716      .33
GIO Australia Holdings Ltd.                                           18,500,500        57,130      .30
U S WEST, Inc. 7.625% DECS exchangeable notes 1998                       433,300        18,524      .10
Allstate Corp. 6.76% exchangeable notes 1998                             370,000        18,176      .10
Mutual Risk Management Ltd. 0% convertible
 debentures 2015 (1)                                                 $22,000,000        11,963      .06
CIGNA Corp.                                                               50,000         9,975      .05
                                                                                      --------    -----
                                                                                       860,653     4.57
                                                                                      --------    -----
 
Health & Personal Care - 2.95%
Bristol-Myers Squibb Co.                                               2,015,000       158,052      .84
Glaxo Wellcome PLC                                                     6,270,000       132,843      .71
Pharmacia & Upjohn, Inc.                                               3,100,000       117,025      .62
American Home Products Corp.                                             900,000        74,194      .40
Eli Lilly and Co.                                                        600,000        67,800      .36
Glycomed Inc. 7.50% convertible debentures 2003                       $5,000,000         4,350      .02
                                                                                      --------    -----
                                                                                       554,264     2.95
                                                                                      --------    -----
 
Automobiles - 2.65%
Chrysler Corp.                                                         8,000,000       297,000     1.58
Ford Motor Co.                                                         3,400,000       138,975      .74
General Motors Corp.                                                   1,000,000        61,875      .33
                                                                                      --------    -----
                                                                                       497,850     2.65
                                                                                      --------    -----
 
Chemicals - 2.50%
Dow Chemical Co.                                                       1,831,200       173,964      .92
Imperial Chemical Industries PLC (American Depositary Receipts)        1,200,000        80,850      .43
Lyondell Petrochemical Co.                                             1,700,000        44,731      .24
Witco Corp.                                                              975,000        44,484      .24
E.I. du Pont de Nemours and Co.                                          500,000        33,469      .18
Ethyl Corp.                                                            3,500,000        31,719      .17
Eastman Chemical Co.                                                     450,000        27,225      .14
ICI Australia Ltd.                                                     2,108,000        21,227      .11
Atlantic Richfield Co. DECS convertible
 preferred                                                               500,000        12,312      .07
Sterling Chemicals Holdings, Inc. warrants,
 expire 2008 (2)                                                           4,000           140      .00
                                                                                      --------    -----
                                                                                       470,121     2.50
                                                                                      --------    -----
 
Beverages & Tobacco - 2.38%
Philip Morris Companies Inc.                                           4,200,000       189,525     1.01
RJR Nabisco Holdings Corp.                                             4,400,000       144,375      .77
Southcorp Holdings Ltd.                                               20,145,000        73,027      .39
UST Inc.                                                               1,400,000        40,687      .21
                                                                                      --------    -----
                                                                                       447,614     2.38
                                                                                      --------    -----
 
Merchandising - 2.28%
J.C. Penney Co., Inc.                                                  5,200,000       304,200     1.62
Giant Food Inc., Class A                                               2,340,000        78,536      .42
Staples, Inc. 4.50% convertible debentures 2000 (1)                  $17,000,000        21,420      .11
Home Shopping Network, Inc. 5.875% convertible
 debentures 2006 (1)                                                 $10,000,000        13,950      .07
Kmart Financing I Trust 7.75% convertible preferred                      190,000        10,355      .06
                                                                                      --------    -----
                                                                                       428,461     2.28
                                                                                      --------    -----
 
 
Forest Products & Paper - 2.27%
Weyerhaeuser Co.                                                       2,305,000       143,486      .76
Union Camp Corp.                                                       1,810,000       105,998      .56
James River Corp. of Virginia                                            550,000        22,653
James River Corp. of Virginia $1.55 DECS convertible
 preferred 1998                                                        1,665,000        63,062      .46
UPM-Kymmene Corp.                                                      2,000,000        48,584      .26
Sonoco Products Co. $2.25 convertible preferred                          345,000        23,719      .12
Stora Kopparbergs Bergslags AB, Class B                                1,250,000        20,488      .11
                                                                                      --------    -----
                                                                                       427,990     2.27
                                                                                      --------    -----
 
 
 
 
Business & Public Services - 1.86%
United Utilities PLC                                                   5,150,000        59,605      .32
Moore Corp. Ltd.                                                       1,900,000        41,206      .22
Browning-Ferris Industries, Inc.                                         100,000         3,700
Browning-Ferris Industries, Inc. 7.25% ACES convertible
 preferred 1998                                                        1,000,000        34,125      .20
Alexander & Baldwin, Inc.                                              1,267,500        34,222      .18
Thames Water PLC                                                       2,500,000        32,974      .18
Tenet Healthcare Corp. 6.00% exchangeable notes 2005                 $25,000,000        30,813      .16
Cognizant Corp.                                                          500,000        21,312      .11
IKON Office Solutions Inc.                                               202,000         5,896
IKON Office Solutions Inc. $5.04 ACES convertible preferred 1998         200,000        14,750      .11
Ceridian Corp. (2)                                                       374,000        16,362      .09
Vivra Inc. 5.00% convertible debentures 2001 (1)                     $15,000,000        14,963      .08
Omnicom Group Inc. 4.25% convertible
 debentures 2007 (1)                                                 $11,000,000        13,929      .08
Integrated Health Services, Inc. 6.00%
 convertible debentures 2003                                         $10,500,000        11,918      .06
PacifiCare Health Systems, Inc., Series A, $1.00
 convertible preferred                                                   392,500        11,039      .06
Unisource Worldwide, Inc.                                                100,000         1,862      .01
Protection One Alarm Monitoring, Inc.
 warrants, expire 2005 (1)(2)                                             57,600           691      .00
                                                                                      --------    -----
                                                                                       349,367     1.86
                                                                                      --------    -----
 
 
 
Broadcasting & Publishing - 1.57%
Time Warner Inc., Series M, 10.25% exchangeable preferred                 38,787        43,926
Time Warner Financing Trust 4.00% PERCS 1997                             400,000        18,150
Time Warner Inc. 0% convertible debentures 2012                      $25,000,000         9,813
Time Warner Inc. 0% convertible debentures 2013                      $65,000,000        31,281      .55
Houston Industries Inc. 7.00% ACES 2000                                1,780,000        95,452      .51
Comcast Corp. 1.125% convertible debentures 2007                     $54,000,000        31,995      .17
Cablevision Systems Corp., Series I, $2.125 cumulative convertible
 exchangeable preferred                                                  660,000        19,140      .10
Reader's Digest Assn., Inc., Class  A                                    680,000        16,958      .09
Tele-Communications International 4.50% convertible
 debentures 2006                                                     $15,000,000        12,338      .07
U S WEST Communications, Inc., Series D, 4.50%
 convertible preferred                                                   225,000        11,756      .06
Seat SpA (2)                                                           4,000,000         1,428
Seat SpA, nonconvertible savings shares (2)                            5,000,000         1,168      .02
Heartland Wireless Communications, Inc. warrants, expire
 2000 (1)(2)(3)                                                           18,000             0      .00
                                                                                      --------    -----
                                                                                       293,405     1.57
                                                                                      --------    -----
 
Miscellaneous Materials & Commodities - 0.82%
English China Clays PLC (4)                                           19,933,300        71,124      .38
Crown Cork & Seal Co., Inc. 4.50% convertible preferred                1,005,000        48,868      .26
Cooper Industries, Inc. 6.00% DECS convertible preferred 1999          1,500,000        34,500      .18
                                                                                      --------    -----
                                                                                       154,492      .82
                                                                                      --------    -----
 
Multi-Industry - 0.77%
Tenneco Inc.                                                           1,672,100        77,962      .41
Imasco Ltd.                                                            1,820,000        53,774      .29
Swire Pacific Capital Limited 8.84% cumulative
 guaranteed perpetual capital securities (1)                             340,000         9,323
Swire Pacific Offshore Financing Ltd. 9.33% cumulative
 guaranteed perpetual capital securities (1)                             140,000         3,948      .07
                                                                                      --------    -----
                                                                                       145,007      .77
                                                                                      --------    -----
 
 
Food & Household Products - 0.61%
General Mills, Inc.                                                    1,675,000       115,784      .61
                                                                                      --------    -----
 
 
Real Estate - 0.58%
Security Capital Pacific Trust                                         1,830,000        41,861
Security Capital Group (1)(2)(3)                                          18,680        23,835
Security Capital Group 12.00% convertible debentures
 2014 (1)(3)                                                         $14,150,100        17,260      .44
Weingarten Realty Investors                                              485,000        21,158      .11
New Plan Realty Trust 7.80%
 cumulative step-up premium rate                                         112,500         5,892      .03
                                                                                      --------    -----
                                                                                       110,006      .58
                                                                                      --------    -----
 
 
 
 
 
 
Leisure & Tourism - 0.52%
Host Marriott Financial Trust 6.75% QUIPS convertible
 preferred 2026                                                          800,000        50,400      .27
Wendy's Financing I 5.00% TECONS convertible preferred 2026              350,000        20,256      .11
Compass Group PLC 5.75% convertible debentures 2007                  $12,000,000        19,194      .10
Station Casinos, Inc. 7.00% convertible preferred                        180,000         7,560      .04
                                                                                      --------    -----
                                                                                        97,410      .52
                                                                                      --------    -----
 
 
 
Financial Services - 0.50%
Beneficial Corp.                                                       1,200,000        87,000      .46
United Companies Financial Corp. 6.75% PRIDES
 convertible preferred 2000                                              159,000         7,870      .04
                                                                                      --------    -----
                                                                                        94,870      .50
                                                                                      --------    -----
 
Metals: Nonferrous - 0.49%
Freeport McMoRan Copper & Gold Inc., Class A                             900,000        24,525
Freeport McMoRan Copper & Gold Inc., Class B                             300,000         8,775
Freeport McMoRan Copper & Gold Inc., Series A, $1.75 convertible
 preferred                                                             1,400,000        38,238      .38
Inco Ltd. 5.75% convertible debentures 2004                          $17,250,000        20,937      .11
                                                                                      --------    -----
                                                                                        92,475      .49
                                                                                      --------    -----
 
Metals: Steel - 0.29%
Carpenter Technology Corp.                                               500,000        23,750      .13
USX Corp. 5.75% convertible debentures 2001                          $21,000,000        20,370      .11
Bethlehem Steel Corp. $3.50 convertible preferred (1)                    250,000        10,313      .05
                                                                                      --------    -----
                                                                                        54,433      .29
                                                                                      --------    -----
 
Electronic Components & Instruments - 0.27%
EMC Corp. 3.25% convertible subordinated notes 2002 (1)              $20,000,000        25,700      .14
National Semiconductor Corp. 6.50% convertible
 debentures 2002 (1)                                                 $15,000,000        15,844      .08
Maxtor Corp. 5.75% convertible debentures 2012                        $7,500,000         5,250      .03
VLSI Technology, Inc. 8.25% convertible debentures 2005               $4,500,000         4,596      .02
                                                                                      --------    -----
                                                                                        51,390      .27
                                                                                      --------    -----
 
 
 
Recreation & Other Consumer Products - 0.21%
Jostens, Inc.                                                          1,580,000        40,784      .21
                                                                                      --------    -----
 
Electrical & Electronics - 0.19%
Premier Farnell PLC $1.35 convertible preferred
 (American Depositary Receipts)                                        1,570,000        35,914      .19
                                                                                      --------    -----
 
Energy Equipment - 0.18%
Cooper Industries, Inc.                                                  600,000        33,337      .18
                                                                                      --------    -----
 
 
 
Industrial Components - 0.17%
Dana Corp.                                                               700,000        31,806      .17
                                                                                      --------    -----
 
 
 
 
Machinery & Engineering - 0.13%
Thermo Electron Corp. 4.25% convertible debentures 2003 (1)          $23,000,000        25,070      .13
                                                                                      --------    -----
 
 
 
Data Processing & Reproduction - 0.10%
Wang Laboratories, Inc., Series B, 6.50% convertible preferred
 depositary shares (1)                                                   170,000         8,309      .05
AST Research, Inc. 0% convertible debentures 2013                    $15,000,000         6,150      .03
Data General Corp. 7.75% convertible debentures 2001                  $2,210,000         3,426      .02
                                                                                      --------    -----
                                                                                        17,885      .10
                                                                                      --------    -----
 
 
 
MISCELLANEOUS: Equity-type securities
 in initial period of acquisition                                                      610,206     3.24
                                                                                      --------    -----
 
TOTAL EQUITY-TYPE SECURITIES (cost: $8,691,114,000)                                 11,688,171    62.12
                                                                                      --------    -----
 
- ----------------------------------                                           ---
                                                                       Principal
Bonds & Notes                                                             Amount
                                                                           (000)
- ----------------------------------                                           ---
Broadcasting, Advertising & Publishing - 2.74%
Time Warner Inc. 7.45% 1998                                            $  10,000        10,057
Time Warner Inc., Pass-Through Asset Trust, 1997-2, 4.90%
 1999 (1) (5)                                                             10,000         9,744
Time Warner Inc., Pass-Through Asset Trust, 1997-1, 6.10%
 2001 (1)(5)                                                              12,000        11,721
Time Warner Inc. 7.75% 2005                                                5,000         5,259
Time Warner Inc. 10.15% 2012                                               7,000         8,866
Time Warner Inc. 9.125% 2013                                              20,000        23,272      .36
International CableTel Inc. 0%/10.875% 2003 (6)                           20,075        17,867
International CableTel Inc. 0%/12.75% 2005 (6)                            22,000        17,160
NTL Inc., Series B, 10.00% 2007                                           10,000        10,275      .24
Chancellor Broadcasting Co. 9.375% 2004                                   28,000        29,330
Chancellor Broadcasting Co. 8.75% 2007                                     9,500         9,761      .20
Bell Cablemedia PLC 0%/11.95% 2004 (6)                                    39,750        35,974      .19
Videotron Holdings PLC 0%/11.125% 2004 (6)                                37,500        34,453      .18
TKR Cable I, Inc. 10.50% 2007                                             30,000        33,259      .18
Comcast Cable Communications, Inc. 8.125% 2004 (1)                         5,000         5,387
Comcast Cable Communications, Inc. 8.375% 2007 (1)                        17,000        18,753
Comcast Cable Communications, Inc. 8.875% 2017 (1)                         3,000         3,489      .15
TeleWest PLC 9.625% 2006                                                   5,000         5,275
TeleWest PLC 0%/11.00% 2007 (6)                                           24,500        18,253      .13
American Media Operations, Inc. 11.625% 2004                              16,000        17,600      .09
Viacom International Inc. 9.125% 1999                                      4,000         4,095
Viacom International Inc. 10.25% 2001                                      9,500        10,403      .08
Tele-Communications, Inc. 10.125% 2001                                     5,000         5,553
Tele-Communications, Inc. 9.25% 2023                                       8,000         8,606      .08
Comcast UK Cable Partners Ltd. 0%/11.20% 2007 (6)                         18,500        14,153      .08
Comcast Corp. 10.25% 2001                                                 12,600        13,923      .07
News America Holdings Inc. 10.125% 2012                                    5,000         5,957
News America Holdings Inc. 7.43% 2026                                      7,500         7,868      .07
Radio One, Inc. 12.00% 2004 (1)                                           13,750        12,839      .07
American Radio Systems Corp. 9.75% 2005                                    5,500         5,995
American Radio Systems Corp. 9.00% 2006                                    6,500         6,792      .07
Grupo Televisa, SA, Series A, 11.375% 2003                                 3,750         4,177
Grupo Televisa, SA 11.875% 2006                                            2,500         2,888
Grupo Televisa, SA 0%/13.25% 2008 (6)                                      7,250         5,320      .07
Cablevision Systems Corp. 9.875% 2013                                     11,500        12,132      .06
Sun Media Corp. 9.50% 2007 (1)                                             9,500         9,761
Sun Media Corp. 9.50% 2007 (1)                                               500           516      .05
Multicanal Participacoes SA, Series B, 12.625% 2004                        8,750         9,986      .05
STC Broadcasting, Inc. 11.00% 2007 (1)                                     7,500         8,119      .04
RBS Participacoes SA, 11.00% 2007 (1)                                      7,250         7,649      .04
Summit Communications Group, Inc. 10.50% 2005                              6,655         7,204      .04
TV Azteca SA de CV 10.125% 2004                                            5,545         5,864      .03
Young Broadcasting Inc. 11.75% 2004                                        1,000         1,123
Young Broadcasting Inc. 10.125% 2005                                       3,750         3,984      .03
Century Communications Corp. 9.75% 2002                                    4,500         4,747      .03
Rogers Communications Inc. 10.875% 2004                                    3,500         3,666      .02
Adelphia Communications Corp. 10.50% 2004 (1)                              3,000         3,191      .02
Continental Cablevision, Inc. 8.50% 2001                                   2,000         2,147      .01
Heartland Wireless Communications, Inc. 13.00% 2003                        3,000           990      .01
                                                                                      --------    -----
                                                                                       515,403     2.74
                                                                                      --------    -----
 
Telecommunications - 1.72%
MFS Communications Co., Inc. 9.375% 2004                                  56,915        61,841
MFS Communications Co., Inc. 8.875% 2006                                  19,555        21,324      .44
Orion Network Systems, Inc. 11.25% 2007                                   61,500        64,575      .34
TCI Communications, Inc. 9.875% 1998                                       7,100         7,264
TCI Communications, Inc. 8.00% 2005                                        5,000         5,254
TCI Communications, Inc. 9.80% 2012                                       12,500        15,063
TCI Communications, Inc. 8.75% 2015                                        6,500         7,202
TCI Communications, Inc. 8.75% 2023                                        8,000         8,278      .23
Omnipoint Corp. 11.625% 2006                                              35,800        34,636      .18
U S WEST Capital Funding, Inc. 6.85% 2002                                  7,000         7,131
U S WEST Capital Funding, Inc. 6.95% 2037                                 19,500        20,127      .15
Mobile Telecommunication Technologies Corp. 13.50% 2002                   19,875        21,664      .12
Qwest Communications International Inc. 10.875% 2007 (1)                  12,000        13,320      .07
Comtel Brasileira Ltda. 10.75% 2004 (1)                                    9,200         9,959      .05
Teleport Communications Group Inc. 9.875% 2006                             7,500         8,194      .04
Globalstar, LP 11.375% 2004 (1)                                            5,500         5,253      .03
Iridium LLC Units 13.00% 2005 (1)                                          4,000         4,040      .02
COLT Telecom Group PLC Units 0%/12.00% 2006 (6)                            5,000         3,325      .02
Telecom Argentina STET-France Telecom SA 12.00% 2002                       2,500         2,965      .02
Brooks Fiber Properties, Inc. 0%/10.875% 2006 (6)                          3,500         2,590      .01
                                                                                      --------    -----
                                                                                       324,005     1.72
                                                                                      --------    -----
 
 
Wireless Communications - 1.61%
NEXTEL Communications, Inc. 0%/11.50% 2003 (6)                            18,000        16,560
NEXTEL Communications, Inc. 0%/9.75% 2004 (6)                             22,000        18,040
NEXTEL Communications, Inc. 0%/10.125% 2004 (formerly
 CenCall Communications Corp.) (6)                                        35,000        29,575
NEXTEL Communications, Inc. 0%/12.25% 2004 (formerly Dial
 Call Communications Corp.) (6)                                           12,000        10,500      .41
Comcast Cellular Corp. 9.50% 2007 (1)                                     37,000        38,573      .20
PriCellular Wireless Corp. 0%/14.00% 2001 (6)                             12,000        12,930
PriCellular Wireless Corp. 0%/12.25% 2003 (6)                             14,550        14,077
PriCellular Wireless Corp. 10.75% 2004                                     7,500         7,950      .18
Centennial Cellular Corp. 8.875% 2001                                     26,000        26,260
Centennial Cellular Corp. 10.125% 2005                                     3,000         3,195      .16
Comunicacion Celular SA 0%/13.125% 2003 (6)                               31,000        23,715      .13
Cellular Communications International, Inc.,
 units consisting of notes and warrants, 0% 2000                          24,500        18,988
Cellular Communications International, Inc. 0% 2000                        1,000           768      .10
Cellular, Inc. 0%/11.75% 2003 (6)                                         18,000        17,415      .09
McCaw International, Ltd. Units 0%/13.00% 2007 (1) (6)                    31,500        17,325      .09
Cellular Communications of Puerto Rico, Inc. 10.00% 2007 (1)              14,000        14,210      .07
InterCel, Inc. 0%/12.00% 2006 (6)                                          6,000         3,930
InterCel, Inc. 11.125% 2007 (1)                                            6,250         6,438      .05
Sprint Spectrum LP, Sprint Spectrum Finance Corp. 11.00% 2006              6,000         6,735      .04
Geotek Communications, Inc., Series B, 0%/15.00% 2005 (6)                  8,000         5,000      .03
Commnet Cellular Inc. 11.25% 2005                                          3,000         3,457      .02
Rogers Cantel Inc. 9.375% 2008                                             3,000         3,255      .02
Vanguard Cellular Systems, Inc. 9.375% 2006                                3,000         3,120      .02
                                                                                      --------    -----
                                                                                       302,016     1.61
                                                                                      --------    -----
 
 
Transportation - 1.32%
USAir, Inc., Series 1993-A1, 8.625% 1998                                   5,000         5,069
USAir, Inc. 9.625% 2001                                                   19,679        20,466
USAir, Inc. 10.00% 2003                                                    8,250         8,498
USAir, Inc., enhanced equipment notes, Class C, 8.93%
 2008                                                                      7,697         8,656
USAir, Inc., pass-through trust, Series 1993-A3, 10.375%
 2013 (5)                                                                 19,495        21,639      .34
Jet Equipment Trust, Series 1994-A, Class B1, 10.91%
 2006 (1)                                                                  6,806         8,019
Jet Equipment Trust, Series 1995-B, Certificates,
 10.91% 2014 (1)                                                           4,750         5,980
Jet Equipment Trust, Series 1995-B, Class A, 7.63%
 2015 (1)                                                                 13,907        14,702
Jet Equipment Trust, Series 1995-A, Class B, 8.64%
 2015 (1)                                                                 14,430        16,205
Jet Equipment Trust, Series 1995-B, Class C, 9.71%
 2015 (1)                                                                  5,500         6,633
Jet Equipment Trust, Series 1995-A, Class C, 10.69%
 2015 (1)                                                                  5,000         6,408      .31
Continental Airlines, Inc. 9.50% 2001                                     16,750        17,839
Continental Airlines, Inc., pass-through certificates,
 Series 1996-A, 6.94% 2015 (5)                                             8,824         8,930
Continental Airlines, Inc., pass-through certificates,
 Series 1996-C, 9.50% 2015 (5)                                            12,745        14,773      .22
Airplanes Pass Through Trust, pass-through certificates,
 Series 1, Class B, 6.780% 2019 (5)(7)                                     7,105         7,132
Airplanes Pass Through Trust, pass-through certificates,
 Series 1, Class C, 8.15% 2019 (5)                                        15,000        15,870
Airplanes Pass Through Trust, pass-through certificates,
 Series 1, Class D, 10.875% 2019 (5)                                       4,300         5,031      .15
United Air Lines, Inc. 9.00% 2003                                          8,000         8,948
United Air Lines, Inc., pass-through certificates,
 Series 1996-A2, 7.87% 2019 (5)                                            5,000         5,140      .07
Delta Air Lines, Inc. 9.875% 1998                                          6,750         6,854
Delta Air Lines, Inc., pass-through certificates,
 Series 1992-A2, 9.20% 2014 (5)                                            5,000         5,839      .07
Northwest Airlines, Inc. 8.375% 2004                                       3,000         3,103
Northwest Airlines, Inc. 8.70% 2007                                        3,000         3,136
NWA Trust No. 2, Class D, 13.875% 2008                                     5,000         5,975      .07
Teekay Shipping Corp. 8.32% 2008                                          10,820        10,982      .06
MC-Cuernavaca Trust 9.25% 2001 (1)                                         6,721         6,385      .03
                                                                                      --------    -----
                                                                                       248,212     1.32
                                                                                      --------    -----
 
 
 
Energy Sources and Energy Equipment & Services - 1.30%
California Energy Co., Inc. 9.875% 2003                                    5,000         5,459
California Energy Co., Inc. 10.25% 2004                                   47,300        51,542      .30
Oryx Energy Co. 9.50% 1999                                                20,500        21,665
Oryx Energy Co. 8.375% 2004                                               12,500        13,367
Oryx Energy Co. 8.125% 2005                                                3,500         3,683      .21
J. Ray McDermott, SA 9.375% 2006                                          18,500        19,286      .10
Cliffs Drilling Co., Series B,  10.25% 2003                               14,250        15,532      .08
Global Marine, Inc. 12.75% 1999                                           13,500        14,175      .07
Falcon Drilling Co., Inc., Series B, 9.75% 2001                            6,000         6,345
Falcon Drilling Co., Inc., Series B, 8.875% 2003                           7,000         7,438      .07
Ocean Energy, Inc. 8.875% 2007 (1)                                        11,250        11,503      .06
Petro Stopping Centers, LP 10.50% 2007 (1)                                10,500        10,946      .06
Mariner Energy, Inc. 10.50% 2006                                           8,250         8,621      .05
OXYMAR 7.50% 2016 (1)                                                      8,000         8,040      .04
Forcenergy Inc 9.50% 2006                                                  7,400         7,751      .04
Lomak Petroleum, Inc. 8.75% 2007                                           7,000         7,000      .04
Mesa Operating Co. 10.625% 2006                                            6,000         6,885      .04
Kelley Oil & Gas Corp. 10.375% 2006                                        6,000         6,315      .03
Parker & Parsley Petroleum Co. 8.25% 2007                                  5,000         5,485      .03
Dual Drilling Co. 9.875% 2004                                              3,500         3,771      .02
Abraxas Petroleum Corp. 11.50% 2004                                        3,000         3,285      .02
Petrozuata Finance Inc. 7.63% 2009 (1)                                     3,000         3,130      .02
Petroleo Brasileiro SA-PETROBRAS 10.40% Eurobonds 1998 (7)                 2,500         2,569      .01
Chesapeake Energy Corp. 10.50% 2002                                          900           958      .01
                                                                                      --------    -----
                                                                                       244,751     1.30
                                                                                      --------    -----
 
 
Business & Public Services - 1.07%
Integrated Health Services, Inc. 10.75% 2006 (1)                          16,900        18,294
Integrated Health Services, Inc. 9.50% 2007 (1)                            9,250         9,805      .15
Paracelsus Healthcare Corp. 10.00% 2006                                   27,000        27,270      .14
Federal Express Corp., Series B, 10.00% 1998                               4,000         4,165
Federal Express Corp. 9.875% 2002                                          7,000         7,944
Federal Express Corp., pass-through
 certificates, Series 1994-A310, Class A1, 7.53% 2006 (5)                 11,439        11,851      .12
Protection One Alarm Monitoring, Inc.
 0%/13.625% 2005 (6)                                                      18,000        19,710      .10
Vencor, Inc. 8.625% 2007 (1)                                              19,250        19,683      .10
Sun Healthcare Group, Inc. 9.50% 2007 (1)                                 19,000        19,570      .10
Allied Waste North America, Inc. 10.25% 2006 (1)                          17,000        18,615      .10
Mariner Health Group, Inc. 9.50% 2006                                     12,750        13,451      .07
Borg-Warner Security Corp. 9.625% 2007 (1)                                 9,000         9,315      .05
Regency Health Services, Inc. 12.25% 2003                                  6,750         7,661      .04
Merit Behavioral Care Corp. 11.50% 2005                                    6,750         7,425      .04
Tenet Healthcare Corp. 8.00% 2005                                          7,000         7,245      .04
Unison Health 13.00% 2006 (1)                                              4,000         3,380      .02
                                                                                      --------    -----
                                                                                       205,384     1.07
                                                                                      --------    -----
 
Banking & Insurance - 0.74%
Capital One Capital I 7.15% 2006                                          10,000        10,186
Capital One Capital I 7.409% 2027 (1)(7)                                  13,500        12,879      .12
First Nationwide Holdings Inc. 10.625% 2003                                9,250        10,244
First Nationwide Holdings Inc. 12.50% 2003                                 9,500        10,806      .11
Chase Capital II Global Floating Rate Capital 6.359% 2027 (7)             15,000        14,670      .08
Aetna Services, Inc. 6.97% 2036                                           12,000        12,526      .07
BTC Capital Trust I 6.531% 2026 (7)                                       12,500        12,444      .07
Integon Capital I 10.75% 2027                                              9,000        11,002      .06
Riggs Capital Trust II 8.875% 2027                                        10,000        10,705      .06
Advanta Corp. 6.60% 2000                                                   4,000         3,953
Advanta National Bank 6.45% 2000                                           5,000         4,897      .05
Midland American Capital Corp. 12.75% 2003                                 6,000         6,479      .03
First Union Corp. 6.824%/7.574% 2026 (6)                                   5,000         5,156      .03
Dime Bancorp, Inc. 10.50% 2005                                             4,000         4,350      .02
Chevy Chase Savings Bank, FSB 9.25% 2005                                   4,000         4,030      .02
Coast Federal Bank 13.00% 2002                                             3,500         3,789      .02
Banco General SA 7.70% 2002 (1)                                              500           502      .00
                                                                                      --------    -----
                                                                                       138,618      .74
                                                                                      --------    -----
 
Leisure & Tourism - 0.60%
Rio Hotel & Casino, Inc. 10.625% 2005                                      2,000         2,180
Rio Hotel & Casino, Inc. 9.50% 2007                                       19,750        20,738      .12
Station Casinos, Inc., Series A, 9.625% 2003                              11,150        10,983
Station Casinos, Inc., Series B, 9.625% 2003                              10,500        10,395      .11
HMH Properties, Inc. 8.875% 2007 (1)                                      19,000        19,712      .10
Boyd Gaming Corp. 9.25% 2003                                              12,000        12,390
Boyd Gaming Corp. 9.50% 2007 (1)                                           3,000         3,030      .09
Foodmaker, Inc. 9.25% 1999                                                 5,000         5,125
Foodmaker, Inc. 9.75% 2002                                                 9,300         9,579      .08
KSL Recreation Group Inc. 10.25% 2007 (1)                                  9,000         9,540      .05
Mirage Resorts, Inc. 7.25% 2006                                            5,000         5,099      .03
California Hotel Finance Corp. 11.00% 2002                                 4,000         4,240      .02
                                                                                      --------    -----
                                                                                       113,011      .60
                                                                                      --------    -----
 
Utilities: Electric & Gas - 0.50%
Long Island Lighting Co. 7.30% 1999                                       18,990        19,295
Long Island Lighting Co. 7.50% 2007                                       15,000        15,452
Long Island Lighting Co. 7.90% 2008                                       20,000        20,507
Long Island Lighting Co. 8.90% 2019                                        5,000         5,410
Long Island Lighting Co. 9.00% 2022                                       17,000        19,199      .41
Colorado Interstate Gas Co. 6.85% 2037                                     5,000         5,132      .03
Bridas Corp. 12.50% 1999                                                   4,500         5,012      .03
SFP Pipeline Holdings, Inc. 11.16% 2010                                    3,000         3,769      .02
CMS Energy Corp., Series A, 9.50% 1997                                     3,000         3,045      .02
                                                                                      --------    -----
                                                                                        96,821      .51
                                                                                      --------    -----
 
Forest Products & Paper - 0.51%
Container Corp. of America, Series B, 10.75% 2002                          1,000         1,109
Container Corp. of America 9.75% 2003                                     44,550        48,114
Container Corp. of America, Series A, 11.25% 2004                         14,000        15,523      .34
Copamex Industrias, SA de CV 11.375% 2004 (1)                             16,200        18,023      .10
Grupo Industrial Durango, SA de CV 12.00% 2001                             6,000         6,675
Grupo Industrial Durango, SA de CV 12.625% 2003                            3,500         4,016      .06
Pacific Lumber Co. 10.50% 2003                                             1,500         1,564      .01
                                                                                      --------    -----
                                                                                        95,024      .51
                                                                                      --------    -----
 
Metals: Steel & Nonferrous - 0.47%
Kaiser Aluminum & Chemical Corp. 9.875% 2002                               9,000         9,360
Kaiser Aluminum & Chemical Corp. 12.75% 2003                               8,000         8,720
Kaiser Aluminum & Chemical Corp., Series B, 10.875% 2006                  23,000        24,898
Kaiser Aluminum & Chemical Corp. 10.875% 2006                              6,500         7,053      .27
Acme Metals Inc. 12.50% 2002                                               3,000         3,300
Acme Metals Inc. 0%/13.50% 2004 (6)                                       10,500        11,865      .08
Inco Ltd. 9.875% 2019                                                      6,500         7,043
Inco Ltd. 9.60% 2022                                                       2,625         2,998      .05
Altos Hornos de Mexico 11.375% 2002 (1)                                    3,000         3,218
Altos Hornos de Mexico 11.875% 2004 (1)                                    2,000         2,180      .03
UCAR Global Enterprises Inc. 12.00% 2005                                   4,250         4,861      .02
AK Steel Corp. 10.75% 2004                                                 2,750         2,997      .02
                                                                                      --------    -----
                                                                                        88,493      .47
                                                                                      --------    -----
 
 
General Retailing & Merchandising - 0.38%
Barnes & Noble, Inc., Series B, 11.875% 2003                              22,500        24,356      .13
Woolworth Corp., Series A, 7.00% 2002                                      7,800         7,892
Woolworth Corp. 8.50% 2022                                                 4,000         4,454      .07
LifeStyle Furnishings International Ltd. 10.875% 2006                     11,025        12,293      .07
May Department Stores Co. 8.375% 2024                                     10,000        10,904      .06
Dayton Hudson Corp. 9.50% 2015                                             5,000         6,153      .03
Loehmann's, Inc. 11.875% 2003                                              2,500         2,500      .01
AnnTaylor, Inc. 8.75% 2000                                                 2,250         2,267      .01
                                                                                      --------    -----
                                                                                        70,819      .38
                                                                                      --------    -----
 
 
Food Retailing, Food Products & Beverages - 0.38%
Canandaigua Wine Co., Inc. 8.75% 2003                                     17,500        17,675
Canandaigua Wine Co., Inc., Series C, 8.75% 2003                           3,500         3,544      .11
Stater Brothers Holdings Inc. 11.00% 2001                                 16,000        17,640      .09
Bruno's, Inc. 10.50% 2005                                                 11,000        11,234      .06
Dr Pepper Bottling Co. of Texas 10.25% 2000                                6,500         6,727      .04
Carr-Gottstein Foods Co. 12.00% 2005                                       5,000         5,575      .03
Allied Supermarkets Inc. (Vons) 6.625% 1998                                4,465         4,432      .03
Quality Food Centers, Inc. 8.70% 2007 (1)                                  2,000         2,060      .01
Star Markets Co., Inc. 13.00% 2004                                         1,500         1,710      .01
                                                                                      --------    -----
                                                                                        70,597      .38
                                                                                      --------    -----
 
Real Estate - 0.33%
B.F. Saul Real Estate Investment Trust 11.625% 2002                       23,000        24,610      .13
ERP Operating LP 7.95% 2002                                                3,750         3,948
ERP Operating LP 7.57% 2026                                                7,500         7,972      .07
Irvine Co., Series A, 7.46% 2006 (1)(3)                                   10,000         9,962      .05
Beverly Finance Corp. 8.36% 2004 (1)                                       5,000         5,344      .03
Shopping Center Associates 6.75% 2004 (1)                                  5,000         5,006      .03
Security Capital Industrial Trust 7.95% 2008                               4,000         4,305      .02
                                                                                      --------    -----
                                                                                        61,147      .33
                                                                                      --------    -----
 
Chemicals - 0.32%
Millennium America Inc. 7.00% 2006                                        16,000        16,092      .09
Polymer Group, Inc. 9.00% 2007 (1)                                        12,500        12,875      .07
Sterling Chemicals Holdings, Inc. 11.75% 2006                              7,750         8,467
Sterling Chemicals Holdings, Inc. 0%/13.50% 2008 (6)                       4,000         2,740      .06
Texas Petrochemicals Corp. 11.125% 2006                                   10,500        11,182      .06
Huntsman Co. 9.094% 2007 (1) (7)                                           8,000         8,280      .04
                                                                                      --------    -----
                                                                                        59,636      .32
                                                                                      --------    -----
 
 
Data Processing & Reproduction - 0.18%
Digital Equipment Corp. 8.625% 2012                                       16,000        16,853      .09
Unisys Corp. 12.00% 2003                                                  12,000        13,260
Unisys Corp. 11.75% 2004                                                   2,000         2,205      .08
Apple Computer, Inc. 6.50% 2004                                            2,920         2,438      .01
                                                                                      --------    -----
                                                                                        34,756      .18
                                                                                      --------    -----
 
 
Recreation, Other Consumer Products - 0.17%
Mattel, Inc. 10.125% 2002                                                 18,700        19,448      .10
AMF Group Inc. 0%/12.25% 2006 (6)                                         10,000         7,225
AMF Group Inc. 10.875% 2006                                                5,000         5,463      .07
                                                                                      --------    -----
                                                                                        32,136      .17
                                                                                      --------    -----
 
 
Financial Services - 0.17%
Ford Capital BV 10.125% 2000                                               5,500         6,116      .03
Caterpillar Inc. 8.01% 2002                                                5,000         5,326      .03
Wilshire Financial Services Group Inc. 13.00% 2004                         5,000         5,062      .03
DVI, Inc. 9.875% 2004                                                      5,000         5,025      .03
General Electric Capital Corp. 8.875% 2009                                 4,000         4,748      .02
General Motors Acceptance Corp. 7.00% 2000                                 3,000         3,059      .02
Indah Kiat Finance Mauritius Ltd. 10.00% 2007 (1)                          2,250         2,244      .01
                                                                                      --------    -----
                                                                                        31,580      .17
                                                                                      --------    -----
 
 
Electronic Components - 0.16%
Hyundai Semiconductor America, Inc. 8.25% 2004 (1)                         5,000         5,191
Hyundai Semiconductor America, Inc. 8.625% 2007 (1)                       22,500        23,715      .16
                                                                                      --------    -----
                                                                                        28,906      .16
                                                                                      --------    -----
 
Health & Personal Care - 0.09%
Allegiance Corp. 7.00% 2026                                                9,000         9,218      .05
Revlon Worldwide Corp. 0% 2001 (1)                                        11,450         8,187      .04
                                                                                      --------    -----
                                                                                        17,405      .09
                                                                                      --------    -----
 
 
Construction & Building Materials - 0.09%
M.D.C. Holdings, Inc. 11.125% 2003                                         9,050         9,887      .06
Nortek, Inc. 9.25% 2007                                                    3,825         3,873      .02
Johns Manville International Group 10.875% 2004                            2,000         2,242      .01
                                                                                      --------    -----
                                                                                        16,002      .09
                                                                                      --------    -----
 
Aerospace, Automotive Parts and Machinery - 0.05%
Newport News Shipbuilding Inc. 9.25% 2006                                  9,000         9,450      .05
                                                                                      --------    -----
 
 
Appliances & Household Durables - 0.04%
Philips Electronics NV 7.20% 2026                                          6,000         6,223      .03
The Knoll Group, Inc. 10.875% 2006                                           649           719      .01
                                                                                      --------    -----
                                                                                         6,942      .04
                                                                                      --------    -----
 
 
 
Miscellaneous - 0.72%
Freeport McMoRan Copper & Gold Inc. 7.50% 2006                            10,000        10,258
Freeport McMoRan Copper & Gold Inc. 7.20% 2026                            16,000        16,196      .14
Pan Pacific Industrial Investments PLC 0% 2007 (1)                        33,500        15,955      .09
Anchor Glass Container Corp. 11.25% 2005 (1)                              12,750        13,674      .07
Hutchison Whampoa Finance Ltd. 6.988% 2037 (1)                            12,500        12,690      .07
Owens-Illinois, Inc. 7.85% 2004                                            6,000         6,252
Owens-Illinois, Inc. 8.10% 2007                                            5,750         6,061      .06
Newsquest Capital PLC, Series B, 11.00% 2006                               2,000         2,185
Newsquest Capital PLC 11.00% 2006                                          8,500         9,286      .06
Reliance Industries Ltd. 8.25% 2027 (1)                                   10,000        10,438      .06
Consumers International Inc. 10.25% 2005 (1)                               7,000         7,560      .04
Printpack, Inc. 10.625% 2006                                               7,000         7,542      .04
Innova, S. de R.L. 12.875% 2007 (1)                                        5,000         5,300      .03
U.S. Can Corp. 10.125% 2006                                                4,000         4,220      .02
WestPoint Stevens Inc. 8.75% 2001                                          4,000         4,150      .02
Tenneco Inc. 8.075% 2002                                                   2,000         2,142      .01
DGS International Finance Co. BV 10.00% 2007 (1)                           1,250         1,298      .01
                                                                                      --------    -----
                                                                                       135,207      .72
                                                                                      --------    -----
 
 
Collateralized Mortgage/Asset-Backed Obligations (5)
 (excluding those issued by federal agencies) - 1.53%
UCFC Acceptance Corp., home-equity loan pass-through
 certificates, Series 1996-B1, Class A-2, 7.075% 2010                     15,000        15,140
UCFC Acceptance Corp., home-equity loan pass-through
 certificates, Series 1996-D1, Class A-2, 6.381% 2011                     25,700        25,746
UCFC Acceptance Corp., home-equity loan pass-through
 certificates, Series 1996-D1, Class A-4, 6.776% 2016                      8,000         8,060
UCFC Acceptance Corp., home-equity loan pass-through
 certificates, Series 1995-B1, Class A-3, 6.75% 2017                      10,965        11,054      .32
Collateralized Mortgage Obligation Trust, Series 63,
 Class Z, 9.00% 2020                                                      53,811        58,923      .31
Green Tree Financial Corp., Net Interest Margin Trust,
 Series 1994-A, 6.90% 2004                                                 4,123         4,141
Green Tree Financial Corp., Net Interest Margin Trust,
 Series 1995-A, 7.25% 2005                                                 2,437         2,446
Green Tree Financial Corp., Seller and Servicer
 Manufactured Housing Contract, Series 1993-2, Class B,
 8.00% 2018                                                               14,000        14,757
Green Tree Financial Corp., Seller and Servicer
 Manufactured Housing Contract, Series 1995-1, Class A-3,
 7.95% 2025                                                                4,834         4,867
Green Tree Financial Corp., Seller and Servicer
 Manufactured Housing Contract, Series 1995-9, Class A-5,
 6.80% 2027                                                                4,000         4,074
Green Tree Financial Corp., Seller and Servicer
 Manufactured Housing Contract, Series 1996-10, Class A-6,
 7.30% 2028                                                                3,000         3,064      .18
Resolution Trust Corp., Series 1992-CHF, Class E,
 8.25% 2020                                                               10,666        10,769
Resolution Trust Corp., Series 1993-C1, Class D,
 9.45% 2024                                                                6,143         6,203
Resolution Trust Corp., Series 1993-C1, Class E,
 9.50% 2024                                                                1,147         1,155
Resolution Trust Corp., Series 1993-C2, Class C,
 8.00% 2025                                                                3,000         3,034
Resolution Trust Corp., Series 1993-C2, Class D,
 8.50% 2025                                                                3,290         3,335
Resolution Trust Corp., Series 1993-C2, Class E,
 8.50% 2025                                                                  134           134      .14
FIRSTPLUS Home Loan Owner Trust 1996-4, Class A-2, 6.14% 2006             10,240        10,234
FIRSTPLUS Home Loan Owner Trust 1996-4, Class A-3, 6.28% 2009              4,000         3,998
FIRSTPLUS Home Loan Owner Trust 1997-1 Class A-6, 6.95% 2015              10,000        10,138      .12
Merrill Lynch Mortgage Investors, Inc., Seller
 Manufactured Housing Contract, Series 1992-B, Class A2,
 8.05% 2012                                                                   62            62
Merrill Lynch Mortgage Investors, Inc., Seller
 Manufactured Housing Contract, Series 1995-C2,
 Class A-1, 7.383% 2021 (7)                                               15,911        16,216
Merrill Lynch Mortgage Investors, Inc., mortgage pass-through
 certificates, Series 1996-C2, Class A-1, 6.69% 2028                       3,161         3,196      .10
Residential Reinsurance Ltd., Class A-2, 11.44% (1) (7)                   13,750        13,839      .07
Aames Capital Corp., home-equity loan pass-through certificates,
 Series 1996-D, Class A-1B, 6.34% 2012                                     5,000         5,003
Aames Capital Corp., home-equity loan pass-through certificates,
 Series 1996-D, Class A-1E, 6.87% 2024                                     7,000         7,017      .07
Chase Manhattan Bank, NA, Series 1993-I, Class 2A5,
 7.25% 2024                                                                9,910         9,984      .05
The Money Store Inc., home-equity loan pass-through certificates,
 Series 1996-C, Class A-3, 7.07% 2016                                      8,000         8,125      .04
GE Capital Mortgage Services, Inc., Series 1994-9, Class
 A9, 6.50% 2024                                                            6,034         5,471      .03
Standard Credit Card Master Trust I, credit card
 participation certificates, Series 1994-2A, 7.25% 2008                    5,000         5,228      .03
Banco Nacional de Mexico, SA 0% 2002 (1)                                   6,435         5,196      .03
CSFB Finance Co. Ltd., Series 1995-A, 5.00%/10.00% 2005 (1)(6)             5,000         5,064      .03
Prudential Home Mortgage Securities Co., Inc.,
 Series 1992-37, Class A6, 7.00% 2022                                      2,969         2,964      .01
                                                                                      --------    -----
                                                                                       288,637     1.53
                                                                                      --------    -----
 
 
Federal Agency Obligations: Mortgage Pass-Throughs (5)
  - 2.20%
Government National Mortgage Assn. 5.00% 2026 (7)                          6,961         6,980
Government National Mortgage Assn. 6.00% 2023                              2,834         2,710
Government National Mortgage Assn. 6.00% 2025 (7)                          3,750         3,821
Government National Mortgage Assn. 6.50% 2024-2026                        15,293        15,029
Government National Mortgage Assn. 6.875% 2022 (7)                        10,769        11,076
Government National Mortgage Assn. 7.00% 2008-2027                        25,476        25,611
Government National Mortgage Assn. 7.00% 2023-2024 (7)                    69,808        71,318
Government National Mortgage Assn. 7.125% 2023 (7)                        10,608        10,858
Government National Mortgage Assn. 7.375% 2022-2024 (7)                   11,202        11,531
Government National Mortgage Assn. 7.50% 2017-2026                        31,416        32,129
Government National Mortgage Assn. 8.00% 2017                              5,590         5,857
Government National Mortgage Assn. 8.50% 2017-2026                        31,943        33,534
Government National Mortgage Assn. 9.00% 2008-2025                        11,577        12,425
Government National Mortgage Assn. 9.50% 2009-2021                        16,293        17,694
Government National Mortgage Assn. 10.00% 2016-2019                        1,329         1,474
Government National Mortgage Assn. 10.50% 2018-2019                          201           226
Government National Mortgage Assn. 11.00% 2015                                95           108     1.39
Federal National Mortgage Assn. 6.074% 2028 (7)                           10,954        10,882
Federal National Mortgage Assn. 7.50% 2007-2023                           23,170        23,708
Federal National Mortgage Assn. 8.00% 2009-2024                           10,194        10,585
Federal National Mortgage Assn. 8.50% 2014-2025                           14,700        15,336
Federal National Mortgage Assn. 9.00% 2008-2025                            9,706        10,348
Federal National Mortgage Assn. 9.50% 2022                                 9,190         9,917
Federal National Mortgage Assn. 10.00% 2005-2025                          28,181        30,876      .60
Federal Home Loan Mortgage Corp. 8.00% 2025                                7,979         8,241
Federal Home Loan Mortgage Corp. 8.50% 2008-2020                          20,160        21,039
Federal Home Loan Mortgage Corp. 9.00% 2007-2021                          10,686        11,297
Federal Home Loan Mortgage Corp. 10.00% 2019                                 123           134
Federal Home Loan Mortgage Corp. 11.50% 2000                                  12            13      .21
                                                                                      --------    -----
                                                                                       414,757     2.20
                                                                                      --------    -----
 
 
Federal Agency Obligations: Collateralized Mortgage
 Obligations - 0.12% (5)
Federal National Mortgage Assn., Series 1996-4,
 Class ZA, 6.50% 2022                                                      5,807         5,490
Federal National Mortgage Assn., Series 1991-78,
 Class PK, 8.50% 2020                                                      8,278         8,648      .08
Federal Home Loan Mortgage Corp., Series 1673, Class SA,
 5.03% 2024 (8)                                                            6,000         3,626
Federal Home Loan Mortgage Corp., Series 178,
 Class Z, 9.25% 2021                                                       4,104         4,425      .04
                                                                                      --------    -----
                                                                                        22,189      .12
                                                                                      --------    -----
 
 
Other Federal Agency Obligations - 0.44%
Federal Home Loan Mortgage Corp. 5.74% 2003                                5,000         4,836
Federal Home Loan Mortgage Corp. 6.39% 2003                                7,750         7,651
Federal Home Loan Mortgage Corp. 6.44% 2003                                3,000         2,958
Federal Home Loan Mortgage Corp. 6.50% 2003                                5,000         4,952
Federal Home Loan Mortgage Corp. 6.59% 2003                                6,000         5,954
Federal Home Loan Mortgage Corp. 6.19% 2004                               12,750        12,429
Federal Home Loan Mortgage Corp. 6.27% 2004                                5,635         5,534      .24
Federal Home Loan Banks 6.41% 2003                                        10,000         9,863
Federal Home Loan Banks 6.16% 2004                                        13,000        12,683
Federal Home Loan Banks 6.27% 2004                                         6,000         5,888      .15
FNSM Principal STRIPS 0%/8.62% 2022 (6)                                   10,000         9,627      .05
                                                                                      --------    -----
                                                                                        82,375      .44
                                                                                      --------    -----
 
 
Governments and Governmental Authorities
(excluding U.S. government) - 0.70%
Argentina (Republic of), Series L, 6.75% Eurobonds 2005 (7)               22,101        21,041
Argentina (Republic of) 11.00% 2006                                       45,750        52,613
Argentina (Republic of) 11.375% 2017                                      11,750        13,968      .47
United Mexican States 7.875% 2001 (1)(7)                                   8,000         8,006
United Mexican States Units, Series A, 6.25% Eurobonds 2019                1,000           827
United Mexican States, Series C, 6.82% 2019 (7)                            1,000           948
United Mexican States, Series C, 0% 2003 (3)                               1,538             0
United Mexican States, Series A, 0% 2003 (3)                               1,000             0
United Mexican States 11.375% 2016                                         9,000        10,742      .11
Venezuela (Republic of) 6.75% 2007 (7)                                    10,000         9,330      .04
Brazil (Republic of) Debt Conversion Bond 6.938% 2012 (7)                  6,000         5,028      .03
Philippine Front-Loaded Interest Reduction
 Bond, Series B, 5.00% 2008 (7)                                            5,000         4,710      .03
Ontario (Province of) 7.75% 2002                                           2,500         2,662      .01
Ecuador (Republic of) Past Due Interest Bonds 6.438% 2015 (7)                538           386
Ecuador (Republic of) Past Due Interest Bonds 6.438% 2025 (7)              1,500         1,185      .01
                                                                                      --------    -----
                                                                                       131,446      .70
                                                                                      --------    -----
 
 
Floating Rate Eurodollar Notes (Undated) (7) - 0.19%
Standard Chartered Bank 6.00%                                             15,000        13,060      .07
Bank of Nova Scotia 5.75%                                                 10,000         8,963      .05
Canadian Imperial Bank of Commerce 5.688%                                 10,000         8,937      .05
Midland Bank PLC 6.125%                                                    5,000         4,546      .02
                                                                                      --------    -----
                                                                                        35,506      .19
                                                                                      --------    -----
 
 
U.S. Treasury Obligations - 5.55%
5.625% August 1997                                                        50,000        49,985      .26
8.625% August 1997                                                        50,000        50,055      .27
5.50% September 1997                                                      50,000        50,000      .27
5.75% October 1997                                                        50,000        50,024      .27
8.75% October 1997                                                        25,000        25,160      .13
6.00% November 1997                                                       50,000        50,078      .27
7.875% January 1998                                                       50,000        50,524      .27
9.25% August 1998                                                         10,000        10,361      .06
8.875% February 1999                                                      42,000        43,956      .23
9.125% May 1999                                                           10,000        10,570      .06
5.875% November 1999                                                      10,000        10,027      .05
8.75% August 2000                                                         22,500        24,321      .13
8.50% November 2000                                                       20,000        21,591      .11
7.75% February 2001                                                       68,000        72,154      .38
3.626% July 2002 (9)                                                      10,000        10,010      .05
11.625% November 2002                                                     38,000        47,797      .25
10.75% February 2003                                                      19,500        23,878      .13
7.25% May 2004                                                           120,000       128,513      .68
11.625% November 2004                                                     40,500        53,751      .29
6.50% May 2005                                                            30,000        30,891      .16
10.75% August 2005                                                         9,000        11,661      .06
3.412% January 2007 (9)                                                    7,000         6,938      .04
8.875% August 2017                                                        55,000        70,520      .37
7.125% February 2023                                                      65,250        71,367      .38
6.50% November 2026                                                       70,000        71,553      .38
                                                                                      --------    -----
                                                                                     1,045,685     5.55
                                                                                      --------    -----
 
 
TOTAL BONDS & NOTES (cost: $4,739,859,000)                                           4,966,916    26.40
                                                                                      --------    -----
 
 
 
- ----------------------------------                                           ---           ---      ---
                                                                       Principal        Market  Percent
Short-Term Securities                                                     Amount         Value   of Net
                                                                           (000)         (000)   Assets
- ----------------------------------                                           ---           ---      ---
Corporate Short-Term Notes - 8.96%
Ameritech Corp. 5.47% due 10/23-10/29/97                                  40,775        40,218
Ameritech Corp. 5.47%-5.53% due 9/22-10/24/97 (1)                         64,300        63,694      .55
PepsiCo, Inc. 5.45%-5.52% due 8/8-9/19/97                                 89,250        88,820      .47
J.C. Penney Funding Corp. 5.48%-5.54% due 8/8-10/8/97 (1)                 88,500        87,844      .47
Coca-Cola Co. 5.50%-5.52% due 8/6-8/29/97                                 83,400        83,151      .44
Sara Lee Corp. 5.48%-5.49% due 9/24-9/25/97                               82,000        81,302      .43
Procter & Gamble Co. 5.45%-5.52% due 8/25-10/20/97                        78,100        77,540      .41
Monsanto Co. 5.47%-5.48% due 8/18-10/9/97                                 54,200        53,829
Monsanto Co. 5.53%-5.54% due 8/11-10/3/97 (1)                             20,300        20,179      .40
General Electric Capital Corp.  5.50%-5.60% due 8/11-10/17/97             73,400        72,755      .39
Lucent Technologies Inc. 5.48%-5.52% due 8/13-9/29/97                     71,000        70,598      .38
Ford Motor Credit Co. 5.49%-5.53% due 8/5-10/10/97                        66,400        65,947      .35
Xerox Corp. 5.48%-5.55% due 8/6-9/23/97                                   64,800        64,536      .34
E.I. du Pont de Nemours and Co. 5.45%-5.50% due 8/4-10/16/97              57,700        57,323      .31
Motorola, Inc. 5.46%-5.49% due 8/18-9/19/97                               57,600        57,196      .30
American Express Credit Corp. 5.49%-5.54%
 due 8/20-9/26/97                                                         56,000        55,681      .30
Hershey Foods Corp. 5.47%-5.51% due 9/2-10/21/97                          55,600        55,090      .29
A.I. Credit Corp. 5.48%-5.53% due 9/18-11/6/97                            52,700        52,125      .28
Walt Disney Co. 5.52% due 9/8-9/10/97                                     50,000        49,695      .26
Beneficial Corp. 5.49%-5.55% due 8/1-9/3/97                               48,800        48,671      .26
Southwestern Bell Telephone Co. 5.52%-5.53%
 due 8/26-8/27/97                                                         47,100        46,906      .25
International Lease Finance Corp. 5.48%-5.53%
 due 9/18-10/14/97                                                        45,700        45,280      .24
Shell Oil Co. 5.47% due 9/5/97                                            45,000        44,769      .24
IBM Credit Corp. 5.48%-5.54% due 9/4-9/15/97                              41,300        41,029      .22
Commercial Credit Co. 5.49%-5.54% due 8/25-9/2/97                         40,000        39,825      .21
Avco Financial Services, Inc. 5.47%-5.53% due 8/7-10/1/97                 40,000        39,789      .21
Atlantic Richfield Co. 5.53%-5.55% due 9/24-10/2/97                       40,000        39,644      .21
CPC International Inc. 5.61% due 9/9/97 (1)                               39,000        38,760      .21
Ciesco LP 5.53% due 9/11/97                                               35,000        34,774      .18
Amoco Corp. 5.48%-5.50% due 9/3-10/8/97                                   32,800        32,482      .17
Schering-Plough Corp. 5.51% due 9/16/97                                   25,100        24,919      .13
Gannett Co., Inc. 5.45% due 8/29/97 (1)                                   10,400        10,354      .06
                                                                                      --------    -----
                                                                                     1,684,725     8.96
                                                                                      --------    -----
 
 
Federal Agency Short-Term Obligations - 1.81%
Federal National Mortgage Assn.
 5.35%-5.49% due 8/26-10/30/97                                           190,700       189,265     1.01
Federal Home Loan Mortgage Corp. 5.45%-5.57%
 due 8/12-9/5/97                                                         119,800       119,470      .63
Federal Home Loan Banks 5.48% due 8/14/97                                 32,200        32,132      .17
                                                                                      --------    -----
                                                                                       340,867     1.81
                                                                                      --------    -----
 
TOTAL SHORT-TERM SECURITIES (cost: $2,025,664,000)                                   2,025,592    10.77
                                                                                      --------    -----
TOTAL INVESTMENT SECURITIES (cost: $15,456,637,000)                                 18,680,679    99.29
 
Excess of cash and receivables over payables                                           133,534      .71
                                                                                      --------    -----
NET ASSETS                                                                         $18,814,213   100.00%
                                                                                      ========    =====
 
(1)  Purchased in a private placement transaction;
 resale to the public may require registration or sale
 only to qualified institutional buyers.
(2)  Non-income-producing security.
(3)  Valued under procedures established by the
 Board of Directors.
(4) The fund owns 6.64% and 6.48% of the outstanding voting
 securities of Ohio Casualty and English China Clays,
 respectively, and thus is considered an affiliate as
 defined in the Investment Company Act of 1940.
(5)  Pass-through securities backed by a pool of
 mortgages or other loans on which principal payments
 are periodically made. Therefore, the effective
 maturity is shorter than the stated maturity.
(6)  Step bond; coupon rate will increase at a later date.
(7)  Coupon rate changes periodically.
(8)  Inverse floater, which is a floating
 rate note whose interest rate moves in the opposite
 direction of prevailing interest rates.
(9)  Index-linked bond, which is a floating rate bond
 whose principal amount moves with a government retail
 price index.
 
 
 
See Notes to Financial Statements
</TABLE>
 
<TABLE>
The Income Fund of America
Financial Statements
- -----------------------------------------          ---------   ---------
<S>                                        <C>               <C>
Statement of Assets and Liabilities                          (dollars in
at July 31, 1997                                              thousands)
- ----------------------------------------           ---------   ---------
ASSETS:
Investment securities at market
 (cost: $15,456,637)                                         $18,680,679
Cash                                                                 832
Receivables for-
 Sales of investments                               $ 79,617
 Sales of fund's shares                               22,272
 Dividends and accrued interest                      127,696     229,585
                                                   ---------   ---------
                                                              18,911,096
LIABILITIES:
Payables for-
 Purchases of investments                             71,135
 Repurchases of fund's shares                         14,368
 Management services                                   4,319
 Accrued expenses                                      7,061      96,883
                                                   ---------   ---------
NET ASSETS AT JULY 31, 1997-
 Equivalent to $18.59 per share on
 1,012,112,230 shares of $1 par value
 capital stock outstanding (authorized
 capital stock--1,200,000,000 shares)                        $18,814,213
                                                             ============
 
 
- ----------------------------------------           ---------   ---------
Statement of Operations                                      (dollars in
for the year ended July 31, 1997                              thousands)
- -----------------------------------------          ---------   ---------
INVESTMENT INCOME:
Income:
 Dividends                                        $  414,874
 Interest                                            521,773  $  936,647
                                                   ---------
Expenses:
 Management services fee                              47,820
 Distribution expenses                                38,906
 Transfer agent fee                                    8,402
 Reports to shareholders                                 768
 Registration statement and
  prospectus                                           1,019
 Postage, stationery and supplies                      1,650
 Directors' fees                                         152
 Auditing and legal fees                                  56
 Custodian fee                                           811
 Taxes other than federal income tax                       2
 Other expenses                                          136      99,722
                                                   ---------   ---------
 Net investment income                                           836,925
                                                               ---------
REALIZED GAIN AND UNREALIZED
 APPRECIATION ON INVESTMENTS:
 Net realized gain                                             1,592,597
 Net increase in unrealized appreciation on
  investments                                                  1,817,752
                                                               ---------
  Net realized gain and unrealized
   appreciation on investments                                 3,410,349
                                                               ---------
NET INCREASE IN NET ASSETS RESULTING
 FROM OPERATIONS                                              $4,247,274
                                                             ============
- ----------------------------------------           ---------   ---------
Statement of Changes in Net Assets                           (dollars in
                                                              thousands)
- -----------------------------------------          ---------   ---------
                                           Year ended July 31
                                                        1997        1996
                                                   ---------   ---------
OPERATIONS:
Net investment income                            $   836,925 $   767,059
Net realized gain on investments                   1,592,597     630,886
Net increase in unrealized appreciation
 on investments                                    1,817,752     276,975
                                                   ---------   ---------
 Net increase in net assets
  resulting from operations                        4,247,274   1,674,920
                                                   ---------   ---------
DIVIDENDS AND DISTRIBUTIONS
 PAID TO SHAREHOLDERS:
Dividends from net investment income                (857,023)   (718,292)
Distributions from net realized
 gain on investments                                (748,006)   (152,790)
                                                   ---------   ---------
 Total dividends and distributions                (1,605,029)   (871,082)
                                                   ---------   ---------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
 131,090,765 and 143,040,894
 shares, respectively                              2,235,951   2,275,579
Proceeds from shares issued in
 reinvestment of net investment
 income dividends and distributions of
 net realized gain on investments:
 83,876,277 and 46,413,197
 shares, respectively                              1,403,146     734,433
Cost of shares repurchased:
 112,767,826 and 103,371,820
 shares, respectively                             (1,926,293) (1,644,843)
                                                   ---------   ---------
 Net increase in net assets
  resulting from capital share
  transactions                                     1,712,804   1,365,169
                                                   ---------   ---------
TOTAL INCREASE IN NET ASSETS                       4,355,049   2,169,007
 
NET ASSETS:
Beginning of year                                 14,459,164  12,290,157
                                                   ---------   ---------
End of year (including undistributed
 net investment income: $139,013
 and $159,002, respectively)                     $18,814,213 $14,459,164
                                                 =========== ===========
 
 
 
 
See Notes to Financial Statements
</TABLE>
 
NOTES TO FINANCIAL STATEMENTS
 
1. The Income Fund of America, Inc. (the "fund") is registered under the
Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks current income while secondarily striving
for capital growth through investments in stocks and fixed-income securities.
The following paragraphs summarize the significant accounting policies
consistently followed by the fund in the preparation of its financial
statements:
 
  Equity-type securities traded on a national securities exchange (or reported
on the Nasdaq national market) and securities traded in the over-the-counter
market are stated at the last reported sales price on the day of valuation;
other securities, and securities for which no sale was reported on that date,
are stated at the last quoted bid price. Bonds and notes are valued at prices
obtained from a bond-pricing service provided by a major dealer in bonds, when
such prices are available; however, in circumstances where the investment
adviser deems it appropriate to do so, such securities will be valued at the
mean of their representative quoted bid and asked prices or, if such prices are
not available, at prices for securities of comparable maturity, quality and
type. Short-term securities with original or remaining maturities in excess of
60 days are valued at the mean of their quoted bid and asked prices. Short-term
securities with 60 days or less to maturity are valued at amortized cost, which
approximates market value. Securities for which market quotations are not
readily available are valued at fair value by the Board of Directors or a
committee thereof.
 
  As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Dividend and interest income is reported on the accrual basis. Discounts
and premiums on securities purchased are amortized over the life of the
respective securities. Dividends and distributions paid to shareholders are
recorded on the ex-dividend date.
 
  Investment securities and other assets and liabilities denominated in
non-U.S. currencies are recorded in the financial statements after translation
into U.S. dollars utilizing rates of exchange on the last business day of the
year. Purchases and sales of investment securities, income and expenses are
calculated using the prevailing exchange rate as accrued. The effects of
changes in foreign currency exchange rates on investment securities are
included with the net realized gain and unrealized appreciation on investment
securities.
 
  Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $811,000 includes $358,000 that was paid by these credits
rather than in cash.  
 
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
 
  As of July 31, 1997, net unrealized appreciation on investments for federal
income tax purposes aggregated $3,224,085,000, of which $3,320,558,000 related
to appreciated securities and $96,473,000 related to depreciated securities.
During the year ended July 31, 1997, the fund realized, on a tax basis, a net
capital gain of $1,592,536,000 on securities transactions. Net losses related
to non-U.S. currency and other transactions of $61,000 were treated as an
adjustment to ordinary income for federal income tax purposes. The cost of
portfolio securities for federal income tax purposes was $15,456,594,000 at
July 31, 1997. 
  
3. The fee of $47,820,000 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.24% of the first $1 billion of average net assets; 0.20%
of such assets in excess of $1 billion but not exceeding $2 billion; 0.18% of
such assets in excess of $2 billion but not exceeding $3 billion; 0.165% of
such assets in excess of $3 billion but not exceeding $5 billion; 0.155% of
such assets in excess of $5 billion but not exceeding $8 billion; 0.15% of such
assets in excess of $8 billion but not exceeding $13 billion; 0.147% of such
assets in excess of $13 billion but not exceeding $21 billion; and 0.145% of
such assets in excess of $21 billion; plus 2.25% of monthly gross investment
income.
 
  Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Directors. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the year ended July 31, 1997,
distribution expenses under the Plan were $38,906,000. As of July 31, 1997,
accrued and unpaid distribution expenses were $6,548,000.
 
  American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $8,402,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $10,140,000 (after
allowances to dealers) as its portion of the sales charges paid by purchasers
of the fund's shares. Such sales charges are not an expense of the fund and,
hence, are not reflected in the accompanying statement of operations. 
 
  Directors who are unaffiliated with CRMC may elect to defer part or all of
the fees earned for services as members of the Board. Amounts deferred are not
funded and are general unsecured liabilities of the fund. As of July 31, 1997,
aggregate amounts deferred and earnings thereon were $366,000.
 
  CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Directors and officers of the fund
are or may be considered to be affiliated with CRMC, AFS and AFD. No such
persons received any remuneration directly from the fund.
4. As of July 31, 1997, accumulated undistributed net realized gain on
investments was $1,370,339,000 and additional paid-in capital was
$13,068,866,000.
 
  The fund made purchases and sales of investment securities, excluding
short-term securities, of $6,199,103,000 and $6,570,329,000, respectively,
during the year ended July 31, 1997.
 
  Net realized currency losses on dividends, interest and withholding taxes
reclaimable were $17,000 for the year ended July 31, 1997. 
 
  The fund reclassified $109,000 to undistributed net investment income from
undistributed net realized gains for the year ended July 31, 1997. 
 
<TABLE>
Per-Share Data and Ratios
 
                                               Year ended July 31
                                                                   ------- ------- -------   -------
                                                              1997     1996    1995    1994     1993
 
                                                          -------  ------- ------- -------   -------
<S>                                          <C>                  <C>      <C>     <C>     <C>
Net Asset Value, Beginning of Year                         $15.89   $14.92  $13.59  $14.47    $13.94
                                                          -------  ------- ------- -------   -------
 Income from Investment
  Operations:
  Net investment income                                       .86      .87     .85     .83       .85
  Net realized gain and change in
   unrealized appreciation on investments                    3.55     1.11    1.29    (.53)      .74
                                                          -------  ------- ------- -------   -------
   Total income from
 investment operations                                       4.41     1.98    2.14     .30      1.59
                                                          -------  ------- ------- -------   -------
 Less Distributions:
  Dividends from net investment
 income                                                      (.90)    (.83)   (.75)   (.83)     (.84)
  Distributions from net
 realized gains                                              (.81)    (.18)   (.06)   (.35)     (.22)
                                                          -------  ------- ------- -------   -------
   Total distributions                                      (1.71)   (1.01)   (.81)  (1.18)    (1.06)
                                                          -------  ------- ------- -------   -------
Net Asset Value, End of Year                               $18.59   $15.89  $14.92  $13.59    $14.47
                                                          =======  ======= ======= =======   =======
 
Total Return (1)                                            29.28%   13.46%  16.42%   1.98%    11.88%
 
 
Ratios/Supplemental Data:
  Net assets, end of year (in
 millions)                                                 $18,814  $14,459 $12,290 $10,537    $9,045
  Ratio of expenses to average
 net assets                                                  .61%     .62%     .65%    .63%      .62%
  Ratio of net income to average
 net assets                                                 5.09%    5.56%    6.12%   5.92%     6.05%
  Average commissions paid per share (2)                   3.21 c   4.63 c  6.20 c  6.40 c    7.14 c
  Portfolio turnover rate                                   40.92%   37.77%  26.26%  26.42%    29.18%
 
 
 
(1) Calculated without deducting a sales
 charge. The maximum sales charge is
 5.75% of the fund's offering price.
(2) Brokerage commissions paid on
 portfolio transactions increase the cost
 of securities purchased or reduce the
 proceeds of securities sold, and are not
 reflected in the fund's statement of
 operations. Shares traded on a principal
 basis without commissions, such as most
 over-the-counter and fixed-income
 transactions, are excluded. Generally,
 non-U.S. commissions are lower than U.S.
 commissions when expressed as cents per
 share but higher when expressed as a
 percentage of transactions because of the
 lower per-share prices of many non-U.S.
 securities.
</TABLE>
 
Independent Auditors' Report 
 
To the Board of Directors and Shareholders of
The Income Fund of America, Inc.:
 
 We have audited the accompanying statement of assets and liabilities of The
Income Fund of America, Inc., including the schedule of portfolio investments
as of July 31, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the per-share data and ratios for each of the five years
in the period then ended. These financial statements and per-share data and
ratios are the responsibility of the Fund's management. Our responsibility is
to express an opinion on these financial statements and per-share data and
ratios based on our audits.
 
 We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per-share data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1997 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other procedures. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
 
 In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of the Income Fund of America, Inc. as of July 31, 1997, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the per-share data and
ratios for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
 
Deloitte & Touche LLP
Los Angeles, California
September 5, 1997
 
Tax Information (unaudited)
 
  We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of distributions received by shareholders
during such fiscal year. The distributions made during the fiscal year by the
fund were earned from the following sources:
                
      Dividends and Distributions per Share  
 
<TABLE>
<CAPTION>
<S>                <C>                <C>             <C>            <C>            
To Shareholders of   Payment Date       From Net Investment Income   From Net Realized Short-Term Gains   From Net       
Record                                                               Realized  Long-Term Gains   
 
September 20, 1996   September 23, 1996   $0.20            -              -             
 
December 26, 1996   December 27, 1996   0.30            $0.074         $0.736         
 
March 21, 1997     March 24, 1997     0.20             -              -             
 
June 20, 1997      June 23, 1997      0.20             -              -             
 
</TABLE>
 
  Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 37% of the dividends
paid by the fund from net investment income represent qualifying dividends. 
 
  Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans, and 403(b) plans need not be reported as taxable income.
However, many plan retirement trusts may need this information for their annual
information reporting.
 
  Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 10% of the dividends
paid by the fund from net investment income was derived from interest on direct
U.S. Treasury obligations.
 
  SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FUND'S FISCAL YEAR AND NOT THE
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099 DIV OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 1998 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR RESPECTIVE 1997 TAX RETURNS. SHAREHOLDERS
SHOULD CONSULT THEIR TAX ADVISERS.


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