[The American Funds Group(r)]
THE INCOME FUND OF AMERICA
ANNUAL REPORT FOR THE YEAR ENDED JULY 31, 1999
25 YEARS OF INVESTING FOR INCOME
[cover illustration: sowing a field of money]
THE INCOME FUND OF AMERICA IS ONE OF THE 29 MUTUAL FUNDS IN THE AMERICAN FUNDS
GROUP,(R) THE NATION'S THIRD-LARGEST MUTUAL FUND FAMILY. FOR MORE THAN SIX
DECADES, CAPITAL RESEARCH AND MANAGEMENT COMPANY, THE AMERICAN FUNDS ADVISER,
HAS INVESTED WITH A LONG-TERM FOCUS BASED ON THOROUGH RESEARCH AND ATTENTION TO
RISK.
The Income Fund of America(r) seeks current income while secondarily striving
for capital growth through investments in stocks and fixed-income securities.
ABOUT OUR COVER: Investing in The Income Fund of America is like planting seeds
in a field. Over time, small investments have grown into meaningful amounts
through the compounding of reinvested dividends. Growing income and capital
appreciation have also played an important role in the fund's long-term
results. But, as with planting seeds, success takes patience.
[watermark: close-up of paper currency]
Figures shown are past results. Share price and return will vary, so you may
lose money. Investing for short periods makes losses more likely. Investments
are not FDIC-insured, nor are they deposits of, or guaranteed by, a bank or any
other entity.
FELLOW SHAREHOLDERS:
Last December marked The Income Fund of America's 25th year of providing
shareholders with above-average income, long-term growth of capital and
resistance to market declines. The fund's most recent fiscal year, which ended
July 31, provided ample evidence that IFA continues to meet those objectives.
HIGHLIGHTS OF THE YEAR INCLUDE:
* IFA's dividend rate at the end of fiscal 1999 was 4.7% - almost four times
the yield of Standard & Poor's 500 Composite Index, an unmanaged index that
measures large U.S. stocks and is often used as a gauge of the U.S. stock
market.
* The fund delivered a total return of 7.8% - representing a 5.1% income return
and a modest increase in share value - with distributions reinvested. This
compares with a total return of 20.2% for the S&P 500 and 2.5% for the Lehman
Brothers Aggregate Bond Index. Since IFA invests in a mixture of high-yielding
stocks, convertible securities, bonds and short-term notes to meet its income
goals, its total return has typically fallen between these two indexes.
* Over its history, even with large bond positions, IFA has come fairly close
to matching the compound annual return of the all-equity S&P 500. For the 25
years ended July 31, IFA produced a compound annual return of 14.4%, compared
with 16.2% for the S&P 500. The compound annual return of the Lehman Brothers
Aggregate Bond Index over this period was 9.6%.
A VOLATILE YEAR FOR STOCKS AND BONDS
The entire 1999 fiscal year was volatile for both stock and bond markets. Using
the S&P 500 as our measure, the stock market experienced a steep decline of
almost 20% from mid-July 1998 through the end of August, the first month of our
fiscal year. (During the same period, IFA fell 9.5%.) The market then rebounded
about 43% to an interim peak on April 12, 1999. From there, the market
meandered a bit, ending July up about 20% for IFA's full fiscal year.
For most of this period, price appreciation was narrowly confined to large
growth companies in the technology and media businesses, which pay little or no
dividends and are not appropriate for IFA's income-oriented portfolio. But in
early April 1999, a number of out-of-favor cyclical stocks in basic materials
and energy - equities that make up a significant part of IFA's stock portfolio
- - came to life. As a result, after having significantly lagged the S&P 500 for
over eight months, IFA gained three percentage points in return relative to the
S&P since the interim peak on April 12.
The bond market also experienced a dramatic shift during the fiscal year.
Yields of 10-year Treasury bonds hit a low of 4.2% in October 1998 as the
Federal Reserve lowered the federal funds rate three times in response to
turmoil in financial markets in Asia, Russia and Latin America. When signs of
recovery appeared, investors began to fear that higher inflation might ensue.
As a result, they began to demand higher bond yields. (Bond prices move in the
opposite direction of their yields.) The bond market, as represented by the
Lehman Brothers Aggregate Bond Index, fell about 2.5% in the last six months of
the fiscal year after a solid first half, producing a total bond return for the
full fiscal year of just 2.5%.
As in recent years, rising stock prices and the fund's emphasis on maintaining
above-average income caused us to sell some of the lower yielding stocks in the
portfolio during fiscal 1999. As a result, shareholders can expect a capital
gain distribution later this year.
COMPARING IFA WITH A RELEVANT PEER GROUP
Because IFA's objective and investment practices are relatively unique, it is
difficult to find a mutual fund peer group with which to compare ourselves. In
the past, IFA had been compared to "equity-income" funds by Lipper Inc.
Recently, Lipper developed new fund classifications and modified certain
criteria. We find that IFA's objectives and results now better match Lipper's
"income" funds classification and Morningstar, Inc.'s "domestic hybrid"
category than the equity-income group.
* Morningstar's domestic hybrid category - comprised of funds that invest
primarily in both U.S. stocks and bonds - showed an average total return of
8.3% for the fiscal year, slightly ahead of IFA's 7.8% return. Funds in the
domestic hybrid category produced an average annual yield of 2.4%, about half
of IFA's 4.7% dividend rate.
* Lipper's income fund category had a total return of 5.4% for the fiscal year.
Funds in the category provided an average annual yield of 4.2% for the same
period. The Lipper income fund objective is to provide high income through
investment in income-producing stocks, bonds and money market instruments.
Lipper's redefined equity-income category has a requirement of only 125% of the
average yield for all U.S. diversified equity funds. That translates into a
yield threshold of just 0.63%. IFA's dividend rate is typically much higher,
this year more than seven times that yield.
ENERGY, BASIC MATERIALS AND TELECOMMUNICATIONS HELP
Energy stocks and cyclical companies involved in basic materials - notably
paper and forest products, chemicals, metals and mining - made strong
contributions to the fund's total return this year.*
*Return to the fund reflects monthly changes in size of holdings and dividends
received and also price changes from the beginning to the end of the fiscal
year. It assumes any net proceeds are reinvested at a 5% short-term rate.
After a difficult year in fiscal 1998 as a result of decreased demand for oil
and gas in Asia, oil company stocks (7.5% of the fund's portfolio) bounced
back. In March 1999, OPEC agreed to cut oil production; soon after, Asian
economic growth resumed, inventories tightened and the price of oil rose from
$14 to just under $20 a barrel. Significant acquisitions and consolidations
also occurred. In April 1999, BP Amoco announced a $27 billion acquisition of
Atlantic Richfield, the fund's fourth-largest holding. ARCO stock returned 24%
for the fiscal year. Other energy companies helping the fund's return were
Phillips Petroleum (+18%), the fund's third-largest holding, and Mobil (+30%),
itself a takeover candidate by Exxon.
Forest products and paper company stocks (4.1% of the fund's net assets) also
recovered after a weak fiscal 1998. The repercussions of the Asian economic
downturn dampened earnings and stock prices of this group as well, providing a
buying opportunity in fiscal 1998. In the past 12 months, investors were
heartened by the return of global demand as well as industry consolidation and
a firming of prices. Weyerhaeuser, our sixth-largest holding, returned 43%.
International Paper acquired Union Camp (+65%), which had been part of IFA's
portfolio, and Swedish Stora Kopparbergs combined with its Finnish competitor
Enso (+44%). The resurgence in global economic growth also aided basic
materials stocks like Dow Chemical (+27%).
The fund's exposure to telecommunications company stocks (5.3% of net assets)
helped our returns as well. These companies provided solid dividends, and stock
price advances were spurred by strong earnings and merger announcements. In
July, Qwest Communications and U S WEST agreed to merge. U S WEST, the fund's
largest single holding, returned 12%. Bell Atlantic (+34%) merged with GTE.
Other telecommunications holdings that contributed strongly to the fund's
returns included Ameritech (+32%) and AT&T (+19%).
MIXED RESULTS FOR BANKS AND ELECTRIC AND GAS UTILITIES
IFA's large exposure to bank stocks (8.5% of the portfolio) and electric and
gas utility stocks (8.4%) hindered results. In the first part of the fiscal
year, large money-center banks were adversely affected by the Russian default
and the near collapse of a U.S. hedge fund. In the second part of the year,
regional bank stocks did poorly because rising interest rates squeezed their
profit margins. First Union, the fund's second-largest holding, had a negative
return of 20% due to disappointing earnings. One bright spot was the fund's
purchase of Bank of America on weakness early in the year. It subsequently
rebounded to return about 27%.
Results for electric and gas utility stocks were mixed. Regulatory concerns,
unusual weather in some parts of the country, rising interest rates and the
breakdown of a few merger agreements led to negative stock returns for some
holdings. They included Wisconsin Energy (-7%), MCN Energy (-4%) and SCANA
(-13%). Utility stocks, however, continue to provide above-average yields and
many are transforming their operations to meet a more competitive environment.
Some utilities had modest to good price increases to add to their yields. They
included Consolidated Natural Gas (+19%), Dominion Resources (+18%) and Florida
Progress (+11%), which was the subject of an acquisition offer at a significant
premium at the close of the fiscal year.
A PAINFUL YEAR FOR BONDS
Equities, including convertible securities, accounted for just over 61% of fund
assets at year-end, with bonds and cash accounting for the rest. The
fixed-income portion of the fund made a solid contribution to providing income,
with high-yield corporate securities accounting for about one half of the bond
position.
For bonds, as with stocks, the year can best be viewed in two parts. In the
first half of the fiscal year, long-term interest rates fell and Treasury bond
prices surged. Investors saw Treasury bonds as a safe haven; a strong U.S.
dollar and low inflation also helped. The environment changed drastically,
however, in the second part of the fiscal year. Fears of rising inflation
brought on by world economic recovery led to a reversal of the trends noted
above. Interest rates rose and the price of long-term Treasury bonds declined,
posting a negative return for the fiscal year as a whole. In the second half of
the fiscal year, high-yield bonds delivered the best results. Overall, the last
year was a painful one for the bond market, with only intermediate,
asset-backed and mortgage-backed bonds posting a positive return for the full
fiscal year.
THE IMPORTANCE OF TAKING A LONG-TERM PERSPECTIVE
Fiscal 1999 was the 25th straight year in which IFA delivered a positive total
return (with all distributions reinvested). We are proud of this unusual
accomplishment. We will report on the strategies the fund used to achieve this
enviable record and meet some IFA shareholders in our feature article,
beginning on page 6.
It's also important to point out that investing for income and capital
preservation may well reflect only part of our shareholders' long-term
financial goals. To meet other objectives, there are 28 other funds in The
American Funds Group, the third-largest mutual fund family in the United States
(see pages 14 and 15 for more information).
In the midst of a remarkable rise in share prices for certain segments of the
broad stock market, it is easy to become distracted from a focus on a realistic
long-term investment plan. We appreciate your confidence in The Income Fund of
America and we will endeavor to continue delivering above-average income with
prudent growth of your investment in the years ahead.
/s/Walter P. Stern
Walter P. Stern
Chairman of the Board
/s/Janet A. McKinley
Janet A. McKinley
President
September 13, 1999
[Begin Sidebar]
A Historical Look at IFA's Dividend Rate
Over the Past 25 Years
[Begin Mountain Chart]
<TABLE>
<CAPTION>
Date The Income Fund Average of Average of S&P 500
of America income funds equity-income funds
<S> <C> <C> <C> <C>
7/31/75 7.24 6.97 6.40 4.18
1/31/76 6.30 6.17 5.50 3.65
7/31/76 7.06 6.23 4.94 3.66
1/31/77 6.94 6.06 5.00 4.01
7/31/77 6.15 5.96 5.50 4.47
1/31/78 6.61 6.58 6.07 5.28
7/31/78 6.70 6.32 5.70 4.92
1/31/79 7.56 6.75 6.16 5.12
7/31/79 7.38 6.78 6.11 5.19
1/31/80 7.83 6.85 6.37 4.99
7/31/80 7.63 6.86 6.17 4.95
1/31/81 8.07 7.28 6.70 4.81
7/31/81 8.16 7.73 6.98 4.91
1/31/82 8.75 8.73 7.55 5.53
7/31/82 9.81 9.40 8.53 6.37
1/31/83 7.95 8.21 6.62 4.74
7/31/83 7.95 7.90 5.91 4.28
1/31/84 7.74 8.17 5.33 4.36
7/31/84 8.45 9.48 6.04 4.87
1/31/85 7.58 7.86 5.55 4.22
7/31/85 7.34 7.84 5.92 4.07
1/31/86 7.07 7.17 5.40 3.75
7/31/86 7.03 6.79 5.01 3.45
1/31/87 6.69 6.20 4.35 3.03
7/31/87 6.86 6.24 4.36 2.69
1/31/88 7.50 6.87 5.49 3.31
7/31/88 6.84 6.69 5.10 3.27
1/31/89 6.69 6.59 4.67 3.34
7/31/89 6.67 6.17 4.35 3.04
1/31/90 6.99 6.74 5.12 3.37
7/31/90 7.07 6.71 5.30 3.31
1/31/91 8.12 6.99 5.29 3.52
7/31/91 7.09 6.40 4.56 3.11
1/31/92 6.33 5.85 4.00 2.96
7/31/92 6.05 5.48 3.70 2.89
1/31/93 6.44 5.22 3.38 2.83
7/31/93 6.19 4.56 3.09 2.79
1/31/94 5.56 4.24 2.95 2.64
7/31/94 6.06 4.13 2.97 2.80
1/31/95 6.14 4.49 3.07 2.81
7/31/95 5.55 4.24 2.82 2.41
1/31/96 5.07 4.17 2.49 2.18
7/31/96 5.19 4.39 2.45 2.28
1/31/97 5.09 3.72 2.09 1.89
7/31/97 4.74 3.65 1.81 1.61
1/31/98 4.27 3.95 1.73 1.58
7/31/98 4.32 3.82 1.63 1.43
1/31/99 4.79 3.96 1.50 1.29
7/31/99 4.86 4.14 1.45 1.24
</TABLE>
[End Chart]
Annual Dividend Rate (percent)
All numbers calculated by Lipper, Inc.
[End Sidebar]
FOLLOWING THE COURSE OF AN INVESTMENT IN IFA
Here's how a $10,000 investment in IFA grew between December 1, 1973 - the day
that Capital Research and Management Company became the fund's investment
adviser - and July 31, 1999, the end of the fund's latest fiscal year.
As you can see, the $10,000 would have grown to $264,676 with all distributions
reinvested, an average increase of 13.6% a year.
The IFA figures, unlike those shown elsewhere in this report, reflect payment
of the maximum sales charge of 5.75% on the $10,000 investment. Thus, the net
amount invested was $9,425. As outlined in the prospectus, sales charges are
lower for accounts of $50,000 or more. There is no sales charge on dividends or
capital gain distributions that are reinvested in additional shares. No
adjustment has been made for income or capital gain taxes.
The fund's 30-day yield as of August 31, 1999, calculated in accordance with
the Securities and Exchange Commission formula, was 5.00%.
The fund's year-by-year results appear in the table under the chart. You can
use this table to estimate how much the value of your own holdings has grown.
AVERAGE ANNUAL COMPOUND RETURNS*
<TABLE>
<CAPTION>
<S> <C> <C>
Periods Ended
July 31, 1999 June 30, 1999
Ten years +11.54% +12.10%
Five years +14.07 +14.64
One year +1.61 +1.12
</TABLE>
*Assumes reinvestment of all distributions and payment of the 5.75% maximum
initial sales charge at the beginning of the stated periods. The sales charge
is reduced for larger investments.
The value of a long-term perspective
[begin mountain chart]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Date Standard & Poors 500 IFA/2/ with Lehman Bros. IFA/4/not
Composite Index/1/ dividends Aggregate Bond including
with dividends reinvested Index/1//3/ with dividends
reinvested interest compounded
11/30/73 10,000 9,425 10,000 9,425
7/31/74 8,506 9,088 9,378 8,767
7/31/75 9,994 11,391 10,579 10,141
7/31/76 12,118 14,751 11,871 12,155
7/31/77 12,079 16,392 13,189 12,701
7/31/78 12,958 17,404 13,474 12,584
7/31/79 14,084 18,921 14,373 12,693
7/31/80 17,431 20,162 14,602 12,490
7/31/81 19,681 22,485 13,870 12,818
7/31/82 17,075 23,664 16,720 12,256
7/31/83 27,195 33,685 20,382 16,112
7/31/84 26,372 35,722 22,154 15,738
7/31/85 34,913 47,677 27,452 19,443
7/31/86 44,805 57,148 33,352 21,668
7/31/87 62,438 66,674 34,859 23,568
7/31/88 55,127 67,816 37,497 22,341
7/31/89 72,655 83,702 43,199 25,644
7/31/90 77,291 84,643 46,253 24,351
7/31/91 87,182 95,050 51,203 25,390
7/31/92 98,308 113,242 58,770 28,370
7/31/93 106,849 126,686 64,746 29,917
7/31/94 112,391 129,177 64,806 28,788
7/31/95 141,645 150,385 71,357 31,571
7/31/96 164,969 170,626 75,310 34,007
7/31/97 250,936 220,586 83,416 41,731
7/31/98 299,268 245,553 89,980 44,436
7/31/99 359,681 264,676 92,219 45,588
</TABLE>
[end chart]
$359,681 STANDARD & POOR'S 500 COMPOSITE INDEX/1/ with dividends reinvested
$264,676 IFA/2/ with dividends reinvested
Value added by reinvestment of dividends
$92,220 LEHMAN BROS. AGGREGATE BOND INDEX/1,3/ with interest compounded
$45,588 IFA/4/ not including dividends
$10,000 original investment
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year ended July 31 1974 # 1975 1976 1977 1978
VALUE OF DIVIDENDS
Dividends in Cash $344 735 860 780 842
Dividends Reinvested $347 785 998 969 1,117
VALUE OF INVESTMENT
Dividends in Cash $8,767 10,141 12,155 12,701 12,584
Dividends Reinvested $9,088 11,391 14,751 16,392 17,404
IFA TOTAL RETURN (9.1)% 25.3 29.5 11.1 6.2
Year ended July 31 1979 1980 1981 1982 1983
VALUE OF DIVIDENDS
Dividends in Cash 936 952 1,047 1,202 1,280
Dividends Reinvested 1,333 1,463 1,743 2,187 2,549
VALUE OF INVESTMENT
Dividends in Cash 12,693 12,490 12,818 12,256 16,112
Dividends Reinvested 18,921 20,162 22,485 23,664 33,685
IFA TOTAL RETURN 8.7 6.6 11.5 5.2 42.3
Year ended July 31 1984 1985 1986 1987 1988
VALUE OF DIVIDENDS
Dividends in Cash 1,344 4,438 1,550 1,636 1,543
Dividends Reinvested 2,896 3,365 3,909 4,431 4,479
VALUE OF INVESTMENT
Dividends in Cash 15,738 19,443 21,668 23,568 22,341
Dividends Reinvested 35,722 47,677 57,148 66,674 67,816
IFA TOTAL RETURN 6.0 33.5 19.9 16.7 1.7
Year ended July 31 1989 1990 1991 1992 1993
VALUE OF DIVIDENDS
Dividends in Cash 1,711 1,578 1,764 1,715 1,713
Dividends Reinvested 5,338 5,269 6,311 6,578 6,995
VALUE OF INVESTMENT
Dividends in Cash 25,644 24,351 25,390 28,370 29,917
Dividends Reinvested 83,702 84,643 95,050 113,242 126,686
IFA TOTAL RETURN 23.4 1.1 12.3 19.1 11.9
Year ended July 31 1994 1995 1996 1997 1998
VALUE OF DIVIDENDS
Dividends in Cash 1,726 1,751 1,766 1,968 1,959
Dividends Reinvested 7,471 8,046 8,581 10,075 10,531
VALUE OF INVESTMENT
Dividends in Cash 28,788 31,571 34,007 41,731 44,731
Dividends Reinvested 129,177 150,385 170,626 220,586 245,553
IFA TOTAL RETURN 2.0 16.4 13.5 29.3 11.3
Year ended July 31 1999
VALUE OF DIVIDENDS
Dividends in Cash 2,211
Dividends Reinvested 12,446
VALUE OF INVESTMENT
Dividends in Cash 45,588
Dividends Reinvested 264,676
IFA TOTAL RETURN 7.8
</TABLE>
Average annual compound return for 25-1/2 years:
13.6%/2/
# For the period December 1, 1973 (when Capital Research and Management Company
became the fund's investment adviser), through July 31, 1974.
/1/ The indexes are unmanaged and do not reflect sales charges, commissions or
expenses.
/2/ Includes reinvested dividends of $120,212 and reinvested capital gain
distributions of $63,932. From April 1990 to September 1994 the fund paid daily
dividends; therefore, total values for this period were adjusted for cumulative
dividends ex- but not yet paid. After this period, quarterly dividends were
resumed.
/3/ From December 1, 1973, through December 31, 1975, the Lehman Brothers
Government/Corporate Bond Index was used because the Lehman Brothers Aggregate
Bond Index did not exist. From January 1, 1976, the Lehman Brothers Aggregate
Bond Index was used.
/4/ Includes capital gain distributions of $14,811, but does not reflect income
dividends of $36,351 taken in cash.
Past results are not predictive of future results.
25 YEARS OF INVESTING FOR INCOME
HOW IFA PRODUCED ITS SOLID LONG-TERM RECORD
How difficult is it to invest for 25 years without losing money along the way?
Very difficult. Lipper, Inc. identifies 206 general equity funds with at least
a 25-year record. Only one has delivered a positive total return every fiscal
year (with all distributions reinvested). That fund is The Income Fund of
America.
Through bear markets and bull markets, sharp rises in interest rates and steep
declines, economic booms and recessions, your fund has never wavered from its
original mission. "We work to provide above-average income, preserve
shareholders' capital and then grow the portfolio with prudent investing," says
Janet McKinley, IFA's president. "Our first rule is: Try not to lose people's
money."
Over the years, a large number of investors have come to appreciate the fund's
conservative investment approach. The number of shareholder accounts has grown
from 4,900 at the end of fiscal 1974 to 646,300 as of July 31, 1999.
Over the same period, the fund's assets have increased from $34 million to $23
billion, making it one of America's largest mutual funds.
The fund's focus has always been on delivering income. Over the past 25 years,
prices in the United States, as measured by the Consumer Price Index, have more
than tripled. The income generated by an investment in IFA (assuming all
distributions were reinvested) has grown almost 16-fold. Even with its primary
emphasis on income, the fund has produced a compound annual total return -
including dividends and capital gains - of 14.4%* over the past 25 fiscal
years. That is only modestly below the 16.2% compound annual total return of
the Standard and Poor's 500 Composite Index for the same period. The S&P 500 is
an unmanaged index fully invested in mostly large U.S. stocks with no bonds, no
income goals and no expenses.
*All figures are based on net asset value with all distributions reinvested.
BROAD RANGE OF SHAREHOLDERS SHOWS FUND'S APPEAL
Two very different types of shareholders illustrate IFA's broad appeal. Chester
and Norma Sperry, retired farmers in Glenwood, Iowa, invested in IFA in July
1974 along with two mutual funds from other fund families. The other funds were
"too volatile," says Chester. "At one point, they fell to about half their
original value." The couple sold those funds but decided to keep IFA. "IFA just
keeps chugging along," says Chester. "We don't worry about it." As the table at
right shows, IFA did better than the S&P 500 in each of the five largest stock
market declines in the past 25 years. The couple has kept reinvesting their
dividends and is holding the fund as a long-term investment.
In Chico, California, the Girl Scouts of Sierra Cascade, a Girl Scout council
that serves 4,800 girls in nine northern California counties, uses IFA for
current income as well as long-term growth. Dividend payments from the
council's IFA account help fund outreach programs for a diverse group of girls
ranging from Hmong families from Laos who settled in the area to Native
Americans on a nearby reservation. After receiving a large charitable donation
in 1994, the council consulted with a financial adviser who recommended IFA.
"We wanted an investment with reliable income and steady growth," says Melanie
Farone, the council's executive director. "We couldn't stand it if we had an
account that went up 35% one year and then fell 30% the next year."
[Begin Sidebar]
RESISTANCE TO MARKET DECLINES:
FIVE EQUITY MARKET DECLINES AND HOW IFA FARED VERSUS THE S&P 500
<TABLE>
<CAPTION>
<S> <C> <C>
Period S&P 500 IFA
9/21/76 to 3/6/78 -13.8% +1.9%
11/28/80 to 8/12/82 -19.9 +19.0
8/25/87 to 12/4/87 -33.0 -13.6
7/16/90 to 10/11/90 -19.1 -10.2
7/17/98 to 8/31/98 -19.3 -9.5
</TABLE>
This chart shows the total returns of IFA and the S&P 500 during the five
greatest equity market declines in the past 25 years. (It does not include the
1973-74 stock market decline because CRMC took over management of IFA on
December 1, 1973, about midway through that decline.)
[End Sidebar]
[photo: Chester and Norma Sperry]
[caption: Chester and Norma Sperry in Iowa]
[Begin Sidebar]
REINVESTING INCOME FOR THE FUTURE
Chester and Norma Sperry are an example of how investors can use The Income
Fund of America to build an investment account for the long-term. The Sperrys,
retired farmers in Iowa, have been shareholders in IFA for 25 years and, like
most of our investors, they haven't taken out income. "We haven't needed to use
the money," says Norma, "so we've let it pile up through the years." The couple
reinvested all dividends and capital gain distributions. Over the past 25
years, IFA has earned a compound annual return of 14.4% a year. The Sperrys now
have the funds available for later expenses in retirement or as a legacy for
their daughter and five grandchildren. Chester and Norma, who've been married
for 55 years, once ran an 160-acre farm near Council Bluffs but have retired to
the quiet small town of Glenwood, where they enjoy playing cards and spending
time with their family.
[End Sidebar]
[photos: IFA's portfolio counselors]
[Begin Caption]
The fund's eight portfolio counselors are the "big picture" investors who each
have a portion of the fund's assets to manage on their own.
[End Caption]
LOOKING AT THE PROCESS AND PEOPLE BEHIND THE RECORD
IFA officially completed its 25th year with Capital Research and Management
Company as its investment adviser on December 1, 1998. On this milestone
occasion, it seems like a good time to take a look back at IFA's past 25 years,
to go behind the scenes to see how its record was accomplished and to look
forward to consider how IFA's investment approach could work in the year 2000
and beyond.
IFA pursues its goals of above-average income, stability and prudent growth by
following a multi-faceted approach. The fund invests in stocks that offer
above-average yields, in convertible securities, and in investment-grade and
high-yield bonds. All have produced a continual stream of interest payments and
dividends and, in most periods, capital appreciation. High-yield stocks form
the base of this approach; bonds add income and a measure of stability.
MAKING LARGE INVESTMENT MOVES WHEN INDUSTRIES ARE UNDERVALUED
If you look back over the past 25 years, you will see that the fund
occasionally takes large positions in certain industries that are temporarily
out of favor and undervalued by the market. "It happens infrequently, but when
it happens, we are prepared to load up," says Janet McKinley. "The yield is
what gets our attention. If we see a whole industry that has an above-average
yield and its stock prices have been falling or lagging, then we take an
in-depth look. We know the industry has problems, but we ask our analysts, $How
much worse can it get?' If the answer comes back $Not much,' that's often a
roaring buy signal."
Down through the years, these big investment moves have helped build IFA's
record. Of course, the fund hasn't always gotten it right. Sometimes, the fund
invested too early and sometimes the fund picked the wrong industry. But over
the long term, the fund's large investment moves have been right more often
than not.
What were the fund's key investment moves? In IFA's early years in the 1970s,
it was utilities and cyclical stocks. In the mid-1980s, it was the regional
Bell operating companies that were spun out of the breakup of American
Telephone & Telegraph. In 1990, it was bank stocks, and in 1994,
pharmaceuticals. "Every so often, the market presents you with a great buying
opportunity in an important group," says veteran portfolio counselor Gregg
Ireland. "It just comes along and seems to hit you in the face."
In the pages that follow, we'd like to show you the fund's history in five-year
segments, focusing on key events and IFA's investing strategy in different
market environments. In particular, we'll take a closer look at how the fund
invested in undervalued companies and industries.
SNAPSHOT 1974-1979
COMING OUT OF THE WRECKAGE OF THE BEAR MARKET
IFA began its life with Capital Research and Management in the midst of one of
the severest bear markets in history. But it turned out to be a good five-year
period for IFA with its emphasis on above-average income and below-average
stock and bond valuations. Janet says: "In the fund's early years, the stock
market offered a large pond for yield investors to fish in. There were plenty
of big companies that seemed attractively priced and provided a high yield. Not
only did the stocks provide a good yield, many produced fantastic total
returns, and the fund beat the S&P 500 for four out of its first five full
fiscal years. This is not a normal state of affairs for this conservative type
of fund, but it is what you would expect when the market is extremely
undervalued."
[Begin Sidebar]
IFA'S SEASONED PROFESSIONALS
The key to IFA's successful record has been its seasoned portfolio counselors
and research analysts. The fund's eight portfolio counselors are the "big
picture" investors who each have a portion of the fund's assets to manage on
their own. They invest across many industries. They have an average of 13 years
with IFA and 24 years in the investment business.
The research analysts cover individual industries and companies. They watch new
cars come off the production line at automobile plants, meet with bank chief
executives and visit pharmaceutical laboratories. The 25 research analysts not
only provide investment ideas to the portfolio counselors but also manage money
for the fund directly. All told, the research portfolio is responsible for
about $7 billion, or about 30% of the fund's total assets. Veteran analyst
Darcy Kopcho is research coordinator.
[End Sidebar]
[Begin Sidebar]
IFA invested heavily in the regional "Baby Bell" telephone companies, and the
strategy was very successful.
[End Sidebar]
SNAPSHOT 1979-1984
INVESTING IN UTILITIES AND THE BREAKUP OF AT&T
Two of IFA's successful investment moves were its investment in the regional
Bell companies spun off from the breakup of American Telephone and Telegraph
Co. and its investment in electric utilities.
Federal Judge Harold Greene gave final approval for the AT&T breakup in August
1983, and the divestiture of seven regional operating companies officially took
place on January 1, 1984. Share-holders faced numerous choices. They could take
only AT&T stock, just stock in the seven new regional Bell operating companies
or any combination thereof. The conventional wisdom on Wall Street was that
AT&T "had taken the best part of the business (the long distance network) and
the regional $Baby Bells' were just junk," recalls veteran portfolio counselor
Steve Bepler. "Everyone already had a phone and the regional bells were seen
only as straight income vehicles with heavy regulation by state commissions and
little potential upside."
A number of IFA portfolio counselors and analysts disagreed. So IFA made a
significant investment in both AT&T and the regional "Baby Bells" (7.5% of its
total investment portfolio in fiscal 1984).
The move turned out to be a good one. Over the next 15 years, the regional Bell
companies were excellent investments. "The movement from an analog system to
digital helped the telephone companies to put in new equipment, apply new
technology and reduce cost structures drastically," says Tim Armour, portfolio
counselor for other American Funds and a former telecommunications analyst for
IFA. "They were able to reduce the large number of employees and replace them
with technology. Their work forces have been cut in half since their spin-off
from AT&T." Regulation was also reduced sharply. New areas of business like
cellular telephones grew more rapidly than many Wall Street analysts had
expected. The price of telephone calls fell. As a result, people used the
telephone more. In later years, they ordered new lines for faxes and the
Internet. "The market basically got it wrong," Tim says.
In the turbulence created by regulatory delays and massive cost overruns on new
power plants, electric utility stock prices plummeted. By 1980 the yields on
these stocks had reached historic highs relative to both the S&P 500 and U.S.
government bond indexes. IFA added aggressively to its electric utility
holdings early on, and with the subsequent recovery in share prices, the
industry reached almost 20% of the fund's assets by the end of the period.
SNAPSHOT 1984-1989
INVESTING IN HIGH-YIELD BONDS AND RESILIENCE IN DECLINE
In the first two years of this period, IFA did exceptionally well; in fiscal
1985, its total return was 33.5%, followed by 19.9% in fiscal 1986. Equity
holdings were concentrated in stable industries such as utilities,
telecommunications and banking. Bond prices moved higher as interest rates
declined.
[Begin Sidebar]
Investing for Income:
IFA versus the S&P 500 (1974-1998)
$100,000 initial investment, $6,000 withdrawal increasing 5% annually
[Begin bar chart]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fund Total Withdrawl Dividend Income Value Remaining
IFA 153,644 286,366 626,121
S&P 500 553,274 286,366 964,577
</TABLE>
[end chart]
The chart compares 25-year withdrawal programs in IFA and the unmanaged S&P 500
Index, based on a hypothetical $100,000 initial investment made in each on
January 1, 1974. It reflects payment of all applicable sales charges. The first
withdrawal on December 15, 1974 of $6,000 is increased by 5% annually through
December 31, 1998 to cover inflation.
[End Sidebar]
[photo: Sierra Cascade Girl Scounts on the lake]
[Begin Caption]
Sierra Cascade Girl Scouts on the lake
[End Caption]
[Begin Sidebar]
INCOME TO USE TODAY
A growing number of organizations and educational institutions have used The
Income Fund of America's steady, above-average income to fund current
activities - as well as for long-term growth. The Girl Scouts of Sierra
Cascade, a Girl Scout council in Chico, California, uses IFA dividends to help
finance outreach programs to a diverse group of girls in out-of-the-way places
usually not served by Scout groups. They include a new troop of 88 Hmong girls
in Willows, California, and girls on the Elk River Native American reservation.
The council's financial adviser recommended that the group invest in IFA
because it would produce income for their needs yet also provide long-term
growth of their original investment. The fund has done particularly well for
investors, like the council, who systematically withdraw income. The chart at
left shows how IFA far outpaced the S&P 500 in providing dividend income and
value remaining of an initial investment over the past 25 years.
[End Sidebar]
[Begin Sidebar]
Companies that pay good and growing dividends are attractive investments. It's
a reflection of strong cash flow and a management that is focused on
shareholders' returns.
[End Sidebar]
In the mid-1980s, the fund also began investing more of its fixed-income assets
in high-yield bonds. The fund's increasing investment in this category was "a
reflection of the increasing size, breadth and diversity of the high-yield
market," says Abner Goldstine, veteran fixed-income portfolio counselor. The
fund also capitalized on the talents of a growing staff of fixed-income
analysts in the high-yield area. Later in the 1990s, when it became
increasingly difficult to find high-yielding stocks, IFA was able to count on
high-yield bonds to help pay out the income it needed for its shareholders.
In October 1987, investors were shocked by the stock market's sharp decline on
"Black Monday," but the actual period of decline began on August 25, 1987 and
ended on December 4, 1987. Thanks to its dividend-paying stocks, bonds and cash
holdings, IFA again showed a strong resistance to the decline. While the S&P
500 fell 33.0% over that period, IFA declined 13.6%, with dividends reinvested.
For the full 1998 fiscal year (in which the October market crash was included),
IFA still managed a total return of 1.7% with dividends reinvested. In all five
significant stock market declines in IFA's lifetime, the fund has shown
downside resilience. In two declines, the fund actually had a positive return.
In the other three, it declined less than the S&P 500. (See chart on page 7.)
SNAPSHOT 1989-1994
STRATEGIC MOVE INTO BANK STOCKS
In 1989 and 1990, U.S. banks were in deep trouble. Many had lent too much money
to commercial real estate developers, and the value of the real estate - mostly
downtown office buildings - had fallen precipitously due to an oversupply of
properties. From October 1989 to October 1990, the average bank stock declined
67%, recalls Joyce Gordon, bank analyst for IFA. The fund started a big move
into bank stocks in its 1990 fiscal year. By 1991, IFA had increased its
allocation in banks to almost 9% of total assets.
Joyce and a number of IFA portfolio counselors felt the market had overreacted
to the problems of the banking industry. "Regulators came in and made banks
write down a lot of the real estate loans that were still good. They had to
label these loans as non-performing because the value of the real estate had
fallen below the value of the loan," Joyce recalls. "They had to do that even
though the developers were still making the loan payments."
Joyce believed that investors were pricing the banks "like the whole industry
was going out of business. I knew that some companies might go away, but that
the industry had to stay." So IFA invested in 16 different banks in 1990 and
1991. IFA's fixed-income analysts and portfolio counselors also invested
heavily in bonds issued by banks, which were attractively priced in light of
the industry's widely publicized problems. Bank stocks and bonds recovered in
1993 and 1994, and have remained outstanding investments for IFA during most of
the 1990s.
[photo: Norma and Chester Sperry with their grandchildren Rusty and Carrie]
[Begin Caption]
Norma and Chester Sperry with their grandchildren Rusty and Carrie
[End Caption]
SNAPSHOT 1994-1999
IFA'S BIG INVESTMENT IN PHARMACEUTICAL STOCKS
There are times when analysts lead the portfolio counselors in one direction,
and there are times when portfolio counselors lead the analysts. According to
drug company analyst Richard Beleson, IFA's large investment in pharmaceutical
companies came about because the portfolio counselors led the way.
In early 1994, drug company stocks had fallen 50% in a nine-month period,
according to veteran portfolio counselor Steve Bepler. "The fear was that the
Clinton Administration's proposals for a national health care plan would put a
lid on drug prices and introduce all kinds of controls," recalls Steve. Drug
company stocks had fallen and yields were in the 5% range for the first time in
years. Drug company analysts who focus on growth thought the Clinton proposals
would bring a halt to growth, so they considered the stocks unattractive. But
to the IFA portfolio counselors, "the drug stocks were paying a high yield and
were attractive cash generators," says Steve. "We still believed the underlying
businesses were sound. By our analysis, it didn't matter if they never
discovered a new drug."
After Congress scuttled the Clinton administration health plan, drug stocks
recovered and rallied from 1995 to 1998, during which period new drugs and new
products flourished.
INVESTING IN IFA IN THE YEAR 2000 - AND BEYOND
In the great sweep of time, dividends have provided about half of the total
return of the S&P 500, but in the past five years, reinvested dividends have
accounted for only about 13.7% of the index's total return. Many companies
today have decided to take their free cash flow and buy back their own shares
instead of raising their dividends. "This is what you would expect in a
strongly rising market where the price action dwarfs the return you get from
dividend yield," says Janet.
Yet IFA is well prepared for the next five years, says Abner. "It continues to
provide investors with a good income and it offers protection that is important
if we get into a down market. No one knows when that's going to come."
Janet doubts that investing for income will remain out of favor. "The
skepticism that some investors have about this kind of an approach is probably
an indicator that it will be more valuable in the future."
She concludes: "I still think companies that pay out good and growing dividends
are attractive investments. It's a reflection of strong cash flow and a
management that is focused on shareholders' returns."
Investing for income in IFA is like planting seeds in a field. It takes
patience, but in the long run, most people have been happy with the results.
WHAT MAKES THE AMERICAN FUNDS DIFFERENT?
[photo: inset of American flag]
As a shareholder in The Income Fund of America, you are also a member of The
American Funds Group, the nation's third-largest mutual fund family. You won't
find us advertised, yet thousands of financial advisers recommend the American
Funds for their clients' serious money - money set aside for education, a home,
retirement and other important dreams.
What the 29 funds in our group have in common is a commitment to your best
interests and the proven approach of our investment adviser, Capital Research
and Management Company. In business since 1931, Capital's calling cards
include:
* A LONG-TERM, VALUE-ORIENTED APPROACH: Rather than follow short-term fads, we
rely on our own intensive research to find well-managed companies with
reasonably priced shares and solid, long-term potential. Despite our size, we
offer relatively few funds compared with many large fund families, allowing us
to maintain a careful focus on our objectives and enabling you to benefit from
economies of scale.
* A GLOBAL PERSPECTIVE: We opened our first overseas office in 1962, well
before most mutual funds began investing internationally. Today, the American
Funds draw on one of the industry's most globally integrated research networks,
and spend substantial resources getting to know companies and industries around
the world better than anyone.
* A MULTIPLE PORTFOLIO COUNSELOR SYSTEM: More than 40 years ago, we developed a
unique strategy for managing investments that blends teamwork with individual
accountability. Every American Fund is divided among a number of portfolio
counselors, each of whom manages his or her portion independently, within each
fund's objectives; in most cases, research analysts manage a portion as well.
Over time, this method has contributed to consistency of results and continuity
of management.
* EXPERIENCED INVESTMENT PROFESSIONALS: Nearly 90% of the portfolio counselors
who serve the American Funds were in the investment business before the stock
market decline in October 1987. Long tenure and experience through a variety of
market conditions mean we aren't "practicing" with your money.
* A COMMITMENT TO LOW OPERATING EXPENSES: You can't control market returns, but
you can control what you invest in and how much you pay to own it. American
Funds provide exceptional value for shareholders, with operating expenses that
are among the lowest in the mutual fund industry. Our portfolio turnover rate
is low as well, keeping transaction costs and tax consequences contained.
A PORTFOLIO FOR EVERY INVESTOR
Most financial advisers suggest that investors balance their portfolios by
investing across several types of investments. Which mix is right for you? That
depends on a number of things - including your risk tolerance, investment time
horizon and financial goals. The American Funds Group offers 29 funds with an
array of investment objectives to help you and your financial adviser build a
portfolio specifically tailored to your needs.
GROWTH FUNDS
Emphasis on long-term growth through stocks
AMCAP Fund(r)
EuroPacific Growth Fund(r)
The Growth Fund of America(r)
The New Economy Fund(r)
New Perspective Fund(r)
New World Fund(SM)
SMALLCAP World Fund(r)
GROWTH-AND-INCOME FUNDS
Emphasis on long-term growth and dividends through stocks
American Mutual Fund(r)
Capital World Growth and Income Fund(SM)
Fundamental Investors(SM)
The Investment Company of America(r)
Washington Mutual Investors Fund(SM)
EQUITY-INCOME FUNDS
Emphasis on above-average income and growth through stocks and/or bonds
Capital Income Builder(r)
The Income Fund of America(r)
BALANCED FUND
Emphasis on long-term growth and current income through stocks and bonds
American Balanced Fund(r)
INCOME FUNDS
Emphasis on current income through bonds
American High-Income Trust(SM)
The Bond Fund of America(SM)
Capital World Bond Fund(r)
Intermediate Bond Fund of America(r)
U.S. Government Securities Fund(SM)
TAX-EXEMPT INCOME FUNDS
Emphasis on tax-free current income through municipal bonds
American High-Income Municipal Bond Fund(r)
Limited Term Tax-Exempt Bond Fund of America(SM)
The Tax-Exempt Bond Fund of America(r)
STATE-SPECIFIC TAX-EXEMPT FUNDS
The Tax-Exempt Fund of California(r)
The Tax-Exempt Fund of Maryland(r)
The Tax-Exempt Fund of Virginia(r)
MONEY MARKET FUNDS
Seeks stable monthly income through money market instruments
The Cash Management Trust of America(r)
The Tax-Exempt Money Fund of America(SM)
The U.S. Treasury Money Fund of America(SM)
For more complete information about any of the funds, including charges and
expenses, ask for a copy of A Portfolio for Every Investor or visit our Web
site at www.americanfunds.com. Before you invest or send money, please obtain a
prospectus from your investment dealer, download one from our Web site, or
phone the fund's transfer agent, American Funds Service Company, at
800/421-0180.
THE INCOME FUND OF AMERICA AT A GLANCE
RESULTS AT A GLANCE (WITH DIVIDENDS REINVESTED OR INTEREST COMPOUNDED)
Total Returns for Periods Ended July 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12 Months 10 Years Lifetime/1/
THE INCOME FUND OF AMERICA +7.8% 2.162 +2,709.0%
Standard & Poor's 500 Stock +20.2 395.1 +3,496.8
Composite Index
Lehman Brothers Aggregate +2.5 +113.5 +822.2
Bond Index/2/
Salomon Smith Barney Long- +2.2 +199.6 -
Term High-Yield Bond Index
Consumer Price Index +2.1 34 +263.2
(inflation)/3/
Average Savings Institution/4/ +4.6 61.5 +413.9
</TABLE>
/1/Since December 1, 1973, when Capital Research and Management Company became
IFA's investment adviser.
/2/From December 1, 1973, through December 31, 1975, the Lehman Brothers
Government/Corporate Bond Index was used because the Lehman Brothers Aggregate
Bond Index did not yet exist.
/3/Computed from data supplied by the U.S. Department of Labor, Bureau of Labor
Statistics.
/4/Based on figures supplied by the U.S. League of Savings Institutions and the
Federal Reserve Board that reflect all kinds of savings deposits, including
longer term certificates. Savings accounts are guaranteed; the fund is not.
[begin line chart]
IFA INCOME FAR EXCEEDS INFLATION
A HISTORICAL LOOK OVER THE PAST 25 YEARS
<TABLE>
<CAPTION>
<S> <C> <C>
Year End 7/31 Income Fund of America CPI
1975 100.0 100.0
1976 127.0 105.4
1977 123.5 112.5
1978 142.1 121.2
1979 169.7 134.9
1980 186.3 152.6
1981 222.0 169.0
1982 278.6 179.9
1983 324.5 184.3
1984 368.8 192.1
1985 428.5 198.9
1986 497.8 202.0
1987 564.4 210.0
1988 570.4 218.6
1989 679.7 229.6
1990 670.9 240.6
1991 803.8 251.3
1992 837.8 259.2
1993 890.7 266.4
1994 951.4 273.8
1995 1,024.5 281.4
1996 1,092.8 289.7
1997 1,283.0 296.1
1998 1,341.1 301.1
1999 1,585.0 307.6
</TABLE>
[end chart]
The Income Fund of America
CPI
This chart shows how IFA has produced growth of income that has far exceeded
the growth of inflation over the past 25 years. IFA income figures are at net
asset value with dividends and capital gains reinvested. IFA income figures
are calculated using a hypothetical $10,000 investment on July 31, 1974.
Inflation is represented by the Consumer Price Index, U.S. city average for all
urban consumers (Source: U.S. department of Labor, Bureau of Labor Statistics).
Both IFA income and the CPI for fiscal year 1975 are indexed to 100.
ANNUAL INCOME GENERATED BY IFA, THE S&P 500 AND 3-MONTH CDS
A SNAPSHOT AT 5-YEAR INTERVALS
[begin bar chart]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Through IFA S&P 500 CDs
7/31/75 864 478 986
7/31/76 1,097 505 677
7/31/77 1,067 610 614
7/31/78 1,228 719 799
7/31/79 1,466 824 1,284
7/31/80 1,610 967 1,930
7/31/81 1,918 1,096 2,314
7/31/82 2,407 1,231 3,008
7/31/83 2,804 1,326 2,239
7/31/84 4,371 1,462 2,380
7/31/85 5,070 1,621 2,622
7/31/86 7,894 1,768 2,221
7/31/87 7,940 1,926 1,943
7/31/88 7,151 2,154 2,421
7/31/89 5,873 2,488 3,245
7/31/90 8,418 2,917 3,388
7/31/91 7,490 3,144 3,177
7/31/92 7,912 3,294 2,230
7/31/93 9,680 3,449 1,551
7/31/94 11,619 3,637 1,683
7/31/95 9,485 3,897 2,925
7/31/96 11,464 4,265 3,055
7/31/97 20,772 4,631 3,195
7/31/98 31,115 4,960 3,420
7/31/99 31,515 5,192 3,319
</TABLE>
[end chart]
This chart compares the annual income produced by a hypothetical $10,000
investment on July 31, 1974 in three different investments - IFA, the S&P 500
and 3-month certificates of deposit. The chart shows the annual income at
5-year intervals over the past 25 years in snapshots. All results are
calculated at net asset value with dividends and capital gains (where
applicable) reinvested. CD income assumes that the individual reinvests both
principal and interest from previous CD at the going rate at the time of
purchase. CDs are guaranteed; the fund is not.
ASSET MIX COMPARISON AT JULY 31 FISCAL YEAR-END
FISCAL 1999
[begin pie chart]
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT PORTFOLIO Percent of Net Assets
U.S. Equity Securities/++/ 48.9%
Non-U.S. Equity Securities 10.6
Government Bonds 7.4
Other Fixed-Income Securities 19.8
Cash & Equivalents 13.3
</TABLE>
[end chart]
/++/Also includes 0.2% in Canadian equities that are part of the S&P 500.
<TABLE>
<CAPTION>
<S> <C>
FIVE LARGEST INDUSTRIES IN Percent of Net Assets
EQUITY HOLDINGS
Banking 8.7%
Utilities: Electric & Gas 8.1
Banking 8.0
Telecommunications 6.3
Insurance 3.9
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
TEN LARGEST EQUITY HOLDINGS Percent of Net Assets
First Union 2.5%
Atlantic Richfield 2.1
Chrysler 1.9
U S West 1.6
J.C. Penney 1.6
Texaco 1.5
AT&T 1.4
Ford Motor 1.3
Phillips Petroleum 1.2
Amoco 1.0
</TABLE>
FISCAL 1998
[begin pie chart]
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT PORTFOLIO Percent of Net Assets
U.S. Equity Securities/+/ 48.1%
Non-U.S. Equity Securities 12.9
Government Bonds 6.7
Other Fixed-Income Securities 20.9
Cash & Equivalents 11.2
</TABLE>
[end chart]
/+/Also includes 0.5% in Canadian equities that are part of the S&P 500.
<TABLE>
<CAPTION>
<S> <C>
FIVE LARGEST INDUSTRIES IN Percent of Net Assets
EQUITY HOLDINGS
Banking 8.5%
Utilities: Electric & Gas 8.4
Energy Sources 7.5
Telecommunications 5.3
Forest Products & Paper 4.1
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
TEN LARGEST EQUITY HOLDINGS Percent of Net Assets
U S West 1.9%
First Union 1.9
Phillips Petroleum 1.5
Atlantic Richfield 1.4
J.C. Penney 1.3
Weyerhaeuser 1.2
Bank of America 1.1
Houston Industries .9
USX - Marathon .9
J.P. Morgan .9
</TABLE>
<TABLE>
The Income Fund of America, Inc.
Investment Portfolio, July 31, 1999
<S> <C> <C> <C>
Shares or Market Percent
Principal Value Of Net
Equity Securitites Amount (000) Assets
- -------------------------------------------- -------- ----------------
Banking - 8.48%
First Union Corp. 9,492,600$436,660 1.90%
Bank of America Corp. (formerly BankAmerica Corp.) 3,855,800 255,929 1.11
J.P. Morgan & Co. Inc. 1,525,000 195,009 .85
Commonwealth Bank of Australia 8,480,973 133,558 .58
SB Treasury Co. LLC, Series A, 9.40% noncumulative 126,000,00 122,981 .53
preferred (1)
National Bank of Canada 8,500,000 104,781
NB Capital Corp. 8.35% exchangeable depositary shares 520,000 12,805 .51
Westpac Banking Corp. 18,113,652 117,507 .51
BancWest Corp. 1,900,000 79,206 .34
BANK ONE CORP. 1,140,700 62,239 .27
Tokai Preferred Capital Co. LLC, Series A, 9.98% 61,250,000 59,531 .26
noncumulative preferred (1)
Fuji JGB Investment LLC, Series A, 9.87% noncumulative 67,000,000 59,128 .26
preferred (1)
KeyCorp 1,800,000 56,700 .25
BankBoston Corp. 1,200,000 56,325 .24
Bank of Nova Scotia 2,400,000 50,000 .22
Keystone Financial, Inc. 1,550,000 45,241 .20
Bank of New York Co., Inc. 1,000,000 36,938 .16
BNP U.S. Funding LLC, Series A, 7.738% noncumulative 33,200,000 30,724 .13
preferred (1)
National Australia Bank Ltd. Exchangable Capital Units $800,000 22,600 .10
IBJ Preferred Capital Co. LLC, Series A, 8.79% 10,000,000 8,450 .04
noncumulative preferred (1)
Banco Nacional de Mexico, SA 11.00% exchangeable $4,175,000 3,987 .02
note 2003 (1)
------------------
1,950,29 8.48
------------------
Utilities: Electric & Gas - 8.38%
Dominion Resources, Inc. 3,000,000 132,187 .57
Florida Progress Corp. 3,070,000 125,678 .55
Wisconsin Energy Corp. 4,880,000 122,305 .53
DTE Energy Co. 3,000,000 117,375 .51
Unicom Corp. 2,600,000 102,050 .44
Consolidated Edison, Inc. 2,300,000 100,050 .44
Southern Co. 3,750,000 99,141 .43
Consolidated Natural Gas Co. 1,230,000 77,029 .33
MCN Energy Group Inc. 3,550,000 75,659 .33
KeySpan Corp. (formerly KeySpan Energy Corp.) 2,562,000 71,095 .31
Equitable Resources, Inc. (2) 1,850,000 68,566 .30
BEC Energy 1,600,000 68,200 .30
PECO Energy Co. 1,600,000 67,800 .29
Peoples Energy Corp. 1,700,000 62,581 .27
Carolina Power & Light Co. 1,500,000 61,687 .27
Entergy Corp. 2,000,000 60,625 .26
Ameren Corp. 1,200,000 46,800 .20
K N Energy, Inc. 1,000,000 19,500
K N Energy, Inc. 8.25% PEPS convertible preferred 682,600 21,886 .18
2001 Units
Sempra Energy 1,623,700 36,026 .16
National Power PLC 4,580,000 32,268 .14
GPU, Inc. 840,400 32,250 .14
DQE, Inc. 800,000 31,700 .14
New Jersey Resources Corp. 750,000 29,672 .13
Scottish and Southern Energy PLC 3,000,000 28,640 .12
Sonat Inc. 800,000 28,150 .12
American Electric Power Co., Inc. 700,000 24,762 .11
Scottish Power PLC 2,800,000 23,364 .10
OGE Energy Corp. 950,000 22,503 .10
Central and South West Corp. 1,000,000 21,312 .09
Puget Sound Energy, Inc. 900,000 20,981 .09
CINergy Corp. 625,400 18,723 .08
WICOR, Inc. 600,000 17,400 .08
New England Electric System 318,000 16,476 .07
South Jersey Industries, Inc. 500,000 15,000 .07
Citizens Utilities Trust 5.00% EPPICS convertible 250,000 12,688 .06
preferred 2036
TECO Energy, Inc. 467,200 9,519 .04
Western Resources, Inc. 275,000 7,184 .03
------------------
1,928,83 8.38
------------------
Energy Sources - 7.52%
Phillips Petroleum Co. 6,893,500 353,723 1.54
Atlantic Richfield Co. 3,550,000 319,722 1.39
USX-Marathon Group 6,600,000 200,475 .87
Texaco Inc. 2,124,600 132,389 .58
"Shell" Transport and Trading Co., PLC (New York 2,500,000 120,781 .53
Registered)
Sunoco, Inc. 3,932,000 119,926 .52
Ultramar Diamond Shamrock Corp. 3,925,000 92,728 .40
Conoco Inc., Class A 3,520,000 91,740 .40
Occidental Petroleum Corp. 3,250,000 63,578 .28
Unocal Capital Trust $3.125 convertible preferred 1,040,000 58,110 .25
Mobil Corp. 500,000 51,125 .22
CONSOL Energy Inc. 4,000,000 44,500 .19
Exxon Corp. 500,000 39,688 .17
Ashland Inc. 750,000 28,500 .12
CalEnergy Capital Trust II 6.25% convertible 270,000 12,960 .06
preferred 2012
------------------
1,729,94 7.52
------------------
Telecommunications - 5.32%
U S WEST, Inc. 7,782,400 446,029 1.94
MediaOne Group, Inc. 6.25% PIES convertible 1,710,000 160,740 .70
preferred 2001
SBC Communications Inc. 2,100,000 120,094
SBC Communications Inc. 7.75% DECS convertible 463,000 30,876 .66
preferred 2001
Bell Atlantic Corp. 1,949,300 124,268 .54
AT&T Corp. 2,375,000 123,352 .54
Ameritech Corp. 1,430,000 104,748 .46
Telecom Corp. of New Zealand Ltd. 8,278,400 37,518 .16
Telecom Italia SpA, nonconvertible savings shares 5,353,000 29,346 .13
Koninklijke PTT Nederland NV 339,085 15,488
Koninklijke PTT Nederland NV (ADR) 86,288 3,931 .08
GTE Corp. 175,000 12,895 .06
Omnipoint Corp. (1,3) 92,761 3,977 .02
COLT Telecom Group PLC, warrants, expire 2006 (1,3) 5,000 3,325 .01
Viatel, Inc. (3) 86,992 3,219 .01
Comunicacion Celular SA, Class B, warrants, 31,000 1,922 .01
expire 2003 (1,3)
Allegiance Telecom, Inc., warrants, expire 2008 (1,3) 20,000 1,140 .00
Loral Space & Communications Ltd., warrants, 61,000 707 .00
expire 2007 (3,4)
NEXTLINK Communications, Inc. 14.00% preferred 2009 10,712 536 .00
ICG Holdings, Inc., warrants, expire 2005 (1,3) 19,800 495 .00
CellNet Data Systems, Inc., warrants, expire 2007 (1,3,4) 15,450 284 .00
McCaw International, Ltd., warrants, expire 2007 (1,3,4) 31,500 79 .00
Conecel Holdings Ltd., Class B, warrants, 76,825 8 .00
expire 2000 (1,3,4)
Iridium World Communications Ltd., warrants, 4,000 1 .00
expire 2005 (1,3,4)
------------------
1,224,97 5.32
------------------
Forest Products & Paper - 4.08%
Weyerhaeuser Co. 4,412,900 285,459 1.24
International Paper Co. (formerly Union Camp Corp.) 2,990,168 152,872
International Paper Co., Capital Trust 5.25% convertible 400,000 21,200 .76
preferred 2025
UPM-Kymmene Corp. 4,450,000 149,945 .65
Georgia-Pacific Corp., Timber Group 5,450,000 134,547 .59
Stora Enso Oyj, Class R 7,609,169 95,639
Stora Enso Oyj, Class A 345,942 4,293 .43
Potlatch Corp. 1,350,000 54,759 .24
APP Finance (VI) Mauritius Ltd. 0% convertible $144,000,0 21,600 .09
preferred 2012
Westvaco Corp. 650,000 19,134 .08
------------------
939,448 4.08
------------------
Chemicals - 2.62%
Imperial Chemical Industries PLC (ADR) 3,425,000 157,978 .69
Dow Chemical Co. 1,178,500 146,134 .64
International Flavors & Fragrances Inc. 1,900,000 86,094 .37
Hercules Inc. 2,276,200 79,382 .34
DSM NV 415,384 51,543 .22
Monsanto Co. 6.50% ACES convertible preferred 2001 Units 1,108,800 45,461 .20
Witco Corp. 1,981,600 36,288 .16
------------------
602,880 2.62
------------------
Insurance - 2.46%
American General Corp. 2,014,200 155,849 .68
Italy (Republic of) 5.00% PENs 2001 (exchangeable $65,000,00 107,738 .47
into INA SpA)
SAFECO Corp. 2,500,000 95,156 .41
Ohio Casualty Corp. (2) 4,560,000 81,795 .36
Aetna Inc. 819,700 67,215 .29
Lincoln National Corp. 800,000 40,000 .17
PMI Group, Inc. 303,000 19,373 .08
------------------
567,126 2.46
------------------
Real Estate - 2.42%
Equity Residential Properties Trust 2,100,000 86,756
Equity Residential Properties Trust, Series G, 7.25% 600,000 13,050 .43
convertible preferred
Boston Properties, Inc. 2,634,600 90,235 .39
Spieker Properties, Inc. 1,600,000 61,200 .27
Weingarten Realty Investors 1,325,000 53,497 .23
Meditrust Corp., paired stock 3,340,000 36,322 .16
Amoy Properties Ltd. 35,000,000 32,468 .14
AMB Property Corp. 1,225,000 27,562 .12
ProLogis Trust, Series D, 7.92% preferred 1,080,000 24,840 .11
CenterPoint Properties Corp. 580,000 20,735 .09
Sun Hung Kai Properties Ltd. 2,000,000 17,264 .08
Hysan Development Co. Ltd. 12,849,635 16,804 .07
Glenborough Realty Trust Inc., Series A, 7.75% 800,000 14,700 .06
convertible preferred
Duke-Weeks Realty Corp. (formerly Dukes Realty 300,000 13,548 .06
Investments, Inc.), Series B, 7.99% preferred
cumulative step-up premium rate
Simon DeBartolo Group, Inc., Series C, 7.89% preferred 300,000 13,254 .06
cumulative step-up premium rate
Archstone Communities Trust 564,000 12,161 .05
IAC Capital Trust, Series A, 8.25% TOPRS preferred 300,000 7,350 .03
CarrAmerica Realty Corp., Series B, 8.57% cumulative 280,000 6,545 .03
redeemable preferred
New Plan Realty Trust, Series D, 7.80% preferred cumulative 112,500 5,006 .02
step-up premium rate
Kimco Realty Corp. 100,000 3,750 .02
------------------
557,047 2.42
------------------
Merchandising - 1.81%
J.C. Penney Co., Inc. 6,800,000 297,500 1.29
Coles Myer Ltd. 17,400,882 101,454 .44
PETsMART, Inc. 6.75% convertible subordinated note 2004 (1)$17,500,00 18,200 .08
------------------
417,154 1.81
------------------
Broadcasting & Publishing - 1.64%
Houston Industries Inc. 7.00% ACES convertible 1,780,000 215,491 .94
preferred 2000
Cablevision Systems Corp., Series I, $2.125 cumulative 760,000 78,660 .34
convertible exchangeable preferred
UnitedGlobalCom, Inc., Class C, 7.00% convertible 700,000 38,500 .17
preferred (1)
NTL Inc. (3) 146,039 15,170
NTL Inc., warrants, expire 2008 (1,3,4) 25,650 2,079 .07
Price Communications Corp. (3) 912,117 16,190 .07
MediaOne Group, Inc., Series D, 4.50% convertible preferred 85,800 12,355 .05
------------------
378,445 1.64
------------------
Health & Personal Care - 1.64%
Glaxo Wellcome PLC 6,270,000 160,229 .70
Pharmacia & Upjohn, Inc. 1,300,000 69,956 .30
American Home Products Corp. 800,000 40,800 .18
Eli Lilly and Co. 600,000 39,375 .17
Athena Neurosciences, Inc. 4.75% convertible note 2004 $32,500,00 34,938 .15
Sepracor Inc. 6.25% convertible subordinated debenture $7,350,000 12,339
2005 (1)
Sepracor Inc. 7.00% convertible subordinated debenture $15,000,00 13,912 .11
2005 (1)
Glycomed Inc. 7.50% convertible subordinated debenture 2003$5,000,000 4,037 .02
RainTree Healthcare Corp. (3,4) 279,109 977 .01
------------------
376,563 1.64
------------------
Beverages & Tobacco - 1.55%
Philip Morris Companies Inc. 3,150,000 117,338 .51
Southcorp Ltd. 25,046,175 97,298 .42
Nabisco Group Holdings Corp. (formerly RJR Nabisco 3,000,000 56,250 .24
Holdings Corp.)
Imperial Tobacco Ltd. 4,000,000 40,927 .18
Gallaher Group PLC 4,800,000 28,681 .13
UST Inc. 500,000 15,500 .07
------------------
355,994 1.55
------------------
Metals: Steel & Nonferrous - 1.20%
Phelps Dodge Corp. 1,750,000 103,797 .44
British Steel PLC 25,422,400 67,658 .29
Freeport-McMoRan Copper & Gold Inc., Series A, $1.75 1,400,000 26,075
convertible preferred
Freeport-McMoRan Copper & Gold Inc., Class B 300,000 5,063 .14
Allegheny Teledyne Inc. 1,350,000 28,941 .13
Cyprus Amax Minerals Co., Series A, $4.00 convertible 465,000 20,693 .09
preferred
Inco Ltd. 5.75% convertible debenture 2004 $17,250,00 15,568 .07
Bethlehem Steel Corp. $3.50 convertible preferred 250,000 8,813 .04
------------------
276,608 1.20
------------------
Industrial Components - 1.06%
Dana Corp. 2,350,000 98,113 .43
Federal-Mogul Corp. 7.00% convertible preferred 2027 1,150,000 63,969 .28
Tomkins PLC 13,000,000 59,655 .26
Tower Auto Capital Trust 6.75% convertible preferred 2018 ( 450,000 22,050 .09
------------------
243,787 1.06
------------------
Leisure & Tourism - 1.05%
Seagram Co. Ltd. 7.50% convertible preferred 2002 1,845,000 93,171 .40
Georgia-Pacific Corp., Georgia-Pacific Group 7.50% PEPS 1,400,000 66,150 .29
convertible preferred 2004 Units
Premier Parks Inc. 7.50% PIES convertible preferred 2001 450,000 31,275 .14
Host Marriott Financial Trust 6.75% QUIPS convertible 600,000 22,237 .10
preferred 2026
AMF Bowling Worldwide, Inc. 0% convertible debenture 2018 ($90,000,00 12,600 .05
FelCor Lodging Trust Inc. 450,000 8,775 .04
Royal Caribbean Cruises Ltd., Series A, 7.25% convertible 45,000 6,570 .03
preferred
------------------
240,778 1.05
------------------
Business & Public Services - 1.00%
Cendant Corp. 7.50% PRIDES convertible preferred 1,425,000 48,450 .21
United Utilities PLC 3,521,463 45,224 .20
Alexander & Baldwin, Inc. 1,375,000 34,762 .15
Thames Water PLC 1,500,000 22,909 .10
Budget Group, Inc. 6.25% TIDES convertible preferred 2005 600,000 20,250 .09
Interpublic Group of Companies, Inc. 1.87% convertible $17,000,00 15,449 .07
subordinated note 2006 (1)
Hyder PLC 1,425,000 14,696 .06
Browning-Ferris Industries, Inc. 305,000 13,687 .06
Omnicom Group Inc. 4.25% convertible debenture 2007 (1) $2,500,000 5,669 .02
Nationwide Health Properties, Inc., Series A, 7.677% 50,000 3,519 .02
preferred cumulative step-up premium rate
IKON Office Solutions, Inc. 200,000 2,638 .01
Integrated Health Services, Inc. (3) 280,001 1,575
Integrated Health Services, Inc. 5.75% convertible $1,250,000 687 .01
debenture 2001
------------------
229,515 1.00
------------------
Automobiles - 0.89%
General Motors Corp. 2,085,000 127,055 .55
Ford Motor Co. 1,600,000 77,800 .34
------------------
204,855 .89
------------------
Recreation & Other Consumer Products - 0.86%
EMI Group PLC 15,902,467 132,869 .58
Jostens, Inc. 1,715,000 34,729 .15
Pennzoil-Quaker State Co. 2,000,000 29,625 .13
V2 Music Holdings, warrants, expire 2008 (1,3) 14,750 0 .00
------------------
197,223 .86
------------------
Food & Household Products - 0.70%
General Mills, Inc. 1,935,000 160,242 .70
------------------
Machinery & Engineering - 0.69%
Pall Corp. 2,344,200 49,375 .21
Valmet-Rauma Oyj (3) 3,559,997 47,602 .21
Ingersoll-Rand Co. 6.75% PRIDES convertible preferred 1,400,000 42,000 .18
Thermo Electron Corp. 4.25% convertible subordinated $23,000,00 19,981 .09
debenture 2003 (1)
------------------
158,958 .69
------------------
Electronic Components & Instruments - 0.67%
Micron Technology, Inc. 7.00% convertible subordinated $50,000,00 57,750 .25
note 2004
Advanced Micro Devices, Inc. 6.00% convertible subordinated$51,700,00 37,224 .16
note 2005
Western Digital Corp. 0% convertible subordinated $112,500,0 14,906 .06
debenture 2018 (1)
National Semiconductor Corp. 6.50% convertible debenture $15,000,00 14,250 .06
2002
Premier Farnell PLC 3,280,000 13,695 .06
Thermo Instrument Systems Inc. 4.00% convertible subordinat$10,000,00 8,300 .04
debenture 2005
Quantum Corp. 7.00% convertible subordinated note 2004 $7,000,000 6,440 .03
EMC Corp. 3.25% convertible subordinated note 2002 $500,000 2,689 .01
------------------
155,254 .67
------------------
Financial Services - 0.65%
Household International, Inc. 2,453,280 105,338 .46
Bell Atlantic Financial Services, Inc. 4.25% convertible $39,000,00 43,290 .19
debenture 2005 (1)
------------------
148,628 .65
------------------
Multi-Industry - 0.35%
TI Group PLC 7,000,000 52,042 .23
Swire Pacific Capital Ltd. 8.84% cumulative guaranteed 920,000 18,515
perpetual capital security (1)
Swire Pacific Offshore Financing Ltd. 9.33% cumulative 400,000 8,350 .12
guaranteed perpetual capital security (1)
------------------
78,907 .35
------------------
Miscellaneous Materials & Commodities - 0.34%
De Beers Consolidated Mines Ltd. 1,570,800 39,117
De Beers Consolidated Mines Ltd. (ADR) 93,400 2,312 .18
Crown Cork & Seal Co., Inc. 4.50% convertible preferred 200 1,005,000 27,637 .12
Owens-Illinois, Inc. 4.75% convertible preferred 240,000 9,210 .04
------------------
78,276 .34
------------------
Transportation: Rail & Road - 0.23%
Union Pacific Capital Trust 6.25% TIDES convertible 976,200 47,956
preferred 2028 (1)
Union Pacific Capital Trust 6.25% TIDES convertible 110,000 5,404 .23
preferred 2028
------------------
53,360 .23
------------------
Other Industries - 0.30%
Newell Financial Trust I 5.25% QUIPS convertible 723,000 37,731 .16
preferred 2027
Qantas Airways Ltd. 7,000,000 23,263 .10
Diamond Offshore Drilling, Inc. 3.75% convertible $18,700,00 19,612 .09
debenture 2007
TXI Capital Trust I 5.50% convertible preferred 2028 450,000 16,762 .07
Ingram Micro Inc. 0% convertible debenture 2018 $20,915,00 7,085 .03
Daewoo Corp. 0.50% convertible debenture 2007 (1) $5,000,000 3,100 .01
Protection One Alarm Monitoring, Inc., warrants, expire 57,600 340 .00
2005 (1,3)
------------------
107,893 .46
------------------
Miscellaneous - 2.94%
Other equity securities in initial period of acquisition 677,109 2.94
------------------
TOTAL EQUITY SECURITIES (cost: $11,471,239,000) 14,040,1 61.01
------------------
Principal Market Percent
Amount Value of Net
Bonds & Notes (000) (000) Assets
- -------------------------------------------- -------- ----------------
Broadcasting, Advertising & Publishing - 3.23%
Charter Communications Holdings, LLC:
8.25% 2007 (1) 59,000 $56,050
0%/9.92% 2011 (1,5) 37,500 22,781 .34%
Fox/Liberty Networks, LLC, FLN Finance, Inc.:
0%/9.75% 2007 (5) 45,250 35,861
8.875% 2007 38,100 39,624 .33
Chancellor Media Corp. of Los Angeles:
9.375% 2004 23,000 23,345
8.125% 2007 30,500 29,737
Series B, 8.75% 2007 4,500 4,432
Series B, 10.50% 2007 18,300 19,764 .08
9.00% 2008 9,000 9,000 .29
Time Warner Inc.:
7.75% 2005 9,500 9,707
8.18% 2007 20,000 20,990
9.125% 2013 5,000 5,634
7.25% 2017 19,500 18,612 .24
NTL Inc.:
0%/12.75% 2005 (5) 22,000 21,340
Series B, 10.00% 2007 10,000 10,200
0%/9.75% 2008 (5) 5,000 3,425
Comcast UK Cable Partners Ltd. 0%/11.20% 2007 (5) 19,500 17,989 .23
CSC Holdings, Inc.:
7.25% 2008 8,000 7,545
8.125% 2009 22,000 21,804
9.875% 2013 11,500 12,075 .18
CBS Corp. 7.15% 2005 39,500 38,956 .17
Hearst-Argyle Television, Inc.:
7.00% 2018 25,750 23,060
7.50% 2027 5,000 4,616 .12
Liberty Media Corp. 7.875% 2009 (1) 23,600 23,546 .10
TeleWest PLC:
9.625% 2006 5,000 5,150
0%/11.00% 2007 (5) 20,500 18,296 .10
TCI Communications, Inc.:
8.00% 2005 15,000 15,808
8.75% 2015 6,500 7,315 .10
Century Communications Corp.:
8.75% 2007 13,200 12,936
0% 2008 10,000 4,300 .07
Radio One, Inc. 7.00%/12.00% 2004 (5) 16,500 17,160 .07
Comcast Corp. 10.25% 2001 10,600 11,155
Comcast Cable Communications, Inc. 8.875% 2017 4,000 4,440 .07
STC Broadcasting, Inc. 11.00% 2007 14,500 14,717 .07
Lenfest Communications, Inc.:
7.625% 2008 2,000 1,990
8.25% 2008 12,500 12,625 .06
British Sky Broadcasting Group PLC 8.20% 2009 (1) 14,250 14,134 .06
Falcon Holding Group, LP, Falcon Funding Corp. 8.375% 2010 13,000 12,902 .06
Muzak LP: (1)
9.875% 2009 8,500 8,457
0%/13.00% 2010 (5) 3,750 2,137 .05
Rogers Communications Inc. 8.875% 2007 10,000 10,075 .04
Adelphia Communications Corp.:
8.125% 2003 6,500 6,240
10.50% 2004 3,000 3,180 .04
Ziff-Davis Inc. 8.50% 2008 8,250 7,837 .03
Sun Media Corp. 9.50% 2007 7,071 7,424 .03
Multicanal Participacoes SA, Series B, 12.625% 2004 6,475 6,216 .03
Newsquest Capital PLC:
11.00% 2006 4,225 4,690
Series B, 11.00% 2006 1,200 1,332 .03
Coaxial Communications of Central Ohio, Inc. 10.00% 2006 5,750 5,807 .03
TVN Entertainment Corp. 14.00% 2008 (1) 14,750 5,310 .02
Antenna TV SA 9.00% 2007 5,250 5,014 .02
News America Holdings Inc. 7.43% 2026 5,000 4,952 .02
V2 Music Holdings 0%/14.00% 2008 (1,5) 14,750 4,720 .02
Young Broadcasting Inc.:
10.125% 2005 3,750 3,853
Series B, 8.75% 2007 750 739 .02
RBS Participacoes SA 11.00% 2007 (1) 6,750 4,438 .02
Telemundo Holdings, Inc. 0%/11.50% 2008 (5) 8,500 4,420 .02
Gray Communications Systems, Inc. 10.625% 2006 3,500 3,701 .02
Transwestern Publishing Co. LLC 9.625% 2007 3,500 3,421 .02
American Media Operations, Inc. 10.25% 2009 (1) 2,500 2,512 .01
Acme Television, LLC, Series B, 0%/10.875% 2004 (5) 2,780 2,307 .01
Continental Cablevision, Inc. 8.50% 2001 2,000 2,072 .01
Grupo Televisa, SA 11.875% 2006 750 763 .00
Globo Comunicacoes e Partcipacoes Ltd. 10.625% 2008 500 351 .00
------------------
744,989 3.23
------------------
Wireless Communications - 2.93%
Nextel Communications, Inc.:
0%/9.75% 2007 (5) 76,325 54,572
0%/10.65% 2007 (5) 11,475 8,434
0%/9.95% 2008 (5) 208,900 146,752
10.125% 2004 5,000 5,075
12.00% 2008 8,500 9,626
0%/12.125% 2008 (5) 37,450 19,989
McCaw International, Ltd. (owned by Nextel Communications, 46,850 29,047 1.19
Inc.) 0%/13.00% 2007 (5)
Omnipoint Corp.:
14.00% 2003 (1,4,6) 58,188 61,097
8.578% 2006 (1,7) 14,696 14,549
11.625% 2006 55,350 57,010 .58
Crown Castle International Corp.: (5)
0%/10.625% 2007 4,600 3,243
0%/10.375% 2011 39,750 22,856
0%/11.25% 2011 (1) 41,000 23,677 .21
Clearnet Communications Inc.:(5)
0%/14.75% 2005 22,000 20,020
0%/10.125% 2009 45,000 26,100 .20
PageMart Wireless, Inc.: (5)
0%/15.00% 2005 16,160 15,675
0%/11.25% 2008 31,000 13,950 .13
SpectraSite Holdings, Inc.: (1,5)
0%/12.00% 2008 41,250 23,512
0%/11.25% 2009 6,000 3,120 .11
Dobson Communications Corp. 11.75% 2007 7,000 7,420
Dobson/Sygnet Communications Co. 12.25% 2008 14,250 15,034 .10
CCPR Services, Inc. 10.00% 2007 18,000 18,990 .08
Comunicacion Celular SA 0%/14.125% 2005 (1,5) 31,000 18,677 .08
American Cellular Corp. 10.50% 2008 18,100 18,552 .08
Esat Telecom Group PLC 0%/12.50% 2007 (5) 12,875 9,141 .04
Centennial Cellular Corp. 10.75% 2008 (1) 8,735 8,997 .04
Mobile Telecommunication Technologies Corp. 13.50% 2002 7,685 8,761 .04
Sprint Spectrum LP, Sprint Spectrum Finance Corp. 11.00% 20 6,000 6,752 .03
PTC International Finance BV 0%/10.75% 2007 (5) 5,000 3,562 .02
Cellco Finance NV 15.00% 2005 (1) 650 686 .00
Conecel Holdings Ltd., Series A, 14.00% 2000 (1,4,7,8) 2,950 295 .00
------------------
675,171 2.93
------------------
Banking - 1.42%
SocGen Real Estate Co. LLC, Series A, 7.64%/8.406% 71,500 67,108 .29
(undated) (1,7)
MBNA Corp., MBNA:
Capital A, Series A, 8.278% 2026 10,000 9,124
Capital B, Series B, 5.795% 2027 (7) 32,000 27,633 .16
Dime Bancorp, Inc. 6.375% 2001 15,000 14,964
Dime Capital Trust I, Dime Bancorp, Inc., Series A, 11,925 11,948 .12
9.33% 2027
Riggs Capital Trust II:
8.625% 2026 1,500 1,400
8.875% 2027 25,000 23,948 .11
Advanta Corp.:
Series D, 6.60% 2000 4,000 3,966
Series D, 6.65% 2000 7,500 7,442
7.50% 2000 4,000 3,944
6.91% 2002 5,000 4,476
6.925% 2002 5,000 4,476 .11
Washington Mutual Capital I, Subordinated Capital Income 10,000 9,866
Security 8.375% 2027
Ahmanson Capital Trust I, Capital Security, Series A, 8,000 7,915 .08
8.36% 2026 (1)
Deutsche Bank Capital Funding Trust I 7.872% (undated) (1,7 16,250 15,417 .07
Sakura Capital Funding 5.997% (undated) (1,7) 15,000 12,000 .05
Capital One Capital I 6.545% 2027 (1,7) 13,500 11,934 .05
Bank of America Corp. (formerly BankAmerica Corp.) 12,500 11,324 .05
5.875% 2009
Fleet Capital Trust 6.176% 2028 (7) 10,000 10,045 .04
Standard Chartered Bank 5.75% Eurodollar Note (undated) (7) 15,000 9,265 .04
Bank of Nova Scotia 5.25% Eurodollar Note (undated) (7) 10,000 7,876 .04
Canadian Imperial Bank of Commerce 5.25% Eurodollar Note 10,000 7,750 .03
(undated) (7)
HSBC Holdings PLC 7.50% 2009 7,500 7,474 .03
HSBC Americas, Inc. 7.808% 2026 (1) 8,000 7,345 .03
Bank of Scotland 7.00% (undated) (1,7) 7,500 7,066 .03
Komercni Finance BV 9.00%/10.75% 2008 (1,7) 6,000 5,370 .02
Chase Capital II, Global Floating Rate Capital Security, 5,000 4,736 .02
Series B, 5.495% 2027 (7)
BCI U.S. Funding Trust I 8.01% (undated) (1,7) 5,000 4,663 .02
Chevy Chase Bank, FSB 9.25% 2005 4,000 4,020 .02
J.P. Morgan & Co. Inc., Series A, 6.00% 2009 1,650 1,505 .01
------------------
326,000 1.42
------------------
Business & Public Services - 1.41%
Integrated Health Services, Inc.:
10.25% 2006 (7) 16,900 11,830
Series A, 9.50% 2007 72,595 46,461
Series A, 9.25% 2008 68,298 43,028 .44
Allied Waste North America, Inc.:
7.625% 2006 7,000 6,440
10.00% 2009 (1) 58,625 58,039 .28
Columbia/HCA Healthcare Corp.:
6.87% 2003 10,575 9,803
7.15% 2004 6,000 5,640
6.91% 2005 10,750 9,754
8.85% 2007 16,770 16,686
8.70% 2010 9,500 9,057 .22
Safety-Kleen Services, Inc.:
9.25% 2008 26,500 26,765
9.25% 2009 (1) 13,500 13,635 .18
Paracelsus Healthcare Corp. 10.00% 2006 30,100 22,876 .10
Protection One Alarm Monitoring, Inc. 13.625% 2005 (7) 11,685 13,087 .05
Tenet Healthcare Corp. 8.00% 2005 9,500 9,144 .04
Ceridian Corp. 7.25% 2004 (1) 9,000 8,935 .04
Allegiance Corp. 7.00% 2026 4,000 3,950 .02
LifePoint Hospitals, Inc. 10.75% 2009 (1) 3,750 3,778 .01
Iron Mountain Inc. 8.75% 2009 1,750 1,706 .01
RainTree Healthcare Corp. 11.00% 2003 (3) 1,932 1,705 .01
Mariner Health Group, Inc. 9.50% 2006 15,250 1,372
Mariner Post-Acute Network, Inc. 9.50% 2007 2,000 240 .01
------------------
323,931 1.41
------------------
Telecommunications - 1.34%
Cable & Wireless Communications PLC:
6.625% 2005 26,500 26,646
6.75% 2008 38,000 38,862 .29
NEXTLINK Communications, Inc.:
9.625% 2007 4,000 3,880
9.00% 2008 6,250 5,937
0%/12.25% 2009 (5) 39,500 22,712 .14
Loral Orion Network Systems, Inc. 11.25% 2007 35,175 30,250 .13
Time Warner Telecom Inc. 9.75% 2008 27,975 28,534 .12
Allegiance Telecom, Inc.:
0%/11.75% 2008 (5) 32,000 20,640
12.875% 2008 3,475 3,805 .11
Viatel, Inc.:
11.25% 2008 21,500 21,500
11.50% 2009 (1) 2,000 2,020 .10
Orange PLC:
8.75% 2006 (1) 15,000 15,150
8.00% 2008 6,000 5,790 .09
Qwest Communications International Inc.:
0%/9.47% 2007 (5) 15,000 11,698
10.875% 2007 3,084 3,480
0%/8.29% 2008 (5) 7,500 5,629 .09
US Xchange, LLC 15.00% 2008 13,500 13,837 .06
Netia Holdings BV:
10.25% 2007 3,625 3,199
0%/11.25% 2007 (5) 10,500 6,746 .04
IMPSAT Corp. 12.375% 2008 10,000 7,625 .03
COLT Telecom Group PLC 0%/12.00% 2006 (5) 7,500 6,225 .03
Hermes Europe Railtel BV 11.50% 2007 5,000 5,225 .02
VersaTel Telecom International NV 11.875% 2009 5,250 5,197 .02
Teligent, Inc. 11.50% 2007 4,500 4,331 .02
PanAmSat Corp. 6.125% 2005 4,000 3,710 .02
CellNet Data Systems, Inc. 0%/14.00% 2007 (5) 8,700 3,458 .02
Globe Telecom, Inc. 13.00% 2009 (1) 1,850 1,850 .01
------------------
307,936 1.34
------------------
Energy & Related Companies - 0.89%
Oryx Energy Co.:
9.50% 1999 10,000 10,072
8.00% 2003 5,345 5,435
8.375% 2004 12,750 13,219
8.125% 2005 8,500 8,680 .16
PDVSA Finance Ltd.:
9.375% 2007 (1) 7,500 7,294
9.75% 2010 (1) 5,000 4,820
7.40% 2016 32,865 24,813 .16
Clark Refining & Marketing, Inc. 8.875% 2007 33,080 29,441 .13
Petrozuata Finance, Inc.: (1)
Series A, 7.63% 2009 10,285 8,590
Series B, 8.22% 2017 10,000 7,737 .07
Union Pacific Resources Group, Inc. 7.30% 2009 12,500 12,076 .05
Pioneer Natural Resources Co. 7.20% 2028 15,975 11,444 .05
Pogo Producing Co. 10.375% 2009 10,000 10,450 .05
Conoco Inc. 6.35% 2009 10,000 9,520 .04
Cross Timbers Oil Co.:
Series B, 9.25% 2007 1,000 985
8.75% 2009 8,000 7,680 .04
Petro Stopping Centers, LP 10.50% 2007 7,500 7,687 .03
Husky Terra Nova Finance 8.45% 2012 (1) 7,500 7,409 .03
OXYMAR 7.50% 2016 (1) 8,000 6,559 .03
Newfield Exploration Co., Series B, 7.45% 2007 6,000 5,614 .03
USX Corp. 6.65% 2006 4,500 4,248 .02
------------------
203,773 .89
------------------
Forest Products & Paper - 0.86%
Container Corp. of America:
9.75% 2003 50,206 51,963
Series A, 11.25% 2004 19,500 20,231 .31
Pacifica Papers Inc. 10.00% 2009 (1) 27,750 27,958 .12
Scotia Pacific Co. LLC, Timber Collateralized Notes:
Series B, Class A-2, 7.11% 2028 14,550 12,190
Series B, Class A-3, 7.71% 2028 16,000 11,680 .10
Pindo Deli Finance Mauritius Ltd.:
10.25% 2002 11,000 7,287
10.75% 2007 24,450 15,465 .10
Packaging Corp. of America 9.625% 2009 (1) 12,875 13,197 .06
Copamex Industrias, SA de CV, Series B, 11.375% 2004 13,450 12,004 .05
Kappa Beheer BV 10.625% 2009 (1) 7,000 7,140 .03
Advance Agro Capital BV 13.00% 2007 (7) 7,925 6,063 .03
Grupo Industrial Durango, SA de CV 12.00% 2001 6,000 5,925 .03
Paperboard Industries International Inc. 8.375% 2007 5,500 5,087 .02
Indah Kiat Finance Mauritius Ltd.:
11.875% 2002 700 565
10.00% 2007 3,050 1,952 .01
------------------
198,707 .86
------------------
Financial Services - 0.76%
GS Escrow Corp.:
5.995% 2003 (7) 15,000 14,658
7.125% 2005 23,000 21,775 .16
Capital One Financial Corp. 7.125% 2008 22,500 20,813 .09
BHP Finance Ltd. 6.75% 2013 20,000 18,438 .08
Newcourt Credit Group Inc.: (1)
Series A, 7.125% 2003 12,500 12,232
6.875% 2005 5,000 4,784 .07
Providian National Bank 6.65% 2004 4,000 3,840
Providian Financial Corp. 9.525% 2027 (1) 10,000 9,162 .06
MBNA Corp., MBNA 6.75% 2008 12,500 11,719 .05
Toyota Motor Credit Corp. 6.00% 2003 10,000 9,857 .04
AT&T Capital Corp. 6.60% 2005 10,000 9,511 .04
Wharf Capital International, Ltd. 8.875% 2004 7,000 6,773 .03
Ford Capital BV 10.125% 2000 5,500 5,750 .02
DVI, Inc. 9.875% 2004 5,000 4,875 .02
General Electric Capital Corp. 8.875% 2009 4,000 4,523 .02
Nebhelp Trust, Student Loan Interest Margin Security, 4,644 4,520 .02
Series 1998-1, Class A, 6.68% 2016 (1)
Midland Bank PLC 5.75% Eurodollar Note (undated) (7) 5,000 3,935 .02
Amresco, Inc., Series 1998-A, 9.875% 2005 5,000 3,750 .02
Green Tree Financial Corp. 6.50% 2002 2,635 2,505 .01
AB Spintab 6.80% (undated) (1,7) 1,500 1,449 .01
------------------
174,869 .76
------------------
Transportation - 0.73%
Jet Equipment Trust: (1,9)
Series 1994-A, Class B1, 10.91% 2006 6,364 7,004
Series 1995-B, 10.91% 2014 4,750 5,554
Series 1995-B, Class A, 7.63% 2015 3,634 3,607
Series 1995-A, Class B, 8.64% 2015 13,687 14,387
Series 1995-B, Class C, 9.71% 2015 5,500 5,931
Series 1995-A, Class C, 10.69% 2015 5,000 5,738 .18
Atlas Air, Inc. Pass-Through Trust, Series 1998-1, 32,825 30,401 .13
Class A, 7.38% 2019 (9)
Continental Airlines, Inc.:
9.50% 2001 4,500 4,613
pass-through certificates, Series 1996: (9)
Class A, 6.94% 2015 8,375 8,185
Class C, 9.50% 2015 12,097 12,745 .11
Airplanes Pass Through Trust, pass-through certificate, 22,480 21,592 .10
Series 1, Class C, 8.15% 2019 (9)
USAir, Inc.:(9)
Enhanced Equipment Note, Class C, 8.93% 2009 7,354 7,409
pass-through trust, Series 1993-A3, 10.375% 2013 9,000 9,485 .07
United Air Lines, Inc.:
9.00% 2003 8,000 8,463
pass-through certificate, Series 1996-A2, 7.87% 2019 (9) 5,000 4,703 .06
Teekay Shipping Corp. 8.32% 2008 10,820 10,333 .05
Delta Air Lines, Inc., pass-through certificate, 5,000 5,309 .02
Series 1992-A2, 9.20% 2014 (9)
MC-Cuernavaca Trust 9.25% 2001 (1) 3,703 2,891 .01
------------------
168,350 .73
------------------
General Retailing & Merchandising - 0.72%
J.C. Penney Co., Inc.:
7.95% 2017 28,200 28,000
7.625% (undated) 3,000 2,676 .13
Fred Meyer, Inc.:
7.375% 2005 21,000 20,923
7.45% 2008 4,000 4,010 .11
WestPoint Stevens Inc. 7.875% 2005 18,000 17,505 .08
Stater Bros. Holdings Inc. 11.00% 2001 16,000 16,240 .07
Boyds Collection, Ltd. 9.00% 2008 (1) 14,621 14,329 .06
Sears, Roebuck and Co. 9.375% 2011 12,310 13,918 .06
Salton/Maxim Housewares, Inc. 10.75% 2005 12,625 13,256 .06
May Department Stores Co. 8.375% 2024 10,000 10,451 .04
Federated Department Stores, Inc. 6.30% 2009 10,000 9,245 .04
Philips Electronics NV 7.20% 2026 6,000 5,971 .03
Randall's Food Markets, Inc. 9.375% 2007 4,750 5,189 .02
Tultex Corp.:
10.625% 2005 7,040 2,675
9.625% 2007 4,194 1,594 .02
------------------
165,982 .72
------------------
Leisure & Tourism - 0.64%
International Game Technology: (1)
7.875% 2004 16,000 15,440
8.375% 2009 7,750 7,479 .10
Horseshoe Gaming Holding Corp. 8.625% 2009 (1) 21,500 20,748 .09
AMF Bowling Worldwide, Inc.:
10.875% 2006 17,155 13,896
0%/12.25% 2006 (5) 6,437 3,991 .08
Mirage Resorts, Inc.:
6.625% 2005 3,000 2,832
6.75% 2007 5,000 4,593
6.75% 2008 5,000 4,575 .05
Florida Panthers Holdings, Inc. 9.875% 2009 10,000 9,550 .04
Premier Parks Inc. 9.75% 2007 9,500 9,500 .04
Joseph E. Seagram & Sons, Inc. 6.625% 2005 9,000 8,590 .04
Harrah's Operating Co., Inc. 7.875% 2005 7,750 7,401 .03
Boyd Gaming Corp. 9.25% 2003 7,000 7,070 .03
Royal Caribbean Cruises Ltd. 7.00% 2007 7,000 6,649 .03
Friendly Ice Cream Corp. 10.50% 2007 6,515 5,896 .02
CKE Restaurants, Inc. 9.125% 2009 5,000 4,650 .02
CapStar Hotel Co. 8.75% 2007 4,900 4,606 .02
Regal Cinemas, Inc. 9.50% 2008 5,000 4,500 .02
Carmike Cinemas, Inc. 9.375% 2009 (1) 4,000 3,870 .02
KSL Recreation Group, Inc. 10.25% 2007 1,250 1,269 .01
------------------
147,105 .64
------------------
Multi-Industry - 0.43%
Hutchison Whampoa Finance (CI) Ltd., Series D, 21,000 19,312 .08
6.988% 2037 (1)
Reliance Industries Ltd.:
8.25% 2027 (1) 10,000 8,908
10.50% 2046 (1) 5,750 4,821
Series B, 10.25% (undated) 5,000 3,975 .08
Pan Pacific Industrial Investments PLC 0% 2007 (1) 33,500 16,752 .07
Graham Packaging Co.:
8.75% 2008 8,475 7,967
0%/10.75% 2009 (5) 8,000 5,240 .06
American Standard Inc. 8.25% 2009 (1) 10,250 10,301 .05
Tekni-Plex, Inc. 9.25% 2008 8,000 7,880 .03
Sony Corp. 6.125% 2003 7,500 7,406 .03
Innova, S de RL 12.875% 2007 5,000 3,763 .02
Tenneco Inc. 8.075% 2002 2,000 2,051 .01
------------------
98,376 .43
------------------
Industrial Components - 0.40%
Federal-Mogul Corp.:
7.50% 2004 6,860 6,610
7.375% 2006 (1) 38,000 35,512
7.75% 2006 10,000 9,502
7.50% 2009 (1) 24,000 22,116 .32
TRW Inc. 7.125% 2009 (1) 15,000 14,466 .06
BREED Technologies, Inc. 9.25% 2008 29,500 2,950 .01
Westinghouse Air Brake Co. 9.375% 2005 2,000 2,040 .01
------------------
93,196 .40
------------------
Real Estate - 0.38%
Security Capital Group Inc. 7.15% 2007 17,500 15,833 .07
FelCor Suites LP:
7.375% 2004 10,000 9,197
7.625% 2007 5,000 4,447 .06
ProLogis Trust 7.05% 2006 12,000 11,379 .05
EOP Operating LP:
6.625% 2005 5,250 5,001
6.763% 2007 6,550 6,149 .05
CarrAmerica Realty Corp. 6.625% 2000 10,000 9,907 .04
Spieker Properties Inc.:
7.125% 2006 3,645 3,488
7.50% 2027 5,000 4,439 .04
ERP Operating LP:
7.95% 2002 3,750 3,819
6.63% 2005 1,400 1,331 .02
Omega Healthcare Investors, Inc. 6.95% 2002 5,000 4,715 .02
Irvine Co. 7.46% 2006 (1,4) 5,000 4,698 .02
Beverly Finance Corp. 8.36% 2004 (1) 2,500 2,583 .01
------------------
86,986 .38
------------------
Utilities: Electric & Gas - 0.31%
Israel Electric Corp. Ltd.: (1)
7.75% 2009 6,000 5,898
7.70% 2018 22,500 20,329
8.10% 2096 11,905 9,982 .16
Edison Mission Energy 7.73% 2009 (1) 10,000 10,055 .04
Tennessee Gas Pipeline Co. 7.625% 2037 10,000 9,538 .04
Williams Holdings of Delaware, Inc. 6.50% 2008 10,000 9,259 .04
Transener SA 9.25% 2008 (1) 7,500 6,122 .03
------------------
71,183 .31
------------------
Electronic Components - 0.29%
Hyundai Semiconductor America, Inc.: (1)
8.25% 2004 5,650 4,861
8.625% 2007 20,000 15,813 .09
Zilog, Inc. 9.50% 2005 17,000 15,640 .07
Fairchild Semiconductor Corp. 10.375% 2007 (1) 16,000 15,520 .07
Flextronics International Ltd. 8.75% 2007 9,000 8,955 .04
Advanced Micro Devices, Inc. 11.00% 2003 5,000 4,850 .02
------------------
65,639 .29
------------------
Metals: Steel & Nonferrous - 0.25%
Doe Run Resources Corp., Series B, 11.25% 2005 31,000 28,210 .12
Freeport-McMoRan Copper & Gold Inc.:
7.50% 2006 9,500 7,048
7.20% 2026 16,000 11,931 .08
Kaiser Aluminum & Chemical Corp. 12.75% 2003 8,000 8,080 .04
Inco Ltd. 9.60% 2022 2,625 2,547 .01
------------------
57,816 .25
------------------
Food Retailing: Food Products & Beverages - 0.19%
New World Pasta Co. 9.25% 2009 (1) 9,750 9,360 .04
Home Products International, Inc. 9.625% 2008 10,500 9,345 .04
Canandaigua Wine Co., Inc.:
8.75% 2003 5,000 4,925
Series C, 8.75% 2003 3,250 3,218 .04
Gruma, SA de CV 7.625% 2007 7,750 7,033 .03
Nabisco, Inc. 6.375% 2035 (7) 5,000 4,742 .02
Delta Beverage Group, Inc. 9.75% 2003 3,435 3,538 .02
DGS International Finance Co. BV:
10.00% 2007 (1) 1,250 903
10.00% 2007 275 199 .00
------------------
43,263 .19
------------------
Miscellaneous Materials & Commodities - 0.19%
Owens-Illinois, Inc.:
7.85% 2004 6,000 5,971
7.15% 2005 11,000 10,511
8.10% 2007 5,750 5,682 .10
Printpack, Inc. 10.625% 2006 20,270 19,510 .08
Anchor Glass Container Corp. 11.25% 2005 1,000 1,035 .01
------------------
42,709 .19
------------------
Other Industries - 0.13%
SCG Holding Corp. Semiconductor Components Industries, 10,500 10,553 .05
LLC 12.00% 2009 (1)
Ford Motor Co. 7.45% 2031 10,000 9,765 .04
Jefferson-Pilot Corp. 8.14% 2046 (1) 5,000 4,777 .02
Huntsman Corp. 8.873% 2007 (1,7) 5,000 4,425 .02
------------------
29,520 .13
------------------
Collateralized Mortgage/Asset-Backed Obligations (9)
(excluding those issued by federal agencies) - 3.45%
Gramercy Place Insurance Ltd., Series 1998-A, Class C-2, 52,500 52,327 .23
8.95% 2002 (1)
PP&L Transition Bond Co. LLC, Series 1999-1, 45,100 45,016 .20
Class A-8, 7.15% 2009
Collateralized Mortgage Obligation Trust, Series 63, 42,299 43,845 .19
Class Z, 9.00% 2020
Green Tree Financial Corp., pass-through certificates:
Series 1994-A, Class NIM, 6.90% 2004 1,737 1,730
Series 1995-A, Class NIM, 7.25% 2005 2,099 2,079
Series 1993-2, Class B, 8.00% 2018 14,000 12,858
Series 1995-4, Class B2, 7.70% 2025 1,900 1,401
Series 1995-1, Class B2, 9.20% 2025 5,500 4,769
Series 1995-9, Class A-5, 6.80% 2027 4,000 3,994
Series 1996-2, Class B2, 7.90% 2027 3,500 2,597
Series 1996-10, Class A-6, 7.30% 2028 3,000 2,897
Series 1998-4, Class B2, 8.11% 2028 6,650 5,154 .18
Series 1998-3, Class B2, 8.07% 2030 5,000 3,863
G3 Mortgage Reinsurance Ltd., Series 1: (1,7)
Class A, 6.164% 2008 10,500 10,147
Class B, 6.464% 2008 9,000 8,702
Class C, 8.014% 2008 10,000 9,016
Class D, 11.664% 2008 11,000 10,028 .16
Merrill Lynch Mortgage Investors, Inc.:
Seller Manufactured Housing Contract, Series 1995-C2, 13,449 13,492
Class A-1, 6.973% 2021 (7)
Series 1995-C3, Class A-3, 7.059% 2025 (7) 10,000 9,910
Series 1998-C3, Class A1, 5.65% 2030 4,820 4,588
Mortgage Pass-Through Certificates: (7)
Series 1996-C2, Class A-1, 6.69% 2028 2,678 2,679
Series 1998-C3, Class E, 6.976% 2030 7,980 6,574 .16
CS First Boston Inc.:
Finance Co. Ltd., Series 1995-A, 5.969% 2005 (1,7) 11,375 9,783
Series 1998-FL1, Class E, 6.07% 2013 (1,7) 10,000 9,878
Mortgage Securities Corp., Series 1998-C1, Class A-1A, 13,884 13,520 .14
6.26% 2040
First USA Credit Card Master Trust:
Series 1999-1, Class C, 6.42% 2006 (1) 7,500 7,252
Class A, Floating Rate Asset-Backed Certificates: (1,7)
Series 1998-7, 5.78% 2004 13,000 12,953
Series 1998-8, 6.08% 2008 5,652 5,623
Series 1997-4, 6.00% 2010 6,500 6,399 .14
GMAC Commercial Mortgage Securities, Inc.:
Series 1997-C2, Class E, 7.624% 2011 20,750 18,006
Series 1999-C1:(7)
Class D, 6.865% 2033 7,000 6,529
Class E, 6.865% 2033 4,015 3,453 .12
DLJ Mortgage Acceptance Corp.:
Series 1997-CF1, Class A1A, 7.40% 2006 (1) 6,343 6,422
Series 1996-CF2, Class A1A, 6.86% 2021 (1) 4,803 4,822
Series 1998-CF2, Class A1B, 6.24% 2031 15,000 14,008 .11
MBNA Master Credit Card Trust: (1)
Series 1999-D, Class B, 6.95% 2008 4,700 4,540
Series 1998-E, Class C, 6.60% 2010 22,500 20,644 .11
SMA Finance Co., Inc., Series 1998-C1, Class A1, 6.27% 2005 24,864 24,465 .11
Commercial Mortgage Acceptance Corp.:
Series 1998-C2, Class A-1, 5.80% 2006 12,878 12,438
Series 1998-C1, Class A-1, 6.23% 2007 6,056 5,887 .08
First Union-Lehman Brothers Bank of America Commercial 18,794 18,259 .08
Mortgage Trust, Commercial Mortgage Pass-Through
Certificate, Series 1998-C2, 6.28% 2035
GS Mortgage Securities Corp. II, Mortgage Pass-Through 20,000 17,971 .08
Certificate, Series 1998-C1, Class D, 7.243% 2030 (7)
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 2026 (1) 18,250 17,091 .07
Morgan Stanley Capital I, Inc.:
Series 1995-GAL1, Class A-2, 7.50% 2027 (1) 7,500 7,666
Series 1998-WF2, Class A-1, 6.75% 2030 (7) 9,318 9,034 .07
Acominas Overseas Ltd. 8.309% 2022 (1,7) 17,800 13,993 .06
Residential Reinsurance Ltd. 8.711% 2000 (1,7) 14,000 13,860 .06
ComEd Transitional Funding Trust, Transitional Funding
Trust Notes, Series 1998:
Class A-5, 5.44% 2007 9,250 8,743
Class A-6, 5.63% 2009 5,500 5,082 .06
Chase Commercial Mortgage Securities Corp., Series 1998-1, 13,835 13,567 .06
Class A1, 6.34% 2030
Ford Credit Auto Owner Trust:
Series 1998-B, Class C, 6.40% 2002 10,000 9,838
Series 1999-B, Class C, 6.65% 2003 3,000 2,966 .06
Structured Asset Securities Corp., pass-through
certificates: (7)
Series 1998-RF2, Class A, 8.564% 2022 (1) 2,430 2,482
Series 1998-RF1, Class A, 8.689% 2027 (1) 1,926 1,974
Series 1999-BC1, Class M2, 6.393% 2029 7,500 7,513 .05
First Consumer Master Trust, Series 1999-A, Class A, 12,500 11,865 .05
5.80% 2005 (1)
Trinity Re, Ltd. 9.745% 2000 (1,7) 12,000 11,730 .05
FIRSTPLUS Home Loan Owner Trust, Series 1997-1, 10,000 9,971 .04
Class A-6, 6.95% 2015
Team Fleet Financing Corp.: (1)
Series 1999-2A, Class D, 6.314% 2002 (7) 3,000 2,994
Series 1999-3A, Class D, 7.60% 2003 7,000 6,964 .04
Green Tree Recreational, Equipment & Consumer Trust, 10,000 9,927 .04
Series 1999-A, Class A-6, 6.84% 2029
Resolution Trust Corp.:
Series 1992-CHF, Class E, 8.25% 2020 865 863
Series 1993-C1:
Class D, 9.45% 2024 5,538 5,520
Class E, 9.50% 2024 162 162
Series 1993-C2:
Class C, 8.00% 2025 505 503
Class D, 8.50% 2025 2,459 2,452 .04
Freddie Mac Loan Receivables Trust, Series 1998-A, 10,100 9,489 .04
Class A3, 6.69% 2020 (1)
Capital One Secured Note Trust, Series 1999-2, 5.78% 2005 6,250 6,206
Capital One Master Trust, Series 1991-1, Class C, 6.60% 2,500 2,430 .04
2007 (1)
First Nationwide, Series 1999-2, Class 1PA1, 6.50% 2029 8,743 8,366 .04
Fleet Credit Card Master Trust II, Series 1999-A, Class C 8,000 8,008 .03
Floating Rate Asset Backed Interests, 5.475% 2004 (1,7)
H.S. Receivables Corp., Series 1999-1, Class A, 8.13% 7,500 7,575 .03
2004 (1)
PNC Mortgage Securities Corp., Series 1998-10, Class 1-B1, 6,942 6,421 .03
6.50% 2028 (1)
GE Capital Mortgage Services, Inc., Series 1994-9, Class A9 6,864 6,396 .03
6.50% 2024
Bear Stearns Commercial Mortgage Securities Inc., Series 89,481 6,210 .03
1999-C1, Class X, interest only, 1.054% 2031 (7)
First Union Commercial Mortgage Trust, Series 1999-C1, 7,000 6,039 .03
Class E, 6.973% 2035 (7)
Chase Manhattan Credit Card Master Trust, Series 1997-5, 5,585 5,498 .02
Class A, 6.194% 2005
Standard Credit Card Master Trust I, Series 1994-2A, 5,000 5,022 .02
Class A, 7.25% 2008
EQCC Home Equity Loan Trust, Asset Backed Certificates, 5,000 4,983 .02
Series 1999-3, Class A-3F, 7.067% 2025
Metris Master Trust, Series 1998-1A, Class C, 6.03% 5,000 4,807 .02
2005 (1,7)
Nationslink Funding Corp., Series 1999-1, Class D, 5,000 4,676 .02
7.10% 2031
Government Lease Trust Series 1999-C1A, Class B3, 6,687 4,584 .02
4.00% 2011 (1)
Deutsche Mortgage & Asset Receiving Corp., Series 1998-C1, 4,634 4,455 .02
Class A-1, 6.22% 2031
Metropolitan Asset Funding, Inc., Series 1998-A, Class B1, 4,669 4,447 .02
7.728% 2014 (1,7)
UCFC Acceptance Corp., Series 1996-D1, Class A-4, 4,250 4,262 .02
6.776% 2016
Mosaic Re II, Ltd., Class B, 14.185% 2000 (1,7) 4,000 3,992 .02
Money Store Trust, Asset-Backed Certificate, Series 1997-D, 3,844 3,837 .02
6.345% 2021
Residential Funding Mortgage Securities I, Inc., Series 3,965 3,747 .02
1998-S17, Class M-1, 6.75% 2028
Grupo Financiero Banamex Accival, SA de CV 0% 2002 3,944 3,527 .02
Financial Asset Securitization, Inc., Series 1997-NAM1, 2,540 2,553 .01
Class B1, 7.75% 2027
Chase Manhattan Bank, NA, Series 1993-I, Class 2A5, 2,499 2,507 .01
7.25% 2024
Rental Car Finance Corp., Series 1999-1A, Class D, 2,500 2,403 .01
7.10% 2007 (1)
Domestic Inc. 8.686% 2002 (1,7) 2,000 2,010 .01
Chevy Chase Master Credit Card Trust II, Series 1996-C, 2,000 1,987 .01
Class A, 5.32% 2007 (7)
------------------
793,715 3.45
------------------
Federal Agency Obligations: Mortgage Pass-Throughs (9) 1.93%
Government National Mortgage Assn.:
5.50% 2028 3,011 2,673
6.00% 2028-2029 142,488 131,310
6.50% 2028 27,072 25,702
7.00% 2008-2030 53,696 52,364
7.50% 2017-2026 29,849 29,893
8.00% 2017-2023 14,974 15,294
8.50% 2017-2029 14,821 15,452
9.00% 2018-2025 5,379 5,711
9.50% 2009-2021 7,836 8,415
10.00% 2016-2019 681 744
10.50% 2019 53 58 1.25
Fannie Mae:
5.50% 2028 9,873 8,847
5.745% 2028 (7) 7,535 7,391
6.00% 2013 10,316 9,868
6.50% 2013-2028 11,747 11,337
7.00% 2012 7,079 7,055
7.50% 2007-2027 21,857 22,002
8.00% 2009-2024 5,832 5,970
8.50% 2014-2025 4,677 4,857
9.00% 2008-2025 5,151 5,440
9.50% 2022 4,507 4,795
10.00% 2005-2025 12,691 13,712
12.50% 2019 911 1,052
13.00% 2015 2,326 2,722
15.00% 2028 870 1,036 .46
Freddie Mac:
5.125% 2008 25,000 22,293
6.00% 2014 12,386 11,859
8.50% 2008-2020 9,623 9,971
9.00% 2007-2021 5,375 5,600
10.00% 2019 119 128
11.50% 2000 4 4 .22
------------------
443,555 1.93
------------------
Federal Agency Obligations: Collateralized Mortgage
Obligations (9) - 0.10%
Fannie Mae:
Series 1991-78, Class PK, 8.50% 2020 452 452
Series 1994-4, Class ZA, 6.50% 2024 5,599 5,155
Series 1996-4, Class ZA, 6.50% 2022 6,611 6,270
Series 1997-28, Class C, 7.00% 2027 5,000 4,869 .07
Freddie Mac:
Series 178, Class Z, 9.25% 2021 1,993 2,076
Series 1673, Class SA, 5.839% 2024 (7,10) 6,000 4,363 .03
------------------
23,185 .10
------------------
Other Federal Agency Obligations - 0.12%
Fannie Mae, Medium-Term Note 6.75% 2028 30,000 26,841 .12
------------------
Governments & Governmental Authorities (excluding U.S.)
- -1.19%
Brazil (Federal Republic of):
Debt Conversion Bond, Series L, 5.938% 2012 (7) 3,750 2,227
Debt Conversion Bond, Bearer, Series L, 5.938% 2012 (7) 5,000 2,969
Bearer 8.00% 2014 135,246 83,007 .38
Argentina (Republic of):
Eurobond, Series L, 5.938% 2005 (7) 2,093 1,741
9.75% 2027 10,000 7,475
11.00% 2006 31,635 28,867
11.375% 2017 13,400 11,290
11.75% 2009 1,730 1,529 .22
United Mexican States Government Eurobonds:
Series C, 0% 2003 (4) 2,307 0
Global:
11.375% 2016 9,000 9,315
11.50% 2026 19,000 20,378
Units, Series C, 5.874% 2019 (7) 1,500 1,226 .13
Panama (Republic of):
Past Due Interest Eurobond 6.50% 2016 (7) 540 384
8.875% 2027 21,500 17,415
9.375% 2029 5,000 4,650 .10
Philippines (Republic of):
8.875% 2008 12,250 11,990
9.875% 2019 10,750 10,441 .10
Turkey (Republic of) 12.375% 2009 11,750 11,823 .05
Korea (Republic of) 8.875% 2008 11,000 11,286 .05
Venezuela (Republic of):
Eurobond 6.313% 2007 (7) 13,964 10,299
9.25% 2027 1,150 725 .05
Ontario (Province of) 5.50% 2008 10,000 9,066 .04
Poland (Republic of), Past Due Interest Bond, Bearer 9,000 7,970 .03
5.00% 2014 (7)
Mendoza (Province of) 10.00% 2007 (1) 9,500 6,080 .03
Bulgaria (Republic of), Front-Loaded Interest Reduction 2,500 1,530 .01
Bond 2.75% 2012 (7)
Peru (Republic of):(7)
Front-Loaded Interest Reduction Eurobond 3.75% 2017 250 136
Past Due Interest Eurobond 4.50% 2017 1,250 769 .00
------------------
274,588 1.19
------------------
U.S. Treasury Obligations - 3.53%
8.75% August 2000 22,500 23,245 .10
7.75% February 2001 13,000 13,412 .06
5.875% November 2001 12,590 12,641 .05
6.25% August 2002 50,000 50,617 .22
7.25% May 2004 83,630 88,204 .38
7.25% August 2004 100,000 105,641 .46
11.625% November 2004 43,500 54,382 .24
7.50% February 2005 80,860 86,469 .38
6.50% May 2005 10,000 10,238 .04
7.00% July 2006 18,293 19,225 .08
6.125% August 2007 1,465 1,469 .01
3.625% January 2008 (7,11) 51,438 49,927 .22
10.00% May 2010 18,000 21,282 .09
7.50% November 2016 17,000 18,958 .08
8.875% August 2017 73,575 92,923 .40
7.875% February 2021 7,500 8,801 .04
7.125% February 2023 65,250 71,387 .31
6.50% November 2026 70,000 71,772 .31
0% November 2027 21,530 3,839 .02
5.25% February 2029 10,000 8,831 .04
------------------
813,263 3.53
------------------
TOTAL BONDS & NOTES (cost: $6,691,309,000) 6,400,64 27.82
Short-Term Securities
- --------------------------------------------
Corporate Short-Term Notes - 6.41%
BellSouth Telecommunications, Inc. 4.90%-5.30% due 92,800 91,823 .40
8/2/1999-1/27/2000 (1)
Ford Motor Credit Co. 5.00%-5.13% due 9/2-10/19/1999 87,100 86,200 .37
E.I. du Pont de Nemours and Co. 4.89%-5.30% due 84,900 83,186 .36
8/18/1999-2/2/2000
Lucent Technologies Inc. 4.88%-5.08% due 8/5-9/23/1999 80,700 80,453 .35
Archer Daniels Midland Co. 4.84%-5.36% due 8/20/1999-2/10/2 80,300 79,257 .34
Procter & Gamble Co. 5.08%-5.30% due 8/30/1999-1/19/2000 79,700 78,348 .34
IBM Credit Corp. 4.80%-5.01% due 8/11-8/19/1999 75,000 74,847 .33
Coca-Cola Co. 5.00%-5.29% due 9/28/1999-2/1/2000 75,500 73,887 .32
Merck & Co. Inc. 5.29%-5.34% due 2/2/1999-2/4/2000 75,000 72,861 .32
Associates First Capital Corp. 4.84%-4.96% due 8/31-9/20/19 65,000 64,672 .28
International Lease Finance Corp. 5.09%-5.10% due 65,000 64,289 .28
10/8-10/22/1999
H.J. Heinz Co. 5.15%-5.34% due 8/23/1999-1/28/2000 60,200 59,200 .26
Ciesco L.P. 4.90%-5.02% due 8/4-8/17/1999 54,950 54,873 .24
Eastman Kodak Co. 4.78%-5.05% due 8/10-9/24/1999 54,020 53,793 .23
Fortune Brands Inc. 5.00%-5.12% due 8/3-10/8/1999 (1) 52,000 51,622 .22
Monsanto Co. 4.93%-5.15% due 9/17-11/5/1999 50,000 49,472 .21
Johnson & Johnson 4.78%-5.30% due 10/4/1999-1/25/2000 (1) 47,425 46,602 .20
General Electric Capital Corp. 5.10%-5.51% due 46,300 45,368 .20
8/2/1999-1/31/2000
American Home Products Corp. 4.79%-5.37% due 45,100 44,417 .19
8/3/1999-1/26/2000 (1)
General Motors Acceptance Corp. 4.89%-5.12% due 8/3-10/15/1 42,900 42,652 .19
Warner-Lambert Co. 4.83% due 8/25/1999 (1) 40,000 39,858 .17
National Rural Utilities Cooperative Finance Corp. 38,500 38,247 .17
4.78%-5.09% due 8/27-10/4/1999
Household Finance Corp. 5.02% due 8/23/1999 36,400 36,283 .16
Minnesota Mining and Manufacturing Co. 5.00%-5.05% 23,423 23,335 .10
due 8/26-8/27/1999
Gillette Co. 4.87%-5.00% due 8/3-8/4/1999 (1) 22,900 22,889 .10
Schering Corp. 4.87% due 8/31/1999 18,000 17,921 .08
------------------
1,476,35 6.41
------------------
Federal Agency Short-Term Obligations - 5.03%
Freddie Mac 4.73%-5.21% due 8/9/1999-2/3/2000 664,900 659,847 2.87
Fannie Mae 4.691%-5.00% due 8/5-12/3/1999 462,390 459,034 2.00
Federal Home Loan Banks 4.81%-5.22% due 11/19/1999-1/21/200 38,600 37,739 .16
------------------
1,156,62 5.03
------------------
Other Federal Agency Short-Term Obligations - 0.22%
Sallie Mae 5.063% due 10/21/1999 (7) 50,000 49,980 .22
------------------
TOTAL SHORT-TERM SECURITIES (cost: $2,683,797,000) 2,682,95 11.66
------------------
TOTAL INVESTMENT SECURITIES (cost: $20,846,345,000) 23,123,7 100.49
Excess of payables over cash and receivables 111,87 .49
------------------
NET ASSETS 23,011,8 100.00
------------------
------------------
1. Purchased in a private placement transaction; resale to
the public may require registration or sale only to
qualified institutional buyers.
2. The fund owns 5.42% and 7.41% of the outstanding voting
securities of Equitable Resources and Ohio Casualty,
respectively, and thus,is considered an affiliate as
defined in the Investment Company Act of 1940.
3. Non-income-producing security.
4. Valued under procedures established by the Board of
Directors.
5. Step Bond; coupon rate will increase at a later date.
6. Payment in kind; the issuer has the option of paying in
additional securities in lieu of cash.
7. Coupon rate may change periodically.
8. Company not making interest payments; bankruptcy proceedings
pending.
9. Pass-through securities backed by a pool of mortgages or
other loans on which principal payments are periodically
made. Therefore, the effective maturities are shorter than
the stated maturities.
10. Inverse floater, which is a floating rate note whose
interest rate moves in the opposite direction of prevailing
interest rates.
11. Index-linked bond whose principal amount moves with a
government retail price index.
See Notes to Financial Statements
ADR = American Depositary Receipts
</TABLE>
<TABLE>
The Income Fund of America
Financial Statements
<S> <C> <C>
- ----------------------------------------- --------- ---------
Statement of Assets and Liabilities (dollars in
at July 31, 1999 thousands)
- ----------------------------------------- --------- ---------
Assets:
Investment securities at market
(cost: $20,846,345) $23,123,707
Cash 16,467
Receivables for-
Sales of investments $ 22,222
Sales of fund's shares 24,360
Dividends and accrued interest 166,476 213,058
--------- ---------
23,353,232
Liabilities:
Payables for-
Purchases of investments 298,523
Repurchases of fund's shares 28,226
Management services 5,304
Accrued expenses 9,349 341,402
--------- ---------
Net Assets at July 31, 1999-
Equivalent to $17.51 per share on
1,314,463,728 shares of $1 par value
capital stock outstanding (authorized
capital stock--1,600,000,000 shares) $23,011,830
============
- ----------------------------------------- --------- ---------
Statement of Operations (dollars in
for the year ended July 31, 1999 thousands)
- ----------------------------------------- --------- ---------
Investment Income:
Income:
Dividends $506,236
Interest 746,740 $1,252,976
---------
Expenses:
Management services fee 63,389
Distribution expenses 52,738
Transfer agent fee 10,901
Reports to shareholders 670
Registration statement and
prospectus 1,495
Postage, stationery and supplies 2,019
Directors' fees 178
Auditing and legal fees 71
Custodian fee 961
Taxes other than federal income tax 10
Other expenses 123 132,555
--------- ---------
Net investment income 1,120,421
---------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 1,485,110
Net change in unrealized appreciation on
investments (912,310)
---------
Net realized gain and change in unrealized
appreciation on investments 572,800
---------
Net Increase in Net Assets Resulting
From Operations $1,693,221
============
- ----------------------------------------- --------- ---------
(dollars in
Statement of Changes in Net Assets thousands)
- ----------------------------------------- --------- ---------
Year ended July 31
1999 1998
--------- ---------
Operations:
Net investment income $ 1,120,421 $ 981,936
Net realized gain on investments 1,485,110 1,220,942
Net change in unrealized appreciation
on investments (912,310) (34,156)
--------- ---------
Net increase in net assets
resulting from operations 1,693,221 2,168,722
--------- ---------
Dividends and Distributions
Paid to Shareholders:
Dividends from net investment income (1,109,089) (922,159)
Distributions from net realized
gain on investments (1,454,557) (1,524,937)
--------- ---------
Total dividends and distributions (2,563,646) (2,447,096)
--------- ---------
Capital Share Transactions:
Proceeds from shares sold:
172,804,800 and 205,557,632
shares, respectively 3,038,713 3,777,990
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions of
net realized gain on investments:
134,016,601 and 122,751,251
shares, respectively 2,310,634 2,182,454
Cost of shares repurchased:
203,714,499 and 129,064,287
shares, respectively (3,580,068) (2,383,307)
--------- ---------
Net increase in net assets
resulting from capital share
transactions 1,769,279 3,577,137
--------- ---------
Total Increase in Net Assets 898,854 3,298,763
Net Assets:
Beginning of year 22,112,976 18,814,213
--------- ---------
End of year (including undistributed
net investment income: $211,028
and $198,455, respectively) $23,011,830 $22,112,976
=========== ===========
See Notes to Financial Statements
</TABLE>
Income Fund of America
Notes to Financial Statements
Year ended July 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - 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.
SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been
prepared in conformity with generally accepted accounting principles which
require management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could
differ from those estimates. The following is a summary of the significant
accounting policies consistently followed by the fund in the preparation of its
financial statements:
SECURITY VALUATION - 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. The ability of the issuers of the debt securities held by the fund to
meet their obligations may be affected by economic developments in a specific
industry, state or region. Short-term securities maturing within 60 days are
valued at amortized cost, which approximates market value. Securities and
assets for which representative market quotations are not readily available are
valued at fair value as determined in good faith by a committee appointed by
the Board of Directors.
NON-U.S. CURRENCY TRANSLATION - Assets and liabilities initially expressed
in terms of non-U.S. currencies are translated into U.S. dollars at the
prevailing market rates at the end of the reporting period. Purchases and
sales of securities and income and expenses are translated into U.S. dollars at
the prevailing market rates on the dates of such transactions. The effects of
changes in non-U.S. currency exchange rates on investment securities and other
assets and liabilities are included with the net realized and unrealized gain
or loss on investment securities.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security
transactions are accounted for as of the trade date. Realized gains and losses
from securities transactions are determined based on specific identified cost.
In the event securities are purchased on a delayed delivery or "when-issued"
basis, the fund will instruct the custodian to segregate liquid assets
sufficient to meet its payment obligations in these transactions. Dividend
income is recognized on the ex-dividend date, and interest income is recognized
on an accrual basis. Market discounts, premiums, and original issue discounts
on securities purchased are amortized daily over the expected life of the
security.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions
paid to shareholders are recorded on the ex-dividend date.
2. NON-U.S. INVESTMENTS
INVESTMENT RISK - Investments in securities of non-U.S. issuers in certain
countries involve special investment risks. These risks may include, but are
not limited to, investment and repatriation restrictions, revaluation of
currencies, adverse political, social, and economic developments, government
involvement in the private sector, limited and less reliable investor
information, lack of liquidity, certain local tax law considerations, and
limited regulation of the securities markets.
TAXATION - Dividend and interest income is recorded net of non-U.S. taxes
paid. For the year ended July 31, 1999, such non-U.S. taxes were $6,896,000.
CURRENCY GAINS AND LOSSES - Net realized currency gains on dividends,
interest, withholding taxes reclaimable, and other receivables and payables, on
a book basis, were $37,000.
3. FEDERAL INCOME TAXATION
The fund complies with the requirements of the Internal Revenue Code
applicable to regulated investment companies and intends to distribute all of
its net taxable income and net capital gains for the fiscal year. As a
regulated investment company, the fund is not subject to income taxes if such
distributions are made. Required distributions are determined on a tax basis
and may differ from net investment income and net realized gains for financial
reporting purposes. In addition, the fiscal year in which amounts are
distributed may differ from the year in which the net investment income and net
realized gains are recorded by the fund.
As of July 31, 1999, net unrealized appreciation on investments for
federal income tax purposes aggregated $2,277,405,000, of which $3,176,209,000
related to appreciated securities and $898,804,000 related to depreciated
securities. During the year ended July 31, 1999, the fund realized, on a tax
basis, a net capital gain of $1,483,870,000 on securities transactions.
Net gains related to non-U.S. currency and other transactions of
$1,240,000 were treated as an adjustment to ordinary income for federal income
tax purposes. The cost of portfolio securities for federal income tax purposes
was $20,846,302,000 at July 31, 1999.
4. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fee of $63,389,000 for management services
was incurred pursuant to an agreement with Capital Research and Management
Company (CRMC), with which certain officers and Directors of the fund are
affiliated. The Investment Advisory and Service Agreement in effect through
December 31, 1998 provided for monthly fees, accrued daily, based on an annual
rate of 0.24% of the first $1 billion of average net assets; 0.20% of such
assets in excess of $1 billion but not exceeding $2 billion; 0.18% of such
assets in excess of $2 billion but not exceeding $3 billion; 0.165% of such
assets in excess of $3 billion but not exceeding $5 billion; 0.155% of such
assets in excess of $5 billion but not exceeding $8 billion; 0.15% of such
assets in excess of $8 billion but not exceeding $13 billion; 0.145% of such
assets in excess of $13 billion but not exceeding $21 billion; and 0.14% of
such assets in excess of $21 billion; plus 2.25% of monthly gross investment
income. The Board of Directors approved an amended agreement effective January
1, 1999, reducing the fees to 0.25% of the first $500 million of average net
assets; 0.23% of such assets in excess of $500 million but not exceeding $1
billion; 0.21% of such assets in excess of $1 billion but not exceeding $1.5
billion; 0.19% of such assets in excess of $1.5 billion but not exceeding $2.5
billion; 0.17% of such assets in excess of $2.5 billion but not exceeding $4
billion; 0.16% of such assets in excess of $4 billion but not exceeding $6.5
billion; 0.15% of such assets in excess of $6.5 billion but not exceeding $10.5
billion; 0.145% of such assets in excess of $10.5 billion but not exceeding $17
billion; 0.14% of such assets in excess of $17 billion but not exceeding $27.5
billion; and 0.135% of such assets in excess of $27.5 billion; plus 2.25% of
monthly gross investment income.
DISTRIBUTION EXPENSES - 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, 1999, distribution expenses under the Plan were $52,738,000. As of
July 31, 1999, accrued and unpaid distribution expenses were $8,531,000.
American Funds Distributors, Inc. (AFD), the principal underwriter of the
fund's shares, received $12,692,000 (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.
TRANSFER AGENT FEE - American Funds Service Company (AFS), the transfer
agent for the fund, was paid a fee of $10,901,000.
DEFERRED DIRECTORS'FEES - 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, 1999, aggregate deferred amounts and earnings thereon
since the deferred compensation plan's adoption (1993), net of any payments to
Directors, were $663,000.
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.
5. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding
short-term securities, of $9,303,782,000 and $8,651,694,000, respectively,
during the year ended July 31, 1999.
As of July 31, 1999, accumulated undistributed net realized gain on
investments was $1,038,911,000 and additional paid-in capital was
$18,169,967,000. The fund reclassified $1,241,000 to undistributed net
investment income from additional paid-in capital and reclassified $58,314,000
from undistributed net realized gains to additional paid-in capital for the
year ended July 31, 1999 as a result of permanent differences between book and
tax.
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 $961,000 includes $303,000 that was paid by these credits
rather than in cash.
<TABLE>
The Income Fund of America
Per-Share Data and Ratios
<S> <C> <C> <C> <C> <C>
Year endeJuly 31
------- --------------------- -------
1999 1998 1997 1996 1995
------- --------------------- -------
Net Asset Value, Beginning of Ye $18.25 $18.59 $15.89 $14.92 $13.59
------- --------------------- -------
Income from Investment Operations:
Net investment income .88 .85 .86 .87 .85
Net gains or losses on securities
(both realized and unrealized .45 1.11 3.55 1.11 1.29
------- --------------------- -------
Total from investment operati 1.33 1.96 4.41 1.98 2.14
------- --------------------- -------
Less Distributions:
Dividends (from net investment
income) (.88) (.82) (.90) (.83) (.75)
Distributions (from capital gains)
(1.19) (1.48) (.81) (.18) (.06)
------- --------------------- -------
Total distributions (2.07) (2.30) (1.71) (1.01) (.81)
------- --------------------- -------
Net Asset Value, End of Year $17.51 $18.25 $18.59 $15.89 $14.92
======= ===================== =======
Total Return * 7.79% 11.32% 29.28% 13.46% 16.42%
Ratios/Supplemental Data:
Net assets, end of year
(in millions) $23,012$22,113$18,814 $14,459 $12,290
Ratio of expenses to average
net assets .59% .59% .61% .62% .65%
Ratio of net income to average
net assets 4.99% 4.75% 5.09% 5.56% 6.12%
Portfolio turnover rate 44.35% 34.68% 40.92% 37.77% 26.26%
* Excludes maximum sales charge
of 5.75%.
</TABLE>
Independent Auditors' Report
To the Board of Directors and Shareholders of
The Income Fund of America, Inc.:
We have audited the accompanying statement of assets and liabilities of
The Income Fund of America, Inc. (the "Fund"), including the investment
portfolio, as of July 31, 1999, 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, 1999, by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of The Income Fund of America, Inc. at July 31, 1999, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the per-share data and ratios
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Los Angeles, California
August 27, 1999
Tax Information (unaudited)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of distributions received by shareholders
during such fiscal year. The distributions made during the fiscal year by the
fund were earned from the following sources:
<TABLE>
<CAPTION>
Dividends and Distributions per Share
<S> <C> <C> <C> <C>
To Shareholders Payment Date From Net From Net From Net Realized
of Record Investment Income Realized Short-term Long-Term Gains
Gains
September 18,1998 September 21,1998 $0.20 - -
December 21, 1998 December 22, 1998 0.28 - $1.19
March 19, 1999 March 22, 1999 0.20 - -
June 18, 1999 June 21, 1999 0.20 - -
</TABLE>
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 35% of the dividends
paid by the fund from net investment income represent qualifying dividends.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 5% of the dividends paid
by the fund from net investment income were derived from interest on direct
U.S. Treasury obligations.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans and 403(b) plans need not be reported as taxable income.
However, many retirement plan trusts may need this information for their annual
information reporting.
The fund also designates as a capital gain distribution a portion of earnings
and profits paid to shareholders in redemption of their shares.
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 2000 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 1999 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
BOARD OF DIRECTORS
ROBERT A. FOX
Livingston, California
President and Chief Executive Officer, Foster Farms Inc.
ROBERTA L. HAZARD
McLean, Virginia
Consultant; Rear Admiral, U.S. Navy (retired)
LEONADE D. JONES
Burlingame, California
Management consultant;
former Treasurer, The Washington Post Company
JOHN G. MCDONALD
Stanford, California
The IBJ Professor of Finance,
Graduate School of Business, Stanford University
JANET A. MCKINLEY
New York, New York
President of the fund
Director, Capital Research and Management Company
JAMES W. RATZLAFF
San Francisco, California
Senior Partner, The Capital Group Partners L.P.
HENRY E. RIGGS
Claremont, California
President, Keck Graduate Institute of Applied Life Sciences
WALTER P. STERN
New York, New York
Chairman of the Board of the fund
Chairman of the Board,
Capital International, Inc.
PATRICIA K. WOOLF
Princeton, New Jersey
Private investor; lecturer,
Department of Molecular Biology, Princeton University;
corporate director
OTHER OFFICERS
STEPHEN E. BEPLER
New York, New York
Senior Vice President of the fund
Senior Vice President, Capital Research Company
ABNER D. GOLDSTINE
Los Angeles, California
Senior Vice President of the fund
Senior Vice President and Director,
Capital Research and Management Company
PAUL G. HAAGA, JR.
Los Angeles, California
Senior Vice President of the fund
Executive Vice President and Director,
Capital Research and Management Company
DINA N. PERRY
Washington, D.C.
Senior Vice President of the fund
Senior Vice President,
Capital Research and Management Company
HILDA L. APPLBAUM
San Francisco, California
Vice President of the fund
Vice President, Capital Research Company
DAVID C. BARCLAY
Los Angeles, California
Vice President of the fund
Senior Vice President, Capital Research Company
DARCY B. KOPCHO
Los Angeles, California
Vice President of the fund
Executive Vice President and Director,
Capital Research Company
JOHN H. SMET
Los Angeles, California
Vice President of the fund
Vice President, Capital Research and Management Company
PATRICK F. QUAN
San Francisco, California
Secretary of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
ANTHONY W. HYNES, JR.
Brea, California
Treasurer of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
R. MARCIA GOULD
Brea, California
Assistant Treasurer of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
[The American Funds Group(r)]
OFFICE OF THE FUND
One Market
Steuart Tower, Suite 1800
Mailing Address: P.O. Box 7650
San Francisco, California 94120-7650
INVESTMENT ADVISER
Capital Research and Management Company
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5823
TRANSFER AGENT FOR
SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071-2371
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180, OR VISIT WWW.AMERICANFUNDS.COM ON THE
WORLD WIDE WEB.
PREPARING FOR THE YEAR 2000 The fund's key service providers - Capital Research
and Management Company, the investment adviser, and American Funds Service
Company, the transfer agent - have updated all computer systems to process
date-related information properly following the turn of the century. Other
preparations continue, including external monitoring and contingency planning.
If you'd like more detailed information, call Shareholder Services at
800/421-0180, ext. 21, or visit our Web site at www.americanfunds.com.
This report is for the information of shareholders of The Income Fund of
America, but it may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details about charges,
expenses, investment objectives and operating policies of the fund. If used as
sales material after September 30, 1999, this report must be accompanied by an
American Funds Group Statistical Update for the most recently completed
calendar quarter.
Printed on recycled paper
Litho in USA BDC/CG/4262
Lit. No. IFA-011-0999
