The Income Fund of America/(R)/
Prospectus
OCTOBER 1, 2000
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED
OR DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
---------------------------------------------------------
THE INCOME FUND OF AMERICA, INC.
One Market
Steuart Tower, Suite 1800
San Francisco, California 94105
<TABLE>
<CAPTION>
TICKER NEWSPAPER FUND
SYMBOL ABBREVIATION NUMBER
------------------------------------------------------------
<S> <C> <C> <C>
Class A AMECX Inco 06
Class B IFABX IncoB 206
</TABLE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-------------------------------------------------------
<S> <C>
Risk/Return Summary 2
-------------------------------------------------------
Fees and Expenses of the Fund 5
-------------------------------------------------------
Investment Objectives, Strategies and Risks 6
-------------------------------------------------------
Management and Organization 10
-------------------------------------------------------
Shareholder Information 12
-------------------------------------------------------
Choosing a Share Class 13
-------------------------------------------------------
Purchase and Exchange of Shares 14
-------------------------------------------------------
Sales Charges 15
-------------------------------------------------------
Sales Charge Reductions and Waivers 17
-------------------------------------------------------
Plans of Distribution 18
-------------------------------------------------------
How to Sell Shares 19
-------------------------------------------------------
Distributions and Taxes 20
-------------------------------------------------------
Financial Highlights 21
-------------------------------------------------------
</TABLE>
1
THE INCOME FUND OF AMERICA / PROSPECTUS
IFA-010-1000/MC
<PAGE>
---------------------------------------------------------
RISK/RETURN SUMMARY
The fund seeks to provide you with current income, and secondarily to make your
investment grow. It invests primarily in a broad range of income-producing
securities, including stocks and bonds. Generally, the fund will invest a
substantial portion of its assets in equity-type securities.
The fund is designed for investors seeking current income and capital
appreciation through a mix of investments that provide above-average price
stability. An investment in the fund is subject to risks, including the
possibility that the fund may decline in value in response to economic,
political or social events in the U.S. or abroad. The prices of equity
securities owned by the fund may be affected by events specifically involving
the companies issuing those securities. The values of debt securities may be
affected by changing interest rates and credit risk assessments. Lower quality
and longer maturity bonds may be subject to greater price fluctuations than
higher quality and shorter maturity bonds. Although all securities in the
fund's portfolio may be adversely affected by currency fluctuations or world
political, social and economic instability, investments outside the U.S. may be
affected to a greater extent.
Your investment in the fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency, entity or person.
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU INVEST FOR A SHORTER PERIOD OF TIME.
2
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
INVESTMENT RESULTS
The following information provides some indication of the risks of investing in
the fund by showing changes in the fund's investment results from year to year
and by showing how the fund's average annual returns for various periods
compare with those of a broad measure of market performance. Past results are
not an indication of future results.
CALENDAR YEAR TOTAL RETURNS FOR CLASS A SHARES
(Results do not include a sales charge; if one were included, results would
be lower.)
[BAR CHART]
1990 -3.03
1991 23.78
1992 12.03
1993 14.01
1994 -2.50
1995 29.08
1996 15.23
1997 22.16
1998 9.47
1999 0.52
The fund's year-to-date return for the six months ended June 30, 2000 was
-0.86%.
------------------------------------------------------------------------------
The fund's highest/lowest quarterly results during this time period were:
<TABLE>
<CAPTION>
<S> <C> <C>
HIGHEST 9.62% (quarter ended March 31, 1991)
LOWEST -8.16% (quarter ended September 30, 1990)
</TABLE>
3
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
For periods ended December 31, 1999:
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN ONE YEAR FIVE YEARS TEN YEARS LIFETIME
<S> <C> <C> <C> <C>
Class A/1/
(with the maximum sales charge -5.27% 13.51% 10.91% 13.26%
imposed)
------------------------------------------------------------------------------
Class B/2/ N/A N/A N/A N/A
------------------------------------------------------------------------------
S&P 500/3/ 21.01% 28.49% 18.17% 15.19%
------------------------------------------------------------------------------
Lehman Brothers Aggregate -0.82% 7.73% 7.70% N/A
Bond Index/4/
------------------------------------------------------------------------------
Lehman Brothers Government/ -2.15% 7.61% 7.65% 8.85%
Credit Bond Index/5/
------------------------------------------------------------------------------
</TABLE>
Class A yield: 5.40%
(For current yield information, please call American FundsLine at
1-800-325-3590).
1 The fund's Class A lifetime investment results are from December 1, 1973 when
Capital Research and Management Company became the fund's investment adviser.
2 The fund began investment operations for Class B shares on March 15, 2000.
3 The Standard & Poor's 500 Composite Index is an asset-weighted, broad-based
measurement of changes in stock market conditions based on the average
performance of 500 widely held common stocks. This index is unmanaged and does
not reflect sales charges, commissions or expenses. The lifetime figure is
from the date Capital Research and Management Company became investment
adviser for the fund's Class A shares.
4 The Lehman Brothers Aggregate Bond Index represents investment grade debt.
This index is unmanaged and does not reflect sales charges, commissions or
expenses. This index was not in existence as of the date Capital Research and
Managment Company became the fund's investment adviser, therefore, lifetime
results are not available.
5 The Lehman Brothers Government/Credit Bond Index is a market value-weighted
index that tracks the total return performance of fixed-rate, publicly placed,
dollar-denominated obligations issued by the U.S. Treasury, U.S. government
agencies, quasi-federal corporations, and corporations whose debt is
guaranteed by the U.S. government. This index is unmanaged and does not
reflect sales charges, commissions or expenses. The lifetime figure is from
the date Capital Research and Management Company became investment adviser for
the fund's Class A shares.
Unlike the bar chart on the previous page, this table reflects the fund's
investment results with the maximum initial or deferred sales charge imposed,
as required by Securities and Exchange Commission rules. Class A share results
reflect the maximum initial sales charge of 5.75%. Sales charges are reduced
for purchases of $25,000 or more. Results would be higher if they were
calculated at net asset value. All fund results reflect the reinvestment of
dividend and capital gain distributions.
Class B shares are subject to a maximum deferred sales charge of 5.00% if
shares are redeemed within the first year of purchasing them. The deferred
sales charge declines thereafter until it reaches 0% after six years. Class B
shares convert to Class A shares after eight years. Since the fund's Class B
shares began investment operations on March 15, 2000, no results are available
as of the most recent calendar year-end.
4
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
---------------------------------------------------------
FEES AND EXPENSES OF THE FUND
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(fees paid directly from your investment) CLASS A CLASS B
--------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge imposed on purchases 5.75%/1/ 0.00%
(as a percentage of offering price)
--------------------------------------------------------------------------
Maximum sales charge imposed on reinvested dividends 0.00% 0.00%
--------------------------------------------------------------------------
Maximum deferred sales charge 0.00%/2/ 5.00%/3/
--------------------------------------------------------------------------
Redemption or exchange fees 0.00% 0.00%
</TABLE>
1 Sales charges are reduced or eliminated for purchases of $25,000 or more.
2 A contingent deferred sales charge of 1% applies on certain redemptions made
within 12 months following purchases of $1 million or more made without a
sales charge.
3 Deferred sales charges are reduced after 12 months and eliminated after six
years.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets) CLASS A CLASS B/1/
-----------------------------------------------
<S> <C> <C>
Management Fees 0.30% 0.30%
Distribution and/or Service (12b-1) Fees 0.23%/2/ 1.00%/3/
Other Expenses 0.10% 0.08%
Total Annual Fund Operating Expenses 0.63% 1.38%
</TABLE>
1 Annualized.
2 Class A 12b-1 expenses may not exceed 0.25% of the fund's average net assets
annually.
3 Class B 12b-1 expenses may not exceed 1.00% of the fund's average net assets
annually.
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the fund for the time periods indicated, that your investment
has a 5% return each year and that the fund's operating expenses remain the
same as shown above. The "Class A" example reflects the maximum initial sales
charge in Year One. The "Class B - assuming redemption" example reflects
applicable contingent deferred sales charges through Year Six (after which time
they are eliminated). Both Class B examples reflect Class A expenses for Years
9 and 10 since Class B shares automatically convert to Class A after eight
years. Although your actual costs may be higher or lower, based on these
assumptions your cumulative expenses would be:
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR
ONE THREE FIVE TEN
<S> <C> <C> <C> <C>
Class A $636 $765 $906 $1,316
----------------------------------------------------------------------------
Class B - assuming redemption $640 $837 $955 $1,452
Class B - assuming no redemption $140 $437 $755 $1,452
</TABLE>
5
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
---------------------------------------------------------
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The fund's investment objectives are to provide you with current income while
secondarily striving for capital growth. Normally, the fund invests primarily
in income-producing securities. These include equity securities such as
dividend-paying common stocks and debt securities such as interest-paying
bonds. Generally, at least 60% of the fund's assets will be invested in
equity-type securities. The fund may also invest up to 15% of its assets in
equity securities of issuers domiciled outside the U.S. and not included in the
Standard & Poor's 500 Composite Index. In addition, the fund may invest up to
20% of its assets in lower quality, higher yielding debt securities (rated Ba
and BB or below). The fund may also invest up to 10% of its assets in debt
securities of non-U.S. issuers; however, these securities must be denominated
in U.S. dollars.
The values of equity securities held by the fund may decline in response to
certain events, including those directly involving the companies whose
securities are owned in the fund, adverse conditions affecting the general
economy, overall market declines, world political, social and economic
instability, and currency and interest rate fluctuations.
The values of most debt securities held by the fund may be affected by changing
interest rates, and individual securities by changes in their effective
maturities and credit ratings. For example, the values of bonds in the fund's
portfolio generally will decline when interest rates rise and vice versa. Debt
securities are also subject to credit risk, which is the possibility that the
credit strength of an issuer will weaken and/or an issuer of a debt security
will fail to make timely payments of principal or interest and the security
will go into default. The values of lower quality or longer maturity bonds will
be subject to greater price fluctuations than higher quality or shorter
maturity bonds. The fund's investment adviser attempts to reduce these risks
through diversification of the portfolio and with ongoing credit analysis of
each issuer as well as by monitoring economic and legislative developments.
Investments outside the U.S. may be affected by these events to a greater
extent and may also be affected by differing securities regulations, higher
transaction costs, and administrative difficulties such as delays in clearing
and settling portfolio transactions.
The fund may also hold cash or money market instruments. The size of the fund's
cash position will vary and will depend on various factors, including market
conditions and purchases and redemptions of fund shares. A larger cash position
could detract from the achievement of the fund's objectives, but it also would
reduce the fund's exposure in the event of a market downturn and provide
liquidity to make additional investments or to meet redemptions.
6
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
investments. The basic investment philosophy of the investment adviser is to
seek undervalued securities that represent good long-term investment
opportunities. Securities may be sold when the investment adviser believes they
no longer represent good long-term value.
7
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
Since the fund's primary goal is to provide you with current income, the fund
also calculates its income generated and dividend rates over various periods
and compares them with the S&P 500.
The following information illustrates the income generated by Class A shares of
the fund compared with the income generated by the S&P 500:
For periods ended July 31, 2000:
<TABLE>
<CAPTION>
INCOME GENERATED ON A
$10,000 INVESTMENT/1/ THE FUND S&P 500
<S> <C> <C>
One Year $ 508 $ 125
------------------------------------------------------------
Five Years 3,239 1,394
------------------------------------------------------------
Ten Years 7,801 3,981
------------------------------------------------------------
Lifetime/2/ 41,036 26,623
------------------------------------------------------------
</TABLE>
1 Results are at net asset value and assume capital gain distributions are
reinvested and dividends are taken in cash.
2 For the period beginning December 1, 1973 (when Capital Research and
Management Company became the fund's investment adviser).
[LINE CHART]
THE FUND'S CLASS A DIVIDEND RATES COMPARED WITH THE
DIVIDEND RATES OF THE S&P 500/1/
S&P 500 IFA
7/31/90 3.31 7.18
7/31/91 3.11 7.11
7/31/92 2.89 6.06
7/31/93 2.79 6.23
7/31/94 2.80 6.14
7/31/95 2.41 5.56
7/31/96 2.28 5.22
7/31/97 1.61 4.84
7/31/98 1.43 4.49
7/31/99 1.24 5.03
7/31/00 1.15 5.64
/1/ The 12-month dividend rate is calculated by taking the total of
the trailing 12 months' dividends and dividing by the month-end
net asset value adjusted for capital gains. All numbers are
calculated by Lipper, Inc.
Past results are not an indication of future results.
8
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
The following chart illustrates the asset mix of the fund's investment
portfolio as of the end of the fund's fiscal year, July 31, 2000.
[PIE CHART]
U.S. Equities 48.5%
Non-U.S. Equities 14.7%
Government Bonds 5.5%
Other Fixed-Income Securities 22.4%
Cash & Equivalents 8.9%
<TABLE>
<CAPTION>
PERCENT OF
FIVE LARGEST INDUSTRIES IN EQUITY HOLDINGS NET ASSETS
------------------------------------------------------------------------------
<S> <C>
Utilities: Electric & Gas 8.7%
------------------------------------------------------------------------------
Energy Sources & Equipment 6.3
------------------------------------------------------------------------------
Banking 6.2
------------------------------------------------------------------------------
Forest Products & Paper 4.8
------------------------------------------------------------------------------
Real Estate 3.4
TEN LARGEST EQUITY HOLDINGS
------------------------------------------------------------------------------
First Union 1.6%
------------------------------------------------------------------------------
Philip Morris 1.3
------------------------------------------------------------------------------
Royal Dutch Petroleum/"Shell" Transport and Trading 1.2
------------------------------------------------------------------------------
Georgia-Pacific 1.2
------------------------------------------------------------------------------
Weyerhaeuser 1.1
------------------------------------------------------------------------------
Dow Chemical 1.1
------------------------------------------------------------------------------
Time Warner 1.1
------------------------------------------------------------------------------
Bank of America 1.1
------------------------------------------------------------------------------
Consolidated Edison 1.0
------------------------------------------------------------------------------
Ford Motor 1.0
BOND HOLDINGS BY QUALITY CATEGORY (DOES NOT INCLUDE CONVERTIBLE
SECURITIES)
See the Appendix in the Statement of Additional Information for
a description of quality categories
------------------------------------------------------------------------------
U.S. Treasury and Agency 4.8%
------------------------------------------------------------------------------
AAA 1.6
------------------------------------------------------------------------------
AA 0.7
------------------------------------------------------------------------------
A 2.1
------------------------------------------------------------------------------
BBB 6.3
------------------------------------------------------------------------------
BB 3.2
------------------------------------------------------------------------------
B 8.6
------------------------------------------------------------------------------
CCC 0.5
------------------------------------------------------------------------------
CC and below 0.1
------------------------------------------------------------------------------
</TABLE>
Because the fund is actively managed, its holdings will change from time to
time.
9
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
---------------------------------------------------------
MANAGEMENT AND ORGANIZATION
INVESTMENT ADVISER
Capital Research and Management Company, an experienced investment management
organization founded in 1931, serves as investment adviser to the fund and
other funds, including those in The American Funds Group. Capital Research and
Management Company, a wholly owned subsidiary of The Capital Group Companies,
Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital
Research and Management Company manages the investment portfolio and business
affairs of the fund. The total management fee paid by the fund, as a percentage
of average net assets, for the previous fiscal year is discussed earlier under
"Fees and Expenses of the Fund."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing and with the Securities and
Exchange Commission rules adopted in 1999 governing Codes of Ethics. This
policy has also been incorporated into the fund's Code of Ethics.
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Capital Research and Management Company uses a system of multiple portfolio
counselors in managing mutual fund assets. Under this approach the portfolio of
a fund is divided into segments which are managed by individual counselors.
Counselors decide how their respective segments will be invested, within the
limits provided by a fund's objective(s) and policies and by Capital Research
and Management Company's investment committee. In addition, Capital Research
and Management Company's research professionals may make investment decisions
with respect to a portion of a fund's portfolio. The primary individual
portfolio counselors for The Income Fund of America are listed on the following
page.
10
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE YEARS OF EXPERIENCE
AS AN INVESTMENT PROFESSIONAL
(INCLUDING THE LAST FIVE YEARS)
YEARS OF EXPERIENCE
AS PORTFOLIO COUNSELOR -----------------------------------
PORTFOLIO COUNSELORS (AND RESEARCH PROFESSIONAL, WITH CAPITAL
FOR IF APPLICABLE) FOR RESEARCH AND
THE INCOME FUND THE INCOME FUND MANAGEMENT
OF AMERICA PRIMARY TITLE(S) OF AMERICA (APPROXIMATE) COMPANY
------------------------------------------------------------------------------------- OR AFFILIATES TOTAL YEARS
-----------------------------------
<S> <C> <C> <C> <C>
JANET A. President and Director of the 7 years (plus 8 years as a 18 years 24 years
MCKINLEY fund. Director, Capital research professional prior
Research and Management to becoming a portfolio
Company. Senior Vice counselor for the fund)
President, Capital Research
Company*
------------------------------------------------------------------------------------------------------------------------
STEPHEN E. Senior Vice President of the 16 years (plus 11 years as a 28 years 34 years
BEPLER fund. Senior Vice President, research professional prior
Capital Research Company* to becoming a portfolio
counselor for the fund)
------------------------------------------------------------------------------------------------------------------------
ABNER D. Senior Vice President of the 27 years 33 years 48 years
GOLDSTINE fund. Senior Vice President
and Director, Capital
Research and Management
Company
------------------------------------------------------------------------------------------------------------------------
DINA N. Senior Vice President of the 8 years 9 years 23 years
PERRY fund. Senior Vice President,
Capital Research and
Management Company
------------------------------------------------------------------------------------------------------------------------
HILDA L. Vice President of the fund. 3 years (plus 3 years as a 6 years 14 years
APPLBAUM Vice President, Capital research professional prior
Research Company* to becoming a portfolio
counselor for the fund)
------------------------------------------------------------------------------------------------------------------------
DAVID C. Vice President of the fund. 4 years 12 years 19 years
BARCLAY Vice President, Capital
Research and Management
Company
------------------------------------------------------------------------------------------------------------------------
JOHN H. Vice President of the fund. 8 years 17 years 18 years
SMET Vice President, Capital
Research and Management
Company
* Company affiliated with Capital Research and Management Company
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
---------------------------------------------------------
SHAREHOLDER INFORMATION
SHAREHOLDER SERVICES
American Funds Service Company, the fund's transfer agent, offers you a wide
range of services you can use to alter your investment program should your
needs and circumstances change. These services may be terminated or modified at
any time upon 60 days' written notice. For your convenience, American Funds
Service Company has four service centers across the country.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
Call toll-Free from anywhere in the U.S.
(8 a.m. to 8 p.m. ET):
800/421-0180
[map of the United States]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Western Western Central Eastern Central Eastern
Service Center Service Center Service Center Service Center
American Funds American Funds American Funds American Funds
Service Company Service Company Service Company Service Company
P.O. Box 2205 P.O. Box 659522 P.O. Box 6007 P.O. Box 2280
Brea, California San Antonio, Texas Indianapolis, Indiana Norfolk, Virginia
92822-2205 78265-9522 46206-6007 23501-2280
Fax: 714/671-7080 Fax: 210/474-4050 Fax: 317/735-6620 Fax: 757/670-4773
</TABLE>
A COMPLETE DESCRIPTION OF THE SERVICES WE OFFER IS INCLUDED IN THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION. In addition, an easy-to-read guide to
owning a fund in The American Funds Group titled "Welcome to the Family" is
sent to new shareholders and is available by writing or calling American Funds
Service Company.
You may invest in the fund through various retirement plans. However, Class B
shares generally are not available to certain retirement plans (for example,
group retirement plans such as 401(k) plans, employer-sponsored 403(b) plans,
and money purchase pension and profit sharing plans). Some retirement plans or
accounts held by investment dealers may not offer certain services. If you
have any questions, please contact American Funds Service Company, your plan
administrator/trustee or dealer.
12
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
---------------------------------------------------------
CHOOSING A SHARE CLASS
The fund offers both Class A and Class B shares. Each share class has its own
sales charge and expense structure, allowing you to choose the class that best
meets your situation.
Factors you should consider in choosing a class of shares include:
. How long you expect to own the shares
. How much you intend to invest
. The expenses associated with owning shares of each class
. Whether you qualify for any reduction or waiver of sales charges (for
example, Class A shares may be a less expensive option over time if you
qualify for a sales charge reduction or waiver)
EACH INVESTOR'S FINANCIAL CONSIDERATIONS ARE DIFFERENT. YOU SHOULD SPEAK WITH
YOUR FINANCIAL ADVISER TO HELP YOU DECIDE WHICH SHARE CLASS IS BEST FOR YOU.
Differences between Class A and Class B shares include:
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------------------------------------
<S> <S>
Initial sales charge of up to No initial sales charge.
5.75%. Sales charges are reduced or
eliminated for purchases of $25,000
or more (see "Sales Charges - Class
A").
------------------------------------------------------------------------------
Distribution and service (12b-1) Distribution and service (12b-1) fees
fees of up to 0.25% annually. of up to 1.00% annually.
------------------------------------------------------------------------------
Higher dividends than Class B Lower dividends than Class A shares due
shares due to lower annual to higher distribution fees and other
expenses. expenses.
------------------------------------------------------------------------------
No contingent deferred sales charge A contingent deferred sales charge if
(except on certain redemptions on you sell shares within six years of
purchases of $1 million or more buying them. The charge starts at 5%
bought without an initial sales and declines thereafter until it
charge). reaches 0% after six years. (see "Sales
Charges - Class B").
------------------------------------------------------------------------------
No purchase maximum. Maximum purchase of $100,000.
------------------------------------------------------------------------------
Automatic conversion to Class A shares
after eight years, reducing future
annual expenses.
------------------------------------------------------------------------------
</TABLE>
13
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
---------------------------------------------------------
PURCHASE AND EXCHANGE OF SHARES
PURCHASE
Generally, you may open an account by contacting any investment dealer (who may
impose transaction charges in addition to those described in this prospectus)
authorized to sell the fund's shares. You may purchase additional shares using
various options described in the statement of additional information and
"Welcome to the Family."
EXCHANGE
You may exchange your shares into shares of the same class of other funds in
The American Funds Group generally without a sales charge. For purposes of
computing the contingent deferred sales charge on Class B shares, the length of
time you have owned your shares will be measured from the date of original
purchase and will not be affected by any exchange.
Exchanges of shares from the money market funds initially purchased without a
sales charge generally will be subject to the appropriate sales charge.
Exchanges have the same tax consequences as ordinary sales and purchases. See
"Transactions by Telephone..." for information regarding electronic exchanges.
THE FUND AND AMERICAN FUNDS DISTRIBUTORS, THE FUND'S PRINCIPAL UNDERWRITER,
RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER FOR ANY REASON. ALTHOUGH THERE
IS CURRENTLY NO SPECIFIC LIMIT ON THE NUMBER OF EXCHANGES YOU CAN MAKE IN A
PERIOD OF TIME, THE FUND AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO
REJECT ANY PURCHASE ORDER AND MAY TERMINATE THE EXCHANGE PRIVILEGE OF ANY
INVESTOR WHOSE PATTERN OF EXCHANGE ACTIVITY THEY HAVE DETERMINED INVOLVES
ACTUAL OR POTENTIAL HARM TO THE FUND.
<TABLE>
<CAPTION>
PURCHASE MINIMUMS FOR CLASS A AND B SHARES
<S> <C>
To establish an account (including retirement plan accounts) $ 250
For a retirement plan account through payroll deduction $ 25
To add to an account $ 50
For a retirement plan account through payroll deduction $ 25
PURCHASE MAXIMUM FOR CLASS B SHARES $100,000
</TABLE>
14
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
SHARE PRICE
The fund calculates its share price, also called net asset value, as of
approximately 4:00 p.m. New York time, which is the normal close of trading on
the New York Stock Exchange, every day the Exchange is open. In calculating net
asset value, market prices are used when available. If a market price for a
particular security is not available, the fund will determine the appropriate
price for the security.
Your shares will be purchased at the net asset value plus any applicable sales
charge in the case of Class A shares, or sold at the net asset value next
determined after American Funds Service Company receives and accepts your
request. Sales of certain Class A and B shares may be subject to contingent
deferred sales charges.
---------------------------------------------------------
SALES CHARGES
CLASS A
The initial sales charge you pay when you buy Class A shares differs depending
upon the amount you invest and may be reduced or eliminated for larger
purchases as indicated below.
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF
----------------------------------
DEALER
NET COMMISSION
OFFERING AMOUNT AS % OF
INVESTMENT PRICE INVESTED OFFERING PRICE
------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 5.75% 6.10% 5.00%
------------------------------------------------------------------------------
$25,000 but less than 5.00% 5.26% 4.25%
$50,000
------------------------------------------------------------------------------
$50,000 but less than 4.50% 4.71% 3.75%
$100,000
------------------------------------------------------------------------------
$100,000 but less than 3.50% 3.63% 2.75%
$250,000
------------------------------------------------------------------------------
$250,000 but less than 2.50% 2.56% 2.00%
$500,000
------------------------------------------------------------------------------
$500,000 but less than 2.00% 2.04% 1.60%
$750,000
------------------------------------------------------------------------------
$750,000 but less than $1
million 1.50% 1.52% 1.20%
------------------------------------------------------------------------------
$1 million or more and certain other
investments described below see below see below see below
</TABLE>
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGE
Investments of $1 million or more are sold with no initial sales charge.
HOWEVER, A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE IMPOSED IF REDEMPTIONS
ARE MADE WITHIN ONE YEAR OF PURCHASE. Employer-sponsored defined contribution--
15
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
type plans investing $1 million or more, or with 100 or more eligible
employees, and Individual Retirement Account rollovers involving retirement
plan assets invested in the American Funds, may invest with no sales charge and
are not subject to a contingent deferred sales charge. Investments made
through retirement plans, endowments or foundations with $50 million or more in
assets, or through certain qualified fee-based programs may also be made with
no sales charge and are not subject to a contingent deferred sales charge. The
fund may pay a dealer concession of up to 1% under its Plan of Distribution on
investments made with no initial sales charge.
CLASS B
Class B shares are sold without any initial sales charge. However, a
contingent deferred sales charge may be applied to shares you redeem within six
years of purchase, as shown in the table below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Shares sold within year 1 2 3 4 5 6
-----------------------------------------------------------
Charge 5% 4% 4% 3% 2% 1%
</TABLE>
Shares acquired through reinvestment of dividends or capital gain distributions
are not subject to a contingent deferred sales charge. In addition, the
contingent deferred sales charge may be waived in certain circumstances. See
"Contingent Deferred Sales Charge Waivers for Class B Shares" below. The
contingent deferred sales charge is based on the original purchase cost or the
current market value of the shares being sold, whichever is less. For purposes
of determining the contingent deferred sales charge, if you sell only some of
your shares, shares that are not subject to any contingent deferred sales
charge will be sold first and then shares that you have owned the longest.
American Funds Distributors pays compensation equal to 4% of the amount
invested to dealers who sell Class B shares.
CLASS B CONVERSION TO A SHARES
Class B shares automatically convert to Class A shares in the month of the
eight-year anniversary of the purchase date. The Internal Revenue Service
currently takes the position that this automatic conversion is not taxable.
Should their position change, shareholders would still have the option of
converting but may face certain tax consequences. Please see the statement of
additional information for more information.
16
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
---------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
You must let your investment dealer or American Funds Service Company know if
you qualify for a reduction in your Class A sales charge or waiver of your
Class B contingent deferred sales charge using one or any combination of the
methods described below, in the statement of additional information and
"Welcome to the Family."
REDUCING YOUR CLASS A SALES CHARGE
You and your "immediate family" (your spouse and your children under the age of
21) may combine investments to reduce your Class A sales charge.
AGGREGATING ACCOUNTS
To receive a reduced Class A sales charge, investments made by you and your
immediate family (see above) may be aggregated if made for their own account(s)
and/or:
. trust accounts established by the above individuals. However, if the
person(s) who established the trust is deceased, the trust account may be
aggregated with accounts of the person who is the primary beneficiary of
the trust.
. solely controlled business accounts.
. single-participant retirement plans.
Other types of accounts may also be aggregated. You should check with your
financial adviser or consult the statement of additional information or
"Welcome to the Family" for more information.
CONCURRENT PURCHASES
You may combine simultaneous purchases of Class A and/or B shares of two or
more American Funds, as well as individual holdings in various American Legacy
variable annuities or variable life insurance policies, to qualify for a
reduced Class A sales charge. Direct purchases of money market funds are
excluded.
RIGHTS OF ACCUMULATION
You may take into account the current value (or if greater, the amount you
invested less any withdrawals) of your existing Class A and B holdings in the
American Funds, as well as individual holdings in various American Legacy
variable annuities or variable life insurance policies, to determine your Class
A sales charge. Direct purchases of money market funds are excluded.
17
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
STATEMENT OF INTENTION
You can reduce the sales charge you pay on your Class A share purchases by
establishing a Statement of Intention. A Statement of Intention allows you to
combine all Class A and B share non-money market fund purchases, as well as
individual American Legacy variable annuity and life insurance policies you
intend to make over a 13-month period, to determine the applicable sales
charge. At your request purchases made during the previous 90 days may be
included; however, capital appreciation and reinvested dividends and capital
gains do not apply toward these combined purchases. A portion of your account
may be held in escrow to cover additional Class A sales charges which may be
due if your total investments over the 13-month period do not qualify for the
applicable sales charge reduction.
CONTINGENT DEFERRED SALES CHARGE WAIVERS FOR CLASS B SHARES
The contingent deferred sales charge on Class B shares may be waived in the
following cases:
. when receiving payments through systematic withdrawal plans (up to 12% of
the value of your account);
. when receiving required minimum distributions from retirement accounts upon
reaching age 70 1/2; or
. for redemptions due to death or post-purchase disability of the
shareholder.
For more information, please consult your financial adviser, the statement of
additional information or "Welcome to the Family."
---------------------------------------------------------
PLANS OF DISTRIBUTION
The fund has Plans of Distribution or "12b-1 Plans" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the fund's board of directors. The plans
provide for annual expenses of up to 0.25% for Class A shares and up to 1.00%
for Class B shares. Up to 0.25% of these payments are used to pay service fees
to qualified dealers for providing certain shareholder services. The remaining
0.75% expense for Class B shares is used for financing commissions paid to your
dealer. The 12b-1 fees paid by the fund, as a percentage of average net assets,
for the previous fiscal year is indicated above under "Fees and Expenses of the
Fund." Since these fees are paid out of the fund's assets or income on an
ongoing basis, over time they will increase the cost and reduce the return of
an investment. The higher fees for Class B shares may cost you more over time
than paying the initial sales charge for Class A shares.
18
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
OTHER COMPENSATION TO DEALERS
American Funds Distributors may provide additional compensation to, or sponsor
informational meetings for, dealers as described in the statement of additional
information.
---------------------------------------------------------
HOW TO SELL SHARES
Once a sufficient period of time has passed to reasonably assure that checks or
drafts (including certified or cashiers' checks) for shares purchased have
cleared (normally 15 calendar days), you may sell (redeem) those shares in any
of the following ways:
THROUGH YOUR DEALER (CERTAIN CHARGES MAY APPLY)
. Shares held for you in your dealer's name must be sold through the dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
. Requests must be signed by the registered shareholder(s).
. A signature guarantee is required if the redemption is:
-- Over $50,000;
-- Made payable to someone other than the registered shareholder(s); or
-- Sent to an address other than the address of record, or an address of
record which has been changed within the last 10 days.
. American Funds Service Company reserves the right to require signature
guarantee(s) on all redemptions.
. Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE/(R)/ OR AMERICAN FUNDSLINE ONLINE/(R)/:
. Redemptions by telephone, fax, or computer (including American FundsLine
and American FundsLine OnLine) are limited to $50,000 per shareholder each
day.
. Checks must be made payable to the registered shareholder.
. Checks must be mailed to an address of record that has been used with the
account for at least 10 days.
TRANSACTIONS BY TELEPHONE, FAX, AMERICAN FUNDSLINE OR FUNDSLINE ONLINE
Generally, you are automatically eligible to use these services for redemptions
and exchanges unless you notify us in writing that you do not want any or all
of these services. You may reinstate these services at any time.
19
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
Unless you decide not to have telephone, fax, or computer services on your
account(s), you agree to hold the fund, American Funds Service Company, any of
its affiliates or mutual funds managed by such affiliates, and each of their
respective directors, trustees, officers, employees and agents harmless from
any losses, expenses, costs or liabilities (including attorney fees) which may
be incurred in connection with the exercise of these privileges, provided
American Funds Service Company employs reasonable procedures to confirm that
the instructions received from any person with appropriate account information
are genuine. If reasonable procedures are not employed, it and/or the fund may
be liable for losses due to unauthorized or fraudulent instructions.
---------------------------------------------------------
DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The fund intends to distribute dividends to you, usually in March, June,
September and December. Capital gains, if any, are usually distributed in
December. When a dividend or capital gain is distributed, the net asset value
per share is reduced by the amount of the payment.
You may elect to reinvest dividends and/or capital gain distributions to
purchase additional shares of this fund or any other fund in The American Funds
Group or you may elect to receive them in cash. Most shareholders do not elect
to take capital gain distributions in cash because these distributions reduce
principal value.
TAXES ON DISTRIBUTIONS
Distributions you receive from the fund may be subject to income tax and may
also be subject to state or local taxes - unless you are exempt from taxation.
For federal tax purposes, any taxable dividends and distributions of short-term
capital gains are treated as ordinary income. The fund's distributions of net
long-term capital gains are taxable to you as long-term capital gains. Any
taxable distributions you receive from the fund will normally be taxable to you
when made, regardless of whether you reinvest distributions or receive them in
cash.
TAXES ON TRANSACTIONS
Your redemptions, including exchanges, may result in a capital gain or loss for
federal tax purposes. A capital gain or loss on your investment in the fund is
the difference between the cost of your shares, including any sales charges,
and the price you receive when you sell them.
Please see the statement of additional information, the "Welcome to the Family"
guide, and your tax adviser for further information.
20
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's
results for the past five years. Certain information reflects financial results
for a single fund share. The total returns in the table represent the rate that
an investor would have earned or lost on an investment in the fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Deloitte & Touche LLP, whose report, along with the fund's financial
statements, is included in the statement of additional information, which is
available upon request.
<TABLE>
<CAPTION>
Net gains on
Net asset securities Dividends
value, Net (both realized Total from (from net Net asset
Years ended Beginning of investment and investment investment Distributions Total value, end of
July 31/1/ period income unrealized) operations income) (from capital gains) distributions year
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A:
2000 $17.51 $.88/2/ $(1.28)/2/ $(.40) $(.87) $(.81) $(1.68) $15.43
1999 18.25 .88 .45 1.33 (.88) (1.19) (2.07) 17.51
1998 18.59 .85 1.11 1.96 (.82) (1.48) (2.30) 18.25
1997 15.89 .86 3.55 4.41 (.90) (.81) (1.71) 18.59
1996 14.92 .87 1.11 1.98 (.83) (.18) (1.01) 15.89
CLASS B:
2000 14.93 .24/2/ .41/2/ .65 (.19) - (.19) 15.39
<CAPTION>
Ratio of Ratio of
Net assets, expenses to income to
Years ended end of year average net average net Portfolio
July 31/1/ Total return/2/ (in millions) assets assets turnover rate
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A:
2000 (2.08)% $18,102 .63% 5.52% 34.73%/4/
1999 7.79 23,012 .59 4.99 44.35
1998 11.32 22,113 .59 4.75 34.68
1997 29.28 18,814 .61 5.09 40.92
1996 13.46 14,459 .62 5.56 37.77
CLASS B:
2000 4.33 29 1.38/3/ 4.57/3/ 34.73/4/
</TABLE>
1 The years 1996 through 2000 represent, for Class A shares, fiscal years ended
July 31. The period ended July 31, 2000 represents, for Class B shares, the 138
day period ended July 31, 2000. Class B shares were not offered before March
15, 2000. Total return for Class B is based on activity during the period and
thus is not representative of a full year. Total returns exclude all sales
charges, including contingent deferred sales charges.
2 Based on average shares outstanding.
3 Annualized.
4 Represents portfolio turnover rate (equivalent for all share classes) for the
fiscal year ended July 31, 2000.
21
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
---------------------------------------------------------
NOTES
22
THE INCOME FUND OF AMERICA / PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FOR SHAREHOLDER SERVICES American Funds Service Company
800/421-0180
FOR RETIREMENT PLAN SERVICES Call your employer or plan administrator
FOR DEALER SERVICES American Funds Distributors
800/421-9900 Ext. 11
FOR 24-HOUR INFORMATION American FundsLine(R)
800/325-3590
American FundsLine OnLine(R)
http://www.americanfunds.com
</TABLE>
Telephone conversations may be recorded or monitored for
verification, recordkeeping and quality assurance purposes.
* * * * *
MULTIPLE TRANSLATIONS This prospectus may be translated into other languages.
If there is any inconsistency or ambiguity as to the meaning of any word or
phrase in a translation, the English text will prevail.
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS Contains additional information
about the fund including financial statements, investment results, portfolio
holdings, a statement from portfolio management discussing market conditions
and the fund's investment strategies, and the independent accountants' report
(in the annual report).
STATEMENT OF ADDITIONAL INFORMATION (SAI) AND CODES OF ETHICS The SAI contains
more detailed information on all aspects of the fund, including the fund's
financial statements and is incorporated by reference into this prospectus.
The Codes of Ethics describe the personal investing policies adopted by the
fund and the fund's investment adviser and its affiliated companies.
The Codes of Ethics and current SAI have been filed with the Securities and
Exchange Commission ("SEC"). These and other related materials about the fund
are available for review or to be copied at the SEC's Public Reference Room in
Washington, D.C. (202/942-8090) or on the EDGAR database on the SEC's Internet
Web site at http://www.sec.gov, or, after payment of a duplicating fee, via
e-mail request to [email protected] or by writing the SEC's Public Reference
Section, Washington, D.C. 20549-0102.
HOUSEHOLD MAILINGS Each year you are automatically sent an updated
prospectus, annual and semi-annual report for the fund. In order to reduce the
volume of mail you receive, when possible, only one copy of these documents
will be sent to shareholders that are part of the same family and share the
same residential address.
If you would like to receive individual copies of these documents, or a free
copy of the SAI or Codes of Ethics, please call American Funds Service Company
at 800/421-0180 or write to the Secretary of the fund at P.O. Box 7650, San
Francisco, California 94120.
Investment Company File No. 811-1880
Printed on recycled paper
<PAGE>
THE INCOME FUND OF AMERICA, INC.
Part B
Statement of Additional Information
October 1, 2000
This document is not a prospectus but should be read in conjunction with the
current prospectus of The Income Fund of America, Inc. (the "fund" or "IFA")
dated October 1, 2000. The prospectus may be obtained from your investment
dealer or financial planner or by writing to the fund at the following address:
The Income Fund of America, Inc.
Attention: Secretary
One Market
Steuart Tower, Suite 1800
San Francisco, California 94105
(415) 421-9360
Shareholders who purchase shares at net asset value through eligible retirement
plans should note that not all of the services or features described below may
be available to them, and they should contact their employer for details.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page No.
---- --------
<S> <C>
Certain Investment Limitations and Guidelines . . . . . . . . . . . 2
Description of Certain Securities and Investment Techniques . . . . 2
Fundamental Policies and Investment Restrictions. . . . . . . . . . 8
Fund Organization and Voting Rights . . . . . . . . . . . . . . . . 10
Fund Directors and Officers . . . . . . . . . . . . . . . . . . . . 11
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Dividends, Distributions and Taxes. . . . . . . . . . . . . . . . . 18
Purchase of Shares. . . . . . . . . . . . . . . . . . . . . . . . . 23
Sales Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Sales Charge Reductions and Waivers . . . . . . . . . . . . . . . . 27
Individual Retirement Account (IRA) Rollovers . . . . . . . . . . . 30
Price of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Selling Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Shareholder Account Services and Privileges . . . . . . . . . . . . 33
Execution of Portfolio Transactions . . . . . . . . . . . . . . . . 36
General Information . . . . . . . . . . . . . . . . . . . . . . . . 37
Class A Share Investment Results and Related Statistics . . . . . . 38
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements
</TABLE>
The Income Fund of America - Page 1
<PAGE>
CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES
The following limitations and guidelines are considered at the time of purchase,
under normal market conditions, and are based on a percentage of the fund's net
assets unless otherwise noted. This summary is not intended to reflect all of
the fund's investment limitations.
OBJECTIVE
. The fund will invest at least 65% of its assets in income-producing
securities.
EQUITY SECURITIES
. The fund will generally invest at least 60% of its assets in equity
securities. However, at times the fund may be substantially invested in
equity or debt securities (i.e., more than 60%) or may be solely invested
in equity or debt securities (i.e., 100%).
DEBT SECURITIES
. The fund may invest up to 20% of its assets in straight debt securities
rated BB by Standard & Poor's Corporation (S&P) and Ba by Moody's
Investors Services, Inc. (Moody's) or below or unrated but determined to be
of equivalent quality. (The 20% limit shall not apply to debt securities
that have equity conversion or purchase rights.)
. The fund may invest up to 11/2% of its assets in inverse floating rate
notes.
. The fund may invest up to 5% of its assets in reinsurance related notes and
bonds.
NON-U.S. SECURITIES
. The fund may invest up to 15% of its assets in equity securities of issuers
domiciled outside the U.S. and not included in the Standard & Poor's 500
Composite Index.
. The fund may invest up to 10% of its assets in debt securities of issuers
domiciled outside the U.S. (must be U.S. dollar denominated).
The fund may experience difficulty liquidating certain portfolio securities
during significant market declines or periods of heavy redemptions.
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
The descriptions below are intended to supplement the material in the prospectus
under "Investment Objectives, Strategies and Risks."
EQUITY SECURITIES - Equity securities represent an ownership position in a
company. These securities may include common stocks and securities with equity
conversion or purchase rights. The prices of equity securities fluctuate based
on changes in the financial condition of their issuers and on market and
economic conditions. The fund's results will be related to the overall markets
for these securities.
INVESTING IN SMALLER CAPITALIZATION STOCKS - The fund may invest in the stocks
of smaller companies (typically companies with market capitalizations of less
than $1.5 billion at the time of purchase). The Investment Adviser believes that
the issuers of smaller capitalization stocks often provide attractive investment
opportunities. However, investing in smaller capitalization stocks
The Income Fund of America - Page 2
<PAGE>
can involve greater risk than is customarily associated with investing in stocks
of larger, more established companies. For example, smaller companies often have
limited product lines, markets, or financial resources, may be dependent for
management on one or a few key persons, and can be more susceptible to losses.
Also, their securities may be thinly traded (and therefore have to be sold at a
discount from current prices or sold in small lots over an extended period of
time), may be followed by fewer investment research analysts, and may be subject
to wider price swings thus creating a greater chance of loss than securities of
larger capitalization companies.
DEBT SECURITIES - Bonds and other debt securities are used by issuers to borrow
money. Issuers pay investors interest and generally must repay the amount
borrowed at maturity. Some debt securities, such as zero coupon bonds, do not
pay current interest, but are purchased at a discount from their face values.
The prices of debt securities fluctuate depending on such factors as interest
rates, credit quality, and maturity. In general their prices decline when
interest rates rise and vice versa.
Lower quality, lower rated bonds rated Ba or below by Standard & Poor's
Corporation and BB or below by Moody's Investors Services, Inc. (or unrated but
considered to be of equivalent quality) are described by the rating agencies as
speculative and involve greater risk of default or price changes due to changes
in the issuer's creditworthiness than higher rated bonds, or they may already be
in default. The market prices of these securities may fluctuate more than higher
quality securities and may decline significantly in periods of general economic
difficulty. It may be more difficult to dispose of, or to determine the value
of, lower quality, lower rated bonds.
Certain risk factors relating to "lower quality, lower rated bonds" are
discussed below.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - Lower quality, lower
rated bonds can be sensitive to adverse economic changes and political and
corporate developments and may be less sensitive to interest rate changes.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress that would
adversely affect their ability to service their principal and interest
payment obligations, to meet projected business goals, and to obtain
additional financing. In addition, periods of economic uncertainty and
changes can be expected to result in increased volatility of market prices
and yields of lower quality, lower rated bonds.
PAYMENT EXPECTATIONS - Lower quality, lower rated bonds, like other bonds,
may contain redemption or call provisions. If an issuer exercises these
provisions in a declining interest rate market, the fund would have to
replace the security with a lower yielding security, resulting in a
decreased return for investors. If the issuer of a bond defaults on its
obligations to pay interest or principal or enters into bankruptcy
proceedings, the fund may incur losses or expenses in seeking recovery of
amounts owed to it.
LIQUIDITY AND VALUATION - There may be little trading in the secondary
market for particular bonds, which may affect adversely the fund's ability
to value accurately or dispose of such bonds. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of lower quality, lower rated bonds,
especially in a thin market.
The Income Fund of America - Page 3
<PAGE>
The Investment Adviser attempts to reduce the risks described above through
diversification of the portfolio and by credit analysis of each issuer as well
as by monitoring broad economic trends and corporate and legislative
developments, but there can be no assurance that it will be successful in doing
so.
SECURITIES WITH EQUITY AND DEBT CHARACTERISTICS - The fund may invest in
securities that have a combination of equity and debt characteristics such as
non-convertible preferred stocks and convertible securities. These securities
may at times resemble equity more than debt and vice versa. The risks of
convertible preferred stock may be similar to those of equity securities. Some
types of convertible preferred stock automatically convert into common stock.
Non-convertible preferred stock with stated redemption rates are similar to debt
in that they have a stated dividend rate akin to the coupon of a bond or note
even though they are often classified as equity securities. The prices and
yields of non-convertible preferred stock generally move with changes in
interest rates and the issuer's credit quality, similar to the factors affecting
debt securities.
Bonds, convertible preferred stock, and other securities may sometimes be
converted into common stock or other securities at a stated conversion ratio.
These securities prior to conversion pay a fixed rate of interest or a dividend.
Because convertible securities have both debt and equity characteristics, their
value varies in response to many factors, including the value of the underlying
equity, general market and economic conditions, convertible market valuations,
as well as changes in interest rates, credit spreads, and the credit quality of
the issuer.
INVESTING IN VARIOUS COUNTRIES - Investing outside the U.S. involves special
risks, caused by, among other things: currency controls, fluctuating currency
values; different accounting, auditing, and financial reporting regulations and
practices in some countries; changing local and regional economic, political,
and social conditions; expropriation or confiscatory taxation; greater market
volatility; differing securities market structures; and various administrative
difficulties such as delays in clearing and settling portfolio transactions or
in receiving payment of dividends. However, in the opinion of Capital Research
and Management Company, investing outside the U.S. also can reduce certain
portfolio risks due to greater diversification opportunities.
The risks described above are potentially heightened in connection with
investments in developing countries. Although there is no universally accepted
definition, a developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a low per capita
gross national product. For example, political and/or economic structures in
these countries may be in their infancy and developing rapidly. Historically,
the markets of developing countries have been more volatile than the markets of
developed countries. The fund may only invest in securities of issuers in
developing countries to a limited extent.
Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. Brokerage commissions may be higher outside the
U.S., and the fund will bear certain expenses in connection with its currency
transactions. Furthermore, increased custodian costs may be associated with the
maintenance of assets in certain jurisdictions.
CURRENCY TRANSACTIONS - The fund can purchase and sell currencies to facilitate
securities transactions and enter into forward currency contracts to protect
against changes in currency exchange rates. A forward currency contract is an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. Forward currency contracts
The Income Fund of America - Page 4
<PAGE>
entered into by the fund will involve the purchase or sale of one currency
against the U.S. dollar. While entering into forward currency transactions could
minimize the risk of loss due to a decline in the value of the hedged currency,
it could also limit any potential gain which might result from an increase in
the value of the currency. The fund will not generally attempt to protect
against all potential changes in exchange rates. The fund will segregate liquid
assets which will be marked to market daily to meet its forward contract
commitments to the extent required by the Securities and Exchange Commission.
Certain provisions of the Internal Revenue Code may affect the extent to which
the fund may enter into forward contracts. Such transactions may also affect,
for U.S. federal income tax purposes, the character and timing of income, gain
or loss recognized by the fund.
INFLATION-INDEXED BONDS - The fund may invest in inflation-indexed bonds issued
by governments, their agencies or instrumentalities, and corporations. The
principal value of this type of bond is periodically adjusted according to
changes in the rate of inflation. The interest rate is generally fixed at
issuance; however, interest payments are based on an inflation adjusted
principal value. For example, in a period of deflation, principal value will be
adjusted downward, reducing the interest payable.
Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation indexed bonds,
even during a period of deflation. However, the current market value of the
bonds is not guaranteed, and will fluctuate. The fund may also invest in other
bonds which may or may not provide a similar guarantee. If a guarantee of
principal is not provided, the adjusted principal value of the bond repaid at
maturity may be less than the original principal.
REINSURANCE RELATED NOTES AND BONDS - The fund may invest in reinsurance related
notes and bonds. These instruments, which are typically issued by special
purpose reinsurance companies, transfer an element of insurance risk to the note
or bond holders. For example, the reinsurance company would not be required to
repay all or a portion of the principal value of the notes or bonds if losses
due to a catastrophic event under the policy (such as a major hurricane) exceed
certain dollar thresholds. Consequently, the fund may lose the entire amount of
its investment in such bonds or notes if such an event occurs and losses exceed
certain dollar thresholds. In this instance, investors would have no recourse
against the insurance company. These instruments may be issued with fixed or
variable interest rates and rated in a variety of credit quality categories by
the rating agencies.
INVERSE FLOATING RATE NOTES - The fund may invest to a very limited extent (no
more than 1.5% of its assets) in inverse floating rate notes (a type of
derivative instrument). These notes have rates that move in the opposite
direction of prevailing interest rates. A change in prevailing interest rates
will often result in a greater change in the instruments' interest rates. As a
result, these instruments may have a greater degree of volatility than other
types of interest-bearing securities.
PASS-THROUGH SECURITIES - The fund may invest in various debt obligations backed
by a pool of mortgages or other assets including loans on single family
residences, home equity loans, mortgages on commercial buildings, credit card
receivables, and leases on airplanes or other equipment. Principal and interest
payments made on the underlying asset pools backing these obligations are
typically passed through to investors. Pass-through securities may have either
fixed or adjustable coupons. These securities include those discussed below.
The Income Fund of America - Page 5
<PAGE>
"Mortgage-backed securities" are issued both by U.S. government agencies,
including the Government National Mortgage Association (GNMA), the Federal
National Mortgage Association (FNMA), and the Federal Home Loan Mortgage
Corporation (FHLMC), and by private entities. The payment of interest and
principal on securities issued by U.S. government agencies is guaranteed by the
full faith and credit of the U.S. government (in the case of GNMA securities) or
the issuer (in the case of FNMA and FHLMC securities). However, the guarantees
do not apply to the market prices and yields of these securities, which vary
with changes in interest rates.
Mortgage-backed securities issued by private entities are structured similarly
to mortgage-backed securities issued by GNMA, FNMA, and FHLMC. These securities
and the underlying mortgages are not guaranteed by government agencies. In
addition, these securities generally are structured with one or more types of
credit enhancement. Mortgage-backed securities generally permit borrowers to
prepay their underlying mortgages. Prepayments can alter the effective maturity
of these instruments.
"Collateralized mortgage obligations" (CMOs) are also backed by a pool of
mortgages or mortgage loans, which are divided into two or more separate bond
issues. CMOs issued by U.S. government agencies are backed by agency mortgages,
while privately issued CMOs may be backed by either government agency mortgages
or private mortgages. Payments of principal and interest are passed-through to
each bond at varying schedules resulting in bonds with different coupons,
effective maturities, and sensitivities to interest rates. In fact, some CMOs
may be structured in a way that when interest rates change the impact of
changing prepayment rates on these securities' effective maturities is
magnified.
"Commercial mortgage-backed securities" are backed by mortgages of commercial
property, such as hotels, office buildings, retail stores, hospitals, and other
commercial buildings. These securities may have a lower prepayment uncertainty
than other mortgage-related securities because commercial mortgage loans
generally prohibit or impose penalties on prepayments of principal. In addition,
commercial mortgage-related securities often are structured with some form of
credit enhancement to protect against potential losses on the underlying
mortgage loans. Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate securing the
underlying mortgage loans, including the effects of local and other economic
conditions on real estate markets, the ability of tenants to make loan payments,
and the ability of a property to attract and retain tenants.
"Asset-backed securities" are backed by other assets such as credit card,
automobile or consumer loan receivables, retail installment loans, or
participations in pools of leases. Credit support for these securities may be
based on the underlying assets and/or provided through credit enhancements by a
third party. The values of these securities are sensitive to changes in the
credit quality of the underlying collateral, the credit strength of the credit
enhancement, changes in interest rates, and at times the financial condition of
the issuer. Some asset-backed securities also may receive prepayments which can
change the securities' effective maturities.
U.S. GOVERNMENT SECURITIES - Securities guaranteed by the U.S. Government
include direct obligations of the U.S. Treasury (such as Treasury bills, notes
and bonds). For these securities, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. Such securities are subject to variations in
market value due to fluctuations in interest rates, but, if held to maturity,
will be paid in full.
The Income Fund of America - Page 6
<PAGE>
Certain securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the
Treasury. However, they generally involve federal sponsorship in one way or
another; some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; and others are supported only by the credit of the issuing government
agency or instrumentality. These agencies and instrumentalities include, but are
not limited to, Farmers Home Administration, Federal Home Loan Bank, Federal
Home Loan Mortgage Corporation, Federal National Mortgage Association, Tennessee
Valley Authority, and Federal Farm Credit Bank System.
CASH AND CASH EQUIVALENTS - These securities include (i) commercial paper (e.g.,
short-term notes up to 9 months in maturity issued by corporations, governmental
bodies or bank/ corporation sponsored conduits (asset backed commercial paper)),
(ii) commercial bank obligations (e.g., certificates of deposit, bankers'
acceptances (time drafts on a commercial bank where the bank accepts an
irrevocable obligation to pay at maturity)), (iii) savings association and
savings bank obligations (e.g., bank notes and certificates of deposit issued by
savings banks or savings associations), (iv) securities of the U.S. Government,
its agencies or instrumentalities that mature, or may be redeemed, in one year
or less, and (v) corporate bonds and notes that mature, or that may be redeemed,
in one year or less.
RESTRICTED SECURITIES AND LIQUIDITY - The fund may purchase securities subject
to restrictions on resale. All such securities not actively traded will be
considered illiquid unless they have been specifically determined to be liquid
under procedures which have been adopted by the fund's board of directors,
taking into account factors such as the frequency and volume of trading, the
commitment of dealers to make markets and the availability of qualified
investors, all of which can change from time to time. The fund may incur certain
additional costs in disposing illiquid securities.
FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell
securities at a future date. When the fund agrees to purchase such securities it
assumes the risk of any decline in value of the security beginning on the date
of the agreement. When the fund agrees to sell such securities it does not
participate in further gains or losses with respect to the securities beginning
on the date of the agreement. If the other party to such a transaction fails to
deliver or pay for the securities, the fund could miss a favorable price or
yield opportunity, or could experience a loss.
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly increases. The fund will not use these
transactions for the purpose of leveraging and will segregate liquid assets
which will be marked to market daily in an amount sufficient to meet its payment
obligations in these transactions. Although these transactions will not be
entered into for leveraging purposes, to the extent the fund's aggregate
commitments under these transactions exceed its segregated assets, the fund
temporarily could be in a leveraged position (because it may have an amount
greater than its net assets subject to market risk). Should market values of the
fund's portfolio securities decline while the fund is in a leveraged position,
greater depreciation of its net assets would likely occur than were it not in
such a position. The fund will not borrow money to settle these transactions and
therefore, will liquidate other portfolio securities in advance of settlement if
necessary to generate additional cash to meet its obligations thereunder.
The Income Fund of America - Page 7
<PAGE>
The fund may also enter into "roll" transactions which are the sale of
mortgage-backed or other securities together with a commitment to purchase
similar, but not identical, securities at a later date. The fund assumes the
rights and risks of ownership, including the risk of price and yield
fluctuations as of the time of the agreement. The fund intends to treat roll
transactions as two separate transactions: one involving the purchase of a
security and a separate transaction involving the sale of a security. Since the
fund does not intend to enter into roll transactions for financing purposes, it
may treat these transactions as not falling within the definition of "borrowing"
set forth in Section 2(a)(23) of the Investment Company Act of 1940 (the "1940
Act"). The fund will segregate liquid assets which will be marked to market
daily in an amount sufficient to meet its payment obligations in these
transactions.
* * * * * *
PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the length
of time particular investments may have been held. Short-term trading profits
are not the fund's objective and changes in its investments are generally
accomplished gradually, though short-term transactions may occasionally be made.
High portfolio turnover (100% or more) involves correspondingly greater
transaction costs in the form of dealer spreads or brokerage commissions, and
may result in the realization of net capital gains, which are taxable when
distributed to shareholders.
Fixed-income securities are generally traded on a net basis and usually neither
brokerage commissions nor transfer taxes are involved.
The fund's portfolio turnover rate would equal 100% if each security in the
fund's portfolio were replaced once per year. See "Financial Highlights" in the
prospectus for the fund's annual portfolio turnover for each of the last five
fiscal periods.
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES - The fund has adopted the following fundamental policies
and investment restrictions which may not be changed without approval by holders
of a majority of its outstanding shares. Such majority is defined in the
Investment Company Act of 1940 ("1940 Act") as the vote of the lesser of (i) 67%
or more of the outstanding voting securities present at a meeting, if the
holders of more than 50% of the outstanding voting securities are present in
person or by proxy, or (ii) more than 50% of the outstanding voting securities.
All percentage limitations are considered at the time securities are purchased
and are based on the fund's net assets unless otherwise indicated. None of the
following investment restrictions involving a maximum percentage of assets will
be considered violated unless the excess occurs immediately after, and is caused
by, an acquisition by the fund.
The fund may not:
1. Act as underwriter of securities issued by other persons.
2. Invest more than 10% of the value of its total assets in securities that
are illiquid.
3. Borrow money, except temporarily for extraordinary or emergency purposes,
in an amount not exceeding 5% of the value of the Fund's total assets at the
time of such borrowing.
The Income Fund of America - Page 8
<PAGE>
4. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (this shall not prevent the Fund from investing
in securities or other instruments backed by real estate or securities of
companies engaged in the real estate business).
5. Purchase or deal in commodities or commodity contracts.
6. Lend any security or make any other loan if, as a result, more than 15% of
its total assets would be lent to third parties, but this limitation does not
apply to purchases of debt securities or to repurchase agreements.
7. Purchase securities of any company for the purpose of exercising control or
management.
8. Purchase any securities on "margin", except that it may obtain such
short-term credit as may be necessary for the clearance of purchases of
securities.
9. Sell or contract to sell any security which it does not own unless by
virtue of its ownership of other securities it has at the time of sale a right
to obtain securities, without payment of further consideration, equivalent in
kind and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions.
10. Purchase or sell puts, calls, straddles, or spreads, but this restriction
shall not prevent the purchase or sale of rights represented by warrants or
convertible securities.
11. Purchase any securities of any issuer, except the U.S. Government (or its
instrumentalities), if immediately after and as a result of such investment (1)
the market value of the securities of such other issuer shall exceed 5% of the
market value of the total assets of the fund, or (2) the fund shall own more
than 10% of the outstanding voting securities of such issuer, provided that this
restriction shall apply only as to 75% of the fund's total assets.
12. Purchase any securities (other than securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities) if immediately after and
as a result of such purchase 25% or more of the market value of the total assets
of the fund would be invested in securities of companies in any one industry.
For purposes of Investment Restriction #2, restricted securities are treated as
illiquid by the fund, with the exception of those securities that have been
determined to be liquid pursuant to procedures adopted by the fund's Board of
Directors. In addition, the fund may not invest more than 15% of the value of
its net assets in securities that are illiquid. Furthermore, the fund may not
issue senior securities.
NON-FUNDAMENTAL POLICIES - The following non-fundamental policy(ies) may be
changed without shareholder approval:
1. The Fund does not currently intend to lend portfolio securities.
2. The Fund may not invest in securities of other investment companies, except
as permitted by the Investment Company Act of 1940, as amended.
The Income Fund of America - Page 9
<PAGE>
Notwithstanding non-fundamental Investment Restriction #2, the fund may invest
in securities of other investment companies if deemed advisable by its officers
in connection with the administration of a deferred compensation plan adopted by
Directors pursuant to an exemptive order granted by the Securities and Exchange
Commission.
FUND ORGANIZATION AND VOTING RIGHTS
The fund, an open-end, diversified management investment company, was organized
as a Delaware corporation on March 8, 1969 and reorganized as a Maryland
corporation on December 16, 1983.
All fund operations are supervised by the fund's Board of Directors which meets
periodically and performs duties required by applicable state and federal laws.
Members of the board who are not employed by Capital Research and Management
Company or its affiliates are paid certain fees for services rendered to the
fund as described in "Directors and Director Compensation" below. They may elect
to defer all or a portion of these fees through a deferred compensation plan in
effect for the fund.
The fund has two classes of shares - Class A and Class B. The shares of each
class represent an interest in the same investment portfolio. Each class has
equal rights as to voting, redemption, dividends and liquidation, except that
each class bears different distribution expenses and may bear different transfer
agent fees and other expenses properly attributable to the particular class as
approved by the Board of Directors. Class A and Class B shareholders have
exclusive voting rights with respect to the rule 12b-1 Plans adopted in
connection with the distribution of shares and on other matters in which the
interests of one class are different from interests in another class. Shares of
all classes of the fund vote together on matters that affect all classes in
substantially the same manner. Each class votes as a class on matters that
affect that class alone.
The fund does not hold annual meetings of shareholders. However, significant
matters which require shareholder approval, such as certain elections of board
members or a change in a fundamental investment policy, will be presented to
shareholders at a meeting called for such purpose. Shareholders have one vote
per share owned. At the request of the holders of at least 10% of the shares,
the fund will hold a meeting at which any member of the board could be removed
by a majority vote.
REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly
called and at which a quorum is present, shareholders may, by the affirmative
vote of the holders of a majority of the votes entitled to be cast, remove any
Director from office and may elect a successor or successors to fill any
resulting vacancies for the unexpired terms of removed Directors. The fund has
agreed, at the request of the staff of the Securities and Exchange Commission,
to apply the provisions of section 16(c) of the 1940 Act with respect to the
removal of Directors, as though the fund were a common-law trust. Accordingly,
the Directors of the fund will promptly call a meeting of shareholders for the
purpose of voting upon the removal of any Directors when requested in writing to
do so by the record holders of at least 10% of the outstanding shares.
The Income Fund of America - Page 10
<PAGE>
FUND DIRECTORS AND OFFICERS
Directors and Director Compensation
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
(INCLUDING VOLUNTARILY
DEFERRED
COMPENSATION/1/)
FROM THE FUND
POSITION DURING FISCAL YEAR
WITH PRINCIPAL OCCUPATION(S) DURING ENDED
NAME, ADDRESS AND AGE REGISTRANT PAST 5 YEARS JULY 31, 2000
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert A. Fox Director President and Chief Executive Officer, $25,928/4/
P.O. Box 457 Foster Farms
1000 Davis Street
Livingston, CA 95334
Age: 63
-----------------------------------------------------------------------------------------------------------
Roberta L. Hazard Director Consultant; Rear Admiral, United $25,250
1419 Audmar Drive States Navy (Retired)
McLean, VA 22101
Age: 65
-----------------------------------------------------------------------------------------------------------
Leonade D. Jones Director Chief Financial Officer and Secretary, $31,500/4/
1536 Los Montes VentureThink LLC; former Treasurer,
Drive The Washington Post Company
Burlingame, CA 94010
Age: 52
-----------------------------------------------------------------------------------------------------------
John G. McDonald Director The IBJ Professor of Finance, Graduate $29,875/4/
Stanford University School of Business, Stanford
Stanford, CA 94305 University
Age: 63
-----------------------------------------------------------------------------------------------------------
+ Janet A. McKinley President and Director, Capital Research and None/5/
630 Fifth Avenue Director Management Company. Senior Vice
New York, NY 10111 President, Capital Research Company*
Age: 45
-----------------------------------------------------------------------------------------------------------
James K. Peterson Director Managing Director, Oak Glen $18,000/6/
5560 North Via Elena Consultancy, LLC; former Director of
Tucson, AZ Investment Management; IBM Retirement
85718-5510 Fund, IBM Corporation
Age: 59
-----------------------------------------------------------------------------------------------------------
+ James W. Ratzlaff Director Senior Partner, The Capital Group None/5/
333 South Hope Partners L.P.
Street
Los Angeles, CA
90071
Age: 64
-----------------------------------------------------------------------------------------------------------
Henry E. Riggs Director President, Keck Graduate Institute of $28,250/4/
535 Watson Drive Applied Life Sciences; former
Claremont, CA 91711 President and Professor of
Age: 65 Engineering, Harvey Mudd College
-----------------------------------------------------------------------------------------------------------
+ Walter P. Stern Chairman of Vice Chairman, Capital Group None/5/
630 Fifth Avenue the Board International, Inc.; Chairman, Capital
New York, NY 10111 International, Inc.; Director,
Age: 72 Temple-Inland Inc. (forest products)
-----------------------------------------------------------------------------------------------------------
Patricia K. Woolf Director Private investor; Lecturer, Department $29,000
506 Quaker Road of Molecular Biology, Princeton
Princeton, NJ 08540 University; Corporate Director
Age: 66
-----------------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL COMPENSATION
(INCLUDING VOLUNTARILY
DEFERRED
COMPENSATION/1/) FROM TOTAL NUMBER
ALL FUNDS MANAGED BY OF FUND
CAPITAL RESEARCH AND BOARDS
MANAGEMENT COMPANY ON WHICH
OR ITS AFFILIATES/2/ FOR THE DIRECTOR
NAME, ADDRESS AND AGE YEAR ENDED JULY 31, 2000 SERVES/3/
--------------------------------------------------------------------
<S> <C> <C>
Robert A. Fox $147,500/4/ 7
P.O. Box 457
1000 Davis Street
Livingston, CA 95334
Age: 63
--------------------------------------------------------------------
Roberta L. Hazard $83,000 4
1419 Audmar Drive
McLean, VA 22101
Age: 65
--------------------------------------------------------------------
Leonade D. Jones $140,000/4/ 6
1536 Los Montes
Drive
Burlingame, CA 94010
Age: 52
--------------------------------------------------------------------
John G. McDonald $238,500/4/ 8
Stanford University
Stanford, CA 94305
Age: 63
--------------------------------------------------------------------
+ Janet A. McKinley None/5/ 1
630 Fifth Avenue
New York, NY 10111
Age: 45
--------------------------------------------------------------------
James K. Peterson $34,833/6/ 2
5560 North Via Elena
Tucson, AZ
85718-5510
Age: 59
--------------------------------------------------------------------
+ James W. Ratzlaff None/5/ 3
333 South Hope
Street
Los Angeles, CA
90071
Age: 64
--------------------------------------------------------------------
Henry E. Riggs $96,000/4/ 5
535 Watson Drive
Claremont, CA 91711
Age: 65
--------------------------------------------------------------------
+ Walter P. Stern None/5/ 3
630 Fifth Avenue
New York, NY 10111
Age: 72
--------------------------------------------------------------------
Patricia K. Woolf $137,000 6
506 Quaker Road
Princeton, NJ 08540
Age: 66
--------------------------------------------------------------------
</TABLE>
The Income Fund of America - Page 11
<PAGE>
The Income Fund of America - Page 12
<PAGE>
* Company affiliated with Capital Research and Management Company.
+ "Interested persons" within the meaning of the 1940 Act on the basis of their
affiliation with the fund's Investment Adviser, Capital Research and
Management Company, or the parent company of the Investment Adviser, The
Capital Group Companies, Inc.
1 Amounts may be deferred by eligible Directors under a non-qualified deferred
compensation plan adopted by the fund in 1993. Deferred amounts accumulate at
an earnings rate determined by the total return of one or more funds in The
American Funds Group as designated by the Directors.
2 Capital Research and Management Company manages The American Funds Group
consisting of 29 funds: AMCAP Fund, Inc., American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash
Management Trust of America, Capital Income Builder, Inc., Capital World
Growth and Income Fund, Inc., Capital World Bond Fund, Inc., EuroPacific
Growth Fund, Fundamental Investors, Inc., The Growth Fund of America, Inc.,
The Income Fund of America, Inc., Intermediate Bond Fund of America, The
Investment Company of America, Limited Term Tax-Exempt Bond Fund of America,
The New Economy Fund, New Perspective Fund, Inc., New World Fund, Inc.,
SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of America, Inc., The
Tax-Exempt Fund of California, The Tax-Exempt Fund of Maryland, The Tax-Exempt
Fund of Virginia, The Tax-Exempt Money Fund of America, The U. S. Treasury
Money Fund of America, U.S. Government Securities Fund and Washington Mutual
Investors Fund, Inc. Capital Research and Management Company also manages
American Variable Insurance Series and Anchor Pathway Fund, which serve as the
underlying investment vehicle for certain variable insurance contracts; and
Endowments, whose shareholders are limited to (i) any entity exempt from
taxation under Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended ("501(c)(3) organization"); (ii) any trust, the present or future
beneficiary of which is a 501(c)(3) organization, and (iii) any other entity
formed for the primary purpose of benefiting a 501(c)(3) organization. An
affiliate of Capital Research and Management Company, Capital International,
Inc., manages Emerging Markets Growth Fund, Inc.
3 Includes funds managed by Capital Research and Management Company and
affiliates.
4 Since the deferred compensation plan's adoption, the total amount of deferred
compensation accrued by the fund (plus earnings thereon) during the 2000
fiscal year for participating Directors is as follows: Robert A. Fox
($366,194), Leonade D. Jones ($112,285), John G. McDonald ($191,177) and Henry
E. Riggs ($196,555). Amounts deferred and accumulated earnings thereon are not
funded and are general unsecured liabilities of the fund until paid to the
Directors.
5 Janet A. McKinley, James W. Ratzlaff, and Walter P. Stern are affiliated with
the Investment Adviser and, accordingly, receive no compensation from the
fund.
6 James K. Peterson was elected a Director of the fund on December 1, 1999.
The Income Fund of America - Page 13
<PAGE>
OTHER OFFICERS
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S) DURING
NAME AND ADDRESS AGE WITH REGISTRANT PAST 5 YEARS
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Walter P. Stern
(see above)
-------------------------------------------------------------------------------
Janet A. McKinley
(see above)
-------------------------------------------------------------------------------
Darcy B. Kopcho 46 Executive Vice Executive Vice President and
333 South Hope Street President Research Director, Capital
Los Angeles, CA 90071 Research Company
-------------------------------------------------------------------------------
Stephen E. Bepler 58 Senior Vice Senior Vice President, Capital
630 Fifth Avenue President Research Company*
New York, NY 10111
-------------------------------------------------------------------------------
Abner D. Goldstine 70 Senior Vice Senior Vice President and
11100 Santa Monica President Director, Capital Research and
Boulevard Management Company
Los Angeles, CA 90025
-------------------------------------------------------------------------------
Paul G. Haaga, Jr. 51 Senior Vice Executive Vice President and
333 South Hope Street President Director, Capital Research and
Los Angeles, CA 90071 Management Company; Director,
American Funds Service Company;
Director, American Funds
Distributors, Inc.
-------------------------------------------------------------------------------
Dina N. Perry 54 Senior Vice Senior Vice President, Capital
3000 K Street, N.W. President Research and Management Company
Washington, D.C. 20007
-------------------------------------------------------------------------------
Hilda L. Applbaum 39 Vice President Vice President, Capital Research
P.O. Box 7650 Company
San Francisco, CA
94120
-------------------------------------------------------------------------------
David C. Barclay 43 Vice President Vice President, Capital Research
11100 Santa Monica and Management Company
Boulevard
Los Angeles, CA 90025
-------------------------------------------------------------------------------
John H. Smet 44 Vice President Vice President, Capital Research
11100 Santa Monica and Management Company
Boulevard
Los Angeles, CA 90025
-------------------------------------------------------------------------------
Patrick F. Quan 42 Secretary Vice President - Fund Business
P.O. Box 7650 Management Group, Capital
San Francisco, CA Research and Management Company
94120
-------------------------------------------------------------------------------
Anthony W. Hynes, Jr. 37 Treasurer Vice President - Fund Business
135 South State Management Group, Capital
College Blvd. Research and Management Company
Brea, CA 92821
-------------------------------------------------------------------------------
R. Marcia Gould 46 Assistant Vice President - Fund Business
135 South State Treasurer Management Group, Capital
College Boulevard Research and Management Company
Brea, CA 92821
-------------------------------------------------------------------------------
</TABLE>
* Company affiliated with Capital Research and Management Company.
The Income Fund of America - Page 14
<PAGE>
All of the officers listed are officers, and/or directors/trustees of one or
more of the other funds for which Capital Research and Management Company serves
as Investment Adviser.
No compensation is paid by the fund to any officer or Director who is a
director, officer or employee of the Investment Adviser or affiliated companies.
The fund pays annual fees of $19,000 to Directors who are not affiliated with
the Investment Adviser, plus $1,000 for each Board of Directors meeting
attended, plus $500 for each meeting attended as a member of a committee of the
Board of Directors. In lieu of meeting attendance fees, members of the Proxy
Committee receive an annual retainer fee of $4,000 per annum from the fund if
they serve as a member of four proxy committees, or $5,500 if they serve as a
member of two proxy committees, meeting jointly.
No pension or retirement benefits are accrued as part of fund expenses. The
Directors may elect, on a voluntary basis, to defer all or a portion of their
fees through a deferred compensation plan in effect for the fund. The fund also
reimburses certain expenses of the Directors who are not affiliated with the
Investment Adviser. As of July 31, 2000 the officers and Directors of the fund
and their families, as a group, owned beneficially or of record less than 1% of
the outstanding shares of the fund.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains research
facilities in the U.S. and abroad (Los Angeles, San Francisco, New York,
Washington, D.C., London, Geneva, Hong Kong, Singapore and Tokyo), with a staff
of professionals, many of whom have a number of years of investment experience.
The Investment Adviser is located at 333 South Hope Street, Los Angeles, CA
90071, and at 135 South State College Boulevard, Brea, CA 92821. The Investment
Adviser's research professionals travel several million miles a year, making
more than 5,000 research visits in more than 50 countries around the world. The
Investment Adviser believes that it is able to attract and retain quality
personnel. The Investment Adviser is a wholly owned subsidiary of The Capital
Group Companies, Inc.
The Investment Adviser is responsible for managing more than $300 billion of
stocks, bonds and money market instruments and serves over 11 million
shareholder accounts of all types throughout the world. These investors include
privately owned businesses and large corporations as well as schools, colleges,
foundations and other non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service
Agreement (the "Agreement") between the fund and the Investment Adviser will
continue in effect until December 31, 2000, unless sooner terminated, and may be
renewed from year to year thereafter, provided that any such renewal has been
specifically approved at least annually by (i) the Board of Directors, or by the
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the fund, and (ii) the vote of a majority of Directors who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such approval. The Agreement provides that the Investment Adviser has no
liability to the fund for its acts or omissions in the performance of its
obligations to the fund not involving willful misconduct, bad faith, gross
negligence or reckless disregard of its obligations under the Agreement. The
Agreement also provides that either party has the right to terminate it, without
penalty, upon 60 days' written
The Income Fund of America - Page 15
<PAGE>
notice to the other party, and that the Agreement automatically terminates in
the event of its assignment (as defined in the 1940 Act).
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the fund, and provides suitable office space, necessary small office equipment
and utilities, general purpose accounting forms, supplies, and postage used at
the offices of the fund. The fund pays all expenses not assumed by the
Investment Adviser, including, but not limited to, custodian, stock transfer and
dividend disbursing fees and expenses; costs of the designing, printing and
mailing of reports, prospectuses, proxy statements, and notices to its
shareholders; taxes; expenses of the issuance and redemption of shares of the
fund (including stock certificates, registration and qualification fees and
expenses); expenses pursuant to the fund's Plans of Distribution (described
below); legal and auditing expenses; compensation, fees, and expenses paid to
directors unaffiliated with the Investment Adviser; association dues; costs of
stationery and forms prepared exclusively for the fund; and costs of assembling
and storing shareholder account data.
The management fee is based upon the net assets of the fund and monthly gross
investment income. Gross investment income means gross income, computed without
taking account of gains or losses from sales of capital assets, but including
original issue discount as defined for federal income tax purposes. The Internal
Revenue Code in general defines original issue discount to mean the difference
between the issue price and the stated redemption price at maturity of certain
debt obligations. The holder of such indebtedness is in general required to
treat as ordinary income the proportionate part of the original issue discount
attributable to the period during which the holder held the indebtedness.
The management fee for Class A and B shares is based upon the annual rates of
0.25% on the first $500 million of the fund's net assets, 0.23% on net assets in
excess of $500 million but not exceeding $1 billion, 0.21% on net assets in
excess of $1 billion but not exceeding $1.5 billion, 0.19% on net assets in
excess of $1.5 billion but not exceeding $2.5 billion, 0.17% on net assets in
excess of $2.5 billion but not exceeding $4 billion, 0.16% on net assets in
excess of $4 billion but not exceeding $6.5 billion, 0.15% on net assets in
excess of $6.5 billion but not exceeding $10.5 billion, 0.144% on net assets in
excess of $10.5 billion but not exceeding $13 billion, 0.141% on net assets in
excess of $13 billion but not exceeding $17 billion, 0.138% on net assets in
excess of $17 billion but not exceeding $21 billion, 0.135% on net assets in
excess of $21 billion but not exceeding $27 billion, 0.133% on net assets in
excess of $27 billion but not exceeding $34 billion, 0.131% on net assets in
excess of $34 billion but not exceeding $44 billion, and 0.129% on net assets in
excess of $44 billion, plus 2.25% of the fund's gross investment income for the
preceding month. Assuming net assets of $20 billion and gross investment income
levels of 3%, 4%, 5%, 6%, 7% and 8%, management fees would be 0.22%, 0.25%,
0.27%, 0.29%, 0.31% and 0.34% of net assets, respectively.
The Agreement provides for a management fee reduction to the extent that the
annual ordinary operating expenses of the fund's Class A shares exceed 1-1/2% of
the first $30 million of the net assets of the fund and 1% of the average net
assets in excess thereof. Expenses which are not subject to these limitations
are interest, taxes, and extraordinary expenses. Expenditures, including costs
incurred in connection with the purchase or sale of portfolio securities, which
are capitalized in accordance with generally accepted accounting principles
applicable to investment companies are accounted for as capital items and not as
expenses. To the extent the fund's management fee must be waived due to Class A
share expense ratios exceeding this limit,
The Income Fund of America - Page 16
<PAGE>
management fees will be reduced similarly for all classes of shares of the fund
or other Class A fees will be waived in lieu of management fees.
For the fiscal year ended July 31, 2000, the Investment Adviser received
$31,861,000 for the basic management fee (based on a percentage of the net
assets of the fund as expressed above) plus $28,085,000 (based on a percentage
of the fund's gross income as expressed above), for a total fee of $59,946,000.
For the fiscal years ended 1999 and 1998, management fees paid by the fund
amounted to $63,389,000 and $57,649,000, respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the "Principal
Underwriter") is the principal underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 3500 Wiseman Boulevard, San
Antonio, TX 78251, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240,
and 5300 Robin Hood Road, Norfolk, VA 23513. The fund has adopted Plans of
Distribution (the "Plans"), pursuant to rule 12b-1 under the 1940 Act. The
Principal Underwriter receives amounts payable pursuant to the Plans (see below)
and commissions consisting of that portion of the sales charge remaining after
the discounts which it allows to investment dealers. Commissions retained by the
Principal Underwriter on sales of Class A shares during the 2000 fiscal year
amounted to $5,605,000 after allowance of $25,442,000 to dealers. During the
fiscal years ended 1999 and 1998, the Principal Underwriter retained $12,692,000
and $17,111,000, respectively, on sales of Class A shares, after an allowance of
$60,189,000 and $82,972,000 to dealers, respectively.
As required by rule 12b-1 and the 1940 Act, the Plans (together with the
Principal Underwriting Agreement) have been approved by the full Board of
Directors and separately by a majority of the directors who are not "interested
persons" of the fund and who have no direct or indirect financial interest in
the operation of the Plans or the Principal Underwriting Agreement. The officers
and directors who are "interested persons" of the fund may be considered to have
a direct or indirect financial interest in the operation of the Plans due to
present or past affiliations with the Investment Adviser and related companies.
Potential benefits of the Plans to the fund include shareholder services,
savings to the fund in transfer agency costs, savings to the fund in advisory
fees and other expenses, benefits to the investment process from growth or
stability of assets and maintenance of a financially healthy management
organization. The selection and nomination of directors who are not "interested
persons" of the fund are committed to the discretion of the directors who are
not "interested persons" during the existence of the Plans. Plan expenses are
reviewed quarterly and the Plans must be renewed annually by the Board of
Directors.
Under the Plans, the fund may expend up to 0.25% of its net assets annually for
Class A shares and 1.00% of its net assets annually for Class B shares to
finance any activity which is primarily intended to result in the sale of fund
shares, provided the fund's Board of Directors has approved the category of
expenses for which payment is being made. For Class A shares, these include up
to 0.25% in service fees for qualified dealers and dealer commissions and
wholesaler compensation on sales of shares exceeding $1 million purchased
without a sales charge (including purchases by employer-sponsored defined
contribution-type retirement plans investing $1 million or more or with 100 or
more eligible employees, rollover IRA accounts as described in "Individual
Retirement Account (IRA) Rollovers" below, and retirement plans, endowments or
foundations with $50 million or more in assets). For Class B shares, these
include 0.25% in service fees for qualified dealers and 0.75% in payments to the
Principal Underwriter for financing commissions paid to qualified dealers
selling Class B shares.
The Income Fund of America - Page 17
<PAGE>
Commissions on sales of Class A shares exceeding $1 million (including purchases
by any employer-sponsored 403(b) plan or purchases by any defined contribution
plan qualified under Section 401(a) of the Internal Revenue Code, including any
"401(k)" plan with 100 or more eligible employees) in excess of the Class A Plan
limitation not reimbursed during the most recent fiscal quarter are recoverable
for five quarters, provided that such commissions do not exceed the annual
expense limit. After five quarters, these commissions are not recoverable.
During the 2000 fiscal year, the fund paid or accrued $47,041,000 for
compensation to dealers or the Principal Underwriter under the Plan for Class A
shares and $54,000 under the Plan for Class B shares.
OTHER COMPENSATION TO DEALERS - The Principal Underwriter, at its expense (from
a designated percentage of its income), currently provides additional
compensation to dealers. Currently these payments are limited to the top 100
dealers who have sold shares of the fund or other funds in The American Funds
Group. These payments will be based principally on a pro rata share of a
qualifying dealer's sales. The Principal Underwriter will, on an annual basis,
determine the advisability of continuing these payments.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS - The fund intends to follow the practice of distributing
substantially all of its investment company taxable income which includes any
excess of net realized short-term gains over net realized long-term capital
losses. Additional distributions may be made, if necessary. The fund also
intends to follow the practice of distributing the entire excess of net realized
long-term capital gains over net realized short-term capital losses. However,
the fund may retain all or part of such gain for reinvestment, after paying the
related federal taxes for which shareholders may then be able to claim a credit
against their federal tax liability. If the fund does not distribute the amount
of capital gain and/or net investment income required to be distributed by an
excise tax provision of the Code, the fund may be subject to that excise tax. In
certain circumstances, the fund may determine that it is in the interest of
shareholders to distribute less than the required amount. In this case, the fund
will pay any income or excise taxes due.
Dividends on Class A and Class B shares will be reinvested in shares of the fund
of the same class unless shareholders indicate in writing that they wish to
receive them in cash or in shares of the same class of other American
Funds, as provided in the prospectus.
TAXES - The fund has elected to be treated as a regulated investment company
under Subchapter M of the Code. A regulated investment company qualifying under
Subchapter M of the Code is required to distribute to its shareholders at least
90% of its investment company taxable income (including the excess of net
short-term capital gain over net long-term capital losses) and generally is not
subject to federal income tax to the extent that it distributes annually 100% of
its investment company taxable income and net realized capital gains in the
manner required under the Code. The fund intends to distribute annually all of
its investment company taxable income and net realized capital gains and
therefore does not expect to pay federal income tax, although in certain
circumstances the fund may determine that it is in the interest of shareholders
to distribute less than that amount.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The
The Income Fund of America - Page 18
<PAGE>
term "required distribution" means the sum of (i) 98% of ordinary income
(generally net investment income) for the calendar year, (ii) 98% of capital
gain (both long-term and short-term) for the one-year period ending on October
31 (as though the one-year period ending on October 31 were the regulated
investment company's taxable year), and (iii) the sum of any untaxed,
undistributed net investment income and net capital gains of the regulated
investment company for prior periods. The term "distributed amount" generally
means the sum of (i) amounts actually distributed by the fund from its current
year's ordinary income and capital gain net income and (ii) any amount on which
the fund pays income tax during the periods described above. The fund intends
to distribute net investment income and net capital gains so as to minimize or
avoid the excise tax liability.
Investment company taxable income generally includes dividends, interest, net
short-term capital gains in excess of net long-term capital losses, and certain
foreign currency gains, if any, less expenses and certain foreign currency
losses, if any. Net capital gains for a fiscal year are computed by taking into
account any capital loss carry-forward of the fund.
If any net long-term capital gains in excess of net short-term capital losses
are retained by the fund for reinvestment, requiring federal income taxes to be
paid thereon by the fund, the fund intends to elect to treat such capital gains
as having been distributed to shareholders. As a result, each shareholder will
report such capital gains as long-term capital gains taxable to individual
shareholders at a maximum 20% capital gains rate, will be able to claim a pro
rata share of federal income taxes paid by the fund on such gains as a credit
against personal federal income tax liability, and will be entitled to increase
the adjusted tax basis on fund shares by the difference between a pro rata share
of the retained gains and their related tax credit.
Distributions of investment company taxable income are taxable to shareholders
as ordinary income.
Distributions of the excess of net long-term capital gains over net short-term
capital losses which the fund properly designates as "capital gain dividends"
generally will be taxable to individual shareholders at a maximum 20% capital
gains rate, regardless of the length of time the shares of the fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less from the date of their
purchase will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gain during such six-month
period.
Distributions of investment company taxable income and net realized capital
gains to individual shareholders will be taxable as described above, whether
received in shares or in cash. Shareholders electing to receive distributions in
the form of additional shares will have a cost basis for federal income tax
purposes in each share so received equal to the net asset value of a share on
the reinvestment date.
All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder subject to tax on his or her federal income tax return. Dividends
and capital gains distributions declared in October, November or December and
payable to shareholders of record in such a month will be deemed to have been
received by shareholders on December 31 if paid during January of the following
year. Redemptions of shares, including exchanges for shares of another American
Fund, may
The Income Fund of America - Page 19
<PAGE>
result in tax consequences (gain or loss) to the shareholder and must also be
reported on the shareholder's federal income tax return.
Dividends from domestic corporations are expected to comprise some portion of
the fund's gross income. To the extent that such dividends constitute any of the
fund's gross income, a portion of the income distributions of the fund will be
eligible for the deduction for dividends received by corporations. Shareholders
will be informed of the portion of dividends which so qualify. The
dividends-received deduction is reduced to the extent that either the fund
shares, or the underlying shares of stock held by the fund, with respect to
which dividends are received, are treated as debt-financed under federal income
tax law and is eliminated if the shares are deemed to have been held by the
shareholder or the fund, as the case may be, for less than 46 days.
Distributions by the fund result in a reduction in the net asset value of the
fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of investment
capital. For this reason, investors should consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will then receive a partial return of investment
capital upon the distribution, which will nevertheless be taxable to them.
A portion of the difference between the issue price of zero coupon securities
and their face value ("original issue discount") is considered to be income to
the fund each year, even though the fund will not receive cash interest payments
from these securities. This original issue discount (imputed income) will
comprise a part of the investment company taxable income of the fund which must
be distributed to shareholders in order to maintain the qualification of the
fund as a regulated investment company and to avoid federal income tax at the
level of the fund. Shareholders will be subject to income tax on such original
issue discount, whether or not they elect to receive their distributions in
cash.
The fund will be required to report to the IRS all distributions of investment
company taxable income and capital gains as well as gross proceeds from the
redemption or exchange of fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of investment company taxable income and capital gains and
proceeds from the redemption or exchange of the shares of a regulated investment
company may be subject to withholding of federal income tax at the rate of 31%
in the case of non-exempt U.S. shareholders who fail to furnish the investment
company with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law.
Withholding may also be required if the fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
Shareholders of the fund may be subject to state and local taxes on
distributions received from the fund and on redemptions of the fund's shares.
The Income Fund of America - Page 20
<PAGE>
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year fund shareholders will
receive a statement of the federal income tax status of all distributions.
Dividend and interest income received by the fund from sources outside the U.S.
may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however. Most foreign countries do not impose
taxes on capital gains in respect of investments by foreign investors.
The fund may make the election permitted under Section 853 of the Code so that
shareholders may (subject to limitations) be able to claim a credit or deduction
on their federal income tax returns for, and will be required to treat as part
of the amounts distributed to them, their pro rata portion of qualified taxes
paid by the Fund to foreign countries (which taxes relate primarily to
investment income). The fund may make an election under Section 853 of the Code,
provided that more than 50% of the value of the total assets of the fund at the
close of the taxable year consists of securities in foreign corporations. The
foreign tax credit available to shareholders is subject to certain limitations
imposed by the Code.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the fund accrues receivables or liabilities
denominated in a foreign currency and the time the fund actually collects such
receivables, or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain futures contracts, forward
contracts and options, gains or losses attributable to fluctuations in the value
of foreign currency between the date of acquisition of the security or contract
and the date of disposition are also treated as ordinary gain or loss. These
gains or losses, referred to under the Code as "Section 988" gains or losses,
may increase or decrease the amount of the fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
If the fund invests in stock of certain passive foreign investment companies,
the fund may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the fund's holding period for the stock. The distribution
or gain so allocated to any taxable year of the fund, other than the taxable
year of the excess distribution or disposition, would be taxed to the fund at
the highest ordinary income rate in effect for such year, and the tax would be
further increased by an interest charge to reflect the value of the tax deferral
deemed to have resulted from the ownership of the foreign company's stock. Any
amount of distribution or gain allocated to the taxable year of the distribution
or disposition would be included in the fund's investment company taxable income
and, accordingly, would not be taxable to the fund to the extent distributed by
the fund as a dividend to its shareholders.
To avoid such tax and interest, the fund intends to elect to treat these
securities as sold on the last day of its fiscal year and recognize any gains
for tax purposes at that time. Under this election, deductions for losses are
allowable only to the extent of any prior recognized gains, and both gains and
losses will be treated as ordinary income or loss. The fund will be required to
distribute any resulting income, even though it has not sold the security and
received cash to pay such distributions.
The Income Fund of America - Page 21
<PAGE>
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on dividend income received by him or her.
Shareholders should consult their tax advisers about the application of the
provisions of tax law described in this statement of additional information in
light of their particular tax situations.
The Income Fund of America - Page 22
<PAGE>
PURCHASE OF SHARES
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
-------------------------------------------------------------------------------
<S> <C> <C>
See "Purchase $50 minimum (except where a
Minimums" for initial lower minimum is noted under
investment minimums. "Purchase Minimums").
-------------------------------------------------------------------------------
By contacting Visit any investment Mail directly to your
your investment dealer dealer who is investment dealer's address
registered in the printed on your account
state where the statement.
purchase is made and
who has a sales
agreement with
American Funds
Distributors.
-------------------------------------------------------------------------------
By mail Make your check Fill out the account additions
payable to the fund form at the bottom of a recent
and mail to the account statement, make your
address indicated on check payable to the fund,
the account write your account number on
application. Please your check, and mail the check
indicate an investment and form in the envelope
dealer on the account provided with your account
application. statement.
-------------------------------------------------------------------------------
By telephone Please contact your Complete the "Investments by
investment dealer to Phone" section on the account
open account, then application or American
follow the procedures FundsLink Authorization Form.
for additional Once you establish the
investments. privilege, you, your financial
advisor or any person with your
account information can call
American FundsLine(R) and make
investments by telephone
(subject to conditions noted in
"Shareholder Account Services
and Privileges - Telephone and
Computer Purchases, Redemptions
and Exchanges" below).
-------------------------------------------------------------------------------
By computer Please contact your Complete the American FundsLink
investment dealer to Authorization Form. Once you
open account, then established the privilege, you,
follow the procedures your financial advisor or any
for additional person with your account
investments. information may access American
FundsLine OnLine(R) on the
Internet and make investments
by computer (subject to
conditions noted in
"Shareholder Account Services
and Privileges - Telephone and
Computer Purchases, Redemptions
and Exchanges" below).
-------------------------------------------------------------------------------
By wire Call 800/421-0180 to Your bank should wire your
obtain your account additional investments in the
number(s), if same manner as described under
necessary. Please "Initial Investment."
indicate an investment
dealer on the account.
Instruct your bank to
wire funds to:
Wells Fargo Bank
155 Fifth Street,
Sixth Floor
San Francisco, CA
94106
(ABA#121000248)
For credit to the
account of:
American Funds Service
Company a/c#
4600-076178
(fund name)
(your fund acct. no.)
-------------------------------------------------------------------------------
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY
PURCHASE ORDER.
-------------------------------------------------------------------------------
</TABLE>
PURCHASE MINIMUMS - The minimum initial investment for all funds in The American
Funds Group, except the money market funds and the state tax-exempt funds, is
$250. The minimum initial investment for the money market funds (The Cash
Management Trust of America, The Tax--
The Income Fund of America - Page 23
<PAGE>
Exempt Money Fund of America, and The U.S. Treasury Money Fund of America) and
the state tax-exempt funds (The Tax-Exempt Fund of California, The Tax-Exempt
Fund of Maryland, and The Tax-Exempt Fund of Virginia) is $1,000. Purchase
minimums are reduced to $50 for purchases through "Automatic Investment Plans"
(except for the money market funds) or to $25 for purchases by retirement plans
through payroll deductions and may be reduced or waived for shareholders of
other funds in The American Funds Group. TAX-EXEMPT FUNDS SHOULD NOT SERVE AS
RETIREMENT PLAN INVESTMENTS. The minimum is $50 for additional investments
(except as noted above).
PURCHASE MAXIMUM FOR CLASS B SHARES - The maximum purchase order for Class B
shares for all American Funds is $100,000. For investments above $100,000 Class
A shares are generally a less expensive option over time due to sales charge
reductions or waivers.
FUND NUMBERS - Here are the fund numbers for use with our automated phone line,
American FundsLine/(R)/ (see description below):
<TABLE>
<CAPTION>
FUND FUND
NUMBER NUMBER
FUND CLASS A CLASS B
---- ------- -------
<S> <C> <C>
STOCK AND STOCK/BOND FUNDS
AMCAP Fund/(R)/ . . . . . . . . . . . . . . . . 02 202
American Balanced Fund/(R)/ . . . . . . . . . . 11 211
American Mutual Fund/(R)/ . . . . . . . . . . . 03 203
Capital Income Builder/(R)/ . . . . . . . . . . 12 212
Capital World Growth and Income Fund/SM/ . . . . 33 233
EuroPacific Growth Fund/(R)/ . . . . . . . . . . 16 216
Fundamental Investors/SM/ . . . . . . . . . . . 10 210
The Growth Fund of America/(R)/ . . . . . . . . 05 205
The Income Fund of America/(R)/ . . . . . . . . 06 206
The Investment Company of America/(R)/ . . . . . 04 204
The New Economy Fund/(R)/ . . . . . . . . . . . 14 214
New Perspective Fund/(R)/ . . . . . . . . . . . 07 207
New World Fund/SM/ . . . . . . . . . . . . . . . 36 236
SMALLCAP World Fund/(R)/ . . . . . . . . . . . . 35 235
Washington Mutual Investors Fund/SM/ . . . . . . 01 201
BOND FUNDS
American High-Income Municipal Bond Fund/(R)/ . 40 240
American High-Income Trust/SM/ . . . . . . . . . 21 221
The Bond Fund of America/SM/ . . . . . . . . . . 08 208
Capital World Bond Fund/(R)/ . . . . . . . . . . 31 231
Intermediate Bond Fund of America/SM/ . . . . . 23 223
Limited Term Tax-Exempt Bond Fund of America/SM/ 43 243
The Tax-Exempt Bond Fund of America/(R)/ . . . . 19 219
The Tax-Exempt Fund of California/(R)/* . . . . 20 220
The Tax-Exempt Fund of Maryland/(R)/* . . . . . 24 224
The Tax-Exempt Fund of Virginia/(R)/* . . . . . 25 225
U.S. Government Securities Fund/SM/ . . . . . . 22 222
MONEY MARKET FUNDS
The Cash Management Trust of America/(R)/ . . . 09 209
The Tax-Exempt Money Fund of America/SM/ . . . . 39 N/A
The U.S. Treasury Money Fund of America/SM/ . . 49
___________
*Available only in certain states.
</TABLE>
The Income Fund of America - Page 24
<PAGE>
SALES CHARGES
CLASS A SALES CHARGES - The sales charges you pay when purchasing Class A shares
of stock, stock/bond, and bond funds of The American Funds Group are set forth
below. The money market funds of The American Funds Group are offered at net
asset value. (See "Fund Numbers" for a listing of the funds.)
<TABLE>
<CAPTION>
DEALER
SALES CHARGE AS CONCESSION
PERCENTAGE OF THE: AS PERCENTAGE
------------------ OF THE
AMOUNT OF PURCHASE
AT THE OFFERING PRICE NET AMOUNT OFFERING OFFERING
-INVESTED- PRICE PRICE
------------------------------------------------------------- -------- ----- -----
<S> <C> <C> <C>
STOCK AND STOCK/BOND FUNDS
Less than $25,000 . . . . . . . . . 6.10% 5.75% 5.00%
$25,000 but less than $50,000 . . . 5.26 5.00 4.25
$50,000 but less than $100,000. . 4.71 4.50 3.75
BOND FUNDS
Less than $100,000 . . . . . . . . 3.90 3.75 3.00
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000 . 3.63 3.50 2.75
$250,000 but less than $500,000 . 2.56 2.50 2.00
$500,000 but less than $750,000 . 2.04 2.00 1.60
$750,000 but less than $1 million 1.52 1.50 1.20
$1 million or more. . . . . . . . none none (see below)
------------------------------------------------------------------------------
</TABLE>
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGES - Investments of $1 million or
more are sold with no initial sales charge. HOWEVER, A 1% CONTINGENT DEFERRED
SALES CHARGE (CDSC) MAY BE IMPOSED IF REDEMPTIONS ARE MADE WITHIN ONE YEAR OF
PURCHASE. Employer-sponsored defined contribution-type plans investing $1
million or more, or with 100 or more eligible employees, and Individual
Retirement Account rollovers from retirement plan assets invested in the
American Funds (see "Individual Retirement Account (IRA) Rollovers" below) may
invest with no sales charge and are not subject to a contingent deferred sales
charge. Investments made by investors in certain qualified fee-based programs,
and retirement plans, endowments or foundations with $50 million or more in
assets may also be made with no sales charge and are
The Income Fund of America - Page 25
<PAGE>
not subject to a CDSC. A dealer concession of up to 1% may be paid by the fund
under its Plan of Distribution on investments made with no initial sales charge.
In addition, Class A shares of the stock, stock/bond and bond funds may be sold
at net asset value to:
(1) current or retired directors, trustees, officers and advisory board members
of, and certain lawyers who provide services to, the funds managed by Capital
Research and Management Company, current or retired employees of Washington
Management Corporation, current or retired employees and partners of The Capital
Group Companies, Inc. and its affiliated companies, certain family members and
employees of the above persons, and trusts or plans primarily for such persons;
(2) current registered representatives, retired registered representatives with
respect to accounts established while active, or full-time employees (and their
spouses, parents, and children) of dealers who have sales agreements with the
Principal Underwriter (or who clear transactions through such dealers) and plans
for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer;
(4) trustees or other fiduciaries purchasing shares for certain retirement
plans of organizations with retirement plan assets of $50 million or more;
(5) insurance company separate accounts;
(6) accounts managed by subsidiaries of The Capital Group Companies, Inc.; and
(7) The Capital Group Companies, Inc., its affiliated companies and Washington
Management Corporation. Shares are offered at net asset value to these persons
and organizations due to anticipated economies in sales effort and expense.
CONTINGENT DEFERRED SALES CHARGE ON CLASS A SHARES - A contingent deferred
sales charge of 1% applies to redemptions made from funds, other than the money
market funds, within 12 months following Class A share purchases of $1 million
or more made without an initial sales charge. The charge is 1% of the lesser of
the value of the shares redeemed (exclusive of reinvested dividends and capital
gain distributions) or the total cost of such shares. Shares held the longest
are assumed to be redeemed first for purposes of calculating this CDSC. The CDSC
may be waived in certain circumstances. See "CDSC Waivers for Class A Shares"
below.
DEALER COMMISSIONS ON CLASS A SHARES - The following commissions (up to 1%) will
be paid to dealers who initiate and are responsible for purchases of $1 million
or more, for purchases by any employer-sponsored defined contribution plan
investing $1 million or more, or with 100 or more eligible employees, IRA
rollover accounts (as described in "Individual Retirement Account (IRA)
Rollovers" below), and for purchases made at net asset value by certain
retirement plans, endowments and foundations with collective assets of $50
million or more: 1.00% on amounts of $1 million to $4 million, 0.50% on amounts
over $4 million to $10 million, and 0.25% on amounts over $10 million.
The Income Fund of America - Page 26
<PAGE>
CLASS B SALES CHARGES - Class B shares are sold without any initial sales
charge. However, a CDSC may be applied to shares you sell within six years of
purchase, as shown in the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE ON
SHARES SOLD WITHIN YEAR AS A % OF SHARES BEING SOLD
------------------------------------------------------------------------------
<S> <C>
1 5.00%
2 4.00%
3 4.00%
4 3.00%
5 2.00%
6 1.00%
</TABLE>
There is no CDSC on appreciation in share value above the initial purchase price
or on shares acquired through reinvestment of dividends or capital gain
distributions. In addition, the CDSC may be waived in certain circumstances.
See "CDSC Waivers for Class B shares" below. The CDSC is based on the original
purchase cost or the current market value of the shares being sold, whichever is
less. In processing redemptions of Class B shares, shares that are not subject
to any CDSC will be redeemed first and then shares that you have owned the
longest during the six-year period. CLASS B SHARES ARE NOT AVAILABLE TO CERTAIN
RETIREMENT PLANS, INCLUDING GROUP RETIREMENT PLANS SUCH AS 401(K) PLANS,
EMPLOYER-SPONSORED 403(B) PLANS, AND MONEY PURCHASE PENSION AND PROFIT SHARING
PLANS.
Compensation equal to 4% of the amount invested is paid by the Principal
Underwriter to dealers who sell Class B shares.
CONVERSION OF CLASS B SHARES TO CLASS A SHARES - Class B shares automatically
convert to Class A shares in the month of the eight-year anniversary of the
purchase date. The conversion of Class B shares to Class A shares after eight
years is subject to the Internal Revenue Service's continued position that the
conversion of Class B shares is not subject to federal income tax. In the event
the Internal Revenue Service no longer takes this position, the automatic
conversion feature may be suspended, in which event no further conversions of
Class B shares would occur while such suspension remained in effect. At your
option, Class B shares may still be exchanged for Class A shares on the basis of
relative net asset value of the two classes, without the imposition of a sales
charge or fee; HOWEVER, SUCH AN EXCHANGE COULD CONSTITUTE A TAXABLE EVENT FOR
YOU, AND ABSENT SUCH AN EXCHANGE, CLASS B SHARES WOULD CONTINUE TO BE SUBJECT TO
HIGHER EXPENSES FOR LONGER THAN EIGHT YEARS.
SALES CHARGE REDUCTIONS AND WAIVERS
REDUCING YOUR CLASS A SALES CHARGE - You and your "immediate family" (your
spouse and your children under age 21) may combine investments to reduce your
costs. You must let your investment dealer or American Funds Service Company
(the "Transfer Agent") know if you qualify for a reduction in your sales charge
using one or any combination of the methods described below.
The Income Fund of America - Page 27
<PAGE>
STATEMENT OF INTENTION - You may enter into a non-binding commitment to
purchase shares of a fund(s) over a 13-month period and receive the same
sales charge as if all shares had been purchased at once. This includes
purchases made during the previous 90 days, but does not include
appreciation of your investment or reinvested distributions. The reduced
sales charges and offering prices set forth in the Prospectus apply to
purchases of $25,000 or more made within a 13-month period subject to the
following statement of intention (the "Statement"). The Statement is not a
binding obligation to purchase the indicated amount. When a shareholder
elects to use a Statement in order to qualify for a reduced sales charge,
shares equal to 5% of the dollar amount specified in the Statement will be
held in escrow in the shareholder's account out of the initial purchase (or
subsequent purchases, if necessary) by the Transfer Agent. All dividends
and any capital gain distributions on shares held in escrow will be
credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the
specified 13-month period, the purchaser will remit to the Principal
Underwriter the difference between the sales charge actually paid and the
sales charge which would have been paid if the total of such purchases had
been made at a single time. If the difference is not paid by the close of
the period, the appropriate number of shares held in escrow will be
redeemed to pay such difference. If the proceeds from this redemption are
inadequate, the purchaser will be liable to the Principal Underwriter for
the balance still outstanding. The Statement may be revised upward at any
time during the 13-month period, and such a revision will be treated as a
new Statement, except that the 13-month period during which the purchase
must be made will remain unchanged. Existing holdings eligible for rights
of accumulation (see below), as well as purchases of Class B shares, and
any individual investments in American Legacy variable annuities and
variable life insurance policies (American Legacy, American Legacy II and
American Legacy III variable annuities, American Legacy Life, American
Legacy Variable Life, and American Legacy Estate Builder) may be credited
toward satisfying the Statement. During the Statement period reinvested
dividends and capital gain distributions, investments in money market
funds, and investments made under a right of reinstatement will not be
credited toward satisfying the Statement. The Statement will be considered
completed if the shareholder dies within the 13-month Statement period.
Commissions will not be adjusted or paid on the difference between the
Statement amount and the amount actually invested before the shareholder's
death.
When the trustees of certain retirement plans purchase shares by payroll
deduction, the sales charge for the investments made during the 13-month
period will be handled as follows: The regular monthly payroll deduction
investment will be multiplied by 13 and then multiplied by 1.5. The current
value of existing American Funds investments (other than money market fund
investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period, and
any individual investments in American Legacy variable annuities and
variable life insurance policies are added to the figure determined above.
The sum is the Statement amount and applicable breakpoint level. On the
first investment and all other investments made pursuant to the Statement,
a sales charge will be assessed according to the sales charge breakpoint
thus determined. There will be no retroactive adjustments in sales charges
on investments made during the 13-month period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
The Income Fund of America - Page 28
<PAGE>
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and
your children under the age of 21, if all parties are purchasing shares for
their own accounts and/or:
. employee benefit plan(s), such as an IRA, individual-type 403(b) plan,
or single-participant Keogh-type plan;
. business accounts solely controlled by these individuals (for example,
the individuals own the entire business);
. trust accounts established by the above individuals. However, if the
person(s) who established the trust is deceased, the trust account may
be aggregated with accounts of the person who is the primary
beneficiary of the trust.
Individual purchases by a trustee(s) or other fiduciary(ies) may also be
aggregated if the investments are:
. for a single trust estate or fiduciary account, including an employee
benefit plan other than those described above;
. made for two or more employee benefit plans of a single employer or of
affiliated employers as defined in the 1940 Act, again excluding
employee benefit plans described above; or
. for a diversified common trust fund or other diversified pooled
account not specifically formed for the purpose of accumulating fund
shares.
Purchases made for nominee or street name accounts (securities held in the
name of an investment dealer or another nominee such as a bank trust
department instead of the customer) may not be aggregated with those made
for other accounts and may not be aggregated with other nominee or street
name accounts unless otherwise qualified as described above.
CONCURRENT PURCHASES - You may combine purchases of Class A and/or B shares
of two or more funds in The American Funds Group, as well as individual
holdings in American Legacy variable annuities and variable life insurance
policies. Direct purchases of the money market funds are excluded. Shares
of money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
RIGHTS OF ACCUMULATION - You may take into account the current value (or if
greater, the amount you invested less any withdrawals) of your existing
Class A and B holdings in The American Funds Group, as well as your
holdings in Endowments (shares of which may be owned only by tax-exempt
organizations), to determine your sales charge on investments in accounts
eligible to be aggregated, or when making a gift to an individual or
charity. When determining your sales charge, you may also take into account
the value of your individual holdings, as of the end of the week prior to
your investment, in various American Legacy variable annuities and variable
life insurance policies. Direct purchases of the money market funds are
excluded.
The Income Fund of America - Page 29
<PAGE>
CDSC WAIVERS FOR CLASS A SHARES - Any CDSC on Class A shares may be waived in
the following cases:
(1) Exchanges (except if shares acquired by exchange are then redeemed within
12 months of the initial purchase).
(2) Distributions from 403(b) plans or IRAs due to death, post-purchase
disability or attainment of age 59-1/2.
(3) Tax-free returns of excess contributions to IRAs.
(4) Redemptions through systematic withdrawal plans (see "Automatic
Withdrawals" below), not exceeding 12% of the net asset value of the account
each year.
CDSC WAIVERS FOR CLASS B SHARES - Any CDSC on Class B shares may be waived in
the following cases:
(1) Systematic withdrawal plans (SWPs) - investors who set up a SWP (see
"Automatic Withdrawals" below) may withdraw up to 12% of the net asset value of
their account each year without incurring any CDSC. Shares not subject to a
CDSC (such as shares representing reinvestment of distributions) will be
redeemed first and will count toward the 12% limitation. If there are
insufficient shares not subject to a CDSC, shares subject to the lowest CDSC
will be redeemed next until the 12% limit is reached.
The 12% fee from CDSC limit is calculated on a pro rata basis at the time the
first payment is made and is recalculated thereafter on a pro rata basis at the
time of each SWP payment. Shareholders who establish a SWP should be aware that
the amount of that payment not subject to a CDSC may vary over time depending on
fluctuations in net asset value of their account. This privilege may be revised
or terminated at any time.
(2) Required minimum distributions taken from retirement accounts upon the
attainment of age 70-1/2.
(3) Distributions due to death or post-purchase disability of a shareholder. In
the case of joint tenant accounts, if one joint tenant dies, the surviving joint
tenant(s), at the time they notify the Transfer Agent of the decedent's death
and remove his/her name from the account, may redeem shares from the account
without incurring a CDSC. Redemptions subsequent to the notification to the
Transfer Agent of the death of one of the joint owners will be subject to a
CDSC.
INDIVIDUAL RETIREMENT ACCOUNT (IRA) ROLLOVERS
Assets from an employer-sponsored retirement plan (plan assets) may be invested
in any class of shares of the American Funds (except as described below) through
an IRA rollover plan. All such rollover investments will be subject to the terms
and conditions for Class A and B shares contained in the fund's current
prospectus and statement of additional information. In the case of an IRA
rollover involving plan assets from a plan that offered the American Funds, the
assets may only be invested in Class A shares of the American Funds. Such
investments will be at net asset value and will not be subject to a contingent
deferred sales charge. Dealers who initiate and are responsible for such
investments will be compensated pursuant to the schedule applicable to
investments of $1 million or more (see "Dealer Commissions on Class A Shares"
above).
The Income Fund of America - Page 30
<PAGE>
PRICE OF SHARES
Shares are purchased at the offering price next determined after the purchase
order is received and accepted by the fund or the Transfer Agent; this offering
price is effective for orders received prior to the time of determination of the
net asset value and, in the case of orders placed with dealers, accepted by the
Principal Underwriter prior to its close of business. In the case of orders sent
directly to the fund or the Transfer Agent, an investment dealer MUST be
indicated. The dealer is responsible for promptly transmitting purchase orders
to the Principal Underwriter. Orders received by the investment dealer, the
Transfer Agent, or the fund after the time of the determination of the net asset
value will be entered at the next calculated offering price. Prices which appear
in the newspaper do not always indicate prices at which you will be purchasing
and redeeming shares of the fund, since such prices generally reflect the
previous day's closing price whereas purchases and redemptions are made at the
next calculated price.
The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily as of approximately 4:00 p.m. New
York time, which is the normal close of trading on the New York Stock Exchange
each day the Exchange is open. If, for example, the Exchange closes at 1:00
p.m., the fund's share price would still be determined as of 4:00 p.m. New York
time. The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas Day.
All portfolio securities of funds managed by Capital Research and Management
Company (other than money market funds) are valued, and the net asset value per
share is determined as follows:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or the
over-the-counter market. Fixed-income securities are valued at prices obtained
from a pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
Short-term securities maturing within 60 days are valued at amortized cost which
approximates market value.
Assets or liabilities initially expressed in terms of non-U.S. currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not readily
available are valued at fair value as determined in good faith under policies
approved by the fund's Board. The fair value of all other assets is added to the
value of securities to arrive at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
The Income Fund of America - Page 31
<PAGE>
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share
Any purchase order may be rejected by the Principal Underwriter or by the fund.
The Principal Underwriter will not knowingly sell shares of the fund directly or
indirectly to any person or entity, where, after the sale, such person or entity
would own beneficially directly or indirectly more than 4.5% of the outstanding
shares of the fund without the consent of a majority of the fund's Board of
Directors.
SELLING SHARES
Shares are sold at the net asset value next determined after your request is
received in good order by the Transfer Agent. Sales of certain Class A and B
shares may be subject to deferred sales charges. You may sell (redeem) shares
in your account in any of the following ways:
THROUGH YOUR DEALER (certain charges may apply)
- Shares held for you in your dealer's street name must be sold
through the dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- Requests must be signed by the registered shareholder(s).
- A signature guarantee is required if the redemption is:
- Over $50,000;
- Made payable to someone other than the registered
shareholder(s); or
- Sent to an address other than the address of record, or
an address of record which has been changed within the
last 10 days.
Your signature may be guaranteed by a domestic stock exchange or the National
Association of Securities Dealers, Inc., bank, savings association or credit
union that is an eligible guarantor institution. The Transfer Agent reserves the
right to require a signature guarantee on all redemptions.
- Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
- You must include any shares you wish to sell that are in
certificate form.
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE/(R)/ OR AMERICAN FUNDSLINE ONLINE/(R)/
- Redemptions by telephone or fax (including American FundsLine/(R)/ and
American FundsLine OnLine/(R)/) are limited to $50,000 per shareholder each
day.
- Checks must be made payable to the registered shareholder(s).
The Income Fund of America - Page 32
<PAGE>
- Checks must be mailed to an address of record that has been used
with the account for at least 10 days.
MONEY MARKET FUNDS
- You may have redemptions of $1,000 or more wired to your bank by writing
American Funds Service Company.
- You may establish check writing privileges (use the money market funds
application).
- If you request check writing privileges, you will be provided with
checks that you may use to draw against your account. These checks may
be made payable to anyone you designate and must be signed by the
authorized number or registered shareholders exactly as indicated on
your checking account signature card.
- Check writing is not available for Class B shares of The Cash
Management Trust.
If you sell Class B shares and request a specific dollar amount to be sold, we
will sell sufficient shares so that the sale proceeds, after deducting any
contingent deferred sales charge, equals the dollar amount requested.
Redemption proceeds will not be mailed until sufficient time has passed to
provide reasonable assurance that checks or drafts (including certified or
cashier's checks) for shares purchased have cleared (which may take up to 15
calendar days from the purchase date). Except for delays relating to clearance
of checks for share purchases or in extraordinary circumstances (and as
permissible under the 1940 Act), sale proceeds will be paid on or before the
seventh day following receipt and acceptance of an order. Interest will not
accrue or be paid on amounts that represent uncashed distribution or redemption
checks.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution of Class A or Class B shares without a sales charge in the Class A
shares of any fund in The American Funds Group within 90 days after the date of
the redemption or distribution (any contingent deferred sales charge on Class A
shares will be credited to your account). Redemption proceeds of shares
representing direct purchases in the money market funds are excluded. Proceeds
will be reinvested at the next calculated net asset value after your request is
received and accepted by the Transfer Agent.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - An automatic investment plan enables you to make
monthly or quarterly investments in The American Funds through automatic debits
from your bank account. To set up a plan you must fill out an account
application and specify the amount you would like to invest ($50 minimum) and
the date on which you would like your investments to occur. The plan will begin
within 30 days after your account application is received. Your bank account
will be debited on the day or a few days before your investment is made,
depending on the bank's capabilities. The Transfer Agent will then invest your
money into the fund you specified on or around the date you specified. For
example, if the date you specified falls on a weekend or
The Income Fund of America - Page 33
<PAGE>
holiday, your money will be invested on the next business day. If your bank
account cannot be debited due to insufficient funds, a stop-payment or the
closing of the account, the plan may be terminated and the related investment
reversed. You may change the amount of the investment or discontinue the plan at
any time by writing to the Transfer Agent.
AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are reinvested
in additional shares of the same class at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, the
Transfer Agent or your investment dealer.
If you have elected to receive dividends and/or capital gain distributions in
cash, and the postal or other delivery service is unable to deliver checks to
your address of record, or you do not respond to mailings from American Funds
Service Company with regard to uncashed distribution checks, your distribution
option will automatically be converted to having all dividends and other
distributions reinvested in additional shares.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - You may cross-reinvest
dividends and capital gains ("distributions") of the same share class into any
other fund in The American Funds Group at net asset value, subject to the
following conditions:
(a) The aggregate value of your account(s) in the fund(s) paying distributions
equals or exceeds $5,000 (this is waived if the value of the account in the fund
receiving the distributions equals or exceeds that fund's minimum initial
investment requirement),
(b) If the value of the account of the fund receiving distributions is below
the minimum initial investment requirement, distributions must be automatically
reinvested,
(c) If you discontinue the cross-reinvestment of distributions, the value of
the account of the fund receiving distributions must equal or exceed the minimum
initial investment requirement. If you do not meet this requirement within 90
days of notification, the fund has the right to automatically redeem the
account.
EXCHANGE PRIVILEGE - You may only exchange shares into other funds in The
American Funds Group within the same class. However, exchanges from Class A
shares of The Cash Management Trust of America may be made to Class B shares of
any other American Fund for dollar cost averaging purposes. Exchange purchases
are subject to the minimum investment requirements of the fund purchased and no
sales charge generally applies. However, exchanges of shares from the money
market funds are subject to applicable sales charges on the fund being
purchased, unless the money market fund shares were acquired by an exchange from
a fund having a sales charge, or by reinvestment or cross-reinvestment of
dividends or capital gain distributions.
You may exchange shares by writing to the Transfer Agent (see "Selling Shares"),
by contacting your investment dealer, by using American FundsLine and American
FundsLine OnLine (see "American FundsLine and American FundsLine OnLine" below),
or by telephoning 800/421-0180 toll-free, faxing (see "American Funds Service
Company Service Areas" -- "Principal Underwriter and Transfer Agent" in the
prospectus for the appropriate fax numbers) or telegraphing the Transfer Agent.
(See "Telephone and Computer Purchases, Redemptions and Exchanges" below.)
Shares held in corporate-type retirement plans for which Capital Bank and Trust
Company serves as trustee may not be exchanged by telephone, computer, fax or
telegraph.
The Income Fund of America - Page 34
<PAGE>
Exchange redemptions and purchases are processed simultaneously at the share
prices next determined after the exchange order is received. (See "Purchase of
Shares"--"Price of Shares.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES
AS ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES - You may automatically exchange shares of the same class in
amounts of $50 or more among any of the funds in The American Funds Group on any
day (or preceding business day if the day falls on a non-business day of each
month you designate.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS - Your account is opened in accordance with your registration
instructions. Transactions in the account, such as additional investments will
be reflected on regular confirmation statements from the Transfer Agent.
Dividend and capital gain reinvestments and purchases through automatic
investment plans and certain retirement plans will be confirmed at least
quarterly.
AMERICAN FUNDSLINE AND AMERICAN FUNDSLINE ONLINE - You may check your share
balance, the price of your shares, or your most recent account transaction,
redeem shares (up to $50,000 per shareholder each day), or exchange shares
around the clock with American FundsLine and American FundsLine OnLine. To use
these services, call 800/325-3590 from a TouchTone(TM) telephone or access the
American Funds Web site on the Internet at www.americanfunds.com. Redemptions
and exchanges through American FundsLine and American FundsLine OnLine are
subject to the conditions noted above and in "Telephone and Computer Purchases,
Redemptions and Exchanges" below. You will need your fund number (see the list
of funds in The American Funds Group under "Purchase of Shares - Purchase
Minimums" and "Purchase of Shares - Fund Numbers"), personal identification
number (generally the last four digits of your Social Security number or other
tax identification number associated with your account) and account number.
TELEPHONE AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES - By using the
telephone (including American FundsLine) or computer (including American
FundsLine OnLine), fax or telegraph purchase, redemption and/or exchange
options, you agree to hold the fund, the Transfer Agent, any of its affiliates
or mutual funds managed by such affiliates, and each of their respective
directors, trustees, officers, employees and agents harmless from any losses,
expenses, costs or liability (including attorney fees) which may be incurred in
connection with the exercise of these privileges. Generally, all shareholders
are automatically eligible to use these options. However, you may elect to opt
out of these options by writing the Transfer Agent (you may also reinstate them
at any time by writing the Transfer Agent). If the Transfer Agent does not
employ reasonable procedures to confirm that the instructions received from any
person with appropriate account information are genuine, the fund may be liable
for losses due to unauthorized or fraudulent instructions. In the event that
shareholders are unable to reach the fund by telephone because of technical
difficulties, market conditions, or a natural disaster, redemption and exchange
requests may be made in writing only.
The Income Fund of America - Page 35
<PAGE>
REDEMPTION OF SHARES - The fund's Articles of Incorporation permits the fund to
direct the Transfer Agent to redeem the shares of any shareholder for their then
current net asset value per share if at such time the shareholder owns of record
shares having an aggregate net asset value of less than the minimum initial
investment amount required of new shareholders as set forth in the fund's
current registration statement under the 1940 Act, and subject to such further
terms and conditions as the Board of Directors of the fund may from time to time
adopt.
While payment of redemptions normally will be in cash, the fund's articles of
incorporation permit payment of the redemption price wholly or partly in
securities or other property included in the assets belonging to the fund when
in the opinion of the fund's Board of Directors, which shall be conclusive,
conditions exist which make payment wholly in cash unwise or undesirable.
SHARE CERTIFICATES - Shares are credited to your account and certificates are
not issued unless you request them by writing to the Transfer Agent.
EXECUTION OF PORTFOLIO TRANSACTIONS
The Investment Adviser places orders for the fund's portfolio securities
transactions. The Investment Adviser strives to obtain the best available prices
in its portfolio transactions taking into account the costs and quality of
executions. When, in the opinion of the Investment Adviser, two or more brokers
(either directly or through their correspondent clearing agents) are in a
position to obtain the best price and execution, preference may be given to
brokers who have sold shares of the fund or who have provided investment
research, statistical, or other related services to the Investment Adviser. The
fund does not consider that it has an obligation to obtain the lowest available
commission rate to the exclusion of price, service and qualitative
considerations.
There are occasions on which portfolio transactions for the fund may be executed
as part of concurrent authorizations to purchase or sell the same security for
other funds served by the Investment Adviser, or for trusts or other accounts
served by affiliated companies of the Investment Adviser. Although such
concurrent authorizations potentially could be either advantageous or
disadvantageous to the fund, they are effected only when the Investment Adviser
believes that to do so is in the interest of the fund. When such concurrent
authorizations occur, the objective is to allocate the executions in an
equitable manner. The fund will not pay a mark-up for research in principal
transactions.
Brokerage commissions paid on portfolio transactions for the fiscal years ended
2000, 1999 and 1998, amounted to $11,946,000, $11,431,000 and $6,212,000,
respectively.
The fund is required to disclose information regarding investments in the
securities of broker-dealers (or parents of broker-dealers that derive more than
15% of their revenue from broker-dealer activities) which have certain
relationships with the fund. During the last fiscal year, J.P. Morgan & Co. was
among the top 10 dealers that received the largest amount of brokerage
commissions and that acted as principals in portfolio transactions. The fund
held equity securities of J.P. Morgan & Co. in the amount of $48,060,000 as of
the close of its most recent fiscal year.
The Income Fund of America - Page 36
<PAGE>
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds
from the sale of shares of the fund and of securities in the fund's portfolio,
are held by The Chase Manhattan Bank, One Chase Manhattan Plaza, New York, NY
10081, as Custodian. If the fund holds non-U.S. securities, the Custodian may
hold these securities pursuant to sub-custodial arrangements in non-U.S. banks
or non-U.S. branches of U.S. banks.
TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee of
$13,775,000 for Class A shares and $4,000 for Class B shares for the 2000 fiscal
year.
INDEPENDENT AUDITORS - Deloitte & Touche LLP, Two California Plaza, 350 Grand
Avenue, Los Angeles, CA 90071, serves as the fund's independent auditors
providing audit services, preparation of tax returns and review of certain
documents to be filed with the Securities and Exchange Commission. The financial
statements included in this Statement of Additional Information from the Annual
Report have been so included in reliance on the report of Deloitte & Touche LLP,
independent auditors, given on the authority of said firm as experts in
accounting and auditing. The selection of the fund's independent auditors is
reviewed and determined annually by the Board of Directors.
PROSPECTUSES AND REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on July
31. Shareholders are provided updated prospectuses annually. In addition,
shareholders are provided at least semiannually with reports showing the
investment portfolio, financial statements and other information. The fund's
annual financial statements are audited by the fund's independent auditors,
Deloitte & Touche LLP. In an effort to reduce the volume of mail shareholders
receive from the fund when a household owns more than one account, the Transfer
Agent has taken steps to eliminate duplicate mailings of prospectuses and
shareholder reports. To receive additional copies of a prospectus or report,
shareholders should contact the Transfer Agent.
PERSONAL INVESTING POLICY - The fund, Capital Research and Management Company
and its affiliated companies, including the fund's principal underwriter, have
adopted codes of ethics which allow for personal investments. This policy
includes: a ban on acquisitions of securities pursuant to an initial public
offering; restrictions on acquisitions of private placement securities;
pre-clearance and reporting requirements; review of duplicate confirmation
statements; annual recertification of compliance with codes of ethics; blackout
periods on personal investing for certain investment personnel; ban on
short-term trading profits for investment personnel; limitations on service as a
director of publicly traded companies; and disclosure of personal securities
transactions.
OTHER INFORMATION - The financial statements including the investment portfolio
and the report of Independent Auditors contained in the Annual Report are
included in this Statement of Additional Information. The following information
is not included in the Annual Report:
The Income Fund of America - Page 37
<PAGE>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE FOR CLASS A SHARES -- JULY 31, 2000
<TABLE>
<CAPTION>
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) . . . . . . . . . $15.43
Maximum offering price per share
(100/94.25 of net asset value per share,
which takes into account the fund's current maximum
sales charge). . . . . . . . . . . . . . . . . . . . . . . . $16.37
</TABLE>
CLASS A SHARE INVESTMENT RESULTS AND RELATED STATISTICS
The fund's yield was 5.52% based on a 30-day (or one month) period ended July
31, 2000, computed by dividing the net investment income per share earned during
the period by the maximum offering price per share on the last day of the
period, according to the following formula:
YIELD = 2[( a-b/cd + 1)/6/ -1]
Where: a = dividends and interest earned during the period.
b =
expenses accrued for the period (net of reimbursements).
c =
the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d =
the maximum offering price per share on the last day of the
period.
The fund may also calculate a distribution rate on a taxable and tax equivalent
basis. The distribution rate is computed by dividing the dividends paid by the
fund over the last 12 months by the sum of the month-end net asset value or
maximum offering price and the capital gains paid over the last 12 months. The
distribution rate may differ from the yield.
The fund's one year total return and average annual total return at maximum
offering price for the five- and ten-year periods ended July 31, 2000 were
-7.72%, 10.19% and 11.17%, respectively. The fund's one year total return and
average annual total return at net asset value for the five- and ten-year
periods ended on July 31, 2000 were -2.08%, +11.50% and +11.84%, respectively.
The average total return ("T") is computed by equating the value at the end of
the period ("ERV") with a hypothetical initial investment of $1,000 ("P") over a
period of years ("n") according to the following formula as required by the
Securities and Exchange Commission: P(1+T)/n/ = ERV.
In calculating average annual total return at the maximum offering price, the
fund assumes: (1) deduction of the maximum sales load of 5.75% from the $1,000
initial investment; (2) reinvestment of dividends and distributions at net asset
value on the reinvestment date determined by the Board; and (3) a complete
redemption at the end of any period illustrated. In
The Income Fund of America - Page 38
<PAGE>
addition, the fund will provide lifetime average total return figures. From time
to time, the fund may calculate investment results for Class B shares.
The fund may also, at times, calculate total return based on net asset value per
share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the computation. Consequently,
total return calculated in this manner will be higher. These total returns may
be calculated over periods in addition to those described above. Total return
for the unmanaged indices will be calculated assuming reinvestment of dividends
and interest, but will not reflect any deductions for advisory fees, brokerage
costs or administrative expenses.
The fund may include information on its investment results and/or comparisons of
its investment results to various unmanaged indices (such as the Dow Jones
Average of 30 Industrial Stocks and the Standard and Poor's 500 Composite Stock
Index) or results of other mutual funds or investment or savings vehicles in
advertisements or in reports furnished to present or prospective shareholders.
The fund may also, from time to time, combine its results with those of other
funds in The American Funds Group for purposes of illustrating investment
strategies involving multiple funds.
The fund may refer to results and surveys compiled by organizations such as CDA/
Wiesenberger, Ibbotson Associates, Lipper Analytical Services, Morningstar,
Inc., and by the U.S. Department of Commerce. Additionally, the fund may refer
to results published in various newspapers and periodicals, including Barron's,
Forbes, Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine,
Money, U.S. News and World Report and The Wall Street Journal.
The fund may illustrate the benefits of tax-deferral by comparing taxable
investments to investments made through tax-deferred retirement plans.
The fund may compare its investment results with the Consumer Price Index, which
is a measure of the average change in prices over time in a fixed market basket
of goods and services (e.g. food, clothing, and fuels, transportation, and other
goods and services that people buy for day-to-day living).
The Income Fund of America - Page 39
<PAGE>
APPENDIX
Description of Bond Ratings
BOND RATINGS - The ratings of Moody's Investors Service, Inc. (Moody's) and
Standard & Poor's Corporation (S&P) represent their opinions as to the quality
of the municipal bonds which they undertake to rate. It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Consequently, municipal bonds with the same maturity, coupon and rating may
have different yields, while municipal bonds of the same maturity and coupon
with different ratings may have the same yield.
Moody's rates the long-term debt securities issued by various entities from
-------
"Aaa" to "C." Moody's applies the numerical modifiers 1, 2, and 3 in each
generic rating classification from Aa through B in its corporate bond rating
system. The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category. Ratings are described as follows:
"Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as 'gilt edge.'
Interest payments are protected by a large or by an exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues."
"Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities."
"Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future."
"Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well."
"Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class."
"Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small."
The Income Fund of America - Page 40
<PAGE>
"Bonds which are rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest."
"Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings."
"Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing."
S & P rates the long-term securities debt of various entities in categories
-----
ranging from "AAA" to "D" according to quality. The ratings from "AA" to "CCC"
may be modified by the addition of a plus (+) or minus (-) sign to show relative
standing within the major rating categories. Ratings are described as follows:
"Debt rated 'AAA' has the highest rating assigned by S & P. Capacity to pay
interest and repay principal is extremely strong."
"Debt rated 'AA' has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree."
"Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories."
"Debt rated 'BBB' is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories."
"Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or impled 'BBB-' rating.
"Debt rated 'B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating."
"The rating 'CC' is typically applied to debt subordinated to senior debt that
is assigned an actual or implied 'CCC' rating."
"The rating 'C' is typically applied to debt subordinated to senior debt which
is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued."
"The rating 'C1' is reserved for income bonds on which no interest is being
paid."
The Income Fund of America - Page 41
<PAGE>
"Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The 'D' rating also will be used upon
the filing of a bankruptcy petition if debt service payments are jeopardized."
The Income Fund of America - Page 42
<TABLE>
The Income Fund of America, Inc.
July 31, 1999
Asset Mix Comparison at July 31, 1999
<S> <C>
Percent of
Invesetment Portfolio Net Assets
------------------------------------ ----------
U.S. Equity Securities* 48.1
Non-U.S. Equity Securities 12.9
Government Bonds 6.9
Other Fixed-Income Securities 20.9
Cash & Equivalents 11.2
*Also includes 0.5% in Canadian
equities that are part of the S&P 500.
Percent of
Five Largest Industries in Equity Holdings Net Assets
------------------------------------ ----------
Banking 8.5
Utilities: Electric & Gas 8.4
Energy Sources 7.5
Telecommunications 5.3
Forest Products & Paper 4.1
PERCENT OF
Ten Largest Equity Holdings 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 0.9
USX-Marathon 0.9
J.P. Morgan 0.9
</TABLE>
<TABLE>
THE INCOME FUND OF AMERICA
7/31/00
INVESTMENT PORTFOLIO:
Percent of
Net Assets
<S> <C>
U.S. Equity Securities* 48.5
Non-U.S. Equity Securities 14.7
Government Bonds 5.5
Other Fixed-Income Securities 22.4
Cash & Equivalents 8.9
*Also includes 0.7% in Canadian equities
that are part of the S&P 500.
FIVE LARGEST INDUSTRIES IN EQUITY HOLDINGS:
July 31, 2000 Percent of
Net Assets
Utilities: Electric & Gas 8.7
Energy Sources & Equipment 6.3
Banking 6.2
Forest Products & Paper 4.8
Real Estate 3.4
TEN LARGEST EQUITY HOLDINGS:
July 31, 2000 PERCENT OF
NET ASSETS
First Union 1.6
Philip Morris 1.3
Royal Dutch Petroleum/"Shell" Transport and Trading 1.2
Georgia-Pacific 1.2
Weyerhaeuser 1.1
Dow Chemical 1.1
Time Warner 1.1
Bank of America 1.1
Consolidated Edison 1.0
Ford Motor 1.0
</TABLE>
<TABLE>
The Income Fund of America, Inc.
Investment Portfolio, July 31, 2000
Shares or Market Percent
Principal Value of Net
EQUITY SECURITIES Amount (000) Assets
<S> <C> <C> <C>
Utilities: Electric & Gas - 8.67%
Consolidated Edison, Inc. 6,016,500 182,375 1.00
DTE Energy Co. 3,400,000 106,675 .59
Southern Co. 4,301,100 105,108 .58
Unicom Corp. 2,350,000 96,497 .53
Ameren Corp. 2,500,000 90,469 .50
Equitable Resources, Inc. (1) 1,697,500 88,376 .49
PECO Energy Co. 2,045,000 87,296 .48
MCN Energy Group Inc. 3,550,000 76,769 .42
American Electric Power Co., Inc. 2,105,000 69,070 .38
Florida Progress Corp. 1,395,000 68,355 .38
Entergy Corp. 2,450,100 66,459 .37
GPU, Inc. 2,380,700 63,089 .35
Dominion Resources, Inc. 1,375,000 62,477 .34
Wisconsin Energy Corp. 2,900,000 57,637 .32
El Paso Energy Capital Trust I 4.75% 650,000 39,975 .22
convertible preferred 2028
Scottish Power PLC 4,300,000 36,072 .20
OGE Energy Corp. 1,810,000 34,390 .19
Cinergy Corp. 1,250,000 32,500 .18
Northeast Utilities 1,450,000 32,081 .18
New Jersey Resources Corp. 750,000 30,000 .16
Coastal Corp., FELINE PRIDES, 6.625% 2004 800,000 26,350 .14
Pinnacle West Capital Corp. 487,300 19,279 .11
Eastern Enterprises 300,000 18,787 .10
Kinder Morgan, Inc. 8.25% PEPS 341,300 15,977 .09
convertible preferred 2001, units
Peoples Energy Corp. 501,300 15,885 .09
Puget Sound Energy, Inc. 700,000 15,881 .09
South Jersey Industries, Inc. 500,000 13,531 .07
National Power PLC 1,580,000 10,882 .06
TECO Energy, Inc. 467,200 10,249 .06
1,572,491 8.67
Energy Sources & Equipment - 6.25%
"Shell" Transport and Trading Co., PLC 4,202,800 202,785
(New York registered)
Royal Dutch Petroleum Co. (New York registered) 300,000 17,475 1.21
Phillips Petroleum Co. 3,375,000 171,492 .95
USX-Marathon Group 6,800,000 165,325 .91
Texaco Inc. 2,854,600 141,124 .78
CONSOL Energy Inc. (1) 4,500,000 77,344 .43
Conoco Inc., Class A 1,963,800 43,940
Conoco Inc., Class B 1,350,000 31,134 .41
Ultramar Diamond Shamrock Corp. 2,900,000 66,337 .37
Sunoco, Inc. 2,142,000 52,211 .29
Occidental Petroleum Corp. 2,500,000 50,625 .28
Unocal Capital Trust $3.125 convertible preferred 1,040,000 46,020 .25
Kerr-McGee Corp. 5.50% DECS convertible notes 2004 865,000 36,330 .20
Diamond Offshore Drilling, Inc. 3.75% $18,700,000 19,862 .11
convertible debentures 2007
Pogo Trust I, Series A, 6.50% convertible 200,000 10,250 .06
preferred 2029
1,132,254 6.25
Banking - 6.24%
First Union Corp. 11,161,400 288,104 1.59
Bank of America Corp. 4,179,800 198,018 1.09
FleetBoston Financial Corp. 3,021,280 108,200 .60
Commonwealth Bank of Australia 6,307,037 101,452 .56
Westpac Banking Corp. 13,634,249 96,780 .53
Bank of Nova Scotia 2,400,000 60,609 .33
BANK ONE CORP. 1,868,500 59,442 .33
Lloyds TSB Group PLC 5,400,000 48,212 .27
J.P. Morgan & Co. Inc. 360,000 48,060 .27
Bank of New York Co., Inc. 855,000 40,025 .22
Wells Fargo & Co. 590,000 24,374 .13
BancWest Corp. 1,200,000 22,125 .12
National Australia Bank Ltd., $800,000 20,400 .11
exchangeable capital units
NB Capital Corp. 8.35% exchangeable depositary shares 520,000 12,025 .07
Banco Nacional de Mexico, SA 11.00% $4,175,000 4,300 .02
exchangeable notes 2003 (2)
1,132,126 6.24
Forest Products & Paper - 4.76%
Georgia-Pacific Corp., Timber Group (1) 5,450,000 165,203
Georgia-Pacific Corp., Georgia-Pacific Group 1,400,000 43,400 1.15
7.50% PEPS convertible preferred 2004, units
Weyerhaeuser Co. 4,542,900 207,554 1.14
UPM-Kymmene Corp. 5,120,000 126,318 .70
International Paper Co. 2,689,640 91,448
International Paper Co., Capital Trust 5.25% 400,000 16,500 .59
convertible preferred 2025
AssiDoman AB 5,600,000 86,831 .48
Potlatch Corp. 1,350,000 46,406 .26
Stora Enso Oyj, Class R 3,375,111 32,713 .18
APP Finance (VI) Mauritius Ltd. 0% $144,000,000 22,320 .12
convertible debentures 2012
Westvaco Corp. 650,000 17,834 .10
Kimberly-Clark de Mexico, SA de CV 2,400,000 6,948 .04
863,475 4.76
Real Estate - 3.41%
Equity Residential Properties Trust 2,190,000 109,226
Equity Residential Properties Trust, 600,000 14,025 .68
Series G, 7.25% convertible preferred
Boston Properties, Inc. 2,634,600 109,336 .60
Spieker Properties, Inc. 1,275,000 65,902 .36
Amoy Properties Ltd. 70,000,000 63,734 .35
Weingarten Realty Investors 1,325,000 54,822 .30
AMB Property Corp. 1,225,000 29,247 .16
Hysan Development Co. Ltd. 20,691,635 26,269 .14
CenterPoint Properties Corp. 580,000 24,650 .14
ProLogis Trust, Series D, 7.92% preferred 1,080,000 22,275 .12
Equity Office Properties Trust 525,000 16,012 .09
Sun Hung Kai Properties Ltd. 2,000,000 15,902 .09
Archstone Communities Trust 564,000 14,629 .08
Duke-Weeks Realty Corp., Series B, 7.99% 300,000 12,187 .07
preferred cumulative step-up premium rate
Simon DeBartolo Group, Inc., Series C, 300,000 11,925 .07
7.89% preferred cumulative step-up premium rate
Meditrust Corp., paired stock 3,340,000 8,350 .05
IAC Capital Trust, Series A, 8.25% TOPRS preferred 300,000 6,750 .04
Hongkong Land Holdings Ltd. 2,800,000 4,760 .03
New Plan Realty Trust, Series D, 7.80% 112,500 4,461 .02
preferred cumulative step-up premium rate
Kimco Realty Corp. 100,000 4,125 .02
618,587 3.41
Diversified Telecommunication Services - 3.12%
AT&T Corp. 4,725,000 146,180 .81
SBC Communications Inc. 985,000 41,924
SBC Communications Inc. 7.75% DECS 463,000 41,207 .46
convertible preferred 2001
Telecom Italia SpA, nonconvertible savings shares 12,520,000 79,033 .44
Verizon Communications (formed by the merger 1,128,000 53,016 .29
of Bell Atlantic Corp. and GTE Corp.)
Qwest Communications International Inc. (merged 1,125,937 52,849 .29
with U S West, Inc.)
Global Crossing Ltd. 6.75% convertible preferred 120,000 25,500
Global Crossing Ltd. 7.00% convertible preferred 25,000 4,294
Global Crossing Ltd. 7.00% convertible preferred (2) 80,000 13,740 .24
Telefonos de Mexico, SA de CV 4.25% convertible $27,660,000 34,430 .19
debentures 2004
TELUS Corp. 1,051,700 32,324 .18
Koninklijke PTT Nederland NV 683,636 24,735
Koninklijke PTT Nederland NV (ADR) 93,964 3,459 .15
Rhythms NetConnections Inc. 6.75% 250,000 10,812 .06
convertible preferred (2)
Allegiance Telecom, Inc., warrants, expire 2008 (2,3,4) 20,000 1,814 .01
NEXTLINK Communications, Inc. 14.00% preferred 2009 (5) 12,292 624 .00
ICG Holdings, Inc., warrants, expire 2005 (2,3,4) 19,800 140 .00
566,081 3.12
Beverages & Tobacco - 2.97%
Philip Morris Companies Inc. 9,400,000 237,350 1.31
R.J. Reynolds Tobacco Holdings, Inc. (1) 5,200,000 147,550 .81
Southcorp Ltd. 28,767,057 81,406 .45
Imperial Tobacco Ltd. 4,000,000 38,948 .22
Gallaher Group PLC 4,800,000 25,526 .14
UST Inc. 500,000 7,250 .04
538,030 2.97
Chemicals - 2.89%
Dow Chemical Co. 7,051,500 202,731 1.12
DSM NV 3,072,005 93,457 .52
Imperial Chemical Industries PLC (ADR) 3,230,000 92,661 .51
Monsanto Co. 6.50% ACES convertible 1,108,800 53,222 .29
preferred 2001, units
Hercules Inc. 3,400,000 50,787 .28
Crompton Corp. 1,831,394 17,971 .10
International Flavors & Fragrances Inc. 409,300 10,949 .06
Millennium Chemicals Inc. 150,400 2,331 .01
524,109 2.89
Merchandising - 2.85%
Safeway PLC 41,150,000 169,980 .94
May Department Stores Co. 4,670,000 110,912 .61
J.C. Penney Co., Inc. 6,800,000 109,650 .61
J Sainsbury PLC 8,650,000 42,080 .23
Coles Myer Ltd. 10,619,900 40,500 .22
Woolworths Ltd. 9,000,385 31,564 .17
PETsMART, Inc. 6.75% convertible $17,500,000 11,725 .07
subordinated notes 2004 (2)
Tultex Corp., warrants, expire 2007 (3,4) 1,522,401 0 .00
516,411 2.85
Insurance - 2.48%
American General Corp. 2,394,800 159,703 .88
Royal & Sun Alliance Insurance Group PLC 14,550,000 88,273 .49
HSB Group, Inc. (1) 1,450,000 51,475 .28
SAFECO Corp. 2,200,000 50,737 .28
XL Capital Ltd. 720,000 47,520 .26
Lincoln National Corp. 800,000 34,900 .19
Ohio Casualty Corp. 2,000,000 17,781 .10
450,389 2.48
Food & Household Products - 2.13%
General Mills, Inc. 4,544,100 156,203 .86
H.J. Heinz Co. 2,600,000 103,837 .57
Nabisco Group Holdings Corp. 3,000,000 79,500 .44
Kellogg Co. 1,780,000 46,169 .26
385,709 2.13
Transportation - 1.62%
British Airways PLC 26,000,000 146,639 .81
CSX Corp. 2,350,000 58,309 .32
Union Pacific Capital Trust 6.25% TIDES 110,000 4,634
convertible preferred 2028
Union Pacific Capital Trust 6.25% TIDES 976,200 41,122 .25
convertible preferred 2028 (2)
Norfolk Southern Corp. 1,300,000 24,212 .14
Canadian National Railway Co. 5.25% 400,000 18,600 .10
convertible preferred 2029
293,516 1.62
Electronic Components & Instruments - 1.60%
Advanced Micro Devices, Inc. 6.00% convertible $45,150,000 92,846 .51
subordinated notes 2005
Hubbell Inc., Class B 2,580,000 62,242 .34
Burr-Brown Corp. 4.25% convertible subordinated $17,800,000 26,447 .15
notes 2007 (2)
SCI Systems, Inc. 3.00% convertible subordinated $20,000,000 21,271 .12
debentures 2007
Semtech Corp. 4.50% convertible subordinated $18,530,000 20,290 .11
notes 2007 (2)
Adaptec, Inc. 4.75% convertible subordinated $23,000,000 19,904 .11
notes 2004
Macronix International Co., Ltd. 1.00% convertible $16,500,000 19,140 .10
subordinated notes 2005 (2)
Premier Farnell PLC 1,280,000 9,913 .05
Thermo Instrument Systems Inc. 4.00% convertible $10,000,000 8,375 .05
subordinated debentures 2005
Quantum Corp. 7.00% convertible subordinated $7,000,000 5,530 .03
notes 2004
Thomas & Betts Corp. 250,000 4,875 .03
290,833 1.60
Health & Personal Care - 1.58%
Sepracor Inc. 6.25% convertible subordinated $7,350,000 32,707
debentures 2005 (2)
Sepracor Inc. 7.00% convertible subordinated $6,000,000 10,740
debentures 2005
Sepracor Inc. 7.00% convertible subordinated $15,000,000 26,850 .39
debentures 2005 (2)
Eli Lilly and Co. 550,000 57,131 .32
Athena Neurosciences, Inc. 4.75% convertible notes 2004 $32,500,000 49,319 .27
Pharmacia Corp. (formerly Pharmacia & Upjohn, Inc.) 788,065 43,147 .24
American Home Products Corp. 765,000 40,593 .22
IVAX Corp. 5.50% convertible subordinated $15,000,000 22,575 .12
notes 2007 (2)
Glycomed Inc. 7.50% convertible subordinated $5,000,000 4,000 .02
debentures 2003
287,062 1.58
Broadcasting & Publishing - 1.53%
Time Warner Inc. (formerly Houston Industries 2,605,520 199,811 1.10
Inc. 7.00% ACES convertible preferred 2000)
UnitedGlobalCom, Inc., Class C, 7.00% convertible 75,000 4,875
preferred
UnitedGlobalCom, Inc., Class C, 7.00% convertible 700,000 45,500
preferred (2)
UnitedGlobalCom, Inc., Class D, 7.00% convertible 500,000 25,219 .42
preferred
NTL Inc., warrants, expire 2008 (2,3,4) 25,650 1,191 .01
TVN Entertainment Corp., warrants, expire 2008 (2,3,4) 10,000 0 .00
276,596 1.53
Business & Public Services - 1.49%
Thames Water PLC 3,725,000 44,501 .24
Cendant Corp. 7.50% PRIDES convertible preferred 1,425,000 28,856
Cendant Corp., rights, expire 2001 (3) 1,400,000 10,500 .22
Waste Management, Inc. 4.00% covertible debentures 2002 $42,000,000 38,745 .21
United Utilities PLC 3,521,463 35,080 .19
Alexander & Baldwin, Inc. 1,375,000 34,633 .19
Interpublic Group of Companies, Inc. 1.87% $17,000,000 16,001
convertible subordinated notes 2006 (2)
Interpublic Group of Companies, Inc. 1.87% $5,500,000 5,198 .12
convertible subordinated notes 2006
PSINet Inc., Series D, 7.00% convertible 650,000 16,900 .09
preferred 2049 (2)
Amkor Technology, Inc. 5.00% convertible notes 2007 (2) $15,000,000 12,394 .07
Budget Group, Inc. 6.25% TIDES convertible 583,000 12,243 .07
preferred 2005
Hyder PLC 1,489,173 7,205 .04
Pitney Bowes Inc. 150,000 5,194 .03
Nationwide Health Properties, Inc., Series A, 50,000 2,868 .02
7.677% preferred cumulative step-up premium rate
Integrated Health Services, Inc. 5.75% convertible $1,250,000 0 .00
debentures 2001 (6)
270,318 1.49
Financial Services - 1.29%
Household International, Inc. 2,453,280 109,324 .60
Bell Atlantic Financial Services, Inc. 5.75% $3,500,000 3,408
convertible debentures 2003
Bell Atlantic Financial Services, Inc. 5.75% $24,500,000 23,974
convertible debentures 2003 (2)
Bell Atlantic Financial Services, Inc. 4.25% $39,000,000 45,825 .40
convertible debentures 2005 (2)
Health Care Property Investors, Inc. 1,287,900 38,315 .21
Fannie Mae 200,000 9,975 .06
Wilshire Financial Services Group Inc. (1) 2,150,517 2,554 .02
233,375 1.29
Automobiles - 1.07%
Ford Motor Co. 3,778,600 175,941 .97
General Motors Corp. 300,000 17,081 .10
193,022 1.07
Multi-Industry - 1.00%
BFGoodrich Co. 2,200,000 78,513 .43
TI Group PLC 7,000,000 38,274 .21
Thyssen Krupp AG 2,185,000 37,695 .21
Swire Pacific Capital Ltd. 8.84% cumulative 1,125,000 22,500
guaranteed perpetual capital securities (2)
Swire Pacific Offshore Financing Ltd. 9.33% 195,000 3,900 .15
cumulative guaranteed perpetual capital securities (2)
180,882 1.00
Leisure & Tourism - 0.88%
Seagram Co. Ltd. 7.50% ACES convertible preferred 2002 1,960,000 103,145 .57
Host Marriott Financial Trust 6.75% QUIPS 600,000 22,500 .12
convertible preferred 2026
Six Flags Inc. (formerly Premier Parks Inc.) 450,000 15,244 .09
7.50% PIES convertible preferred 2001
FelCor Lodging Trust Inc. 450,000 9,844 .06
AMCV Capital Trust I 7.00% convertible preferred 2015 200,000 7,650 .04
AMF Bowling Worldwide, Inc. 0% convertible $26,391,000 495 .00
debentures 2018 (2)
158,878 .88
Metals: Steel & Nonferrous - 0.82%
Phelps Dodge Corp. 2,084,841 84,827 .47
Freeport-McMoRan Copper & Gold Inc., Series A, 1,400,000 16,975
$1.75 convertible preferred
Freeport-McMoRan Copper & Gold Inc., Class B 300,000 2,700 .11
Corus Group PLC 14,519,000 18,324 .10
Inco Ltd. 5.75% convertible debentures 2004 $17,250,000 15,353 .08
USX-U.S. Steel Group 600,000 10,763 .06
148,942 .82
Industrial Components - 0.81%
Dana Corp. 2,475,000 56,770 .31
Tomkins PLC 13,000,000 42,940 .24
Federal-Mogul Corp. 7.00% convertible preferred 2027 1,150,000 24,150 .13
Tower Automotive Capital Trust 6.75% 67,500 2,109
convertible preferred 2018
Tower Automotive Capital Trust 6.75% 450,000 14,063 .09
convertible preferred 2018 (2)
Visteon Corp. 494,743 6,926 .04
146,958 .81
Recreation & Other Consumer Products - 0.57%
EMI Group PLC 8,260,267 76,718 .42
Pennzoil-Quaker State Co. 2,000,000 25,000 .14
V2 Music Holdings PLC 6.50% 2012 (2,4) $8,122,000 2,193
V2 Music Holdings, warrants, expire 2008 (2,3,4) 14,750 0 .01
103,911 .57
Machinery & Engineering - 0.56%
Pall Corp. 1,998,300 41,465 .23
Ingersoll-Rand Co. 6.75% PRIDES convertible preferred 1,400,000 28,788 .16
Metso Oyj 1,779,998 19,399 .11
Thermo Electron Corp. 4.25% convertible $13,000,000 12,090 .06
subordinated debentures 2003 (2)
101,742 .56
Miscellaneous Materials & Commodities - 0.56%
Crown Cork & Seal Co., Inc. 3,950,000 55,053 .31
Anglogold Ltd. 675,000 26,748 .15
Iluka Resources Ltd. (formerly Westralian Sands Ltd.) 4,044,436 11,071 .06
Owens-Illinois, Inc. 4.75% convertible preferred 340,000 7,735 .04
100,607 .56
Wireless Telecommunication Services - 0.24%
Price Communications Corp. (3) 933,222 20,764 .11
MediaOne Group, Inc. 7.00% PIES convertible 480,000 19,800 .11
preferred 2002
VoiceStream Wireless Corp. (formerly Omnipoint 25,965 3,330 .02
Corp.) (3)
McCaw International, Ltd., warrants, expire 31,500 79 .00
2007 (2,3,4)
Comunicacion Celular SA, Class B, warrants, 31,000 3 .00
expire 2003 (2,3,4)
43,976 .24
Other Industries - 0.30%
Newell Financial Trust I 5.25% QUIPS 823,000 31,686 .17
convertible preferred 2027
TXI Capital Trust I 5.50% convertible preferred 2028 450,000 13,781 .08
Ingram Micro Inc. 0% convertible debentures 2018 $24,515,000 9,224 .05
Protection One Alarm Monitoring, Inc., 57,600 15 .00
warrants, expire 2005 (2,3,4)
54,706 .30
Miscellaneous - 1.51%
Other equity securities in initial 273,807 1.51
period of acquisition
Total Equity Securities (cost: $11,119,224,000) 11,458,793 63.20
Principal Market Percent
Amount Value of Net
BONDS & NOTES (000) (000) Assets
Wireless Telecommunication Services - 4.06%
Nextel Communications, Inc.:
0%/9.75% 2007 (7) 74,325 55,372
0%/10.65% 2007 (7) 5,975 4,661
0%/9.95% 2008 (7) 177,650 129,240
12.00% 2008 4,000 4,300
0%/12.125% 2008 (7) 37,450 24,155
12.75% 2010 (2) 2,000 1,960
McCaw International, Ltd. (owned by 46,850 36,074
Nextel Communications, Inc.) 0%/13.00% 2007 (7)
Nextel Partners, Inc.:
0%/14.00% 2009 (7) 26,029 17,830
11.00% 2010 (2) 5,000 4,988 1.54
Omnipoint Corp.: (4)
11.625% 2006 55,350 62,130
11.50% 2009 (2) 27,750 31,080 .51
VoiceStream Wireless Corp.: (2)
10.375% 2009 43,374 46,519
0%/11.875% 2009 (7) 45,725 32,236 .43
Clearnet Communications Inc.:
0%/14.75% 2005 (7) 6,000 6,150
DLJ Secured Loan Trust, Class A-2, 9.995% 2007 (2,8) 25,000 25,125
0%/10.125% 2009 (7) 49,150 28,507 .33
Crown Castle International Corp.: (7)
0%/10.625% 2007 4,600 3,473
0%/10.375% 2011 39,750 24,744
0%/11.25% 2011 40,500 26,122 .30
SpectraSite Holdings, Inc.: (7)
0%/12.00% 2008 38,250 25,819
0%/11.25% 2009 7,000 4,165 .16
PageMart Wireless, Inc.: (7)
0%/15.00% 2005 16,160 15,675
0%/11.25% 2008 31,000 12,400 .15
Comunicacioon Celular SA 0%/14.125% 2005 (2,7) 31,000 23,637 .13
Leap Wireless International, Inc. 0%/14.50% 2010 (2,7) 47,750 21,249 .12
PanAmSat Corp. 6.125% 2005 17,000 15,676 .09
Loral Orion Network Systems, Inc. 11.25% 2007 24,950 15,594 .09
Dobson Communications Corp. 10.875% 2010 (2) 14,750 14,492 .08
Dobson/Sygnet Communications Co. 12.25% 2008 10,750 11,046 .06
Sprint Spectrum LP, Sprint Spectrum 6,000 6,588 .04
Finance Corp. 11.00% 2006
PTC International Finance BV 0%/10.75% 2007 (7) 5,000 3,588 .02
Teligent, Inc. 11.50% 2007 2,000 1,480 .01
Cellco Finance NV 15.00% 2005 650 704 .00
736,779 4.06
Broadcasting, Advertising & Publishing - 2.89%
Charter Communications Holdings, LLC.:
8.25% 2007 35,000 31,150
10.00% 2009 10,000 9,750
0%/11.75% 2010 (7) 2,000 1,150
0%/9.92% 2011 (7) 53,750 30,906 .40
Fox/Liberty Networks, LLC, FLN Finance, Inc.:
8.875% 2007 33,850 34,019
0%/9.75% 2007(7) 43,750 36,203 .39
NTL Inc.:
0%/12.75% 2005 (7) 22,000 22,550
Series B, 10.00% 2007 10,000 9,650
Comcast UK Cable Partners Ltd. 0%/11.20% 2007 (7) 18,500 17,344 .27
Time Warner Inc.:
9.625% 2002 3,000 3,104
7.75% 2005 9,500 9,580
8.18% 2007 20,000 20,447
9.125% 2013 5,000 5,505
7.25% 2017 8,000 7,457 .25
Chancellor Media Corp. of Los Angeles:
8.125% 2007 30,500 30,729
Series B, 8.75% 2007 4,500 4,545
9.00% 2008 9,000 9,203 .25
CBS Corp. 7.15% 2005 29,500 29,019 .16
TeleWest PLC:
9.625% 2006 5,000 4,750
0%/11.00% 2007 (7) 20,500 19,680 .13
CSC Holdings, Inc.:
7.25% 2008 8,000 7,523
8.125% 2009 8,000 7,844
9.875% 2013 6,000 6,120 .12
Radio One, Inc. 7.00%/12.00% 2004 (7) 16,500 17,737 .10
TCI Communications, Inc. 8.00% 2005 15,000 15,307 .08
Adelphia Communications Corp. 10.50% 2004 3,000 3,008
Century Communications Corp. 8.75% 2007 13,200 11,748 .08
STC Broadcasting, Inc. 11.00% 2007 14,500 14,282 .08
British Sky Broadcasting Group PLC 8.20% 2009 14,250 13,219 .07
Hearst-Argyle Television, Inc. 7.00% 2018 12,425 10,620 .06
Rogers Communications Inc. 8.875% 2007 10,000 10,000 .05
Young Broadcasting Inc.:
10.125% 2005 3,750 3,712
Series B, 8.75% 2007 5,250 4,909 .05
Liberty Media Corp. 7.875% 2029 8,600 8,376 .05
Multicanal Participacoes SA, Series B, 12.625% 2004 6,475 6,710 .04
Sun Media Corp. 9.50% 2007 6,071 6,071 .03
Telemundo Holdings, Inc., Series B, 0%/11.50% 2008 (7) 8,500 6,035 .03
Antenna TV SA 9.00% 2007 5,250 4,883 .03
Acme Television, LLC, Series B, 0%/10.875% 2004 (7) 4,920 4,692 .03
Fox Family Worldwide, Inc. 0%/10.25% 2007 (7) 5,000 3,612 .02
RBS Participacoes SA 11.00% 2007 (2) 4,250 3,559 .02
Gray Communications Systems, Inc. 10.625% 2006 3,500 3,535 .02
American Media Operations 10.25% 2009 3,500 3,439 .02
TransWestern Publishing Co. LLC 9.625% 2007 3,500 3,439 .02
Muzak LP:
9.875% 2009 1,250 1,100
0%/13.00% 2010 (7) 3,750 2,025 .02
TVN Entertainment Corp. 14.00% 2008 10,000 2,013 .01
Lenfest Communications, Inc. 7.625% 2008 2,000 1,954 .01
524,213 2.89
Banking - 2.83%
SB Treasury Co. LLC, Series A, 9.40% 126,000 121,165 .67
noncumulative preferred (2)
SocGen Real Estate Co. LLC, Series A, 71,500 65,774 .36
7.64%/8.406% (undated) (2,7,8)
MBNA Corp., MBNA:
Capital A, Series A, 8.278% 2026 8,200 6,787
Capital B, Series B, 7.191% 2027 (8) 32,000 26,790 .19
Fuji JGB Investment LLC, Series A, 9.87% 34,250 33,072 .18
noncumulative preferred (2,8)
BNP U.S. Funding LLC, Series A, 7.738% 33,200 30,799 .17
noncumulative preferred (2,8)
Tokai Preferred Capital Co. LLC, Series A, 31,500 30,365 .17
9.98%/11.091% noncumulative preferred (2,7)
HSBC Capital Funding LP, Series 1, 9.547% 21,500 22,383
noncumulative preferred (2,8)
Midland Bank PLC 7.188% Eurodollar notes 5,000 3,950 .15
(undated) (8)
Dime Bancorp, Inc. 6.375% 2001 15,000 14,888
Dime Capital Trust I, Dime Bancorp, Inc., 9,425 8,702 .13
Series A, 9.33% 2027
Riggs Capital Trust II:
8.625% 2026 1,500 1,177
8.875% 2027 25,000 20,140 .12
Advanta Corp.:
7.50% 2000 4,000 3,998
6.925% 2002 5,000 4,410
6.91% 2002 5,000 4,410
Series D, 6.833% 2002 5,000 4,390 .09
Washington Mutual Capital I, subordinated 10,000 8,894
capital income securities 8.375% 2027
Ahmanson Capital Trust I, capital securities, 8,000 7,041 .09
Series A, 8.36% 2026 (2)
Capital One Capital I 7.941% 2027 (2,8) 13,500 11,543 .06
Standard Chartered Bank 7.063% Eurodollar notes 15,000 9,969 .05
(undated) (8)
Skandinaviska Enskilda Banken AB 7.50% (undated) (2,8) 10,405 9,223 .05
IBJ Preferred Capital Co. LLC, Series A, 8.79% 10,000 9,078 .05
noncumulative preferred (2,8)
Canadian Imperial Bank of Commerce 6.50% 10,000 7,787 .04
Eurodollar notes (undated) (8)
Bank of Nova Scotia 6.50% Eurodollar notes 10,000 7,753 .04
(undated) (8)
HSBC Americas, Inc. 7.808% 2026 (2) 8,000 6,925 .04
Bank of Scotland 7.00% (undated) (2,8) 7,500 6,842 .04
Komercni Finance BV 9.00%/10.75% 2008 (2,7) 6,000 5,775 .03
Sakura Capital Funding 7.778% (undated) (2,8) 5,000 4,813 .03
BCI US Funding Trust I 8.01% (undated) (2,8) 5,000 4,577 .03
Citigroup Inc. 7.45% 2002 4,000 4,017 .02
Chevy Chase Bank, FSB 9.25% 2005 4,000 3,760 .02
Fleet Capital Trust 7.775% 2028 (8) 2,500 2,416 .01
513,613 2.83
Business & Public Services - 1.14%
Allied Waste North America, Inc.:
7.625% 2006 5,000 4,512
10.00% 2009 76,375 66,446 .39
Columbia/HCA Healthcare Corp.:
6.87% 2003 10,575 10,007
7.15% 2004 6,000 5,610
6.91% 2005 10,750 9,863
8.85% 2007 16,770 16,602
8.70% 2010 9,500 9,286 .28
Waste Management, Inc.:
6.70% 2001 3,000 2,965
6.50% 2002 7,000 6,657
6.375% 2003 5,050 4,761
7.00% 2004 4,060 3,799
7.00% 2006 6,500 5,983
7.10% 2026 20,125 19,190 .24
Cendant Corp. 7.75% 2003 12,000 11,574 .06
Concentra Operating Corp., Series A, 13.00% 2009 11,000 9,350 .05
Paracelsus Healthcare Corp. 10.00% 2006 30,100 7,826 .04
Protection One Alarm Monitoring, Inc. 13.625% 2005 (8) 3,246 2,532 .02
Actuant Corp. 13.00% 2009 (2) 2,500 2,531 .02
KinderCare Learning Centers, Inc., Series B, 9.50% 2009 2,500 2,288 .01
Integrated Health Services, Inc.: (6)
10.25% 2006 (8) 16,900 169
Series A, 9.50% 2007 87,095 871
Series A, 9.25% 2008 68,298 683 .01
Iron Mountain Inc. 8.75% 2009 1,750 1,575 .01
Safety-Kleen Services, Inc.:
9.25% 2008 20,000 800
9.25% 2009 10,000 312 .01
Mariner Health Group, Inc. 9.50% 2006 (6) 15,250 153 .00
206,345 1.14
Forest Products & Paper - 0.87%
Container Corp. of America:
10.75% 2002 2,050 2,060
9.75% 2003 45,550 45,550
Series A, 11.25% 2004 19,500 19,695 .37
Scotia Pacific Co. LLC, Timber Collateralized notes:
Series B, Class A-2, 7.11% 2014 15,800 12,446
Series B, Class A-3, 7.71% 2014 16,000 10,880 .13
Pindo Deli Finance Mauritius Ltd.:
10.25% 2002 12,000 8,310
10.75% 2007 24,150 13,584 .12
International Paper Co. 7.67% 2002 (2,8) 15,000 14,992 .08
Packaging Corp. of America, Series B, 9.625% 2009 12,875 13,132 .07
Grupo Industrial Durango, SA de CV 12.00% 2001 6,000 6,135 .04
Copamex Industrias, SA de CV, Series B, 11.375% 2004 5,930 5,767 .03
Advance Agro Capital BV 13.00% 2007 4,925 3,349 .02
Indah Kiat Finance Mauritius Ltd.:
11.875% 2002 700 548
10.00% 2007 3,050 1,777 .01
158,225 .87
Diversified Telecommunication Services - 0.80%
NEXTLINK Communications, Inc.:
9.00% 2008 1,250 1,125
0%/12.125% 2009 (7) 14,000 7,980
0%/12.25% 2009 (7) 34,500 20,700 .17
Allegiance Telecom, Inc.:
0%/11.75% 2008 (7) 32,000 23,520
12.875% 2008 3,475 3,753 .15
GT Group Telecom Inc., units, 0%/13.25% 2010 (2,7) 24,750 13,117 .07
Qwest Communications International Inc. 15,000 12,944 .07
0%/9.47% 2007 (7)
US Xchange, LLC 15.00% 2008 (4) 13,500 12,582 .07
Viatel, Inc.:
11.25% 2008 16,550 9,434
0%/12.50% 2008 (7) 4,000 1,460
11.50% 2009 1,000 580 .06
Netia Holdings BV:
10.25% 2007 3,625 3,081
0%/11.25% 2007 (7) 9,250 6,614 .05
SBA Communications Corp. 0%/12.00% 2008 (7) 11,175 8,102 .05
AT&T Corp. 6.50% 2002 7,000 6,920 .04
COLT Telecom Group PLC 0%/12.00% 2006 (7) 7,500 6,619 .04
IMPSAT Corp. 12.375% 2008 5,000 4,063 .02
VersaTel Telecom International NV 11.875% 2009 2,250 2,216 .01
144,810 .80
Energy & Related Companies - 0.77%
Clark Refining & Marketing, Inc.:
9.50% 2004 1,675 1,524
8.375% 2007 4,960 4,067
8.875% 2007 46,750 32,725 .21
Oryx Energy Co.:
8.00% 2003 5,345 5,388
8.375% 2004 12,750 13,155
8.125% 2005 8,500 8,664 .15
PDVSA Finance Ltd.:
9.75% 2010 5,000 4,810
7.40% 2016 18,465 14,818 .11
Petrozuata Finance, Inc.: (2)
Series A, 7.63% 2009 10,285 8,700
Series B, 8.22% 2017 10,000 7,925 .09
Pogo Producing Co. 10.375% 2009 10,000 10,325 .06
AES Drax Holdings Ltd. 10.41% 2020 (2) 6,000 6,202 .04
OXYMAR 7.50% 2016 (2) 8,000 5,976 .03
Cross Timbers Oil Co. 8.75% 2009 5,750 5,578 .03
Newfield Exploration Co., Series B, 7.45% 2007 6,000 5,503 .03
Louis Dreyfus Natural Gas Corp. 6.875% 2007 5,000 4,510 .02
139,870 .77
Transportation - 0.76%
Jet Equipment Trust: (2,9)
Series 1995-B, 10.91% 2014 4,750 5,152
Series 1995-B, Class A, 7.63% 2015 3,533 3,433
Series 1995-A, Class B, 8.64% 2015 13,250 13,144
Series 1995-B, Class C, 9.71% 2015 5,500 5,650
Series 1995-A, Class C, 10.69% 2015 5,000 5,329 .18
Atlas Air, Inc., Pass-Through Trust, Series 32,291 30,286 .17
1998-1, Class A, 7.38% 2019 (9)
Airplanes Pass Through Trust, pass-through 21,457 19,963 .11
certificates, Series 1, Class C, 8.15% 2019 (9)
Pegasus Aviation Lease Securitization, Series 19,000 19,321 .10
2000-1, Class A2, 8.37% 2030 (2)(9)
Continental Airlines, Inc.:
9.50% 2001 4,500 4,590
pass-through certificates, Series 1996: (9)
Class A, 6.94% 2015 7,985 7,677
Class C, 9.50% 2015 5,767 5,870 .10
United Air Lines, Inc.:
9.00% 2003 8,000 7,907
pass-through certificates, Series 1996-A2, 5,000 4,287 .07
7.87% 2019 (9)
Delta Air Lines, Inc., pass-through certificates, 5,000 4,886 .03
Series 1992-A2, 9.20% 2014 (9)
137,495 .76
Financial Services - 0.72%
GS Escrow Corp.:
7.00% 2003 1,550 1,421
7.391% 2003 (8) 15,000 14,293
7.125% 2005 27,000 24,535 .22
Capital One Financial Corp. 7.125% 2008 22,500 19,895 .11
BHP Finance Ltd. 6.75% 2013 20,000 17,992 .10
MBNA Corp., MBNA 6.75% 2008 12,500 11,393 .06
Toyota Motor Credit Corp. 6.00% 2003 10,000 9,706 .06
Providian Financial Corp. 9.525% 2027 (2) 10,000 7,466 .04
AB Spintab: (2,8)
6.80% (undated) 5,150 5,015
7.50% (undated) 2,500 2,368 .04
Wharf Capital International, Ltd. 8.875% 2004 7,000 7,123 .04
Nebhelp Trust, Student Loan Interest Margin 4,155 4,038 .02
Securities, Series 1998-1, Class A, 6.68% 2016 (2,9)
Ford Motor Credit Co. 6.55% 2002 3,000 2,953 .02
Green Tree Financial Corp. 6.50% 2002 2,635 1,660 .01
129,858 .72
General Retailing & Merchandising - 0.59%
J.C. Penney Co., Inc.:
6.50% 2002 8,500 7,992
7.625% 2007 4,000 2,730
7.95% 2017 30,025 24,544 .19
Fred Meyer, Inc. 7.375% 2005 20,000 19,453 .11
WestPoint Stevens Inc. 7.875% 2005 18,000 15,750 .09
Boyds Collection, Ltd.,Series B, 9.00% 2008 14,621 13,159 .07
Sears, Roebuck and Co. 9.375% 2011 12,310 13,039 .07
Salton/Maxim Housewares, Inc. 10.75% 2005 9,450 9,308 .05
Levi Strauss & Co. 6.80% 2003 1,500 1,260 .01
107,235 .59
Leisure & Tourism - 0.58%
Horseshoe Gaming Holding Corp., Series B, 8.625% 2009 21,500 20,425 .11
International Game Technology 7.875% 2004 16,000 15,440 .09
Six Flags Entertainment Corp. 8.875% 2006 2,000 1,910
Premier Parks Inc. 9.75% 2007 13,875 13,389 .08
Mirage Resorts, Inc.:
6.625% 2005 3,000 2,815
6.75% 2007 3,250 2,924
6.75% 2008 10,500 9,394 .08
Florida Panthers Holdings, Inc. 9.875% 2009 10,000 9,425 .05
Joseph E. Seagram & Sons, Inc. 6.625% 2005 9,000 8,612 .05
Boyd Gaming Corp. 9.25% 2003 7,000 6,895 .04
Royal Caribbean Cruises Ltd. 7.00% 2007 7,000 5,938 .03
Friendly Ice Cream Corp. 10.50% 2007 3,190 2,584 .02
CKE Restaurants, Inc. 9.125% 2009 3,250 2,112 .01
AMF Bowling Worldwide, Inc.:
10.875% 2006 5,500 1,760
0%/12.25% 2006 (7) 1,437 316 .01
KSL Recreation Group, Inc. 10.25% 2007 1,250 1,206 .01
Carmike Cinemas, Inc., Series B, 9.375% 2009 1,550 667 .00
105,812 .58
Electronic Components - 0.49%
Fairchild Semiconductor Corp.:
10.125% 2007 1,000 1,013
10.375% 2007 24,750 25,307 .15
Hyundai Semiconductor America, Inc.: (2)
8.25% 2004 9,840 8,816
8.625% 2007 20,000 16,997 .14
Advanced Micro Devices, Inc. 11.00% 2003 12,500 13,562 .07
Zilog, Inc. 9.50% 2005 14,050 12,364 .07
Flextronics International Ltd. 8.75% 2007 9,000 8,640 .05
SCG Holding Corp. 12.00% 2009 2,125 2,284 .01
88,983 .49
Utilities: Electric & Gas - 0.40%
Israel Electric Corp. Ltd.: (2)
7.75% 2009 6,000 5,822
8.25% 2009 8,000 8,056
7.70% 2018 22,500 20,537
8.10% 2096 14,405 12,389 .26
Edison Mission Energy 7.73% 2009 10,000 9,742 .05
Williams Holdings of Delaware, Inc. 6.50% 2008 10,000 9,189 .05
Transener SA 9.25% 2008 (2) 6,850 6,131 .04
71,866 .40
Insurance - 0.31%
Conseco, Inc. 9.00% 2006 5,175 3,519
Conseco Financing Trust II, capital trust 14,750 6,638
pass-through securities (TRUPS), 8.70% 2026 (9)
Conseco Finance Home Loan Trust: (9)
Series 1999-G, Class B-2, 10.96% 2029 13,688 11,048
Series 2000-A, Class BV-2, 9.426% 2031 (8) 7,100 6,337 .15
Royal & Sun Alliance Insurance Group PLC 8.95% 2029 (2) 8,750 8,888 .05
ReliaStar Financial Corp. 8.00% 2006 8,000 8,091 .04
Allstate Corp. 7.20% 2009 7,000 6,699 .04
Jefferson-Pilot Corp. 8.14% 2046 (2) 5,000 4,547 .03
55,767 .31
Multi-Industry - 0.28%
Reliance Industries Ltd.:
8.25% 2027 (2) 12,000 11,284
10.50% 2046 (2) 5,750 5,336
Series B, 10.25% 2097 5,000 4,421 .11
Graham Packaging Co.:
8.75% 2008 8,475 7,458
0%/10.75% 2009 (7) 8,000 4,880 .07
American Standard Inc. 8.25% 2009 (2) 10,250 9,891 .05
Innova, S de RL 12.875% 2007 5,000 4,737 .03
Tekni-Plex, Inc. 12.75% 2010 (2) 3,000 3,068 .02
51,075 .28
Miscellaneous Materials & Commodities - 0.26%
Owens-Illinois, Inc.:
7.85% 2004 6,000 5,530
7.15% 2005 11,000 9,677
8.10% 2007 5,750 5,107 .11
Printpack, Inc. 10.625% 2006 20,270 19,662 .11
Equistar Chemicals, LP 8.50% 2004 7,500 7,507 .04
47,483 .26
Metals: Steel & Nonferrous - 0.24%
Doe Run Resources Corp., Series B, 11.25% 2005 30,525 17,094 .10
Freeport-McMoRan Copper & Gold Inc.:
7.50% 2006 9,500 5,914
7.20% 2026 16,000 10,885 .09
Kaiser Aluminum & Chemical Corp. 12.75% 2003 8,000 7,220 .04
Inco Ltd. 9.60% 2022 2,625 2,578 .01
43,691 .24
Real Estate - 0.24%
FelCor Suites LP:
7.375% 2004 10,000 9,107
7.625% 2007 5,000 4,475 .08
Security Capital Group Inc. 7.15% 2007 15,000 13,500 .07
ProLogis Trust 7.05% 2006 12,000 11,352 .06
Irvine Co. 7.46% 2006 (2,4) 5,000 4,612 .03
43,046 .24
Industrial Components - 0.24%
Federal-Mogul Corp.:
7.50% 2004 3,500 2,905
7.375% 2006 32,000 25,920
7.75% 2006 6,000 4,860
7.50% 2009 5,775 4,418 .21
TRW Inc. 7.125% 2009 5,000 4,595 .03
BREED Technologies, Inc. 9.25% 2008 (6) 29,500 295 .00
42,993 .24
Food & Household Products - 0.17%
Home Products International, Inc. 9.625% 2008 10,500 8,610 .05
Gruma, SA de CV 7.625% 2007 7,750 6,839 .04
Canandaigua Wine Co., Inc.:
8.75% 2003 5,000 4,925
Series C, 8.75% 2003 1,250 1,231 .03
New World Pasta Co. 9.25% 2009 9,000 6,120 .03
Delta Beverage Group, Inc. 9.75% 2003 3,435 3,332 .02
DGS International Finance Co. BV 10.00% 2007 (2) 1,075 304 .00
31,361 .17
Aerospace & Military Technology - 0.11%
Hughes Electronics Corp. 7.568% 2000 (2,8) 20,000 20,000 .11
20,000 .11
Collateralized Mortgage/Asset-Backed Obligations (9)
(excluding those issued by federal agencies) - 3.60%
Green Tree Financial Corp., pass-through certificates:
Series 1995-A, Class NIM, 7.25% 2005 855 832
Series 1993-2, Class B, 8.00% 2018 14,000 12,622
Series 1995-4, Class B-2, 7.70% 2025 1,900 1,041
Series 1995-3, Class B-2, 8.10% 2025 16,121 9,323
Series 1995-1, Class B-2, 9.20% 2025 5,500 3,574
Series 1995-2, Class B-2, 8.80% 2026 11,457 7,077
Series 1996-2, Class B-2, 7.90% 2027 12,950 7,085
Series 1996-10, Class A-6, 7.30% 2028 2,998 2,828
Series 1996-10, Class B-2, 7.74% 2028 4,923 2,599
Series 1997-1, Class B-2, 7.76% 2028 7,396 3,929
Series 1997-2, Class B-2, 8.05% 2028 3,418 1,871
Series 1998-4, Class B-2, 8.11% 2028 6,650 3,961
Series 1998-3, Class B-2, 8.07% 2030 5,000 2,725
Green Tree Recreational, Equipment & Consumer 10,000 9,829 .38
Trust, Series 1999-A, Class A-6, 6.84% 2010
Merrill Lynch Mortgage Investors, Inc.:
Series 1995-C3, Class A-3, 7.068% 2025 (8) 25,340 24,962
Mortgage pass-through certificates:
Series 1996-C2, Class A-1, 6.69% 2028 (8) 2,046 2,021
Series 1998-C3, Class E, 6.974% 2030 (8) 7,980 6,625
Series 1999-C1, Class A-2, 7.56% 2031 11,750 11,786 .25
CS First Boston, Inc.:
Finance Co. Ltd., Series 1995-A, 10.00% 2005 (2,8) 11,375 9,896
Series 98-FL1, Class E, 7.495% 2013 (2,8) 12,300 12,251
Mortgage Securities Corp., Series 1998-C1, 12,620 12,152 .19
Class A-1A, 6.26% 2040
Gramercy Place Insurance Ltd., Series 1998-A, 32,904 32,555 .18
Class C-2, 8.95% 2002 (2)
Collateralized Mortgage Obligation Trust, Series 29,310 29,905 .17
63, Class Z, 9.00% 2020
Bayview Financial Acquisition Trust: (2,8)
Series 2000-A, Class B, 9.12% 2030 10,558 10,543
Series 1998-A, Class M3, 8.62% 2038 5,526 5,440
Bayview Financial Revolving Mortgage Loan, 10,000 9,903 .14
Series 1999-1, Class M2, 7.92% 2029
MBNA Master Credit Card Trust: (2)
Series 1999-D, Class B, 6.95% 2008 4,700 4,472
Series 1998-E, Class C, 6.60% 2010 22,500 20,720 .14
SMA Finance Co., Inc., Series 1998-C1, Class A1, 25,607 24,963 .14
6.27% 2005 (2)
DLJ Mortgage Acceptance Corp.:
Series 1997-CF1, Class A1A, 7.40% 2006 (2) 5,824 5,834
Series 1996-CF2, Class A1A, 6.86% 2021 (2) 3,822 3,792
Series 1998-CF2, Class A1B, 6.24% 2031 15,000 13,804 .13
First USA Credit Card Master Trust, Class A,
floating-rate asset-backed certificates: (8)
Series 1998-8, 7.528% 2008 (2) 13,315 13,258
Series 1997-4, 7.649% 2010 6,500 6,357 .11
GMAC Commercial Mortgage Securities, Inc., 20,750 18,452 .10
Series 1997-C2, Class E, 7.624% 2011
GS Mortgage Securities Corp. II, mortgage 20,000 18,397 .10
pass-through certificates, Series 1998-C1,
Class D, 7.242% 2030 (8)
L.A. Arena Funding, LLC, Series 1, Class A, 18,250 17,132 .09
7.656% 2026 (2)
First Union-Lehman Brothers Bank of America 17,614 16,962 .09
Commercial Mortgage Trust, commercial mortgage
pass-through certificates, Series 1998-C2, 6.28% 2035
Deutsche Mortgage & Asset Receiving Corp., 16,657 16,048 .09
Series 1998-C1, Class A-1, 6.22% 2031
Commercial Mortgage Acceptance Corp.:
Series 1998-C1, Class A-1, 6.23% 2007 4,921 4,747
Series 1998-C2, Class A-1, 5.80% 2030 11,387 10,858 .09
Morgan Stanley Capital I, Inc.:
Series 1995-GAL1, Class A-2, 7.50% 2005 (2) 7,054 7,107
Series 1998-WF2, Class A-1, 6.34% 2030 8,644 8,361 .09
Residential Reinsurance Ltd. 10.94% 2001 (2,8) 15,000 14,962 .08
Metris Master Trust: (2,8)
Series 1998-1A, Class C, 7.48% 2005 5,000 4,922
Series 1997-2, Class C, 7.68% 2006 10,000 9,884 .08
Ford Credit Auto Owner Trust:
Series 1998-B, Class C, 6.40% 2002 10,000 9,801
Series 1999-B, Class C, 6.65% 2003 3,000 2,930 .07
Structured Asset Securities Corp.,
pass-through certificates: (8)
Series 1998-RF2, Class A, 8.54% 2027 (2) 2,007 2,043
Series 1998-RF1, Class A, 8.667% 2027 (2) 1,581 1,615
Series 1999-BC1, Class M2, 7.92% 2029 7,500 7,523 .06
Team Fleet Financing Corp.: (2)
Series 1999-2A, Class D, 7.77% 2002 (8) 3,000 2,990
Series 1999-3A, Class D, 7.60% 2003 7,000 6,916 .05
FIRSTPLUS Home Loan Owner Trust, Series 10,000 9,909 .05
1997-1, Class A-6, 6.95% 2015
Freddie Mac Loan Receivables Trust, Series 1998-A, 10,100 9,338 .05
Class A3, 6.69% 2020 (2)
Resolution Trust Corp.:
Series 1993-C1, Class D, 9.45% 2024 1,096 1,092
Series 1993-C2, Class D, 8.50% 2025 163 162
Series 1995-1, Class A-1, 7.12% 2028 8,071 7,934 .05
Chase Commercial Mortgage Securities Corp., 8,919 8,655 .05
Series 1998-1, Class A1, 6.34% 2030
Capital One Secured Note Trust, Series 1999-2, 6,250 6,217
7.226% 2005 (2,8)
Capital One Master Trust, Series 1999-1, Class C, 2,500 2,402 .05
6.60% 2007 (2)
Fleet Credit Card Master Trust II, Series 1999-A, 8,000 8,129 .05
Class C, floating-rate asset-backed interests,
7.775% 2004 (2,8)
Nehi Ltd., Series 2000-A, 10.869% 2003 (2,8) 8,000 8,000 .04
First Nationwide, Series 1999-2, Class 1PA1 8,199 7,635 .04
, 6.50% 2029
H.S. Receivables Corp., Series 1999-1, Class A, 6,875 6,785 .04
8.13% 2004 (2)
GE Capital Mortgage Services, Inc., 7,321 6,473 .04
Series 1994-9, Class A9, 6.50% 2024
PNC Mortgage Securities Corp., Series 6,865 6,175 .03
1998-10, Class 1-B1, 6.50% 2028 (2)
First Union Commercial Mortgage Trust, 7,000 5,994 .03
Series 1999-C1, Class E, 6.973% 2035 (8)
Bear Stearns Commercial Mortgage Securities 88,385 5,644 .03
Inc., Series 1999-C1, Class X, interest only,
1.053% 2031 (8)
EQCC Home Equity Loan Trust, asset-backed certificates, 5,000 4,953 .03
Series 1999-3, Class A-3F, 7.067% 2024
Nationslink Funding Corp., Series 1999-1, Class D, 5,000 4,639 .03
7.10% 2031 (8)
Government Lease Trust, Series 1999-C1A, Class B3, 6,687 4,557 .03
4.00% 2011 (2)
Metropolitan Asset Funding, Inc., Series 1998-A, 4,669 4,499 .03
Class B1, 7.728% 2014 (2)
Providian Master Trust, Series 2000-1, Class 4,000 4,000 .02
C, 7.776% 2009 (2,8)
Residential Funding Mortgage Securities I, Inc., 3,923 3,602 .02
Series 1998-S17, Class M-1, 6.75% 2028
NPF XII, Inc., Series 1999-3, Class B, 7.638% 3,000 2,998 .02
2003 (2,8)
Grupo Financiero Banamex Accival, SA de CV 0% 2002 2,698 2,480 .01
Financial Asset Securitization, Inc., Series 2,513 2,443 .01
1997-NAM1, Class B1, 7.75% 2027
Rental Car Finance Corp., Series 1999-1A, Class D, 2,500 2,354 .01
7.10% 2007 (2)
Chevy Chase Master Credit Card Trust II, Series 2,000 1,995 .01
1996-C, Class A, 6.766% 2007 (8)
Chase Manhattan Bank, NA, Series 1993-I, Class 2A5, 1,778 1,769 .01
7.25% 2024 653,018 3.60
Federal Agency Obligations: Mortgage
Pass-Throughs (9) - 1.95%
Government National Mortgage Assn.:
6.00% 2029 68,023 62,623
7.00% 2022-2029 40,194 39,055
7.50% 2017-2030 127,306 126,220
8.00% 2017-2030 31,546 31,837
8.50% 2017-2021 3,640 3,733
9.00% 2008-2020 2,995 3,107
9.50% 2009-2021 6,015 6,319
10.00% 2016-2025 39,590 41,709
10.50% 2019 36 38 1.74
Fannie Mae:
7.50% 2023 2,792 2,771
8.00% 2024 2,450 2,472
8.50% 2030 2,750 2,794
9.00% 2008-2023 3,861 3,965
9.50% 2022 3,339 3,488
10.00% 2005-2025 9,386 9,884
12.50% 2019 715 808
13.00% 2015 1,759 1,995
15.00% 2028 700 822 .16
Freddie Mac:
8.50% 2008-2010 3,817 3,878
9.00% 2007 2,605 2,666
11.00% 2018 2,342 2,536 .05
352,720 1.95
Federal Agency Obligations: Collateralized
Mortgage Obligations (9) - 0.09%
Fannie Mae:
Series 1996-4, Class ZA, 6.50% 2022 7,054 6,262
Series 1994-4, Class ZA, 6.50% 2024 5,974 5,407 .06
Freddie Mac:
Series 178, Class Z, 9.25% 2021 1,387 1,430
Series 1673, Class SA, 4.33% 2024 (8,10) 6,000 3,790 .03
16,889 .09
Other Federal Agency Obligations - 0.29%
Fannie Mae:
5.25% 2009 30,000 26,419
Medium-Term Note 6.75% 2028 30,000 25,997 .29
52,416 .29
Governments & Governmental Authorities
(excluding U.S.) - 0.73%
United Mexican States Government Eurobonds:
Series C, 0% 2003 (4) 2,307 0
Global:
11.375% 2016 15,500 18,034
11.50% 2026 12,000 14,670
Units, Series C, 7.80% 2019 (8) 1,500 1,494 .19
Panama (Republic of):
Interest Reduction Bonds 4.50% 2014 (8) 250 204
Past Due Interest Eurobonds 7.75% 2016 (8) 547 452
8.875% 2027 21,500 18,651
9.375% 2029 5,000 4,813 .13
Argentina (Republic of):
9.75% 2027 5,000 3,973
11.00% 2006 1,635 1,588
11.375% 2017 12,900 11,778
11.75% 2009 2,230 2,113 .11
Turkey (Republic of) 12.375% 2009 11,750 12,719 .07
Philippines (Republic of) 8.875% 2008 11,000 9,790 .05
Ontario (Province of) 5.50% 2008 10,000 8,972 .05
Poland (Republic of), Past Due Interest Bond, 9,000 8,181 .05
Bearer, 6.00% 2014 (8)
Brazil (Federal Republic of):
Debt Conversion Bonds, Series L, 7.438% 2012 (8) 3,750 2,801
Debt Conversion Bonds, Bearer, Series L, 5,000 3,734
7.438% 2012 (8)
Bearer 8.00% 2014 (5) 2,155 1,609 .05
Venezuela (Republic of), Eurobonds, 7.875% 2007 (8) 5,179 4,331 .02
Mendoza (Province of) 10.00% 2007 3,485 2,396 .01
132,303 .73
U.S. Treasury Obligations - 2.45%
8.75% August 2000 22,500 22,514 .12
6.25% August 2002 50,000 49,914 .28
7.00% July 2006 18,293 19,002 .10
3.842% January 2008 (8,11) 65,000 67,067 .37
5.50% May 2009 27,500 26,383 .15
10.00% May 2010 35,500 40,609 .22
0% February 2015 STRIP 46,440 19,332 .11
8.875% August 2017 145,025 186,470 1.03
6.125% November 2027 5,000 5,064 .03
0% November 2027 STRIP 20,930 4,299 .02
5.25% February 2029 3,000 2,708 .02
443,362 2.45
Total Bonds and Notes (cost: $5,574,896,000) 5,051,228 27.86
Shares/
Principal Market Percent
Amount Value of Net
SHORT-TERM SECURITIES (000) (000) Assets
Corporate Short-Term Notes - 7.36%
BellSouth Capital Funding Corp. 6.51%-6.55% 107,000 106,120 .58
due 8/16-10/2/2000 (2)
Equilon Enterprises, LLC 6.50%-6.53% due 93,000 92,009 .51
8/10-10/18/2000
Bell Atlantic Financial Services, Inc. 84,800 84,322 .47
6.50%-6.55% due 8/14-9/11/2000
Preferred Receivables Funding Corp. 6.51%-6.56% 79,900 79,579 .44
due 8/8-9/8/2000 (2)
Procter & Gamble Co. 6.48%-6.50% due 8/17-9/26/2000 80,000 79,429 .44
American Express Credit Corp. 6.49%-6.51% 77,500 77,000 .42
due 8/25-9/18/2000
AT&T Corp. 6.54%-6.61% due 8/1-8/8/2000 75,000 74,922 .41
Wal-Mart Stores, Inc. 6.48%-6.53% due 69,000 68,339 .38
8/15-10/24/2000 (2)
USAA Capital Corp. 6.48%-6.60% due 8/2-9/28/2000 67,500 67,050 .37
CIT Group, Inc. 6.51%-6.54% due 8/23-9/19/2000 63,900 63,450 .35
General Electric Capital Corp. 6.50%-6.54% 60,400 60,232 .33
due 8/11-8/28/2000
Motorola, Inc. 6.50%-6.53% due 8/18-10/27/2000 60,300 59,717 .33
SBC Communications Inc. 6.50%-6.57% due 60,000 59,434 .33
9/11-10/11/2000 (2)
Pharmacia Corp. 6.49%-6.52% due 8/11-8/29/2000 54,100 53,913 .30
International Lease Finance Corp. 6.53%-6.55% 53,000 52,810 .29
due 8/4-9/11/2000
Corporate Asset Funding Co. Inc. 6.50%-6.61% 50,200 49,990 .28
due 8/14-9/12/2000 (2)
Lucent Technologies Inc. 6.54%-6.60% due 8/3-8/17/2000 49,744 49,653 .27
Marsh USA Inc. 6.50%-6.52% due 10/17-12/12/2000 (2) 50,000 48,981 .27
Alcoa Inc. 6.50%-6.62% due 8/1-10/11/2000 42,200 42,015 .23
Emerson Electric Co. 6.49% due 9/18/2000 (2) 37,515 37,182 .21
Minnesota Mining and Manufacturing Co. 6.54% 19,200 19,020 .10
due 9/21/2000
Kimberly-Clark Corp. 6.52% due 8/8/2000 (2) 9,500 9,486 .05
1,334,653 7.36
Federal Agency Short-Term Obligations - 1.28%
Fannie Mae 6.425%-6.50% due 9/21-10/26/2000 152,400 150,469 .83
Freddie Mac 6.40%-6.45% due 9/14-9/21/2000 81,800 81,066 .45
231,535 1.28
Total Short Term Securities (cost: $1,566,193,000) 1,566,188 8.64
Total Investment Securities (cost:$18,260,313,000) 18,076,209 99.70
Excess of cash and receivables over payables 54,820 .30
NET ASSETS 18,131,029 100.00
1. The fund owns 5.02%, 5.03%, 5.16%, 5.73%, 6.76%
and 10.73% of the outstanding voting
securities of HSB Group, R.J. Reynolds Tobacco
Holdings, Equitable Resources, CONSOL
Energy, Georgia-Pacific and Wilshire Financial
Services Group, respectively, and thus is
considered an affiliate as defined in the
Investment Company Act of 1940.
2. Purchased in a private placement transaction;
resale to the public may require
registration or sale only to qualified
institutional buyers.
3. Non-income-producing security.
4. Valued under procedures established by the
Board of Directors.
5. Payment in kind; the issuer has the option of
paying additional securities in
lieu of cash.
6. Company not making interest payments; bankruptcy
proceedings pending.
7. Step Bond; coupon rate will increase at a later date.
8. Coupon rate may change periodically.
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.
ADR = American Depositary Receipts
See Notes to Financial Statements
</TABLE>
<TABLE>
The Income Fund of America
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
at July 31, 2000 (dollars in thousands)
<S> <C> <C>
Assets:
Investment securities at market
(cost: $18,260,313) $18,076,209
Cash 3,082
Receivables for--
Sales of investments $ 31,090
Sales of fund's shares 9,759
Forward currency contracts - net 0
Dividends and accrued interest 120,026 160,875
18,240,166
Liabilities:
Payables for--
Purchases of investments 70,358
Repurchases of fund's shares 25,526
Forward currency contracts - net 0
Dividends on fund's shares 0
Management services 4,076
Accrued expenses 9,177 109,137
Net Assets at July 31, 2000--
(authorized capital stock -- 3,000,000,000 shares) $18,131,029
Class A shares, $.001 par value
Net assets $18,102,315
Shares outstanding 1,173,447,200
Net asset value per share $15.43
Class B shares, $.001 par value
Net assets $28,714
Shares outstanding 1,865,200
Net asset value per share $15.39
NOTE
the sum of Net Assets at a fund level s/b equal to the master level Net assets
STATEMENT OF OPERATIONS
for the year ended July 31, 2000 (dollars in thousands)
Investment Income:
Income:
Dividends $551,878
Interest 692,092 $1,243,970
Expenses:
Management services fee 59,946
Distribution expenses - Class A 47,041
Distribution expenses - Class B 54
Transfer agent fee - Class A 13,775
Transfer agent fee - Class B 4
Reports to shareholders 559
Registration statement and prospectus 1,024
Postage, stationery and supplies 3,526
Directors' fees 188
Auditing and legal fees 84
Custodian fee 1,060
Taxes other than federal income tax 2
Other expenses 240 127,503
Net investment income $1,116,467
Realized Gain and Unrealized
Depreciation on Investments:
Net realized gain 781,307
Net change from unrealized appreciation to
unrealized depreciation on investments (2,461,585)
Open forward currency contracts 0.000
Net realized gain and unrealized
depreciation on investments (1,680,278)
Net Decrease in Net Assets Resulting
from Operations $ (563,811)
STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands)
Year Ended July 31
2000 1999
Operations:
Net investment income $1,116,467 $1,120,421
Net realized gain on investments 781,307 1,485,110
Net change in unrealized appreciation
on investments (2,461,585) (912,310)
Net change in net assets
resulting from operations (563,811) 1,693,221
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income:
Class A (1,091,155) (1,109,089)
Class B (238) -
Distributions from net realized gain on investments:
Class A (1,033,505) (1,454,557)
Class B - -
Total dividends and distributions (2,124,898) (2,563,646)
Capital Share Transactions:
Proceeds from shares sold 1,598,045 3,038,713
Proceeds from shares issued in reinvestment
of net investment income dividends and
distributions of net realized gain on investments 1,893,382 2,310,634
Cost of shares repurchased (5,683,519) (3,580,068)
Net change in net assets resulting from
capital share transactions (2,192,092) 1,769,279
Total Change in Net Assets (4,880,801) 898,854
Net Assets:
Beginning of year 23,011,830 22,112,976
End of year (including
undistributed net investment
income of: $234,999 and $211,028,
respectively) $18,131,029 $23,011,830
See Notes to Financial Statements
</TABLE>
Income Fund of America
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - The Income Fund of America (the "fund") is registered under the
Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks current income while secondarily striving
for capital growth through investments in stocks and fixed-income securities.
The fund offers Class A and Class B shares. Class A shares are sold with an
initial sales charge of up to 5.75%. Class B shares are sold without an
initial sales charge but subject to a contingent deferred sales charge paid
upon redemption. This charge declines from 5% to zero over a period of six
years. Class B shares have higher distribution expenses and transfer agent fees
than Class A shares. Class B shares are automatically converted to Class A
shares eight years after the date of purchase. Holders of both classes of
shares have equal pro rata rights to assets and identical voting, dividend,
liquidation and other rights, except that each class bears different
distribution and transfer agent expenses, and each class shall have exclusive
rights to vote on matters affecting only their class.
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. 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. The ability of the issuers of the fixed income securities held by
the fund to meet their obligations may be affected by economic developments in
a specific industry, state or region.
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.
ALLOCATIONS - Income, expenses (other than class-specific expenses) and
realized and unrealized gains and losses are allocated daily between Class A
and Class B based on their relative net asset values. Distribution expenses,
transfer agent fees and any other class-specific expenses are accrued daily and
charged to the applicable share class.
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, 2000, such non-U.S. taxes were $12,298,000.
CURRENCY GAINS AND LOSSES - Net realized currency losses on dividends,
interest, sales of non-U.S. bonds and notes, and other receivables and
payables, on a book basis, were $368,000 for the year ended July 31, 2000.
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, 2000, net unrealized depreciation on investments for federal
income tax purposes aggregated $185,101,000 of which $1,711,657,000 related to
appreciated securities and $1,896,758,000 related to depreciated securities.
During the year ended July 31, 2000, the fund realized, on a tax basis, a net
capital gain of $782,678,000 on securities transactions. Net losses incurred
during the period related to non-U.S. currency and other transactions of
$1,371,000 are treated as an adjustment to ordinary income for federal income
tax purposes. The cost of portfolio securities for federal income tax purposes
was $18,261,310,000 at July 31, 2000.
4. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fee of $59,946,000 for management services was
incurred pursuant to an agreement with Capital Research and Management Company
(CRMC), with which certain officers and Directors of the fund are affiliated.
The Investment Advisory and Service Agreement provides for monthly fees,
accrued daily, based on the following rates and net asset levels:
<TABLE>
<CAPTION>
Net Asset Level (in billions)
Rate In Excess of Up to
<S> <C> <C>
.25% $0 $.5
.23% $.5 $1
.21% $1 $1.5
.19% $1.5 $2.5
.17% $2.5 $4
.16% $4 $6.5
.15% $6.5 $10.5
.145% $10.5 $17
.14% $17 $27.5
.135% $27.5
</TABLE>
The Board of Directors approved an amended agreement effective January 1, 2000,
reducing the fees to:
<TABLE>
<CAPTION>
Net Asset Level (in billions)
Rate In Excess of Up to
<S> <C> <C>
.25% $0 $.5
.23% $.5 $1
.21% $1 $1.5
.19% $1.5 $2.5
.17% $2.5 $4
.16% $4 $6.5
.15% $6.5 $10.5
.144% $10.5 $13
.141% $13 $17
.138% $17 $21
.135% $21 $27
.133% $27 $34
.131% $34 $44
.129% $44
</TABLE>
The agreement also provides for fees based on 2.25% of the fund's monthly gross
investment income.
DISTRIBUTION EXPENSES - Pursuant to a Plan of Distribution, the fund may
expend up to 0.25% of Class A daily 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 in advance 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. Pursuant to
a Plan of Distribution for Class B shares, the fund may expend 1.00% of Class B
daily net assets annually to compensate dealers for their selling and servicing
efforts. During the year ended July 31, 2000, distribution expenses under the
Plans of Distribution for Class A and Class B shares were $47,041,000 and
54,000, respectively. As of July 31, 2000, accrued and unpaid distribution
expenses for Class A and Class B shares were $7,043,000 and $22,000,
respectively. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $5,605,000 (after allowances to
dealers) during the year ended July 31, 2000 as its portion of the sales
charges paid by purchasers of the fund's Class A 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 $13,779,000 during the year ended July 31,
2000.
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, 2000, aggregate deferred amounts and earnings thereon
since the deferred compensation plan's adoption (1993), net of any payments to
Directors, were $866,000.
AFFILIATED DIRECTORS' AND OFFICERS - 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 $6,391,648,000 and $8,092,328,000, respectively,
during the year ended July 31, 2000.
As of July 31, 2000, net assets consisted of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Capital paid in on shares of beneficial $17,543,774
interest
Undistributed net investment income 234,999
Accumulated net realized gain 536,381
Net unrealized depreciation (184,125)
Net assets $18,131,029
</TABLE>
The fund reclassified $1,103,000 from undistributed net investment income to
additional paid-in capital and reclassified $250,332,000 from undistributed net
realized gains to additional paid-in capital for the year ended July 31, 2000
as a result of permanent differences between book and tax.
Capital shares transactions in the fund were as follows:
<TABLE>
Capital share transactions table:
(dollars in thousands)
Year ended July 31, 2000 Year ended July 31, 1999
Amount Shares Amount Shares
<S> <C> <C> <C> <C>
Class A Shares:
Sold $ 1,568,830 97,712,045 $3,038,713 172,804,800
Reinvested dividends and distributions 1,893,179 121,733,105 2,310,634 134,016,601
Repurchased (5,682,984) (360,461,678) (3,580,068) (203,714,499)
Net increase in Class A (2,220,975) (141,016,528) 1,769,279 103,106,902
Class B Shares: +
Sold 29,215 1,886,538 - -
Reinvested dividends and distributions 203 13,113 - -
Repurchased (535) (34,451) - -
Net increase in Class B 28,883 1,865,200 - -
Total net increase in fund $(2,192,092) (139,151,328) $1,769,279 103,106,902
+ Class B shares not offered before
March 15, 2000.
</TABLE>
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
During the year ended July 31, 2000, the custodian fee of $1,060,000 includes
$9,000 that was paid by these credits rather than in cash.
<TABLE>
PER-SHARE DATA AND RATIOS (1)
Net
Net asset gains/(losses)
value, Net on securities
beginning investment (both realized
Year ended of year income and unrealized)
<S> <C> <C> <C>
Class A:
2000 $17.51 $.88 (2) $(1.28) (2)
1999 18.25 .88 0.45
1998 18.59 .85 1.11
1997 15.89 .86 3.55
1996 14.92 .87 1.11
Class B:
2000 14.93 .24 (2) 0.41 (2)
Dividends
Total from (from net Distributions
investment investment (from capital
Year ended operations income) gains)
Class A:
2000 $(0.40) $(.87) $(.81)
1999 1.33 (.88) (1.19)
1998 1.96 (.82) (1.48)
1997 4.41 (.90) (.81)
1996 1.98 (.83) (.18)
Class B:
2000 0.65 (.19) -
Net asset
Total value, end Total
Year ended distributions of year return
Class A:
2000 $(1.68) $15.43 (2.08)%
1999 (2.07) 17.51 7.79
1998 (2.30) 18.25 11.32
1997 (1.71) 18.59 29.28
1996 (1.01) 15.89 13.46
Class B:
2000 (.19) 15.39 4.33
Ratio of Ratio of
Net assets, expenses net income
end of year to average to average
Year ended (in millions) net assets net assets
Class A:
2000 $18,102 .63% 5.52%
1999 23,012 .59 4.99
1998 22,113 .59 4.75
1997 18,814 .61 5.09
1996 14,459 .62 5.56
Class B:
2000 29 1.38 (3) 4.57 (3)
Portfolio
turnover
Year ended rate
Class A:
2000 34.73% (4)
1999 44.35
1998 34.68
1997 40.92
1996 37.77
Class B:
2000 34.73 (4)
(1) The years 1996 through 2000 represent,
for Class A shares, fiscal years
ended July 31.
The period ended July 31, 2000 represents,
for Class B shares, the 138-day period
ended
July 31, 2000. Class B shares were not
offered before March 15, 2000.
Total return for Class B is based on
activity during the period and thus is not
representative of a full year. Total
returns exclude all sales charges, including
contingent deferred sales charges.
(2) Based on average shares outstanding.
(3) Annualized.
(4) Represents portfolio turnover rate
(equivalent for all share classes) for
the year ended ended July 31, 2000.
</TABLE>
Income Fund of America
Notes to Financial Statements
Year ended July 31, 2000
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.
During the fiscal year ended July 31, 2000, the fund paid a long-term capital
gain distribution of $1,033,505,000 to Class A shareholders. The fund also
designates as a capital gain distribution a portion of earnings and profits
paid to shareholders in redemption of their shares.
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 37% of the dividends
paid by the fund from net investment income represent qualifying dividends.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 3% 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.
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 2001 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 2000 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
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, 2000, 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 for Class A shares and the period March 15, 2000
through July 31, 2000 for Class B shares. 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 auditing standards generally
accepted in the United States of America. 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, 2000, 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, 2000, 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 for Class A shares and the
period March 15, 2000 through July 31, 2000 for Class B shares, in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Los Angeles, California
September 1, 2000
