[The American Funds Group(r)]
THE INCOME FUND OF AMERICA
ANNUAL REPORT FOR THE YEAR ENDED JULY 31, 2000
[Illustration of a man and a woman walking on a path which runs through rolling
hills]
Finding Opportunities in a Changing Landscape
The Income Fund of America(r) seeks current income while secondarily striving
for capital growth through investments in stocks and fixed-income securities.
The Income Fund of America is one of the 29 American Funds, the nation's
third-largest mutual fund family. For nearly seven decades, Capital Research
and Management Company, the American Funds adviser, has invested with a
long-term focus based on thorough research and attention to risk.
There are two ways to invest in The Income Fund of America. Class A shares are
subject to a 5.75% maximum up-front sales charge that declines for accounts of
$25,000 or more. Class B shares, which are not available for certain
employer-sponsored retirement plans, have no up-front charge. They are,
however, subject to additional expenses of approximately 0.75% a year over the
first eight years of ownership. If redeemed within six years, they may also be
subject to a contingent deferred sales charge (5% maximum) that declines over
time. Because expenses are first deducted from income, dividends for Class B
share accounts will be lower.
FIGURES SHOWN ARE PAST RESULTS AND ARE NOT PREDICTIVE OF FUTURE RESULTS. SHARE
PRICE AND RETURN WILL VARY, SO YOU MAY LOSE MONEY. INVESTING FOR SHORT PERIODS
MAKES LOSSES MORE LIKELY. INVESTMENTS ARE NOT FDIC-INSURED, NOR ARE THEY
DEPOSITS OF OR GUARANTEED BY A BANK OR ANY OTHER ENTITY. HIGH-YIELD BONDS ARE
SUBJECT TO GREATER FLUCTUATIONS IN VALUE AND RISK OF LOSS OF INCOME AND
PRINCIPAL. INVESTING OUTSIDE THE UNITED STATES INVOLVES ADDITIONAL RISKS, SUCH
AS CURRENCY FLUCTUATIONS, POLITICAL INSTABILITY, DIFFERING SECURITIES
REGULATIONS AND PERIODS OF ILLIQUIDITY, WHICH ARE DETAILED IN THE FUND'S
PROSPECTUS.
FELLOW SHAREHOLDERS:
True to its mandate, The Income Fund of America continued to deliver
well-above-average income during the fiscal year just ended - the dividend rate
was 5.4% for the year. Unlike the price of your portfolio, which fluctuates
daily, income is the tangible component of total return. If, like most
shareholders, you have reinvested your dividend checks in additional fund
shares over the years, this income has contributed meaningfully to your
investment. (Please refer to the mountain chart on pages 6-7.) For the fund's
26-year lifetime, IFA has provided a 13.2% average compound annual return and
more than half that return has come from reinvested income.
Last year's substantial dividend rate reflected your fund's continuing resolve
to find and hold good dividend-paying stocks even when the market wasn't paying
them that much heed. The value of the portfolio, with all distributions
reinvested, slipped 2.1% during the period. However, trends in recent weeks
have been more favorable to the fund; as of September 11, the portfolio value
is up 4.3% since the July 31 end of the fiscal year. (See Results at a Glance
on page 16 for fiscal-year comparisons with benchmarks.)
Over the years, "buy low, sell high" has been the axiom for successful
investing. But in a market driven by expensive technology-related stocks
offering no yield, the watchword is "buy high, sell higher" - if you are lucky.
From the charts on this page, you can see that for the 12 months ended July 31,
2000, about a quarter of the S&P 500 provided no yield, but rose an average of
33%. This group of non-dividend-paying stocks now sells at an average
price/earnings ratio of about 71 times earnings. In dramatic contrast, those
stocks in the S&P 500 yielding 3% or more - prime candidates for IFA's
portfolio - declined 13% and are valued at an average price/earnings ratio of
10 times earnings. (A price/earnings ratio shows the relationship between a
stock's price and the company's earnings for the last four quarters.)
[Begin sidebar]
STOCKS THAT DON'T PAY DIVIDENDS HAD THE HIGHEST RETURNS
Source: Prudential Securities Quantitative Monthly.
[Begin bar chart]
S&P 500 ONE-YEAR RETURNS BY YIELD SECTOR
FOR THE YEAR ENDED JULY 31, 2000
[End bar chart]
<TABLE>
<CAPTION>
Yield Sector 1-Year Return
<S> <C>
0.0% 32.9
0-1% 21.4
1-2% 2.3
2-3% -4.3
>3% -13.4
</TABLE>
[Begin pie chart]
S&P 500 BY YIELD SECTOR
AS OF JULY 31, 2000
<TABLE>
<CAPTION>
Yield Sector % of Total
<S> <C>
0.0% 26.3
0-1% 29.6
1-2% 22.3
2-3% 12.3
>3% 9.5
</TABLE>
[end pie chart]
[Begin bar chart]
S&P 500 VALUATION BY YIELD SECTOR
PRICE/EARNINGS RATIO AS OF JULY 31, 2000
<TABLE>
<CAPTION>
Yield sector P/E
<S> <C>
0.0% 71.2
0-1% 32.3
1-2% 25.4
2-3% 15.2
>3% 9.9
</TABLE>
[end bar chart]
[End 3 charts using the above table of data]
[End sidebar]
[Begin Pull Quote]
The past 12 months have
been an extraordinarily
difficult time for
"value-oriented" higher
yielding stocks.
[End Pull Quote]
Investors were reminded last spring that paying any price for growth can have
painful consequences. On March 10, the market began to question the high
valuations of many Internet companies. Among other things, investors were
concerned about the ability of unprofitable, non-cash-generating growth
companies to survive. As a result, the technology-heavy Nasdaq fell 37% from
its March 10 high to its May 23 low. During the same period, IFA rose 4.1% with
dividends excluded. Standard & Poor's 500 Composite Index, a measure of mostly
large U.S. companies, fell 1.5%.
[Begin Pull Quote]
Investors were reminded
last spring that paying any
price for growth can have
painful consequences.
[End Pull Quote]
[Begin line chart]
HOW IFA FARED DURING THE SPRING NASDAQ DECLINE
PERCENT CHANGE FROM VALUE AS OF MARCH 10, 2000
<TABLE>
<CAPTION>
Date IFA % Change NASDAQ % Change
<S> <C> <C>
3/10/00 0.00 0.00
3/13/00 -0.07 -2.80
3/14/00 -1.80 -6.77
3/15/00 -0.20 -9.23
3/16/00 2.27 -6.56
3/17/00 1.54 -4.96
3/20/00 1.40 -8.69
3/21/00 2.21 -6.67
3/22/00 1.80 -3.64
3/23/00 2.54 -2.14
3/24/00 2.34 -1.70
3/27/00 2.21 -1.78
3/28/00 2.01 -4.25
3/29/00 2.14 -8.00
3/30/00 2.74 -11.70
3/31/00 3.34 -9.42
4/3/00 4.01 -16.34
4/4/00 3.88 -17.82
4/5/00 3.54 -17.42
4/6/00 3.88 -15.47
4/7/00 3.48 -11.93
4/10/00 4.01 -17.04
4/11/00 4.28 -19.66
4/12/00 4.68 -25.33
4/13/00 4.48 -27.17
4/14/00 2.21 -34.21
4/17/00 1.94 -29.90
4/18/00 2.41 -24.86
4/19/00 2.61 -26.59
4/20/00 2.54 -27.82
4/24/00 2.94 -31.02
4/25/00 4.08 -26.49
4/26/00 4.08 -28.10
4/27/00 3.34 -25.25
4/28/00 3.07 -23.53
5/1/00 3.68 -21.60
5/2/00 3.81 -25.02
5/3/00 2.81 -26.57
5/4/00 3.07 -26.31
5/5/00 3.21 -24.40
5/8/00 3.61 -27.32
5/9/00 3.61 -28.99
5/10/00 3.34 -32.96
5/11/00 4.01 -30.68
5/12/00 4.41 -30.10
5/15/00 5.35 -28.54
5/16/00 5.35 -26.36
5/17/00 4.75 -27.80
5/18/00 4.68 -29.91
5/19/00 4.34 -32.85
5/22/00 4.41 -33.36
5/23/00 4.08 -37.32
</TABLE>
[End chart]
INVESTING FOR INCOME IN A YEAR OF RISING INTEREST RATES
Reflecting concern about an overheating economy and the risk of rising
inflation, the Federal Reserve Board boosted short-term interest rates in
February, March and May. Some of this tightening was anticipated by the market
in the first half of IFA's fiscal year and was reflected in the poor price
action of electric utilities, banks and many cyclical stocks in such areas as
paper, chemicals and retailing.
Once investors began to see the signs of economic slowdown taking hold and
consensus began to build that further interest rate hikes might not be
required, a number of these sectors began to bounce back. Given the magnitude
of the initial decline, however, the rebound was not sufficient to provide a
positive return for the fund by fiscal year-end.
Beyond the broad downward pressures on parts of the portfolio, returns* to your
fund were also affected by company-specific disappointments. First Union, our
largest holding, declined 39.8% due to difficulties in integrating an
acquisition and rising interest rates. J.C. Penney's slow progress in
restructuring and perceived lack of a clear strategy pushed the stock down
59.9%. AT&T fell 38.7% when the company failed to meet earnings expectations;
fortunately, the fund escaped most of that decline by selling shares when
prices were higher.
*Return to the fund reflects price changes and dividends received from the
beginning to the end of the fiscal year.
[Begin Pull Quote]
The fund was helped by
merger and acquisition
announcements of several
natural gas companies.
[End Pull Quote]
[Begin Pull Quote]
Reflecting concern about
an overheating economy,
the Federal Reserve boosted
short-term interest rates.
[End Pull Quote]
Not all company-specific news was poor. U S West, the fund's largest holding at
the beginning of the fiscal year, was taken over by Qwest Communications
International at a handsome gain. This made it a standout in a very rocky
telecommunications group.
Returns for gas and electric utilities, the fund's largest industry
concentration, were mixed for the full year, even though electric utilities
rallied strongly in the second half while technology companies declined.
Results for energy sources and equipment companies were also mixed. Besides
rising interest rates, earnings shortfalls and news of potential bad loan
losses hurt many banks.
On the positive side, we saw takeover announcements for a number of natural gas
companies in the portfolio. These announcements had a positive impact on stock
prices, although the mergers may take many months to complete because of state
regulatory review.
[Begin Pull Quote]
Real estate investment
trusts contributed
to price appreciation
and dividend income.
[End Pull Quote]
Real estate investment trusts also helped the fund, contributing to both price
appreciation and dividend income. Fundamentals for major office buildings are
strong and investors perceive these securities to be an inflation hedge.
Importantly for IFA, these securities offer above-average yields. Significant
contributors were Speiker Properties (+42.0%), Boston Properties (+26.7%) and
Equity Residential Properties (+26.5%). Speiker Properties is a major owner of
office space in the hot real estate market of Silicon Valley.
Convertible securities were another major contributor. As we discuss in the
feature article beginning on page 8, these hybrid securities provide a dividend
and participation in a company's common stock price, allowing IFA to invest in
companies and industries which don't typically meet the fund's yield
requirements. For example, the convertible subordinated notes of Advanced Micro
Devices, a global supplier of products that enhance the processing power of
personal computers, rose 193.9%.
[Begin line chart]
IFA DIVIDEND YIELD VS. BENCHMARKS
YEARS ENDED JULY 31
<TABLE>
<CAPTION>
Year-end IFA Average of Average of S&P 500
income funds equity-income
funds
<S> <C> <C> <C> <C>
1/31/75 7.30 7.29 6.49 4.71
7/31/75 7.24 7.03 6.33 4.18
1/31/76 6.30 6.19 5.38 3.65
7/31/76 7.06 6.37 4.56 3.66
1/31/77 6.94 6.17 4.60 4.01
7/31/77 6.15 6.07 5.34 4.47
1/31/78 6.61 6.58 5.95 5.28
7/31/78 6.70 6.44 5.53 4.92
1/31/79 7.56 6.85 5.89 5.12
7/31/79 7.38 6.92 5.82 5.19
1/31/80 7.83 6.96 6.05 4.99
7/31/80 7.63 7.01 6.06 4.95
1/31/81 8.07 7.37 6.48 4.81
7/31/81 8.16 7.95 6.81 4.91
1/31/82 8.75 8.73 7.28 5.53
7/31/82 9.81 9.70 8.52 6.37
1/31/83 7.95 8.18 6.36 4.74
7/31/83 7.95 7.97 5.84 4.28
1/31/84 7.74 8.12 4.98 4.36
7/31/84 8.60 9.48 6.46 4.87
1/31/85 7.58 7.83 5.81 4.22
7/31/85 7.45 7.89 5.80 4.07
1/31/86 7.07 7.16 5.04 3.75
7/31/86 7.27 6.90 5.38 3.45
1/31/87 6.69 6.25 4.48 3.03
7/31/87 7.02 6.54 4.35 2.69
1/31/88 7.50 7.06 5.16 3.31
7/31/88 6.96 7.12 4.79 3.27
1/31/89 6.69 6.72 4.50 3.34
7/31/89 6.67 6.35 4.43 3.04
1/31/90 6.99 6.77 5.48 3.37
7/31/90 7.18 6.81 5.70 3.31
1/31/91 8.12 7.11 5.53 3.52
7/31/91 7.11 6.46 4.80 3.11
1/31/92 6.33 5.94 4.18 2.96
7/31/92 6.06 5.61 3.89 2.89
1/31/93 6.44 5.24 3.59 2.83
7/31/93 6.23 4.73 3.30 2.79
1/31/94 5.56 4.50 3.15 2.64
7/31/94 6.14 4.55 3.39 2.80
1/31/95 6.14 4.67 3.42 2.81
7/31/95 5.56 4.40 3.18 2.41
1/31/96 5.07 4.28 2.75 2.18
7/31/96 5.22 4.52 2.78 2.28
1/31/97 5.09 3.89 2.36 1.89
7/31/97 4.84 3.87 2.10 1.61
1/31/98 4.27 4.06 1.89 1.58
7/31/98 4.49 3.99 1.84 1.43
1/31/99 4.79 3.65 1.61 1.29
7/31/99 5.03 3.82 1.62 1.24
1/31/00 5.40 4.11 1.63 1.19
7/31/00 5.64 4.16 1.72 1.15
</TABLE>
All numbers calculated by Lipper Inc.
[End chart]
BONDS HELP FUND'S RESULTS
Our fixed-income securities (including bonds and cash equivalents) made a solid
contribution to yield and helped total return. Their results were better than
the equity portion of the fund. Of these, 56% are investment grade and 44% are
below investment grade bonds.
High-quality bonds did reasonably well, led by U.S. Treasury bonds. A sharp
slowdown in government borrowing - compounded by the launch of an unprecedented
program to buy back publicly held debt - left investors with a shrinking pool
of securities. The result: government bond prices surged, with long Treasury
bonds returning 9% over the fiscal year. Mortgage-backed bonds also posted
strong returns. Investment grade corporate bonds lagged these two sectors.
[Begin Pull Quote]
High-quality bonds
did reasonably
well, led by
U.S. Treasury bonds.
[End Pull Quote]
The high-yield bond market faced increasing defaults and downgrades over the
past year, particularly in the health care industry. Nonetheless, despite
broadly falling prices, IFA's high-yield bond investments made a solid
contribution to meeting the fund's yield objective and delivered a positive
total return.
REFLECTIONS ON THE FUTURE
We are now entering the 27th year that The Income Fund of America has been
managed by Capital Research and Management Company. Over that period, the fund
has consistently provided above-average income, steady long-term growth
exceeding inflation, and a measure of resistance to market declines. We will
make every effort to build on this strong record for the future.
[Begin Pull Quote]
We believe our
conservative style of
investing offers an
important component
of diversification.
[End Pull Quote]
With market indexes hitting new highs during the last year before falling off,
sometimes dramatically, we have all been reminded that investing can be a
volatile business. It places even greater importance on diversification. We
believe our conservative style of investing offers an important component of
such diversification and will pay off in the years ahead. We recognize how
tough it has been to maintain that perspective and we value our shareholders'
confidence in us.
Cordially,
/s/ Walter P. Stern
Walter P. Stern
Chairman of the Board
/s/ Janet A. McKinley
Janet A. McKinley
President
September 11, 2000
FOLLOWING THE COURSE OF AN INVESTMENT IN IFA
Here's how a $10,000 investment in IFA Class A shares grew between December 1,
1973 - the day that Capital Research and Management Company became the fund's
investment adviser - and July 31, 2000, the end of the fund's latest fiscal
year.
As you can see, the $10,000 would have grown to $259,177 with all distributions
reinvested, an average increase of 13.0% a year.
The IFA figures, unlike those shown elsewhere in this report, reflect payment
of the maximum sales charge of 5.75% on the $10,000 investment. Thus, the net
amount invested was $9,425. As outlined in the prospectus, sales charges are
lower for accounts of $25,000 or more. There is no sales charge on dividends or
capital gain distributions that are reinvested in additional shares. No
adjustment has been made for income or capital gain taxes.
The fund's 30-day yield for Class A shares as of August 31, 2000, calculated in
accordance with the Securities and Exchange Commission formula, was 5.25%.
The fund's year-by-year results appear in the table under the chart. You can
use this table to estimate how much the value of your own holdings has grown.
[Begin chart]
THE VALUE OF A LONG-TERM PERSPECTIVE
Average annual compound returns*
<TABLE>
<CAPTION>
Periods Ended
Class A Shares July 31, 2000 June 30, 2000
reflecting 5.75% maximum sales charge
<S> <C> <C>
Ten years +11.17% +10.94%
Five years +10.19 +10.24
One year - 7.72 - 9.92
</TABLE>
*Assumes reinvestment of all distributions.
Results for Class B shares are not shown because of the brief time between
their introduction on March 15, 2000, and the end of the period.
<TABLE>
<CAPTION>
Standard & Poor's IFA with Lehman Bros. IFA not
500 Composite Index dividends Aggregate Bond Index including
with dividends reinvested with interest dividends
reinvested compounded
<S> <C> <C> <C>
8,506 9,088 9,378 8,767
9,994 11,391 10,580 10,141
12,118 14,751 11,871 12,155
12,079 16,392 13,189 12,701
12,958 17,404 13,474 12,584
14,084 18,921 14,373 12,693
17,431 20,162 14,602 12,490
19,681 22,485 13,871 12,818
17,075 23,664 16,720 12,256
27,195 33,685 20,383 16,112
26,372 35,722 22,154 15,738
34,913 47,677 27,452 19,443
44,805 57,148 33,352 21,668
62,438 66,674 34,859 23,568
55,117 67,816 37,497 22,341
72,657 83,702 43,200 25,644
77,294 84,643 46,253 24,351
87,186 95,050 51,204 25,390
98,312 113,242 58,770 28,370
106,853 126,686 64,746 29,917
112,395 129,177 64,807 28,788
141,650 150,385 71,358 31,571
164,975 170,626 75,311 34,007
250,946 220,586 83,417 41,731
299,279 245,553 89,980 44,436
359,694 264,676 92,220 45,588
391,920 259,177 97,721 42,276
</TABLE>
$391,920
Standard &
Poor's 500
Composite
Index/1/ with
dividends
reinvested
$259,177
IFA/2,3/ with
dividends
reinvested
$97,721
Lehman Bros.
Aggregate
Bond Index/1,4/
with interest
compounded
$42,276
IFA/2,5/ not
including
dividends
$10,000/2/
original
investment
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1974/#/ 1975 1976 1977 1978 1979 1980
Value of Dividends:
Dividends $344 735 860 780 842 936 952
in Cash
Dividends $347 785 998 969 1,117 1,333 1,463
Reinvested
Value of Investment:
Dividends $8,767 10,141 12,155 12,701 12,584 12,693 12,490
in Cash
Dividends $9,088 11,391 14,751 16,392 17,404 18,921 20,162
Reinvested
IFA Total (9.1)% 25.3 29.5 11.1 6.2 8.7 6.6
Return
1981 1982 1983 1984 1985 1986 1987
Value of Dividends
Dividends 1,047 1,202 1,280 1,344 1,438 1,550 1,636
in Cash
Dividends 1,743 2,187 2,549 2,896 3,365 3,909 4,431
Reinvested
Value of Investment
Dividends 12,818 12,256 16,112 15,738 19,443 21,668 23,568
in Cash
Dividends 22,485 23,664 33,685 35,722 47,677 57,148 66,674
Reinvested
IFA Total 11.5 5.2 42.3 6.0 33.5 19.9 16.7
Return
1988 1989 1990 1991 1992 1993 1994
Value of Dividends
Dividends 1,543 1,711 1,578 1,764 1,715 1,713 1,726
in Cash
Dividends 4,479 5,338 5,269 6,311 6,578 6,995 7,471
Reinvested
Value of Investment
Dividends 22,341 25,644 24,351 25,390 28,370 29,917 28,788
in Cash
Dividends 67,816 83,702 84,643 95,050 113,242 126,686 129,177
Reinvested
IFA Total 1.7 23.4 1.1 12.3 19.1 11.9 2.0
Return
1995 1996 1997 1998 1999 2000
Value of Dividends
Dividends 1,751 1,766 1,968 1,959 2,211 2,320
in Cash
Dividends 8,046 8,581 10,075 10,531 12,446 13,741
Reinvested
Value of Investment
Dividends 31,571 34,007 41,731 44,436 45,588 42,276
in Cash
Dividends 150,385 170,626 220,586 245,553 264,676 259,177
Reinvested
IFA Total 16.4 13.5 29.3 11.3 7.8 (2.1)
Return
</TABLE>
Average annual compound return for 26-2/3 years:13.0%/2,3/
/#/For the period December 1, 1973 (when Capital Research and Management
Company became the fund's investment adviser), through July 31, 1974.
/1/The indexes are unmanaged and do not reflect sales charges, commissions or
expenses.
/2/These figures, unlike those shown earlier in this report, reflect payment of
the maximum sales charge of 5.75% on the $10,000 investment. Thus, the net
amount invested was $9,425. As outlined in the prospectus, the sales charge is
reduced for larger investments. There is no sales charge on dividends or
capital gain distributions that are reinvested in additional shares. No
adjustment has been made for income or capital gain taxes.
/3/Includes reinvested dividends of $133,953 and reinvested capital gain
distributions of $76,319. From April 1990 to September 1994, the fund paid
daily dividends; therefore, total values for this period were adjusted for
cumulative dividends ex- but not yet paid. After this period, quarterly
dividends were resumed.
/4/From December 1, 1973, through December 31, 1975, the Lehman Brothers
Government/Corporate Bond Index was used because the Lehman Brothers Aggregate
Bond Index did not exist. From January 1, 1976, through July 31, 2000, the
Lehman Brothers Aggregate Bond Index was used.
/5/Includes capital gain distributions of $16,920, but does not reflect income
dividends of $38,671 taken in cash.
Past results are not predictive of future results.
[End chart]
FINDING OPPORTUNITIES IN A CHANGING LANDSCAPE
[Begin Sidebar]
Investing in the "new economy" with a conservative, income-oriented strategy
[End Sidebar]
A year ago, all we heard were stories of nimble Internet start-up companies
beating traditional companies at providing goods and services for customers.
The big companies were called mastodons, brick-and-mortars and symbols of the
so-called "old economy" - sluggish, stagnant and washed up.
Electric utilities? A staid, no-growth industry, some pundits said. Investors
showed little interest. Yield was considered by many to be passe; everyone
seemed to be focusing on technology because of higher and higher share prices.
Forget dividends.
Today, the investment landscape is changing.
[Begin Sidebar]
All figures are based on net asset value with all distributions reinvested.
[End Sidebar]
[Illustration of man and woman walking along path]
- In contrast with a year ago, many big, established companies - the ones that
pay dividends and qualify for The Income Fund of America's portfolio - are
using information technology to streamline their operations. Major competitors
in such industries as oil and paper are joining forces to form
business-to-business procurement ventures on the Internet. They seek to save
billions of dollars and speed better products to customers.
- The traditional view of electric utilities is that they are stodgy, no-growth
organizations, yet today, they are on the cusp of a revolution. The digital
economy - already 10% of total power usage - is increasing the need for
high-quality, uninterrupted power. Consider that the handheld "personal digital
assistant"- one of the most popular consumer electronics - can use as much
energy as a refrigerator, if you include recharging, wireless communications
and the support systems behind each device.
- So-called "old economy" stocks, which pay dividends, suddenly looked a lot
better to investors after the technology-heavy Nasdaq Index fell 37% from its
March 10 high to May 23. After a period of sharp volatility, many investors
seem to appreciate the relative calm of stocks that offer higher yields.
[Begin Pull Quote]
The new economy and
the old economy
are quickly becoming
artificial distinctions.
[End Pull Quote]
[Begin mountain chart]
COMPANIES ARE INVESTING MORE IN INFORMATION TECHNOLOGY
<TABLE>
<CAPTION>
<S> <C>
1970 Q1 0.316
Q2 0.32
Q3 0.306
Q4 0.312
1971 Q1 0.299
Q2 0.321
Q3 0.326
Q4 0.339
1972 Q1 0.348
Q2 0.341
Q3 0.346
Q4 0.351
1973 Q1 0.364
Q2 0.378
Q3 0.392
Q4 0.414
1974 Q1 0.424
Q2 0.422
Q3 0.456
Q4 0.472
1975 Q1 0.465
Q2 0.443
Q3 0.431
Q4 0.426
1976 Q1 0.432
Q2 0.46
Q3 0.487
Q4 0.52
1977 Q1 0.522
Q2 0.537
Q3 0.546
Q4 0.582
1978 Q1 0.619
Q2 0.657
Q3 0.691
Q4 0.721
1979 Q1 0.754
Q2 0.77
Q3 0.808
Q4 0.851
1980 Q1 0.886
Q2 0.922
Q3 0.973
Q4 0.971
1981 Q1 0.999
Q2 1.036
Q3 1.065
Q4 1.126
1982 Q1 1.193
Q2 1.137
Q3 1.147
Q4 1.12
1983 Q1 1.194
Q2 1.25
Q3 1.291
Q4 1.379
1984 Q1 1.387
Q2 1.464
Q3 1.524
Q4 1.608
1985 Q1 1.587
Q2 1.622
Q3 1.579
Q4 1.627
1986 Q1 1.642
Q2 1.685
Q3 1.658
Q4 1.713
1987 Q1 1.678
Q2 1.701
Q3 1.762
Q4 1.732
1988 Q1 1.764
Q2 1.819
Q3 1.855
Q4 1.87
1989 Q1 1.89
Q2 1.982
Q3 2.035
Q4 2.058
1990 Q1 2.044
Q2 2.02
Q3 2.006
Q4 2.066
1991 Q1 2.055
Q2 2.102
Q3 2.165
Q4 2.229
1992 Q1 2.248
Q2 2.34
Q3 2.444
Q4 2.443
1993 Q1 2.507
Q2 2.542
Q3 2.662
Q4 2.673
1994 Q1 2.742
Q2 2.767
Q3 2.822
Q4 2.915
1995 Q1 3.038
Q2 3.188
Q3 3.24
Q4 3.403
1996 Q1 3.539
Q2 3.606
Q3 3.744
Q4 3.813
1997 Q1 4.003
Q2 4.173
Q3 4.427
Q4 4.535
1998 Q1 4.776
Q2 4.987
Q3 5.162
Q4 5.339
1999 Q1 5.646
Q2 5.999
Q3 6.301
Q4 6.471
6/30/2000 Q1 6.848
Q2 7.237
</TABLE>
Source: U.S. Bureau of Economic Analysis.
Investment in information technology expressed as a percentage of U.S. gross
domestic product.
[End mountain chart]
NEW ECONOMY MEETS REAL ECONOMY
"The new economy and the old economy are quickly becoming artificial
distinctions," says Janet McKinley, president of IFA. "All companies, no matter
how basic their goods and services, are trying to raise productivity and
profitability by using new technology."
Even though its primary goal is to provide investors with above-average income,
IFA is very much a part of the changing investment landscape. After all, the
fund's secondary objective is to build a portfolio that delivers long-term
capital appreciation.
Many people don't realize that IFA has exposure to evolving technologies
consistent with its conservative investment strategy. While the fund focuses on
attractive investments which produce a continual stream of dividends and
interest payments, surprisingly, many of these investments also offer exposure
to the Internet revolution and the power of information technology - but with
less risk.
IFA's equity strategy covers a wide variety of dividend-paying companies. Oil
companies, electric utilities and banks are among the many sectors of the
economy grappling with rapidly changing technology. Some have been more
successful than others. Let's take a closer look at how IFA is finding
opportunities in today's changing investment landscape.
[Begin Pull Quote]
The Internet is creating
what may be an
oil industry revolution.
[End Pull Quote]
OIL INDUSTRY REVOLUTION?
Oil has always been a technology-intensive industry, requiring complex
engineering feats to find, extract and deliver crude. Now, the Internet is
creating what may be an oil industry revolution - affecting all aspects of the
business, up and down the line, from oil exploration and delivery of crude to
new Internet services at your neighborhood gas station. "The Internet is making
the oil industry rethink and re-engineer how it does business," says Cathy
Kehr, oil analyst for Capital Research and Management Company, the investment
adviser for IFA. "The Internet will take out a layer of cost and add a layer of
efficiency." Some companies (including several in IFA's portfolio) are taking
the lead while others are watching to see what happens, Cathy says.
One of the leaders in this change is Shell, a sizable IFA holding, with its
participation in Petroleum Place, an Internet energy marketplace. This
business-to-business Web site allows companies to access oil property auctions,
geotechnical data and a directory of industry providers of products and
services. As a result, Shell and other oil industry participants can utilize
this powerful tool to cut costs and create new business opportunities.
[Begin pie chart]
WHICH INDUSTRIES WILL BE USING THE INTERNET FOR BUSINESS-TO-BUSINESS ACTIVITY?
<TABLE>
<CAPTION>
Projected Shares
<S> <C>
Chemicals 23.27%
Computers - Hardware/Software/Networking 14.70
Industrial Equipment 9.34
Energy - Oil/Gas/Mining 8.89
Agriculture 8.25
Government Spending to Businesses 6.26
Paper 6.19
Aerospace/Defense Electronics 5.10
Information Services 3.54
Motor Vehicles and Parts 3.14
Other (Includes Transportation, Pharmaceutical,
Food/Beverage, Medical Equipment, Financial
Service and Electronics) 11.31
</TABLE>
Source: Goldman Sachs.
This pie chart shows estimated projected shares of the Internet
business-to-business economy by industry segment for 2004. IFA has significant
investments in the chemicals, oil and gas, motor vehicles, paper and industrial
equipment industries.
[End pie chart]
In general, Internet buying and selling of goods such as drill pipe and
ethylene, and services such as refinery maintenance, lowers costs by removing
layers of middlemen, increasing competition and speeding up transactions.
The use of the Internet in the oil business has really taken off in the last 12
months and is expected to increase, Cathy says. "Profit margins are very thin
and competition is fierce in the oil industry, and what the Internet offers -
time and cost savings up and down the line - is of the utmost importance to
companies such as Shell."
[Begin Pull Quote]
Almost everything we use
contains microprocessors,
needing ever more
reliable power to operate.
[End Pull Quote]
MEETING THE POWER CHALLENGE
Everyone takes it for granted: We flip the switches and turn on the appliances.
But it is not just blenders and toasters now. We find that almost everything we
use today contains microprocessors, needing ever more reliable power to
operate. "It is not considered a $sexy' industry, but everyone is using more
electricity, and increasingly, it has to be uninterrupted. That costs extra,"
says Janet McKinley.
In 1995, personal computers consumed about 3% of all electrical energy in the
U.S. In 1999, electrical consumption by microprocessor-related products
(including personal computers) had increased to 10%. As the Internet revolution
continues to permeate all aspects of society, and the youngest generation grows
up, the use of all things digital will only increase power needs.
What do we do about so much of a good thing? A number of electric utility
companies in the IFA portfolio are aware of this growing need and are
retooling. Some, including DTE Energy, Consolidated Edison and Entergy, are
members of Pantellos. This Internet e-commerce site is an example of strategic
plans to use the Internet to improve operating efficiency. The goal is to lower
the cost of doing business. Through Pantellos, participants will be able to
purchase lines, poles, transformers and other distribution materials.
No one wants to worry about whether turning on the air conditioner on a hot day
will blow the power grid. Meeting that reliability challenge is going to
require something we haven't seen from this industry in a while - growth - both
in power generation and transmission. New plants, and new technologies for
producing, transmitting and trading, will enable the best managements in the
industry to deliver growing profits and dividends to their shareholders.
BANKS: THE JURY IS STILL OUT
Not every industry can adapt to doing business on the Internet without some
bumps along the way. Most banks have Web sites, but most haven't made a lot of
headway in getting large numbers of consumers involved in Internet banking,
says Joyce Gordon, bank analyst for Capital Research. "The big regional banks
like Bank of America and Wells Fargo, two IFA holdings, have embraced the
Internet, but the smaller regional banks haven't," she says. Why hasn't
Internet banking been a big success? "Many people still have security questions
about banking on the Internet," Joyce says. "Most people still like to go into
bank branches." This all may change when a younger generation of bank customers
gains critical mass, she adds.
[Begin Pull Quote]
Convertible securities
have allowed the fund
to participate in
growth companies.
[End Pull Quote]
CONVERTIBLE SECURITIES OFFER NEW OPPORTUNITIES
"Convertible securities have allowed the fund to participate in medical,
biomedical and technology investments," says Hilda Applbaum, one of IFA's seven
portfolio counselors. "These companies typically don't pay any dividends, but
have exciting growth prospects."
Convertible bonds and convertible preferred are hybrids - part bond and part
stock. As bonds, they provide a regular fixed-income stream, usually at a lower
yield than conventional bonds of the same company, but higher than what the
common stock might yield. "Typically, when you buy a convertible, you get 75%
to 80% of the upside if the underlying stock goes up and only 40% to 50% of the
downside if the stock declines," she says.
Burr-Brown convertible bonds are an example of a successful high-tech
investment. When IFA bought Burr-Brown, this semi-conductor manufacturer was
"under a cloud," Hilda says. Investors were moving out of technology, but we
had confidence that even if there were to be a downturn in the economy,
Burr-Brown would continue to produce positive earnings. In June of this year,
Texas Instruments, the world leader in digital signal processors, acquired
Burr-Brown for $7.6 billion. The result: With Burr-Brown officially part of
Texas Instruments now, its perceived creditworthiness has improved, sharply
increasing the value of IFA's investment. Burr-Brown's stock price also
appreciated nicely.
[Begin pie chart]
A LOOK AT IFA'S CONVERTIBLE SECURITIES* - GROWTH WITH YIELD
<TABLE>
<CAPTION>
<S> <C>
Electronic Components & Instruments 13.69%
Leisure & Tourism 9.55
Health & Personal Care 9.37
Business & Public Services 8.34
Diversified Telecommunication Services 8.33
Energy Sources & Equipment 7.21
Utilities: Electric & Gas 5.27
Forest Products & Paper 5.27
Broadcasting & Publishing 4.84
Financial Services 4.69
Transportation 4.12
Other Industries 19.32
</TABLE>
*Percent of IFA's convertible securities by industry.
[End pie chart]
[Begin Pull Quote]
High-yield bonds
offer added exposure to
the new economy.
[End Pull Quote]
HIGH-YIELD BONDS DO DOUBLE DUTY
High-yield bonds (currently yielding from 10% to 15% annually) help IFA provide
above-average dividends at a time when stock market yields are near all-time
lows. They also offer added exposure to portions of the new economy. Many of
the fund's high-yield bond investments are in wireless telecommunications and
broadcasting and media companies. IFA has particularly benefited from its
wireless telecommunications bond investments. "These new companies need
investors to raise capital, and we can make significant gains if things turn
out right," says David Daigle, Capital Research high-yield bond analyst. Take
VoiceStream Wireless Corp. Earlier this year, IFA became the company's largest
bondholder. In the last week of July, Deutsche Telekom, the German
telecommunications company, agreed to acquire the fast-growing VoiceStream for
$45.5 billion. "We made a considerable return on our investment," David says.
[Begin chart]
MORE TECHNOLOGY COMPANIES
ISSUE HIGH-YIELD CORPORATE BONDS
Technology-related high-yield bonds as a percentage of all high-yield bonds
issued
<TABLE>
<CAPTION>
Year By total dollar volume
<S> <C>
1993 25.1%
1994 26.8
1995 44.0
1996 40.4
1997 37.5
1998 41.6
1999 47.5
June 30, 2000 70.6
</TABLE>
Source: Chase Securities.
Companies in the cable, media, entertainment, telecommunications and technology
areas are issuing a substantial percentage of all high-yield corporate bonds.
[End chart]
THE BOTTOM LINE FOR IFA INVESTORS:
EXPOSURE TO NEW OPPORTUNITIES
So what does all this mean for IFA investors? Even though shareholders have
chosen IFA for its conservative, income-oriented approach, they have not picked
a fund that is invested in yesterday's companies. Many of the large, mature
companies among IFA's equity holdings are already beginning to see benefits
from their participation in the Internet and information technology. As more
and more U.S. companies tap into the Internet revolution, IFA shareholders will
have the opportunity to participate in the advantages of the new technology as
well. -
WHAT MAKES THE AMERICAN FUNDS DIFFERENT?
As a shareholder in The Income Fund of America, you are also a member of The
American Funds Group,(r) the nation's third-largest mutual fund family. You
won't find us advertised, yet thousands of financial advisers recommend the
American Funds for their clients' serious money - money set aside for
education, a home, retirement and other important dreams.
What the 29 funds in our group have in common is a commitment to your best
interests and the proven approach of our investment adviser, Capital Research
and Management Company. In business since 1931, Capital's calling cards
include:
- A long-term, value-oriented approach:
Rather than follow short-term fads, we rely on our own intensive research to
find well-managed companies with reasonably priced securities and solid,
long-term potential. Despite our size, we offer relatively few funds compared
with many large fund families, allowing us to maintain a careful focus on our
objectives and enabling you to benefit from economies of scale.
- An unparalleled global research effort:
We opened our first overseas office in 1962, well before most mutual funds
began investing internationally. Today, the American Funds draw on one of the
industry's most globally integrated research networks. Capital Research spends
substantial resources getting to know companies and industries around the
world.
- A multiple portfolio counselor system:
More than 40 years ago, we developed a unique strategy for managing investments
that blends teamwork with individual accountability. Every American Fund is
divided among a number of portfolio counselors, each of whom manages his or her
portion independently, within each fund's objectives; in most cases, research
analysts manage a portion as well. Over time, this method has contributed to
consistency of results and continuity of management.
[Illustration of woman looking at a United States flag]
- Experienced investment professionals:
More than 75% of the portfolio counselors who serve the American Funds were in
the investment business before the sharp stock market decline in October 1987.
Long tenure and experience through a variety of market conditions mean we
aren't "practicing" with your money.
- A commitment to low operating expenses:
You can't control market returns, but you can control what you invest in and
how much you pay to own it. American Funds provide exceptional value for
shareholders, with operating expenses that are among the lowest in the mutual
fund industry. Our portfolio turnover rates are low as well, keeping
transaction costs and tax consequences contained.
A PORTFOLIO FOR EVERY INVESTOR
Most financial advisers suggest that investors balance their portfolios by
investing across several types of investments. Which mix is right for you? That
depends on a number of things - including your risk tolerance, investment time
horizon and financial goals. The American Funds Group offers 29 funds with an
array of investment objectives to help you and your financial adviser build a
portfolio specifically tailored to your needs.
GROWTH FUNDS
Emphasis on long-term growth through stocks
AMCAP Fund(r)
EuroPacific Growth Fund(r)
The Growth Fund of America(r)
The New Economy Fund(r)
New Perspective Fund(r)
New World Fund(SM)
SMALLCAP World Fund(r)
GROWTH-AND-INCOME FUNDS
Emphasis on long-term growth and dividends through stocks
American Mutual Fund(r)
Capital World Growth and Income Fund(SM)
Fundamental Investors(M)
The Investment Company of America(r)
Washington Mutual Investors Fund(SM)
EQUITY-INCOME FUNDS
Emphasis on above-average income and growth through stocks and/or bonds
Capital Income Builder(r)
The Income Fund of America(r)
BALANCED FUND
Emphasis on long-term growth and current income through stocks and bonds
American Balanced Fund(r)
INCOME FUNDS
Emphasis on current income through bonds
American High-Income Trust(SM)
The Bond Fund of America(SM)
Capital World Bond Fund(r)
Intermediate Bond Fund of America(r)
U.S. Government Securities Fund(SM)
TAX-EXEMPT INCOME FUNDS
Emphasis on tax-free current income through municipal bonds
American High-Income Municipal Bond Fund(r)
Limited Term Tax-Exempt Bond Fund of America(SM)
The Tax-Exempt Bond Fund of America(r)
State-specific tax-exempt funds:
The Tax-Exempt Fund of California(r)
The Tax-Exempt Fund of Maryland(r)
The Tax-Exempt Fund of Virginia(r)
MONEY MARKET FUNDS
The Cash Management Trust of America(r)
The Tax-Exempt Money Fund of America(SM)
The U.S. Treasury Money Fund of America(SM)
We also offer a full line of retirement plans and variable annuities.
FOR MORE COMPLETE INFORMATION ABOUT ANY OF THE FUNDS, INCLUDING CHARGES AND
EXPENSES, PLEASE OBTAIN A PROSPECTUS FROM YOUR FINANCIAL ADVISER, DOWNLOAD ONE
FROM OUR WEB SITE AT WWW.AMERICANFUNDS.COM, OR PHONE THE FUNDS' TRANSFER AGENT,
AMERICAN FUNDS SERVICE COMPANY AT 800/421-0180. PLEASE READ THE PROSPECTUS
CAREFULLY BEFORE YOU INVEST OR SEND MONEY. FOR MORE INFORMATION, ASK YOUR
FINANCIAL ADVISER FOR A COPY OF OUR BROCHURE "A PORTFOLIO FOR EVERY INVESTOR."
THE INCOME FUND OF AMERICA AT A GLANCE
Results at a Glance (with dividends reinvested or interest compounded)
[Begin chart]
<TABLE>
<CAPTION>
Total Returns for Periods Ended July 31, 2000
12 Months 10 Years Lifetime/1/
<S> <C> <C> <C>
The Income Fund of America -2.1% +206.1% +2,650.7%
Standard & Poor's 500 Stock +9.0 +407.1 +3,819.1
Composite Index
Lehman Brothers Aggregate Bond +6.0 +111.3 + 877.2
Index/2/
Credit Suisse First Boston High +0.5 +168.7 -
Yield Index
Consumer Price Index (inflation)/3/ +3.5 + 32.4 + 276.0
Average Savings Institution/4/ +3.7 + 51.4 + 416.6
</TABLE>
/1/Since December 1, 1973, when Capital Research and Management Company became
IFA's investment adviser.
/2/From December 1, 1973, through December 31, 1975, the Lehman Brothers
Government/Corporate Bond Index was used because the Aggregate Bond Index did
not yet exist.
/3/Computed from data supplied by the U.S. Department of Labor, Bureau of Labor
Statistics.
/4/Based on figures supplied by the U.S. League of Savings Institutions and the
Federal Reserve Board that reflect all kinds of savings deposits, including
longer term certificates. Savings accounts are guaranteed; the fund is not.
[End chart]
[Begin chart]
GROWTH OF INCOME IN IFA VS. INFLATION
YEARS ENDED JULY 31
<TABLE>
<CAPTION>
Year End IFA CPI
<S> <C> <C>
7/31/75 100.0 100.0
7/31/76 127.0 105.4
7/31/77 123.5 112.5
7/31/78 142.1 121.2
7/31/79 169.7 134.9
7/31/80 186.3 152.6
7/31/81 222.0 169.0
7/31/82 278.6 179.9
7/31/83 324.5 184.3
7/31/84 368.8 192.1
7/31/85 428.5 198.9
7/31/86 497.8 202.0
7/31/87 564.4 210.0
7/31/88 570.4 218.6
7/31/89 679.7 229.5
7/31/90 670.9 240.6
7/31/91 803.8 251.3
7/31/92 837.8 259.2
7/31/93 890.7 266.4
7/31/94 951.4 273.8
7/31/95 1,024.5 281.4
7/31/96 1,092.8 289.7
7/31/97 1,283.0 296.1
7/31/98 1,341.1 301.1
7/31/99 1,585.0 307.6
7/31/00 1,749.8 318.5
</TABLE>
This chart shows how IFA has produced growth of income that has far exceeded
the growth of inflation over the past 26 years. IFA income figures are at net
asset value with dividends and capital gains reinvested. IFA figures are
calculated using a hypothetical $10,000 investment on July 31, 1974. Inflation
is represented by the Consumer Price Index, U.S. city average for all urban
consumers (Source: U.S. Department of Labor, Bureau of Labor Statistics). Both
IFA income and the CPI for fiscal year 1975 are indexed to 100.
[End chart]
[Begin bar chart]
ANNUAL INCOME FROM IFA, S&P 500 AND 3-MONTH CDS
YEARS ENDED JULY 31
<TABLE>
<CAPTION>
Through IFA S&P500 CD's
<S> <C> <C> <C>
7/31/80 $ 1,610 $ 967 $1,930
7/31/85 $ 3,702 $1,621 $2,622
7/31/90 $ 5,797 $2,917 $3,388
7/31/95 $ 8,852 $3,897 $2,925
7/31/00 $15,118 $5,339 $4,019
</TABLE>
This chart compares the annual income produced by a hypothetical $10,000
investment on July 31, 1974 in three different investments - IFA, the S&P 500
and 3-month certificates of deposit (CDs). The chart shows the annual income at
5-year intervals over the past 26 years in snapshots. All results are
calculated at net asset value with dividends and capital gains (where
applicable) reinvested. CD income assumes that the individual reinvests both
principal and interest from previous CD at the going rate at the time of
purchase. CDs are guaranteed; the fund is not.
[End bar chart]
<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
Board of Directors
Robert A. Fox
Livingston, California
President and Chief Executive Officer, Foster Farms Inc.
Roberta L. Hazard
McLean, Virginia
Consultant; Rear Admiral, U.S. Navy (retired)
Leonade D. Jones
Burlingame, California
Chief Financial Officer and Secretary, VentureThink, LLC;
former Treasurer, The Washington Post Company
John G. McDonald
Stanford, California
The IBJ Professor of Finance,
Graduate School of Business, Stanford University
Janet A. McKinley
New York, New York
President of the fund
Director, Capital Research and Management Company
James K. Peterson
Tucson, Arizona
Managing Director, Oak Glen Consultancy, LLC;
former Director of Investment Management,
IBM Retirement Fund, IBM Corporation
James W. Ratzlaff
San Francisco, California
Senior Partner, The Capital Group Partners L.P.
Henry E. Riggs
Claremont, California
President, Keck Graduate Institute of Applied Life Sciences
Walter P. Stern
New York, New York
Chairman of the Board of the fund
Chairman of the Board, Capital International, Inc.
Patricia K. Woolf
Princeton, New Jersey
Private investor; corporate director; lecturer,
Department of Molecular Biology, Princeton University
Other Officers
Darcy B. Kopcho
Los Angeles, California
Executive Vice President of the fund
Executive Vice President and Director,
Capital Research Company
Stephen E. Bepler
New York, New York
Senior Vice President of the fund
Senior Vice President, Capital Research Company
Abner D. Goldstine
Los Angeles, California
Senior Vice President of the fund
Senior Vice President and Director,
Capital Research and Management Company
Paul G. Haaga, Jr.
Los Angeles, California
Senior Vice President of the fund
Executive Vice President and Director,
Capital Research and Management Company
Dina N. Perry
Washington, D.C.
Senior Vice President of the fund
Senior Vice President,
Capital Research and Management Company
Hilda L. Applbaum
San Francisco, California
Vice President of the fund
Vice President, Capital Research Company
David C. Barclay
Los Angeles, California
Vice President of the fund
Senior Vice President, Capital Research Company
John H. Smet
Los Angeles, California
Vice President of the fund
Vice President, Capital Research and Management Company
Patrick F. Quan
San Francisco, California
Secretary of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
Anthony W. Hynes, Jr
Brea, California
Treasurer of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
R. Marcia Gould
Brea, California
Assistant Treasurer of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
[The American Funds Group(r)]
Office of the fund
One Market
Steuart Tower, Suite 1800
Mailing address: P.O. Box 7650
San Francisco, California 94120-7650
Investment adviser
Capital Research and
Management Company
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard,
Brea, California 92821-5823
Transfer agent for
shareholder accounts
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
Custodian of assets
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
Counsel
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071-2371
Independent auditors
Deloitte & Touche LLP
Two California Plaza
350 South Grand Avenue
Los Angeles, California 90071-3462
Principal underwriter
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, OR FOR A
PROSPECTUS FOR ANY OF THE AMERICAN FUNDS, PLEASE CONTACT YOUR FINANCIAL
ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE COMPANY, TOLL-FREE, AT
800/421-0180, OR VISIT WWW.AMERICANFUNDS.COM ON THE WORLD WIDE WEB. PLEASE READ
THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
THIS REPORT IS FOR THE INFORMATION OF SHAREHOLDERS OF THE INCOME FUND OF
AMERICA, BUT IT MAY ALSO BE USED AS SALES LITERATURE WHEN PRECEDED OR
ACCOMPANIED BY THE CURRENT PROSPECTUS, WHICH GIVES DETAILS ABOUT CHARGES,
EXPENSES, INVESTMENT OBJECTIVES AND OPERATING POLICIES OF THE FUND. IF USED AS
SALES MATERIAL AFTER SEPTEMBER 30, 2000, THIS REPORT MUST BE ACCOMPANIED BY AN
AMERICAN FUNDS GROUP STATISTICAL UPDATE FOR THE MOST RECENTLY COMPLETED
CALENDAR QUARTER.
Printed on recycled paper
Litho in USA BDC/GRS/4802
Lit. No. IFA-011-0900
