INCOME FUND OF AMERICA INC, 497, 2000-01-07

INCOME FUND OF AMERICA INC
497, 2000-01-07

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PROSPECTUS SUPPLEMENT
January 10, 2000
for the following funds with prospectuses dated February 1, 1999 - December 1,
1999

<TABLE>
<CAPTION>
<S> <C>
AMCAP Fund, Inc. Limited Term Tax-Exempt Bond
American Balanced Fund, Inc. Fund of America
American High-Income Municipal The New Economy Fund
Bond Fund, Inc. New Perspective Fund, Inc.
American High-Income Trust SMALLCAP World Fund, Inc.
The Bond Fund of America, Inc. The Tax-Exempt Bond Fund of
Capital World Bond Fund, Inc. America, Inc.
Capital World Growth and The Tax-Exempt Fund of
Income Fund, Inc. California
The Cash Management Trust of The Tax-Exempt Fund of
America Maryland
EuroPacific Growth Fund The Tax-Exempt Fund of
Fundamental Investors, Inc. Virginia
The Growth Fund of America, The Tax-Exempt Money Fund
Inc. of America
The Income Fund of America, U.S. Government Securities
Inc. Fund
Intermediate Bond Fund of The U.S. Treasury Money Fund
America of America
The Investment Company of Washington Mutual Investors
America Fund, Inc.
</TABLE>

The initial investment minimum for all funds in The American Funds Group(r),
except the money market funds and the state tax-exempt funds, is now $250. The
initial investment minimum for the money market funds (The Cash Management
Trust of America, The Tax-Exempt Money Fund of America and The U.S. Treasury
Money Fund of America) and the state tax-exempt funds (The Tax-Exempt Fund of
California, The Tax-Exempt Fund of Maryland and The Tax-Exempt Fund of
Virginia) is $1,000.

In addition, effective January 10, 2000, the sales charges applied to purchases
of the equity and fixed-income funds in The American Funds Group are as
follows:

<TABLE>
<CAPTION>
EQUITY FUNDS FIXED-INCOME FUNDS

Sales Charge Dealer Sales Charge Dealer
as % of Concession as % of Concession
as a % of as a % of
Offering Offering
Price Price

AMOUNT OF SALE Offering Net Offering Net
Price Amount Price Amount
Invested Invested

<S> <C> <C> <C> <C> <C> <C>
Less than $25,000 5.75% 6.10% 5.00%

$25,000 but less than 5.00 5.26 4.25 3.75% 3.90% 3.00%
$50,000

$50,000 but less than 4.50 4.71 3.75
$100,000

$100,000 but less than 3.50 3.63 2.75 3.50 3.63 2.75
$250,000

$250,000 but less than 2.50 2.56 2.00 2.50 2.56 2.00
$500,000

$500,000 but less than 2.00 2.04 1.60 2.00 2.04 1.60
$750,000

$750,000 but less than 1.50 1.52 1.20 1.50 1.52 1.20
$1 million

$1 million and above none none see none none see
prospectus prospectus

</TABLE>

THE FUND PROVIDES SPANISH TRANSLATIONS IN CONNECTION WITH THE
PUBLIC OFFERING AND SALE OF ITS SHARES. THE FOLLOWING IS A FAIR
AND ACCURATE ENGLISH TRANSLATION OF A SPANISH LANGUAGE PROSPECTUS
FOR THE FUND.

/s/ Patrick F. Quan
Patrick F. Quan
Secretary

PROSPECTUS SUPPLEMENT
January 10, 2000
for the following funds with prospectuses dated February 1, 1999 - December 1,
1999

In addition, effective January 10, 2000, the sales charges applied to purchases
of the equity and fixed-income funds in The American Funds Group are as
follows:

<TABLE>
<CAPTION>
EQUITY FUNDS FIXED-INCOME FUNDS

Sales Charge Dealer Sales Charge Dealer
as % of Concession as % of Concession
as a % of as a % of
Offering Offering
Price Price

AMOUNT OF SALE Offering Net Offering Net
Price Amount Price Amount
Invested Invested

<S> <C> <C> <C> <C> <C> <C>
Less than $25,000 5.75% 6.10% 5.00%

$25,000 but less than 5.00 5.26 4.25 3.75% 3.90% 3.00%
$50,000

$50,000 but less than 4.50 4.71 3.75
$100,000

$100,000 but less than 3.50 3.63 2.75 3.50 3.63 2.75
$250,000

$250,000 but less than 2.50 2.56 2.00 2.50 2.56 2.00
$500,000

$500,000 but less than 2.00 2.04 1.60 2.00 2.04 1.60
$750,000

$750,000 but less than 1.50 1.52 1.20 1.50 1.52 1.20
$1 million

$1 million and above none none see none none see
prospectus prospectus

</TABLE>
<PAGE>
THE INCOME FUND OF AMERICA, INC.

Part B
Statement of Additional Information

October 1, 1999
(as amended January 10, 2000)

This document is not a prospectus but should be read in conjunction with the
current prospectus of The Income Fund of America, Inc. (the "fund" or "IFA")
dated October 1, 1999. The prospectus may be obtained from your investment
dealer or financial planner or by writing to the fund at the following address:

The Income Fund of America, Inc.
Attention: Secretary
One Market
Steuart Tower, Suite 1800
San Francisco, California 94105
(415) 421-9360

Shareholders who purchase shares at net asset value through eligible retirement
plans should note that not all of the services or features described below may
be available to them, and they should contact their employer for details.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Item Page No.
- ---- --------
<S> <C>
Certain Investment Limitations and Guidelines . . . . . . . . 2
Description of Certain Securities and Investment Techniques . 2
Fundamental Policies and Investment Restrictions. . . . . . . 8
Fund Organization and Voting Rights . . . . . . . . . . . . . 9
Fund Directors and Officers . . . . . . . . . . . . . . . . . 11
Management. . . . . . . . . . . . . . . . . . . . . . . . . . 15
Dividends, Distributions and Taxes. . . . . . . . . . . . . . 18
Purchase of Shares. . . . . . . . . . . . . . . . . . . . . . 22
Selling Shares. . . . . . . . . . . . . . . . . . . . . . . . 29
Shareholder Account Services and Privileges . . . . . . . . . 30
Execution of Portfolio Transactions . . . . . . . . . . . . . 33
General Information . . . . . . . . . . . . . . . . . . . . . 33
Investment Results and Related Statistics . . . . . . . . . . 35
Financial Statements
</TABLE>

The Income Fund of America -- Page 1

<PAGE>

CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES

The following limitations and guidelines are considered at the time of purchase,
under normal market conditions, and are based on a percentage of the fund's net
assets unless otherwise noted. This summary is not intended to reflect all of
the fund's investment limitations.

OBJECTIVE

- - The fund will invest at least 65% of its assets in income producing
securities.

EQUITY SECURITIES

- - The fund will generally invest at least 60% of its assets in equity
securities. However, at times the fund may be substantially invested in
equity or fixed-income securities (i.e., more than 60%) or may be solely
invested in equity or fixed-income securities (i.e., 100%).

DEBT SECURITIES

- - The fund may invest up to 20% of its assets in straight debt securities
rated BB by S&P and Ba by Moody's or below or unrated but determined to be
of equivalent quality. (The 20% limit shall not apply to debt securities
that have equity conversion or purchase rights.)
- - The fund's high-yield, high-risk securities may be rated as low as Ca by
Moody's or CC by S&P or unrated but determined to be of equivalent quality.
- - The fund may invest up to 11/2% of its assets in inverse floating rate
notes.
- - The fund may invest up to 5% of its assets in reinsurance related notes and
bonds.

NON-U.S. SECURITIES

- - The fund may invest up to 15% of its assets in equity securities of issuers
domiciled outside the U.S. and not included in the Standard & Poor's 500
Composite Index.
- - The fund may invest up to 10% of its assets in fixed-income securities of
issuers domiciled outside the U.S. (must be U.S. dollar denominated).

DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES

The fund may experience difficulty liquidating certain portfolio securities
during significant market declines or periods of heavy redemptions. The
descriptions below are intended to supplement the material in the prospectus
under "Investment Objectives, Strategies and Risks."

EQUITY SECURITIES -- Equity securities represent an ownership position in a
company. These securities may include common stocks and securities with equity
conversion or purchase rights. The prices of equity securities fluctuate based
on changes in the financial condition of their issuers and on market and
economic conditions. The fund's results will be related to the overall market
for these securities.

INVESTING IN SMALLER CAPITALIZATION STOCKS - The fund may invest in the stocks
of smaller companies (typically companies with market capitalizations of less
than $1.2 billion at the time of purchase). The Investment Adviser believes that
the issuers of smaller capitalization stocks often

The Income Fund of America -- Page 2

<PAGE>

provide attractive investment opportunities. However, investing in smaller
capitalization stocks can involve greater risk than is customarily associated
with investing in stocks of larger, more established companies. For example,
smaller companies often have limited product lines, markets, or financial
resources, may be dependent for management on one or a few key persons, and can
be more susceptible to losses. Also, their securities may be thinly traded (and
therefore have to be sold at a discount from current prices or sold in small
lots over an extended period of time), may be followed by fewer investment
research analysts, and may be subject to wider price swings thus creating a
greater chance of loss than securities of larger capitalization companies.

DEBT SECURITIES - Bonds and other debt securities are used by issuers to borrow
money. Issuers pay investors interest and generally must repay the amount
borrowed at maturity. Some debt securities, such as zero coupon bonds, do not
pay current interest, but are purchased at a discount from their face values.
The prices of debt securities fluctuate depending on such factors as interest
rates, credit quality, and maturity. In general their prices decline when
interest rates rise and vice versa.

High-yield, high-risk bonds rated Ba or below by Standard & Poor's Corporation
and BB or below by Moody's Investors Services, Inc. (or unrated but considered
to be of equivalent quality) are described by the rating agencies as speculative
and involve greater risk of default or price changes due to changes in the
issuer's creditworthiness than higher rated bonds, or they may already be in
default. The market prices of these securities may fluctuate more than higher
quality securities and may decline significantly in periods of general economic
difficulty. It may be more difficult to dispose of, or to determine the value
of, high-yield, high-risk bonds. Certain risk factors relating to "high-yield,
high-risk bonds" are discussed below.

SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high-risk
bonds can be sensitive to adverse economic changes and political and
corporate developments and may be less sensitive to interest rate changes.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress that would
adversely affect their ability to service their principal and interest
payment obligations, to meet projected business goals, and to obtain
additional financing. In addition, periods of economic uncertainty and
changes can be expected to result in increased volatility of market prices
and yields of high-yield, high-risk bonds.

PAYMENT EXPECTATIONS - High-yield, high-risk bonds, like other bonds, may
contain redemption or call provisions. If an issuer exercises these
provisions in a declining interest rate market, the fund would have to
replace the security with a lower yielding security, resulting in a
decreased return for investors. If the issuer of a bond defaults on its
obligations to pay interest or principal or enters into bankruptcy
proceedings, the fund may incur losses or expenses in seeking recovery of
amounts owed to it.

LIQUIDITY AND VALUATION - There may be little trading in the secondary
market for particular bonds, which may affect adversely the fund's ability
to value accurately or dispose of such bonds. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of high-yield, high-risk bonds,
especially in a thin market.

The Investment Adviser attempts to reduce the risks described above through
diversification of the portfolio and by credit analysis of each issuer as well
as by monitoring broad economic trends

The Income Fund of America -- Page 3

<PAGE>

and corporate and legislative developments, but there can be no assurance that
it will be successful in doing so.

SECURITIES WITH EQUITY AND DEBT CHARACTERISTICS -- The fund may invest in
securities that have a combination of equity and debt characteristics such as
non-convertible preferred stocks and convertible securities. These securities
may at times resemble equity more than debt and vice versa. Non-convertible
preferred stocks are similar to debt in that they have a stated dividend rate
akin to the coupon of a bond or note even though they are often classified as
equity securities. The prices and yields of non-convertible preferred stocks
generally move with changes in interest rates and the issuer's credit quality,
similar to the factors affecting debt securities.

Bonds, preferred stocks, and other securities may sometimes be converted into
common stock or other securities at a stated exchange ratio. These securities
prior to conversion pay a fixed rate of interest or a dividend. Because
convertible securities have both debt and equity characteristics, their value
varies in response to many factors, including the value of the underlying
equity, general market and economic conditions, convertible market valuations,
as well as changes in interest rates, credit spreads, and the credit quality of
the issuer.

INFLATION-INDEXED BONDS - The fund may invest in inflation-indexed bonds issued
by governments, their agencies or instrumentalities, and corporations. The
principal value of this type of bond is periodically adjusted according to
changes in the rate of inflation. The interest rate is generally fixed at
issuance; however, interest payments are based on an inflation adjusted
principal value. For example, in a period of deflation, principal value will be
adjusted downward, reducing the interest payable.

Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation indexed bonds,
even during a period of deflation. However, the current market value of the
bonds is not guaranteed, and will fluctuate. The fund may also invest in other
bonds which may or may not provide a similar guarantee. If a guarantee of
principal is not provided, the adjusted principal value of the bond repaid at
maturity may be less than the original principal.

REINSURANCE RELATED NOTES AND BONDS - The fund may invest in reinsurance related
notes and bonds. These instruments, which are typically issued by special
purpose reinsurance companies, transfer an element of insurance risk to the note
or bond holders. For example, the reinsurance company would not be required to
repay all or a portion of the principal value of the notes or bonds if losses
due to a catastrophic event under the policy (such as a major hurricane) exceed
certain dollar thresholds. Consequently, the fund may lose the entire amount of
its investment in such bonds or notes if such an event occurs and losses exceed
certain dollar thresholds. In this instance, investors would have no recourse
against the insurance company. These instruments may be issued with fixed or
variable interest rates and rated in a variety of credit quality categories by
the rating agencies.

INVERSE FLOATING RATE NOTES -- The fund may invest to a very limited extent (no
more than 1.5% of its assets) in inverse floating rate notes (a type of
derivative instrument). These notes have rates that move in the opposite
direction of prevailing interest rates. A change in prevailing interest rates
will often result in a greater change in the instruments' interest rates. As a
result, these instruments may have a greater degree of volatility than other
types of interest-bearing securities.

The Income Fund of America -- Page 4

<PAGE>

RESTRICTED SECURITIES AND LIQUIDITY - The fund may purchase securities subject
to restrictions on resale. All such securities not actively traded will be
considered illiquid unless they have been specifically determined to be liquid
under procedures which have been adopted by the fund's board of directors,
taking into account factors such as the frequency and volume of trading, the
commitment of dealers to make markets and the availability of qualified
investors, all of which can change from time to time. The fund may incur certain
additional costs in disposing of illiquid securities.

PASS-THROUGH SECURITIES -- The fund may invest in various debt obligations
backed by a pool of mortgages or other assets including loans on single family
residences, home equity loans, mortgages on commercial buildings, credit card
receivables, and leases on airplanes or other equipment. Principal and interest
payments made on the underlying asset pools backing these obligations are
typically passed through to investors. Pass-through securities may have either
fixed or adjustable coupons. These securities include those discussed below.

"Mortgage-backed securities" are issued both by U.S. government agencies,
including the Government National Mortgage Association (GNMA), the Federal
National Mortgage Association (FNMA), and the Federal Home Loan Mortgage
Corporation (FHLMC), and by private entities. The payment of interest and
principal on securities issued by U.S. government agencies is guaranteed by the
full faith and credit of the U.S. government (in the case of GNMA securities) or
the issuer (in the case of FNMA and FHLMC securities). However, the guarantees
do not apply to the market prices and yields of these securities, which vary
with changes in interest rates.

Mortgage-backed securities issued by private entities are structured similarly
to mortgage-backed securities issued by GNMA, FNMA, and FHLMC. These securities
and the underlying mortgages are not guaranteed by government agencies. In
addition, these securities generally are structured with one or more types of
credit enhancement. Mortgage-backed securities generally permit borrowers to
prepay their underlying mortgages. Prepayments can alter the effective maturity
of these instruments.

"Collateralized mortgage obligations" (CMOs) are also backed by a pool of
mortgages or mortgage loans, which are divided into two or more separate bond
issues. CMOs issued by U.S. government agencies are backed by agency mortgages,
while privately issued CMOs may be backed by either government agency mortgages
or private mortgages. Payments of principal and interest are passed-through to
each bond at varying schedules resulting in bonds with different coupons,
effective maturities, and sensitivities to interest rates. In fact, some CMOs
may be structured in a way that when interest rates change the impact of
changing prepayment rates on these securities' effective maturities is
magnified.

"Commercial mortgage-backed securities" are backed by mortgages of commercial
property, such as hotels, office buildings, retail stores, hospitals, and other
commercial buildings. These securities may have a lower prepayment uncertainty
than other mortgage-related securities because commercial mortgage loans
generally prohibit or impose penalties on prepayments of principal. In addition,
commercial mortgage-related securities often are structured with some form of
credit enhancement to protect against potential losses on the underlying
mortgage loans. Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate securing the
underlying mortgage loans, including the effects of local and other economic
conditions on real estate markets, the ability of tenants to make loan payments,
and the ability of a property to attract and retain tenants.

The Income Fund of America -- Page 5

<PAGE>

"Asset-backed securities" are backed by other assets such as credit card,
automobile or consumer loan receivables, retail installment loans, or
participations in pools of leases. Credit support for these securities may be
based on the underlying assets and/or provided through credit enhancements by a
third party. The values of these securities are sensitive to changes in the
credit quality of the underlying collateral, the credit strength of the credit
enhancement, changes in interest rates, and at times the financial condition of
the issuer. Some asset-backed securities also may receive prepayments which can
change the securities' effective maturities.

U.S. GOVERNMENT SECURITIES -- Securities guaranteed by the U.S. Government
include: (1) direct obligations of the U.S. Treasury (such as Treasury bills,
notes and bonds) and (2) federal agency obligations guaranteed as to principal
and interest by the U.S. Treasury. For these securities,the payment of principal
and interest is unconditionally guaranteed by the U.S. Government, and thus they
are of the highest possible credit quality. Such securities are subject to
variations in market value due to fluctuations in interest rates, but, if held
to maturity, will be paid in full.

Certain securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the
Treasury. However, they generally involve federal sponsorship in one way or
another; some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; and others are supported only by the credit of the issuing government
agency or instrumentality. These agencies and instrumentalities include, but are
not limited to, Federal Land Banks, Farmers Home Administration, Central Bank
for Cooperatives, and Federal Intermediate Credit Banks.

INVESTING IN VARIOUS COUNTRIES -- Investing outside the U.S. involves special
risks, caused by, among other things: currency controls, fluctuating currency
values; different accounting, auditing, and financial reporting regulations and
practices in some countries; changing local and regional economic, political,
and social conditions; expropriation or confiscatory taxation; greater market
volatility; differing securities market structures; and various administrative
difficulties such as delays in clearing and settling portfolio transactions or
in receiving payment of dividends. However, in the opinion of Capital Research
and Management Company, investing outside the U.S. also can reduce certain
portfolio risks due to greater diversification opportunities.

The risks described above are potentially heightened in connection with
investments in developing countries. Although there is no universally accepted
definition, a developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a low per capita
gross national product. For example, political and/or economic structures in
these countries may be in their infancy and developing rapidly. Historically,
the markets of developing countries have been more volatile than the markets of
developed countries. The fund may only invest in securities of issuers in
developing countries to a limited extent.

Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. Brokerage commissions may be higher outside the
U.S., and the fund will bear certain expenses in connection with its currency
transactions. Furthermore, increased custodian costs may be associated with the
maintenance of assets in certain jurisdictions.

CURRENCY TRANSACTIONS - The fund can purchase and sell currencies to facilitate
securities transactions and enter into forward currency contracts to protect
against changes in currency exchange rates. A forward currency contract is an
obligation to purchase or sell a specific

The Income Fund of America -- Page 6

<PAGE>

currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. Forward currency contracts entered into by the fund will involve the
purchase or sale of a currency against the U.S. dollar. While entering into
forward currency transactions could minimize the risk of loss due to a decline
in the value of the hedged currency, it could also limit any potential gain
which might result from an increase in the value of the currency. The fund will
not generally attempt to protect against all potential changes in exchange
rates. The fund will segregate liquid assets which will be marked to market
daily to meet its forward contract commitments to the extent required by the
Securities and Exchange Commission.

Certain provisions of the Internal Revenue Code may affect the extent to which
the fund may enter into forward contracts. Such transactions may also affect,
for U.S. federal income tax purposes, the character and timing of income, gain
or loss recognized by the fund.

CASH AND CASH EQUIVALENTS - These securities include (i) commercial paper
(short-term notes up to 9 months in maturity issued by corporations or
governmental bodies), (ii) commercial bank obligations (e.g., certificates of
deposit, bankers' acceptances (time drafts on a commercial bank where the bank
accepts an irrevocable obligation to pay at maturity)), (iii) savings
association and saving bank obligations (e.g., certificates of deposit issued by
savings banks or savings associations), (iv) securities of the U.S. Government,
its agencies or instrumentalities that mature, or may be redeemed, in one year
or less, and (v) corporate bonds and notes that mature, or that may be redeemed,
in one year or less.

FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell
securities at a future date. When the fund agrees to purchase such securities it
assumes the risk of any decline in value of the security beginning on the date
of the agreement. When the fund agrees to sell such securities it does not
participate in further gains or losses with respect to the securities beginning
on the date of the agreement. If the other party to such a transaction fails to
deliver or pay for the securities, the fund could miss a favorable price or
yield opportunity, or could experience a loss.

The fund may also enter into "roll" transactions which are the sale of
mortgage-backed or other securities together with a commitment to purchase
similar, but not identical securities at a later date. The fund assumes the
rights and risks of ownership, including the risk of price and yield
fluctuations as of the time of the agreement. The fund intends to treat roll
transactions as two separate transactions: one involving the purchase of a
security and a separate transaction involving the sale of a security. Since the
fund does not intend to enter into roll transactions for financing purposes, it
may treat these transactions as not falling within the definition of "borrowing"
set forth in Section 2(a)(23) of the Investment Company Act of 1940 (the "1940
Act"). The fund will segregate liquid assets which will be marked to market
daily in an amount sufficient to meet its payment obligations in these
transactions.

* * * * * *

PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the length
of time particular investments may have been held. Short-term trading profits
are not the fund's objective and changes in its investments are generally
accomplished gradually, though short-term transactions may occasionally be made.
High portfolio turnover (100% or more) involves correspondingly greater
transaction costs in the form of dealer spreads or brokerage commissions, and
may result in the realization of net capital gains, which are taxable when

The Income Fund of America -- Page 7

<PAGE>

distributed to shareholders. Fixed-income securities are generally traded on a
net basis and usually neither brokerage commissions nor transfer taxes are
involved. The fund's portfolio turnover rate would equal 100% if each security
in the fund's portfolio were replaced once per year. See "Financial Highlights"
in the prospectus for the fund's annual portfolio turnover for each of the last
five fiscal periods.

FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS

FUNDAMENTAL POLICIES - The fund has adopted the following fundamental policies
and investment restrictions which may not be changed without approval by holders
of a majority of its outstanding shares. Such majority is defined in the
Investment Company Act of 1940 ("1940 Act") as the vote of the lesser of
(i) 67% or more of the outstanding voting securities present at a meeting, if
the holders of more than 50% of the outstanding voting securities are present in
person or by proxy, or (ii) more than 50% of the outstanding voting securities.
All percentage limitations are considered at the time securities are purchased
and are based on the fund's net assets unless otherwise indicated. None of the
following investment restrictions involving a maximum percentage of assets will
be considered violated unless the excess occurs immediately after, and is caused
by, an acquisition by the fund.

The fund may not:

1. Act as underwriter of securities issued by other persons.

2. Invest more than 10% of the value of its total assets in securities that
are illiquid.

3. Borrow money, except temporarily for extraordinary or emergency purposes,
in an amount not exceeding 5% of the value of the Fund's total assets at the
time of such borrowing.

4. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (this shall not prevent the Fund from investing
in securities or other instruments backed by real estate or securities of
companies engaged in the real estate business).

5. Purchase or deal in commodities or commodity contracts.

6. Lend any security or make any other loan if, as a result, more than 15% of
its total assets would be lent to third parties, but this limitation does not
apply to purchases of debt securities or to repurchase agreements.

7. Purchase securities of any company for the purpose of exercising control or
management.

8. Purchase any securities on "margin", except that it may obtain such
short-term credit as may be necessary for the clearance of purchases of
securities.

9. Sell or contract to sell any security which it does not own unless by
virtue of its ownership of other securities it has at the time of sale a right
to obtain securities, without payment of further consideration, equivalent in
kind and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions.

The Income Fund of America -- Page 8

<PAGE>

10. Purchase or sell puts, calls, straddles, or spreads, but this restriction
shall not prevent the purchase or sale of rights represented by warrants or
convertible securities.

11. Purchase any securities of any issuer, except the U.S. Government (or its
instrumentalities), if immediately after and as a result of such investment (1)
the market value of the securities of such other issuer shall exceed 5% of the
market value of the total assets of the fund, or (2) the fund shall own more
than 10% of the outstanding voting securities of such issuer, provided that this
restriction shall apply only as to 75% of the fund's total assets.

12. Purchase any securities (other than securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities) if immediately after and
as a result of such purchase 25% or more of the market value of the total assets
of the fund would be invested in securities of companies in any one industry.

For purposes of Investment Restriction #2, restricted securities are treated as
illiquid by the fund, with the exception of those securities that have been
determined to be liquid pursuant to procedures adopted by the fund's Board of
Directors. In addition, the fund may not invest more than 15% of the value of
its net assets in securities that are illiquid.

The following investment policies of the fund and all other policies described
in the fund's prospectus and this statement of additional information are
considered non-fundamental and may be changed at any time with the approval of
the fund's board of directors.

1. The Fund does not currently intend to lend portfolio securities.

2. The Fund may not invest in securities of other investment companies, except
as permitted by the Investment Company Act of 1940, as amended.

Notwithstanding non-fundamental Investment Restriction #2, the fund may invest
in securities of other investment companies if deemed advisable by its officers
in connection with the administration of a deferred compensation plan adopted by
Directors pursuant to an exemptive order granted by the Securities and Exchange
Commission.

FUND ORGANIZATION AND VOTING RIGHTS

The fund, an open-end, diversified management investment company, was organized
as a Delaware corporation on March 8, 1969and reorganized as a Maryland
corporation on December 16, 1983.

All fund operations are supervised by the fund's board of directors which meets
periodically and performs duties required by applicable state and federal laws.
Members of the board who are not employed by Capital Research and Management
Company or its affiliates are paid certain fees for services rendered to the
fund as described in "Directors and Director Compensation" below. They may elect
to defer all or a portion of these fees through a deferred compensation plan in
effect for the fund.

The fund does not hold annual meetings of shareholders. However, significant
matters which require shareholder approval, such as certain elections of board
members or a change in a fundamental investment policy, will be presented to
shareholders at a meeting called for such purpose. Shareholders have one vote
per share owned. At the request of the holders of at least

The Income Fund of America -- Page 9

<PAGE>

10% of the shares, the fund will hold a meeting at which any member of the board
could be removed by a majority vote.

REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly
called and at which a quorum is present, shareholders may, by the affirmative
vote of the holders of a majority of the votes entitled to be cast, remove any
Director or Directors from office and may elect a successor or successors to
fill any resulting vacancies for the unexpired terms of removed Directors. The
fund has agreed, at the request of the staff of the Securities and Exchange
Commission, to apply the provisions of section 16(c) of the 1940 Act with
respect to the removal of Directors, as though the fund were a common-law trust.
Accordingly, the Directors of the fund will promptly call a meeting of
shareholders for the purpose of voting upon the removal of any Director when
requested in writing to do so by the record holders of at least 10% of the
outstanding shares.

The Income Fund of America -- Page 10

<PAGE>

FUND DIRECTORS AND OFFICERS

Directors and Director Compensation

<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
(INCLUDING VOLUNTARILY
DEFERRED
COMPENSATION/1/)
FROM THE FUND
POSITION DURING FISCAL YEAR
WITH PRINCIPAL OCCUPATION(S) DURING ENDED
NAME, ADDRESS AND AGE REGISTRANT PAST 5 YEARS JULY 31, 1999
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert A. Fox Director President and Chief Executive Officer, $25,500/4/
P.O. Box 457 Foster Farms, Inc.
1000 Davis Street
Livingston, CA 95334
Age: 62
- -------------------------------------------------------------------------------------------------------------
Roberta L. Hazard Director Consultant; Rear Admiral, United States $ 24,000
1419 Audmar Drive Navy (Retired)
McLean, VA 22101
Age: 65
- -------------------------------------------------------------------------------------------------------------
Leonade D. Jones Director Management consultant; former $34,583/4/
1536 Los Montes Drive Treasurer, The Washington Post Company
Burlingame, CA 94010
Age: 51
- -------------------------------------------------------------------------------------------------------------
John G. McDonald Director The IBJ Professor of Finance, Graduate $32,900/4/
Stanford University School of Business, Stanford University
Stanford, CA 94305
Age: 62
- -------------------------------------------------------------------------------------------------------------
+ Janet A. McKinley President and Director, Capital Research and None/5/
630 Fifth Avenue Director Management Company. Senior Vice
New York, NY 10111 President, Capital Research Company*
Age: 44
- -------------------------------------------------------------------------------------------------------------
James K. Peterson Director Managing Director, Oak Glen None/6/
5560 North Via Elena Consultancy, LLC; former Director of
Tucson, AZ 85718-5110 Investment Management, IBM Retirement
Fund, IBM Corporation
- -------------------------------------------------------------------------------------------------------------
+ James W. Ratzlaff Director Senior Partner, The Capital Group None/5/
333 South Hope Street Partners L.P.
Los Angeles, CA 90071
Age: 63
- -------------------------------------------------------------------------------------------------------------
Henry E. Riggs Director President, Keck Graduate Institute of $29,400/4/
535 Watson Drive Applied Life Sciences; former President
Claremont, CA 91711 and Professor of Engineering, Harvey
Age: 64 Mudd College
- -------------------------------------------------------------------------------------------------------------
+ Walter P. Stern Chairman of Vice Chairman, Capital Group None/5/
630 Fifth Avenue the Board International, Inc.; Chairman, Capital
New York, NY 10111 International, Inc.; Director,
Age: 71 Temple-Inland Inc. (forest products)
- -------------------------------------------------------------------------------------------------------------
Patricia K. Woolf Director Private investor; Lecturer, Department $ 31,900
506 Quaker Road of Molecular Biology, Princeton
Princeton, NJ 08540 University; Corporate Director
Age: 66
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL COMPENSATION
(INCLUDING VOLUNTARILY
DEFERRED
COMPENSATION/1/) FROM TOTAL NUMBER
ALL FUNDS MANAGED BY OF FUND
CAPITAL RESEARCH AND BOARDS
MANAGEMENT COMPANY ON WHICH
OR ITS AFFILIATES/2/ FOR THE DIRECTOR
NAME, ADDRESS AND AGE YEAR ENDED JULY 31, 1999 SERVES/3/
- ---------------------------------------------------------------------
<S> <C> <C>
Robert A. Fox $125,500/4/ 7
P.O. Box 457
1000 Davis Street
Livingston, CA 95334
Age: 62
- ---------------------------------------------------------------------
Roberta L. Hazard $ 78,000 4
1419 Audmar Drive
McLean, VA 22101
Age: 65
- ---------------------------------------------------------------------
Leonade D. Jones $138,000/4/ 6
1536 Los Montes Drive
Burlingame, CA 94010
Age: 51
- ---------------------------------------------------------------------
John G. McDonald $261,250/4/ 9
Stanford University
Stanford, CA 94305
Age: 62
- ---------------------------------------------------------------------
+ Janet A. McKinley None/5/ 1
630 Fifth Avenue
New York, NY 10111
Age: 44
- ---------------------------------------------------------------------
James K. Peterson None/6/ 2
5560 North Via Elena
Tucson, AZ 85718-5110
- ---------------------------------------------------------------------
+ James W. Ratzlaff None/5/ 7
333 South Hope Street
Los Angeles, CA 90071
Age: 63
- ---------------------------------------------------------------------
Henry E. Riggs $104,450/4/ 4
1263 North Dartmouth
Claremont, CA 91711
Age: 64
- ---------------------------------------------------------------------
+ Walter P. Stern None/5/ 3
630 Fifth Avenue
New York, NY 10111
Age: 71
- ---------------------------------------------------------------------
Patricia K. Woolf $ 139,950 6
506 Quaker Road
Princeton, NJ 08540
Age: 66
- ---------------------------------------------------------------------
</TABLE>

The Income Fund of America -- Page 11

<PAGE>

The Income Fund of America -- Page 12

<PAGE>

* Company affiliated with Capital Research and Management Company.
+ "Interested persons" within the meaning of the 1940 Act on the basis of their
affiliation with the fund's Investment Adviser, Capital Research and
Management Company or the parent company of the Investment Adviser, The
Capital Group Companies, Inc.
1 Amounts may be deferred by eligible Directors under a non-qualified deferred
compensation plan adopted by the fund in 1993. Deferred amounts accumulate at
an earnings rate determined by the total return of one or more funds in The
American Funds Group as designated by the Directors.

2 Capital Research and Management Company manages The American Funds Group
consisting of 29 funds: AMCAP Fund, Inc., American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash
Management Trust of America, Capital Income Builder, Inc., Capital World
Growth and Income Fund, Inc., Capital World Bond Fund, Inc., EuroPacific
Growth Fund, Fundamental Investors, Inc., The Growth Fund of America, Inc.,
The Income Fund of America, Inc., Intermediate Bond Fund of America, The
Investment Company of America, Limited Term Tax-Exempt Bond Fund of America,
The New Economy Fund, New Perspective Fund, Inc., New World Fund, Inc.,
SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of America, Inc., The
Tax-Exempt Fund of California, The Tax-Exempt Fund of Maryland, The Tax-Exempt
Fund of Virginia, The Tax-Exempt Money Fund of America, The U. S. Treasury
Money Fund of America, U.S. Government Securities Fund and Washington Mutual
Investors Fund, Inc. Capital Research and Management Company also manages
American Variable Insurance Series and Anchor Pathway Fund, which serve as the
underlying investment vehicle for certain variable insurance contracts; and
Endowments, whose shareholders are limited to (i) any entity exempt from
taxation under Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended ("501(c)(3) organization"); (ii) any trust, the present or future
beneficiary of which is a 501(c)(3) organization, and (iii) any other entity
formed for the primary purpose of benefiting a 501(c)(3) organization. An
affiliate of Capital Research and Management Company, Capital International,
Inc., manages Emerging Markets Growth Fund, Inc.

3 Includes funds managed by Capital Research and Management Company and
affiliates.

4 Since the deferred compensation plan's adoption, the total amount of deferred
compensation accrued by the fund (plus earnings thereon) as of fiscal year
ended July 31, 1999 for participating Directors is as follows: Robert A. Fox
($259,212), Leonade D. Jones ($82,532), John G. McDonald ($149,715) and Henry
E. Riggs ($171,571). Amounts deferred and accumulated earnings thereon are not
funded and are general unsecured liabilities of the fund until paid to the
Directors.

5 Janet A. McKinley, James W. Ratzlaff, and Walter P. Stern are affiliated with
the Investment Adviser and, accordingly, receive no compensation from the
fund.

6 James K. Peterson was elected a Director of the fund on December 1, 1999 and
did not receive any compensation from the fund or any other fund managed by
Capital Research and Management Company or its affiliates for the fiscal year
ended July 31, 1999.

The Income Fund of America -- Page 13

<PAGE>

OFFICERS

<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S) DURING
NAME AND ADDRESS AGE WITH REGISTRANT PAST 5 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Walter P. Stern
(see above)
- -------------------------------------------------------------------------------
Janet A. McKinley
(see above)
- -------------------------------------------------------------------------------
Darcy B. Kopcho 45 Executive Vice Executive Vice President and
333 South Hope Street President Research Director, Capital
Los Angeles, CA 90071 Research Company*
- -------------------------------------------------------------------------------
Stephen E. Bepler 58 Senior Vice Senior Vice President, Capital
630 Fifth Avenue President Research Company*
New York, NY 10111
- -------------------------------------------------------------------------------
Abner D. Goldstine 69 Senior Vice Senior Vice President and
11100 Santa Monica President Director, Capital Research and
Boulevard Management Company
Los Angeles, CA 90025
- -------------------------------------------------------------------------------
Paul G. Haaga, Jr. 50 Senior Vice Executive Vice President and
333 South Hope Street President Director, Capital Research and
Los Angeles, CA 90071 Management Company; Director,
American Funds Service Company;
Director, American Funds
Distributors, Inc.
- -------------------------------------------------------------------------------
Dina N. Perry 54 Senior Vice Senior Vice President, Capital
3000 K Street, N.W. President Research and Management Company
Washington, D.C. 20007
- -------------------------------------------------------------------------------
Hilda L. Applbaum 38 Vice President Vice President, Capital Research
P.O. Box 7650 Company*
San Francisco, CA
94120
- -------------------------------------------------------------------------------
David C. Barclay 43 Vice President Vice President, Capital Research
11100 Santa Monica and Management Company
Boulevard
Los Angeles, CA 90025
- -------------------------------------------------------------------------------
John H. Smet 43 Vice President Vice President, Capital Research
11100 Santa Monica and Management Company
Boulevard
Los Angeles, CA 90025
- -------------------------------------------------------------------------------
Patrick F. Quan 41 Secretary Vice President - Fund Business
P.O. Box 7650 Management Group, Capital
San Francisco, CA Research and Management Company
94120
- -------------------------------------------------------------------------------
Anthony W. Hynes, Jr. 36 Treasurer Vice President - Fund Business
135 South State Management Group, Capital
College Blvd. Research and Management Company
Brea, CA 92821
- -------------------------------------------------------------------------------
R. Marcia Gould 45 Assistant Vice President - Fund Business
135 South State Treasurer Management Group, Capital
College Boulevard Research and Management Company
Brea, CA 92821
- -------------------------------------------------------------------------------
</TABLE>

* Company affiliated with Capital Research and Management Company.

The Income Fund of America -- Page 14

<PAGE>

All of the officers listed are officers, and/or directors/trustees of one or
more of the other funds for which Capital Research and Management Company serves
as Investment Adviser.

No compensation is paid by a fund to any officer or Director who is a director,
officer or employee of the Investment Adviser or affiliated companies. The fund
pays annual fees of $18,000 to Directors who are not affiliated with the
Investment Adviser, plus $1,000 for each Board of Directors meeting attended,
plus $500 for each meeting attended as a member of a committee of the Board of
Directors. In lieu of meeting attendance fees, members of the Proxy Committee
receive an annual retainer fee of $4,000 per annum from the fund if they serve
as a member of four proxy committees, or $5,500 if they serve as a member of two
proxy committees, meeting jointly. No pension or retirement benefits are
accrued as part of fund expenses. The Directors may elect, on a voluntary basis,
to defer all or a portion of their fees through a deferred compensation plan in
effect for the fund. The fund also reimburses certain expenses of the Directors
who are not affiliated with the Investment Adviser. As of July 31, 1999 the
officers and Directors of the fund and their families, as a group, owned
beneficially or of record less than 1% of the outstanding shares of the fund.

MANAGEMENT

INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains research
facilities in the U.S. and abroad (Los Angeles, San Francisco, New York,
Washington, D.C., London, Geneva, Hong Kong, Singapore and Tokyo), with a staff
of professionals, many of whom have a number of years of investment experience.
The Investment Adviser is located at 333 South Hope Street, Los Angeles, CA
90071, and at 135 South State College Boulevard, Brea, CA 92821. The Investment
Adviser's research professionals travel several million miles a year, making
more than 5,000 research visits in more than 50 countries around the world. The
Investment Adviser believes that it is able to attract and retain quality
personnel. The Investment Adviser is a wholly owned subsidiary of The Capital
Group Companies, Inc.

An affiliate of the Investment Adviser compiles indices for major stock markets
around the world and compiles and edits the Morgan Stanley Capital International
Perspective, providing financial and market information about more than 2,400
companies around the world.

The Investment Adviser is responsible for managing more than $200 billion of
stocks, bonds and money market instruments and serves over eight million
investors of all types throughout the world. These investors include privately
owned businesses and large corporations as well as schools, colleges,
foundations and other non-profit and tax-exempt organizations.

INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service
Agreement (the "Agreement") between the fund and the Investment Adviser will
continue in effect until December 31, 2000, unless sooner terminated, and may be
renewed from year to year thereafter, provided that any such renewal has been
specifically approved at least annually by (i) the Board of Directors, or by the
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the fund, and (ii) the vote of a majority of Directors who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such approval. The Agreement provides that the Investment Adviser has no
liability to the fund for its acts or omissions in the performance of its
obligations to the fund not involving willful misconduct, bad faith, gross
negligence or reckless disregard of its obligations under the Agreement. The
Agreement also provides that either party has the right to terminate it, without
penalty, upon 60 days' written notice to the other party and

The Income Fund of America -- Page 15

<PAGE>

that the Agreement automatically terminates in the event of its assignment (as
defined in the 1940 Act).

The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the fund, and provides suitable office space, necessary small office equipment
and utilities, general purpose accounting forms, supplies, and postage used at
the offices of the fund. The fund pays all expenses not assumed by the
Investment Adviser, including, but not limited to, custodian, stock transfer and
dividend disbursing fees and expenses; costs of the designing, printing and
mailing of reports, prospectuses, proxy statements, and notices to its
shareholders; taxes; expenses of the issuance and redemption of shares of the
fund (including stock certificates, registration and qualification fees and
expenses); expenses pursuant to the fund's Plan of Distribution (described
below); legal and auditing expenses; compensation, fees, and expenses paid to
directors unaffiliated with the Investment Adviser; association dues; costs of
stationery and forms prepared exclusively for the fund; and costs of assembling
and storing shareholder account data.

The management fee is based upon the net assets of the fund and monthly gross
investment income. Gross investment income means gross income, computed without
taking account of gains or losses from sales of capital assets, but including
original issue discount as defined for federal income tax purposes. The
Internal Revenue Code in general defines original issue discount to mean the
difference between the issue price and the stated redemption price at maturity
of certain debt obligations. The holder of such indebtedness is in general
required to treat as ordinary income the proportionate part of the original
issue discount attributable to the period during which the holder held the
indebtedness.

The management fee is based upon the annual rates of 0.25% on the first $500
million of the fund's net assets, 0.23% on net assets in excess of $500 million
but not exceeding $1 billion, 0.21% on net assets in excess of $1 billion but
not exceeding $1.5 billion, 0.19% on net assets in excess of $1.5 billion but
not exceeding $2.5 billion, 0.17% on net assets in excess of $2.5 billion but
not exceeding $4 billion, 0.16% on net assets in excess of $4 billion but not
exceeding $6.5 billion, 0.15% on net assets in excess of $6.5 billion but not
exceeding $10.5 billion, 0.145% on net assets in excess of $10.5 billion but not
exceeding $17 billion, 0.14% on net assets in excess of $17 billion but not
exceeding $27.5 billion, and 0.135% on net assets in excess of $27.5 billion,
plus 2.25% of the fund's gross investment income for the preceding month.
Assuming net assets of $23 billion and gross investment income levels of 3%, 4%,
5%, 6%, 7% and 8%, management fees would be 0.22%, 0.24%, 0.27%, 0.28%, 0.31%
and 0.34% of net assets, respectively. In connection with the approval of the
Agreement by the fund's Board of Directors, the Investment Adviser has agreed to
waive any fees to the extent they would exceed those payable under the rate
structure contained in its previous agreement. The fee structure referenced
above is lower than that in the previous agreement except in the event that the
fund's net assets were to fall below $8 billion when fees are equal to, or
higher than, that in the previous agreement.

The Agreement provides for a management fee reduction to the extent that the
fund's annual ordinary operating expenses exceed 1-1/2% of the first $30 million
of the net assets of the fund and 1% of the net assets in excess thereof.
Expenses which are not subject to this limitation are interest, taxes, and
extraordinary expenses. Expenditures, including costs incurred in connection
with the purchase or sale of portfolio securities, which are capitalized in
accordance with generally accepted accounting principles applicable to
investment companies, are accounted for as capital items and not as expenses.

The Income Fund of America -- Page 16

<PAGE>

For the fiscal year ended July 31, 1999, the Investment Adviser received
$35,197,000 for the basic management fee (based on a percentage of the net
assets of the fund as expressed above) plus $28,192,000 (based on a percentage
of the fund's gross income as expressed above), for a total fee of $63,389,000.
For the fiscal years ended 1998 and 1997, management fees paid by the fund
amounted to $57,649,000 and $47,820,000, respectively.

PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the "Principal
Underwriter") is the principal underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 3500 Wiseman Boulevard, San
Antonio, TX 78251, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240,
and 5300 Robin Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of
Distribution (the Plan), pursuant to rule 12b-1 under the 1940 Act. The
Principal Underwriter receives amounts payable pursuant to the Plan (see below)
and commissions consisting of that portion of the sales charge remaining after
the discounts which it allows to investment dealers. Commissions retained by the
Principal Underwriter on sales of fund shares during the fiscal year ended July
31, 1999 amounted to $12,692,000 after allowance of $60,189,000 to dealers.
During the fiscal years ended 1998 and 1997 the Principal Underwriter retained
$17,111,000 and $10,140,000, respectively after an allowance of $82,972,000 and
$49,612,000 to dealers, respectively.

As required by rule 12b-1 and the 1940 Act, the Plan (together with the
Principal Underwriting Agreement) has been approved by the full Board of
Directors and separately by a majority of the directors who are not "interested
persons" of the fund and who have no direct or indirect financial interest in
the operation of the Plan or the Principal Underwriting Agreement, and the Plan
has been approved by the vote of a majority of the outstanding voting securities
of the fund. The officers and directors who are "interested persons" of the fund
may be considered to have a direct or indirect financial interest in the
operation of the Plan due to present or past affiliations with the Investment
Adviser and related companies. Potential benefits of the Plan to the fund
include improved shareholder services, savings to the fund in transfer agency
costs, savings to the fund in advisory fees and other expenses, benefits to the
investment process from growth or stability of assets and maintenance of a
financially healthy management organization. The selection and nomination of
directors who are not "interested persons" of the fund are committed to the
discretion of the directors who are not "interested persons" during the
existence of the Plan. The Plan is reviewed quarterly and must be renewed
annually by the Board of Directors.

Under the Plan the fund may expend up to 0.25% of its net assets annually to
finance any activity which is primarily intended to result in the sale of fund
shares, provided the fund's Board of Directors has approved the category of
expenses for which payment is being made. These include service fees for
qualified dealers and dealer commissions and wholesaler compensation on sales of
shares exceeding $1 million (including purchases by any employer-sponsored
403(b) plan, any defined contribution plan qualified under Section 401(a) of the
Internal Revenue Code including a "401(k)" plan with 100 or more eligible
employees or a community foundation).

Commissions on sales of shares exceeding $1 million (including purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code, including any
"401(k)" plan with 100 or more eligible employees) in excess of the Plan
limitation not reimbursed during the most recent fiscal quarter are recoverable
for five quarters, provided that such commissions do not exceed the annual
expense limit. After five quarters, commissions are not recoverable. During the
fiscal year ended July 31, 1999, the fund paid or accrued $52,738,000 for
compensation to dealers under the Plan.

The Income Fund of America -- Page 17

<PAGE>

The Glass-Steagall Act and other applicable laws, among other things, generally
prohibit commercial banks from engaging in the business of underwriting, selling
or distributing securities, but permit banks to make shares of mutual funds
available to their customers and to perform administrative and shareholder
servicing functions. However, judicial or administrative decisions or
interpretations of such laws, as well as changes in either federal or state
statutes or regulations relating to the permissible activities of banks or their
subsidiaries or affiliates, could prevent a bank from continuing to perform all
or a part of its servicing activities. If a bank were prohibited from so acting,
shareholder clients of such bank would be permitted to remain shareholders of
the fund and alternate means for continuing the servicing of such shareholders
would be sought. In such event, changes in the operation of the fund might occur
and shareholders serviced by such bank might no longer be able to avail
themselves of any automatic investment or other services then being provided by
such bank. It is not expected that shareholders would suffer adverse financial
consequences as a result of any of these occurrences.

In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein, and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS - The fund intends to follow the practice of distributing
substantially all of its investment company taxable income which includes any
excess of net realized short-term gains over net realized long-term capital
losses. The fund may follow the practice of distributing the entire excess of
net realized long-term capital gains over net realized short-term capital
losses. However, the fund may retain all or part of such gain for reinvestment,
after paying the related federal taxes for which shareholders may then be able
to claim a credit against their federal tax liability. If the fund does not
distribute the amount of capital gain and/or net investment income required to
be distributed by an excise tax provision of the Code, the fund may be subject
to that excise tax. In certain circumstances, the fund may determine that it is
in the interest of shareholders to distribute less than the required amount. In
this case, the fund will pay any income or excise taxes due.

Dividends will be reinvested in shares of the fund unless shareholders indicate
in writing that they wish to receive them in cash or in shares of other American
Funds, as provided in the prospectus.

TAXES - The fund intends to elect to be treated as a regulated investment
company under Subchapter M of the Code. A regulated investment company
qualifying under Subchapter M of the Code is required to distribute to its
shareholders at least 90% of its investment company taxable income (including
the excess of net short-term capital gain over net long-term capital losses) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code. The fund intends to distribute annually all
of its investment company taxable income and net realized capital gains and
therefore does not expect to pay federal income tax, although in certain
circumstances the fund may determine that it is in the interest of shareholders
to distribute less than that amount.

The fund will be subject to a 4% nondeductible excise tax on amounts required to
be but not distributed under a prescribed formula. The formula requires the fund
to distribute to

The Income Fund of America -- Page 18

<PAGE>

shareholders for a calendar year an amount equal to at least 98% of the fund's
ordinary income for that calendar year, at least 98% of the excess of its
capital gains over capital losses realized during the one-year period ending
October 31 during such year, and all ordinary income and capital gains for prior
years that were not previously distributed.

Investment company taxable income generally includes dividends, interest, net
short-term capital gains in excess of net long-term capital losses, and certain
foreign currency gains, if any, less expenses and certain foreign currency
losses, if any. Net capital gains for a fiscal year are computed by taking into
account any capital loss carry-forward of the fund.

If any net long-term capital gains in excess of net short-term capital losses
are retained by a fund for reinvestment, requiring federal income taxes to be
paid thereon by the fund, the fund intends to elect to treat such capital gains
as having been distributed to shareholders. As a result, each shareholder will
report such capital gains as long-term capital gains taxable to individual
shareholders at a maximum 20% capital gains rate, will be able to claim a pro
rata share of federal income taxes paid by the fund on such gains as a credit
against personal federal income tax liability, and will be entitled to increase
the adjusted tax basis on fund shares by the difference between a pro rata share
of the retained gains and their related tax credit.

Distributions of investment company taxable income are taxable to shareholders
as ordinary income.

Distributions of the excess of net long-term capital gains over net short-term
capital losses which the fund properly designates as "capital gain dividends"
generally will be taxable to individual shareholders at a maximum 20% capital
gains rate, regardless of the length of time the shares of the fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less from the date of their
purchase will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gain during such six-month
period.

Distributions of investment company taxable income and net realized capital
gains to individual shareholders will be taxable as described above, whether
received in shares or in cash. Shareholders electing to receive distributions in
the form of additional shares will have a cost basis for federal income tax
purposes in each share so received equal to the net asset value of a share on
the reinvestment date.

All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder subject to tax on his or her federal income tax return. Dividends
and capital gains distributions declared in October, November or December and
payable to shareholders of record in such a month will be deemed to have been
received by shareholders on December 31 if paid during January of the following
year. Redemptions of shares, including exchanges for shares of another American
Fund, may result in tax consequences (gain or loss) to the shareholder and must
also be reported on the shareholder's federal income tax return.

Dividends from domestic corporations are expected to comprise some portion of
the fund's gross income. To the extent that such dividends constitute any of the
fund's gross income, a portion of the income distributions of the fund will be
eligible for the deduction for dividends received by corporations. Shareholders
will be informed of the portion of dividends which so qualify. The

The Income Fund of America -- Page 19

<PAGE>

dividends-received deduction is reduced to the extent that either the fund
shares, or the underlying shares of stock held by the fund, with respect to
which dividends are received, are treated as debt-financed under federal income
tax law and is eliminated if the shares are deemed to have been held by the
shareholder or the fund, as the case may be, for less than 46 days.

Distributions by the fund result in a reduction in the net asset value of the
fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of investment
capital. For this reason, investors should consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will then receive a partial return of investment
capital upon the distribution, which will nevertheless be taxable to them.

A portion of the difference between the issue price of zero coupon securities
and their face value ("original issue discount") is considered to be income to
the fund each year, even though the fund will not receive cash interest payments
from these securities. This original issue discount (imputed income) will
comprise a part of the investment company taxable income of the fund which must
be distributed to shareholders in order to maintain the qualification of the
fund as a regulated investment company and to avoid federal income tax at the
level of the fund. Shareholders will be subject to income tax on such original
issue discount, whether or not they elect to receive their distributions in
cash.

The fund will be required to report to the IRS all distributions of investment
company taxable income and capital gains as well as gross proceeds from the
redemption or exchange of fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of investment company taxable income and capital gains and
proceeds from the redemption or exchange of the shares of a regulated investment
company may be subject to withholding of federal income tax at the rate of 31%
in the case of non-exempt U.S. shareholders who fail to furnish the investment
company with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law.
Withholding may also be required if the fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.

Shareholders of the fund may be subject to state and local taxes on
distributions received from the fund and on redemptions of the fund's shares.

Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year fund shareholders will
receive a statement of the federal income tax status of all distributions.

The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the fund, including the possibility that such a

The Income Fund of America -- Page 20

<PAGE>

shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a
lower rate under an applicable income tax treaty) on dividend income received by
him or her.

Shareholders should consult their tax advisers about the application of the
provisions of tax law described in this statement of additional information in
light of their particular tax situations.

The Income Fund of America -- Page 21

<PAGE>

PURCHASE OF SHARES

<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
- -------------------------------------------------------------------------------
<S> <C> <C>
See "Investment $50 minimum (except where a
Minimums and Fund lower minimum is noted under
Numbers "for initial "Investment Minimums and Fund
investment minimums. Numbers").
- -------------------------------------------------------------------------------
By contacting Visit any investment Mail directly to your
your investment dealer dealer who is investment dealer's address
registered in the printed on your account
state where the statement.
purchase is made and
who has a sales
agreement with
American Funds
Distributors.
- -------------------------------------------------------------------------------
By mail Make your check Fill out the account additions
payable to the fund form at the bottom of a recent
and mail to the account statement, make your
address indicated on check payable to the fund,
the account write your account number on
application. Please your check, and mail the check
indicate an investment and form in the envelope
dealer on the account provided with your account
application. statement.
- -------------------------------------------------------------------------------
By telephone Please contact your Complete the "Investments by
investment dealer to Phone" section on the account
open account, then application or American
follow the procedures FundsLink Authorization Form.
for additional Once you establish the
investments. privilege, you, your financial
advisor or any person with your
account information can call
American FundsLine(R) and make
investments by telephone
(subject to conditions noted in
"Shareholder Account Services
and Privileges - Telephone and
Computer Purchases, Redemptions
and Exchanges" below).
- -------------------------------------------------------------------------------
By computer Please contact your Complete the American FundsLink
investment dealer to Authorization Form. Once you
open account, then established the privilege, you,
follow the procedures your financial advisor or any
for additional person with your account
investments. information may access American
FundsLine OnLine(R) on the
Internet and make investments
by computer (subject to
conditions noted in
"Shareholder Account Services
and Privileges - Telephone and
Computer Purchases, Redemptions
and Exchanges" below).
- -------------------------------------------------------------------------------
By wire Call800/421-0180 to Your bank should wire your
obtain your account additional investments in the
number(s), if same manner as described under
necessary. Please "Initial Investment."
indicate an investment
dealer on the account.
Instruct your bank to
wire funds to:

Wells Fargo Bank
155 Fifth Street,
Sixth Floor
San Francisco, CA
94106
(ABA#121000248)

For credit to the
account of:
American Funds Service
Company a/c#
4600-076178
(fund name)
(your fundacct. no.)
- -------------------------------------------------------------------------------
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY
PURCHASE ORDER.
- -------------------------------------------------------------------------------
</TABLE>

The Income Fund of America -- Page 22

<PAGE>

INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial investments
required by the funds in The American Funds Group along with fund numbers for
use with our automated phone line, American FundsLine/(R)/ (see description
below):

<TABLE>
<CAPTION>
MINIMUM
INITIAL FUND
FUND INVESTMENT NUMBER
---- ---------- ------
<S> <C> <C>
STOCK AND STOCK/BOND FUNDS
AMCAP Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 250 02
American Balanced Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . 250 11
American Mutual Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . 250 03
Capital Income Builder/(R)/ . . . . . . . . . . . . . . . . . . . . . . 250 12
Capital World Growth and Income Fund/SM/ . . . . . . . . . . . . . . . . 250 33
EuroPacific Growth Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . 250 16
Fundamental Investors/SM/ . . . . . . . . . . . . . . . . . . . . . . . 250 10
The Growth Fund of America/(R)/ . . . . . . . . . . . . . . . . . . . . 250 05
The Income Fund of America/(R)/ . . . . . . . . . . . . . . . . . . . . 250 06
The Investment Company of America/(R)/ . . . . . . . . . . . . . . . . . 250 04
The New Economy Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . 250 14
New Perspective Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . 250 07
New World Fund/SM/ . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 36
SMALLCAP World Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . 250 35
Washington Mutual Investors Fund/SM/ . . . . . . . . . . . . . . . . . . 250 01
BOND FUNDS
American High-Income Municipal Bond Fund/(R)/ . . . . . . . . . . . . . 250 40
American High-Income Trust/SM/ . . . . . . . . . . . . . . . . . . . . . 250 21
The Bond Fund of America/SM/ . . . . . . . . . . . . . . . . . . . . . . 250 08
Capital World Bond Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . 250 31
Intermediate Bond Fund of America/SM/ . . . . . . . . . . . . . . . . . 250 23
Limited Term Tax-Exempt Bond Fund of America/SM/ . . . . . . . . . . . . 250 43
The Tax-Exempt Bond Fund of America/(R)/ . . . . . . . . . . . . . . . . 250 19
The Tax-Exempt Fund of California/(R)/* . . . . . . . . . . . . . . . . 1,000 20
The Tax-Exempt Fund of Maryland/(R)/* . . . . . . . . . . . . . . . . . 1,000 24
The Tax-Exempt Fund of Virginia/(R)/* . . . . . . . . . . . . . . . . . 1,000 25
U.S. Government Securities Fund/SM/ . . . . . . . . . . . . . . . . . . 250 22
MONEY MARKET FUNDS
The Cash Management Trust of America/(R)/ . . . . . . . . . . . . . . . 1,000 09
The Tax-Exempt Money Fund of America/SM/ . . . . . . . . . . . . . . . . 1,000 39
The U.S. Treasury Money Fund of America/SM/ . . . . . . . . . . . . . . 1,000 49
___________
*Available only in certain states.
</TABLE>

Minimums are reduced to $50 for purchases through "Automatic Investment Plans"
(except for the money market funds) or to $25 for purchases by retirement plans
through payroll deductions and may be reduced or waived for shareholders of
other funds in The American Funds Group. TAX-EXEMPT FUNDS SHOULD NOT

The Income Fund of America -- Page 23

<PAGE>

SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for additional
investments (except as noted above).

SALES CHARGES -- The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below. The
money market funds of The American Funds Group are offered at net asset value.
(See "Investment Minimums and Fund Numbers" for a listing of the funds.)

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Amount of Purchase SALES CHARGE AS DEALER
at the Offering Price PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE

NET AMOUNT OFFERING
INVESTED PRICE

STOCK AND STOCK/BOND FUNDS

Less than $25,000 6.10% 5.75% 5.00%

$25,000 but less than $50,000 5.26 5.00 4.25

$50,000 but less than $100,000 4.71 4.50 3.75

BOND FUNDS

Less than $100,000 3.90 3.75 3.00

STOCK, STOCK/BOND, AND BOND
FUNDS

$100,000 but less than 3.63 3.50 2.75
$250,000

$250,000 but less than 2.56 2.50 2.00
$500,000

$500,000 but less than 2.04 2.00 1.60
$750,000

$750,000 but less than 1.52 1.50 1.20
$1,000,000

$1,000,000 or more none none (see below)

</TABLE>

PURCHASES NOT SUBJECT TO SALES CHARGES - Investment of $1 million or more are
sold with no initial sales charge. HOWEVER, A 1% CONTINGENT DEFERRED SALES
CHARGE MAY BE IMPOSED IF REDEMPTIONS ARE MADE WITHIN ONE YEAR OF PURCHASE.
Employer-sponsored defined contribution-type plans investing $1 million or more,
or with 100 or more eligible employees, may invest with no sales charge and are
not subject to a contingent deferred sales charge. Investments made by
retirement plans, endowments or foundations with $50 million or more in assets
may also be made with no sales charge and are not subject to a contingent
deferred sales charge. A dealer concession of up to 1% may be paid by the fund
under its Plan of Distribution on investments made with no initial sales charge.

In addition, the stock, stock/bond and bond funds may sell shares at net asset
value to:

(1) current or retired directors, trustees, officers and advisory board members
of the funds managed by Capital Research and Management Company, employees of
Washington Management Corporation, employees and partners of The Capital Group
Companies, Inc. and its

The Income Fund of America -- Page 24

<PAGE>

affiliated companies, certain family members of the above persons, and trusts or
plans primarily for such persons;

(2) current registered representatives, retired registered representatives with
respect to accounts established while active, or full-time employees (and their
spouses, parents, and children) of dealers who have sales agreements with the
Principal Underwriter (or who clear transactions through such dealers) and plans
for such persons or the dealers;

(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer;

(4) trustees or other fiduciaries purchasing shares for certain retirement
plans of organizations with retirement plan assets of $50 million or more;

(5) insurance company separate accounts;

(6) accounts managed by subsidiaries of The Capital Group Companies, Inc.; and

(7) The Capital Group Companies, Inc., its affiliated companies and Washington
Management Corporation. Shares are offered at net asset value to these persons
and organizations due to anticipated economies in sales effort and expense.

DEALER COMMISSIONS - Commissions of up to 1% will be paid to dealers who
initiate and are responsible for purchases of $1 million or more, for purchases
by any employer-sponsored 403(b) plan or purchases by any defined contribution
plan qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees, and for purchases made at net
asset value by certain retirement plans of organizations with collective
retirement plan assets of $50 million or more: 1.00% on amounts of $1 million to
$4 million, 0.50% on amounts over $4 million to $10 million, and 0.25% on
amounts over $10 million.

OTHER COMPENSATION TO DEALERS - The Principal Underwriter, at its expense (from
a designated percentage of its income), currently provides additional
compensation to dealers. Currently these payments are limited to the top 100
dealers who have sold shares of the fund or other funds in The American Funds
Group. These payments will be based principally on a pro rata share of a
qualifying dealer's sales. The Principal Underwriter will, on an annual basis,
determine the advisability of continuing these payments.

Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing certain
information and assistance with respect to the fund.

REDUCING YOUR SALES CHARGE - You and your immediate family may combine
investments to reduce your costs. You must let your investment dealer or

American Funds Service Company (the "Transfer Agent") know if you qualify for a
reduction in your sales charge using one or any combination of the methods
described below.

STATEMENT OF INTENTION - You may enter into a non-binding commitment to
purchase shares of a fund(s) over a over a 13-month period and receive the
same sales charge as

The Income Fund of America -- Page 25

<PAGE>

if all shares had been purchased at once. This includes purchases made
during the previous 90 days, but does not include appreciation of your
investment or reinvested distributions. The reduced sales charges and
offering prices set forth in the Prospectus apply to purchases of $25,000
or more made within a 13-month period subject to the following statement of
intention (the "Statement"). The Statement is not a binding obligation to
purchase the indicated amount. When a shareholder elects to utilize a
Statement in order to qualify for a reduced sales charge, shares equal to
5% of the dollar amount specified in the Statement will be held in escrow
in the shareholder's account out of the initial purchase (or subsequent
purchases, if necessary) by the Transfer Agent. All dividends and any
capital gain distributions on shares held in escrow will be credited to the
shareholder's account in shares (or paid in cash, if requested). If the
intended investment is not completed within the specified 13-month period,
the purchaser will remit to the Principal Underwriter the difference
between the sales charge actually paid and the sales charge which would
have been paid if the total of such purchases had been made at a single
time. If the difference is not paid by the close of the period, the
appropriate number of shares held in escrow will be redeemed to pay such
difference. If the proceeds from this redemption are inadequate, the
purchaser will be liable to the Principal Underwriter for the balance still
outstanding. The Statement may be revised upward at any time during the
13-month period, and such a revision will be treated as a new Statement,
except that the 13-month period during which the purchase must be made will
remain unchanged. Existing holdings eligible for rights of accumulation
(see the account application) and any individual investments in American
Legacy products (American Legacy, American Legacy II and American Legacy
III variable annuities, American Legacy Life, American Legacy Variable
Life, and American Legacy Estate Builder) may be credited toward satisfying
the Statement. During the Statement period reinvested dividends and capital
gain distributions, investments in money market funds, and investments made
under a right of reinstatement will not be credited toward satisfying the
Statement.

When the trustees of certain retirement plans purchase shares by payroll
deduction, the sales charge for the investments made during the 13-month
period will be handled as follows: The regular monthly payroll deduction
investment will be multiplied by 13 and then multiplied by 1.5. The current
value of existing American Funds investments (other than money market fund
investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period, and
any individual investments in American Legacy products are added to the
figure determined above. The sum is the Statement amount and applicable
breakpoint level. On the first investment and all other investments made
pursuant to the Statement, a sales charge will be assessed according to the
sales charge breakpoint thus determined.

Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.

AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and
your children under the age of 21, if all parties are purchasing shares for
their own accounts and/or:

- employee benefit plan(s), such as an IRA, individual-type 403(b) plan,
or single-participant Keogh-type plan;

- business accounts solely controlled by these individuals (for example,
the individuals own the entire business);

The Income Fund of America -- Page 26

<PAGE>

- trust accounts established by the above individuals. However, if the
person(s) who established the trust is deceased, the trust account may
be aggregated with accounts of the person who is the primary
beneficiary of the trust.

Individual purchases by a trustee(s) or other fiduciary(ies) may also be
aggregated if the investments are:

- for a single trust estate or fiduciary account, including an employee
benefit plan other than those described above;

- made for two or more employee benefit plans of a single employer or of
affiliated employers as defined in the 1940 Act, again excluding
employee benefit plans described above; or

- for a diversified common trust fund or other diversified pooled
account not specifically formed for the purpose of accumulating fund
shares.

Purchases made for nominee or street name accounts (securities held in the
name of an investment dealer or another nominee such as a bank trust
department instead of the customer) may not be aggregated with those made
for other accounts and may not be aggregated with other nominee or street
name accounts unless otherwise qualified as described above.

CONCURRENT PURCHASES - You may combine purchases of two or more funds in
The American Funds Group, except direct purchases of the money market
funds. Shares of money market funds purchased through an exchange,
reinvestment or cross-reinvestment from a fund having a sales charge do
qualify.

RIGHTS OF ACCUMULATION - You may take into account the current value of
your existing holdings in The American Funds Group, as well as your
holdings in Endowments (shares of which may be owned only by tax-exempt
organizations), to determine your sales charge on investments in accounts
eligible to be aggregated, or when making a gift to an individual or
charity. When determining your sales charge, you may also take into account
the value of your individual holdings, as of the end of the week prior to
your investment, in various American Legacy products (American Legacy,
American Legacy II and American Legacy III variable annuities, American
Legacy Life, American Legacy Variable Life, and American Legacy Estate
Builder). Direct purchases of the money market funds are excluded. Direct
purchases of the money market funds are excluded.

PRICE OF SHARES - Shares are purchased at the offering price next determined
after the purchase order is received and accepted by the fund or the Transfer
Agent; this offering price is effective for orders received prior to the time of
determination of the net asset value and, in the case of orders placed with
dealers, accepted by the Principal Underwriter prior to its close of business.
In the case of orders sent directly to the fund or the Transfer Agent, an
investment dealer MUST be indicated. The dealer is responsible for promptly
transmitting purchase orders to the Principal Underwriter. Orders received by
the investment dealer, the Transfer Agent, or the fund after the time of the
determination of the net asset value will be entered at the next calculated
offering price. Prices which appear in the newspaper are not always indicative
of prices at which you will be purchasing and redeeming shares of the fund,
since such prices generally reflect the previous day's closing price whereas
purchases and redemptions are made at the next calculated price.

The Income Fund of America -- Page 27

<PAGE>

The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily at the close of trading
(currently 4:00 p.m., New York time) each day the New York Stock Exchange is
open. For example, if the Exchange closes at 1:00 p.m. on one day and at 4:00
p.m. on the next, the fund's share price would be determined as of 4:00 p.m. New
York time on both days. The New York Stock Exchange is currently closed on
weekends and on the following holidays: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas Day.

All portfolio securities of funds managed by Capital Research and Management
Company (other than money market funds) are valued, and the net asset value per
share is determined as follows:

1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or the
over-the-counter market. Fixed-income securities are valued at prices obtained
from a pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.

Short-term securities maturing within 60 days are valued at amortized cost which
approximates market value.

Assets or liabilities initially expressed in terms of non-U.S. currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.

Securities and assets for which representative market quotations are not readily
available are valued at fair value as determined in good faith under policies
approved by the fund's Board. The fair value of all other assets is added to the
value of securities to arrive at the total assets;

2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and

3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share

Any purchase order may be rejected by the Principal Underwriter or by the fund.
The Principal Underwriter will not knowingly sell shares of the fund directly or
indirectly to any person or entity, where, after the sale, such person or entity
would own beneficially directly or indirectly more than 4.5% of the outstanding
shares of the fund without the consent of a majority of the fund's Board of
Directors.

The Income Fund of America -- Page 28

<PAGE>

SELLING SHARES

Shares are sold at the net asset value next determined after your request is
received in good order by the Transfer Agent. You may sell (redeem) shares in
your account in any of the following ways:

THROUGH YOUR DEALER (certain charges may apply)

- Shares held for you in your dealer's street name must be sold
through the dealer.

Writing to American Funds Service Company

- Requests must be signed by the registered shareholder(s)

- A signature guarantee is required if the redemption is:

- Over $50,000;

- Made payable to someone other than the registered
shareholder(s); or

- Sent to an address other than the address of record, or
an address of record which has been changed within the
last 10 days.

Your signature may be guaranteed by a domestic stock exchange or the National
Association of Securities Dealers, Inc., bank, savings association or credit
union that is an eligible guarantor institution.

- Additional documentation may be required for sales of shares
held in corporate, partnership or fiduciary accounts.

- You must include any shares you wish to sell that are in
certificate form.

Telephoning or Faxing American Funds Service Company, or by Using American
FundsLine/(R)/ or American FundsLine OnLine/(R)/

- Redemptions by telephone or fax (including American
FundsLine/(R)/ and American FundsLine OnLine/(R)/) are
limited to $50,000 per shareholder each day.

- Checks must be made payable to the registered shareholder(s).

- Checks must be mailed to an address of record that has been
used with the account for at least 10 days.

Money Market Funds

- You may have redemptions of $1,000 or more wired to your
bank by writing American Funds Service Company.

- You may establish check writing privileges (use the money
market funds application).

The Income Fund of America -- Page 29

<PAGE>

- If you request check writing privileges, you will be provided with
checks that you may use to draw against your account. These checks may
be made payable to anyone you designate and must be signed by the
authorized number or registered shareholders exactly as indicated on
your checking account signature card.

Redemption proceeds will not be mailed until sufficient time has passed to
provide reasonable assurance that checks or drafts (including certified or
cashier's checks) for shares purchased have cleared (which may take up to 15
calendar days from the purchase date). Except for delays relating to clearance
of checks for share purchases or in extraordinary circumstances (and as
permissible under the 1940 Act), sale proceeds will be paid on or before the
seventh day following receipt and acceptance of an order. Interest will not
accrue or be paid on amounts that represent uncashed distribution or redemption
checks.

You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group within
90 days after the date of the redemption or distribution. Redemption proceeds of
shares representing direct purchases in the money market funds are excluded.
Proceeds will be reinvested at the next calculated net asset value after your
request is received and accepted by the Transfer Agent.

CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions from funds other than the money market funds made
within twelve months of purchase on investments of $1 million or more (other
than redemptions by employer-sponsored retirement plans). The charge is 1% of
the lesser of the value of the shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the total cost of such shares.
Shares held for the longest period are assumed to be redeemed first for purposes
of calculating this charge. The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from 403(b) plans or IRAs due to death, disability
or attainment of age 591/2; for tax-free returns of excess contributions to
IRAs; and for redemptions through certain automatic withdrawals not exceeding
10% of the amount that would otherwise be subject to the charge.

SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES

AUTOMATIC INVESTMENT PLAN - An automatic investment plan enables you to make
monthly or quarterly investments into the American Funds through automatic
debits from your bank account. To set up a plan you must fill out an account
application and specify the amount you would like to invest ($50 minimum) and
the date on which you would like your investments to occur. The plan will begin
within 30 days after your account application is received. Your bank account
will be debited on the day or a few days before your investment is made,
depending on the bank's capabilities. The Transfer Agent will then invest your
money into the fund you specified on or around the date you specified. If your
bank account cannot be debited due to insufficient funds, a stop-payment or the
closing of the account, the plan may be terminated and the related investment
reversed. You may change the amount of the investment or discontinue the plan at
any time by writing to the Transfer Agent.

AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are reinvested
in additional shares at no sales charge unless you indicate otherwise on the
account application. You also

The Income Fund of America -- Page 30

<PAGE>

may elect to have dividends and/or capital gain distributions paid in cash by
informing the fund, the Transfer Agent or your investment dealer.

If a shareholder has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, or the shareholder does
not respond to mailings from American Funds Service Company with regard to
uncashed distribution checks, the shareholder's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares.

CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - You may cross-reinvest
dividends and capital gains ("distributions") into any other fund in The
American Funds Group at net asset value, subject to the following conditions:

(a) The aggregate value of your account(s) in the fund(s) paying distributions
equals or exceeds $5,000 (this is waived if the value of the account in the fund
receiving the distributions equals or exceeds that fund's minimum initial
investment requirement),

(b) If the value of the account of the fund receiving distributions is below
the minimum initial investment requirement, distributions must be automatically
reinvested,

(c) If you discontinue the cross-reinvestment of distributions, the value of
the account of the fund receiving distribution must equal or exceed the minimum
initial investment requirement. If you do not meet this requirement within 90
days of notification, the fund has the right to automatically redeem the
account.

EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.

You may exchange shares by writing to the Transfer Agent (see "Redeeming
Shares"), by contacting your investment dealer, by using American FundsLine and
American FundsLine OnLine (see "American FundsLine and American FundsLine
OnLine" below), or by telephoning 800/421-0180 toll-free, faxing (see "Principal
Underwriter and Transfer Agent" in the prospectus for the appropriate fax
numbers) or telegraphing the Transfer Agent. (See "Telephone and Computer
Purchases, Redemptions and Exchanges" below.) Shares held in corporate-type
retirement plans for which Capital Guardian Trust Company serves as trustee may
not be exchanged by telephone, computer, fax or telegraph. Exchange redemptions
and purchases are processed simultaneously at the share prices next determined
after the exchange order is received. (See "Purchase of Shares--Price of
Shares.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES
AND PURCHASES.

AUTOMATIC EXCHANGES - You may automatically exchange shares in amounts of $50 or
more among any of the funds in The American Funds Group on any day (or preceding
business day if the day falls on a non-business day of each month you designate.
You must either (a) meet the minimum initial investment requirement for the
receiving fund OR (b) the originating fund's balance must be at least $5,000 and
the receiving fund's minimum must be met within one year.

The Income Fund of America -- Page 31

<PAGE>

AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.

ACCOUNT STATEMENTS - Your account is opened in accordance with your registration
instructions. Transactions in the account, such as additional investments will
be reflected on regular confirmation statements from the Transfer Agent.
Dividend and capital gain reinvestments and purchases through automatic
investment plans and certain retirement plans will be confirmed at least
quarterly.

AMERICAN FUNDSLINE AND AMERICAN FUNDSLINE ONLINE - You may check your share
balance, the price of your shares, or your most recent account transaction,
redeem shares (up to $50,000 per shareholder each day), or exchange shares
around the clock with American FundsLine and American FundsLine OnLine. To use
these services, call 800/325-3590 from a TouchTone(TM) telephone or access the
American Funds Web site on the Internet at www.americanfunds.com. Redemptions
and exchanges through American FundsLine and American FundsLine OnLine are
subject to the conditions noted above and in "Shareholder Account Services and
Privileges - Telephone and Computer Purchases, Redemptions and Exchanges" below.
You will need your fund number (see the list of funds in The American Funds
Group under "Purchase of Shares - Investment Minimums and Fund Numbers"),
personal identification number (the last four digits of your Social Security
number or other tax identification number associated with your account) and
account number.

TELEPHONE AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES - By using the
telephone (including American FundsLine) or computer (including American
FundsLine OnLine), fax or telegraph purchase, redemption and/or exchange
options, you agree to hold the fund, the Transfer Agent, any of its affiliates
or mutual funds managed by such affiliates, and each of their respective
directors, trustees, officers, employees and agents harmless from any losses,
expenses, costs or liability (including attorney fees) which may be incurred in
connection with the exercise of these privileges. Generally, all shareholders
are automatically eligible to use these options. However, you may elect to opt
out of these options by writing the Transfer Agent (you may also reinstate them
at any time by writing the Transfer Agent). If the Transfer Agent does not
employ reasonable procedures to confirm that the instructions received from any
person with appropriate account information are genuine, the fund may be liable
for losses due to unauthorized or fraudulent instructions. In the event that
shareholders are unable to reach the fund by telephone because of technical
difficulties, market conditions, or a natural disaster, redemption and exchange
requests may be made in writing only.

SHARE CERTIFICATES - Shares are credited to your account and certificates are
not issued unless you request them by writing to the Transfer Agent.

REDEMPTION OF SHARES - The fund's Articles of Incorporation permits the fund to
direct the Transfer Agent to redeem the shares of any shareholder for their then
current net asset value per share if at such time the shareholder owns of
record, shares having an aggregate net asset value of less than the minimum
initial investment amount required of new shareholders as set forth in

The Income Fund of America -- Page 32

<PAGE>

the fund's current registration statement under the 1940 Act, and subject to
such further terms and conditions as the Board of Directors of the fund may from
time to time adopt.

EXECUTION OF PORTFOLIO TRANSACTIONS

Orders for the fund's portfolio securities transactions are placed by the
Investment Adviser. The Investment Adviser strives to obtain the best available
prices in its portfolio transactions taking into account the costs and quality
of executions. When, in the opinion of the Investment Adviser, two or more
brokers (either directly or through their correspondent clearing agents) are in
a position to obtain the best price and execution, preference may be given to
brokers who have sold shares of the fund or who have provided investment
research, statistical, or other related services to the Investment Adviser. The
fund does not consider that it has an obligation to obtain the lowest available
commission rate to the exclusion of price, service and qualitative
considerations.

There are occasions on which portfolio transactions for the fund may be executed
as part of concurrent authorizations to purchase or sell the same security for
other funds served by the Investment Adviser, or for trusts or other accounts
served by affiliated companies of the Investment Adviser. Although such
concurrent authorizations potentially could be either advantageous or
disadvantageous to the fund, they are effected only when the Investment Adviser
believes that to do so is in the interest of the fund. When such concurrent
authorizations occur, the objective is to allocate the executions in an
equitable manner. The fund will not pay a mark-up for research in principal
transactions.

Brokerage commissions paid on portfolio transactions for the fiscal years ended
July 31, 1999, 1998 and 1997, amounted to $11,431,000, $6,212,000 and
$9,637,000, respectively.

The fund is required to disclose information regarding investments in the
securities of broker-dealers (or parents of broker-dealers that derive more than
15% of their revenue from broker-dealer activities) which have certain
relationships with the fund. During the last fiscal year, J.P. Morgan & Co. was
among the top 10 dealers that received the largest amount of brokerage
commissions and that acted as principals in portfolio transactions. The fund
held equity and debt securities of J.P. Morgan & Co. in the amounts of
$195,009,000 and $1,505,000 as of the close of its most recent fiscal year.

GENERAL INFORMATION

CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds
from the sale of shares of the fund and of securities in the fund's portfolio,
are held by The Chase Manhattan Bank, One Chase Manhattan Plaza, New York, NY
10081, as Custodian. The Custodian may hold non-U.S. securities pursuant to
sub-custodial arrangements in non-U.S. banks or foreign branches of U.S. banks.

TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee of
$10,901,000 for the fiscal year ended July 31, 1999.

The Income Fund of America -- Page 33

<PAGE>

INDEPENDENT AUDITORS - Deloitte & Touche LLP, 1000 Wilshire Boulevard, Los
Angeles, CA 90017, serves as the fund's independent auditors providing audit
services, preparation of tax returns and review of certain documents to be filed
with the Securities and Exchange Commission. The financial statements included
in this Statement of Additional Information from the Annual Report have been so
included in reliance on the report Deloitte & Touche LLP, independent auditors,
given on the authority of said firm as experts in accounting and auditing. The
selection of the fund's independent accountants is reviewed and determined
annually by the Board of Directors.

REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on July 31. Shareholders
are provided at least semiannually with reports showing the investment
portfolio, financial statements and other information. The fund's annual
financial statements are audited by the fund's independent auditors, Deloitte &
Touche LLP. In an effort to reduce the volume of mail shareholders receive from
the fund when a household owns more than one account, the Transfer Agent has
taken steps to eliminate duplicate mailings of shareholder reports. To receive
additional copies of a report, shareholders should contact the Transfer Agent.

YEAR 2000 - The fund and its shareholders depend on the proper functioning of
computer systems maintained by the Investment Adviser and its affiliates and
other key service providers. Many computer systems in use today will require
reprogramming or replacement prior to the year 2000 because of the way they
store dates and make date-related calculations. The fund understands that these
service providers are taking steps to address the "Year 2000 problem". However,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the fund. In addition, the fund's investments could be
adversely affected by the Year 2000 problem. For example, the markets for
securities in which the fund invests could experience settlement problems and
liquidity issues. Corporate and governmental data processing errors may cause
losses for individual companies and overall economic uncertainties. Earnings of
individual issuers are likely to be affected by the costs of addressing the
problem, which may be substantial and may be reported inconsistently.

PERSONAL INVESTING POLICY - Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; blackout periods on personal
investing for certain investment personnel; ban on short-term trading profits
for investment personnel; limitations on service as a director of publicly
traded companies; and disclosure of personal securities transactions.

OTHER INFORMATION - The financial statements including the investment portfolio
and the report of Independent Auditors contained in the Annual Report are
included in this Statement of Additional Information. The following information
is not included in the Annual Report:

The Income Fund of America -- Page 34

<PAGE>

DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE -- JULY 31, 1999

<TABLE>
<CAPTION>
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding. . . . . . . . . . $17.51
Maximum offering price per share
(100/94.25 of net asset value per share,
which takes into account the fund's current maximum
sales charge). . . . . . . . . . . . . . . . . . . . . . . . $18.58
</TABLE>

INVESTMENT RESULTS AND RELATED STATISTICS

The fund's yield is 4.85% based on a 30-day (or one month) period ended July 31,
1999, computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:

YIELD = 2[( a-b/cd + 1)/6/ -1]

Where: a = dividends and interest earned during the period.

b =
expenses accrued for the period (net of reimbursements).

c =
the average daily number of shares outstanding during the
period that were entitled to receive dividends.

d = the maximum offering pr ice per share on the last day of the
period.

The fund's one year total return and average annual total return for the five-
and ten-year periods ended July 31, 1999 were +1.61%, +14.07% and +11.54%,
respectively. The average total return ("T") is computed by equating the value
at the end of the period ("ERV") with a hypothetical initial investment of
$1,000 ("P") over a period of years ("n") according to the following formula as
required by the Securities and Exchange Commission: P(1+T)/n/ = ERV. The fund's
average annual total return at net asset value for the one-, five- and ten-year
periods ended on July 31, 1999 was +7.79%, +15.43% and +12.20, respectively.

In calculating average annual total return, the fund assumes: (1) deduction of
the maximum sales load of 5.75% from the $1,000 initial investment; (2)
reinvestment of dividends and distributions at net asset value on the
reinvestment date determined by the Board; and (3) a complete redemption at the
end of any period illustrated. In addition, the fund will provide lifetime
average total return figures.

The fund may also, at times, calculate total return based on net asset value per
share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the computation. Consequently,
total return calculated in this manner will be higher. These total returns may
be calculated over periods in addition to those described above. Total return
for the unmanaged indices will be calculated assuming reinvestment of dividends
and interest, but will not reflect any deductions for advisory fees, brokerage
costs or administrative expenses.

The Income Fund of America -- Page 35

<PAGE>

The fund may include information on its investment results and/or comparisons of
its investment results to various unmanaged indices (such as The Dow Jones
Average of 30 Industrial Stocks and The Standard and Poor's 500 Composite Stock
Index) or results of other mutual funds or investment or savings vehicles in
advertisements or in reports furnished to present or prospective shareholders.
The fund may also, from time to time, combine its results with those of other
funds in The American Funds Group for purposes of illustrating investment
strategies involving multiple funds.

The fund may refer to results and surveys compiled by organizations such as CDA/
Wiesenberger, Ibbotson Associates, Lipper Analytical Services, Morningstar,
Inc., and by the U.S. Department of Commerce. Additionally, the fund may refer
to results published in various newspapers and periodicals, including Barron's,
Forbes, Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine,
Money, U.S. News and World Report and The Wall Street Journal.

The fund may illustrate the benefits of tax-deferral by comparing taxable
investments to investments made through tax-deferred retirement plans.

The fund may compare its investment results with the Consumer Price Index, which
is a measure of the average change in prices over time in a fixed market basket
of goods and services (e.g. food, clothing, and fuels, transportation, and other
goods and services that people buy for day-to-day living).

The fund may also calculate a distribution rate on a taxable and tax equivalent
basis. The distribution rate is computed by dividing the dividends paid by the
fund over the last 12 months by the sum of the month-end net asset value or
maximum offering price and the capital gains paid over the last 12 months. The
distribution rate may differ from the yield.

The investment results for the fund set forth below were calculated as described
in the fund's prospectus. The fund's results will vary from time to time
depending upon market conditions, the composition of the fund's portfolio and
operating expenses of the fund, so that any investment results reported by the
fund should not be considered representative of what an investment in the fund
may earn in any future period. These factors and possible differences in
calculation methods should be considered when comparing the fund's investment
results with those published for other mutual funds, other investment vehicles
and unmanaged indices. The fund's results also should be considered relative to
the risks associated with the fund's investment objective and policies.

The investment results for the fund set forth below were calculated as described
in the fund's prospectus. Data contained in Salomon's Market Performance and
------------------
Lehman Brothers' The Bond Market Report are used to calculate cumulative total
----------------------
return from their base period (12/31/68 and 12/31/72, respectively) for each
index. The percentage increases shown in the table below or used in published
reports of the fund are obtained by subtracting the index results at the
beginning of the period from the index results at the end of the period and
dividing the difference by the index results at the beginning of the period.

The Income Fund of America -- Page 36

<PAGE>

IFA VS. VARIOUS UNMANAGED INDICES
<TABLE>
<CAPTION>
LEHMAN SALOMON
10-YEAR LEHMAN LEHMAN BROTHERS SMITH AVERAGE
PERIOD BROTHERS BROTHERS GOVERNMENT/ BARNEY SAVINGS
8/1-7/31 IFA DJIA/2/ S&P 500/3/ CORPORATE/4/ AGGREGATE/5/ CORPORATE/6/ HIGH-GRADE/7/ ACCOUNT/8/
-------- --- ---- ------- --------- --------- --------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1989 - 1999 +198% +423% +395% +124% +113% +113% +128% +61%
1988 - 1998 +241 +458 +443 +154 +140 +140 +178 +65
1987 - 1997 +212 +335 +302 +157 +139 +138 +177 +67
1986 - 1996 +181 +329 +268 +141 +126 +123 +149 +70
1985 - 1995 +197 +390 +306 +179 +160 +158 +206 +75
1984 - 1994 +241 +383 +326 +217 +193 +189 +254 +83
1983 - 1993 +254 +331 +293 +241 +218 +213 +281 +93
1982 - 1992 +351 +526 +476 +295 +251 +242 +330 +105
1981 - 1991 +298 +391 +343 +304 +269 +256 +329 +115
1980 - 1990 +296 +391 +343 +235 +217 +209 +239 +122
1979 - 1989 +317 +409 +416 +202 +201 +197 +202 +124
1978 - 1988 +267 +307 +325 +180 +178 +175 +166 +124
1977 - 1987 +283 +388 +417 +159 +164 +162 +146 +124
1976 - 1986 +265 +208 +270 +179 +181 +180 +169 +124
1975 - 1985 +295 +177 +249 +161 N/A +158 +134 +121
1974 - 1984 +270 +154 +210 +136 N/A +136 +110 +116
1973/1/- 1983 +237 +148 +172 +95 N/A +105 +76 +106
</TABLE>

1 From December 1, 1973

2 The Dow Jones Average of 30 Industrial Stocks is comprised of 30 industrial
companies such as General Motors and General Electric.

3 The Standard & Poor's 500 Composite Index represents primarily U.S. stocks.
This index is unmanaged and does not reflect sales charges, commissions or
expenses.

4 The Lehman Brothers Corporate Bond Index is comprised of a large universe of
bonds issued by industrial, utility and financial companies which have a
minimum rating of Baa by Moody's Investors Service, BBB by Standard and Poor's
Corporation or, in the case of bank bonds not rated by either of the
previously mentioned services, BBB by Fitch Investors Service.

5 The Lehman Brothers Aggregate Bond Index represents investment grade debt.
This index is unmanaged and does not reflect sales charges, commissions or
expenses.

6 The Lehman Brothers Government/Corporate Bond Index is comprised of all public
obligations of the U.S. Treasury, all publicly issued debt of U.S. Government
agencies, and corporate debt guaranteed by the U.S. Government (excluding
mortgage-backed securities). It also includes all U.S. dollar denominated, SEC
registered, public, non-convertible debt issued or guaranteed by foreign or
international governments/agencies. Also included are all public, fixed-rate
non-convertible investment grade domestic corporate debt.

7 The Salomon Smith Barney High-Grade Corporate Bond Index is comprised of a
sample of high-grade corporate bonds which have a rating of AAA or AA by
Standard & Poor's Corporation.

8 Based on figures supplied by the U.S. League of Savings Institutions and the
Federal Reserve Board which reflect all kinds of savings deposits, including
longer-term certificates. Savings accounts offer a guaranteed return of
principal, but no opportunity for capital growth. During a portion of the
period, the maximum rates paid on some savings deposits were fixed by law.

The Income Fund of America -- Page 37

<PAGE>

IF YOU ARE CONSIDERING IFA FOR AN
INDIVIDUAL RETIREMENT ACCOUNT HERE ARE THE BENEFITS OF SYSTEMATIC INVESTING:
<TABLE>
<CAPTION>

Here's how much you would have if you had
invested $2,000 a year on August 1 of each year
in IFA over the past 5 and 10 years:

5 years 10 years
(8/1/94-7-31/99) (8/1/89-7/31/99)
- ------------------------------------------------------------------------------
<S> <C>
$14,420 $39,977
- ------------------------------------------------------------------------------
</TABLE>

The Income Fund of America -- Page 38

<PAGE>

SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
... and had taken all
dividends and capital
If you had invested gain distributions
$10,000 in IFA in shares, your investment
this many years ago... would have been worrth
this much at July 31, 1999
Number Periods
of Years 8/1-7/31 Value
-------- -------- -----

# From December 1, 1973

The Income Fund of America -- Page 39

<PAGE>

ILLUSTRATION OF A $10,000 INVESTMENT IN IFA WITH
DIVIDENDS REINVESTED AND CAPITAL GAIN DISTRIBUTIONS TAKEN IN SHARES
(FOR THE PERIOD DECEMBER 1, 1973 THROUGH JULY 31, 1999)

<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES
-------------- ---------------
FISCAL TOTAL FROM FROM
YEAR END ANNUAL DIVIDENDS INVESTMENT FROM INITIAL CAPITAL GAINS DIVIDENDS TOTAL
7/31 DIVIDENDS (CUMULATIVE) COST INVESTMENT REINVESTED REINVESTED VALUE
---- --------- ------------ ---- ---------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1974# $ 347 $ 347 $ 10,347 $ 8,767 - $ 321 $ 9,088
1975 785 1,132 11,132 10,141 - 1,250 11,391
1976 998 2,130 12,130 12,155 - 2,596 14,751
1977 969 3,099 13,099 12,701 - 3,691 16,392
1978 1,117 4,216 14,216 12,584 - 4,820 17,404
1979 1,333 5,549 15,549 12,693 - 6,228 18,921
1980 1,463 7,012 17,012 12,490 - 7,672 20,162
1981 1,743 8,755 18,755 12,818 - 9,667 22,485
1982 2,187 10,942 20,942 12,256 - 11,408 23,664
1983 2,549 13,491 23,491 16,112 - 17,573 33,685
1984 2,896 16,387 26,387 15,254 $ 1,013 19,455 35,722
1985 3,365 19,752 29,752 18,236 2,637 26,804 47,677
1986 3,909 23,661 33,661 18,907 6,434 31,807 57,148
1987 4,431 28,092 38,092 19,578 9,644 37,452 66,674
1988 4,479 32,571 42,571 17,955 10,904 38,957 67,816
1989 5,338 37,909 47,909 20,609 12,515 50,578 83,702
1990 5,269 43,178 53,178 18,907 13,755 51,497 84,643
1991 6,311 49,489 59,489 19,578 14,787 60,070 95,050
1992 6,578 56,067 66,067 21,764 17,093 73,764 113,242
1993 6,995 63,062 73,062 22,592 19,653 83,771 126,686
1994 7,471 70,533 80,533 21,218 21,364 85,868 129,177
1995 8,046 78,579 88,579 23,294 24,107 102,984 150,385
1996 8,581 87,160 97,160 24,809 27,526 118,291 170,626
1997 10,075 97,235 107,235 29,024 42,085 149,477 220,586
1998 10,531 107,766 117,766 28,493 59,845 157,215 245,553
1999 12,446 120,212 130,212 27,338 73,926 163,412 264,676
</TABLE>

The Income Fund of America -- Page 40

<PAGE>

# From December 1, 1973
The dollar amount of capital gain distributions during the period was $63,932.

The Income Fund of America -- Page 41

<PAGE>

EXPERIENCE OF INVESTMENT ADVISER - The Investment Adviser manages nine growth
and growth-income funds that are at least 10 years old. In the rolling 10-year
periods since January 1, 1969 (138 in all), those funds have had better total
returns than their comparable Lipper indexes and 128 of 138 periods.

Note that past results are not an indication of future investment results. Also,
the fund has different investment policies than the funds mentioned above. These
results are included solely for the purpose of informing investors about the
experience and history of Capital Research and Management Company.

The Income Fund of America -- Page 42

ASSET MIX COMPARISON AT JULY 31 FISCAL YEAR-END
FISCAL 1999
[begin pie chart]

<TABLE>
<CAPTION>
<S> <C>
INVESTMENT PORTFOLIO Percent of Net Assets

U.S. Equity Securities/++/ 48.9%
Non-U.S. Equity Securities 10.6
Government Bonds 7.4
Other Fixed-Income Securities 19.8
Cash & Equivalents 13.3
</TABLE>

[end chart]
/++/Also includes 0.2% in Canadian equities that are part of the S&P 500.

<TABLE>
<CAPTION>
<S> <C>
FIVE LARGEST INDUSTRIES IN Percent of Net Assets
EQUITY HOLDINGS

Banking 8.7%
Utilities: Electric & Gas 8.1
Banking 8.0
Telecommunications 6.3
Insurance 3.9
</TABLE>

<TABLE>
<CAPTION>
<S> <C>
TEN LARGEST EQUITY HOLDINGS Percent of Net Assets

First Union 2.5%
Atlantic Richfield 2.1
Chrysler 1.9
U S West 1.6
J.C. Penney 1.6
Texaco 1.5
AT&T 1.4
Ford Motor 1.3
Phillips Petroleum 1.2
Amoco 1.0

</TABLE>

FISCAL 1998
[begin pie chart]

<TABLE>
<CAPTION>
<S> <C>
INVESTMENT PORTFOLIO Percent of Net Assets

U.S. Equity Securities/+/ 48.1%
Non-U.S. Equity Securities 12.9
Government Bonds 6.7
Other Fixed-Income Securities 20.9
Cash & Equivalents 11.2
</TABLE>

[end chart]
/+/Also includes 0.5% in Canadian equities that are part of the S&P 500.

<TABLE>
<CAPTION>
<S> <C>
FIVE LARGEST INDUSTRIES IN Percent of Net Assets
EQUITY HOLDINGS

Banking 8.5%
Utilities: Electric & Gas 8.4
Energy Sources 7.5
Telecommunications 5.3
Forest Products & Paper 4.1
</TABLE>

<TABLE>
<CAPTION>
<S> <C>
TEN LARGEST EQUITY HOLDINGS Percent of Net Assets
U S West 1.9%

First Union 1.9
Phillips Petroleum 1.5
Atlantic Richfield 1.4
J.C. Penney 1.3
Weyerhaeuser 1.2
Bank of America 1.1
Houston Industries .9
USX - Marathon .9
J.P. Morgan .9
</TABLE>

<TABLE>
The Income Fund of America, Inc.
Investment Portfolio, July 31, 1999
<S> <C> <C> <C>
Shares or Market Percent
Principal Value Of Net
Equity Securitites Amount (000) Assets
- -------------------------------------------- -------- ----------------

Banking - 8.48%
First Union Corp. 9,492,600$436,660 1.90%
Bank of America Corp. (formerly BankAmerica Corp.) 3,855,800 255,929 1.11
J.P. Morgan & Co. Inc. 1,525,000 195,009 .85
Commonwealth Bank of Australia 8,480,973 133,558 .58
SB Treasury Co. LLC, Series A, 9.40% noncumulative 126,000,00 122,981 .53
preferred (1)
National Bank of Canada 8,500,000 104,781
NB Capital Corp. 8.35% exchangeable depositary shares 520,000 12,805 .51
Westpac Banking Corp. 18,113,652 117,507 .51
BancWest Corp. 1,900,000 79,206 .34
BANK ONE CORP. 1,140,700 62,239 .27
Tokai Preferred Capital Co. LLC, Series A, 9.98% 61,250,000 59,531 .26
noncumulative preferred (1)
Fuji JGB Investment LLC, Series A, 9.87% noncumulative 67,000,000 59,128 .26
preferred (1)
KeyCorp 1,800,000 56,700 .25
BankBoston Corp. 1,200,000 56,325 .24
Bank of Nova Scotia 2,400,000 50,000 .22
Keystone Financial, Inc. 1,550,000 45,241 .20
Bank of New York Co., Inc. 1,000,000 36,938 .16
BNP U.S. Funding LLC, Series A, 7.738% noncumulative 33,200,000 30,724 .13
preferred (1)
National Australia Bank Ltd. Exchangable Capital Units $800,000 22,600 .10
IBJ Preferred Capital Co. LLC, Series A, 8.79% 10,000,000 8,450 .04
noncumulative preferred (1)
Banco Nacional de Mexico, SA 11.00% exchangeable $4,175,000 3,987 .02
note 2003 (1)
------------------
1,950,29 8.48
------------------

Utilities: Electric & Gas - 8.38%
Dominion Resources, Inc. 3,000,000 132,187 .57
Florida Progress Corp. 3,070,000 125,678 .55
Wisconsin Energy Corp. 4,880,000 122,305 .53
DTE Energy Co. 3,000,000 117,375 .51
Unicom Corp. 2,600,000 102,050 .44
Consolidated Edison, Inc. 2,300,000 100,050 .44
Southern Co. 3,750,000 99,141 .43
Consolidated Natural Gas Co. 1,230,000 77,029 .33
MCN Energy Group Inc. 3,550,000 75,659 .33
KeySpan Corp. (formerly KeySpan Energy Corp.) 2,562,000 71,095 .31
Equitable Resources, Inc. (2) 1,850,000 68,566 .30
BEC Energy 1,600,000 68,200 .30
PECO Energy Co. 1,600,000 67,800 .29
Peoples Energy Corp. 1,700,000 62,581 .27
Carolina Power & Light Co. 1,500,000 61,687 .27
Entergy Corp. 2,000,000 60,625 .26
Ameren Corp. 1,200,000 46,800 .20
K N Energy, Inc. 1,000,000 19,500
K N Energy, Inc. 8.25% PEPS convertible preferred 682,600 21,886 .18
2001 Units
Sempra Energy 1,623,700 36,026 .16
National Power PLC 4,580,000 32,268 .14
GPU, Inc. 840,400 32,250 .14
DQE, Inc. 800,000 31,700 .14
New Jersey Resources Corp. 750,000 29,672 .13
Scottish and Southern Energy PLC 3,000,000 28,640 .12
Sonat Inc. 800,000 28,150 .12
American Electric Power Co., Inc. 700,000 24,762 .11
Scottish Power PLC 2,800,000 23,364 .10
OGE Energy Corp. 950,000 22,503 .10
Central and South West Corp. 1,000,000 21,312 .09
Puget Sound Energy, Inc. 900,000 20,981 .09
CINergy Corp. 625,400 18,723 .08
WICOR, Inc. 600,000 17,400 .08
New England Electric System 318,000 16,476 .07
South Jersey Industries, Inc. 500,000 15,000 .07
Citizens Utilities Trust 5.00% EPPICS convertible 250,000 12,688 .06
preferred 2036
TECO Energy, Inc. 467,200 9,519 .04
Western Resources, Inc. 275,000 7,184 .03
------------------
1,928,83 8.38
------------------

Energy Sources - 7.52%
Phillips Petroleum Co. 6,893,500 353,723 1.54
Atlantic Richfield Co. 3,550,000 319,722 1.39
USX-Marathon Group 6,600,000 200,475 .87
Texaco Inc. 2,124,600 132,389 .58
"Shell" Transport and Trading Co., PLC (New York 2,500,000 120,781 .53
Registered)
Sunoco, Inc. 3,932,000 119,926 .52
Ultramar Diamond Shamrock Corp. 3,925,000 92,728 .40
Conoco Inc., Class A 3,520,000 91,740 .40
Occidental Petroleum Corp. 3,250,000 63,578 .28
Unocal Capital Trust $3.125 convertible preferred 1,040,000 58,110 .25
Mobil Corp. 500,000 51,125 .22
CONSOL Energy Inc. 4,000,000 44,500 .19
Exxon Corp. 500,000 39,688 .17
Ashland Inc. 750,000 28,500 .12
CalEnergy Capital Trust II 6.25% convertible 270,000 12,960 .06
preferred 2012
------------------
1,729,94 7.52
------------------

Telecommunications - 5.32%
U S WEST, Inc. 7,782,400 446,029 1.94
MediaOne Group, Inc. 6.25% PIES convertible 1,710,000 160,740 .70
preferred 2001
SBC Communications Inc. 2,100,000 120,094
SBC Communications Inc. 7.75% DECS convertible 463,000 30,876 .66
preferred 2001
Bell Atlantic Corp. 1,949,300 124,268 .54
AT&T Corp. 2,375,000 123,352 .54
Ameritech Corp. 1,430,000 104,748 .46
Telecom Corp. of New Zealand Ltd. 8,278,400 37,518 .16
Telecom Italia SpA, nonconvertible savings shares 5,353,000 29,346 .13
Koninklijke PTT Nederland NV 339,085 15,488
Koninklijke PTT Nederland NV (ADR) 86,288 3,931 .08
GTE Corp. 175,000 12,895 .06
Omnipoint Corp. (1,3) 92,761 3,977 .02
COLT Telecom Group PLC, warrants, expire 2006 (1,3) 5,000 3,325 .01
Viatel, Inc. (3) 86,992 3,219 .01
Comunicacion Celular SA, Class B, warrants, 31,000 1,922 .01
expire 2003 (1,3)
Allegiance Telecom, Inc., warrants, expire 2008 (1,3) 20,000 1,140 .00
Loral Space & Communications Ltd., warrants, 61,000 707 .00
expire 2007 (3,4)
NEXTLINK Communications, Inc. 14.00% preferred 2009 10,712 536 .00
ICG Holdings, Inc., warrants, expire 2005 (1,3) 19,800 495 .00
CellNet Data Systems, Inc., warrants, expire 2007 (1,3,4) 15,450 284 .00
McCaw International, Ltd., warrants, expire 2007 (1,3,4) 31,500 79 .00
Conecel Holdings Ltd., Class B, warrants, 76,825 8 .00
expire 2000 (1,3,4)
Iridium World Communications Ltd., warrants, 4,000 1 .00
expire 2005 (1,3,4)
------------------
1,224,97 5.32
------------------

Forest Products & Paper - 4.08%
Weyerhaeuser Co. 4,412,900 285,459 1.24
International Paper Co. (formerly Union Camp Corp.) 2,990,168 152,872
International Paper Co., Capital Trust 5.25% convertible 400,000 21,200 .76
preferred 2025
UPM-Kymmene Corp. 4,450,000 149,945 .65
Georgia-Pacific Corp., Timber Group 5,450,000 134,547 .59
Stora Enso Oyj, Class R 7,609,169 95,639
Stora Enso Oyj, Class A 345,942 4,293 .43
Potlatch Corp. 1,350,000 54,759 .24
APP Finance (VI) Mauritius Ltd. 0% convertible $144,000,0 21,600 .09
preferred 2012
Westvaco Corp. 650,000 19,134 .08
------------------
939,448 4.08
------------------

Chemicals - 2.62%
Imperial Chemical Industries PLC (ADR) 3,425,000 157,978 .69
Dow Chemical Co. 1,178,500 146,134 .64
International Flavors & Fragrances Inc. 1,900,000 86,094 .37
Hercules Inc. 2,276,200 79,382 .34
DSM NV 415,384 51,543 .22
Monsanto Co. 6.50% ACES convertible preferred 2001 Units 1,108,800 45,461 .20
Witco Corp. 1,981,600 36,288 .16
------------------
602,880 2.62
------------------

Insurance - 2.46%
American General Corp. 2,014,200 155,849 .68
Italy (Republic of) 5.00% PENs 2001 (exchangeable $65,000,00 107,738 .47
into INA SpA)
SAFECO Corp. 2,500,000 95,156 .41
Ohio Casualty Corp. (2) 4,560,000 81,795 .36
Aetna Inc. 819,700 67,215 .29
Lincoln National Corp. 800,000 40,000 .17
PMI Group, Inc. 303,000 19,373 .08
------------------
567,126 2.46
------------------

Real Estate - 2.42%
Equity Residential Properties Trust 2,100,000 86,756
Equity Residential Properties Trust, Series G, 7.25% 600,000 13,050 .43
convertible preferred
Boston Properties, Inc. 2,634,600 90,235 .39
Spieker Properties, Inc. 1,600,000 61,200 .27
Weingarten Realty Investors 1,325,000 53,497 .23
Meditrust Corp., paired stock 3,340,000 36,322 .16
Amoy Properties Ltd. 35,000,000 32,468 .14
AMB Property Corp. 1,225,000 27,562 .12
ProLogis Trust, Series D, 7.92% preferred 1,080,000 24,840 .11
CenterPoint Properties Corp. 580,000 20,735 .09
Sun Hung Kai Properties Ltd. 2,000,000 17,264 .08
Hysan Development Co. Ltd. 12,849,635 16,804 .07
Glenborough Realty Trust Inc., Series A, 7.75% 800,000 14,700 .06
convertible preferred
Duke-Weeks Realty Corp. (formerly Dukes Realty 300,000 13,548 .06
Investments, Inc.), Series B, 7.99% preferred
cumulative step-up premium rate
Simon DeBartolo Group, Inc., Series C, 7.89% preferred 300,000 13,254 .06
cumulative step-up premium rate
Archstone Communities Trust 564,000 12,161 .05
IAC Capital Trust, Series A, 8.25% TOPRS preferred 300,000 7,350 .03
CarrAmerica Realty Corp., Series B, 8.57% cumulative 280,000 6,545 .03
redeemable preferred
New Plan Realty Trust, Series D, 7.80% preferred cumulative 112,500 5,006 .02
step-up premium rate
Kimco Realty Corp. 100,000 3,750 .02
------------------
557,047 2.42
------------------

Merchandising - 1.81%
J.C. Penney Co., Inc. 6,800,000 297,500 1.29
Coles Myer Ltd. 17,400,882 101,454 .44
PETsMART, Inc. 6.75% convertible subordinated note 2004 (1)$17,500,00 18,200 .08
------------------
417,154 1.81
------------------

Broadcasting & Publishing - 1.64%
Houston Industries Inc. 7.00% ACES convertible 1,780,000 215,491 .94
preferred 2000
Cablevision Systems Corp., Series I, $2.125 cumulative 760,000 78,660 .34
convertible exchangeable preferred
UnitedGlobalCom, Inc., Class C, 7.00% convertible 700,000 38,500 .17
preferred (1)
NTL Inc. (3) 146,039 15,170
NTL Inc., warrants, expire 2008 (1,3,4) 25,650 2,079 .07
Price Communications Corp. (3) 912,117 16,190 .07
MediaOne Group, Inc., Series D, 4.50% convertible preferred 85,800 12,355 .05
------------------
378,445 1.64
------------------

Health & Personal Care - 1.64%
Glaxo Wellcome PLC 6,270,000 160,229 .70
Pharmacia & Upjohn, Inc. 1,300,000 69,956 .30
American Home Products Corp. 800,000 40,800 .18
Eli Lilly and Co. 600,000 39,375 .17
Athena Neurosciences, Inc. 4.75% convertible note 2004 $32,500,00 34,938 .15
Sepracor Inc. 6.25% convertible subordinated debenture $7,350,000 12,339
2005 (1)
Sepracor Inc. 7.00% convertible subordinated debenture $15,000,00 13,912 .11
2005 (1)
Glycomed Inc. 7.50% convertible subordinated debenture 2003$5,000,000 4,037 .02
RainTree Healthcare Corp. (3,4) 279,109 977 .01
------------------
376,563 1.64
------------------

Beverages & Tobacco - 1.55%
Philip Morris Companies Inc. 3,150,000 117,338 .51
Southcorp Ltd. 25,046,175 97,298 .42
Nabisco Group Holdings Corp. (formerly RJR Nabisco 3,000,000 56,250 .24
Holdings Corp.)
Imperial Tobacco Ltd. 4,000,000 40,927 .18
Gallaher Group PLC 4,800,000 28,681 .13
UST Inc. 500,000 15,500 .07
------------------
355,994 1.55
------------------

Metals: Steel & Nonferrous - 1.20%
Phelps Dodge Corp. 1,750,000 103,797 .44
British Steel PLC 25,422,400 67,658 .29
Freeport-McMoRan Copper & Gold Inc., Series A, $1.75 1,400,000 26,075
convertible preferred
Freeport-McMoRan Copper & Gold Inc., Class B 300,000 5,063 .14
Allegheny Teledyne Inc. 1,350,000 28,941 .13
Cyprus Amax Minerals Co., Series A, $4.00 convertible 465,000 20,693 .09
preferred
Inco Ltd. 5.75% convertible debenture 2004 $17,250,00 15,568 .07
Bethlehem Steel Corp. $3.50 convertible preferred 250,000 8,813 .04
------------------
276,608 1.20
------------------

Industrial Components - 1.06%
Dana Corp. 2,350,000 98,113 .43
Federal-Mogul Corp. 7.00% convertible preferred 2027 1,150,000 63,969 .28
Tomkins PLC 13,000,000 59,655 .26
Tower Auto Capital Trust 6.75% convertible preferred 2018 ( 450,000 22,050 .09
------------------
243,787 1.06
------------------

Leisure & Tourism - 1.05%
Seagram Co. Ltd. 7.50% convertible preferred 2002 1,845,000 93,171 .40
Georgia-Pacific Corp., Georgia-Pacific Group 7.50% PEPS 1,400,000 66,150 .29
convertible preferred 2004 Units
Premier Parks Inc. 7.50% PIES convertible preferred 2001 450,000 31,275 .14
Host Marriott Financial Trust 6.75% QUIPS convertible 600,000 22,237 .10
preferred 2026
AMF Bowling Worldwide, Inc. 0% convertible debenture 2018 ($90,000,00 12,600 .05
FelCor Lodging Trust Inc. 450,000 8,775 .04
Royal Caribbean Cruises Ltd., Series A, 7.25% convertible 45,000 6,570 .03
preferred
------------------
240,778 1.05
------------------

Business & Public Services - 1.00%
Cendant Corp. 7.50% PRIDES convertible preferred 1,425,000 48,450 .21
United Utilities PLC 3,521,463 45,224 .20
Alexander & Baldwin, Inc. 1,375,000 34,762 .15
Thames Water PLC 1,500,000 22,909 .10
Budget Group, Inc. 6.25% TIDES convertible preferred 2005 600,000 20,250 .09
Interpublic Group of Companies, Inc. 1.87% convertible $17,000,00 15,449 .07
subordinated note 2006 (1)
Hyder PLC 1,425,000 14,696 .06
Browning-Ferris Industries, Inc. 305,000 13,687 .06
Omnicom Group Inc. 4.25% convertible debenture 2007 (1) $2,500,000 5,669 .02
Nationwide Health Properties, Inc., Series A, 7.677% 50,000 3,519 .02
preferred cumulative step-up premium rate
IKON Office Solutions, Inc. 200,000 2,638 .01
Integrated Health Services, Inc. (3) 280,001 1,575
Integrated Health Services, Inc. 5.75% convertible $1,250,000 687 .01
debenture 2001
------------------
229,515 1.00
------------------

Automobiles - 0.89%
General Motors Corp. 2,085,000 127,055 .55
Ford Motor Co. 1,600,000 77,800 .34
------------------
204,855 .89
------------------

Recreation & Other Consumer Products - 0.86%
EMI Group PLC 15,902,467 132,869 .58
Jostens, Inc. 1,715,000 34,729 .15
Pennzoil-Quaker State Co. 2,000,000 29,625 .13
V2 Music Holdings, warrants, expire 2008 (1,3) 14,750 0 .00
------------------
197,223 .86
------------------

Food & Household Products - 0.70%
General Mills, Inc. 1,935,000 160,242 .70
------------------

Machinery & Engineering - 0.69%
Pall Corp. 2,344,200 49,375 .21
Valmet-Rauma Oyj (3) 3,559,997 47,602 .21
Ingersoll-Rand Co. 6.75% PRIDES convertible preferred 1,400,000 42,000 .18
Thermo Electron Corp. 4.25% convertible subordinated $23,000,00 19,981 .09
debenture 2003 (1)
------------------
158,958 .69
------------------

Electronic Components & Instruments - 0.67%
Micron Technology, Inc. 7.00% convertible subordinated $50,000,00 57,750 .25
note 2004
Advanced Micro Devices, Inc. 6.00% convertible subordinated$51,700,00 37,224 .16
note 2005
Western Digital Corp. 0% convertible subordinated $112,500,0 14,906 .06
debenture 2018 (1)
National Semiconductor Corp. 6.50% convertible debenture $15,000,00 14,250 .06
2002
Premier Farnell PLC 3,280,000 13,695 .06
Thermo Instrument Systems Inc. 4.00% convertible subordinat$10,000,00 8,300 .04
debenture 2005
Quantum Corp. 7.00% convertible subordinated note 2004 $7,000,000 6,440 .03
EMC Corp. 3.25% convertible subordinated note 2002 $500,000 2,689 .01
------------------
155,254 .67
------------------

Financial Services - 0.65%
Household International, Inc. 2,453,280 105,338 .46
Bell Atlantic Financial Services, Inc. 4.25% convertible $39,000,00 43,290 .19
debenture 2005 (1)
------------------
148,628 .65
------------------

Multi-Industry - 0.35%
TI Group PLC 7,000,000 52,042 .23
Swire Pacific Capital Ltd. 8.84% cumulative guaranteed 920,000 18,515
perpetual capital security (1)
Swire Pacific Offshore Financing Ltd. 9.33% cumulative 400,000 8,350 .12
guaranteed perpetual capital security (1)
------------------
78,907 .35
------------------

Miscellaneous Materials & Commodities - 0.34%
De Beers Consolidated Mines Ltd. 1,570,800 39,117
De Beers Consolidated Mines Ltd. (ADR) 93,400 2,312 .18
Crown Cork & Seal Co., Inc. 4.50% convertible preferred 200 1,005,000 27,637 .12
Owens-Illinois, Inc. 4.75% convertible preferred 240,000 9,210 .04
------------------
78,276 .34
------------------

Transportation: Rail & Road - 0.23%
Union Pacific Capital Trust 6.25% TIDES convertible 976,200 47,956
preferred 2028 (1)
Union Pacific Capital Trust 6.25% TIDES convertible 110,000 5,404 .23
preferred 2028
------------------
53,360 .23
------------------

Other Industries - 0.30%
Newell Financial Trust I 5.25% QUIPS convertible 723,000 37,731 .16
preferred 2027
Qantas Airways Ltd. 7,000,000 23,263 .10
Diamond Offshore Drilling, Inc. 3.75% convertible $18,700,00 19,612 .09
debenture 2007
TXI Capital Trust I 5.50% convertible preferred 2028 450,000 16,762 .07
Ingram Micro Inc. 0% convertible debenture 2018 $20,915,00 7,085 .03
Daewoo Corp. 0.50% convertible debenture 2007 (1) $5,000,000 3,100 .01
Protection One Alarm Monitoring, Inc., warrants, expire 57,600 340 .00
2005 (1,3)
------------------
107,893 .46
------------------

Miscellaneous - 2.94%
Other equity securities in initial period of acquisition 677,109 2.94
------------------

TOTAL EQUITY SECURITIES (cost: $11,471,239,000) 14,040,1 61.01
------------------

Principal Market Percent
Amount Value of Net
Bonds & Notes (000) (000) Assets
- -------------------------------------------- -------- ----------------

Broadcasting, Advertising & Publishing - 3.23%
Charter Communications Holdings, LLC:
8.25% 2007 (1) 59,000 $56,050
0%/9.92% 2011 (1,5) 37,500 22,781 .34%
Fox/Liberty Networks, LLC, FLN Finance, Inc.:
0%/9.75% 2007 (5) 45,250 35,861
8.875% 2007 38,100 39,624 .33
Chancellor Media Corp. of Los Angeles:
9.375% 2004 23,000 23,345
8.125% 2007 30,500 29,737
Series B, 8.75% 2007 4,500 4,432
Series B, 10.50% 2007 18,300 19,764 .08
9.00% 2008 9,000 9,000 .29
Time Warner Inc.:
7.75% 2005 9,500 9,707
8.18% 2007 20,000 20,990
9.125% 2013 5,000 5,634
7.25% 2017 19,500 18,612 .24
NTL Inc.:
0%/12.75% 2005 (5) 22,000 21,340
Series B, 10.00% 2007 10,000 10,200
0%/9.75% 2008 (5) 5,000 3,425
Comcast UK Cable Partners Ltd. 0%/11.20% 2007 (5) 19,500 17,989 .23
CSC Holdings, Inc.:
7.25% 2008 8,000 7,545
8.125% 2009 22,000 21,804
9.875% 2013 11,500 12,075 .18
CBS Corp. 7.15% 2005 39,500 38,956 .17
Hearst-Argyle Television, Inc.:
7.00% 2018 25,750 23,060
7.50% 2027 5,000 4,616 .12
Liberty Media Corp. 7.875% 2009 (1) 23,600 23,546 .10
TeleWest PLC:
9.625% 2006 5,000 5,150
0%/11.00% 2007 (5) 20,500 18,296 .10
TCI Communications, Inc.:
8.00% 2005 15,000 15,808
8.75% 2015 6,500 7,315 .10
Century Communications Corp.:
8.75% 2007 13,200 12,936
0% 2008 10,000 4,300 .07
Radio One, Inc. 7.00%/12.00% 2004 (5) 16,500 17,160 .07
Comcast Corp. 10.25% 2001 10,600 11,155
Comcast Cable Communications, Inc. 8.875% 2017 4,000 4,440 .07
STC Broadcasting, Inc. 11.00% 2007 14,500 14,717 .07
Lenfest Communications, Inc.:
7.625% 2008 2,000 1,990
8.25% 2008 12,500 12,625 .06
British Sky Broadcasting Group PLC 8.20% 2009 (1) 14,250 14,134 .06
Falcon Holding Group, LP, Falcon Funding Corp. 8.375% 2010 13,000 12,902 .06
Muzak LP: (1)
9.875% 2009 8,500 8,457
0%/13.00% 2010 (5) 3,750 2,137 .05
Rogers Communications Inc. 8.875% 2007 10,000 10,075 .04
Adelphia Communications Corp.:
8.125% 2003 6,500 6,240
10.50% 2004 3,000 3,180 .04
Ziff-Davis Inc. 8.50% 2008 8,250 7,837 .03
Sun Media Corp. 9.50% 2007 7,071 7,424 .03
Multicanal Participacoes SA, Series B, 12.625% 2004 6,475 6,216 .03
Newsquest Capital PLC:
11.00% 2006 4,225 4,690
Series B, 11.00% 2006 1,200 1,332 .03
Coaxial Communications of Central Ohio, Inc. 10.00% 2006 5,750 5,807 .03
TVN Entertainment Corp. 14.00% 2008 (1) 14,750 5,310 .02
Antenna TV SA 9.00% 2007 5,250 5,014 .02
News America Holdings Inc. 7.43% 2026 5,000 4,952 .02
V2 Music Holdings 0%/14.00% 2008 (1,5) 14,750 4,720 .02
Young Broadcasting Inc.:
10.125% 2005 3,750 3,853
Series B, 8.75% 2007 750 739 .02
RBS Participacoes SA 11.00% 2007 (1) 6,750 4,438 .02
Telemundo Holdings, Inc. 0%/11.50% 2008 (5) 8,500 4,420 .02
Gray Communications Systems, Inc. 10.625% 2006 3,500 3,701 .02
Transwestern Publishing Co. LLC 9.625% 2007 3,500 3,421 .02
American Media Operations, Inc. 10.25% 2009 (1) 2,500 2,512 .01
Acme Television, LLC, Series B, 0%/10.875% 2004 (5) 2,780 2,307 .01
Continental Cablevision, Inc. 8.50% 2001 2,000 2,072 .01
Grupo Televisa, SA 11.875% 2006 750 763 .00
Globo Comunicacoes e Partcipacoes Ltd. 10.625% 2008 500 351 .00
------------------
744,989 3.23
------------------

Wireless Communications - 2.93%
Nextel Communications, Inc.:
0%/9.75% 2007 (5) 76,325 54,572
0%/10.65% 2007 (5) 11,475 8,434
0%/9.95% 2008 (5) 208,900 146,752
10.125% 2004 5,000 5,075
12.00% 2008 8,500 9,626
0%/12.125% 2008 (5) 37,450 19,989
McCaw International, Ltd. (owned by Nextel Communications, 46,850 29,047 1.19
Inc.) 0%/13.00% 2007 (5)
Omnipoint Corp.:
14.00% 2003 (1,4,6) 58,188 61,097
8.578% 2006 (1,7) 14,696 14,549
11.625% 2006 55,350 57,010 .58
Crown Castle International Corp.: (5)
0%/10.625% 2007 4,600 3,243
0%/10.375% 2011 39,750 22,856
0%/11.25% 2011 (1) 41,000 23,677 .21
Clearnet Communications Inc.:(5)
0%/14.75% 2005 22,000 20,020
0%/10.125% 2009 45,000 26,100 .20
PageMart Wireless, Inc.: (5)
0%/15.00% 2005 16,160 15,675
0%/11.25% 2008 31,000 13,950 .13
SpectraSite Holdings, Inc.: (1,5)
0%/12.00% 2008 41,250 23,512
0%/11.25% 2009 6,000 3,120 .11
Dobson Communications Corp. 11.75% 2007 7,000 7,420
Dobson/Sygnet Communications Co. 12.25% 2008 14,250 15,034 .10
CCPR Services, Inc. 10.00% 2007 18,000 18,990 .08
Comunicacion Celular SA 0%/14.125% 2005 (1,5) 31,000 18,677 .08
American Cellular Corp. 10.50% 2008 18,100 18,552 .08
Esat Telecom Group PLC 0%/12.50% 2007 (5) 12,875 9,141 .04
Centennial Cellular Corp. 10.75% 2008 (1) 8,735 8,997 .04
Mobile Telecommunication Technologies Corp. 13.50% 2002 7,685 8,761 .04
Sprint Spectrum LP, Sprint Spectrum Finance Corp. 11.00% 20 6,000 6,752 .03
PTC International Finance BV 0%/10.75% 2007 (5) 5,000 3,562 .02
Cellco Finance NV 15.00% 2005 (1) 650 686 .00
Conecel Holdings Ltd., Series A, 14.00% 2000 (1,4,7,8) 2,950 295 .00
------------------
675,171 2.93
------------------

Banking - 1.42%
SocGen Real Estate Co. LLC, Series A, 7.64%/8.406% 71,500 67,108 .29
(undated) (1,7)
MBNA Corp., MBNA:
Capital A, Series A, 8.278% 2026 10,000 9,124
Capital B, Series B, 5.795% 2027 (7) 32,000 27,633 .16
Dime Bancorp, Inc. 6.375% 2001 15,000 14,964
Dime Capital Trust I, Dime Bancorp, Inc., Series A, 11,925 11,948 .12
9.33% 2027
Riggs Capital Trust II:
8.625% 2026 1,500 1,400
8.875% 2027 25,000 23,948 .11
Advanta Corp.:
Series D, 6.60% 2000 4,000 3,966
Series D, 6.65% 2000 7,500 7,442
7.50% 2000 4,000 3,944
6.91% 2002 5,000 4,476
6.925% 2002 5,000 4,476 .11
Washington Mutual Capital I, Subordinated Capital Income 10,000 9,866
Security 8.375% 2027
Ahmanson Capital Trust I, Capital Security, Series A, 8,000 7,915 .08
8.36% 2026 (1)
Deutsche Bank Capital Funding Trust I 7.872% (undated) (1,7 16,250 15,417 .07
Sakura Capital Funding 5.997% (undated) (1,7) 15,000 12,000 .05
Capital One Capital I 6.545% 2027 (1,7) 13,500 11,934 .05
Bank of America Corp. (formerly BankAmerica Corp.) 12,500 11,324 .05
5.875% 2009
Fleet Capital Trust 6.176% 2028 (7) 10,000 10,045 .04
Standard Chartered Bank 5.75% Eurodollar Note (undated) (7) 15,000 9,265 .04
Bank of Nova Scotia 5.25% Eurodollar Note (undated) (7) 10,000 7,876 .04
Canadian Imperial Bank of Commerce 5.25% Eurodollar Note 10,000 7,750 .03
(undated) (7)
HSBC Holdings PLC 7.50% 2009 7,500 7,474 .03
HSBC Americas, Inc. 7.808% 2026 (1) 8,000 7,345 .03
Bank of Scotland 7.00% (undated) (1,7) 7,500 7,066 .03
Komercni Finance BV 9.00%/10.75% 2008 (1,7) 6,000 5,370 .02
Chase Capital II, Global Floating Rate Capital Security, 5,000 4,736 .02
Series B, 5.495% 2027 (7)
BCI U.S. Funding Trust I 8.01% (undated) (1,7) 5,000 4,663 .02
Chevy Chase Bank, FSB 9.25% 2005 4,000 4,020 .02
J.P. Morgan & Co. Inc., Series A, 6.00% 2009 1,650 1,505 .01
------------------
326,000 1.42
------------------

Business & Public Services - 1.41%
Integrated Health Services, Inc.:
10.25% 2006 (7) 16,900 11,830
Series A, 9.50% 2007 72,595 46,461
Series A, 9.25% 2008 68,298 43,028 .44
Allied Waste North America, Inc.:
7.625% 2006 7,000 6,440
10.00% 2009 (1) 58,625 58,039 .28
Columbia/HCA Healthcare Corp.:
6.87% 2003 10,575 9,803
7.15% 2004 6,000 5,640
6.91% 2005 10,750 9,754
8.85% 2007 16,770 16,686
8.70% 2010 9,500 9,057 .22
Safety-Kleen Services, Inc.:
9.25% 2008 26,500 26,765
9.25% 2009 (1) 13,500 13,635 .18
Paracelsus Healthcare Corp. 10.00% 2006 30,100 22,876 .10
Protection One Alarm Monitoring, Inc. 13.625% 2005 (7) 11,685 13,087 .05
Tenet Healthcare Corp. 8.00% 2005 9,500 9,144 .04
Ceridian Corp. 7.25% 2004 (1) 9,000 8,935 .04
Allegiance Corp. 7.00% 2026 4,000 3,950 .02
LifePoint Hospitals, Inc. 10.75% 2009 (1) 3,750 3,778 .01
Iron Mountain Inc. 8.75% 2009 1,750 1,706 .01
RainTree Healthcare Corp. 11.00% 2003 (3) 1,932 1,705 .01
Mariner Health Group, Inc. 9.50% 2006 15,250 1,372
Mariner Post-Acute Network, Inc. 9.50% 2007 2,000 240 .01
------------------
323,931 1.41
------------------

Telecommunications - 1.34%
Cable & Wireless Communications PLC:
6.625% 2005 26,500 26,646
6.75% 2008 38,000 38,862 .29
NEXTLINK Communications, Inc.:
9.625% 2007 4,000 3,880
9.00% 2008 6,250 5,937
0%/12.25% 2009 (5) 39,500 22,712 .14
Loral Orion Network Systems, Inc. 11.25% 2007 35,175 30,250 .13
Time Warner Telecom Inc. 9.75% 2008 27,975 28,534 .12
Allegiance Telecom, Inc.:
0%/11.75% 2008 (5) 32,000 20,640
12.875% 2008 3,475 3,805 .11
Viatel, Inc.:
11.25% 2008 21,500 21,500
11.50% 2009 (1) 2,000 2,020 .10
Orange PLC:
8.75% 2006 (1) 15,000 15,150
8.00% 2008 6,000 5,790 .09
Qwest Communications International Inc.:
0%/9.47% 2007 (5) 15,000 11,698
10.875% 2007 3,084 3,480
0%/8.29% 2008 (5) 7,500 5,629 .09
US Xchange, LLC 15.00% 2008 13,500 13,837 .06
Netia Holdings BV:
10.25% 2007 3,625 3,199
0%/11.25% 2007 (5) 10,500 6,746 .04
IMPSAT Corp. 12.375% 2008 10,000 7,625 .03
COLT Telecom Group PLC 0%/12.00% 2006 (5) 7,500 6,225 .03
Hermes Europe Railtel BV 11.50% 2007 5,000 5,225 .02
VersaTel Telecom International NV 11.875% 2009 5,250 5,197 .02
Teligent, Inc. 11.50% 2007 4,500 4,331 .02
PanAmSat Corp. 6.125% 2005 4,000 3,710 .02
CellNet Data Systems, Inc. 0%/14.00% 2007 (5) 8,700 3,458 .02
Globe Telecom, Inc. 13.00% 2009 (1) 1,850 1,850 .01
------------------
307,936 1.34
------------------

Energy & Related Companies - 0.89%
Oryx Energy Co.:
9.50% 1999 10,000 10,072
8.00% 2003 5,345 5,435
8.375% 2004 12,750 13,219
8.125% 2005 8,500 8,680 .16
PDVSA Finance Ltd.:
9.375% 2007 (1) 7,500 7,294
9.75% 2010 (1) 5,000 4,820
7.40% 2016 32,865 24,813 .16
Clark Refining & Marketing, Inc. 8.875% 2007 33,080 29,441 .13
Petrozuata Finance, Inc.: (1)
Series A, 7.63% 2009 10,285 8,590
Series B, 8.22% 2017 10,000 7,737 .07
Union Pacific Resources Group, Inc. 7.30% 2009 12,500 12,076 .05
Pioneer Natural Resources Co. 7.20% 2028 15,975 11,444 .05
Pogo Producing Co. 10.375% 2009 10,000 10,450 .05
Conoco Inc. 6.35% 2009 10,000 9,520 .04
Cross Timbers Oil Co.:
Series B, 9.25% 2007 1,000 985
8.75% 2009 8,000 7,680 .04
Petro Stopping Centers, LP 10.50% 2007 7,500 7,687 .03
Husky Terra Nova Finance 8.45% 2012 (1) 7,500 7,409 .03
OXYMAR 7.50% 2016 (1) 8,000 6,559 .03
Newfield Exploration Co., Series B, 7.45% 2007 6,000 5,614 .03
USX Corp. 6.65% 2006 4,500 4,248 .02
------------------
203,773 .89
------------------

Forest Products & Paper - 0.86%
Container Corp. of America:
9.75% 2003 50,206 51,963
Series A, 11.25% 2004 19,500 20,231 .31
Pacifica Papers Inc. 10.00% 2009 (1) 27,750 27,958 .12
Scotia Pacific Co. LLC, Timber Collateralized Notes:
Series B, Class A-2, 7.11% 2028 14,550 12,190
Series B, Class A-3, 7.71% 2028 16,000 11,680 .10
Pindo Deli Finance Mauritius Ltd.:
10.25% 2002 11,000 7,287
10.75% 2007 24,450 15,465 .10
Packaging Corp. of America 9.625% 2009 (1) 12,875 13,197 .06
Copamex Industrias, SA de CV, Series B, 11.375% 2004 13,450 12,004 .05
Kappa Beheer BV 10.625% 2009 (1) 7,000 7,140 .03
Advance Agro Capital BV 13.00% 2007 (7) 7,925 6,063 .03
Grupo Industrial Durango, SA de CV 12.00% 2001 6,000 5,925 .03
Paperboard Industries International Inc. 8.375% 2007 5,500 5,087 .02
Indah Kiat Finance Mauritius Ltd.:
11.875% 2002 700 565
10.00% 2007 3,050 1,952 .01
------------------
198,707 .86
------------------

Financial Services - 0.76%
GS Escrow Corp.:
5.995% 2003 (7) 15,000 14,658
7.125% 2005 23,000 21,775 .16
Capital One Financial Corp. 7.125% 2008 22,500 20,813 .09
BHP Finance Ltd. 6.75% 2013 20,000 18,438 .08
Newcourt Credit Group Inc.: (1)
Series A, 7.125% 2003 12,500 12,232
6.875% 2005 5,000 4,784 .07
Providian National Bank 6.65% 2004 4,000 3,840
Providian Financial Corp. 9.525% 2027 (1) 10,000 9,162 .06
MBNA Corp., MBNA 6.75% 2008 12,500 11,719 .05
Toyota Motor Credit Corp. 6.00% 2003 10,000 9,857 .04
AT&T Capital Corp. 6.60% 2005 10,000 9,511 .04
Wharf Capital International, Ltd. 8.875% 2004 7,000 6,773 .03
Ford Capital BV 10.125% 2000 5,500 5,750 .02
DVI, Inc. 9.875% 2004 5,000 4,875 .02
General Electric Capital Corp. 8.875% 2009 4,000 4,523 .02
Nebhelp Trust, Student Loan Interest Margin Security, 4,644 4,520 .02
Series 1998-1, Class A, 6.68% 2016 (1)
Midland Bank PLC 5.75% Eurodollar Note (undated) (7) 5,000 3,935 .02
Amresco, Inc., Series 1998-A, 9.875% 2005 5,000 3,750 .02
Green Tree Financial Corp. 6.50% 2002 2,635 2,505 .01
AB Spintab 6.80% (undated) (1,7) 1,500 1,449 .01
------------------
174,869 .76
------------------

Transportation - 0.73%
Jet Equipment Trust: (1,9)
Series 1994-A, Class B1, 10.91% 2006 6,364 7,004
Series 1995-B, 10.91% 2014 4,750 5,554
Series 1995-B, Class A, 7.63% 2015 3,634 3,607
Series 1995-A, Class B, 8.64% 2015 13,687 14,387
Series 1995-B, Class C, 9.71% 2015 5,500 5,931
Series 1995-A, Class C, 10.69% 2015 5,000 5,738 .18
Atlas Air, Inc. Pass-Through Trust, Series 1998-1, 32,825 30,401 .13
Class A, 7.38% 2019 (9)
Continental Airlines, Inc.:
9.50% 2001 4,500 4,613
pass-through certificates, Series 1996: (9)
Class A, 6.94% 2015 8,375 8,185
Class C, 9.50% 2015 12,097 12,745 .11
Airplanes Pass Through Trust, pass-through certificate, 22,480 21,592 .10
Series 1, Class C, 8.15% 2019 (9)
USAir, Inc.:(9)
Enhanced Equipment Note, Class C, 8.93% 2009 7,354 7,409
pass-through trust, Series 1993-A3, 10.375% 2013 9,000 9,485 .07
United Air Lines, Inc.:
9.00% 2003 8,000 8,463
pass-through certificate, Series 1996-A2, 7.87% 2019 (9) 5,000 4,703 .06
Teekay Shipping Corp. 8.32% 2008 10,820 10,333 .05
Delta Air Lines, Inc., pass-through certificate, 5,000 5,309 .02
Series 1992-A2, 9.20% 2014 (9)
MC-Cuernavaca Trust 9.25% 2001 (1) 3,703 2,891 .01
------------------
168,350 .73
------------------

General Retailing & Merchandising - 0.72%
J.C. Penney Co., Inc.:
7.95% 2017 28,200 28,000
7.625% (undated) 3,000 2,676 .13
Fred Meyer, Inc.:
7.375% 2005 21,000 20,923
7.45% 2008 4,000 4,010 .11
WestPoint Stevens Inc. 7.875% 2005 18,000 17,505 .08
Stater Bros. Holdings Inc. 11.00% 2001 16,000 16,240 .07
Boyds Collection, Ltd. 9.00% 2008 (1) 14,621 14,329 .06
Sears, Roebuck and Co. 9.375% 2011 12,310 13,918 .06
Salton/Maxim Housewares, Inc. 10.75% 2005 12,625 13,256 .06
May Department Stores Co. 8.375% 2024 10,000 10,451 .04
Federated Department Stores, Inc. 6.30% 2009 10,000 9,245 .04
Philips Electronics NV 7.20% 2026 6,000 5,971 .03
Randall's Food Markets, Inc. 9.375% 2007 4,750 5,189 .02
Tultex Corp.:
10.625% 2005 7,040 2,675
9.625% 2007 4,194 1,594 .02
------------------
165,982 .72
------------------

Leisure & Tourism - 0.64%
International Game Technology: (1)
7.875% 2004 16,000 15,440
8.375% 2009 7,750 7,479 .10
Horseshoe Gaming Holding Corp. 8.625% 2009 (1) 21,500 20,748 .09
AMF Bowling Worldwide, Inc.:
10.875% 2006 17,155 13,896
0%/12.25% 2006 (5) 6,437 3,991 .08
Mirage Resorts, Inc.:
6.625% 2005 3,000 2,832
6.75% 2007 5,000 4,593
6.75% 2008 5,000 4,575 .05
Florida Panthers Holdings, Inc. 9.875% 2009 10,000 9,550 .04
Premier Parks Inc. 9.75% 2007 9,500 9,500 .04
Joseph E. Seagram & Sons, Inc. 6.625% 2005 9,000 8,590 .04
Harrah's Operating Co., Inc. 7.875% 2005 7,750 7,401 .03
Boyd Gaming Corp. 9.25% 2003 7,000 7,070 .03
Royal Caribbean Cruises Ltd. 7.00% 2007 7,000 6,649 .03
Friendly Ice Cream Corp. 10.50% 2007 6,515 5,896 .02
CKE Restaurants, Inc. 9.125% 2009 5,000 4,650 .02
CapStar Hotel Co. 8.75% 2007 4,900 4,606 .02
Regal Cinemas, Inc. 9.50% 2008 5,000 4,500 .02
Carmike Cinemas, Inc. 9.375% 2009 (1) 4,000 3,870 .02
KSL Recreation Group, Inc. 10.25% 2007 1,250 1,269 .01
------------------
147,105 .64
------------------

Multi-Industry - 0.43%
Hutchison Whampoa Finance (CI) Ltd., Series D, 21,000 19,312 .08
6.988% 2037 (1)
Reliance Industries Ltd.:
8.25% 2027 (1) 10,000 8,908
10.50% 2046 (1) 5,750 4,821
Series B, 10.25% (undated) 5,000 3,975 .08
Pan Pacific Industrial Investments PLC 0% 2007 (1) 33,500 16,752 .07
Graham Packaging Co.:
8.75% 2008 8,475 7,967
0%/10.75% 2009 (5) 8,000 5,240 .06
American Standard Inc. 8.25% 2009 (1) 10,250 10,301 .05
Tekni-Plex, Inc. 9.25% 2008 8,000 7,880 .03
Sony Corp. 6.125% 2003 7,500 7,406 .03
Innova, S de RL 12.875% 2007 5,000 3,763 .02
Tenneco Inc. 8.075% 2002 2,000 2,051 .01
------------------
98,376 .43
------------------

Industrial Components - 0.40%
Federal-Mogul Corp.:
7.50% 2004 6,860 6,610
7.375% 2006 (1) 38,000 35,512
7.75% 2006 10,000 9,502
7.50% 2009 (1) 24,000 22,116 .32
TRW Inc. 7.125% 2009 (1) 15,000 14,466 .06
BREED Technologies, Inc. 9.25% 2008 29,500 2,950 .01
Westinghouse Air Brake Co. 9.375% 2005 2,000 2,040 .01
------------------
93,196 .40

------------------

Real Estate - 0.38%
Security Capital Group Inc. 7.15% 2007 17,500 15,833 .07
FelCor Suites LP:
7.375% 2004 10,000 9,197
7.625% 2007 5,000 4,447 .06
ProLogis Trust 7.05% 2006 12,000 11,379 .05
EOP Operating LP:
6.625% 2005 5,250 5,001
6.763% 2007 6,550 6,149 .05
CarrAmerica Realty Corp. 6.625% 2000 10,000 9,907 .04
Spieker Properties Inc.:
7.125% 2006 3,645 3,488
7.50% 2027 5,000 4,439 .04
ERP Operating LP:
7.95% 2002 3,750 3,819
6.63% 2005 1,400 1,331 .02
Omega Healthcare Investors, Inc. 6.95% 2002 5,000 4,715 .02
Irvine Co. 7.46% 2006 (1,4) 5,000 4,698 .02
Beverly Finance Corp. 8.36% 2004 (1) 2,500 2,583 .01
------------------
86,986 .38
------------------

Utilities: Electric & Gas - 0.31%
Israel Electric Corp. Ltd.: (1)
7.75% 2009 6,000 5,898
7.70% 2018 22,500 20,329
8.10% 2096 11,905 9,982 .16
Edison Mission Energy 7.73% 2009 (1) 10,000 10,055 .04
Tennessee Gas Pipeline Co. 7.625% 2037 10,000 9,538 .04
Williams Holdings of Delaware, Inc. 6.50% 2008 10,000 9,259 .04
Transener SA 9.25% 2008 (1) 7,500 6,122 .03
------------------
71,183 .31
------------------

Electronic Components - 0.29%
Hyundai Semiconductor America, Inc.: (1)
8.25% 2004 5,650 4,861
8.625% 2007 20,000 15,813 .09
Zilog, Inc. 9.50% 2005 17,000 15,640 .07
Fairchild Semiconductor Corp. 10.375% 2007 (1) 16,000 15,520 .07
Flextronics International Ltd. 8.75% 2007 9,000 8,955 .04
Advanced Micro Devices, Inc. 11.00% 2003 5,000 4,850 .02
------------------
65,639 .29
------------------

Metals: Steel & Nonferrous - 0.25%
Doe Run Resources Corp., Series B, 11.25% 2005 31,000 28,210 .12
Freeport-McMoRan Copper & Gold Inc.:
7.50% 2006 9,500 7,048
7.20% 2026 16,000 11,931 .08
Kaiser Aluminum & Chemical Corp. 12.75% 2003 8,000 8,080 .04
Inco Ltd. 9.60% 2022 2,625 2,547 .01
------------------
57,816 .25
------------------

Food Retailing: Food Products & Beverages - 0.19%
New World Pasta Co. 9.25% 2009 (1) 9,750 9,360 .04
Home Products International, Inc. 9.625% 2008 10,500 9,345 .04
Canandaigua Wine Co., Inc.:
8.75% 2003 5,000 4,925
Series C, 8.75% 2003 3,250 3,218 .04
Gruma, SA de CV 7.625% 2007 7,750 7,033 .03
Nabisco, Inc. 6.375% 2035 (7) 5,000 4,742 .02
Delta Beverage Group, Inc. 9.75% 2003 3,435 3,538 .02
DGS International Finance Co. BV:
10.00% 2007 (1) 1,250 903
10.00% 2007 275 199 .00
------------------
43,263 .19
------------------

Miscellaneous Materials & Commodities - 0.19%
Owens-Illinois, Inc.:
7.85% 2004 6,000 5,971
7.15% 2005 11,000 10,511
8.10% 2007 5,750 5,682 .10
Printpack, Inc. 10.625% 2006 20,270 19,510 .08
Anchor Glass Container Corp. 11.25% 2005 1,000 1,035 .01
------------------
42,709 .19
------------------

Other Industries - 0.13%
SCG Holding Corp. Semiconductor Components Industries, 10,500 10,553 .05
LLC 12.00% 2009 (1)
Ford Motor Co. 7.45% 2031 10,000 9,765 .04
Jefferson-Pilot Corp. 8.14% 2046 (1) 5,000 4,777 .02
Huntsman Corp. 8.873% 2007 (1,7) 5,000 4,425 .02
------------------
29,520 .13
------------------

Collateralized Mortgage/Asset-Backed Obligations (9)
(excluding those issued by federal agencies) - 3.45%
Gramercy Place Insurance Ltd., Series 1998-A, Class C-2, 52,500 52,327 .23
8.95% 2002 (1)
PP&L Transition Bond Co. LLC, Series 1999-1, 45,100 45,016 .20
Class A-8, 7.15% 2009
Collateralized Mortgage Obligation Trust, Series 63, 42,299 43,845 .19
Class Z, 9.00% 2020
Green Tree Financial Corp., pass-through certificates:
Series 1994-A, Class NIM, 6.90% 2004 1,737 1,730
Series 1995-A, Class NIM, 7.25% 2005 2,099 2,079
Series 1993-2, Class B, 8.00% 2018 14,000 12,858
Series 1995-4, Class B2, 7.70% 2025 1,900 1,401
Series 1995-1, Class B2, 9.20% 2025 5,500 4,769
Series 1995-9, Class A-5, 6.80% 2027 4,000 3,994
Series 1996-2, Class B2, 7.90% 2027 3,500 2,597
Series 1996-10, Class A-6, 7.30% 2028 3,000 2,897
Series 1998-4, Class B2, 8.11% 2028 6,650 5,154 .18
Series 1998-3, Class B2, 8.07% 2030 5,000 3,863
G3 Mortgage Reinsurance Ltd., Series 1: (1,7)
Class A, 6.164% 2008 10,500 10,147
Class B, 6.464% 2008 9,000 8,702
Class C, 8.014% 2008 10,000 9,016
Class D, 11.664% 2008 11,000 10,028 .16
Merrill Lynch Mortgage Investors, Inc.:
Seller Manufactured Housing Contract, Series 1995-C2, 13,449 13,492
Class A-1, 6.973% 2021 (7)
Series 1995-C3, Class A-3, 7.059% 2025 (7) 10,000 9,910
Series 1998-C3, Class A1, 5.65% 2030 4,820 4,588
Mortgage Pass-Through Certificates: (7)
Series 1996-C2, Class A-1, 6.69% 2028 2,678 2,679
Series 1998-C3, Class E, 6.976% 2030 7,980 6,574 .16
CS First Boston Inc.:
Finance Co. Ltd., Series 1995-A, 5.969% 2005 (1,7) 11,375 9,783
Series 1998-FL1, Class E, 6.07% 2013 (1,7) 10,000 9,878
Mortgage Securities Corp., Series 1998-C1, Class A-1A, 13,884 13,520 .14
6.26% 2040
First USA Credit Card Master Trust:
Series 1999-1, Class C, 6.42% 2006 (1) 7,500 7,252
Class A, Floating Rate Asset-Backed Certificates: (1,7)
Series 1998-7, 5.78% 2004 13,000 12,953
Series 1998-8, 6.08% 2008 5,652 5,623
Series 1997-4, 6.00% 2010 6,500 6,399 .14
GMAC Commercial Mortgage Securities, Inc.:
Series 1997-C2, Class E, 7.624% 2011 20,750 18,006
Series 1999-C1:(7)
Class D, 6.865% 2033 7,000 6,529
Class E, 6.865% 2033 4,015 3,453 .12
DLJ Mortgage Acceptance Corp.:
Series 1997-CF1, Class A1A, 7.40% 2006 (1) 6,343 6,422
Series 1996-CF2, Class A1A, 6.86% 2021 (1) 4,803 4,822
Series 1998-CF2, Class A1B, 6.24% 2031 15,000 14,008 .11
MBNA Master Credit Card Trust: (1)
Series 1999-D, Class B, 6.95% 2008 4,700 4,540
Series 1998-E, Class C, 6.60% 2010 22,500 20,644 .11
SMA Finance Co., Inc., Series 1998-C1, Class A1, 6.27% 2005 24,864 24,465 .11
Commercial Mortgage Acceptance Corp.:
Series 1998-C2, Class A-1, 5.80% 2006 12,878 12,438
Series 1998-C1, Class A-1, 6.23% 2007 6,056 5,887 .08
First Union-Lehman Brothers Bank of America Commercial 18,794 18,259 .08
Mortgage Trust, Commercial Mortgage Pass-Through
Certificate, Series 1998-C2, 6.28% 2035
GS Mortgage Securities Corp. II, Mortgage Pass-Through 20,000 17,971 .08
Certificate, Series 1998-C1, Class D, 7.243% 2030 (7)
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 2026 (1) 18,250 17,091 .07
Morgan Stanley Capital I, Inc.:
Series 1995-GAL1, Class A-2, 7.50% 2027 (1) 7,500 7,666
Series 1998-WF2, Class A-1, 6.75% 2030 (7) 9,318 9,034 .07
Acominas Overseas Ltd. 8.309% 2022 (1,7) 17,800 13,993 .06
Residential Reinsurance Ltd. 8.711% 2000 (1,7) 14,000 13,860 .06
ComEd Transitional Funding Trust, Transitional Funding
Trust Notes, Series 1998:
Class A-5, 5.44% 2007 9,250 8,743
Class A-6, 5.63% 2009 5,500 5,082 .06
Chase Commercial Mortgage Securities Corp., Series 1998-1, 13,835 13,567 .06
Class A1, 6.34% 2030
Ford Credit Auto Owner Trust:
Series 1998-B, Class C, 6.40% 2002 10,000 9,838
Series 1999-B, Class C, 6.65% 2003 3,000 2,966 .06
Structured Asset Securities Corp., pass-through
certificates: (7)
Series 1998-RF2, Class A, 8.564% 2022 (1) 2,430 2,482
Series 1998-RF1, Class A, 8.689% 2027 (1) 1,926 1,974
Series 1999-BC1, Class M2, 6.393% 2029 7,500 7,513 .05
First Consumer Master Trust, Series 1999-A, Class A, 12,500 11,865 .05
5.80% 2005 (1)
Trinity Re, Ltd. 9.745% 2000 (1,7) 12,000 11,730 .05
FIRSTPLUS Home Loan Owner Trust, Series 1997-1, 10,000 9,971 .04
Class A-6, 6.95% 2015
Team Fleet Financing Corp.: (1)
Series 1999-2A, Class D, 6.314% 2002 (7) 3,000 2,994
Series 1999-3A, Class D, 7.60% 2003 7,000 6,964 .04
Green Tree Recreational, Equipment & Consumer Trust, 10,000 9,927 .04
Series 1999-A, Class A-6, 6.84% 2029
Resolution Trust Corp.:
Series 1992-CHF, Class E, 8.25% 2020 865 863
Series 1993-C1:
Class D, 9.45% 2024 5,538 5,520
Class E, 9.50% 2024 162 162
Series 1993-C2:
Class C, 8.00% 2025 505 503
Class D, 8.50% 2025 2,459 2,452 .04
Freddie Mac Loan Receivables Trust, Series 1998-A, 10,100 9,489 .04
Class A3, 6.69% 2020 (1)
Capital One Secured Note Trust, Series 1999-2, 5.78% 2005 6,250 6,206
Capital One Master Trust, Series 1991-1, Class C, 6.60% 2,500 2,430 .04
2007 (1)
First Nationwide, Series 1999-2, Class 1PA1, 6.50% 2029 8,743 8,366 .04
Fleet Credit Card Master Trust II, Series 1999-A, Class C 8,000 8,008 .03
Floating Rate Asset Backed Interests, 5.475% 2004 (1,7)
H.S. Receivables Corp., Series 1999-1, Class A, 8.13% 7,500 7,575 .03
2004 (1)
PNC Mortgage Securities Corp., Series 1998-10, Class 1-B1, 6,942 6,421 .03
6.50% 2028 (1)
GE Capital Mortgage Services, Inc., Series 1994-9, Class A9 6,864 6,396 .03
6.50% 2024
Bear Stearns Commercial Mortgage Securities Inc., Series 89,481 6,210 .03
1999-C1, Class X, interest only, 1.054% 2031 (7)
First Union Commercial Mortgage Trust, Series 1999-C1, 7,000 6,039 .03
Class E, 6.973% 2035 (7)
Chase Manhattan Credit Card Master Trust, Series 1997-5, 5,585 5,498 .02
Class A, 6.194% 2005
Standard Credit Card Master Trust I, Series 1994-2A, 5,000 5,022 .02
Class A, 7.25% 2008
EQCC Home Equity Loan Trust, Asset Backed Certificates, 5,000 4,983 .02
Series 1999-3, Class A-3F, 7.067% 2025
Metris Master Trust, Series 1998-1A, Class C, 6.03% 5,000 4,807 .02
2005 (1,7)
Nationslink Funding Corp., Series 1999-1, Class D, 5,000 4,676 .02
7.10% 2031
Government Lease Trust Series 1999-C1A, Class B3, 6,687 4,584 .02
4.00% 2011 (1)
Deutsche Mortgage & Asset Receiving Corp., Series 1998-C1, 4,634 4,455 .02
Class A-1, 6.22% 2031
Metropolitan Asset Funding, Inc., Series 1998-A, Class B1, 4,669 4,447 .02
7.728% 2014 (1,7)
UCFC Acceptance Corp., Series 1996-D1, Class A-4, 4,250 4,262 .02
6.776% 2016
Mosaic Re II, Ltd., Class B, 14.185% 2000 (1,7) 4,000 3,992 .02
Money Store Trust, Asset-Backed Certificate, Series 1997-D, 3,844 3,837 .02
6.345% 2021
Residential Funding Mortgage Securities I, Inc., Series 3,965 3,747 .02
1998-S17, Class M-1, 6.75% 2028
Grupo Financiero Banamex Accival, SA de CV 0% 2002 3,944 3,527 .02
Financial Asset Securitization, Inc., Series 1997-NAM1, 2,540 2,553 .01
Class B1, 7.75% 2027
Chase Manhattan Bank, NA, Series 1993-I, Class 2A5, 2,499 2,507 .01
7.25% 2024
Rental Car Finance Corp., Series 1999-1A, Class D, 2,500 2,403 .01
7.10% 2007 (1)
Domestic Inc. 8.686% 2002 (1,7) 2,000 2,010 .01
Chevy Chase Master Credit Card Trust II, Series 1996-C, 2,000 1,987 .01
Class A, 5.32% 2007 (7)
------------------
793,715 3.45
------------------

Federal Agency Obligations: Mortgage Pass-Throughs (9) 1.93%
Government National Mortgage Assn.:
5.50% 2028 3,011 2,673
6.00% 2028-2029 142,488 131,310
6.50% 2028 27,072 25,702
7.00% 2008-2030 53,696 52,364
7.50% 2017-2026 29,849 29,893
8.00% 2017-2023 14,974 15,294
8.50% 2017-2029 14,821 15,452
9.00% 2018-2025 5,379 5,711
9.50% 2009-2021 7,836 8,415
10.00% 2016-2019 681 744
10.50% 2019 53 58 1.25
Fannie Mae:
5.50% 2028 9,873 8,847
5.745% 2028 (7) 7,535 7,391
6.00% 2013 10,316 9,868
6.50% 2013-2028 11,747 11,337
7.00% 2012 7,079 7,055
7.50% 2007-2027 21,857 22,002
8.00% 2009-2024 5,832 5,970
8.50% 2014-2025 4,677 4,857
9.00% 2008-2025 5,151 5,440
9.50% 2022 4,507 4,795
10.00% 2005-2025 12,691 13,712
12.50% 2019 911 1,052
13.00% 2015 2,326 2,722
15.00% 2028 870 1,036 .46
Freddie Mac:
5.125% 2008 25,000 22,293
6.00% 2014 12,386 11,859
8.50% 2008-2020 9,623 9,971
9.00% 2007-2021 5,375 5,600
10.00% 2019 119 128
11.50% 2000 4 4 .22
------------------
443,555 1.93
------------------

Federal Agency Obligations: Collateralized Mortgage
Obligations (9) - 0.10%
Fannie Mae:
Series 1991-78, Class PK, 8.50% 2020 452 452
Series 1994-4, Class ZA, 6.50% 2024 5,599 5,155
Series 1996-4, Class ZA, 6.50% 2022 6,611 6,270
Series 1997-28, Class C, 7.00% 2027 5,000 4,869 .07
Freddie Mac:
Series 178, Class Z, 9.25% 2021 1,993 2,076
Series 1673, Class SA, 5.839% 2024 (7,10) 6,000 4,363 .03
------------------
23,185 .10
------------------

Other Federal Agency Obligations - 0.12%
Fannie Mae, Medium-Term Note 6.75% 2028 30,000 26,841 .12
------------------

Governments & Governmental Authorities (excluding U.S.)
- -1.19%
Brazil (Federal Republic of):
Debt Conversion Bond, Series L, 5.938% 2012 (7) 3,750 2,227
Debt Conversion Bond, Bearer, Series L, 5.938% 2012 (7) 5,000 2,969
Bearer 8.00% 2014 135,246 83,007 .38
Argentina (Republic of):
Eurobond, Series L, 5.938% 2005 (7) 2,093 1,741
9.75% 2027 10,000 7,475
11.00% 2006 31,635 28,867
11.375% 2017 13,400 11,290
11.75% 2009 1,730 1,529 .22
United Mexican States Government Eurobonds:
Series C, 0% 2003 (4) 2,307 0
Global:
11.375% 2016 9,000 9,315
11.50% 2026 19,000 20,378
Units, Series C, 5.874% 2019 (7) 1,500 1,226 .13
Panama (Republic of):
Past Due Interest Eurobond 6.50% 2016 (7) 540 384
8.875% 2027 21,500 17,415
9.375% 2029 5,000 4,650 .10
Philippines (Republic of):
8.875% 2008 12,250 11,990
9.875% 2019 10,750 10,441 .10
Turkey (Republic of) 12.375% 2009 11,750 11,823 .05
Korea (Republic of) 8.875% 2008 11,000 11,286 .05
Venezuela (Republic of):
Eurobond 6.313% 2007 (7) 13,964 10,299
9.25% 2027 1,150 725 .05
Ontario (Province of) 5.50% 2008 10,000 9,066 .04
Poland (Republic of), Past Due Interest Bond, Bearer 9,000 7,970 .03
5.00% 2014 (7)
Mendoza (Province of) 10.00% 2007 (1) 9,500 6,080 .03
Bulgaria (Republic of), Front-Loaded Interest Reduction 2,500 1,530 .01
Bond 2.75% 2012 (7)
Peru (Republic of):(7)
Front-Loaded Interest Reduction Eurobond 3.75% 2017 250 136
Past Due Interest Eurobond 4.50% 2017 1,250 769 .00
------------------
274,588 1.19
------------------

U.S. Treasury Obligations - 3.53%
8.75% August 2000 22,500 23,245 .10
7.75% February 2001 13,000 13,412 .06
5.875% November 2001 12,590 12,641 .05
6.25% August 2002 50,000 50,617 .22
7.25% May 2004 83,630 88,204 .38

7.25% August 2004 100,000 105,641 .46
11.625% November 2004 43,500 54,382 .24
7.50% February 2005 80,860 86,469 .38
6.50% May 2005 10,000 10,238 .04
7.00% July 2006 18,293 19,225 .08
6.125% August 2007 1,465 1,469 .01
3.625% January 2008 (7,11) 51,438 49,927 .22
10.00% May 2010 18,000 21,282 .09
7.50% November 2016 17,000 18,958 .08
8.875% August 2017 73,575 92,923 .40
7.875% February 2021 7,500 8,801 .04
7.125% February 2023 65,250 71,387 .31
6.50% November 2026 70,000 71,772 .31
0% November 2027 21,530 3,839 .02
5.25% February 2029 10,000 8,831 .04
------------------
813,263 3.53
------------------

TOTAL BONDS & NOTES (cost: $6,691,309,000) 6,400,64 27.82

Short-Term Securities
- --------------------------------------------

Corporate Short-Term Notes - 6.41%
BellSouth Telecommunications, Inc. 4.90%-5.30% due 92,800 91,823 .40
8/2/1999-1/27/2000 (1)
Ford Motor Credit Co. 5.00%-5.13% due 9/2-10/19/1999 87,100 86,200 .37
E.I. du Pont de Nemours and Co. 4.89%-5.30% due 84,900 83,186 .36
8/18/1999-2/2/2000
Lucent Technologies Inc. 4.88%-5.08% due 8/5-9/23/1999 80,700 80,453 .35
Archer Daniels Midland Co. 4.84%-5.36% due 8/20/1999-2/10/2 80,300 79,257 .34
Procter & Gamble Co. 5.08%-5.30% due 8/30/1999-1/19/2000 79,700 78,348 .34
IBM Credit Corp. 4.80%-5.01% due 8/11-8/19/1999 75,000 74,847 .33
Coca-Cola Co. 5.00%-5.29% due 9/28/1999-2/1/2000 75,500 73,887 .32
Merck & Co. Inc. 5.29%-5.34% due 2/2/1999-2/4/2000 75,000 72,861 .32
Associates First Capital Corp. 4.84%-4.96% due 8/31-9/20/19 65,000 64,672 .28
International Lease Finance Corp. 5.09%-5.10% due 65,000 64,289 .28
10/8-10/22/1999
H.J. Heinz Co. 5.15%-5.34% due 8/23/1999-1/28/2000 60,200 59,200 .26
Ciesco L.P. 4.90%-5.02% due 8/4-8/17/1999 54,950 54,873 .24
Eastman Kodak Co. 4.78%-5.05% due 8/10-9/24/1999 54,020 53,793 .23
Fortune Brands Inc. 5.00%-5.12% due 8/3-10/8/1999 (1) 52,000 51,622 .22
Monsanto Co. 4.93%-5.15% due 9/17-11/5/1999 50,000 49,472 .21
Johnson & Johnson 4.78%-5.30% due 10/4/1999-1/25/2000 (1) 47,425 46,602 .20
General Electric Capital Corp. 5.10%-5.51% due 46,300 45,368 .20
8/2/1999-1/31/2000
American Home Products Corp. 4.79%-5.37% due 45,100 44,417 .19
8/3/1999-1/26/2000 (1)
General Motors Acceptance Corp. 4.89%-5.12% due 8/3-10/15/1 42,900 42,652 .19
Warner-Lambert Co. 4.83% due 8/25/1999 (1) 40,000 39,858 .17
National Rural Utilities Cooperative Finance Corp. 38,500 38,247 .17
4.78%-5.09% due 8/27-10/4/1999
Household Finance Corp. 5.02% due 8/23/1999 36,400 36,283 .16
Minnesota Mining and Manufacturing Co. 5.00%-5.05% 23,423 23,335 .10
due 8/26-8/27/1999
Gillette Co. 4.87%-5.00% due 8/3-8/4/1999 (1) 22,900 22,889 .10
Schering Corp. 4.87% due 8/31/1999 18,000 17,921 .08
------------------
1,476,35 6.41
------------------

Federal Agency Short-Term Obligations - 5.03%

Freddie Mac 4.73%-5.21% due 8/9/1999-2/3/2000 664,900 659,847 2.87
Fannie Mae 4.691%-5.00% due 8/5-12/3/1999 462,390 459,034 2.00
Federal Home Loan Banks 4.81%-5.22% due 11/19/1999-1/21/200 38,600 37,739 .16
------------------
1,156,62 5.03
------------------

Other Federal Agency Short-Term Obligations - 0.22%
Sallie Mae 5.063% due 10/21/1999 (7) 50,000 49,980 .22
------------------

TOTAL SHORT-TERM SECURITIES (cost: $2,683,797,000) 2,682,95 11.66
------------------
TOTAL INVESTMENT SECURITIES (cost: $20,846,345,000) 23,123,7 100.49

Excess of payables over cash and receivables 111,87 .49
------------------
NET ASSETS 23,011,8 100.00
------------------
------------------

1. Purchased in a private placement transaction; resale to
the public may require registration or sale only to
qualified institutional buyers.
2. The fund owns 5.42% and 7.41% of the outstanding voting
securities of Equitable Resources and Ohio Casualty,
respectively, and thus,is considered an affiliate as
defined in the Investment Company Act of 1940.
3. Non-income-producing security.
4. Valued under procedures established by the Board of
Directors.
5. Step Bond; coupon rate will increase at a later date.
6. Payment in kind; the issuer has the option of paying in
additional securities in lieu of cash.
7. Coupon rate may change periodically.
8. Company not making interest payments; bankruptcy proceedings
pending.
9. Pass-through securities backed by a pool of mortgages or
other loans on which principal payments are periodically
made. Therefore, the effective maturities are shorter than
the stated maturities.
10. Inverse floater, which is a floating rate note whose
interest rate moves in the opposite direction of prevailing
interest rates.
11. Index-linked bond whose principal amount moves with a
government retail price index.

See Notes to Financial Statements

ADR = American Depositary Receipts

</TABLE>

<TABLE>
The Income Fund of America
Financial Statements
<S> <C> <C>
- ----------------------------------------- --------- ---------
Statement of Assets and Liabilities (dollars in
at July 31, 1999 thousands)
- ----------------------------------------- --------- ---------
Assets:
Investment securities at market
(cost: $20,846,345) $23,123,707
Cash 16,467
Receivables for-
Sales of investments $ 22,222
Sales of fund's shares 24,360
Dividends and accrued interest 166,476 213,058
--------- ---------
23,353,232
Liabilities:
Payables for-
Purchases of investments 298,523
Repurchases of fund's shares 28,226
Management services 5,304
Accrued expenses 9,349 341,402
--------- ---------
Net Assets at July 31, 1999-
Equivalent to $17.51 per share on
1,314,463,728 shares of $1 par value
capital stock outstanding (authorized
capital stock--1,600,000,000 shares) $23,011,830
============

- ----------------------------------------- --------- ---------
Statement of Operations (dollars in
for the year ended July 31, 1999 thousands)
- ----------------------------------------- --------- ---------
Investment Income:
Income:
Dividends $506,236
Interest 746,740 $1,252,976
---------
Expenses:
Management services fee 63,389
Distribution expenses 52,738
Transfer agent fee 10,901
Reports to shareholders 670
Registration statement and
prospectus 1,495
Postage, stationery and supplies 2,019
Directors' fees 178
Auditing and legal fees 71
Custodian fee 961
Taxes other than federal income tax 10
Other expenses 123 132,555
--------- ---------
Net investment income 1,120,421
---------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 1,485,110
Net change in unrealized appreciation on
investments (912,310)
---------
Net realized gain and change in unrealized
appreciation on investments 572,800
---------
Net Increase in Net Assets Resulting
From Operations $1,693,221
============
- ----------------------------------------- --------- ---------
(dollars in
Statement of Changes in Net Assets thousands)
- ----------------------------------------- --------- ---------
Year ended July 31
1999 1998
--------- ---------
Operations:
Net investment income $ 1,120,421 $ 981,936
Net realized gain on investments 1,485,110 1,220,942
Net change in unrealized appreciation
on investments (912,310) (34,156)
--------- ---------
Net increase in net assets
resulting from operations 1,693,221 2,168,722
--------- ---------
Dividends and Distributions
Paid to Shareholders:
Dividends from net investment income (1,109,089) (922,159)
Distributions from net realized
gain on investments (1,454,557) (1,524,937)
--------- ---------
Total dividends and distributions (2,563,646) (2,447,096)
--------- ---------
Capital Share Transactions:
Proceeds from shares sold:
172,804,800 and 205,557,632
shares, respectively 3,038,713 3,777,990
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions of
net realized gain on investments:
134,016,601 and 122,751,251
shares, respectively 2,310,634 2,182,454
Cost of shares repurchased:
203,714,499 and 129,064,287
shares, respectively (3,580,068) (2,383,307)
--------- ---------
Net increase in net assets
resulting from capital share
transactions 1,769,279 3,577,137
--------- ---------
Total Increase in Net Assets 898,854 3,298,763

Net Assets:
Beginning of year 22,112,976 18,814,213
--------- ---------
End of year (including undistributed
net investment income: $211,028
and $198,455, respectively) $23,011,830 $22,112,976
=========== ===========

See Notes to Financial Statements

</TABLE>

Income Fund of America
Notes to Financial Statements
Year ended July 31, 1999

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION - The Income Fund of America, Inc. (the "fund") is registered
under the Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks current income while secondarily striving
for capital growth through investments in stocks and fixed-income securities.

SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been
prepared in conformity with generally accepted accounting principles which
require management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could
differ from those estimates. The following is a summary of the significant
accounting policies consistently followed by the fund in the preparation of its
financial statements:

SECURITY VALUATION - Equity securities, including depositary receipts, are
valued at the last reported sale price on the exchange or market on which such
securities are traded, as of the close of business on the day the securities
are being valued or, lacking any sales, at the last available bid price. In
cases where equity securities are traded on more than one exchange, the
securities are valued on the exchange or market determined by the investment
adviser to be the broadest and most representative market, which may be either
a securities exchange or the over-the-counter market. Fixed-income securities
are valued at prices obtained from a pricing service, when such prices are
available; however, in circumstances where the investment adviser deems it
appropriate to do so, such securities will be valued at the mean quoted bid and
asked prices or at prices for securities of comparable maturity, quality, and
type. The ability of the issuers of the debt securities held by the fund to
meet their obligations may be affected by economic developments in a specific
industry, state or region. Short-term securities maturing within 60 days are
valued at amortized cost, which approximates market value. Securities and
assets for which representative market quotations are not readily available are
valued at fair value as determined in good faith by a committee appointed by
the Board of Directors.

NON-U.S. CURRENCY TRANSLATION - Assets and liabilities initially expressed
in terms of non-U.S. currencies are translated into U.S. dollars at the
prevailing market rates at the end of the reporting period. Purchases and
sales of securities and income and expenses are translated into U.S. dollars at
the prevailing market rates on the dates of such transactions. The effects of
changes in non-U.S. currency exchange rates on investment securities and other
assets and liabilities are included with the net realized and unrealized gain
or loss on investment securities.

SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security
transactions are accounted for as of the trade date. Realized gains and losses
from securities transactions are determined based on specific identified cost.
In the event securities are purchased on a delayed delivery or "when-issued"
basis, the fund will instruct the custodian to segregate liquid assets
sufficient to meet its payment obligations in these transactions. Dividend
income is recognized on the ex-dividend date, and interest income is recognized
on an accrual basis. Market discounts, premiums, and original issue discounts
on securities purchased are amortized daily over the expected life of the
security.

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions
paid to shareholders are recorded on the ex-dividend date.

2. NON-U.S. INVESTMENTS

INVESTMENT RISK - Investments in securities of non-U.S. issuers in certain
countries involve special investment risks. These risks may include, but are
not limited to, investment and repatriation restrictions, revaluation of
currencies, adverse political, social, and economic developments, government
involvement in the private sector, limited and less reliable investor
information, lack of liquidity, certain local tax law considerations, and
limited regulation of the securities markets.

TAXATION - Dividend and interest income is recorded net of non-U.S. taxes
paid. For the year ended July 31, 1999, such non-U.S. taxes were $6,896,000.

CURRENCY GAINS AND LOSSES - Net realized currency gains on dividends,
interest, withholding taxes reclaimable, and other receivables and payables, on
a book basis, were $37,000.

3. FEDERAL INCOME TAXATION

The fund complies with the requirements of the Internal Revenue Code
applicable to regulated investment companies and intends to distribute all of
its net taxable income and net capital gains for the fiscal year. As a
regulated investment company, the fund is not subject to income taxes if such
distributions are made. Required distributions are determined on a tax basis
and may differ from net investment income and net realized gains for financial
reporting purposes. In addition, the fiscal year in which amounts are
distributed may differ from the year in which the net investment income and net
realized gains are recorded by the fund.

As of July 31, 1999, net unrealized appreciation on investments for
federal income tax purposes aggregated $2,277,405,000, of which $3,176,209,000
related to appreciated securities and $898,804,000 related to depreciated
securities. During the year ended July 31, 1999, the fund realized, on a tax
basis, a net capital gain of $1,483,870,000 on securities transactions.

Net gains related to non-U.S. currency and other transactions of
$1,240,000 were treated as an adjustment to ordinary income for federal income
tax purposes. The cost of portfolio securities for federal income tax purposes
was $20,846,302,000 at July 31, 1999.

4. FEES AND TRANSACTIONS WITH RELATED PARTIES

INVESTMENT ADVISORY FEE - The fee of $63,389,000 for management services
was incurred pursuant to an agreement with Capital Research and Management
Company (CRMC), with which certain officers and Directors of the fund are
affiliated. The Investment Advisory and Service Agreement in effect through
December 31, 1998 provided for monthly fees, accrued daily, based on an annual
rate of 0.24% of the first $1 billion of average net assets; 0.20% of such
assets in excess of $1 billion but not exceeding $2 billion; 0.18% of such
assets in excess of $2 billion but not exceeding $3 billion; 0.165% of such
assets in excess of $3 billion but not exceeding $5 billion; 0.155% of such
assets in excess of $5 billion but not exceeding $8 billion; 0.15% of such
assets in excess of $8 billion but not exceeding $13 billion; 0.145% of such
assets in excess of $13 billion but not exceeding $21 billion; and 0.14% of
such assets in excess of $21 billion; plus 2.25% of monthly gross investment
income. The Board of Directors approved an amended agreement effective January
1, 1999, reducing the fees to 0.25% of the first $500 million of average net
assets; 0.23% of such assets in excess of $500 million but not exceeding $1
billion; 0.21% of such assets in excess of $1 billion but not exceeding $1.5
billion; 0.19% of such assets in excess of $1.5 billion but not exceeding $2.5
billion; 0.17% of such assets in excess of $2.5 billion but not exceeding $4
billion; 0.16% of such assets in excess of $4 billion but not exceeding $6.5
billion; 0.15% of such assets in excess of $6.5 billion but not exceeding $10.5
billion; 0.145% of such assets in excess of $10.5 billion but not exceeding $17
billion; 0.14% of such assets in excess of $17 billion but not exceeding $27.5
billion; and 0.135% of such assets in excess of $27.5 billion; plus 2.25% of
monthly gross investment income.

DISTRIBUTION EXPENSES - Pursuant to a Plan of Distribution, the fund may
expend up to 0.25% of its average net assets annually for any activities
primarily intended to result in sales of fund shares, provided the categories
of expenses for which reimbursement is made are approved by the fund's Board of
Directors. Fund expenses under the Plan include payments to dealers to
compensate them for their selling and servicing efforts. During the year ended
July 31, 1999, distribution expenses under the Plan were $52,738,000. As of
July 31, 1999, accrued and unpaid distribution expenses were $8,531,000.

American Funds Distributors, Inc. (AFD), the principal underwriter of the
fund's shares, received $12,692,000 (after allowances to dealers) as its
portion of the sales charges paid by purchasers of the fund's shares. Such
sales charges are not an expense of the fund and, hence, are not reflected in
the accompanying statement of operations.

TRANSFER AGENT FEE - American Funds Service Company (AFS), the transfer
agent for the fund, was paid a fee of $10,901,000.

DEFERRED DIRECTORS'FEES - Directors who are unaffiliated with CRMC may
elect to defer part or all of the fees earned for services as members of the
Board. Amounts deferred are not funded and are general unsecured liabilities of
the fund. As of July 31, 1999, aggregate deferred amounts and earnings thereon
since the deferred compensation plan's adoption (1993), net of any payments to
Directors, were $663,000.

CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Directors and officers of the fund
are or may be considered to be affiliated with CRMC, AFS and AFD. No such
persons received any remuneration directly from the fund.

5. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES

The fund made purchases and sales of investment securities, excluding
short-term securities, of $9,303,782,000 and $8,651,694,000, respectively,
during the year ended July 31, 1999.

As of July 31, 1999, accumulated undistributed net realized gain on
investments was $1,038,911,000 and additional paid-in capital was
$18,169,967,000. The fund reclassified $1,241,000 to undistributed net
investment income from additional paid-in capital and reclassified $58,314,000
from undistributed net realized gains to additional paid-in capital for the
year ended July 31, 1999 as a result of permanent differences between book and
tax.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $961,000 includes $303,000 that was paid by these credits
rather than in cash.

<TABLE>
The Income Fund of America
Per-Share Data and Ratios
<S> <C> <C> <C> <C> <C>
Year endeJuly 31
------- --------------------- -------
1999 1998 1997 1996 1995
------- --------------------- -------

Net Asset Value, Beginning of Ye $18.25 $18.59 $15.89 $14.92 $13.59
------- --------------------- -------
Income from Investment Operations:
Net investment income .88 .85 .86 .87 .85
Net gains or losses on securities
(both realized and unrealized .45 1.11 3.55 1.11 1.29
------- --------------------- -------
Total from investment operati 1.33 1.96 4.41 1.98 2.14
------- --------------------- -------
Less Distributions:
Dividends (from net investment
income) (.88) (.82) (.90) (.83) (.75)
Distributions (from capital gains)
(1.19) (1.48) (.81) (.18) (.06)
------- --------------------- -------
Total distributions (2.07) (2.30) (1.71) (1.01) (.81)
------- --------------------- -------
Net Asset Value, End of Year $17.51 $18.25 $18.59 $15.89 $14.92
======= ===================== =======

Total Return * 7.79% 11.32% 29.28% 13.46% 16.42%

Ratios/Supplemental Data:
Net assets, end of year
(in millions) $23,012$22,113$18,814 $14,459 $12,290
Ratio of expenses to average
net assets .59% .59% .61% .62% .65%
Ratio of net income to average
net assets 4.99% 4.75% 5.09% 5.56% 6.12%
Portfolio turnover rate 44.35% 34.68% 40.92% 37.77% 26.26%

* Excludes maximum sales charge
of 5.75%.

</TABLE>

Independent Auditors' Report

To the Board of Directors and Shareholders of
The Income Fund of America, Inc.:

We have audited the accompanying statement of assets and liabilities of
The Income Fund of America, Inc. (the "Fund"), including the investment
portfolio, as of July 31, 1999, and the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the per-share data and ratios for each of
the five years in the period then ended. These financial statements and
per-share data and ratios are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
per-share data and ratios based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per-share data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1999, by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of The Income Fund of America, Inc. at July 31, 1999, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the per-share data and ratios
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.

Deloitte & Touche LLP

Los Angeles, California
August 27, 1999

Tax Information (unaudited)

We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of distributions received by shareholders
during such fiscal year. The distributions made during the fiscal year by the
fund were earned from the following sources:

<TABLE>
<CAPTION>
Dividends and Distributions per Share
<S> <C> <C> <C> <C>
To Shareholders Payment Date From Net From Net From Net Realized
of Record Investment Income Realized Short-term Long-Term Gains
Gains

September 18,1998 September 21,1998 $0.20 - -
December 21, 1998 December 22, 1998 0.28 - $1.19
March 19, 1999 March 22, 1999 0.20 - -
June 18, 1999 June 21, 1999 0.20 - -
</TABLE>

Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 35% of the dividends
paid by the fund from net investment income represent qualifying dividends.

Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 5% of the dividends paid
by the fund from net investment income were derived from interest on direct
U.S. Treasury obligations.

Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans and 403(b) plans need not be reported as taxable income.
However, many retirement plan trusts may need this information for their annual
information reporting.

The fund also designates as a capital gain distribution a portion of earnings
and profits paid to shareholders in redemption of their shares.

SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FUND'S FISCAL YEAR AND NOT THE
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 2000 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 1999 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.