Income Fund of America, Inc.

[logo - American Funds ^®]

Prospectus Supplement

September 1, 2006

For the following funds with prospectuses dated

October 1, 2005 - July 1, 2006

AMCAP Fund,® Inc.

American Balanced Fund,® Inc.

American High-Income Municipal Bond Fund,® Inc.

American High-Income Trust^SM

American Mutual Fund,® Inc.

The Bond Fund of America,^SM Inc.

Capital Income Builder,® Inc.

Capital World Bond Fund,® Inc.

Capital World Growth and Income Fund,^SM Inc.

EuroPacific Growth Fund®

Fundamental Investors,^SM 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^SM

The New Economy Fund®

New Perspective Fund,® Inc.

New World Fund,^SM 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®

U.S. Government Securities Fund^SM

Washington Mutual Investors Fund,^SM Inc.

Please keep this Supplement with your copy of the Prospectus and/or the Retirement Plan Prospectus.

Beginning September 1, 2006, the paragraph regarding the statement of intention in the "Sales charge reductions and waivers" section of the Prospectus and in the "Sales charge reductions" section of the Retirement Plan Prospectus is amended in its entirety to read as follows:

Prospectus

Statement of intention

You may reduce your Class A sales charge by establishing a statement of intention. A statement of intention allows you to combine the market value of your holdings eligible for aggregation with all American Funds non-money market fund purchases of all share classes you intend to make over a 13-month period (including individual holdings in and purchases of various American Legacy variable annuity contracts and variable life insurance policies) to determine the applicable sales charge; however, investments made under a right of reinvestment, appreciation of your investment, and reinvested dividends and capital gains do not apply toward these combined purchases. A portion of your account may be held in escrow to cover additional Class A sales charges that may be due if your total investments over the 13-month period do not qualify for the applicable sales charge reduction. Employer-sponsored retirement plans may be restricted from establishing statements of intention. See "Sales charges" for more information.

Retirement Plan Prospectus

Statement of intention

You may reduce your Class A sales charge by establishing a statement of intention. A statement of intention allows the market value of your holdings eligible for aggregation to be combined with all American Funds non-money market fund purchases of all share classes intended to be made over a 13-month period to determine the applicable sales charge; however, investments made under a right of reinvestment, appreciation of your investment, and reinvested dividends and capital gains do not apply toward these combined purchases. A portion of the account may be held in escrow to cover additional Class A sales charges that may be due if total investments over the 13-month period do not qualify for the applicable sales charge reduction. Employer-sponsored retirement plans may be restricted from establishing statements of intention. See "Sales charges" for more information.

Beginning September 1, 2006, the paragraph regarding the multiple portfolio counselor system in the "Management and organization" section of the Prospectus and of the Retirement Plan Prospectus is amended in its entirety to read as follows:

Multiple portfolio counselor system

Capital Research and Management Company uses a system of multiple portfolio counselors in managing mutual fund assets. Under this approach, the portfolio of a fund is divided into segments managed by individual counselors. Counselors decide how their respective segments will be invested. In addition, Capital Research and Management Company’s investment analysts may make investment decisions with respect to a portion of a fund’s portfolio. Investment decisions are subject to a fund’s objective(s), policies and restrictions and the oversight of the appropriate investment-related committees of Capital Research and Management Company.

MFGEBS-004-0806P Litho in USA CGD/MW/9335-S8428

<PAGE>

THE INCOME FUND OF AMERICA, INC.

Part B
Statement of Additional Information

October 1, 2005
(as supplemented September 1, 2006)

This document is not a prospectus but should be read in conjunction with the
current prospectus or retirement plan prospectus of The Income Fund of America,
Inc. (the "fund" or "IFA") dated October 1, 2005. You may obtain a prospectus
from your financial adviser 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 94120
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. They should contact their employers for details.

TABLE OF CONTENTS

Item Page no.
---- --------

Certain investment limitations and guidelines . . . . . . . . . . . 2
Description of certain securities and investment techniques . . . . 2
Fundamental policies and investment restrictions. . . . . . . . . . 9
Management of the fund . . . . . . . . . . . . . . . . . . . . . . 11
Execution of portfolio transactions . . . . . . . . . . . . . . . . 31
Disclosure of portfolio holdings. . . . . . . . . . . . . . . . . . 32
Price of shares . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Taxes and distributions . . . . . . . . . . . . . . . . . . . . . . 35
Purchase and exchange of shares . . . . . . . . . . . . . . . . . . 40
Sales charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Sales charge reductions and waivers . . . . . . . . . . . . . . . . 45
Selling shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Shareholder account services and privileges . . . . . . . . . . . . 50
General information . . . . . . . . . . . . . . . . . . . . . . . . 52
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Financial statements

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 circumstances, 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, the composition of the fund's investments in equity,
debt and cash or money market instruments may vary substantially depending
on various factors, including market conditions. At times the fund may be
substantially invested in equity or debt securities (i.e., more than 60%)
or may be solely invested in equity or debt securities (i.e., 100%).

DEBT SECURITIES

. The fund may invest up to 20% of its assets in straight debt securities
(i.e., debt securities that do not have equity conversion or purchase
rights) rated BB or below by Standard & Poor's Corporation (S&P) and Ba or
below by Moody's Investors Service (Moody's) or unrated but determined to
be of equivalent quality.

NON-U.S. SECURITIES

. The fund may invest up to 20% of its assets in equity securities of issuers
domiciled outside the United States and not included in the S&P 500
Composite Index.

. The fund may invest up to 10% of its assets in debt securities of issuers
domiciled outside the United States (must be U.S. dollar denominated).

* * * * * *

The fund may experience difficulty liquidating certain portfolio securities
during significant market declines or periods of heavy redemptions.

DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES

The descriptions below are intended to supplement the material in the prospectus
under "Investment objectives, strategies and risks."

EQUITY SECURITIES -- Equity securities represent an ownership position in a
company. Equity securities held by the fund typically consist of common stocks
and may also include securities with equity conversion or purchase rights. The
prices of equity securities fluctuate based on, among other things, events
specific to their issuers and market, economic and other conditions.

The Income Fund of America -- Page 2
<PAGE>

There may be little trading in the secondary market for particular equity
securities, which may adversely affect the fund's ability to value accurately or
dispose of such equity securities. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may decrease the value and/or
liquidity of equity securities.

INVESTING IN SMALLER CAPITALIZATION STOCKS -- The fund may invest in the stocks
of smaller capitalization companies (typically companies with market
capitalizations of less than $2.0 billion at the time of purchase). The
investment adviser believes that the issuers of smaller capitalization stocks
often provide attractive investment opportunities. However, investing in smaller
capitalization stocks 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, limited 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 -- Debt securities are used by issuers to borrow money.
Generally, issuers pay investors interest and may repay the amount borrowed
periodically during the life of the security or 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 and accrue interest at the
applicable coupon rate over a specified time period. The market prices of debt
securities fluctuate depending on such factors as interest rates, credit quality
and maturity. In general, market prices of debt securities decline when interest
rates rise and increase when interest rates fall.

Lower rated debt securities, rated Ba or below by Moody's and/or BB or below by
S&P or unrated but determined 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 debt
securities, 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, and to determine the value of, lower rated debt
securities.

Certain additional risk factors relating to debt securities are discussed below:

SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES -- Debt securities may be
sensitive to economic changes, political and corporate developments, and
interest rate changes. In addition, during an economic downturn or
substantial period of rising interest rates, issuers that are highly
leveraged may experience increased financial stress that would adversely
affect their ability to meet projected business goals, to obtain additional
financing and to service their principal and interest payment obligations.
Periods of economic change and uncertainty also can be expected to result
in increased volatility of market prices and yields of certain debt
securities.

PAYMENT EXPECTATIONS -- Debt securities may contain redemption or call
provisions. If an issuer exercises these provisions in a lower interest
rate market, the fund would have to replace the security with a lower
yielding security, resulting in decreased income to investors. If the
issuer of a debt security defaults on its obligations to pay interest or

The Income Fund of America -- Page 3
<PAGE>

principal or is the subject of 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 debt securities, which may affect adversely the
fund's ability to value accurately or dispose of such debt securities.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the value and/or liquidity of debt
securities.

The investment adviser attempts to reduce the risks described above through
diversification of the fund's portfolio and by credit analysis of each issuer,
as well as by monitoring broad economic trends and corporate and legislative
developments, but there can be no assurance that it will be successful in doing
so.

SECURITIES WITH EQUITY AND DEBT CHARACTERISTICS -- The fund may invest in
securities that have a combination of equity and debt characteristics. These
securities may at times behave more like equity than debt and vice versa. Some
types of convertible bonds or preferred stocks automatically convert into common
stocks. The prices and yields of nonconvertible preferred stocks generally move
with changes in interest rates and the issuer's credit quality, similar to the
factors affecting debt securities. Certain of these securities will be treated
as debt for fund investment limit purposes.

Convertible bonds, convertible preferred stocks and other securities may
sometimes be converted, or may automatically convert, into common stocks or
other securities at a stated conversion ratio. These securities, prior to
conversion, may 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 assets, general
market and economic conditions, and convertible market valuations, as well as
changes in interest rates, credit spreads and the credit quality of the issuer.

INVESTING IN VARIOUS COUNTRIES -- Investing outside the United States may
involve additional risks caused by, among other things, currency controls and
fluctuating currency values; different accounting, auditing, financial reporting
and legal standards and practices in some countries; changing local, regional
and global economic, political and social conditions; expropriation; changes in
tax policy; greater market volatility; differing securities market structures;
higher transaction costs; and various administrative difficulties, such as
delays in clearing and settling portfolio transactions or in receiving payment
of dividends. However, in the opinion of the investment adviser, investing
outside the United States also can reduce certain portfolio risks due to greater
diversification opportunities.

The risks described above may be heightened in connection with investments in
developing countries. Although there is no universally accepted definition, the
investment adviser generally considers a developing country as a country that is
in the earlier stages of its industrialization cycle with a low per capita gross
domestic product ("GDP") and a low market capitalization to GDP ratio relative
to those in the United States and western Europe. Historically, the markets of
developing countries have been more volatile than the markets of developed
countries. The fund may invest in securities of issuers in developing countries
only to a limited extent.

Additional costs could be incurred in connection with the fund's investment
activities outside the United States. Brokerage commissions may be higher
outside the United States, and the fund

The Income Fund of America -- Page 4
<PAGE>

will bear certain expenses in connection with its currency transactions.
Furthermore, increased custodian costs may be associated with maintaining assets
in certain jurisdictions.

CURRENCY TRANSACTIONS -- The fund may purchase and sell currencies to facilitate
securities transactions and enter into forward currency contracts to protect
against changes in currency exchange rates. A forward currency contract is an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. Forward currency contracts
entered into by the fund will involve the purchase or sale of one currency
against the U.S. dollar. While entering into forward currency transactions could
minimize the risk of loss due to a decline in the value of the hedged currency,
it could also limit any potential gain that may 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
that 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 also may affect the
character and timing of income, gain or loss recognized by the fund for U.S.
federal income tax purposes.

The fund does not currently intend to engage in this investment practice over
the next 12 months.

U.S. GOVERNMENT OBLIGATIONS -- U.S. government obligations are securities backed
by the full faith and credit of the U.S. government. U.S. government obligations
include the following types of securities:

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

FEDERAL AGENCY SECURITIES BACKED BY "FULL FAITH AND CREDIT" -- The
securities of certain U.S. government agencies and government-sponsored
entities are guaranteed as to the timely payment of principal and interest
by the full faith and credit of the U.S. government. Such agencies and
entities include the Government National Mortgage Association (Ginnie Mae),
the Veterans Administration (VA), the Federal Housing Administration (FHA),
the Export-Import Bank (Exim Bank), the Overseas Private Investment
Corporation (OPIC), the Commodity Credit Corporation (CCC) and the Small
Business Administration (SBA).

OTHER FEDERAL AGENCY OBLIGATIONS -- Additional federal agency securities are
neither direct obligations of, nor guaranteed by, the U.S. government. These
obligations include securities issued by certain U.S. government agencies and
government-sponsored entities. However, they generally involve some form of
federal sponsorship: some operate under a government charter, some are backed by
specific types of collateral; some are supported by the issuer's right to borrow
from the Treasury; and others are supported only by the credit of the issuing
government agency or entity. These agencies and entities include, but are not
limited to: Federal Home Loan Bank, Federal Home Loan Mortgage Corporation
(Freddie Mac), Federal National Mortgage Association (Fannie Mae), Tennessee
Valley Authority and Federal Farm Credit Bank System.

The Income Fund of America -- Page 5
<PAGE>

PASS-THROUGH SECURITIES -- The fund may invest in various debt obligations
backed by pools of mortgages or other assets including, but not limited to,
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:

"MORTGAGE-BACKED SECURITIES" -- These securities may be issued by U.S.
government agencies and government-sponsored entities, such as Ginnie Mae,
Fannie Mae and Freddie Mac, and by private entities. The payment of
interest and principal on mortgage-backed obligations issued by U.S.
government agencies may be guaranteed by the full faith and credit of the
U.S. government (in the case of Ginnie Mae), or may be guaranteed by the
issuer (in the case of Fannie Mae and Freddie Mac). However, these
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 those issued by U.S. government agencies. However, these
securities and the underlying mortgages are not guaranteed by any
government agencies. 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) -- 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 issue at varying schedules
resulting in bonds with different coupons, effective maturities and
sensitivities to interest rates. Some CMOs may be structured in a way that
when interest rates change, the impact of changing prepayment rates on the
effective maturities of certain issues of these securities is magnified.

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

ASSET-BACKED SECURITIES -- These 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

The Income Fund of America -- Page 6
<PAGE>

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 that can change their effective maturities.

REAL ESTATE INVESTMENT TRUSTS -- The fund may invest in securities issued by
real estate investment trusts (REITs), which primarily invest in real estate or
real estate-related loans. Equity REITs own real estate properties, while
mortgage REITs hold construction, development and/or long-term mortgage loans.
The values of REITs may be affected by changes in the value of the underlying
property of the trusts, the creditworthiness of the issuer, property taxes,
interest rates and tax and regulatory requirements, such as those relating to
the environment. Both types of REITs are dependent upon management skill and the
cash flows generated by their holdings, the real estate market in general and
the possibility of failing to qualify for any applicable pass-through tax
treatment or failing to maintain any applicable exemptive status afforded under
relevant laws.

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 adjusted in response to changes in the
level of the consumer price index. The interest rate is fixed at issuance as a
percentage of this adjustable principal. The actual interest income may
therefore both rise and fall as the level of the consumer price index rises and
falls. In particular, in a period of deflation the interest income would fall.
While the interest income may adjust upward or downward without limit in
response to changes in the consumer price index, the principal has a floor at
par, meaning that the investor receives at least the par value at redemption.

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.

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, such a note or bond could provide that
the reinsurance company would not be required to repay all or a portion of the
principal value of the note or bond 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.

CASH AND CASH EQUIVALENTS -- These include (a) commercial paper (for example,
short-term notes with maturities typically up to 12 months in length issued by
corporations, governmental bodies or bank/corporation sponsored conduits
(asset-backed commercial paper)) (b) short-term bank obligations (for example,
certificates of deposit, bankers' acceptances (time drafts on a commercial bank
where the bank accepts an irrevocable obligation to pay at maturity)) or bank
notes, (c) savings association and savings bank obligations (for example, bank
notes and certificates of deposit issued by savings banks or savings
associations), (d) securities of the U.S. government, its agencies or
instrumentalities that mature, or may be redeemed, in one year or less, and (e)
corporate bonds and notes that mature, or that may be redeemed, in one year or
less.

The Income Fund of America -- Page 7
<PAGE>

RESTRICTED OR ILLIQUID SECURITIES -- The fund may purchase securities subject to
restrictions on resale. Difficulty in selling such securities may result in a
loss or be costly to the fund. Restricted securities generally can be sold in
privately negotiated transactions, pursuant to an exemption from registration
under the Securities Act of 1933 (the "1933 Act"), or in a registered public
offering. Where registration is required, the holder of a registered security
may be obligated to pay all or part of the registration expense and a
considerable period may elapse between the time it decides to seek registration
and the time it may be permitted to sell a security under an effective
registration statement.

Securities (including restricted securities) not actively traded will be
considered illiquid unless they have been specifically determined to be liquid
under procedures 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.

REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements under
which the fund buys a security and obtains a simultaneous commitment from the
seller to repurchase the security at a specified time and price. Repurchase
agreements permit the fund to maintain liquidity and earn income over periods of
time as short as overnight. The seller must maintain with the fund's custodian
collateral equal to at least 100% of the repurchase price, including accrued
interest, as monitored daily by the investment adviser. The fund will only enter
into repurchase agreements involving securities in which it could otherwise
invest and with selected banks and securities dealers whose financial condition
is monitored by the investment adviser. If the seller under the repurchase
agreement defaults, the fund may incur a loss if the value of the collateral
securing the repurchase agreement has declined and may incur disposition costs
in connection with liquidating the collateral. If bankruptcy proceedings are
commenced with respect to the seller, realization of the collateral by the fund
may be delayed or limited.

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 from 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 will not use these transactions for the purpose of leveraging and will
segregate liquid assets that will be marked to market daily in an amount
sufficient to meet its payment obligations in these transactions. Although these
transactions will not be entered into for leveraging purposes, to the extent the
fund's aggregate commitments in connection with these transactions exceed its
segregated assets, the fund temporarily could be in a leveraged position
(because it may have an amount greater than its net assets subject to market
risk). Should market values of the fund's portfolio securities decline while the
fund is in a leveraged position, greater depreciation of its net assets would
likely occur than if it were not in such a position. The fund will not borrow
money to settle these transactions and, therefore, will liquidate other
portfolio securities in advance of settlement if necessary to generate
additional cash to meet its obligations.

The Income Fund of America -- Page 8
<PAGE>

The fund may also enter into "roll" transactions which involve 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
risk of price and yield fluctuations during the time of the commitment. 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 involves correspondingly greater
transaction costs in the form of dealer spreads or brokerage commissions, and
may result in the realization of net capital gains, which are taxable when
distributed to shareholders.

Fixed-income securities are generally traded on a net basis and usually neither
brokerage commissions nor transfer taxes are involved. Transaction costs are
usually reflected in the spread between the bid and asked price.

A fund's portfolio turnover rate would equal 100% if each security in the fund's
portfolio were replaced once per year. The fund's portfolio turnover rates for
the fiscal years ended July 31, 2005 and 2004 were 24% and 27%, respectively.
See "Financial highlights" in the prospectus for the fund's annual portfolio
turnover rate for each of the last five fiscal years.

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, as amended (the "1940 Act"), as the vote of the
lesser of (a) 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 (b) 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).

The Income Fund of America -- Page 9
<PAGE>

5. Purchase or deal in commodities or commodity contracts.

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

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

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

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

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

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

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

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

NONFUNDAMENTAL POLICIES -- The following policies may be changed without
shareholder approval:

1. The fund does not currently intend to engage in an ongoing or regular
securities lending program.

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

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 SEC.

The Income Fund of America -- Page 10
<PAGE>

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS AND OFFICERS

YEAR FIRST NUMBER OF PORTFOLIOS
POSITION ELECTED WITHIN THE FUND
WITH THE A DIRECTOR PRINCIPAL OCCUPATION(S) DURING COMPLEX/2/ OVERSEEN
NAME AND AGE FUND OF THE FUND/1/ PAST FIVE YEARS BY DIRECTOR
-----------------------------------------------------------------------------------------------------------------
"NON-INTERESTED" DIRECTORS
-----------------------------------------------------------------------------------------------------------------

Robert A. Fox Director 1972 Managing General Partner, Fox 7
Age: 68 Investments LP; corporate
director; retired President and
CEO, Foster Farms (poultry
producer)
-----------------------------------------------------------------------------------------------------------------
Leonade D. Jones Chairman of 1993 Co-founder, VentureThink LLC 6
Age: 57 the Board (developed and managed e-commerce
(independent businesses) and Versura, Inc.
and (education loan exchange); former
Non-Executive) Treasurer, The Washington Post
Company
-----------------------------------------------------------------------------------------------------------------
John M. Lillie Director 2003 Business consultant; former 2
Age: 68 President, Sequoia Associates LLC
(investment firm specializing in
medium-size buyouts); former Vice
Chairman of the Board, Gap Inc.
(specialty apparel retailing)
-----------------------------------------------------------------------------------------------------------------
John G. McDonald Director 1976 Professor of Finance, Graduate 8
Age: 68 School of Business, Stanford
University
-----------------------------------------------------------------------------------------------------------------
James K. Peterson Director 1999 Managing Director, Oak Glen 2
Age: 64 Consultancy, LLC (consulting
services to charitable
organizations, pension funds and
other financial management
companies)
-----------------------------------------------------------------------------------------------------------------
Henry E. Riggs Director 1989 President Emeritus, Keck Graduate 4
Age: 70 Institute of Applied Life Sciences

-----------------------------------------------------------------------------------------------------------------
Isaac Stein Director 2004 President, Waverley Associates 2
Age: 58 (private investment fund);
Managing Director, Technogen
Associates L.P. (venture capital
partnership); Chairman Emeritus,
Stanford University Board of
Trustees
-----------------------------------------------------------------------------------------------------------------
Patricia K. Woolf Director 1985 Private investor; corporate 6
Age: 71 director; former Lecturer,
Department of Molecular Biology,
Princeton University
-----------------------------------------------------------------------------------------------------------------

OTHER DIRECTORSHIPS/3/ HELD
NAME AND AGE BY DIRECTOR
-----------------------------------------------------
"NON-INTERESTED" DIRECTORS
-----------------------------------------------------

Robert A. Fox Chemtura Corporation
Age: 68
-----------------------------------------------------
Leonade D. Jones None
Age: 57
-----------------------------------------------------
John M. Lillie None
Age: 68
-----------------------------------------------------
John G. McDonald iStar Financial, Inc.; Plum
Age: 68 Creek Timber Co.; Scholastic
Corporation; Varian, Inc.
-----------------------------------------------------
James K. Peterson None
Age: 64
-----------------------------------------------------
Henry E. Riggs None
Age: 70
-----------------------------------------------------
Isaac Stein Maxygen, Inc.
Age: 58
-----------------------------------------------------
Patricia K. Woolf First Energy Corporation
Age: 71
-----------------------------------------------------

The Income Fund of America -- Page 11

<PAGE>

PRINCIPAL OCCUPATION(S) DURING
YEAR FIRST PAST FIVE YEARS AND
ELECTED POSITIONS HELD NUMBER OF PORTFOLIOS
POSITION A DIRECTOR WITH AFFILIATED ENTITIES WITHIN THE FUND
WITH THE AND/OR OFFICER OR THE PRINCIPAL UNDERWRITER COMPLEX/2/ OVERSEEN OTHER DIRECTORSHIPS/3/ HELD
NAME AND AGE FUND OF THE FUND/1/ OF THE FUND BY DIRECTOR BY DIRECTOR
-----------------------------------------------------------------------------------------------------------------------------------
"INTERESTED" DIRECTORS/4,5/
-----------------------------------------------------------------------------------------------------------------------------------

Hilda L. Applbaum Vice 1998 Senior Vice President, 1 None
Age: 44 Chairman Capital Research Company*
-----------------------------------------------------------------------------------------------------------------------------------

The Income Fund of America -- Page 12

<PAGE>

PRINCIPAL OCCUPATION(S) DURING
POSITION YEAR FIRST ELECTED PAST FIVE YEARS AND POSITIONS HELD
WITH THE AN OFFICER WITH AFFILIATED ENTITIES
NAME AND AGE FUND OF THE FUND/1/ OR THE PRINCIPAL UNDERWRITER OF THE FUND
-----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS/5/
-----------------------------------------------------------------------------------------------------------------------------------

David C. Barclay President 1998 Senior Vice President, Capital Research and Management
Age: 48 Company; Director, The Capital Group Companies, Inc.*
-----------------------------------------------------------------------------------------------------------------------------------
Abner D. Goldstine Senior Vice President 1993 Senior Vice President and Director, Capital Research and
Age: 75 Management Company
-----------------------------------------------------------------------------------------------------------------------------------
Paul G. Haaga, Jr. Senior Vice President 1994 Vice Chairman, Capital Research and Management Company;
Age: 56 Director, The Capital Group Companies, Inc.*
-----------------------------------------------------------------------------------------------------------------------------------
Dina N. Perry Senior Vice President 1994 Senior Vice President, Capital Research and Management
Age: 59 Company; Director, Capital Research Company*
-----------------------------------------------------------------------------------------------------------------------------------
Mary E. Sheridan Vice President 2004 Vice President, Capital Research Company*
Age: 55
-----------------------------------------------------------------------------------------------------------------------------------
Joanna F. Jonsson Vice President 2006 Senior Vice President, Capital Research Company*;
Age: 43 Director, The Capital Group Companies, Inc.*
-----------------------------------------------------------------------------------------------------------------------------------
John H. Smet Vice President 1994 Senior Vice President, Capital Research and Management
Age: 49 Company; Director, American Funds Distributors, Inc.*
-----------------------------------------------------------------------------------------------------------------------------------
Andrew B. Suzman Vice President 2004 Executive Vice President and Director, Capital Research
Age: 38 Company*; Director, Capital International Research, Inc.*
-----------------------------------------------------------------------------------------------------------------------------------
Steven T. Watson Vice President 2006 Senior Vice President and Director, Capital Research Company
Age: 51
-----------------------------------------------------------------------------------------------------------------------------------
Patrick F. Quan Secretary 1986 Vice President - Fund Business Management Group, Capital
Age: 47 Research and Management Company
-----------------------------------------------------------------------------------------------------------------------------------
Jennifer M. Buchheim Treasurer 2005 Vice President - Fund Business Management Group, Capital
Age: 32 Research and Management Company
-----------------------------------------------------------------------------------------------------------------------------------
R. Marcia Gould Assistant Treasurer 1999 Vice President - Fund Business Management Group, Capital
Age: 51 Research and Management Company
-----------------------------------------------------------------------------------------------------------------------------------

The Income Fund of America -- Page 13

<PAGE>

* Company affiliated with Capital Research and Management Company.
1 Directors and officers of the fund serve until their resignation, removal or
retirement.
2 Capital Research and Management Company manages the American Funds, consisting
of 29 funds. Capital Research and Management Company also manages American
Funds Insurance Series,(R) which serves as the underlying investment vehicle
for certain variable insurance contracts, and Endowments, whose shareholders
are limited to certain nonprofit organizations.
3 This includes all directorships (other than those of the American Funds) that
are held by each Director as a director of a public company or a registered
investment company.
4 "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 affiliated entities (including the fund's principal
underwriter).
5 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.

THE ADDRESS FOR ALL DIRECTORS AND OFFICERS OF THE FUND IS 333 SOUTH HOPE STREET,
55TH FLOOR, LOS ANGELES, CALIFORNIA 90071, ATTENTION: FUND SECRETARY.

The Income Fund of America -- Page 14

<PAGE>

FUND SHARES OWNED BY DIRECTORS AS OF DECEMBER 31, 2004

AGGREGATE DOLLAR RANGE/1/
OF SHARES
OWNED IN ALL FUNDS
IN THE AMERICAN FUNDS
DOLLAR RANGE/1/ OF FUND FAMILY OVERSEEN
NAME SHARES OWNED BY DIRECTOR
-------------------------------------------------------------------------------

"NON-INTERESTED" DIRECTORS
-------------------------------------------------------------------------------
Robert A. Fox Over $100,000 Over $100,000
-------------------------------------------------------------------------------
Leonade D. Jones $50,001 - $100,000 Over $100,000
-------------------------------------------------------------------------------
John M. Lillie Over $100,000 Over $100,000
-------------------------------------------------------------------------------
John G. McDonald Over $100,000 Over $100,000
-------------------------------------------------------------------------------
James K. Peterson Over $100,000 Over $100,000
-------------------------------------------------------------------------------
Henry E. Riggs Over $100,000 Over $100,000
-------------------------------------------------------------------------------
Isaac Stein Over $100,000 Over $100,000
-------------------------------------------------------------------------------
Patricia K. Woolf Over $100,000 Over $100,000
-------------------------------------------------------------------------------
"INTERESTED" DIRECTORS/2/
-------------------------------------------------------------------------------
Hilda L. Applbaum/3/ Over $100,000 Over $100,000
-------------------------------------------------------------------------------

1 Ownership disclosure is made using the following ranges: None; $1 - $10,000;
$10,001 - $50,000; $50,001 - $100,000; and Over $100,000. The amounts listed
for "interested" Directors include shares owned through The Capital Group
Companies, Inc. retirement plan and 401(k) plan.
2 "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 affiliated entities (including the fund's principal
underwriter).

3 Ms. Applbaum was elected effective December 15, 2005. Her dollar range of fund
shares owned on December 31, 2005 was over $100,000.

DIRECTOR COMPENSATION -- Director compensation - No compensation is paid by the
fund to any officer or Director who is a director, officer or employee of the
investment adviser or its affiliates. The fund typically pays each Director who
is not an "interested person" within the meaning of the 1940 Act (a
"Non-interested Director") an annual fee of $20,000. If the aggregate annual
fees paid to a Non-interested Director by all funds advised by the investment
adviser is less than $50,000, that Non-interested Director would be eligible for
a $50,000 alternative fee. This alternative fee is paid by those funds for which
the Non-interested Director serves as a Director on a pro-rata basis according
to each fund's relative share of the annual fees that it would typically pay.
The alternative fee reflects the significant time and labor commitment required
for a Director to oversee even one fund. A Non-interested Director who is
chairman of the board (an "independent chair") also receives an additional
annual fee of $25,000, paid in equal portions by the fund and the funds whose
boards and committees typically meet jointly with those of the fund. The fund
pays to its independent chair an attendance fee (as described below) for each
meeting of a committee of the Board of Directors attended as a non-voting
ex-officio member.

In addition, the fund generally pays to Non-interested Directors fees of (a)
$2,500 for each Board of Directors meeting attended and (b) $1,500 for each
meeting attended as a member of a committee of the Board of Directors (or
$1,000 for each joint meeting of committees of the boards of American Balanced
Fund, Inc., Fundamental Investors, Inc., The Growth Fund of America, Inc. and
The Income Fund of America, Inc.).

The Income Fund of America -- Page 15
<PAGE>

Non-interested Directors also receive attendance fees of (a) $2,500 for each
director seminar or information session organized by the investment adviser, (b)
$1,500 for each joint audit committee meeting with all other audit committees of
funds advised by the investment adviser and (c) $500 for each meeting of the
board or committee chairs of other funds advised by the investment adviser. The
fund and the other funds served by each Non-interested Director each pay an
equal portion of these attendance fees.

The Nominating Committee of the Board of Directors, a Committee comprised
exclusively of Non-interested Directors, reviews Director compensation
periodically, and typically recommends adjustments every other year. In making
its recommendations, the Nominating Committee considers a number of factors,
including operational, regulatory and other developments affecting the
complexity of the Board's oversight obligations, as well as comparative industry
data.

No pension or retirement benefits are accrued as part of fund expenses. The
Non-interested 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 Non-interested Directors.

DIRECTOR COMPENSATION PAID DURING THE FISCAL YEAR ENDED JULY 31, 2005

TOTAL COMPENSATION (INCLUDING
AGGREGATE COMPENSATION VOLUNTARILY DEFERRED
(INCLUDING VOLUNTARILY COMPENSATION/1/)
DEFERRED COMPENSATION/1/) FROM ALL FUNDS MANAGED BY
NAME FROM THE FUND CAPITAL RESEARCH AND MANAGEMENT
------------------------------------------------------------------------------------------------ COMPANY OR ITS AFFILIATES/2/
------------------------------------

Robert A. Fox/3/ $45,358 $270,500
------------------------------------------------------------------------------------------------------------------------------------
Leonade D. Jones/3/ 44,499 236,000
------------------------------------------------------------------------------------------------------------------------------------
John M. Lillie 50,600 94,000
------------------------------------------------------------------------------------------------------------------------------------
John G. McDonald/3/ 43,250 333,500
------------------------------------------------------------------------------------------------------------------------------------
James K. Peterson 54,850 102,500
------------------------------------------------------------------------------------------------------------------------------------
Henry E. Riggs/3/ 40,000 148,000
------------------------------------------------------------------------------------------------------------------------------------
Isaac Stein 50,600 94,000
------------------------------------------------------------------------------------------------------------------------------------
Patricia K. Woolf/3/ 41,166 210,000
------------------------------------------------------------------------------------------------------------------------------------

1 Amounts may be deferred by eligible Directors under a nonqualified 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 American Funds
as designated by the Directors. Compensation for the fiscal year ended July 31,
2005, includes earnings on amounts deferred in previous fiscal years.
2 Capital Research and Management Company manages the American Funds, consisting
of 29 funds. Capital Research and Management Company also manages American
Funds Insurance Series,(R) which serves as the underlying investment vehicle
for certain variable insurance contracts, and Endowments, whose shareholders
are limited to certain nonprofit organizations.
3 Since the deferred compensation plan's adoption, the total amount of deferred
compensation accrued by the fund (plus earnings thereon) through the 2005
fiscal year for participating Directors is as follows: Robert A. Fox
($662,775), Leonade D. Jones ($116,355), John G. McDonald ($478,177), Henry E.
Riggs ($495,035) and Patricia K. Woolf ($151,338). Amounts deferred and
accumulated earnings thereon are not funded and are general unsecured
liabilities of the fund until paid to the Directors.

As of September 1, 2005, 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.

The Income Fund of America -- Page 16
<PAGE>

FUND ORGANIZATION AND THE BOARD OF DIRECTORS -- The fund, an open-end,
diversified management investment company, was organized as a Delaware
corporation on March 8, 1969 and reorganized as a Maryland corporation on
December 16, 1983. Although the Board of Directors has delegated day-to-day
oversight to the investment adviser, all fund operations are supervised by the
fund's Board, which meets periodically and performs duties required by
applicable state and federal laws.

Under Maryland law, the business affairs of a fund are managed under the
direction of the Board of Directors, and all powers of the fund are exercised by
or under the authority of the Board except as reserved to the shareholders by
law or the fund's charter or by-laws. Maryland law requires each Director to
perform his/her duties as a Director, including his/her duties as a member of
any Board committee on which he/she serves, in good faith, in a manner he/she
reasonably believes to be in the best interest of the fund, and with the care
that an ordinarily prudent person in a like position would use under similar
circumstances.

Members of the Board who are not employed by the investment adviser or its
affiliates are paid certain fees for services rendered to the fund as described
above. They may elect to defer all or a portion of these fees through a deferred
compensation plan in effect for the fund.

The fund has several different classes of shares, including Class A, B, C, F,
529-A, 529-B, 529-C, 529-E, 529-F, R-1, R-2, R-3, R-4 and R-5 shares. The 529
share classes are available only through CollegeAmerica/(R)/ to investors
establishing qualified higher education savings accounts. The R share classes
are generally available only to employer-sponsored retirement plans. Class R-5
shares are also available to clients of the Personal Investment Management group
of Capital Guardian Trust Company who do not have an intermediary associated
with their accounts and without regard to the $1 million purchase minimum.

Shares of each class represent an interest in the same investment portfolio.
Each class has pro rata rights as to voting, redemption, dividends and
liquidation, except that each class bears different distribution expenses and
may bear different transfer agent fees and other expenses properly attributable
to the particular class as approved by the Board of Directors and set forth in
the fund's rule 18f-3 Plan. Each class' shareholders have exclusive voting
rights with respect to the respective class' rule 12b-1 plans adopted in
connection with the distribution of shares and on other matters in which the
interests of one class are different from interests in another class. Shares of
all classes of the fund vote together on matters that affect all classes in
substantially the same manner. Each class votes as a class on matters that
affect that class alone. Note that CollegeAmerica account owners are not
shareholders of the fund and, accordingly, do not have the rights of a
shareholder, such as the right to vote proxies relating to fund shares. As the
legal owner of the fund's shares, the Virginia College Savings Plan/SM/ will
vote any proxies relating to fund shares.

The fund does not hold annual meetings of shareholders. However, significant
matters that require shareholder approval, such as certain elections of Board
members or a change in a fundamental investment policy, will be presented to
shareholders at a meeting called for such purpose. Shareholders have one vote
per share owned. At the request of the holders of at least 10% of the shares,
the fund will hold a meeting at which any member of the Board could be removed
by a majority vote.

The Income Fund of America -- Page 17
<PAGE>

The fund's Articles of Incorporation and by-laws as well as separate
indemnification agreements that the fund has entered into with Directors who are
not "interested persons" of the fund, provide in effect that, subject to certain
conditions, the fund will indemnify its officers and Directors against
liabilities or expenses actually and reasonably incurred by them relating to
their service to the fund. However, Directors are not protected from liability
by reason of their willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their office.

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

COMMITTEES OF THE BOARD OF DIRECTORS -- The fund has an Audit Committee
comprised of Robert A. Fox, Leonade D. Jones, John M. Lillie and Isaac Stein,
none of whom is an "interested person" of the fund within the meaning of the
1940 Act. The Committee provides oversight regarding the fund's accounting and
financial reporting policies and practices, its internal controls and the
internal controls of the fund's principal service providers. The Committee acts
as a liaison between the fund's independent registered public accounting firm
and the full Board of Directors. Five Audit Committee meetings were held during
the 2005 fiscal year.

The fund has a Governance and Contracts Committee comprised of Robert A. Fox,
Leonade D. Jones, John M. Lillie, John G. McDonald, James K. Peterson, Henry E.
Riggs, Isaac Stein and Patricia K. Woolf, none of whom is an "interested person"
of the fund within the meaning of the 1940 Act. The Committee's function is to
request, review and consider the information deemed necessary to evaluate the
terms of certain agreements between the fund and its investment adviser or the
investment adviser's affiliates, such as the Investment Advisory and Service
Agreement, Principal Underwriting Agreement, Administrative Services Agreement
and Plans of Distribution adopted pursuant to rule 12b-1 under the 1940 Act,
that the fund may enter into, renew or continue, and to make its recommendations
to the full Board of Directors on these matters. Two Governance and Contracts
Committee meetings were held during the 2005 fiscal year.

The fund has a Nominating Committee comprised of John M. Lillie, John G.
McDonald, Henry E. Riggs and Patricia K. Woolf, none of whom is an "interested
person" of the fund within the meaning of the 1940 Act. The Committee
periodically reviews such issues as the Board's composition, responsibilities,
committees, compensation and other relevant issues, and recommends any
appropriate changes to the full Board of Directors. The Committee also
evaluates, selects and nominates independent Director candidates to the full
Board of Directors. While the Committee normally is able to identify from its
own and other resources an ample number of qualified candidates, it will
consider shareholder suggestions of persons to be considered as nominees to fill
future vacancies on the Board. Such suggestions must be sent in writing to the
Nominating Committee of the fund, addressed to the fund's Secretary, and must be
accompanied by complete biographical and occupational data on the prospective
nominee, along

The Income Fund of America -- Page 18
<PAGE>

with a written consent of the prospective nominee for consideration of his or
her name by the Committee. Three Nominating Committee meetings were held during
the 2005 fiscal year.

The fund has a Proxy Committee comprised of Robert A. Fox, Leonade D. Jones,
John G. McDonald, James K. Peterson, Isaac Stein and Patricia K. Woolf, none of
whom is an "interested person" of the fund within the meaning of the 1940 Act.
The Committee's functions include establishing and reviewing procedures and
policies for voting proxies of companies held in the fund's portfolio, making
determinations with regard to certain contested proxy voting issues, and
discussing related current issues. Four Proxy Committee meetings were held
during the 2005 fiscal year.

PROXY VOTING PROCEDURES AND GUIDELINES -- The fund and its investment adviser
have adopted Proxy Voting Guidelines (the "Guidelines") with respect to voting
proxies of securities held by the fund, other American Funds and American Funds
Insurance Series. Certain American Funds, including the fund, have established
separate proxy committees that vote proxies or delegate to a voting officer the
authority to vote on behalf of those funds. Proxies for all other funds are
voted by a committee of the investment adviser under authority delegated by
those funds' Boards. Therefore, if more than one fund invests in the same
company, they may vote differently on the same proposal.

All U.S. proxies are voted. Non-U.S. proxies also are voted, provided there is
sufficient time and information available. After a proxy is received, the
investment adviser prepares a summary of the proposals in the proxy. A
discussion of any potential conflicts of interest is also included in the
summary. After reviewing the summary, one or more research analysts familiar
with the company and industry make a voting recommendation on the proxy
proposals. A second recommendation is made by a proxy coordinator (a senior
investment professional) based on the individual's knowledge of the Guidelines
and familiarity with proxy-related issues. The proxy summary and voting
recommendations are then sent to the appropriate proxy voting committee for the
final voting decision.

The analyst and proxy coordinator making voting recommendations are responsible
for noting any potential material conflicts of interest. One example might be
where a director of one or more American Funds is also a director of a company
whose proxy is being voted. In such instances, proxy committee members are
alerted to the potential conflict. The proxy committee may then elect to vote
the proxy or seek a third-party recommendation or vote of an ad hoc group of
committee members.

The Guidelines, which have been in effect in substantially their current form
for many years, provide an important framework for analysis and decision-making
by all funds. However, they are not exhaustive and do not address all potential
issues. The Guidelines provide a certain amount of flexibility so that all
relevant facts and circumstances can be considered in connection with every
vote. As a result, each proxy received is voted on a case-by-case basis
considering the specific circumstances of each proposal. The voting process
reflects the funds' understanding of the company's business, its management and
its relationship with shareholders over time.

Information regarding how the fund voted proxies relating to portfolio
securities during the 12-month period ended June 30 of each year, will be
available on or about September 1 of each year, (a) without charge, upon request
by calling American Funds Service Company at 800/421-0180 or (b) on the SEC's
website at www.sec.gov.

The Income Fund of America -- Page 19
<PAGE>

The following summary sets forth the general positions of the American Funds,
Endowments, American Funds Insurance Series and the investment adviser on
various proposals. A copy of the full Guidelines is available upon request, free
of charge, by calling American Funds Service Company at 800/421-0180 or visiting
the American Funds website.

DIRECTOR MATTERS -- The election of a company's slate of nominees for
director is generally supported. Votes may be withheld for some or all of
the nominees if this is determined to be in the best interest of
shareholders. Separation of the chairman and CEO positions may also be
supported. Typically, proposals to declassify the board (elect all
directors annually) are supported based on the belief that this increases
the directors' sense of accountability to shareholders.

SHAREHOLDER RIGHTS -- Proposals to repeal an existing poison pill, to
provide for confidential voting and to provide for cumulative voting are
usually supported. Proposals to eliminate the right of shareholders to act
by written consent or to take away a shareholder's right to call a special
meeting are not typically supported.

COMPENSATION AND BENEFIT PLANS -- Option plans are complicated, and many
factors are considered in evaluating a plan. Each plan is evaluated based
on protecting shareholder interests and a knowledge of the company and its
management. Considerations include the pricing (or repricing) of options
awarded under the plan and the impact of dilution on existing shareholders
from past and future equity awards. Compensation packages should be
structured to attract, motivate and retain existing employees and qualified
directors; however, they should not be excessive.

ROUTINE MATTERS -- The ratification of auditors, procedural matters
relating to the annual meeting and changes to company name are examples of
items considered routine. Such items are generally voted in favor of
management's recommendations unless circumstances indicate otherwise.

The following table identifies those investors who own of record or are known by
the fund to own beneficially 5% or more of any class of its shares as of the
opening of business on September 1, 2005. Unless otherwise indicated, the
ownership percentages below represent ownership of record rather than beneficial
ownership.

NAME AND ADDRESS OWNERSHIP PERCENTAGE
----------------------------------------------------------------------------

Edward D. Jones & Co. Class A 24.81%
201 Progress Parkway Class B 12.84
Maryland Hts, MO 63043-3009
----------------------------------------------------------------------------
MLPF&S Class B 9.98
4800 Deer Lake Dr. E. Fl. 2 Class C 19.55
Jacksonville, FL 32246-6484 Class R-3 5.26
----------------------------------------------------------------------------
Citigroup Global Markets, Inc. Class B 7.78
333 W. 34th St. Class C 13.89
New York, NY 10001-2402
----------------------------------------------------------------------------
Hartford Life Insurance Co. Class R-1 11.35
PO Box 2999 Class R-3 13.72
Hartford, CT 06104-2999
----------------------------------------------------------------------------
ING National Trust Class R-2 6.24
151 Farmington Ave. #TN41
Hartford, CT 06156-0001
----------------------------------------------------------------------------
ING Life Insurance & Annuity Class R-3 14.08
151 Farmington Ave. #TN41
Hartford, CT 06156-0001
----------------------------------------------------------------------------
Nationwide Trust Company Class R-3 8.23
PO Box 182029
Columbus, OH 43218-2029
----------------------------------------------------------------------------
Investors Bank & Trust Class R-4 10.75
4 Manhattanville Rd.
Purchase, NY 10577-2139
----------------------------------------------------------------------------
Amvescap Natl Trust Co. Class R-4 9.96
PO Box 105779
Atlanta, GA 30348-5779
----------------------------------------------------------------------------
Wells Fargo Bank NA Class R-4 5.34
PO Box 1533
Minneapolis, MN 55480-1533
----------------------------------------------------------------------------
CGTC Trust Class R-5 27.29
333 S. Hope Street FL 49
Los Angeles, CA 90071-1406
----------------------------------------------------------------------------
CGTC Agent Class R-5 15.62
50 W. Liberty St. Ste 980
Reno, NV 89501-1978
----------------------------------------------------------------------------
The Northern Trust Class R-5 11.48
PO Box 92994
Chicago, IL 60675-2994
----------------------------------------------------------------------------
AST Trust Company Class R-5 6.39
2390 E. Camelback Rd. Ste 240
Phoenix, AZ 85016-3434
----------------------------------------------------------------------------

The Income Fund of America -- Page 20
<PAGE>

INVESTMENT ADVISER -- Capital Research and Management Company, the investment
adviser, founded in 1931, maintains research facilities in the United States and
abroad (Los Angeles, San Francisco, New York, Washington, DC, London, Geneva,
Hong Kong, Singapore and Tokyo). These facilities are staffed with experienced
investment professionals. The investment adviser is located at 333 South Hope
Street, Los Angeles, CA 90071 and 135 South State College Boulevard, Brea, CA
92821. It is a wholly owned subsidiary of The Capital Group Companies, Inc., a
holding company for several investment management subsidiaries. The investment
adviser manages equity assets for the American Funds through two divisions.
These divisions generally function separately from each other with respect to
investment research activities and they make investment decisions for the funds
on a separate basis.

The Income Fund of America -- Page 21
<PAGE>

POTENTIAL CONFLICTS OF INTEREST -- The investment adviser has adopted policies
and procedures that address potential conflicts of interest that may arise
between a portfolio counselor's management of the fund and his or her management
of other funds and accounts, such as conflicts relating to the allocation of
investment opportunities, personal investing activities, portfolio counselor
compensation and proxy voting of portfolio securities. While there is no
guarantee that such policies and procedures will be effective in all cases, the
investment adviser believes that all issues relating to potential material
conflicts of interest involving the fund and its other managed funds and
accounts have been addressed.

COMPENSATION OF INVESTMENT PROFESSIONALS -- As described in the prospectus, the
investment adviser uses a system of multiple portfolio counselors in managing
fund assets. In addition, Capital Research and Management Company's investment
analysts may make investment decisions with respect to a portion of a fund's
portfolio within their research coverage. Portfolio counselors and investment
analysts may manage assets in other mutual funds advised by Capital Research and
Management Company. Portfolio counselors and investment analysts are paid
competitive salaries by Capital Research and Management Company. In addition,
they may receive bonuses based on their individual portfolio results. Investment
professionals also may participate in profit-sharing plans. The relative mix of
compensation represented by bonuses, salary and profit-sharing will vary
depending on the individual's portfolio results, contributions to the
organization and other factors. In order to encourage a long-term focus, bonuses
based on investment results are calculated by comparing pretax total returns to
relevant benchmarks over both the most recent year and a four-year rolling
average, with the greatest weight placed on the four-year rolling average. For
portfolio counselors, benchmarks may include measures of the marketplaces in
which the relevant fund invests and measures of the results of comparable mutual
funds. For investment analysts, benchmarks may include relevant market measures
and appropriate industry or sector indexes reflecting their areas of expertise.
Capital Research and Management Company also separately compensates analysts for
the quality of their research efforts. The benchmarks against which The Income
Fund of America portfolio counselors are measured include: Lipper Income Funds
Index (adjusted), Credit Suisse First Boston High Yield Bond Index, Lipper High
Current Yield Bond Funds Average and Lehman Brothers Aggregate Bond Index.

PORTFOLIO COUNSELOR FUND HOLDINGS AND OTHER MANAGED ACCOUNTS -- As described
below, portfolio counselors may personally own shares of the fund. In addition,
portfolio counselors may manage a portion of other mutual funds or accounts
advised by Capital Research and Management Company or its affiliates.

The Income Fund of America -- Page 22
<PAGE>

THE FOLLOWING TABLE REFLECTS INFORMATION AS OF JULY 31, 2005:

NUMBER NUMBER
OF OTHER OF OTHER NUMBER
REGISTERED POOLED OF OTHER
INVESTMENT INVESTMENT ACCOUNTS
COMPANIES (RICS) VEHICLES (PIVS) THAT
THAT THAT PORTFOLIO
PORTFOLIO PORTFOLIO COUNSELOR
DOLLAR RANGE COUNSELOR COUNSELOR MANAGES
OF FUND MANAGES MANAGES (ASSETS OF
PORTFOLIO SHARES (ASSETS OF RICS (ASSETS OF PIVS OTHER ACCOUNTS
COUNSELOR OWNED/1/ IN BILLIONS)/2/ IN BILLIONS) IN BILLIONS)/3/
--------------------------------------------------------------------------------------------

Stephen E. Bepler $100,001 -- 3 $180.3/4/ 1 $0.03/5/ None
$500,000
--------------------------------------------------------------------------------------------
Hilda L. Applbaum $100,001 -- 1 $50.7/4/ None None
$500,000
--------------------------------------------------------------------------------------------
Abner D. $500,001 -- 5 $145.6/4/ None None
Goldstine $1,000,000
--------------------------------------------------------------------------------------------
Dina N. Perry $50,001 -- 3 $144.7/4/ 1 $0.20/6/ None
$100,000
--------------------------------------------------------------------------------------------
David C. Barclay $100,001 -- 4 $99.3/4/ 5 $1.13/7/ 14 $3.35/7/
$500,000
--------------------------------------------------------------------------------------------
Mark R. Macdonald $100,001 -- 4 $187.9/4/ None None
$500,000
--------------------------------------------------------------------------------------------
John H. Smet $50,001 -- 6 $143.2/4/ None 3 $1.97/7/
$100,000
--------------------------------------------------------------------------------------------
Andrew B. Suzman Over None None None
$1,000,000
--------------------------------------------------------------------------------------------
Steven T. Watson $100,001 -- 3 $158.8/4/ None None
$500,000
--------------------------------------------------------------------------------------------

1 Ownership disclosure is made using the following ranges: None; $1 - $10,000;
$10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000; $500,001 -
$1,000,000; and Over $1,000,000. The amounts listed include shares owned
through The Capital Group Companies, Inc. retirement plan and 401(k) plan.
2 Indicates fund(s) where the portfolio counselor also has significant
responsibilities for the day to day management of the fund(s).
3 Reflects other professionally managed accounts held at companies affiliated
with Capital Research and Management Company. Personal brokerage accounts of
portfolio counselors and their families are not reflected.
4 Assets noted are the total net assets of the registered investment companies
and are not indicative of the total assets managed by the individual, which is
a substantially lower amount.
5 Represents a fund advised by Capital Research and Management Company and sold
in Europe. Assets noted are the total net assets of the fund and are not
indicative of the total assets managed by the individual, which is a
substantially lower amount.
6 Represents a fund sub-advised by Capital Research and Management Company and
sold in Canada. Assets noted are the total net assets of the fund and are not
indicative of the total assets managed by the individual, which is a
substantially lower amount.
7 Represents fixed-income assets in institutional accounts managed by investment
adviser subsidiaries of Capital Group International, Inc., an affiliate of
Capital Research and Management Company. Assets noted are the total net assets
of the fund and are not indicative of the total assets managed by the
individual, which is a substantially lower amount.

The Income Fund of America -- Page 23
<PAGE>

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, 2006, 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 (a) 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 (b) 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 that the Agreement
automatically terminates in the event of its assignment (as defined in the 1940
Act).

In considering the renewal of the Agreement each year, the Governance and
Contracts Committee of the Board of Directors evaluates information provided by
the investment adviser in accordance with Section 15(c) of the 1940 Act and
presents its recommendations to the full Board of Directors.

In approving the renewal of the Agreement for the current period, the Committee
considered a wide variety of factors, including, among others, the very good
relative investment results of the fund; the relatively low advisory fees and
overall expenses of the fund; how economies of scale are considered in
determining the investment advisory fee rates at different net asset levels; the
quality and depth of experience of the investment adviser and its personnel; and
the profitability of the investment adviser. Based on their review, the
Committee and the Board concluded that the advisory fees and expenses of the
fund are fair, both absolutely and in comparison with those of other funds in
the industry, and that shareholders have received reasonable value in return for
paying fees and expenses.

In addition to providing investment advisory services, the investment adviser
furnishes the services and pays the compensation and travel expenses of persons
to perform the fund's executive, administrative, clerical and bookkeeping
functions, and provides suitable office space, necessary small office equipment
and utilities, general purpose accounting forms, supplies and postage used at
the fund's offices. 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; shareholder recordkeeping and administrative
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 fund shares (including stock certificates,
registration and qualification fees and expenses); expenses pursuant to the
fund's plans of distribution (described below); legal and auditing expenses;
compensation, fees and expenses paid to Directors unaffiliated with the
investment adviser; association dues; costs of stationery and forms prepared
exclusively for the fund; and costs of assembling and storing shareholder
account data.

The management fee is based upon the daily net assets of the fund and monthly
gross investment income. Gross investment income is determined in accordance
with generally accepted accounting principles and does not include gains or
losses from sales of capital assets.

The Income Fund of America -- Page 24
<PAGE>

The management fee is based upon the annual rates of 0.25% on the first $500
million of the fund's daily net assets, 0.23% on daily net assets in excess of
$500 million but not exceeding $1 billion, 0.21% on daily net assets in excess
of $1 billion but not exceeding $1.5 billion, 0.19% on daily net assets in
excess of $1.5 billion but not exceeding $2.5 billion, 0.17% on daily net assets
in excess of $2.5 billion but not exceeding $4 billion, 0.16% on daily net
assets in excess of $4 billion but not exceeding $6.5 billion, 0.15% on daily
net assets in excess of $6.5 billion but not exceeding $10.5 billion, 0.144% on
daily net assets in excess of $10.5 billion but not exceeding $13 billion,
0.141% on daily net assets in excess of $13 billion but not exceeding $17
billion, 0.138% on daily net assets in excess of $17 billion but not exceeding
$21 billion, 0.135% on daily net assets in excess of $21 billion but not
exceeding $27 billion, 0.133% on daily net assets in excess of $27 billion but
not exceeding $34 billion, 0.131% on daily net assets in excess of $34 billion
but not exceeding $44 billion, 0.129% on daily net assets in excess of $44
billion but not exceeding $55 billion, 0.127% on daily net assets in excess of
$55 billion but not exceeding $71 billion, and 0.125% on daily net assets in
excess of $71 billion plus 2.25% of the fund's gross investment income for the
preceding month. Assuming net assets of $60 billion and gross investment income
levels of 3%, 4%, 5%, 6%, 7% and 8%, management fees would be 0.21%, 0.23%,
0.25%, 0.27%, 0.30% and 0.32% of net assets, respectively.

The Agreement provides for a management fee reduction to the extent that the
annual ordinary operating expenses of the fund's Class A shares exceed 1 1/2% of
the first $30 million of the net assets of the fund and 1% of the average net
assets in excess thereof.

Expenses which are not subject to these limitations are interest, taxes and
extraordinary expenses. Expenditures, including costs incurred in connection
with the purchase or sale of portfolio securities, which are capitalized in
accordance with generally accepted accounting principles applicable to
investment companies, are accounted for as capital items and not as expenses. To
the extent the fund's management fee must be waived due to Class A share expense
ratios exceeding the expense limitations described above, management fees will
be reduced similarly for all classes of shares of the fund, or other Class A
fees will be waived in lieu of management fees.

For the fiscal year ended July 31, 2005, the investment adviser was entitled to
receive from the fund management fees of $131,860,000. As a result of the
management fee waiver described below, for the year ended July 31, 2005, the fee
shown on the accompanying financial statements of $131,860,000 was reduced by
$8,405,000 to $123,455,000. For the fiscal years ended July 31, 2004 and 2003,
management fees paid by the fund amounted to $97,491,000 and $68,125,000,
respectively.

For the period from September 1, 2004 through March 31, 2005, the investment
adviser agreed to waive 5% of the management fees that it was otherwise entitled
to receive under the Agreement. Beginning April 1, 2005, this waiver increased
to 10% of the management fees that it is otherwise entitled to receive and will
continue at this level until further review. As a result of this waiver,
management fees will be reduced similarly for all classes of shares of the fund.

ADMINISTRATIVE SERVICES AGREEMENT -- The Administrative Services Agreement (the
"Administrative Agreement") between the fund and the investment adviser relating
to the fund's Class C, F, R and 529 shares will continue in effect until
December 31, 2006, 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 the vote of a majority of Directors who are not parties to
the Administrative Agreement or interested persons (as defined in the 1940 Act)
of any

The Income Fund of America -- Page 25
<PAGE>

such party, cast in person at a meeting called for the purpose of voting on such
approval. The fund may terminate the Administrative Agreement at any time by
vote of a majority of Directors who are not interested persons of the fund. The
investment adviser has the right to terminate the Administrative Agreement upon
60 days' written notice to the fund. The Administrative Agreement automatically
terminates in the event of its assignment (as defined in the 1940 Act).

Under the Administrative Agreement, the investment adviser provides certain
transfer agent and administrative services for shareholders of the fund's Class
C and F shares, and all Class R and 529 shares. The investment adviser contracts
with third parties, including American Funds Service Company, the fund's
Transfer Agent, to provide these services. Services include, but are not limited
to, shareholder account maintenance, transaction processing, tax information
reporting and shareholder and fund communications. In addition, the investment
adviser monitors, coordinates and oversees the activities performed by third
parties providing such services. For Class R-1, R-2 and R-3 shares, the
investment adviser has agreed to pay a portion of the fees payable under the
Administrative Agreement that would otherwise have been paid by the fund. For
the year ended July 31, 2005, the total fees paid by the investment adviser were
$310,000.

As compensation for its services, the investment adviser receives transfer agent
fees for transfer agent services provided to the fund's applicable share
classes. Transfer agent fees are paid monthly according to a fee schedule
contained in a Shareholder Services Agreement between the fund and American
Funds Service Company. The investment adviser also receives an administrative
services fee for administrative services provided to the fund's applicable share
classes. Administrative services fees are paid monthly, accrued daily and
calculated at the annual rate of up to 0.15% of the average daily net assets for
each applicable share class, except Class R-5 shares. For Class R-5 shares, the
administrative services fee is paid monthly, accrued daily and calculated at the
annual rate of up to 0.10% of the average daily net assets of Class R-5 shares.

During the 2005 fiscal year, administrative services fees, gross of any payments
made by the investment adviser, were:

ADMINISTRATIVE SERVICES FEE
------------------------------------------------------------------------------

CLASS C $7,826,000
------------------------------------------------------------------------------
CLASS F 2,034,000
------------------------------------------------------------------------------
CLASS 529-A 398,000
------------------------------------------------------------------------------
CLASS 529-B 114,000
------------------------------------------------------------------------------
CLASS 529-C 210,000
------------------------------------------------------------------------------
CLASS 529-E 21,000
------------------------------------------------------------------------------
CLASS 529-F 6,000
------------------------------------------------------------------------------
CLASS R-1 29,000
------------------------------------------------------------------------------
CLASS R-2 1,159,000
------------------------------------------------------------------------------
CLASS R-3 583,000
------------------------------------------------------------------------------
CLASS R-4 112,000
------------------------------------------------------------------------------
CLASS R-5 68,000
------------------------------------------------------------------------------

The Income Fund of America -- Page 26
<PAGE>

PRINCIPAL UNDERWRITER AND PLANS OF DISTRIBUTION -- 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 Principal Underwriter receives revenues from sales of the fund's shares. For
Class A and 529-A shares, the Principal Underwriter receives commission revenue
consisting of that portion of the Class A and 529-A sales charge remaining after
the allowances by the Principal Underwriter to investment dealers. For Class B
and 529-B shares, the Principal Underwriter sells the rights to the 12b-1 fees
paid by the fund for distribution expenses to a third party and receives the
revenue remaining after compensating investment dealers for sales of Class B and
529-B shares. The fund also pays the Principal Underwriter for advancing the
immediate service fees paid to qualified dealers of Class B and 529-B shares.
For Class C and 529-C shares, the Principal Underwriter receives any contingent
deferred sales charges that apply during the first year after purchase. The fund
pays the Principal Underwriter for advancing the immediate service fees and
commissions paid to qualified dealers of Class C and 529-C shares. For Class
529-E shares, the fund pays the Principal Underwriter for advancing the
immediate service fees and commissions paid to qualified dealers. For Class F
and 529-F shares, the fund pays the Principal Underwriter for advancing the
immediate service fees paid to qualified dealers and advisers who sell Class F
and 529-F shares. For Class R-1, R-2, R-3 and R-4 shares, the fund pays the
Principal Underwriter for advancing the immediate service fees paid to qualified
dealers and advisers who sell Class R-1, R-2, R-3 and R-4 shares.

Commissions, revenue or service fees retained by the Principal Underwriter after
allowances or compensation to dealers were:

COMMISSIONS, ALLOWANCE OR
REVENUE COMPENSATION
FISCAL YEAR/PERIOD OR FEES RETAINED TO DEALERS
-----------------------------------------------------------------------------------------------------

CLASS A 2005 $42,979,000 $188,156,000
2004 42,380,000 188,732,000
2003 28,544,000 132,618,000
-----------------------------------------------------------------------------------------------------
CLASS B 2005 3,899,000 26,188,000
2004 5,811,000 39,893,000
2003 6,668,000 43,506,000
-----------------------------------------------------------------------------------------------------
CLASS C 2005 934,000 17,670,000
2004 -- 18,410,000
2003 -- 11,576,000
-----------------------------------------------------------------------------------------------------
CLASS 529-A 2005 648,000 3,012,000
2004 551,000 2,583,000
2003 376,000 1,805,000
-----------------------------------------------------------------------------------------------------
CLASS 529-B 2005 104,000 620,000
2004 138,000 757,000
2003 121,000 751,000
-----------------------------------------------------------------------------------------------------
CLASS 529-C 2005 -- 475,000
2004 -- 447,000
2003 -- 281,000
-----------------------------------------------------------------------------------------------------

The Income Fund of America -- Page 27
<PAGE>

The fund has adopted plans of distribution (the "Plans") pursuant to rule 12b-1
under the 1940 Act. The Principal Underwriter receives amounts payable pursuant
to the Plans (see below). As required by rule 12b-1 and the 1940 Act, the Plans
(together with the Principal Underwriting Agreement) have been approved by the
full Board of Directors and separately by a majority of the Directors who are
not "interested persons" of the fund and who have no direct or indirect
financial interest in the operation of the Plans or the Principal Underwriting
Agreement. Potential benefits of the Plans to the fund include quality
shareholder services; savings to the fund in transfer agency costs; benefits to
the investment process from growth or stability of assets; and maintenance of a
financially healthy management organization. The selection and nomination of
Directors who are not "interested persons" of the fund are committed to the
discretion of the Directors who are not "interested persons" during the
existence of the Plans. The Plans may not be amended to increase materially the
amount spent for distribution without shareholder approval. Plan expenses are
reviewed quarterly and the Plans must be renewed annually by the Board of
Directors.

Under the Plans, the fund may annually expend the following amounts to finance
any activity 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: (a) for Class A shares, up to 0.25% of the average daily
net assets attributable to Class A shares; (b) for Class 529-A shares, up to
0.50% of the average daily net assets attributable to Class 529-A shares; (c)
for Class B and 529-B shares, 1.00% of the average daily net assets attributable
to Class B and 529-B shares, respectively; (d) for Class C and 529-C shares, up
to 1.00% of the average daily net assets attributable to Class C and 529-C
shares, respectively; (e) for Class 529-E shares, up to 0.75% of the average
daily net assets attributable to Class 529-E shares; (f) for Class F and 529-F
shares, up to 0.50% of the average daily net assets attributable to Class F and
529-F shares; (g) for Class R-1 shares, up to 1.00% of the average daily net
assets attributable to Class R-1 shares; (h) for Class R-2 shares, up to 1.00%
of the average daily net assets attributable to Class

The Income Fund of America -- Page 28
<PAGE>

R-2 shares; (i) for Class R-3 shares, up to 0.75% of the average daily net
assets attributable to Class R-3 shares; and (j) for Class R-4 shares, up to
0.50% of the average daily net assets attributable to Class R-4 shares. The fund
has not adopted a Plan for Class R-5 shares; accordingly, no 12b-1 fees are paid
from Class R-5 share assets.

For Class A and 529-A shares: (a) up to 0.25% is reimbursed to the Principal
Underwriter for paying service-related expenses, including paying service fees
to qualified dealers, and (b) up to the amount allowable under the fund's Class
A and 529-A 12b-1 limit is reimbursed to the Principal Underwriter for paying
distribution-related expenses, including for Class A and 529-A shares dealer
commissions and wholesaler compensation paid on sales of shares of $1 million or
more purchased without a sales charge (including purchases by employer-sponsored
defined contribution-type retirement plans investing $1 million or more or with
100 or more eligible employees, and retirement plans, endowments and foundations
with $50 million or more in assets -- "no load purchases"). Commissions on no
load purchases of Class A and 529-A shares, in excess of the Class A and 529-A
plan limitations not reimbursed to the Principal Underwriter during the most
recent fiscal quarter are recoverable for five quarters, provided that such
commissions do not exceed the annual expense limit. After five quarters, these
commissions are not recoverable. As of July 31, 2005, there were no unreimbursed
expenses subject to reimbursement under the Plan for Class A or 529-A shares.

For Class B and 529-B shares: (a) up to 0.25% is paid to the Principal
Underwriter for paying service-related expenses, including paying service fees
to qualified dealers, and (b) 0.75% is paid to the Principal Underwriter for
distribution-related expenses, including the financing of commissions paid to
qualified dealers.

For Class C and 529-C shares: (a) up to 0.25% is paid to the Principal
Underwriter for paying service-related expenses, including paying service fees
to qualified dealers, and (b) up to 0.75% is paid to the Principal Underwriter
for paying distribution-related expenses, including commissions paid to
qualified dealers.

For Class 529-E shares: currently (a) up to 0.25% is paid to the Principal
Underwriter for paying service-related expenses, including paying service fees
to qualified dealers, and (b) up to 0.25% is paid to the Principal Underwriter
for paying distribution-related expenses, including commissions paid to
qualified dealers.

For Class F and 529-F shares: currently up to 0.25% is paid to the Principal
Underwriter for paying service-related expenses, including paying service fees
to qualified dealers or advisers.

For Class R-1 shares: (a) up to 0.25% is paid to the Principal Underwriter for
paying service-related expenses, including paying service fees to qualified
dealers, and (b) up to 0.75% is paid to the Principal Underwriter for
distribution-related expenses, including commissions paid to qualified dealers.

For Class R-2 shares: currently (a) up to 0.25% is paid to the Principal
Underwriter for paying service-related expenses, including paying service fees
to qualified dealers, and (b) up to 0.50% is paid to the Principal Underwriter
for paying distribution-related expenses, including commissions paid to
qualified dealers.

For Class R-3 shares: currently (a) up to 0.25% is paid to the Principal
Underwriter for paying service-related expenses, including paying service fees
to qualified dealers, and (b) up to 0.25%

The Income Fund of America -- Page 29
<PAGE>

is paid to the Principal Underwriter for paying distribution-related expenses,
including commissions paid to qualified dealers.

For Class R-4 shares: currently up to 0.25% is paid to the Principal Underwriter
for paying service-related expenses, including paying service fees to qualified
dealers or advisers.

During the 2005 fiscal year, 12b-1 expenses accrued and paid, and if applicable,
unpaid, were:

12B-1 LIABILITY
12B-1 EXPENSES OUTSTANDING
------------------------------------------------------------------------------

CLASS A $93,555,000 $11,305,000
------------------------------------------------------------------------------
CLASS B 37,442,000 4,298,000
------------------------------------------------------------------------------
CLASS C 48,394,000 8,792,000
------------------------------------------------------------------------------
CLASS F 3,277,000 645,000
------------------------------------------------------------------------------
CLASS 529-A 456,000 68,000
------------------------------------------------------------------------------
CLASS 529-B 631,000 79,000
------------------------------------------------------------------------------
CLASS 529-C 1,237,000 245,000
------------------------------------------------------------------------------
CLASS 529-E 69,000 13,000
------------------------------------------------------------------------------
CLASS 529-F 7,000 0
------------------------------------------------------------------------------
CLASS R-1 123,000 30,000
------------------------------------------------------------------------------
CLASS R-2 1,534,000 310,000
------------------------------------------------------------------------------
CLASS R-3 1,403,000 297,000
------------------------------------------------------------------------------
CLASS R-4 172,000 43,000
------------------------------------------------------------------------------

OTHER COMPENSATION TO DEALERS -- As of January 2005, the top dealers that
American Funds Distributors anticipates will receive additional compensation (as
described in the prospectus) include:

1717 Capital Management Company
A. G. Edwards & Sons, Inc.
AIG Advisors Group
American General Securities Inc.
Ameritas Investment Corp.
AXA Advisors, LLC
Cadaret, Grant & Co., Inc.
Cambridge Investment Research, Inc.
Capital Analysts, Inc.
Commonwealth Financial Network
Cuna Brokerage Services, Inc.
Deutsche Bank Securities Inc.
Edward Jones
Ferris, Baker Watts, Inc.

The Income Fund of America -- Page 30
<PAGE>

Hefren-Tillotson, Inc.
Hornor, Townsend & Kent, Inc.
ING Advisors Network Inc.
InterSecurities, Inc./Transamerica Financial Advisors, Inc.
Investacorp, Inc.
Janney Montgomery Scott LLC
Jefferson Pilot Securities Corporation
JJB Hilliard, WL Lyons, Inc./PNC Bank
Legg Mason Wood Walker, Inc.
Lincoln Financial Advisors Corporation
Linsco/Private Ledger Corp.
McDonald Investments Inc./Society National Bank
Merrill Lynch, Pierce, Fenner & Smith Inc.
Metlife Enterprises
MML Investors Services, Inc.
Morgan Keegan & Company, Inc.
NatCity Investment, Inc.
National Planning Holdings Inc.
NFP Securities, Inc.
Northwestern Mutual Investment Services, LLC.
Pacific Select Distributors Inc.
Park Avenue Securities LLC
Piper Jaffray & Co.
Princor Financial Services/PPI Employee Benefits
ProEquities, Inc.
Raymond James Financial Services/Raymond James & Associates
RBC Dain Rauscher Inc.
Robert W. Baird & Co. Inc.
Securian Financial Services/C.R.I. Securities Inc.
Securities Service Network Inc.
Signator Investors, Inc.
Smith Barney
Stifel, Nicolaus & Company, Inc.
Terra Securities Corporation
The O.N. Equity Sales Company
UBS Financial Services Inc.
US Bancorp Investments, Inc.
Wachovia Securities
WS Griffith Securities, Inc.

EXECUTION OF PORTFOLIO TRANSACTIONS

As described in the prospectus, the investment adviser places orders with
broker-dealers for the fund's portfolio transactions. 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. When such concurrent authorizations occur, the objective is to allocate
the executions in an equitable manner.

The Income Fund of America -- Page 31
<PAGE>

Brokerage commissions paid on portfolio transactions, including investment
dealer concessions on underwritings, if applicable, for the fiscal years ended
July 31, 2005, 2004 and 2003 amounted to $45,510,000, $38,953,000 and
$40,825,000, respectively. With respect to fixed-income securities, brokerage
commissions include explicit investment dealer concessions and may exclude other
transaction costs which may be reflected in the spread between the bid and asked
price.

The fund is required to disclose information regarding investments in the
securities of its "regular" broker-dealers (or parent companies of its regular
broker-dealers) that derive more than 15% of their revenue from broker-dealer,
underwriter or investment adviser activities. A regular broker-dealer is (a) one
of the 10 broker-dealers that received from the fund the largest amount of
brokerage commissions by participating, directly or indirectly, in the fund's
portfolio transactions during the fund's most recent fiscal year; (b) one of the
10 broker-dealers that engaged as principal in the largest dollar amount of
portfolio transactions of the fund during the fund's most recent fiscal year; or
(c) one of the 10 broker-dealers that sold the largest amount of securities of
the fund during the fund's most recent fiscal year.

At the end of the fund's most recent fiscal year, the fund's regular
broker-dealers included Bank of America Securities, LLC, Barclays Bank PLC,
Citigroup Global Markets Inc., Credit Suisse First Boston Corp., First Cleaning
LLC and J.P. Morgan Securities. As of the fund's most recent fiscal year-end,
the fund held equity securities of Bank of America Corp. in the amount of
$490,742,000; Citigroup Inc. in the amount of $560,497,000; J.P. Morgan Chase &
Co. in the amount of $419,923,000 and Wachovia Corporation in the amount of
$214,115,000. As of that date the fund held debt securities of Bank of America
Corp. in the amount of $159,465,000; Barclays Bank PLC in the amount of
$6,953,000; Citigroup Inc. in the amount of $10,004,000; Credit Suisse First
Boston (USA) Inc. in the amount of $5,016,000 and J.P. Morgan Chase & Co. in the
amount of $27,921,000.

DISCLOSURE OF PORTFOLIO HOLDINGS

The fund's investment adviser, on behalf of the fund, has adopted policies and
procedures with respect to the disclosure of information about fund portfolio
securities. These policies and procedures have been reviewed by the fund's Board
of Directors and compliance will be periodically assessed by the Board in
connection with reporting from the fund's Chief Compliance Officer.

Under these policies and procedures, the fund's complete list of portfolio
holdings available for public disclosure, dated as of the end of each calendar
quarter, is permitted to be posted on the American Funds website no earlier than
the tenth day after such calendar quarter. In addition, the fund's list of top
10 equity portfolio holdings measured by percentage of net assets invested,
dated as of the end of each calendar month, is permitted to be posted on the
American Funds website no earlier than the tenth day after such month. Such
portfolio holdings information may then be disclosed to any person pursuant to
an ongoing arrangement to disclose portfolio holdings information to such person
no earlier than one day after the day on which the information is posted on the
American Funds website. Affiliates of the fund (including the fund's Board
members and officers, and certain personnel of the fund's investment adviser and
its affiliates) and certain service providers (such as the fund's custodian and
outside counsel) who require portfolio holdings information for legitimate
business and fund oversight purposes may receive the information earlier.

The Income Fund of America -- Page 32
<PAGE>

Affiliated persons of the fund as described above who receive portfolio holdings
information are subject to restrictions and limitations on the use and handling
of such information pursuant to applicable codes of ethics, including
requirements to maintain the confidentiality of such information, preclear
securities trades and report securities transactions activity, as applicable.
Third party service providers of the fund receiving such information are subject
to confidentiality obligations. When portfolio holdings information is disclosed
other than through the American Funds website to persons not affiliated with the
fund (which, as described above, would typically occur no earlier than one day
after the day on which the information is posted on the American Funds website),
such persons may be bound by agreements (including confidentiality agreements)
that restrict and limit their use of the information to legitimate business uses
only. Neither the fund nor its investment adviser or any affiliate thereof
receives compensation or other consideration in connection with the disclosure
of information about portfolio securities.

Subject to board policies, the authority to disclose a fund's portfolio
holdings, and to establish policies with respect to such disclosure, resides
with the appropriate investment-related committees of the fund's investment
adviser. In exercising their authority, the committees determine whether
disclosure of information about the fund's portfolio securities is
appropriate and in the best interest of fund shareholders. The investment
adviser has implemented policies and procedures to address conflicts of
interest that may arise from the disclosure of fund holdings. For example,
the investment adviser's code of ethics specifically requires, among other
things, the safeguarding of information about fund holdings and contains
prohibitions designed to prevent the personal use of confidential,
proprietary investment information in a way that would conflict with fund
transactions. In addition, the investment adviser believes that its
current policy of not selling portfolio holdings information and not
disclosing such information to unaffiliated third parties until such
holdings have been made public on the American Funds website (other than
to certain fund service providers for legitimate business and fund
oversight purposes) helps reduce potential conflicts of interest between
fund shareholders and the investment adviser and its affiliates.

PRICE OF SHARES

Shares are purchased at the offering price or sold at the net asset value price
next determined after the purchase or sell order is received and accepted by the
fund or the Transfer Agent; the offering or net asset value 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 or their authorized designees,
accepted by the Principal Underwriter, the Transfer Agent, a dealer or any of
their designees. 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 and sell orders to the Principal Underwriter.

Orders received by the investment dealer or authorized designee, 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. Note that investment
dealers or other intermediaries may have their own rules about share
transactions and may have earlier cut-off times than those of the fund. For more
information about how to purchase through your intermediary, contact your
intermediary directly.

Prices that appear in the newspaper do not always indicate prices at which you
will be purchasing and redeeming shares of the fund, since such prices generally
reflect the previous day's closing price, while purchases and redemptions are
made at the next calculated price. The price you pay for shares, the offering
price, is based on the net asset value per share, which is

The Income Fund of America -- Page 33
<PAGE>

calculated once daily as of approximately 4:00 p.m. New York time, which is the
normal close of trading on the New York Stock Exchange, each day the Exchange is
open. If, for example, the Exchange closes at 1:00 p.m., the fund's share price
would still be determined as of 4:00 p.m. New York time. The New York Stock
Exchange is currently closed on weekends and on the following holidays: New
Year's Day; Martin Luther King, Jr. Day; Presidents' Day; Good Friday; Memorial
Day; Independence Day; Labor Day; Thanksgiving; and Christmas Day. Each share
class of the fund has a separately calculated net asset value (and share price).

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

1. Equity securities, including depositary receipts, are valued at the
official closing price of, or 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. Prices for each security are taken from the principal exchange or
market in which the security trades. Fixed-income securities are valued at
prices obtained from an independent 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 bid prices, if asked prices are not available) or at prices for
securities of comparable maturity, quality and type. The pricing services base
bond prices on, among other things, an evaluation of the yield curve as of
approximately 3:00 p.m. New York time. The fund's investment adviser performs
certain checks on these prices prior to the fund's net asset value being
calculated.

Securities with both fixed-income and equity characteristics (e.g., convertible
bonds, preferred stocks, units comprised of more than one type of security,
etc.), or equity securities traded principally among fixed-income dealers, are
valued in the manner described above for either equity or fixed-income
securities, depending on which method is deemed most appropriate by the
investment adviser.

Securities with original maturities of one year or less having 60 days or less
to maturity are amortized to maturity based on their cost if acquired within 60
days of maturity, or if already held on the 60th day, based on the value
determined on the 61st day. Forward currency contracts are valued at the mean of
representative quoted bid and asked prices.

Assets or liabilities initially expressed in terms of 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 market quotations are not readily available or
are considered unreliable are valued at fair value as determined in good faith
under policies approved by the fund's Board. Subject to Board oversight, the
fund's Board has delegated the obligation to make fair valuation determinations
to a Valuation Committee established by the fund's investment adviser. The Board
receives regular reports describing fair-valued securities and the valuation
methods used.

The Income Fund of America -- Page 34
<PAGE>

The Valuation Committee has adopted guidelines and procedures (consistent with
SEC rules and guidance) to ensure that certain basic principles and factors are
considered when making all fair value determinations. As a general principle,
securities lacking readily available market quotations, or that have quotations
that are considered unreliable, are valued in good faith by the Valuation
Committee based upon what the fund might reasonably expect to receive upon their
current sale. The Valuation Committee considers all indications of value
available to it in determining the fair value to be assigned to a particular
security, including, without limitation, the type and cost of the security,
contractual or legal restrictions on resale of the security, relevant financial
or business developments of the issuer, actively traded similar or related
securities, conversion or exchange rights on the security, related corporate
actions, significant events occurring after the close of trading in the security
and changes in overall market conditions.

2. Each class of shares represents interests in the same portfolio of
investments and is identical in all respects to each other class, except for
differences relating to distribution, service and other charges and expenses,
certain voting rights, differences relating to eligible investors, the
designation of each class of shares, conversion features and exchange
privileges. Expenses attributable to the fund, but not to a particular class of
shares, are borne by each class pro rata based on relative aggregate net assets
of the classes. Expenses directly attributable to a class of shares are borne by
that class of shares. Liabilities, including accruals of taxes and other expense
items attributable to particular share classes, are deducted from total assets
attributable to such share classes.

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

TAXES AND DISTRIBUTIONS

FUND TAXATION -- The fund has elected to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code (the "Code"). A
regulated investment company qualifying under Subchapter M of the Code is
required to distribute to its shareholders at least 90% of its investment
company taxable income (including the excess of net short-term capital gain over
net long-term capital losses) and generally is not subject to federal income tax
to the extent that it distributes annually 100% of its investment company
taxable income and net realized capital gains in the manner required under the
Code. The fund intends to distribute annually all of its investment company
taxable income and net realized capital gains and therefore does not expect to
pay federal income tax, although in certain circumstances, the fund may
determine that it is in the interest of shareholders to distribute less than
that amount.

To be treated as a regulated investment company under Subchapter M of the Code,
the fund must also (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, net income from certain
publicly traded partnerships and gains from the sale or other disposition of
securities or foreign currencies, or other income (including, but not limited
to, gains from options, futures or forward contracts) derived with respect to
the business of investing in such securities or currencies, and (b) diversify
its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of the fund's assets is represented by cash, U.S. government
securities and securities of other regulated investment companies, and other
securities (for purposes of this calculation, generally limited in respect of
any one issuer, to an amount not greater than 5% of the market value of the
fund's assets and 10% of the outstanding voting securities of such issuer) and
(ii) not more than 25% of the value of its assets is invested in

The Income Fund of America -- Page 35
<PAGE>

the securities of (other than U.S. government securities or the securities of
other regulated investment companies) any one issuer; two or more issuers which
the fund controls and which are determined to be engaged in the same or similar
trades or businesses; or the securities of certain publicly traded partnerships.

Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (a) 98% of ordinary income (generally net investment income)
for the calendar year, (b) 98% of capital gain (both long-term and short-term)
for the one-year period ending on October 31 (as though the one-year period
ending on October 31 were the regulated investment company's taxable year) and
(c) the sum of any untaxed, undistributed net investment income and net capital
gains of the regulated investment company for prior periods. The term
"distributed amount" generally means the sum of (a) amounts actually distributed
by the fund from its current year's ordinary income and capital gain net income
and (b) any amount on which the fund pays income tax during the periods
described above. Although the fund intends to distribute its net investment
income and net capital gains so as to avoid excise tax liability, the fund may
determine that it is in the interest of shareholders to distribute a lesser
amount.

The following information may not apply to you if you hold fund shares in a
tax-deferred account, such as a retirement plan or education savings account.
Please see your tax adviser for more information.

DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS -- Dividends and capital gain
distributions on fund shares will be reinvested in shares of the fund of the
same class, unless shareholders indicate in writing that they wish to receive
them in cash or in shares of the same class of other American Funds, as provided
in the prospectus. Dividends and capital gain distributions by 529 share classes
will be automatically reinvested.

Distributions of investment company taxable income and net realized capital
gains to individual shareholders will be taxable whether received in shares or
in cash, unless such shareholders are exempt from taxation. 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 that share on the reinvestment date. Dividends and
capital gain distributions by the fund to a tax-deferred retirement plan account
are not taxable currently.

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. 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. To the extent the fund
invests in stock of domestic and certain foreign corporations, it may
receive "qualified dividends". The fund will designate the amount of
"qualified dividends" to its shareholders in a notice sent within 60 days
of the close of its fiscal year and will report "qualified dividends" to
shareholders on Form 1099-DIV.

The Income Fund of America -- Page 36
<PAGE>

Under the Code, gains or losses attributable to fluctuations in exchange
rates that occur between the time the fund accrues receivables or
liabilities denominated in a foreign currency and the time the fund
actually collects such receivables, or pays such liabilities, generally are
treated as ordinary income or ordinary loss. Similarly, on disposition of
debt securities denominated in a foreign currency and on disposition of
certain futures contracts, forward contracts and options, gains or losses
attributable to fluctuations in the value of foreign currency between the
date of acquisition of the security or contract and the date of disposition
are also treated as ordinary gain or loss. These gains or losses, referred
to under the Code as Section 988 gains or losses, may increase or decrease
the amount of the fund's investment company taxable income to be
distributed to its shareholders as ordinary income.

If the fund invests in stock of certain passive foreign investment
companies, the fund may be subject to U.S. federal income taxation on a
portion of any "excess distribution" with respect to, or gain from the
disposition of, such stock. The tax would be determined by allocating such
distribution or gain ratably to each day of the fund's holding period for
the stock. The distribution or gain so allocated to any taxable year of the
fund, other than the taxable year of the excess distribution or
disposition, would be taxed to the fund at the highest ordinary income rate
in effect for such year, and the tax would be further increased by an
interest charge to reflect the value of the tax deferral deemed to have
resulted from the ownership of the foreign company's stock. Any amount of
distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the fund's investment company taxable
income and, accordingly, would not be taxable to the fund to the extent
distributed by the fund as a dividend to its shareholders.

To avoid such tax and interest, the fund intends to elect to treat these
securities as sold on the last day of its fiscal year and recognize any
gains for tax purposes at that time. Under this election, deductions for
losses are allowable only to the extent of any prior recognized gains, and
both gains and losses will be treated as ordinary income or loss. The fund
will be required to distribute any resulting income, even though it has not
sold the security and received cash to pay such distributions. Upon
disposition of these securities, any gain recognized is treated as ordinary
income and loss is treated as ordinary loss to the extent of any prior
recognized gain.

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 may be eligible for the deduction for dividends received by
corporations. Corporate shareholders will be informed of the portion of
dividends that so qualifies. The dividends-received deduction is reduced to
the extent that either the fund shares, or the underlying shares of stock
held by the fund, with respect to which dividends are received, are treated
as debt-financed under federal income tax law, and is eliminated if the
shares are deemed to have been held by the shareholder or the fund, as the
case may be, for less than 46 days during the 90-day period beginning on
the date that is 45 days before the date on which the shares become
ex-dividend. Capital gain distributions are not eligible for the
dividends-received deduction.

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

The Income Fund of America -- Page 37
<PAGE>

original issue discount (imputed income) will comprise a part of the
investment company taxable income of the fund that must be distributed to
shareholders in order to maintain the qualification of the fund as a
regulated investment company and to avoid federal income taxation at the
level of the fund.

In addition, some of the bonds may be purchased by the fund at a discount
that exceeds the original issue discount on such bonds, if any. This
additional discount represents market discount for federal income tax
purposes. The gain realized on the disposition of any bond having a market
discount may be treated as taxable ordinary income to the extent it does
not exceed the accrued market discount on such bond or a fund may elect to
include the market discount in income in tax years to which it is
attributable. Generally, accrued market discount may be figured under
either the ratable accrual method or constant interest method. If the fund
has paid a premium over the face amount of a bond, the fund has the option
of either amortizing the premium until bond maturity and reducing the
fund's basis in the bond by the amortized amount, or not amortizing and
treating the premium as part of the bond's basis. In the case of any debt
security having a fixed maturity date of not more than one year from its
date of issue, the gain realized on disposition generally will be treated
as a short-term capital gain. In general, any gain realized on disposition
of a security held less than one year is treated as a short-term capital
gain.

Dividend and interest income received by the fund from sources outside the
United States may be subject to withholding and other taxes imposed by such
foreign jurisdictions. Tax conventions between certain countries and the
United States, however, may reduce or eliminate these foreign taxes. Most
foreign countries do not impose taxes on capital gains with respect to
investments by foreign investors.

CAPITAL GAIN DISTRIBUTIONS -- The fund also intends to follow the practice
of distributing the entire excess of net realized long-term capital gains
over net realized short-term capital losses. Net capital gains for a fiscal
year are computed by taking into account any capital loss carry forward of
the fund.

If any net long-term capital gains in excess of net short-term capital
losses are retained by the fund for reinvestment, requiring federal income
taxes to be paid thereon by the fund, the fund intends to elect to treat
such capital gains as having been distributed to shareholders. As a result,
each shareholder will report such capital gains as long-term capital gains
taxable to individual shareholders at a maximum 15% 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
such shareholder's related tax credit.

SHAREHOLDER TAXATION -- In January of each year, individual shareholders holding
fund shares in taxable accounts will receive a statement of the federal income
tax status of all distributions. Shareholders of the fund also may be subject to
state and local taxes on distributions received from the fund.

DIVIDENDS -- Fund dividends are taxable to shareholders as ordinary income.
Under the 2003 Tax Act, all or a portion of a fund's dividend distribution
may be a "qualified dividend." If the fund meets the applicable holding
period requirement, it will distribute

The Income Fund of America -- Page 38
<PAGE>

dividends derived from qualified corporation dividends to shareholders as
qualified dividends. Interest income from bonds and money market
instruments and nonqualified foreign dividends will be distributed to
shareholders as nonqualified fund dividends. The fund will report on Form
1099-DIV the amount of each shareholder's dividend that may be treated as a
qualified dividend. If a shareholder meets the requisite holding period
requirement, qualified dividends are taxable at a maximum tax rate of 15%.

CAPITAL GAINS -- Distributions of the excess of net long-term capital gains
over net short-term capital losses that the fund properly designates as
"capital gain dividends" generally will be taxable as long-term capital
gain. Regardless of the length of time the shares of the fund have been
held by a shareholder, a capital gain distribution by the fund is subject
to a maximum tax rate of 15%. 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 gains during
such six-month period.

Distributions by the fund result in a reduction in the net asset value of the
fund's shares. 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 subsequently receive a partial return of their investment
capital upon payment of the distribution, which will be taxable to them.

Redemptions of shares, including exchanges for shares of other American Funds,
may result in federal, state and local tax consequences (gain or loss) to the
shareholder. However, conversion from one class to another class in the same
fund should not be a taxable event.

If a shareholder exchanges or otherwise disposes of shares of the fund within 90
days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously incurred
in acquiring the fund's shares will not be taken into account (to the extent
such previous sales charges do not exceed the reduction in sales charges) for
the purposes of determining the amount of gain or loss on the exchange, but will
be treated as having been incurred in the acquisition of such other funds. Also,
any loss realized on a redemption or exchange of shares of the fund will be
disallowed to the extent substantially identical shares are reacquired within
the 61-day period beginning 30 days before and ending 30 days after the shares
are disposed of.

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 a regulated investment company may
be subject to backup withholding of federal income tax 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.

The Income Fund of America -- Page 39
<PAGE>

The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons (i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates). Each shareholder who is
not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of the fund, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30% (or a
lower rate under an applicable income tax treaty) on dividend income received by
the shareholder.

Shareholders should consult their tax advisers about the application of federal,
state and local tax law in light of their particular situation.

UNLESS OTHERWISE NOTED, ALL REFERENCES IN THE FOLLOWING PAGES TO CLASS A, B, C
OR F SHARES ALSO REFER TO THE CORRESPONDING CLASS 529-A, 529-B, 529-C OR 529-F
SHARES. CLASS 529 SHAREHOLDERS SHOULD ALSO REFER TO THE COLLEGEAMERICA PROGRAM
DESCRIPTION FOR INFORMATION ON POLICIES AND SERVICES SPECIFICALLY RELATING TO
COLLEGEAMERICA ACCOUNTS. SHAREHOLDERS HOLDING SHARES THROUGH AN ELIGIBLE
RETIREMENT PLAN SHOULD CONTACT THEIR PLAN'S ADMINISTRATOR OR RECORDKEEPER FOR
INFORMATION REGARDING PURCHASES, SALES AND EXCHANGES.

PURCHASE AND EXCHANGE OF SHARES

PURCHASES BY INDIVIDUALS -- As described in the prospectus, you may generally
open an account and purchase fund shares by contacting a financial adviser or
investment dealer authorized to sell the fund's shares. You may make investments
by any of the following means:

CONTACTING YOUR FINANCIAL ADVISER -- Deliver or mail a check to your
financial adviser.

BY MAIL -- for initial investments, you may mail a check, made payable to
the fund, directly to the address indicated on the account application.
Please indicate an investment dealer on the account application. You may
make additional investments by filling out the "Account Additions" form at
the bottom of a recent account statement and mailing the form, along with a
check made payable to the fund, using the envelope provided with your
account statement.

BY TELEPHONE -- using the American FundsLine. Please see the "Shareholder
account services and privileges" section of this document for more
information regarding this service.

BY INTERNET -- using americanfunds.com. Please see the "Shareholder account
services and privileges" section of this document for more information
regarding this service.

BY WIRE -- If you are making a wire transfer, instruct your bank to wire
funds to:

Wells Fargo Bank
ABA Routing No. 121000248
Account No. 4600-076178

Your bank should include the following information when wiring funds:

For credit to the account of:
American Funds Service Company
(fund's name)

The Income Fund of America -- Page 40
<PAGE>

For further credit to:
(shareholder's fund account number)
(shareholder's name)

You may contact American Funds Service Company at 800/421-0180 if you have
questions about making wire transfers.

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.

Class 529 shares may be purchased only through CollegeAmerica by investors
establishing qualified higher education savings accounts. Class 529-E shares may
be purchased only by investors participating in CollegeAmerica through an
eligible employer plan. The R share classes are generally available only to
employer-sponsored retirement plans. Class R-5 shares are also available to
clients of the Personal Investment Management group of Capital Guardian Trust
Company who do not have an intermediary associated with their accounts and
without regard to the $1 million purchase minimum. In addition, the American
Funds state tax-exempt funds are qualified for sale only in certain
jurisdictions, and tax-exempt funds in general should not serve as retirement
plan investments. The fund and the Principal Underwriter reserve the right to
reject any purchase order.

PURCHASE MINIMUMS AND MAXIMUMS -- All investments are subject to the purchase
minimums and maximums described in the prospectus. Purchase minimums may be
waived or reduced in certain cases. For accounts established with an automatic
investment plan, the initial purchase minimum of $250 may be waived if the
purchases (including purchases through exchanges from another fund) made under
the plan are sufficient to reach $250 within five months of account
establishment. The initial purchase minimum of $25 may be waived for the
following account types:

. Payroll deduction retirement plan accounts (such as, but not limited
to, 403(b), 401(k), SIMPLE IRA, SARSEP and deferred compensation plan
accounts); and

. Employer-sponsored CollegeAmerica accounts.

The following account types may be established without meeting the initial
purchase minimum:

. Retirement accounts that are funded with employer contributions; and

. Accounts that are funded with monies set by court decree.

The following account types may be established without meeting the initial
purchase minimum, but shareholders wishing to invest in two or more funds must
meet the normal initial purchase minimum of each fund:

. Accounts that are funded with (a) transfers of assets, (b) rollovers
from retirement plans, (c) rollovers from 529 college savings plans or
(d) required minimum distribution automatic exchanges; and

. American Funds money market fund accounts registered in the name of
clients of Capital Guardian Trust Company's Personal Investment
Management group.

The Income Fund of America -- Page 41
<PAGE>

EXCHANGES -- You may only exchange shares into other American Funds within the
same share class. However, exchanges from Class A shares of The Cash Management
Trust of America may be made to Class B or C shares of other American Funds for
dollar cost averaging purposes. Exchange purchases are subject to the minimum
investment requirements of the fund purchased and no sales charge generally
applies. However, exchanges of shares from American Funds 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. Exchanges of Class F shares generally may only be made through
fee-based programs of investment firms that have special agreements with the
fund's distributor and certain registered investment advisers.

You may exchange shares of other classes by contacting the Transfer Agent, by
contacting your investment dealer or financial adviser, by using American
FundsLine or americanfunds.com, or by telephoning 800/421-0180 toll-free, or
faxing (see "American Funds Service Company service areas" in the prospectus for
the appropriate fax numbers) the Transfer Agent. For more information, see
"Shareholder account services and privileges" below. THESE TRANSACTIONS HAVE THE
SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES.

Shares held in employer-sponsored retirement plans may be exchanged into other
American Funds by contacting your plan administrator or recordkeeper. Exchange
redemptions and purchases are processed simultaneously at the share prices next
determined after the exchange order is received (see "Price of shares" above).

FREQUENT TRADING OF FUND SHARES -- As noted in the prospectus, certain
redemptions may trigger a purchase block lasting 30 calendar days under the
fund's "purchase blocking policy." Under this policy, systematic redemptions
will not trigger a purchase block and systematic purchases will not be
prevented. For purposes of this policy, systematic redemptions include, for
example, regular periodic automatic redemptions and statement of intention
escrow share redemptions. Systematic purchases include, for example, regular
periodic automatic purchases and automatic reinvestments of dividends and
capital gain distributions.

OTHER POTENTIALLY ABUSIVE ACTIVITY -- In addition to implementing purchase
blocks, American Funds Service Company will monitor for other types of activity
that could potentially be harmful to the American Funds - for example,
short-term trading activity in multiple funds. When identified, American Funds
Service Company will request that the shareholder discontinue the activity. If
the activity continues, American Funds Service Company will freeze the
shareholder account to prevent all activity other than redemptions of fund
shares.

MOVING BETWEEN SHARE CLASSES

AUTOMATIC CONVERSIONS -- As described more fully in the prospectus, Class
B, 529-B and C shares automatically convert to Class A, 529-A and F shares,
respectively, after a certain period from the purchase date.

MOVING FROM CLASS B TO CLASS A SHARES -- Under the right of reinvestment
policy as described in the prospectus, if you redeem Class B shares during
the contingent deferred sales charge period, you may reinvest the proceeds
in Class A shares without paying a Class A sales charge if you notify
American Funds Service Company and the reinvestment occurs within 90 days
after the date of redemption. If you redeem your Class B shares after the
contingent deferred sales charge period and with the redemption

The Income Fund of America -- Page 42
<PAGE>

proceeds you purchase Class A shares, you are still responsible for paying
any applicable Class A sales charges.

MOVING FROM CLASS C TO CLASS A SHARES -- If you redeem Class C shares and
with the redemption proceeds purchase Class A shares, you are still
responsible for paying any Class C contingent deferred sales charges and
applicable Class A sales charges.

MOVING FROM CLASS F TO CLASS A SHARES -- You can redeem Class F shares held
in a qualified fee-based program and with the redemption proceeds purchase
Class A shares without paying an initial Class A sales charge if all of the
following are met: (a) you are leaving or have left the fee-based program,
(b) you have held the Class F shares in the program for at least one year,
and (c) you notify American Funds Service Company and purchase the Class A
shares within 90 days after redeeming the Class F shares.

MOVING FROM CLASS A TO CLASS F SHARES -- If you are part of a qualified
fee-based program and you wish to redeem your Class A shares and with the
redemption proceeds purchase Class F shares for the program, any Class A
sales charges (including contingent deferred sales charges) that you paid
or are payable will not be credited back to your account.

SALES CHARGES

CLASS A PURCHASES

PURCHASES BY CERTAIN 403(B) PLANS

Individual 403(b) plans may be treated similarly to employer-sponsored
plans for Class A sales charge purposes (i.e., individual participant
accounts are eligible to be aggregated together) if: (a) the American Funds
are principal investment options; (b) the employer facilitates the
enrollment process by, for example, allowing for onsite group enrollment
meetings held during working hours; and (c) there is only one dealer firm
assigned to the plans.

OTHER PURCHASES

Pursuant to a determination of eligibility by a vice president or more
senior officer of the Capital Research and Management Company Fund
Administration Unit, or by his or her designee, Class A shares of the
American Funds stock, stock/bond and bond funds may be sold at net asset
value to:

(1) current or retired directors, trustees, officers and advisory board
members of, and certain lawyers who provide services to, the funds
managed by Capital Research and Management Company, current or retired
employees of Washington Management Corporation, current or retired
employees and partners of The Capital Group Companies, Inc. and its
affiliated companies, certain family members and employees of the
above persons, and trusts or plans primarily for such persons;

(2) current registered representatives and assistants directly employed by
such representatives, retired registered representatives with respect
to accounts established while active, or full-time employees
(collectively, "Eligible Persons")

The Income Fund of America -- Page 43
<PAGE>

(and their (a) spouses or equivalents if recognized under local law,
(b) parents and children, including parents and children in step and
adoptive relationships, sons-in-law and daughters-in-law, and (c)
parents-in-law, if the Eligible Persons or the spouses, children or
parents of the Eligible Persons are listed in the account registration
with the parents-in-law) of dealers who have sales agreements with the
Principal Underwriter (or who clear transactions through such
dealers), plans for the dealers, and plans that include as
participants only the Eligible Persons, their spouses, parents and/or
children;

(3) current registered investment advisers ("RIAs") and assistants
directly employed by such RIAs, retired RIAs with respect to accounts
established while active, or full-time employees (collectively,
"Eligible Persons") (and their (a) spouses or equivalents if
recognized under local law, (b) parents and children, including
parents and children in step and adoptive relationships, sons-in-law
and daughters-in-law and (c) parents-in-law, if the Eligible Persons
or the spouses, children or parents of the Eligible Persons are listed
in the account registration with the parents-in-law) of RIA firms that
are authorized to sell shares of the funds, plans for the RIA firms,
and plans that include as participants only the Eligible Persons,
their spouses, parents and/or children;

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

(5) insurance company separate accounts;

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

(7) The Capital Group Companies, Inc., its affiliated companies and
Washington Management Corporation;

(8) an individual or entity with a substantial business relationship with
The Capital Group Companies, Inc. or its affiliates, or an individual
or entity related or relating to such individual or entity;

(9) wholesalers and full-time employees directly supporting wholesalers
involved in the distribution of insurance company separate accounts
whose underlying investments are managed by any affiliate of The
Capital Group Companies, Inc.; and

(10) full-time employees of banks that have sales agreements with the
Principal Underwriter, who are solely dedicated to directly supporting
the sale of mutual funds.

Shares are offered at net asset value to these persons and organizations
due to anticipated economies in sales effort and expense. Once an account
is established under this net asset value privilege, additional investments
can be made at net asset value for the life of the account.

EDWARD JONES FREE SWITCH PROGRAM

Eligible clients of broker-dealer Edward Jones may purchase Class A shares
at net asset value under the terms of the Edward Jones Free Switch program.
The program applies to purchases initiated within the 90-day period
beginning August 19, 2005, and ending November 16, 2005, at 3:00 p.m.
Central time. The fund's Board has determined that it

The Income Fund of America -- Page 44
<PAGE>

would be in the best interests of the fund and its shareholders and
desirable to have the fund participate in the program.

DEALER COMMISSIONS AND COMPENSATION -- Commissions (up to 1.00%) are paid to
dealers who initiate and are responsible for certain Class A share purchases not
subject to sales charges. These purchases consist of purchases of $1 million or
more, purchases by employer-sponsored defined contribution-type retirement plans
investing $1 million or more or with 100 or more eligible employees, and
purchases made at net asset value by certain retirement plans, endowments and
foundations with assets of $50 million or more. Commissions on such investments
(other than IRA rollover assets that roll over at no sales charge under the
fund's IRA rollover policy as described in the prospectus) are paid to dealers
at the following rates: 1.00% on amounts to $4 million, 0.50% on amounts over $4
million to $10 million and 0.25% on amounts over $10 million. Commissions are
based on cumulative investments and are not annually reset.

A dealer concession of up to 1% may be paid by the fund under its Class A plan
of distribution to reimburse the Principal Underwriter in connection with dealer
and wholesaler compensation paid by it with respect to investments made with no
initial sales charge.

SALES CHARGE REDUCTIONS AND WAIVERS

REDUCING YOUR CLASS A SALES CHARGE -- As described in the prospectus, there are
various ways to reduce your sales charge when purchasing Class A shares.
Additional information about Class A sales charge reductions is provided below.

STATEMENT OF INTENTION -- By establishing a statement of intention (the
"Statement"), you enter into a nonbinding commitment to purchase shares of
American Funds non-money market funds over a 13-month period and receive
the same sales charge (expressed as a percentage of your purchases) as if
all shares had been purchased at once.

The market value of your existing holdings eligible to be aggregated (see
below) as of the day immediately before the start of the Statement period
may be credited toward satisfying the Statement.

The Statement may be revised upward at any time during the Statement
period, and such a revision will be treated as a new Statement, except that
the Statement period during which the purchases must be made will remain
unchanged. Purchases made from the date of revision will receive the
reduced sales charge, if any, resulting from the revised Statement.

The Statement will be considered completed if the shareholder dies within
the Statement period. Commissions to dealers will not be adjusted or paid
on the difference between the Statement amount and the amount actually
invested before the shareholder's death.

When a shareholder elects to use a Statement, 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).

The Income Fund of America -- Page 45
<PAGE>

If the intended investment is not completed within the specified Statement
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. The dealer assigned to an account at the time of each purchase made
during the Statement period will receive an appropriate commission
adjustment. If the difference is not paid by the close of the Statement
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.

When the trustees of certain retirement plans purchase shares by payroll
deduction, the sales charge for the investments made during the Statement
period will be handled as follows: the total monthly investment will be
multiplied by 13 and then multiplied by 1.5. The market value of existing
American Funds investments (other than shares representing direct purchases
of money market funds) as of the day immediately before the start of the
Statement period, and any rollovers or transfers reasonably anticipated to
be invested in non-money market American Funds during the Statement period,
are added to the figure determined above. The sum is the Statement amount
and applicable breakpoint level. On the first investment and all other
investments made pursuant to the Statement, a sales charge will be assessed
according to the sales charge breakpoint thus determined. There will be no
retroactive adjustments in sales charges on investments made during the
Statement period.

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

AGGREGATION -- Qualifying investments for aggregation include those made by
you and your "immediate family" as defined in the prospectus, if all
parties are purchasing shares for their own accounts and/or:

. individual-type employee benefit plan(s), such as an IRA, individual
403(b) plan (see exception in "Purchases by certain 403(b) plans"
under "Sales charges") or single-participant Keogh-type plan;

. business accounts solely controlled by you or your immediate family
(for example, you own the entire business);

. trust accounts established by you or your immediate family (For trusts
with only one primary beneficiary, upon the trustor's death the trust
account may be aggregated with such beneficiary's own accounts; for
trusts with multiple primary beneficiaries, upon the trustor's death
the trustees of the trust may instruct American Funds Service Company
to establish separate trust accounts for each primary beneficiary;
each primary beneficiary's separate trust account may then be
aggregated with such beneficiary's own accounts);

. endowments or foundations established and controlled by you or your
immediate family; or

. CollegeAmerica accounts, which will be aggregated at the account owner
level (Class 529-E accounts may only be aggregated with an eligible
employer plan).

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 employee
benefit plans other than the individual-type employee benefit plans
described above;

The Income Fund of America -- Page 46
<PAGE>

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

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

. for nonprofit, charitable or educational organizations, or any
endowments or foundations established and controlled by such
organizations, or any employer-sponsored retirement plans established
for the benefit of the employees of such organizations, their
endowments, or their foundations; or

. for individually established participant accounts of a 403(b) plan
that is treated similarly to an employer-sponsored plan for sales
charge purposes (see "Purchases by certain 403(b) plans" under "Sales
charges" above), or made for two or more such 403(b) plans that are
treated similarly to employer-sponsored plans for sales charge
purposes of a single employer or affiliated employers as defined in
the 1940 Act.

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 -- As described in the prospectus, you may reduce your
Class A sales charge by combining purchases of all classes of shares in the
American Funds, as well as individual holdings in Endowments, American
Legacy variable annuity contracts and variable life insurance policies.
Shares of money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge also qualify. However,
direct purchases of American Funds money market funds are excluded.

RIGHTS OF ACCUMULATION -- Subject to the limitations described in the
aggregation policy, you may take into account your accumulated holdings in
all share classes of the American Funds, as well as your holdings in
Endowments, to determine your sales charge on investments in accounts
eligible to be aggregated. Subject to your investment dealer's or
recordkeeper's capabilities, your accumulated holdings will be calculated
as the higher of (a) the current value of your existing holdings (the
"market value") or (b) the amount you invested (including reinvested
dividends and capital gains, but excluding capital appreciation) less any
withdrawals (the "cost value"). Depending on the entity on whose books your
account is held, the value of your holdings in that account may not be
eligible for calculation at cost value. For example, the value of accounts
held in nominee or street name are not eligible for calculation at cost
value and instead will be calculated at market value for purposes of rights
of accumulation.

The value of all of your holdings in accounts established in calendar year
2005 or earlier will be assigned an initial cost value equal to the market
value of those holdings as of the last business day of 2005. Thereafter,
the cost value of such accounts will increase or decrease according to
actual investments or withdrawals. You must contact your financial adviser
or American Funds Service Company if you have additional information that
is relevant to the calculation of the value of your holdings.

The Income Fund of America -- Page 47
<PAGE>

When determining your American Funds Class A sales charge, if you are not
an employer-sponsored retirement plan, you may also take into account the
market value (as of the end of the week prior to your American Funds
investment) of your individual holdings in various American Legacy variable
annuity contracts and variable life insurance policies. An
employer-sponsored retirement plan may also take into account the market
value of its investments in American Legacy Retirement Investment Plans.
Direct purchases of American Funds money market funds are excluded. If you
make a gift of American Funds Class A shares, upon your request, you may
purchase the shares at the sales charge discount allowed under rights of
accumulation of all of your American Funds and American Legacy accounts.

CDSC WAIVERS FOR CLASS A, B AND C SHARES -- As noted in the prospectus, a
contingent deferred sales charge ("CDSC") may be waived for redemptions due to
death or postpurchase disability of a shareholder (this generally excludes
accounts registered in the names of trusts and other entities). In the case of
joint tenant accounts, if one joint tenant dies, a surviving joint tenant, at
the time he or she notifies the Transfer Agent of the other joint tenant's death
and removes the decedent's name from the account, may redeem shares from the
account without incurring a CDSC. Redemptions made after the Transfer Agent is
notified of the death of a joint tenant will be subject to a CDSC.

In addition, a CDSC may be waived for the following types of transactions, if
together they do not exceed 12% of the value of an "account" (defined below)
annually (the "12% limit"):

. Required minimum distributions taken from retirement accounts upon the
shareholder's attainment of age 70-1/2 (required minimum distributions
that continue to be taken by the beneficiary(ies) after the account
owner is deceased also qualify for a waiver).

. Redemptions through a systematic withdrawal plan (SWP) (see "Automatic
withdrawals" under "Shareholder account services and privileges"
below). For each SWP payment, assets that are not subject to a CDSC,
such as appreciation on shares and shares acquired through
reinvestment of dividends and/or capital gain distributions, will be
redeemed first and will count toward the 12% limit. If there is an
insufficient amount of assets not subject to a CDSC to cover a
particular SWP payment, shares subject to the lowest CDSC will be
redeemed next until the 12% limit is reached. Any dividends and/or
capital gain distributions taken in cash by a shareholder who receives
payments through a SWP will also count toward the 12% limit. In the
case of a SWP, the 12% limit is calculated at the time a systematic
redemption is first made, and is recalculated at the time each
additional systematic redemption is made. Shareholders who establish a
SWP should be aware that the amount of a payment not subject to a CDSC
may vary over time depending on fluctuations in the value of their
accounts. This privilege may be revised or terminated at any time.

For purposes of this paragraph, "account" means:

. in the case of Class A shares, your investment in Class A shares of
all American Funds (investments representing direct purchases of
American Funds money market funds are excluded);

The Income Fund of America -- Page 48
<PAGE>

. in the case of Class B shares, your investment in Class B shares of
the particular fund from which you are making the redemption; and

. in the case of Class C shares, your investment in Class C shares of
the particular fund from which you are making the redemption.

CDSC waivers are allowed only in the cases listed here and in the prospectus.
For example, CDSC waivers will not be allowed on redemptions of Class 529-B and
529-C shares due to termination of CollegeAmerica; a determination by the
Internal Revenue Service that CollegeAmerica does not qualify as a qualified
tuition program under the Code; proposal or enactment of law that eliminates or
limits the tax-favored status of CollegeAmerica; or the Virginia College Savings
Plan eliminating the fund as an option for additional investment within
CollegeAmerica.

SELLING SHARES

The methods for selling (redeeming) shares are described more fully in the
prospectus. If you wish to sell your shares by contacting American Funds Service
Company directly, any such request must be signed by the registered
shareholders.

A signature guarantee may be required for certain redemptions. In such an event,
your signature may be guaranteed by a domestic stock exchange or the National
Association of Securities Dealers, Inc., bank, savings association or credit
union that is an eligible guarantor institution. The Transfer Agent reserves the
right to require a signature guarantee on any redemptions.

Additional documentation may be required for sales of shares held in corporate,
partnership or fiduciary accounts. You must include with your written request
any shares you wish to sell that are in certificate form.

If you sell Class A, B or C shares and request a specific dollar amount to be
sold, we will sell sufficient shares so that the sale proceeds, after deducting
any applicable CDSC, equals the dollar amount requested.

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

You may request that redemption proceeds of $1,000 or more from money market
funds be wired to your bank by writing American Funds Service Company. A
signature guarantee is required on all requests to wire funds.

The Income Fund of America -- Page 49
<PAGE>

SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES

The following services and privileges are generally available to all
shareholders. However, certain services and privileges may not be available for
Class 529 shareholders or if your account is held with an investment dealer or
through an employer-sponsored retirement plan.

AUTOMATIC INVESTMENT PLAN -- An automatic investment plan enables you to make
monthly or quarterly investments in the American Funds through automatic debits
from your bank account. To set up a plan, you must fill out an account
application and specify the amount that 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 the
date you specified falls on a weekend or holiday, your money will be invested on
the following business day. However, if the following business day falls in the
next month, your money will be invested on the business day immediately
preceding the weekend or holiday. 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 contacting the Transfer
Agent.

AUTOMATIC REINVESTMENT -- Dividends and capital gain distributions are
reinvested in additional shares of the same class and fund at net asset value
unless you indicate otherwise on the account application. You also may elect to
have dividends and/or capital gain distributions paid in cash by informing the
fund, the Transfer Agent or your investment dealer. Dividends and capital gain
distributions paid to retirement plan shareholders or shareholders of the 529
share classes will be automatically reinvested.

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

CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS -- For all share classes,
except the 529 classes of shares, you may cross-reinvest dividends and capital
gains (distributions) into other American Funds in the same share class at net
asset value, subject to the following conditions:

(1) 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);

(2) if the value of the account of the fund receiving distributions is below
the minimum initial investment requirement, distributions must be automatically
reinvested; and

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

The Income Fund of America -- Page 50
<PAGE>

AUTOMATIC EXCHANGES -- For all share classes, you may automatically exchange
shares of the same class in amounts of $50 or more among any of the American
Funds on any day (or preceding business day if the day falls on a nonbusiness
day) of each month you designate.

AUTOMATIC WITHDRAWALS -- For all share classes, except the R and 529 classes of
shares, you may automatically withdraw shares from any of the American Funds.
You can make automatic withdrawals of $50 or more as often as you wish if your
account is worth at least $10,000, or up to four times a year for an account
worth at least $5,000. You can designate the day of each period for withdrawals
and request that checks be sent to you or someone else. Withdrawals may also be
electronically deposited to your bank account. The Transfer Agent will withdraw
your money from the fund you specify on or around the date you specify. If the
date you specified falls on a weekend or holiday, the redemption will take place
on the previous business day. However, if the previous business day falls in the
preceding month, the redemption will take place on the following business day
after the weekend or holiday.

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, purchases through
automatic investment plans and certain retirement plans, as well as automatic
exchanges and withdrawals will be confirmed at least quarterly.

AMERICAN FUNDSLINE AND AMERICANFUNDS.COM -- You may check your share balance,
the price of your shares or your most recent account transaction; redeem shares
(up to $75,000 per American Funds shareholder each day) from nonretirement plan
accounts; or exchange shares around the clock with American FundsLine or using
americanfunds.com. To use American FundsLine, call 800/325-3590 from a
TouchTone(TM) telephone. Redemptions and exchanges through American FundsLine
and americanfunds.com are subject to the conditions noted above and in
"Telephone and Internet purchases, redemptions and exchanges" below. You will
need your fund number (see the list of the American Funds under "General
information -- fund numbers"), personal identification number (generally the
last four digits of your Social Security number or other tax identification
number associated with your account) and account number.

Generally, all shareholders are automatically eligible to use these services.
However, if you are not currently authorized to do so, you may complete an
American FundsLink Authorization Form. Once you establish this privilege, you,
your financial adviser or any person with your account information may use these
services.

TELEPHONE AND INTERNET PURCHASES, REDEMPTIONS AND EXCHANGES -- By using the
telephone (including American FundsLine) or the Internet (including
americanfunds.com), or fax 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) that may be incurred in connection
with the exercise of these privileges.

The Income Fund of America -- Page 51
<PAGE>

Generally, all shareholders are automatically eligible to use these services.
However, you may elect to opt out of these services 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, it and/or 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.

CHECKWRITING -- You may establish check writing privileges for Class A shares
(but not Class 529-A shares) of American Funds money market funds. This can be
done by using an account application. If you request check writing privileges,
you will be provided with checks that you may use to draw against your account.
These checks may be made payable to anyone you designate and must be signed by
the authorized number of registered shareholders exactly as indicated on your
checking account signature card.

REDEMPTION OF SHARES -- The fund's Articles of Incorporation permit 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 of record owns
shares having an aggregate net asset value of less than the minimum initial
investment amount required of new shareholders as set forth in the fund's
current registration statement under the 1940 Act, and subject to such further
terms and conditions as the Board of Directors of the fund may from time to time
adopt.

While payment of redemptions normally will be in cash, the fund's Articles of
Incorporation permit payment of the redemption price wholly or partly in
securities or other property included in the assets belonging to the fund when
in the opinion of the fund's Board of Directors, which shall be conclusive,
conditions exist which make payment wholly in cash unwise or undesirable.

SHARE CERTIFICATES -- Shares are credited to your account and certificates are
not issued unless you request them by contacting the Transfer Agent.
Certificates are not available for the 529 or R share classes.

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 JPMorgan Chase Bank, 270 Park Avenue, New York, NY 10017-2070, as
Custodian. If the fund holds non-U.S. securities, the Custodian may hold these
securities pursuant to subcustodial arrangements in non-U.S. banks or non-U.S.
branches of U.S. banks.

TRANSFER AGENT -- American Funds Service Company, a wholly owned subsidiary of
the investment adviser, maintains the records of shareholder accounts, 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. The principal office of American Funds Service Company is
located at 135 South State College Boulevard, Brea, CA 92821-5823. American
Funds Service Company was paid a fee of $25,980,000 for Class A shares and
$2,630,000 for Class B shares for the 2005 fiscal year.

The Income Fund of America -- Page 52
<PAGE>

In the case of certain shareholder accounts, third parties who may be
unaffiliated with the investment adviser provide transfer agency and shareholder
services in place of American Funds Service Company. These services are rendered
under agreements with American Funds Service Company or its affiliates and the
third parties receive compensation according to such agreements. Compensation
for transfer agency and shareholder services, whether paid to American Funds
Service Company or such third parties, is ultimately paid from fund assets and
is reflected in the expenses of the fund as disclosed in the prospectus.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -- Deloitte & Touche LLP, 695 Town
Center Drive, Costa Mesa, California 92626, serves as the fund's independent
registered public accounting firm, providing audit services, preparation of tax
returns and review of certain documents to be filed with the Securities and
Exchange Commission. The financial statements included in this statement of
additional information from the annual report have been so included in reliance
on the report of Deloitte & Touche LLP, independent registered public accounting
firm, given on the authority of said firm as experts in accounting and auditing.
The selection of the fund's independent registered public accounting firm is
reviewed and determined annually by the Board of Directors.

INDEPENDENT LEGAL COUNSEL -- Paul, Hastings, Janofsky & Walker LLP, 515 South
Flower Street, Los Angeles, CA 90071, serves as counsel for the fund and for
Directors who are not "interested persons" (as defined by the 1940 Act) of the
fund in their capacities as such. Certain legal matters in connection with the
capital shares offered by the prospectus have been passed upon for the fund by
Paul, Hastings, Janofsky & Walker LLP. Counsel does not provide legal services
to the fund's investment adviser or any of its affiliated companies. A
determination with respect to the independence of the fund's "independent legal
counsel" will be made at least annually by the independent Directors of the
fund, as prescribed by the 1940 Act and related rules.

PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS -- The fund's fiscal
year ends on July 31. Shareholders are provided updated prospectuses annually
and 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 registered public accounting
firm, Deloitte & Touche LLP. In addition, shareholders may also receive proxy
statements for the fund. In an effort to reduce the volume of mail shareholders
receive from the fund when a household owns more than one account, the Transfer
Agent has taken steps to eliminate duplicate mailings of prospectuses,
shareholder reports and proxy statements. To receive additional copies of a
prospectus, report or proxy statement, shareholders should contact the Transfer
Agent.

CODES OF ETHICS -- The fund and Capital Research and Management Company and its
affiliated companies, including the fund's Principal Underwriter, have adopted
codes of ethics that allow for personal investments, including securities in
which the fund may invest from time to time. These codes include a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; preclearance 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.

The Income Fund of America -- Page 53
<PAGE>

LEGAL PROCEEDINGS -- On February 16, 2005, the NASD filed an administrative
complaint against the Principal Underwriter. The complaint alleges violations of
certain NASD rules by the Principal Underwriter with respect to the selection of
broker-dealer firms that buy and sell securities for mutual fund investment
portfolios. The complaint seeks sanctions, restitution and disgorgement.

On March 24, 2005, the investment adviser and Principal Underwriter filed a
complaint against the Attorney General of the State of California in Los Angeles
County Superior Court. The complaint alleged that the Attorney General
threatened to take enforcement actions against the investment adviser and
Principal Underwriter that are without merit and preempted by federal law. On
the same day, following the filing of the investment adviser's and Principal
Underwriter's complaint, the Attorney General of the State of California filed a
complaint against the Principal Underwriter and investment adviser. Filed in Los
Angeles County Superior Court, the Attorney General's complaint alleged
violations of certain sections of the California Corporations Code with respect
to so-called "revenue sharing" disclosures in mutual fund prospectuses and
statements of additional information. On November 22, 2005, the Los Angeles
Superior Court dismissed the Attorney General's complaint. The Attorney General
is appealing the Superior Court's decision to California's Court of Appeal for
the Second Appellate District.

The investment adviser and Principal Underwriter believe that the likelihood
that these matters could have a material adverse effect on the fund or on the
ability of the investment adviser or Principal Underwriter to perform their
contracts with the fund is remote. The SEC is conducting a related investigation
as of the date of this statement of additional information. The investment
adviser and Principal Underwriter are cooperating fully. In addition, a class
action lawsuit has been filed in the U.S. District Court, Central District of
California, relating to these matters. Although most of the claims in the suit
were dismissed with prejudice, an amended complaint relating to management fees
has been filed. The investment adviser believes that this suit is without merit
and will defend itself vigorously. Further updates on these issues will be
available on the American Funds website (americanfunds.com) under "American
Funds regulatory matters."

OTHER INFORMATION -- The financial statements including the investment portfolio
and the report of the fund's independent registered public accounting firm
contained in the annual report are included in this statement of additional
information. The following information is not included in the annual report:

DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE
PER SHARE FOR CLASS A SHARES -- JULY 31, 2005

Net asset value and redemption price per share
(Net assets divided by shares outstanding). . $18.70
Maximum offering price per share
(100/94.25 of net asset value per share,
which takes into account the fund's current maximum
sales charge). . . . . . . . . . . . . . . . $19.84

The Income Fund of America -- Page 54
<PAGE>

FUND NUMBERS -- Here are the fund numbers for use with our automated telephone
line, American FundsLine/(R)/, or when making share transactions:

FUND NUMBERS
------------------------------------
FUND CLASS A CLASS B CLASS C CLASS F
-----------------------------------------------------------------------------------------------------

STOCK AND STOCK/BOND FUNDS
AMCAP Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . 002 202 302 402
American Balanced Fund/(R)/ . . . . . . . . . . . . . . . . . 011 211 311 411
American Mutual Fund/(R)/ . . . . . . . . . . . . . . . . . . 003 203 303 403
Capital Income Builder/(R)/ . . . . . . . . . . . . . . . . . 012 212 312 412
Capital World Growth and Income Fund/SM/ . . . . . . . . . . . 033 233 333 433
EuroPacific Growth Fund/(R)/ . . . . . . . . . . . . . . . . . 016 216 316 416
Fundamental Investors/SM/ . . . . . . . . . . . . . . . . . . 010 210 310 410
The Growth Fund of America/(R)/ . . . . . . . . . . . . . . . 005 205 305 405
The Income Fund of America/(R)/ . . . . . . . . . . . . . . . 006 206 306 406
The Investment Company of America/(R)/ . . . . . . . . . . . . 004 204 304 404
The New Economy Fund/(R)/ . . . . . . . . . . . . . . . . . . 014 214 314 414
New Perspective Fund/(R)/ . . . . . . . . . . . . . . . . . . 007 207 307 407
New World Fund/SM/ . . . . . . . . . . . . . . . . . . . . . . 036 236 336 436
SMALLCAP World Fund/(R)/ . . . . . . . . . . . . . . . . . . . 035 235 335 435
Washington Mutual Investors Fund/SM/ . . . . . . . . . . . . . 001 201 301 401
BOND FUNDS
American High-Income Municipal Bond Fund/(R)/ . . . . . . . . 040 240 340 440
American High-Income Trust/SM/ . . . . . . . . . . . . . . . . 021 221 321 421
The Bond Fund of America/SM/ . . . . . . . . . . . . . . . . . 008 208 308 408
Capital World Bond Fund/(R)/ . . . . . . . . . . . . . . . . . 031 231 331 431
Intermediate Bond Fund of America/SM/ . . . . . . . . . . . . 023 223 323 423
Limited Term Tax-Exempt Bond Fund of America/SM/ . . . . . . . 043 243 343 443
The Tax-Exempt Bond Fund of America/(R)/ . . . . . . . . . . . 019 219 319 419
The Tax-Exempt Fund of California/(R)/* . . . . . . . . . . . 020 220 320 420
The Tax-Exempt Fund of Maryland/(R)/* . . . . . . . . . . . . 024 224 324 424
The Tax-Exempt Fund of Virginia/(R)/* . . . . . . . . . . . . 025 225 325 425
U.S. Government Securities Fund/SM/ . . . . . . . . . . . . . 022 222 322 422
MONEY MARKET FUNDS
The Cash Management Trust of America/(R)/ . . . . . . . . . . 009 209 309 409
The Tax-Exempt Money Fund of America/SM/ . . . . . . . . . . . 039 N/A N/A N/A
The U.S. Treasury Money Fund of America/SM/ . . . . . . . . . 049 N/A N/A N/A
___________
*Qualified for sale only in certain jurisdictions.

FUND NUMBERS
---------------------------------------------
CLASS CLASS CLASS CLASS CLASS
FUND 529-A 529-B 529-C 529-E 529-F
-------------------------------------------------------------------------------

STOCK AND STOCK/BOND FUNDS
AMCAP Fund . . . . . . . . . . 1002 1202 1302 1502 1402
American Balanced Fund . . . . 1011 1211 1311 1511 1411
American Mutual Fund . . . . . 1003 1203 1303 1503 1403
Capital Income Builder . . . . 1012 1212 1312 1512 1412
Capital World Growth and Income
Fund . . . . . . . . . . . . . 1033 1233 1333 1533 1433
EuroPacific Growth Fund . . . . 1016 1216 1316 1516 1416
Fundamental Investors . . . . . 1010 1210 1310 1510 1410
The Growth Fund of America . . 1005 1205 1305 1505 1405
The Income Fund of America . . 1006 1206 1306 1506 1406
The Investment Company of
America . . . . . . . . . . . . 1004 1204 1304 1504 1404
The New Economy Fund . . . . . 1014 1214 1314 1514 1414
New Perspective Fund . . . . . 1007 1207 1307 1507 1407
New World Fund . . . . . . . . 1036 1236 1336 1536 1436
SMALLCAP World Fund . . . . . . 1035 1235 1335 1535 1435
Washington Mutual Investors Fund
. . . . . . . . . . . . . . . 1001 1201 1301 1501 1401
BOND FUNDS
American High-Income Trust . . 1021 1221 1321 1521 1421
The Bond Fund of America . . . 1008 1208 1308 1508 1408
Capital World Bond Fund . . . . 1031 1231 1331 1531 1431
Intermediate Bond Fund of
America . . . . . . . . . . . . 1023 1223 1323 1523 1423
U.S. Government Securities Fund 1022 1222 1322 1522 1422
MONEY MARKET FUND
The Cash Management Trust of
America . . . . . . . . . . . . 1009 1209 1309 1509 1409

The Income Fund of America -- Page 55
<PAGE>

FUND NUMBERS
----------------------------------------
CLASS CLASS CLASS CLASS CLASS
FUND R-1 R-2 R-3 R-4 R-5
-------------------------------------------------------------------------------

STOCK AND STOCK/BOND FUNDS
AMCAP Fund . . . . . . . . . . . . . 2102 2202 2302 2402 2502
American Balanced Fund . . . . . . . 2111 2211 2311 2411 2511
American Mutual Fund . . . . . . . . 2103 2203 2303 2403 2503
Capital Income Builder . . . . . . . 2112 2212 2312 2412 2512
Capital World Growth and Income Fund 2133 2233 2333 2433 2533
EuroPacific Growth Fund . . . . . . 2116 2216 2316 2416 2516
Fundamental Investors . . . . . . . 2110 2210 2310 2410 2510
The Growth Fund of America . . . . . 2105 2205 2305 2405 2505
The Income Fund of America . . . . . 2106 2206 2306 2406 2506
The Investment Company of America . 2104 2204 2304 2404 2504
The New Economy Fund . . . . . . . . 2114 2214 2314 2414 2514
New Perspective Fund . . . . . . . . 2107 2207 2307 2407 2507
New World Fund . . . . . . . . . . . 2136 2236 2336 2436 2536
SMALLCAP World Fund . . . . . . . . 2135 2235 2335 2435 2535
Washington Mutual Investors Fund . . 2101 2201 2301 2401 2501
BOND FUNDS
American High-Income Municipal Bond
Fund . . . . . . . . . . . . . . . . N/A N/A N/A N/A 2540
American High-Income Trust . . . . . 2121 2221 2321 2421 2521
The Bond Fund of America . . . . . . 2108 2208 2308 2408 2508
Capital World Bond Fund . . . . . . 2131 2231 2331 2431 2531
Intermediate Bond Fund of America . 2123 2223 2323 2423 2523
Limited Term Tax-Exempt Bond Fund of
America. . . . . . . . . . . . . . . N/A N/A N/A N/A 2543
The Tax-Exempt Bond Fund of America N/A N/A N/A N/A 2519
The Tax-Exempt Fund of California* . N/A N/A N/A N/A 2520
The Tax-Exempt Fund of Maryland* . . N/A N/A N/A N/A 2524
The Tax-Exempt Fund of Virginia* . . N/A N/A N/A N/A 2525
U.S. Government Securities Fund . . 2122 2222 2322 2422 2522
MONEY MARKET FUNDS
The Cash Management Trust of America 2109 2209 2309 2409 2509
The Tax-Exempt Money Fund of America N/A N/A N/A N/A 2539
The U.S. Treasury Money Fund of
America . . . . . . . . . . . . . . 2149 2249 2349 2449 2549
___________
*Qualified for sale only in certain
jurisdictions.

The Income Fund of America -- Page 56
<PAGE>

[This page is intentionally left blank for this filing.]

The Income Fund of America -- Page 57
<PAGE>

APPENDIX

The following descriptions of debt security ratings are based on information
provided by Moody's Investors Service and Standard & Poor's Corporation.

DESCRIPTION OF BOND RATINGS

MOODY'S
LONG-TERM RATING DEFINITIONS

Aaa
Obligations rated Aaa are judged to be of the highest quality, with minimal
credit risk.

Aa
Obligations rated Aa are judged to be of high quality and are subject to very
low credit risk.

A
Obligations rated A are considered upper-medium grade and are subject to low
credit risk.

Baa
Obligations rated Baa are subject to moderate credit risk. They are considered
medium-grade and as such may possess certain speculative characteristics.

Ba
Obligations rated Ba are judged to have speculative elements and are subject to
substantial credit risk.

B
Obligations rated B are considered speculative and are subject to high credit
risk.

Caa
Obligations rated Caa are judged to be of poor standing and are subject to very
high credit risk.

Ca
Obligations rated Ca are highly speculative and are likely in, or very near,
default, with some prospect of recovery of principal and interest.

C
Obligations rated C are the lowest rated class of bonds and are typically in
default, with little prospect for recovery of principal or interest.

NOTE: Moody's appends numerical modifiers 1, 2, and 3 to each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.

The Income Fund of America -- Page 58
<PAGE>

STANDARD & POOR'S
LONG-TERM ISSUE CREDIT RATINGS

AAA
An obligation rated AAA has the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

AA
An obligation rated AA differs from the highest-rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

A
An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

BBB
An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.

BB, B, CCC, CC, AND C
Obligations rated BB, B, CCC, CC, and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and C
the highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.

BB
An obligation rated BB is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.

B
An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.

CCC
An obligation rated CCC is currently vulnerable to nonpayment and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.

CC
An obligation rated CC is currently highly vulnerable to nonpayment.

The Income Fund of America -- Page 59
<PAGE>

C
The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.

D
An obligation rated D is in payment default. The D rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless Standard & Poor's believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.

PLUS (+) OR MINUS (-)

The ratings from AA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.

The Income Fund of America -- Page 60

<page>

[logo - American Funds(R)]

THE INCOME FUND OF AMERICA(R)
INVESTMENT PORTFOLIO
July 31, 2005

Market value
Common stocks -- 64.43% Shares (000)

FINANCIALS -- 17.20%
Washington Mutual, Inc. 15,955,000 $677,768
Societe Generale 5,432,300 594,790
Citigroup Inc. 12,885,000 560,497
U.S. Bancorp 16,735,000 503,054
HSBC Holdings PLC (United Kingdom) 19,731,426 320,315
HSBC Holdings PLC (Hong Kong) 10,543,396 171,457
Bank of America Corp. 11,255,550 490,742
Wells Fargo & Co. 7,556,800 463,534
J.P. Morgan Chase & Co. 11,950,000 419,923
Lloyds TSB Group PLC 44,561,400 377,766
Boston Properties, Inc. 4,393,800 334,588
iStar Financial, Inc.(1) 7,240,000 309,800
Equity Residential 7,387,700 298,463
Equity Office Properties Trust 7,590,000 269,065
ING Groep NV 8,189,076 248,176
Fannie Mae 4,206,200 234,958
Regions Financial Corp. 6,810,000 229,088
Fidelity National Financial, Inc. 5,792,000 228,205
Kimco Realty Corp. 3,290,000 216,021
Wachovia Corp. 4,250,000 214,115
Hang Lung Properties Ltd. 133,883,000 212,726
Developers Diversified Realty Corp. 4,270,000 207,821
ABN AMRO Holding NV 7,261,976 181,667
Westpac Banking Corp. 10,380,425 155,462
Arthur J. Gallagher & Co.(1) 5,383,200 150,137
Montpelier Re Holdings Ltd.(1) 4,120,000 147,990
Fortis 4,880,000 142,800
Hospitality Properties Trust 2,835,100 125,878
Banco Itau Holding Financeira SA, preferred nominative 659,000 124,512
Bank of Nova Scotia 3,600,000 122,784
Sky Financial Group, Inc. 4,140,000 117,907
St. George Bank Ltd. 5,624,451 113,919
Bank of New York Co., Inc. 3,675,000 113,117
PNC Financial Services Group, Inc. 2,000,000 109,640
Allied Capital Corp. 3,848,020 109,438
XL Capital Ltd., Class A 1,175,000 84,389
Unibail Holding 580,000 80,217
DnB NOR ASA 7,500,000 78,662
General Growth Properties, Inc. 1,700,000 78,166
Westfield Group 5,530,000 75,481
Westfield Group(2) 172,912 2,338
Health Care Property Investors, Inc. 2,442,300 68,042
Sunstone Hotel Investors, Inc.(1) 2,438,400 63,057
Allstate Corp. 975,000 59,729
Lincoln National Corp. 1,200,000 57,960
Marsh & McLennan Companies, Inc. 2,000,000 57,940
Regency Centers Corp. 900,000 55,530
Archstone-Smith Trust 1,252,000 53,210
St. Paul Travelers Companies, Inc. 1,167,400 51,389
Hysan Development Co. Ltd. 21,702,509 51,096
Fubon Financial Holding Co., Ltd. 26,830,000 26,307
Newcastle Investment Corp. 736,000 22,742
Federal Realty Investment Trust 345,000 22,532
Beverly Hills Bancorp Inc.(1) 1,939,517 20,695
FirstMerit Corp. 650,000 18,389
Anthracite Capital, Inc. 1,447,700 17,300
10,343,294

UTILITIES -- 9.33%
National Grid Transco PLC 48,870,000 450,391
Exelon Corp. 8,152,000 436,295
Consolidated Edison, Inc. 8,685,700 418,303
Southern Co. 9,915,000 346,926
Duke Energy Corp. 11,242,393 332,100
E.ON AG 3,250,000 301,238
Dominion Resources, Inc. 4,058,498 299,761
Ameren Corp. 5,384,100 299,464
FirstEnergy Corp. 5,304,780 264,072
Scottish Power PLC 29,008,000 257,137
Public Service Enterprise Group Inc. 3,460,000 222,478
DTE Energy Co. 4,539,100 213,338
Equitable Resources, Inc. 2,735,000 194,322
Progress Energy, Inc. 4,125,400 184,034
Edison International 4,400,000 179,872
Xcel Energy Inc. 8,180,000 158,774
PPL Corp. 2,500,000 153,950
Energy East Corp. 4,883,300 136,098
Entergy Corp. 1,651,600 128,726
American Electric Power Co., Inc. 2,500,000 96,750
NSTAR 3,111,200 94,363
Cinergy Corp. 1,923,600 84,927
KeySpan Corp. 2,060,000 83,821
AGL Resources Inc. 2,100,000 80,745
FPL Group, Inc. 1,500,000 64,680
MDU Resources Group, Inc. 1,750,000 53,725
NiSource Inc. 1,292,000 31,383
Northeast Utilities 1,000,000 21,580
PG&E Corp. 550,000 20,697
5,609,950

TELECOMMUNICATION SERVICES -- 7.84%
BellSouth Corp. 37,815,000 1,043,694
SBC Communications Inc. 42,485,000 1,038,758
Verizon Communications Inc. 22,015,000 753,573
AT&T Corp. 23,250,000 460,350
Chunghwa Telecom Co., Ltd. (ADR) 8,400,000 180,684
Chunghwa Telecom Co., Ltd. 35,315,000 72,139
Belgacom SA 6,700,277 237,523
Telefonica, SA 13,894,400 234,139
TDC A/S 3,759,500 169,066
Telefonos de Mexico, SA de CV, Class L (ADR) 6,200,000 119,474
Royal KPN NV 12,900,000 112,369
Vodafone Group PLC 38,650,000 99,587
KT Corp. (ADR) 1,755,000 38,856
KT Corp. 738,480 31,543
BCE Inc. 1,722,573 41,724
Eircom Group PLC 13,782,900 28,259
Nextel Communications, Inc., Class A(2) 600,000 20,880
Dobson Communications Corp., Class A(2,3) 2,500,483 17,628
BT Group PLC 3,500,000 14,004
XO Communications, Inc.(2) 6,837 18
4,714,268

ENERGY -- 6.17%
Royal Dutch Shell PLC, Class A (ADR) 10,752,000 658,883
Royal Dutch Shell PLC, Class B 8,469,142 269,013
Royal Dutch Shell PLC, Class B (ADR) 3,021,565 192,383
Royal Dutch Shell PLC, Class A 1,340,000 41,227
Chevron Corp. 11,998,300 696,021
Marathon Oil Corp. 11,285,000 658,593
ENI SpA 11,670,000 331,298
Kinder Morgan, Inc. 3,036,000 269,779
ConocoPhillips 2,600,000 162,734
Occidental Petroleum Corp. 1,800,000 148,104
Enbridge Inc. 3,100,000 89,396
Exxon Mobil Corp. 1,385,000 81,369
TOTAL SA (ADR) 645,000 80,625
Husky Energy Inc. 700,000 30,239
3,709,664

CONSUMER STAPLES -- 5.74%
Altria Group, Inc. 9,377,500 627,917
ConAgra Foods, Inc. 18,485,000 419,794
H.J. Heinz Co. 11,200,000 411,936
Reynolds American Inc. 4,431,600 369,197
Sara Lee Corp. 15,330,000 305,527
Albertson's, Inc. 11,335,000 241,549
General Mills, Inc. 4,950,000 234,630
Unilever NV (New York registered) 2,230,000 149,209
Unilever NV 500,000 33,545
Diageo PLC 10,650,000 147,227
UST Inc. 2,600,000 119,652
Gallaher Group PLC 7,186,186 102,882
Tesco PLC 13,978,669 80,026
SABMiller PLC 4,311,000 75,253
Imperial Tobacco Group PLC 2,765,839 71,168
Woolworths Ltd. 3,510,482 43,657
Lion Nathan Ltd. 3,200,000 17,957
3,451,126

MATERIALS -- 5.28%
Dow Chemical Co. 14,567,500 $ 698,512
Weyerhaeuser Co. 9,275,000 639,790
E.I. du Pont de Nemours and Co. 8,012,800 341,986
International Paper Co. 9,865,040 311,735
Akzo Nobel NV 5,635,575 232,050
DSM NV 2,000,000 152,257
Lyondell Chemical Co. 4,920,000 137,465
Eastman Chemical Co. 2,000,000 110,780
RPM International, Inc. 5,385,000 100,969
MeadWestvaco Corp. 3,180,000 92,920
Alcoa Inc. 3,200,000 89,760
Temple-Inland Inc. 2,017,578 80,279
UPM-Kymmene Corp. 4,100,000 79,735
Stora Enso Oyj, Class R 3,264,275 43,285
Worthington Industries, Inc. 1,701,800 30,088
Holmen AB, Class B 942,900 26,304
Freeport-McMoRan Copper & Gold Inc., Class B 300,000 12,084
3,179,999

INDUSTRIALS -- 3.46%
General Electric Co. 19,996,000 689,862
R.R. Donnelley & Sons Co.(1) 13,474,000 485,738
Emerson Electric Co. 4,925,000 324,065
Hubbell Inc., Class B 3,213,100 145,875
Cooper Industries, Ltd., Class A 2,100,000 135,618
Caterpillar Inc. 2,400,000 129,384
Sandvik AB 2,000,000 80,019
Wesfarmers Ltd. 2,205,000 66,715
Brambles Industries PLC 2,856,000 15,735
Singapore Technologies Engineering Ltd. 4,823,000 7,633
Delta Air Lines, Inc.(2,3) 542,911 1,607
2,082,251

HEALTH CARE -- 3.37%
Bristol-Myers Squibb Co. 29,393,000 734,237
Merck & Co., Inc. 20,768,300 645,063
Pfizer Inc 6,925,000 183,513
GlaxoSmithKline PLC 7,670,000 180,901
Eli Lilly and Co. 2,750,000 154,880
Wyeth 1,431,500 65,491
Schering-Plough Corp. 3,000,000 62,460
Clarent Hospital Corp.(1,2,4) 484,684 242
2,026,787

CONSUMER DISCRETIONARY -- 2.87%
General Motors Corp. 18,275,000 672,886
May Department Stores Co. 7,793,000 319,903
ServiceMaster Co. 13,973,750 191,999
Delphi Corp. 22,800,000 120,840
Dixons Group PLC 38,354,242 107,089
Kingfisher PLC 16,678,565 75,609
Tupperware Corp.(1) 3,125,500 66,667
KangwonLand Inc. 4,155,395 66,610
Kesa Electricals PLC 13,644,958 60,777
Harrah's Entertainment, Inc. 585,300 46,087
TI Automotive Ltd., Class A(2,4) 7,000,000 --
1,728,467

INFORMATION TECHNOLOGY -- 0.61%
Microsoft Corp. 14,360,000 $ 367,760
ZiLOG, Inc.(2) 455,000 1,797
369,557

MISCELLANEOUS -- 2.56%
Other common stocks in initial period of acquisition 1,540,468

Total common stocks (cost: $31,968,337,000) 38,755,831

Preferred stocks -- 1.04%

FINANCIALS -- 0.98%
SB Treasury Co. LLC, Series A, 9.40% noncumulative preferred(3,5) 124,434,000 138,064
Fannie Mae, Series O, 7.00% preferred(3) 2,150,000 119,728
Fuji JGB Investment LLC, Series A, 9.87% noncumulative preferred(3,5) 55,950,000 62,779
IBJ Preferred Capital Co. LLC, Series A, 8.79% noncumulative preferred(3,5) 24,300,000 26,567
HSBC Capital Funding LP, Series 1, 9.547% noncumulative step-up perpetual preferred(3,5) 37,500,000 44,944
HSBC Capital Funding LP, Series 2, 10.176% noncumulative step-up perpetual preferred(3,5) 10,000,000 15,674
Tokai Preferred Capital Co. LLC, Series A, 9.98% noncumulative preferred(3,5) 52,000,000 56,781
BNP Paribas Capital Trust 9.003% noncumulative trust preferred(3,5) 11,750,000 13,957
BNP U.S. Funding LLC, Series A, 7.738% noncumulative preferred(3,5) 4,200,000 4,481
Royal Bank of Scotland Group PLC, Series 3, 7.816% preference shares(5) 12,000,000 12,181
RBS Capital Trust I 4.709% noncumulative trust preferred(5) 4,550,000 4,392
Duke Realty Corp., Series B, 7.99% preferred cumulative step-up premium rate 300,000 15,553
NB Capital Corp., Series A, 8.35% exchangeable preferred depositary shares 520,000 14,274
Simon Property Group, Inc., Series G, 7.89% preferred cumulative step-up premium rate 200,000 10,875
Public Storage, Inc., Series V, 7.50% cumulative preferred depositary shares 400,000 10,412
iStar Financial, Inc., Series F, 7.80% cumulative redeemable preferred(1) 400,000 10,244
ACE Ltd., Series C, 7.80% preferred depositary shares 297,930 8,000
DBS Capital Funding Corp., Series A, 7.657% noncumulative guaranteed preference shares(3,5) 6,500,000 7,326
New Plan Excel Realty Trust, Inc., Series D, 7.80% preferred cumulative step-up premium rate 112,500 5,906
Nationwide Health Properties, Inc., Series A, 7.677% preferred cumulative step-up premium rate 50,000 5,217
587,355

CONSUMER DISCRETIONARY -- 0.04%
Delphi Corp., Series A, 8.25% cumulative trust preferred 2033 1,356,910 27,138

INFORMATION TECHNOLOGY -- 0.00%
ZiLOG, Inc. -- MOD III Inc., units(4) 513 0

TELECOMMUNICATION SERVICES -- 0.00%
XO Communications, Inc. 14.00% preferred 2009(2,4,6) 12 0

MISCELLANEOUS -- 0.02%
Other preferred stocks in initial period of acquisition 10,605

Total preferred stocks (cost: $577,414,000) 625,098

Market value
Warrants -- 0.00% Shares (000)

TELECOMMUNICATION SERVICES -- 0.00%
American Tower Corp., warrants, expire 2008(2,3) 3,000 $ 918
XO Communications, Inc., Series A, warrants, expire 2010(2) 13,674 5
XO Communications, Inc., Series B, warrants, expire 2010(2) 10,256 3
XO Communications, Inc., Series C, warrants, expire 2010(2) 10,256 2
Allegiance Telecom, Inc., warrants, expire 2008(2,3,4) 20,000 0
GT Group Telecom Inc., warrants, expire 2010(2,3,4) 15,000 0

Total warrants (cost: $818,000) 928

Shares or
Convertible securities -- 4.79% principal amount

INFORMATION TECHNOLOGY -- 1.12%
Sanmina Corp. 0% convertible subordinated debentures 2020 $161,000,000 87,544
SCI Systems, Inc. 3.00% convertible subordinated debentures 2007 $57,500,000 54,266
Nortel Networks Corp. 4.25% convertible notes 2008 $80,000,000 75,100
Nortel Networks Corp. 4.25% convertible notes 2008(3) $40,000,000 37,550
Celestica Inc. 0% convertible debentures 2020 $181,000,000 103,849
Agilent Technologies, Inc. 3.00% convertible debentures 2021(5) $50,092,600 50,280
Agilent Technologies, Inc. 3.00% convertible debentures 2021(3,5) $30,185,000 30,298
ASM Lithography Holding NV 5.75% convertible notes 2006(3) $57,500,000 63,394
Advanced Micro Devices, Inc. 4.75% convertible debentures 2022(5) $50,000,000 52,875
International Rectifier Corp. 4.25% convertible notes 2007 $52,000,000 50,960
Micron Technology, Inc. 2.50% convertible notes 2010(3) $32,000,000 34,840
Liberty Media Corp. 3.50% exchangeable debentures 2031 $25,000,000 24,219
LSI Logic Corp. 4.00% convertible notes 2006 $3,000,000 2,970
Fairchild Semiconductor Corp. 5.00% convertible notes 2008 $2,500,000 2,466
670,611

CONSUMER DISCRETIONARY -- 1.10%
Ford Motor Co. Capital Trust II 6.50% cumulative convertible trust preferred 2032 9,565,300 398,969
General Motors Corp., Series B, 5.25% convertible senior debentures 2032 $27,200,000 21,662
General Motors Corp., Series C, 6.25% convertible preferred 2033 $5,620,000 126,394
Amazon.com, Inc. 4.75% convertible subordinated debentures 2009 $59,137,000 57,363
Interpublic Group of Companies, Inc., Series A, 5.375% convertible preferred 2006 647,000 30,085
Liberty Media Corp. 3.25% exchangeable debentures 2031 $25,000,000 19,562
Six Flags, Inc. 7.25% PIERS convertible preferred 2009 400,000 8,560
662,595

FINANCIALS -- 1.06%
Metropolitan Life Insurance Co., Class B, 6.375% convertible preferred 2008 6,400,000 units 177,088
Chubb Corp. 7.00% convertible preferred 2005 1,800,000 units 58,356
Chubb Corp. 7.00% convertible preferred 2006 1,600,000 units 51,792
Fannie Mae 5.375% convertible preferred 1,065 101,176
Genworth Financial, Inc. 6.00% convertible preferred 2007 2,400,000 units 84,144
UnumProvident Corp. 8.25% ACES convertible 2006 2,100,000 units 78,855
St. Paul Companies, Inc., Series E, 9.00% convertible preferred 2005 600,000 units 45,378
Providian Financial Corp. 3.25% convertible debentures 2005 $34,500,000 34,586
XL Capital Ltd. 6.50% ACES convertible preferred 2007 340,000 units 7,956
639,331

HEALTH CARE -- 0.46%
Schering-Plough Corp. 6.00% convertible preferred 2007 2,499,900 $ 136,745
Baxter International Inc. 7.00% convertible preferred 2006 1,407,500 units 79,270
Sepracor Inc. 5.00% convertible subordinated debentures 2007 $46,000,000 46,057
Incyte Corp. 3.50% convertible notes 2011(3) $15,000,000 13,744
275,816

INDUSTRIALS -- 0.34%
Tyco International Group SA, Series B, 3.125% convertible debentures 2023(3) $50,000,000 71,875
Allied Waste Industries, Inc., Series D, 6.25%, convertible preferred 2008 240,000 63,667
Cummins Capital Trust I 7.00% QUIPS convertible preferred 2031 422,000 38,481
Cummins Capital Trust I 7.00% QUIPS convertible preferred 2031(3) 178,000 16,231
Kansas City Southern 4.25% convertible preferred(3) 15,000 11,876
202,130

MATERIALS -- 0.20%
Freeport-McMoRan Copper & Gold Inc. 5.50% convertible preferred(3) 50,000 48,312
Phelps Dodge Corp., Series A, 6.75% mandatory convertible preferred shares (MEDS) 2005 200,000 44,792
Inco Ltd. 0% convertible notes LYON 2021 $26,000,000 28,438
121,542

UTILITIES -- 0.20%
PG&E Corp. 9.50% convertible note 2010 $28,000,000 80,885
American Electric Power Co., Inc. 9.25% convertible preferred 2005 460,000 22,039
AES Trust VII 6.00% convertible preferred 2008 325,000 15,912
118,836

ENERGY -- 0.14%
El Paso Corp. 4.99% convertible preferred(3) 75,000 82,519

TELECOMMUNICATION SERVICES -- 0.10%
American Tower Corp. 5.00% convertible debentures 2010 $38,100,000 37,957
Liberty Media Corp. 4.00% exchangeable debentures 2029 $36,000,000 22,275
60,232

CONSUMER STAPLES -- 0.07%
Albertson's, Inc. 7.25% convertible preferred 2007 1,900,000 units 43,225

MISCELLANEOUS -- 0.00%
Other convertible securities in initial period of acquisition 1,487

Total convertible securities (cost: $2,719,383,000) 2,878,324

Principal amount
Bonds & notes -- 22.10% (000)

CONSUMER DISCRETIONARY -- 4.88%
General Motors Acceptance Corp. 6.75% 2006 $ 2,000 2,016
General Motors Acceptance Corp. 6.125% 2007 13,250 13,233
General Motors Acceptance Corp. 5.85% 2009 10,000 9,668
Residential Capital Corp. 6.375% 2010(3) 14,000 14,240
General Motors Acceptance Corp. 7.75% 2010 8,360 8,448
General Motors Acceptance Corp. 6.875% 2011 96,635 93,378
General Motors Corp. 7.20% 2011 97,274 93,626
General Motors Acceptance Corp. 7.25% 2011 127,555 124,384
General Motors Acceptance Corp. 6.875% 2012 18,455 17,698
General Motors Acceptance Corp. 7.00% 2012 29,805 28,677
General Motors Corp. 7.125% 2013 27,895 26,361
General Motors Acceptance Corp. 5.53% 2014(5) 22,000 20,057
Residential Capital Corp. 6.875% 2015(3) 2,500 2,607
General Motors Corp. 8.25% 2023 12,000 10,800
General Motors Acceptance Corp. 8.00% 2031 7,000 6,808
Delphi Automotive Systems Corp. 6.50% 2009 85,656 77,090
Delphi Corp. 6.50% 2013 134,530 108,969
Delphi Automotive Systems Corp. 7.125% 2029 78,905 59,771
Delphi Trust II, trust preferred securities, 6.197% 2033(5) 15,500 9,377
Ford Motor Credit Co. 6.50% 2007 1,000 1,011
Ford Motor Credit Co. 5.80% 2009 4,000 3,851
Ford Motor Credit Co. 7.375% 2009 111,500 111,352
Ford Motor Credit Co. 5.169% 2010(5) 5,055 4,736
Ford Motor Credit Co. 5.70% 2010 1,445 1,363
Ford Motor Credit Co. 7.875% 2010 36,000 36,371
Ford Motor Credit Co. 7.375% 2011 19,000 18,897
Ford Motor Co. 7.45% 2031 8,000 6,800
Clear Channel Communications, Inc. 4.625% 2008 14,000 13,774
Chancellor Media Corp. of Los Angeles 8.00% 2008 23,750 25,486
Clear Channel Communications, Inc. 7.65% 2010 15,550 16,629
Clear Channel Communications, Inc. 5.75% 2013 13,080 12,643
Clear Channel Communications, Inc. 5.50% 2014 109,720 102,977
Clear Channel Communications, Inc. 6.875% 2018 1,000 989
J.C. Penney Co., Inc. 8.00% 2010 39,205 43,357
J.C. Penney Co., Inc. 9.00% 2012 14,920 17,770
J.C. Penney Co., Inc. 7.65% 2016 4,000 4,580
J.C. Penney Co., Inc. 7.95% 2017 24,386 28,421
J.C. Penney Co., Inc. 7.125% 2023 1,272 1,411
J.C. Penney Co., Inc. 7.625% 2097 18,500 19,055
DaimlerChrysler North America Holding Corp. 6.40% 2006 2,925 2,972
DaimlerChrysler North America Holding Corp. 4.05% 2008 2,560 2,509
DaimlerChrysler North America Holding Corp. 4.75% 2008 1,440 1,438
DaimlerChrysler North America Holding Corp. 7.20% 2009 24,450 26,322
DaimlerChrysler North America Holding Corp. 4.875% 2010 10,000 9,901
DaimlerChrysler North America Holding Corp. 8.00% 2010 15,000 16,747
DaimlerChrysler North America Holding Corp. 7.75% 2011 25,000 27,889
DaimlerChrysler North America Holding Corp. 7.30% 2012 7,250 8,031
DaimlerChrysler North America Holding Corp. 6.50% 2013 3,200 3,456
Cox Communications, Inc. 7.75% 2006 6,000 6,199
Cox Communications, Inc. 3.95% 2007(5) 8,250 8,298
Cox Communications, Inc. 7.875% 2009 12,500 13,781
Cox Communications, Inc. 4.625% 2010 33,250 32,712
Cox Communications, Inc. 7.75% 2010 10,000 11,166
Cox Communications, Inc. 5.45% 2014 13,500 13,583
Liberty Media Corp. 7.75% 2009 10,950 11,594
Liberty Media Corp. 7.875% 2009 33,350 35,457
Liberty Media Corp. 5.70% 2013 16,680 15,461
Liberty Media Corp. 8.25% 2030 13,035 13,187
Mirage Resorts, Inc. 7.25% 2006 4,960 5,121
MGM MIRAGE 6.00% 2009 35,100 35,363
MGM MIRAGE 8.50% 2010 22,830 25,284
MGM MIRAGE 6.75% 2012 9,150 9,516
Time Warner Inc. 8.18% 2007 20,000 21,428
AOL Time Warner Inc. 6.875% 2012 17,700 19,740
Time Warner Companies, Inc. 9.125% 2013 5,000 6,228
Time Warner Companies, Inc. 7.25% 2017 8,000 9,326
AOL Time Warner Inc. 7.625% 2031 9,750 12,052
TCI Communications, Inc. 8.00% 2005 10,000 10,000
Comcast Cable Communications, Inc. 8.375% 2007 9,925 10,565
Comcast Cable Communications, Inc. 6.20% 2008 24,000 25,123
Lenfest Communications, Inc. 7.625% 2008 2,000 2,132
Comcast Cable Communications, Inc. 6.875% 2009 8,000 8,608
Comcast Cable Communications, Inc. 7.125% 2013 3,100 3,500
Comcast Corp. 6.50% 2015 5,000 5,489
Comcast Corp. 5.65% 2035 2,650 2,594
CCH II, LLC and CCH II Capital Corp. 10.25% 2010 9,000 9,337
Charter Communications Holdings, LLC and Charter Communications Holdings
Capital Corp. 0%/13.50% 2011(7) 4,375 3,587
Charter Communications Operating, LLC and Charter Communications Operating
Capital Corp. 8.00% 2012(3) 26,730 27,265
CCO Holdings, LLC and CCO Holdings Capital Corp. 8.75% 2013 13,350 13,417
Royal Caribbean Cruises Ltd. 7.00% 2007 3,000 3,150
Royal Caribbean Cruises Ltd. 8.00% 2010 2,250 2,486
Royal Caribbean Cruises Ltd. 8.75% 2011 25,475 29,233
Royal Caribbean Cruises Ltd. 6.875% 2013 6,750 7,273
D.R. Horton, Inc. 7.50% 2007 3,500 3,706
D.R. Horton, Inc. 5.00% 2009 3,000 3,011
D.R. Horton, Inc. 8.00% 2009 19,900 21,746
D.R. Horton, Inc. 9.75% 2010 3,000 3,512
D.R. Horton, Inc. 7.875% 2011 550 619
D.R. Horton, Inc. 6.875% 2013 2,000 2,166
D.R. Horton, Inc. 5.25% 2015 6,500 6,327
Harrah's Operating Co., Inc. 7.875% 2005 5,850 5,923
Harrah's Operating Co., Inc. 7.125% 2007 4,150 4,325
Harrah's Operating Co., Inc. 5.50% 2010 26,375 26,867
Harrah's Operating Co., Inc. 5.625% 2015(3) 3,800 3,857
ITT Corp. 6.75% 2005 8,675 8,773
Starwood Hotels & Resorts Worldwide, Inc. 7.375% 2007 12,350 12,906
Starwood Hotels & Resorts Worldwide, Inc. 7.875% 2012 12,450 14,006
EchoStar DBS Corp. 5.75% 2008 9,300 9,277
EchoStar DBS Corp. 9.125% 2009 22,509 23,972
Standard Pacific Corp. 6.50% 2008 5,000 5,125
Standard Pacific Corp. 5.125% 2009 17,750 17,306
Standard Pacific Corp. 6.875% 2011 6,500 6,695
Standard Pacific Corp. 6.25% 2014 3,500 3,412
Visteon Corp. 8.25% 2010 16,300 15,811
Visteon Corp. 7.00% 2014 18,000 16,020
Radio One, Inc., Series B, 8.875% 2011 16,750 18,027
Radio One, Inc. 6.375% 2013(3) 11,850 11,820
Hilton Hotels Corp. 7.625% 2008 2,450 2,619
Hilton Hotels Corp. 7.20% 2009 4,850 5,243
Hilton Hotels Corp. 8.25% 2011 13,158 15,021
Hilton Hotels Corp. 7.625% 2012 5,875 6,700
British Sky Broadcasting Group PLC 6.875% 2009 10,000 10,617
British Sky Broadcasting Group PLC 8.20% 2009 16,250 18,123
Dana Corp. 6.50% 2009 3,175 3,165
Dana Corp. 5.85% 2015 27,700 25,070
KB Home 6.375% 2011 2,000 2,091
KB Home 5.75% 2014 1,500 1,499
KB Home 6.25% 2015 23,800 24,473
Wynn Las Vegas, LLC and Wynn Las Vegas Capital Corp. 6.625% 2014 28,535 27,929
K. Hovnanian Enterprises, Inc. 10.50% 2007 16,275 18,065
K. Hovnanian Enterprises, Inc. 8.00% 2012 3,000 3,217
K. Hovnanian Enterprises, Inc. 7.75% 2013 2,500 2,662
K. Hovnanian Enterprises, Inc. 6.375% 2014 2,000 2,030
Toll Brothers, Inc. 6.875% 2012 9,000 9,869
Toll Brothers, Inc. 4.95% 2014 5,000 4,861
Toll Brothers Finance Corp. 5.15% 2015(3) 10,500 10,267
Telenet Group Holding NV 0%/11.50% 2014(3,7) 30,725 24,887
Stoneridge, Inc. 11.50% 2012 22,950 24,442
Dex Media West LLC and Dex Media West Finance Co., Series B, 5.875% 2011 23,275 23,159
Mohegan Tribal Gaming Authority 6.375% 2009 19,780 20,225
Mohegan Tribal Gaming Authority 8.00% 2012 2,100 2,255
Six Flags, Inc. 8.875% 2010 2,500 2,481
Six Flags, Inc. 9.75% 2013 4,125 4,048
Six Flags, Inc. 9.625% 2014 16,300 15,913
Technical Olympic USA, Inc. 9.00% 2010 8,615 8,960
Technical Olympic USA, Inc. 9.00% 2010 1,275 1,326
Technical Olympic USA, Inc. 7.50% 2011 12,250 11,821
Kabel Deutschland GmbH 10.625% 2014(3) 19,675 21,839
Tenneco Automotive Inc., Series B, 10.25% 2013 5,325 6,097
Tenneco Automotive Inc. 8.625% 2014 14,900 15,645
MDC Holdings, Inc. 7.00% 2012 5,000 5,480
MDC Holdings, Inc. 5.50% 2013 15,750 15,808
Toys "R" Us, Inc. 7.875% 2013 23,344 20,776
Warner Music Group 7.375% 2014 20,000 20,750
Boyd Gaming Corp. 9.25% 2009 8,500 8,936
Boyd Gaming Corp. 7.75% 2012 10,950 11,771
Blockbuster Inc. 9.00% 2012(3) 21,250 19,391
CSC Holdings, Inc. 7.25% 2008 8,000 8,140
CSC Holdings, Inc., Series B, 8.125% 2009 8,000 8,280
Cablevision Systems Corp., Series B, 8.00% 2012 2,050 2,070
DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. 8.375% 2013 16,536 18,417
Univision Communications Inc. 7.85% 2011 15,685 17,530
Adelphia Communications Corp. 10.25% 2006(8) 13,975 11,984
Adelphia Communications Corp. 10.25% 2011(8) 6,100 5,528
Viacom Inc. 6.40% 2006 3,000 3,031
Viacom Inc. 5.625% 2007 5,000 5,075
Viacom Inc. 6.625% 2011 8,370 8,860
RH Donnelley Inc. 8.875% 2010(3) 10,500 11,471
RH Donnelley Inc. 8.875% 2010 3,800 4,151
RH Donnelley Inc. 10.875% 2012(3) 1,000 1,165
News America Inc. 6.75% 2038 15,000 16,755
William Lyon Homes, Inc. 7.625% 2012 17,000 16,660
American Media Operations, Inc., Series B, 10.25% 2009 7,725 7,860
American Media Operations, Inc. 8.875% 2011 8,535 8,258
NTL Cable PLC 8.75% 2014 15,019 15,995
TRW Automotive Acquisition Corp. 9.375% 2013 14,088 15,849
Argosy Gaming Co. 7.00% 2014 13,525 14,962
Young Broadcasting Inc. 10.00% 2011 15,640 14,858
Hyatt Equities, LLC 6.875% 2007(3) 14,000 14,346
AMC Entertainment Inc., Series B, 8.625% 2012 5,305 5,530
AMC Entertainment Inc. 8.00% 2014 7,500 6,937
Ryland Group, Inc. 5.375% 2012 12,350 12,270
YUM! Brands, Inc. 7.70% 2012 10,500 12,163
Videotron Ltee 6.875% 2014 11,500 11,816
Pulte Homes, Inc. 7.875% 2011 5,000 5,696
Pulte Homes, Inc. 7.625% 2017 5,000 5,668
May Department Stores Co. 5.75% 2014 5,215 5,397
May Department Stores Co. 6.65% 2024 4,785 5,206
Staples, Inc. 7.375% 2012 9,000 10,240
Lear Corp., Series B, 8.11% 2009 9,710 10,071
NVR, Inc. 5.00% 2010 10,000 9,870
Cinemark USA, Inc. 9.00% 2013 8,575 9,068
Meritor Automotive, Inc. 6.80% 2009 8,500 8,542
CanWest Media Inc., Series B, 10.625% 2011 3,000 3,285
CanWest Media Inc., Series B, 8.00% 2012 4,685 4,995
LBI Media, Inc. 10.125% 2012 7,500 8,212
Centex Corp. 4.75% 2008 8,075 8,063
Regal Cinemas Corp., Series B, 9.375% 2012(4) 7,250 7,685
Emmis Communications Corp. 9.314% 2012(3,5) 6,700 6,742
WCI Communities, Inc. 10.625% 2011 1,850 2,003
WCI Communities, Inc. 9.125% 2012 4,150 4,409
Boyds Collection, Ltd., Series B, 9.00% 2008(4) 7,382 6,090
Payless ShoeSource, Inc. 8.25% 2013 5,500 5,837
NextMedia Operating, Inc. 10.75% 2011 4,580 5,021
Fisher Communications, Inc. 8.625% 2014 4,605 5,008
Carnival Corp. 3.75% 2007 5,000 4,917
Quebecor Media Inc. 0%/13.75% 2011(7) 2,000 2,032
Quebecor Media Inc. 11.125% 2011 1,750 1,951
Warnaco, Inc. 8.875% 2013 3,425 3,785
Seneca Gaming Corp. 7.25% 2012(3) 3,275 3,414
Marriott International, Inc., Series C, 7.875% 2009 3,000 3,333
Sealy Mattress Co. 8.25% 2014 2,825 3,023
Aztar Corp. 7.875% 2014 2,500 2,675
Gray Communications Systems, Inc. 9.25% 2011 2,000 2,195
Reader's Digest Association, Inc. 6.50% 2011 1,625 1,674
2,938,009

TELECOMMUNICATION SERVICES -- 3.06%
Qwest Capital Funding, Inc. 7.75% 2006 3,000 3,075
U S WEST Capital Funding, Inc. 6.375% 2008 3,100 3,053
Qwest Capital Funding, Inc. 7.00% 2009 2,625 2,592
Qwest Capital Funding, Inc. 7.90% 2010 29,635 29,931
Qwest Services Corp. 13.50% 2010 22,021 25,434
Qwest Capital Funding, Inc. 7.25% 2011 15,395 14,972
Qwest Corp. 8.875% 2012 12,400 13,640
Qwest Services Corp. 14.00% 2014 25,000 30,375
U S WEST Capital Funding, Inc. 6.50% 2018 10,000 8,300
Qwest Capital Funding, Inc. 7.625% 2021 7,800 6,903
U S WEST Capital Funding, Inc. 6.875% 2028 49,525 40,363
Qwest Capital Funding, Inc. 7.75% 2031 69,620 59,873
Nextel Communications, Inc. 6.875% 2013 69,900 75,055
Nextel Communications, Inc. 7.375% 2015 149,720 162,072
Dobson Communications Corp. 10.875% 2010 55,930 58,726
Dobson Cellular Systems, Inc. 7.96% 2011(5) 4,850 5,080
American Cellular Corp., Series B, 10.00% 2011 74,000 77,885
Dobson Cellular Systems, Inc. 9.875% 2012 3,850 4,278
Dobson Communications Corp. 8.875% 2013 31,750 31,829
American Tower Corp. 9.375% 2009 3,701 3,914
American Tower Corp. 7.25% 2011 49,175 52,003
American Tower Corp. 7.125% 2012 65,025 68,926
American Tower Corp. 7.50% 2012 43,300 46,114
Triton PCS, Inc. 8.75% 2011 18,200 13,013
Triton PCS, Inc. 9.375% 2011 28,350 20,412
Triton PCS, Inc. 8.50% 2013 79,150 73,214
MetroPCS, Inc. 10.75% 2007(5) 54,500 56,952
MetroPCS, Inc. 8.25% 2011(5) 44,250 45,799
SBC Communications Inc. 4.125% 2009 17,465 17,111
SBC Communications Inc. 5.10% 2014 56,215 56,624
SBC Communications Inc. 6.45% 2034 5,000 5,528
AT&T Wireless Services, Inc. 7.50% 2007 34,250 36,043
AT&T Wireless Services, Inc. 8.125% 2012 34,935 41,316
France Telecom 8.50% 2011(5) 58,750 67,358
Intelsat, Ltd. 8.695% 2012(3,5) 20,575 21,089
Intelsat, Ltd. 8.25% 2013(3) 36,635 38,467
Deutsche Telekom International Finance BV 8.50% 2010(5) 7,150 8,168
Deutsche Telekom International Finance BV 5.25% 2013 15,000 15,364
Deutsche Telekom International Finance BV 8.75% 2030(5) 7,000 9,392
Deutsche Telekom International Finance BV 9.25% 2032(5) 10,000 14,757
Nextel Partners, Inc. 12.50% 2009 16,234 17,654
Nextel Partners, Inc. 8.125% 2011 19,250 21,103
Nextel Partners, Inc. 8.125% 2011 5,000 5,481
AT&T Corp. 9.05% 2011(5) 23,228 26,625
AT&T Corp. 8.35% 2025 9,000 9,315
Western Wireless Corp. 9.25% 2013 28,575 32,718
Sprint Capital Corp. 4.78% 2006 10,950 10,990
Sprint Capital Corp. 7.625% 2011 5,000 5,649
Sprint Capital Corp. 8.375% 2012 8,500 10,094
Sprint Capital Corp. 6.875% 2028 5,000 5,668
Centennial Cellular Corp. 10.75% 2008 3,858 4,017
Centennial Communications Corp. and Centennial Cellular Operating Co. LLC 10.125% 2013 16,000 18,100
Centennial Communications Corp. and Centennial Cellular Operating Co. LLC and
Centennial Puerto Rico Operations Corp. 8.125% 2014(5) 9,500 10,236
Rogers Wireless Inc. 7.25% 2012 11,825 12,741
Rogers Wireless Inc. 7.50% 2015 16,750 18,383
TELUS Corp. 8.00% 2011 25,150 29,074
Cincinnati Bell Inc. 7.25% 2013 26,275 28,147
Hawaiian Telcom Communications, Inc. 9.75% 2013(3) 15,225 16,519
Hawaiian Telcom Communications, Inc. 12.50% 2015(3) 5,500 5,988
Telecom Italia Capital SA, Series A, 4.00% 2008 3,000 2,943
Telecom Italia Capital SA, Series B, 5.25% 2013 10,300 10,375
Telecom Italia Capital SA 4.95% 2014(3) 9,000 8,838
SBA Communications Corp. 8.50% 2012 17,055 18,462
Koninklijke KPN NV 8.00% 2010 15,750 17,981
NTELOS Inc. 8.49% 2012(5) 15,500 15,267
PCCW-HKT Capital Ltd. 8.00% 2011(3)(,5) 13,000 14,722
Verizon Global Funding Corp. 6.125% 2007 7,000 7,219
Verizon New York Inc., Series A, 6.875% 2012 6,500 7,091
Singapore Telecommunications Ltd. 6.375% 2011(3) 6,000 6,491
Singapore Telecommunications Ltd. 6.375% 2011 4,825 5,220
Verizon Wireless Capital LLC and Cellco Partnership 5.375% 2006 11,000 11,155
UbiquiTel Operating Co. 9.875% 2011 9,750 10,932
ALLTEL Corp. 4.656% 2007 8,700 8,731
BellSouth Corp. 4.20% 2009 7,000 6,896
BellSouth Corp. 5.20% 2014 1,700 1,727
Vodafone Group PLC 7.75% 2010 7,300 8,218
US Unwired Inc., Series B, 10.00% 2012 6,000 6,960
AirGate PCS, Inc. 9.375% 2009(3) 6,128 6,504
Telefonos de Mexico, SA de CV 8.25% 2006 5,000 5,108
Millicom International Cellular SA 10.00% 2013 3,500 3,640
Valor Telecommunications Enterprises, LLC and Valor Finance Corp. 7.75% 2015(3) 1,750 1,746
GT Group Telecom Inc. 13.25% 2010(4,8) 15,000 --
1,839,728

FINANCIALS -- 2.42%
Capital One Bank 6.875% 2006 21,600 21,883
Capital One Financial Corp. 7.25% 2006 3,000 3,066
Capital One Financial Corp. 8.75% 2007 3,500 3,710
Capital One Bank 4.875% 2008 20,000 20,124
Capital One Financial Corp. 7.125% 2008 22,100 23,527
Capital One Financial Corp. 6.25% 2013 30,000 32,187
Capital One Financial Corp. 5.50% 2015 5,000 5,071
Capital One Capital I 4.76% 2027(3,5) 10,500 10,581
MBNA Corp. 5.625% 2007 10,000 10,248
MBNA Corp., Series F, 5.00% 2010 10,000 10,132
MBNA Corp., Series F, 7.50% 2012 10,000 11,461
MBNA Corp., Series F, 6.125% 2013 10,000 10,718
MBNA Global Capital Funding, Series B, 4.01% 2027(5) 32,000 31,349
Washington Mutual, Inc. 4.375% 2008 17,000 16,926
Washington Mutual, Inc. 3.899% 2010(5) 16,000 16,043
Washington Mutual, Inc. 4.20% 2010 9,000 8,811
Washington Mutual, Inc. 5.00% 2012 7,000 7,008
Washington Mutual Bank, FA 5.125% 2015 6,500 6,483
Dime Capital Trust I, Dime Bancorp, Inc., Series A, 9.33% 2027 9,425 10,386
Rouse Co. 3.625% 2009 32,561 30,455
Rouse Co. 7.20% 2012 32,189 34,052
SocGen Real Estate Co. LLC, Series A, 7.64% (undated)(3,5) 45,700 48,444
Societe Generale 7.85% (undated)(3,5) 11,200 11,762
Household Finance Corp. 4.125% 2009 15,000 14,662
Household Finance Corp. 6.375% 2011 16,000 17,170
HSBC Holdings PLC 5.25% 2012 3,500 3,589
Household Finance Corp. 6.375% 2012 10,000 10,838
HSBC Bank USA 4.625% 2014(3) 5,000 4,900
HSBC Finance Corp. 5.00% 2015 2,720 2,699
Midland Bank 3.938% Eurodollar note (undated)(5) 5,000 4,250
Host Marriott, LP, Series G, 9.25% 2007 775 837
Host Marriott, LP, Series I, 9.50% 2007 750 796
Host Marriott, LP, Series M, 7.00% 2012 21,085 21,955
Host Marriott, LP, Series K, 7.125% 2013 10,000 10,487
Host Marriott, LP, Series O, 6.375% 2015 13,750 13,681
iStar Financial, Inc. 7.00% 2008(1) 6,525 6,862
iStar Financial, Inc. 8.75% 2008(1) 1,028 1,136
iStar Financial, Inc., Series B, 4.875% 2009(1) 5,000 4,955
iStar Financial, Inc. 5.375% 2010(1) 10,925 10,960
iStar Financial, Inc. 6.00% 2010(1) 3,750 3,869
iStar Financial, Inc., Series B, 5.125% 2011(1) 10,000 9,851
iStar Financial, Inc. 6.05% 2015(1) 4,285 4,416
CIT Group Inc. 3.65% 2007 7,110 6,974
CIT Group Inc. 6.875% 2009 16,500 17,848
CIT Group Inc. 4.75% 2010 10,000 9,929
CIT Group Inc. 7.75% 2012 4,000 4,613
ASIF Global Financing XVIII 3.85% 2007(3) 8,500 8,348
International Lease Finance Corp. 4.50% 2008 4,000 3,979
International Lease Finance Corp. 3.50% 2009 10,000 9,506
International Lease Finance Corp. 4.75% 2009 10,000 9,916
International Lease Finance Corp. 5.00% 2010 6,560 6,590
PRICOA Global Funding I, Series 2004-4, 4.35% 2008(3) 8,000 7,953
Prudential Holdings, LLC, Series C, 8.695% 2023(3,9) 22,250 28,596
CNA Financial Corp. 6.75% 2006 4,370 4,486
CNA Financial Corp. 6.45% 2008 2,406 2,495
CNA Financial Corp. 6.60% 2008 8,630 9,067
CNA Financial Corp. 5.85% 2014 8,975 9,031
CNA Financial Corp. 7.25% 2023 9,538 10,365
Chuo Mitsui Trust and Banking Co., Ltd. 5.506% (undated)(3,5) 36,590 35,408
Sumitomo Mitsui Banking Corp. 5.625% (undated)(3,)(5) 34,000 33,937
Lazard LLC 7.125% 2015(3) 32,930 32,837
Mangrove Bay Pass Through Trust 6.102% 2033(3,5) 21,000 21,191
Twin Reefs Asset Trust (XLFA), Series B, 4.35% (undated)(3,5) 7,200 7,177
J.P. Morgan & Co. Inc. 6.70% 2007 5,000 5,222
J.P. Morgan Chase & Co. 4.00% 2008 10,000 9,900
J.P. Morgan Chase & Co. 6.75% 2011 5,000 5,452
J.P. Morgan Chase & Co. 4.75% 2015 7,500 7,347
Allstate Financial Global Funding LLC 5.25% 2007(3) 16,750 16,959
Allstate Life Global Funding Trust, Series 2004-1, 4.50% 2009 10,000 9,985
Hospitality Properties Trust 7.00% 2008 1,210 1,269
Hospitality Properties Trust 6.75% 2013 23,315 25,124
USA Education, Inc. 5.625% 2007 12,895 13,137
SLM Corp., Series A, 4.50% 2010 5,000 4,948
SLM Corp., Series A, 5.375% 2013 7,000 7,220
Nationwide Life Insurance Co. 5.35% 2007(3) 8,500 8,569
North Front Pass Through Trust 5.81% 2024(3,5) 10,000 10,181
Nationwide Mutual Insurance Co. 7.875% 2033(3) 5,000 6,143
EOP Operating LP 7.75% 2007 5,000 5,325
EOP Operating LP 8.10% 2010 6,500 7,367
EOP Operating LP 7.00% 2011 5,000 5,498
EOP Operating LP 6.75% 2012 4,750 5,198
United Dominion Realty Trust, Inc., Series E, 4.50% 2008 20,000 19,952
United Dominion Realty Trust, Inc. 5.00% 2012 2,500 2,458
Liberty Mutual Group Inc. 6.50% 2035(3) 23,095 22,372
Monumental Global Funding Trust II, Series 2001-B, 6.05% 2006(3) 5,000 5,045
Monumental Global Funding Trust II, Series 2002-A, 5.20% 2007(3) 16,750 16,966
ACE INA Holdings Inc. 5.875% 2014 7,000 7,183
ACE Capital Trust II 9.70% 2030 10,250 13,659
Development Bank of Singapore Ltd. 7.875% 2010(3) 10,000 11,312
Development Bank of Singapore Ltd. 7.125% 2011(3) 5,000 5,574
HBOS Treasury Services PLC 3.75% 2008(3) 14,500 14,203
Scotland International Finance No. 2 BV 4.25% 2013(3) 1,500 1,450
HBOS PLC 5.375% (undated)(3,5) 500 507
Downey Financial Corp. 6.50% 2014 15,500 16,117
ReliaStar Financial Corp. 8.00% 2006 8,000 8,315
ReliaStar Financial Corp. 6.50% 2008 3,000 3,181
ING Bank NV 5.125% 2015(3) 3,500 3,549
Developers Diversified Realty Corp. 4.625% 2010 10,140 9,910
Developers Diversified Realty Corp. 5.50% 2015 5,000 5,064
LaBranche & Co Inc. 9.50% 2009 13,725 14,823
Assurant, Inc. 5.625% 2014 13,500 13,945
BNP Paribas 4.80% 2015(3) 8,000 7,883
BNP Paribas 5.186% noncumulative (undated)(3,5) 5,000 4,972
Westfield Capital Corp. Ltd. and WT Finance (Aust) Pty Ltd. and WEA Finance LLC 5.125% 2014(3) 12,500 12,441
ProLogis Trust 7.05% 2006 12,000 12,242
Standard Chartered Bank 4.00% Eurodollar note (undated)(5) 15,000 12,000
Kazkommerts International BV 8.50% 2013(3) 1,500 1,601
Kazkommerts International BV 7.875% 2014(3) 10,000 10,300
Simon Property Group, LP 4.875% 2010 6,375 6,364
Simon Property Group, LP 6.35% 2012 5,000 5,408
Skandinaviska Enskilda Banken 7.50% (undated)(3,5) 10,405 11,441
Abbey National PLC, Series 1-B, 6.69% 2005 2,000 2,012
Abbey National PLC 6.70% (undated)(5) 3,635 3,822
Abbey National PLC 7.35% (undated)(5) 5,105 5,273
Providian Financial Corp., Series A, 9.525% 2027(3) 10,000 11,000
Willis North America, Inc. 5.125% 2010 4,900 4,883
Willis North America, Inc. 5.625% 2015 5,500 5,462
TuranAlem Finance BV 8.50% 2015(3) 10,000 10,325
Federal Realty Investment Trust 6.125% 2007 10,000 10,270
United Overseas Bank Ltd. 5.375% 2019(3,5) 10,000 10,136
Citigroup Inc. 4.625% 2010 10,000 10,004
Bank of America Corp. 4.50% 2010 10,000 9,944
Resona Bank, Ltd 7.191% (undated)(3,5) 9,650 9,874
Popular North America, Inc., Series E, 3.875% 2008 10,000 9,800
Duke Realty LP 4.625% 2013 10,000 9,655
Independence Community Bank 3.75% 2014(5) 10,000 9,621
Zions Bancorporation 6.00% 2015 9,000 9,590
Bayerische Landesbank, Series F, 2.50% 2006 9,000 8,911
Bank of Nova Scotia 3.255% Eurodollar note 2085(5) 10,000 8,466
Canadian Imperial Bank of Commerce 3.313% Eurodollar note 2085(5) 10,000 8,325
Barclays Bank PLC, Series 1, 6.278% noncumulative preferred (undated)(5) 5,000 5,128
Barclays Bank PLC 8.55% (undated)(3,5) 1,540 1,825
BCI U.S. Funding Trust I 8.01% noncumulative preferred (undated)(3,5) 5,000 5,429
Lincoln National Corp. 6.20% 2011 5,000 5,368
Irvine Co., Class A, 7.46% 2006(3,4) 5,000 5,063
Metropolitan Life Insurance Co. 7.00% 2005(3) 5,000 5,037
Credit Suisse First Boston (USA), Inc. 4.625% 2008 5,000 5,016
Jackson National Life Global Funding, Series 2002-1, 5.25% 2007(3) 4,000 4,072
HVB Funding Trust III 9.00% 2031(3) 2,600 3,537
Kimco Realty Corp. 6.00% 2012 3,250 3,469
Swedish Export Credit Corp. 4.00% 2010 3,500 3,443
National Westminster Bank PLC 7.75% (undated)(5) 3,024 3,209
Principal Life Global Funding I 4.40% 2010(3) 3,000 2,950
1,458,586

MORTGAGE-BACKED OBLIGATIONS(9) -- 2.05%
Fannie Mae, Series 2000-T5B, 7.30% 2010 $ 19,000 $ 21,210
Fannie Mae 9.00% 2010 360 380
Fannie Mae 4.89% 2012 10,000 10,037
Fannie Mae 4.00% 2015 9,492 9,253
Fannie Mae 6.00% 2016 1,824 1,885
Fannie Mae 6.00% 2016 961 993
Fannie Mae 7.00% 2016 387 406
Fannie Mae 5.00% 2018 22,698 22,800
Fannie Mae 5.50% 2018 20,822 21,271
Fannie Mae 10.00% 2018 499 565
Fannie Mae 9.50% 2022 513 571
Fannie Mae 7.50% 2023 309 331
Fannie Mae 7.50% 2023 26 28
Fannie Mae 10.00% 2025 344 389
Fannie Mae, Series 2001-4, Class GA, 10.242% 2025(5) 1,732 1,949
Fannie Mae, Series 2001-4, Class NA, 11.848% 2025(5) 163 186
Fannie Mae, Series 2002-W3, Class A-5, 7.50% 2028 1,553 1,645
Fannie Mae 6.50% 2031 856 886
Fannie Mae 7.00% 2031 1,333 1,404
Fannie Mae 7.00% 2031 813 856
Fannie Mae 7.50% 2031 634 677
Fannie Mae, Series 2001-20, Class E, 9.602% 2031(5) 1,577 1,748
Fannie Mae 6.50% 2032 3,721 3,851
Fannie Mae 6.50% 2032 2,182 2,259
Fannie Mae 3.778% 2033(5) 6,811 6,706
Fannie Mae 6.50% 2033 4,992 5,168
Fannie Mae 5.50% 2034 22,965 23,099
Fannie Mae 6.00% 2034 8,703 8,896
Fannie Mae 6.00% 2034 6,426 6,569
Fannie Mae 6.00% 2034 4,047 4,138
Fannie Mae 6.00% 2034 3,450 3,528
Fannie Mae 6.00% 2034 1,777 1,817
Fannie Mae 6.00% 2034 1,629 1,666
Fannie Mae 6.00% 2034 1,253 1,281
Fannie Mae 6.00% 2034 1,188 1,214
Fannie Mae 6.00% 2034 877 896
Fannie Mae 6.00% 2034 596 609
Fannie Mae 4.499% 2035(5) 3,299 3,280
Fannie Mae 4.60% 2035(5) 8,989 8,946
Fannie Mae 5.00% 2035 54,000 53,199
Fannie Mae 5.00% 2035 29,380 28,944
Fannie Mae 5.00% 2035 7,620 7,507
Fannie Mae 5.50% 2035 132,133 132,908
Fannie Mae 5.50% 2035 10,452 10,513
Fannie Mae 6.00% 2035 302 308
Fannie Mae, Series 2001-50, Class BA, 7.00% 2041 2,843 3,011
Fannie Mae, Series 2001-T10, Class A-1, 7.00% 2041 2,003 2,095
Fannie Mae, Series 2002-W1, Class 2A, 7.50% 2042 3,407 3,594
CS First Boston Mortgage Securities Corp., Series 2003-AR26, Class VI-A-1, 4.197% 2033(5) 47,363 46,601
CS First Boston Mortgage Securities Corp., Series 2001-CF2, Class A-2, 5.935% 2034 4,430 4,459
CS First Boston Mortgage Securities Corp., Series 2004-5, Class IV-A-1, 6.00% 2034 7,074 7,154
CS First Boston Mortgage Securities Corp., Series 2001-CF2, Class A-3, 6.238% 2034 6,000 6,200
CS First Boston Mortgage Securities Corp., Series 2005-6, Class IV-A-1, 6.00% 2035 10,100 10,290
CS First Boston Mortgage Securities Corp., Series 2005-5, Class IV-A-1, 6.25% 2035 9,281 9,488
CS First Boston Mortgage Securities Corp., Series 2001-CK1, Class A-3, 6.38% 2035 10,100 10,798
CS First Boston Mortgage Securities Corp., Series 2005-C3, Class A-AB, 4.614% 2037 10,000 9,846
CS First Boston Mortgage Securities Corp., Series 2002-CKN2, Class A-3, 6.133% 2037 6,910 7,402
Freddie Mac 9.00% 2007 45 46
Freddie Mac 8.50% 2008 18 19
Freddie Mac, Series SF02, Class GC, 2.64% 2009 5,000 4,855
Freddie Mac 8.50% 2009 123 128
Freddie Mac 8.50% 2010 193 202
Freddie Mac 5.00% 2018 14,773 14,834
Freddie Mac 5.50% 2018 7,216 7,370
Freddie Mac 11.00% 2018 482 545
Freddie Mac, Series 178, Class Z, 9.25% 2021 179 179
Freddie Mac, Series 2289, Class NB, 11.471% 2022(5) 374 420
Freddie Mac 6.00% 2033 11,104 11,347
Freddie Mac 6.00% 2033 6,638 6,784
Freddie Mac 6.00% 2034 7,880 8,053
Freddie Mac 4.648% 2035(5) 13,400 13,317
Freddie Mac 4.792% 2035(5) 10,052 10,011
Freddie Mac 5.00% 2035 16,940 16,682
Freddie Mac 6.00% 2035 3,421 3,497
Freddie Mac, Series T-056, Class A-2A, 2.842% 2036 1,927 1,919
CHL Mortgage Pass-Through Trust, Series 2003-27, Class A-1, 3.74% 2033(5) 4,017 3,945
CHL Mortgage Pass-Through Trust, Series 2003-56, Class 6-A-1, 4.86% 2033(5) 25,660 25,643
CHL Mortgage Pass-Through Trust, Series 2003-58, Class 2-A-2, 4.60% 2034(5) 47,180 46,477
CHL Mortgage Pass-Through Trust, Series 2004-22, Class A-2, 4.705% 2034(5) 7,842 7,767
Merrill Lynch Mortgage Investors, Inc., Series 1999-C1, Class A-2, 7.56% 2031 11,696 12,732
Merrill Lynch Mortgage Investors, Inc., Series 2003-A6, Class II-A, 4.24% 2033(5) 45,943 45,236
Merrill Lynch Mortgage Investors, Inc., Series 2004-A1, Class II-A-1, 4.617% 2034(5) 5,744 5,696
Banc of America Mortgage Securities Trust, Series 2003-G, Class 2-A-1, 4.088% 2033(5) 4,377 4,329
Banc of America Mortgage Securities Trust, Series 2003-D, Class 2-A-1, 4.183% 2033(5) 2,521 2,483
Banc of America Mortgage Securities Trust, Series 2003-J, Class 2-A-2, 4.438% 2033(5) 46,798 46,420
Government National Mortgage Assn. 9.50% 2009 526 556
Government National Mortgage Assn. 9.00% 2016 71 78
Government National Mortgage Assn. 5.50% 2017 4,926 5,060
Government National Mortgage Assn. 8.50% 2017 39 43
Government National Mortgage Assn. 8.50% 2017 9 10
Government National Mortgage Assn. 8.50% 2017 9 10
Government National Mortgage Assn. 10.00% 2020 1,487 1,718
Government National Mortgage Assn. 8.50% 2021 335 364
Government National Mortgage Assn. 8.50% 2021 102 111
Government National Mortgage Assn. 8.50% 2021 7 8
Government National Mortgage Assn. 9.50% 2021 242 268
Government National Mortgage Assn. 10.00% 2021 2,212 2,554
Government National Mortgage Assn. 10.00% 2025 2,034 2,339
Government National Mortgage Assn. 7.00% 2034 2,676 2,843
Government National Mortgage Assn. 4.00% 2035(5) 6,235 6,123
Government National Mortgage Assn. 4.00% 2035(5) 1,863 1,827
Government National Mortgage Assn. 4.00% 2035(5) 1,748 1,714
Government National Mortgage Assn. 5.50% 2035 25,000 25,284
Crown Castle Towers LLC, Series 2005-1, Class A-FX, 4.643% 2035(3) 10,000 9,893
Crown Castle Towers LLC, Series 2005-1, Class D, 5.612% 2035(3) 37,750 37,342
Bear Stearns ARM Trust, Series 2003-8, Class II-A-1, 4.851% 2034(5) 33,356 33,183
Bear Stearns ARM Trust, Series 2003-9, Class III-A-2, 5.009% 2034(5) 3,031 3,018
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR8, Class A, 4.03% 2033(5) 5,344 5,293
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR5, Class A-7, 4.208% 2033(5) 3,937 3,907
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR6, Class A-1, 4.358% 2033(5) 1,883 1,859
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR1, Class A-6, 4.49% 2033(5) 1,129 1,120
WaMu Mortgage Pass-Through Certificates Trust, Series 2004-AR1, Class A, 4.229% 2034(5) 5,288 5,236
WaMu Mortgage Pass-Through Certificates Trust, Series 2004-AR11, Class A, 4.616% 2034(5) 6,977 6,897
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 2026(3) 22,002 23,724
Chase Commercial Mortgage Securities Corp., Series 1998-1, Class A-2, 6.56% 2030 6,139 6,394
Chase Commercial Mortgage Securities Corp., Series 2000-1, Class A-2, 7.757% 2032 15,675 17,163
Countrywide Alternative Loan Trust, Series 2005-21CB, Class A-17, 6.00% 2035 13,640 13,799
Countrywide Alternative Loan Trust, Series 2004-36CB, Class 1-A-1, 6.00% 2035 8,798 8,878
GS Mortgage Securities Corp. II, Series 1998-C1, Class D, 7.213% 2030(5) 20,000 21,094
Bear Stearns Commercial Mortgage Securities Inc., Series 1999-C1, Class X,
interest only, 1.033% 2031(3,5) 79,429 3,035
Bear Stearns Commercial Mortgage Securities Inc., Series 2002-PBW1, Class A-1, 3.97% 2035 8,810 8,654
Bear Stearns Commercial Mortgage Securities Inc., Series 2001-TOP2, Class A-2, 6.48% 2035 7,665 8,285
Wachovia Bank Commercial Mortgage Trust, Series 2002-C1, Class A-2, 5.681% 2034 8,200 8,393
Wachovia Bank Commercial Mortgage Trust, Series 2005-C17, Class A-2, 4.782% 2042 11,000 11,029
Residential Accredit Loans, Inc., Series 2005-QR1, Class A, 6.00% 2034 13,153 13,276
GE Capital Commercial Mortgage Corp., Series 2001-1, Class A-1, 6.079% 2033 4,027 4,164
GE Capital Commerical Mortgage Corp., Series 2002-3, Class A-1, 4.229% 2037 9,101 8,974
Morgan Stanley Mortgage Trust, Series 2004-3, Class 4-A, 5.706% 2034(5) 12,786 12,779
Residential Asset Mortgage Products Trust, Series 2004-RS3, Class A-I-2, 3.052% 2029 5,000 4,943
Residential Asset Mortgage Products Trust, Series 2003-RZ4, Class A-7, 4.79% 2033(5) 7,000 6,927
Host Marriott Pool Trust, Series 1999-HMTA, Class D, 7.97% 2015(3) 10,990 11,739
Banc of America Commercial Mortgage Inc., Series 2001-1, Class A-2, 6.503% 2036 10,000 10,811
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP1, Class A-2, 4.625% 2046 10,000 9,978
Salomon Brothers Commercial Mortgage Trust, Series 2000-C1, Class A-1, 7.46% 2008 3,051 3,188
Salomon Brothers Commercial Mortgage Trust, Series 2000-C3, Class A-1, 6.341% 2033(3) 4,553 4,700
Morgan Stanley Capital I, Inc., Series 2003-KIDS, Class A, 4.06% 2016(3,5) 4,769 4,784
Metropolitan Asset Funding, Inc., Series 1998-A, Class B-1, 7.728% 2014(3) 4,669 4,711
First Union National Bank-Bank of America, N.A. Commercial Mortgage Trust,
Series 2001-C1, Class A-1, 5.711% 2033 2,373 2,398
Morgan Stanley Dean Witter Capital I Trust, Series 2002-HQ, Class A-1, 4.59% 2034 1,159 1,160
Structured Asset Securities Corp., Series 1998-RF2, Class A, 8.544% 2027(3,5) 467 478
Structured Asset Securities Corp., Series 1998-RF1, Class A, 8.731% 2027(3,5) 377 389
Financial Asset Securitization, Inc., Series 1997-NAM1, Class B-1, 7.75% 2027 597 595
1,233,746

MATERIALS -- 1.29%
Abitibi-Consolidated Co. of Canada 6.95% 2006 312 320
Abitibi-Consolidated Co. of Canada 5.25% 2008 22,650 21,971
Abitibi-Consolidated Finance LP 7.875% 2009 12,000 12,240
Abitibi-Consolidated Inc. 8.55% 2010 16,000 16,880
Abitibi-Consolidated Co. of Canada 6.91% 2011(5) 11,850 11,969
Abitibi-Consolidated Co. of Canada 6.00% 2013 10,625 9,961
Abitibi-Consolidated Co. of Canada 8.375% 2015 28,125 29,391
Georgia-Pacific Corp. 7.50% 2006 6,500 6,663
Fort James Corp. 6.875% 2007 5,000 5,225
Georgia-Pacific Corp. 7.375% 2008 15,000 15,938
Georgia-Pacific Corp. 8.875% 2010 17,525 19,803
Georgia-Pacific Corp. 8.125% 2011 8,935 10,074
Georgia-Pacific Corp. 9.50% 2011 7,600 9,158
Georgia-Pacific Corp. 9.375% 2013 21,045 23,886
Georgia-Pacific Corp. 7.70% 2015 950 1,088
Georgia-Pacific Corp. 8.875% 2031 3,450 4,330
Owens-Illinois, Inc. 8.10% 2007 750 786
Owens-Illinois, Inc. 7.35% 2008 9,800 10,192
Owens-Brockway Glass Container Inc. 8.875% 2009 20,975 22,286
Owens-Illinois, Inc. 7.50% 2010 750 788
Owens-Brockway Glass Container Inc. 7.75% 2011 13,500 14,378
Owens-Brockway Glass Container Inc. 8.75% 2012 6,000 6,578
Owens-Brockway Glass Container Inc. 8.25% 2013 14,000 15,208
Lyondell Chemical Co. 9.50% 2008 31,050 33,107
Equistar Chemicals, LP 10.125% 2008 9,825 10,857
Equistar Chemicals, LP and Equistar Funding Corp. 8.75% 2009 625 667
Equistar Chemicals, LP and Equistar Funding Corp. 10.625% 2011 3,550 3,976
Lyondell Chemical Co. 11.125% 2012 4,825 5,494
Norske Skogindustrier ASA 7.625% 2011(3) 38,991 42,754
Norske Skogindustrier ASA 6.125% 2015(3) 11,250 11,279
Boise Cascade, LLC and Boise Cascade Finance Corp. 7.125% 2014 49,800 49,178
Stone Container Corp. 9.25% 2008 8,375 8,794
Stone Container Corp. 9.75% 2011 875 924
Jefferson Smurfit Corp. (U.S.) 8.25% 2012 2,750 2,784
Stone Container Corp. 8.375% 2012 8,475 8,666
Jefferson Smurfit Corp. (U.S.) 7.50% 2013 14,425 13,956
Graphic Packaging International, Inc. 8.50% 2011 19,350 20,318
Graphic Packaging International, Inc. 9.50% 2013 11,050 11,382
Weyerhaeuser Co. 5.95% 2008 8,529 8,848
Weyerhaeuser Co. 5.25% 2009 1,000 1,011
Weyerhaeuser Co. 6.75% 2012 13,890 15,135
Weyerhaeuser Co. 6.875% 2033 2,500 2,767
Smurfit Capital Funding PLC 6.75% 2005 3,425 3,442
JSG Funding PLC 9.625% 2012 8,200 8,323
JSG Funding PLC 7.75% 2015 18,650 15,946
Freeport-McMoRan Copper & Gold Inc. 10.125% 2010 24,390 27,195
United States Steel Corp. 10.75% 2008 10,500 11,852
United States Steel Corp. 9.75% 2010 13,205 14,592
International Paper Co. 4.00% 2010 2,725 2,601
International Paper Co. 6.75% 2011 5,000 5,424
International Paper Co. 5.85% 2012 13,855 14,311
Rhodia 10.25% 2010 17,975 19,458
Ainsworth Lumber Co. Ltd. 7.25% 2012 7,175 6,906
Ainsworth Lumber Co. Ltd. 6.75% 2014 10,000 9,225
Temple-Inland Inc. 7.875% 2012 12,250 13,861
Crystal US Holdings 3 LLC and Crystal US Sub 3 Corp., Series B, 0%/10.50% 2014(7) 10,300 7,468
BCP Caylux Holdings Luxembourg SCA 9.625% 2014 4,550 5,164
NewPage Corp. 9.46% 2012(3,5) 12,250 12,434
Allegheny Technologies, Inc. 8.375% 2011 10,500 11,078
Packaging Corp. of America 4.375% 2008 9,500 9,278
Ispat Inland ULC 9.75% 2014 6,719 7,962
AMH Holdings, Inc. 0%/11.25% 2014(7) 11,500 7,360
Ball Corp. 6.875% 2012 6,000 6,360
Crompton Corp. 9.164% 2010(5) 4,775 5,348
Scotia Pacific Co. LLC, Series B, Class A-2, 7.11% 2028(9) 5,780 4,599
Inco Ltd. 7.75% 2012 4,000 4,583
Gerdau Ameristeel Corp. and GUSAP Partners 10.375% 2011 4,125 4,579
Building Materials Corp. of America, Series B, 8.00% 2007 3,500 3,509
ICI Wilmington, Inc. 5.625% 2013 3,000 3,056
Earle M. Jorgensen Co. 9.75% 2012 2,000 2,180
Oregon Steel Mills, Inc. 10.00% 2009 1,750 1,908
Corporacion Nacional del Cobre de Chile 6.375% 2012(3) 1,500 1,628
AK Steel Corp. 7.75% 2012 1,575 1,473
Rockwood Specialties Group, Inc. 7.50% 2014(3) 1,175 1,193
775,306

INDUSTRIALS -- 1.28%
Bombardier Capital Inc., Series A, 6.125% 2006(3) $40,625 $41,133
Bombardier Inc. 6.75% 2012(3) 40,530 39,719
Bombardier Inc. 6.30% 2014(3) 40,400 38,178
Allied Waste North America, Inc. 8.50% 2008 4,800 5,082
Allied Waste North America, Inc., Series B, 8.875% 2008 48,750 51,675
Allied Waste North America, Inc., Series B, 6.50% 2010 16,000 15,860
Allied Waste North America, Inc., Series B, 5.75% 2011 8,000 7,580
Allied Waste North America, Inc., Series B, 6.125% 2014 7,925 7,450
Allied Waste North America, Inc., Series B, 7.375% 2014 4,500 4,230
Allied Waste North America, Inc. 7.25% 2015(3) 8,500 8,415
Northwest Airlines, Inc. 8.875% 2006 2,200 1,507
Northwest Airlines, Inc. 9.875% 2007 37,400 20,009
Northwest Airlines, Inc. 7.875% 2008 22,000 10,230
Northwest Airlines, Inc. 10.00% 2009 47,000 22,971
Northwest Airlines, Inc., Series 1999-2, Class A, 7.575% 2020(9) 2,493 2,504
Northwest Airlines, Inc., Series 2001-1, Class A-1, 7.041% 2023(9) 4,180 3,989
Cendant Corp. 6.25% 2008 28,000 29,002
Cendant Corp. 7.375% 2013 24,250 27,391
Continental Airlines, Inc. 8.00% 2005 5,010 5,041
Continental Airlines, Inc., Series 2000-2, Class A-1, 7.487% 2012(9) 11,500 11,605
Continental Airlines, Inc., Series 2001-1, Class B, 7.373% 2017(9) 7,312 6,213
Continental Airlines, Inc., Series 1998-1, Class A, 6.648% 2019(9) 2,486 2,452
Continental Airlines, Inc., Series 1997-4, Class A, 6.90% 2019(9) 3,011 3,009
Continental Airlines, Inc., Series 2001-1, Class A-1, 6.703% 2021(9) 13,938 13,736
Continental Airlines, Inc., Series 2000-1, Class B, 8.388% 2022(9) 6,946 5,853
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class B, 7.156% 2011(3,9) 25,842 27,362
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class G, MBIA insured, 6.664% 2013(3,9) 12,332 13,205
Tyco International Group SA 6.125% 2008 13,000 13,573
Tyco International Group SA 6.375% 2011 22,915 24,855
Hutchison Whampoa International Ltd. 7.00% 2011(3) 5,000 5,459
Hutchison Whampoa International Ltd. 6.50% 2013(3) 21,000 22,448
Hutchison Whampoa Finance Ltd., Series B, 7.45% 2017(3) 6,750 7,783
American Standard Inc. 7.375% 2008 5,935 6,289
American Standard Inc. 8.25% 2009 2,124 2,366
American Standard Inc. 7.625% 2010 20,501 22,646
American Standard Inc. 5.50% 2015(3) 3,000 3,019
Waste Management, Inc. 7.00% 2006 7,000 7,206
Waste Management, Inc. 6.50% 2008 5,000 5,252
Waste Management, Inc. 5.00% 2014 7,000 6,911
WMX Technologies, Inc. 7.10% 2026 10,125 11,578
Delta Air Lines, Inc. 8.00% 2007(3) 62,396 16,847
Delta Air Lines, Inc., Series 2001-1, Class A-2, 7.111% 2013 10,000 9,368
Delta Air Lines, Inc., Series 1992-A2, 9.20% 2014(9) 5,000 1,964
Delta Air Lines, Inc. 10.375% 2022 3,000 720
Horizon Lines, LLC and Horizon Lines Holding Corp. 9.00% 2012(3) 14,090 15,182
H-Lines Finance Holding Corp. 0%/11.00% 2013(3,7) 13,000 10,530
General Electric Capital Corp., Series A, 5.375% 2007 8,000 8,137
General Electric Capital Corp., Series A, 6.00% 2012 8,000 8,570
General Electric Co. 5.00% 2013 5,000 5,067
Raytheon Co. -- RC Trust I 7.00% trust preferred 2006 18,000 18,416
Caterpillar Inc. 4.50% 2009 7,000 6,984
Caterpillar Financial Services Corp. 4.30% 2010 10,000 9,865
NTK Holdings, Inc. 0%/10.75% 2014(3,7) 7,500 4,313
THL Buildco, Inc. 8.50% 2014 12,325 12,063
Jacuzzi Brands, Inc. 9.625% 2010 13,441 14,852
Southwest Airlines Co. 5.25% 2014 15,000 14,822
John Deere Capital Corp. 3.90% 2008 9,000 8,888
Accuride Corp. 8.50% 2015 7,575 7,897
American Airlines, Inc., Series 2003-1, Class G, AMBAC insured, 3.857% 2010(9) 2,034 1,966
American Airlines, Inc., Series 2001-2, Class A-1, 6.978% 2012(9) 4,552 4,735
Kansas City Southern Railway Co. 7.50% 2009 5,750 5,951
Terex Corp., Class B, 10.375% 2011 2,000 2,170
Terex Corp. 7.375% 2014 3,500 3,693
TFM, SA de CV 12.50% 2012 4,165 4,925
Dyncorp International LLC 9.50% 2013(3) 4,325 4,314
United Air Lines, Inc. 9.00% 2003(10) 8,000 1,320
United Air Lines, Inc., Series 1996-A2, 7.87% 2019(8,9) 5,000 2,190
Jet Equipment Trust, Series 1995-A, Class B, 8.64% 2015(3,8,9) 7,790 1
Jet Equipment Trust, Series 1995-B, Class C, 9.71% 2015(3,8,9) 5,500 1
770,537

U.S. GOVERNMENT & GOVERNMENT AGENCY BONDS & NOTES -- 1.24%
U.S. Treasury 5.75% 2005 138,250 139,103
U.S. Treasury 3.25% 2007 40,000 39,416
U.S. Treasury 4.375% 2007 50,000 50,332
U.S. Treasury 2.625% 2008 5,000 4,814
U.S. Treasury 3.625% 2008(11) 12,034 12,609
U.S. Treasury 3.625% 2009 41,500 40,745
U.S. Treasury 3.875% 2009(11) 41,788 44,834
U.S. Treasury Principal Strip 0% 2011 5,660 4,416
U.S. Treasury 3.50% 2011(11) 11,171 12,150
U.S. Treasury Principal Strip 0% 2013 6,585 4,612
U.S. Treasury 2.00% 2014(11) 17,887 18,045
U.S. Treasury 8.875% 2017 32,500 45,967
U.S. Treasury 6.875% 2025 63,500 82,709
Freddie Mac 1.875% 2006 3,765 3,723
Freddie Mac 6.625% 2009 84,250 91,356
Freddie Mac 4.125% 2010 19,250 19,004
Federal Home Loan Bank 2.00% 2006 29,865 29,552
Federal Home Loan Bank 2.375% 2006 26,870 26,568
Federal Home Loan Bank 5.823% 2009 17,000 17,755
Fannie Mae 6.625% 2009 24,750 26,830
Fannie Mae 6.25% 2029 8,000 9,552
Federal Agricultural Mortgage Corp. 4.25% 2008 20,000 19,919
744,011

UTILITIES -- 1.11%
Edison Mission Energy 10.00% 2008 19,250 21,560
Mission Energy Holding Co. 13.50% 2008 22,230 26,676
Edison Mission Energy 7.73% 2009 16,720 17,723
Edison Mission Energy 9.875% 2011 32,930 38,940
Midwest Generation, LLC, Series B, 8.56% 2016(9) 10,408 11,585
Homer City Funding LLC 8.734% 2026(9) 9,941 11,830
Midwest Generation, LLC and Midwest Finance Corp. 8.75% 2034 24,675 27,759
AES Corp. 9.50% 2009 39,815 44,593
AES Corp. 9.375% 2010 8,752 9,977
AES Corp. 8.75% 2013(3) 68,100 75,761
AES Red Oak, LLC, Series B, 9.20% 2029(9) 2,000 2,300
Israel Electric Corp. Ltd. 7.95% 2011(3) 5,000 5,691
Israel Electric Corp. Ltd. 7.70% 2018(3) 22,500 25,736
Israel Electric Corp. Ltd. 8.10% 2096(3) 14,405 15,660
Dynegy Holdings Inc. 9.875% 2010(3) 11,750 13,043
Dynegy Holdings Inc. 10.125% 2013(3) 26,400 30,228
Nevada Power Co., General and Refunding Mortgage Bonds, Series A, 8.25% 2011 6,000 6,840
Nevada Power Co., General and Refunding Mortgage Notes, Series I, 6.50% 2012 4,250 4,505
Nevada Power Co., General and Refunding Mortgage Notes, Series G, 9.00% 2013 15,595 17,583
Sierra Pacific Resources 8.625% 2014 2,725 3,032
Nevada Power Co., Series L, 5.875% 2015(3) 5,675 5,845
Virginia Electric and Power Co., Series 2002-A, 5.375% 2007 8,000 8,106
Dominion Resources, Inc., Series 2002-D, 5.125% 2009 22,500 22,765
Dominion Resources, Inc., Series 2000-A, 8.125% 2010 5,000 5,683
Texas Genco LLC and Texas Genco Financing Corp. 6.875% 2014(3) 26,675 28,142
PSEG Energy Holdings Inc. 8.625% 2008 8,800 9,438
PSEG Power LLC 7.75% 2011 7,500 8,547
PSEG Power LLC 5.00% 2014 10,000 9,938
NiSource Finance Corp. 7.625% 2005 9,000 9,090
NiSource Finance Corp. 7.875% 2010 15,000 16,964
Alabama Power Co., Series U, 2.65% 2006 5,000 4,962
Alabama Power Co., Series X, 3.125% 2008 3,750 3,621
Alabama Power Co., Series R, 4.70% 2010 1,250 1,244
Southern Power Co., Series B, 6.25% 2012 9,000 9,676
Alabama Power Co., Series Q, 5.50% 2017 5,000 5,199
Duke Capital Corp. 7.50% 2009 7,000 7,679
Duke Capital Corp. 6.25% 2013 4,500 4,827
Duke Capital Corp. 5.50% 2014 5,000 5,101
Duke Capital LLC 5.668% 2014 1,500 1,545
Reliant Energy Resources Corp. 7.75% 2011 13,000 14,722
Centerpoint Energy, Inc., Series B, 6.85% 2015 3,000 3,331
Cilcorp Inc. 8.70% 2009 9,000 10,283
Cilcorp Inc. 9.375% 2029 3,000 4,370
Exelon Corp. 6.75% 2011 1,000 1,093
Exelon Generation Co., LLC 6.95% 2011 11,300 12,481
Constellation Energy Group, Inc. 6.125% 2009 12,000 12,604
Progress Energy, Inc. 6.75% 2006 5,000 5,068
Progress Energy, Inc. 5.85% 2008 2,500 2,581
Progress Energy, Inc. 7.10% 2011 2,500 2,750
Appalachian Power Co., Series G, 3.60% 2008 6,770 6,606
Oncor Electric Delivery Co. 6.375% 2015 5,000 5,466
Pacific Gas and Electric Co., First Mortgage Bonds, 6.05% 2034 4,000 4,303
MidAmerican Energy Co. 4.65% 2014 3,200 3,116
Tri-State Generation and Transmission Association Inc., Pass Through Trust,
Series 2003-A, 6.04% 2018(3,9) 2,965 3,079
671,247

ENERGY -- 1.08%
Port Arthur Finance Corp. 12.50% 2009(9) 437 497
Premcor Refining Group Inc. 9.25% 2010 13,875 15,332
Premcor Refining Group Inc. 6.125% 2011 37,500 39,375
Premcor Refining Group Inc. 6.75% 2011 15,650 16,863
Premcor Refining Group Inc. 7.75% 2012 3,000 3,263
Premcor Refining Group Inc. 9.50% 2013 57,215 65,797
Premcor Refining Group Inc. 6.75% 2014 46,000 49,220
Premcor Refining Group Inc. 7.50% 2015 22,000 23,870
Williams Companies, Inc. 6.75% 2009(3) 8,000 8,400
Northwest Pipeline Corp. 8.125% 2010 5,000 5,450
Transcontinental Gas Pipe Line Corp., Series B, 7.00% 2011 19,765 21,692
Williams Companies, Inc. 7.125% 2011 38,750 42,431
Williams Companies, Inc. 8.125% 2012 14,810 17,106
Williams Companies, Inc. 7.875% 2021 10,000 11,625
Williams Companies, Inc. 8.75% 2032 7,000 8,698
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 2009(3,9) 44,920 43,812
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 2009(9) 864 843
Ras Laffan Liquefied Natural Gas Co. Ltd. 8.294% 2014(3,9) 13,329 15,662
Ras Laffan Liquefied Natural Gas Co. Ltd. 8.294% 2014(9) 4,325 5,082
Newfield Exploration Co., Series B, 7.45% 2007 6,000 6,345
Newfield Exploration Co. 7.625% 2011 1,500 1,650
Newfield Exploration Co. 8.375% 2012 11,400 12,483
Newfield Exploration Co. 6.625% 2014 32,075 33,759
Tengizchevroil Finance Co. S.ar.l., Series A, 6.124% 2014(3,9) 28,500 29,034
Tengizchevroil Finance Co. S.ar.l., Series A, 6.124% 2014(9) 9,000 9,169
Devon Financing Corp., ULC 6.875% 2011 24,500 27,087
Devon Energy Corp. 7.95% 2032 7,250 9,394
Overseas Shipholding Group, Inc. 8.25% 2013 27,110 28,872
Overseas Shipholding Group, Inc. 7.50% 2024 850 825
General Maritime Corp. 10.00% 2013 20,225 22,197
Western Oil Sands Inc. 8.375% 2012 10,175 11,816
XTO Energy Inc. 7.50% 2012 8,850 10,037
Oryx Energy Co. 8.125% 2005 8,500 8,604
Petroleum Export Ltd., Class A-2, XLCA insured, 4.633% 2010(3,9) 8,500 8,482
Pemex Project Funding Master Trust 7.875% 2009 1,600 1,740
Pemex Project Funding Master Trust 7.375% 2014 3,500 3,876
Pemex Project Funding Master Trust 8.625% 2022 500 608
OXYMAR 7.50% 2016(3) 5,500 5,680
Delek & Avner-Yam Tethys Ltd. 5.326% 2013(3,9) 4,968 4,905
Peabody Energy Corp., Series B, 6.875% 2013 4,300 4,580
PETRONAS Capital Ltd. 7.00% 2012(3) 4,000 4,494
Sunoco, Inc. 4.875% 2014 4,500 4,421
Reliance Industries Ltd., Series B, 10.25% 2097 3,125 3,581
648,657

INFORMATION TECHNOLOGY -- 1.04%
Electronic Data Systems Corp. 6.334% 2006 10,000 10,140
Electronic Data Systems Corp. 7.125% 2009 43,250 46,282
Electronic Data Systems Corp., Series B, 6.50% 2013(5) 137,150 139,204
Celestica Inc. 7.875% 2011 32,275 33,405
Celestica Inc. 7.625% 2013 36,195 36,738
Motorola, Inc. 4.608% 2007 10,000 10,003
Motorola, Inc. 8.00% 2011 38,985 45,349
Motorola, Inc. 5.22% 2097 14,506 11,896
Sanmina-SCI Corp. 10.375% 2010 35,500 39,583
Sanmina-SCI Corp. 6.75% 2013 19,000 18,383
Jabil Circuit, Inc. 5.875% 2010 53,450 55,017
Flextronics International Ltd. 6.50% 2013 47,375 49,033
Amkor Technology, Inc. 10.50% 2009 7,355 6,656
Amkor Technology, Inc. 7.125% 2011 19,085 16,747
Amkor Technology, Inc. 7.75% 2013 11,000 9,405
Xerox Corp. 7.125% 2010 21,000 22,260
Nortel Networks Ltd. 6.125% 2006 21,000 21,158
SunGard Data Systems Inc. 10.25% 2015(3) 18,000 18,743
Freescale Semiconductor, Inc. 6.875% 2011 15,000 15,900
MagnaChip Semiconductor SA and MagnaChip Semiconductor Finance Co. 6.66% 2011(3,5) 7,275 7,311
MagnaChip Semiconductor SA and MagnaChip Semiconductor Finance Co. 6.875% 2011(3) 975 970
Solectron Corp., Series B, 7.375% 2006 5,450 5,559
Hyundai Semiconductor America, Inc. 8.625% 2007(3) 4,860 5,029
624,771

CONSUMER STAPLES -- 0.88%
Ahold Finance U.S.A., Inc. 6.25% 2009 83,168 84,831
Ahold Finance U.S.A., Inc. 8.25% 2010 65,555 72,438
Ahold Lease Pass Through Trust, Series 2001-A-1, 7.82% 2020(9) 12,277 13,389
Ahold Lease Pass Through Trust, Series 2001-A-2, 8.62% 2025(9) 14,400 15,993
Rayovac Corp. 7.375% 2015(3) 79,775 79,177
Delhaize America, Inc. 7.375% 2006 10,000 10,243
Delhaize America, Inc. 8.125% 2011 27,745 31,081
Jean Coutu Group (PJC) Inc. 7.625% 2012 2,500 2,613
Jean Coutu Group (PJC) Inc. 8.50% 2014 33,500 33,374
Burns Philp Capital Pty Ltd. and Burns Philp Capital (U.S.) Inc., Series B, 9.50% 2010 3,000 3,300
Burns Philp Capital Pty Ltd. and Burns Philp Capital (U.S.) Inc., Series B, 10.75% 2011 8,675 9,673
Burns Philp Capital Pty Ltd., Series B, 9.75% 2012 12,100 13,250
Rite Aid Corp. 6.875% 2013 12,450 11,049
Rite Aid Corp. 9.25% 2013 14,050 14,015
Kraft Foods Inc. 6.25% 2012 14,000 15,133
Kraft Foods Inc. 6.50% 2031 5,000 5,709
Stater Bros. Holdings Inc. 6.91% 2010(5) 6,525 6,639
Stater Bros. Holdings Inc. 8.125% 2012 9,775 9,922
Anheuser-Busch Companies, Inc. 9.00% 2009 10,000 11,714
Anheuser-Busch Companies, Inc. 4.70% 2012 4,000 4,034
CVS Corp. 5.789% 2026(3,9) 7,229 7,620
CVS Corp. 5.298% 2027(3,9) 3,378 3,425
Playtex Products, Inc. 8.00% 2011 10,000 10,750
Pepsi Bottling Group, Inc. 5.625% 2009(3) 10,000 10,375
Cadbury Schweppes US Finance LLC 5.125% 2013(3) 10,000 9,973
SUPERVALU INC. 7.50% 2012 8,025 9,051
Kellogg Co. 7.45% 2031 5,000 6,477
Winn-Dixie Pass Through Trust, Series 1999-1, Class A-1, 5.24% 2017(3,9,12) 8,285 6,260
Gold Kist Inc. 10.25% 2014 5,306 6,029
PepsiAmericas, Inc. 4.875% 2015 6,000 5,969
Duane Reade Inc. 7.91% 2010(3,5) 6,000 5,880
Pathmark Stores, Inc. 8.75% 2012 1,870 1,868
531,254

HEALTH CARE -- 0.83%
HCA Inc. 7.125% 2006 7,785 7,967
Columbia/HCA Healthcare Corp. 7.00% 2007 6,250 6,469
Columbia/HCA Healthcare Corp. 8.85% 2007 12,500 13,176
Columbia/HCA Healthcare Corp. 7.25% 2008 1,000 1,051
HCA Inc. 5.50% 2009 20,900 20,858
Columbia/HCA Healthcare Corp. 8.70% 2010 9,500 10,567
HCA -- The Healthcare Co. 8.75% 2010 7,750 8,736
HCA -- The Healthcare Co. 7.875% 2011 40,000 44,007
Cardinal Health, Inc. 6.75% 2011 26,500 28,896
Cardinal Health, Inc. 4.00% 2015 35,000 31,902
Warner Chilcott Corp. 8.75% 2015(3) 61,065 60,607
Tenet Healthcare Corp. 6.375% 2011 17,300 16,522
Tenet Healthcare Corp. 9.875% 2014 31,625 33,997
Tenet Healthcare Corp. 9.25% 2015(3) 9,700 10,040
American Medical Response, Inc. and EmCare Holdings, Inc. 10.00% 2015(3) 29,470 31,680
Quintiles Transnational Corp. 10.00% 2013 13,050 14,616
Pharma Services Intermediate Holding Corp. 0%/11.50% 2014(7) 20,660 15,598
Aetna Inc. 7.375% 2006 22,000 22,387
Aetna Inc. 7.875% 2011 4,500 5,160
Team Health, Inc. 9.00% 2012 24,000 25,200
Health Net, Inc. 9.875% 2011(5) 19,080 22,412
Triad Hospitals, Inc. 7.00% 2012 15,000 15,750
Humana Inc. 7.25% 2006 13,375 13,679
Wyeth 4.375% 2008(5) 2,500 2,491
Wyeth 5.50% 2013(5) 6,500 6,737
Amgen Inc. 4.00% 2009 9,125 8,943
Concentra Operating Corp. 9.50% 2010 4,975 5,323
Concentra Operating Corp. 9.125% 2012 2,905 3,094
HealthSouth Corp. 8.375% 2011 1,400 1,409
HealthSouth Corp. 7.625% 2012 6,600 6,501
MedCath Holdings Corp. 9.875% 2012 3,875 4,330
500,105

ASSET-BACKED OBLIGATIONS(9) -- 0.57%
CWABS, Inc., Series 2004-12, Class 2-AV-2, 3.74% 2033(5) 11,750 11,780
CWABS, Inc., Series 2004-15, Class AF-5, 5.227% 2035 14,250 14,116
Vita Capital Ltd., Series 2003-I, 4.854% 2007(3,5) 24,000 24,094
Green Tree Financial Corp., Series 1995-3, Class B-2, 8.10% 2025(8) 13,517 3,109
Green Tree Financial Corp., Series 1995-2, Class B-2, 8.80% 2026(8) 9,716 3,984
Green Tree Financial Corp., Series 1996-2, Class B-2, 7.90% 2027(8) 9,138 23
Green Tree Financial Corp., Series 1997-6, Class B-2, 7.75% 2029(8) 7,345 18
Conseco Finance Home Loan Trust, Series 1999-G, Class B-2, 10.96% 2029(8) 17,655 16,772
Green Tree Financial Corp., Series 1998-4, Class B-2, 8.11% 2030(8) 4,493 -
ARG Funding Corp., Series 2005-2, Class A-4, AMBAC insured, 4.84% 2011(3) 20,000 20,112
Advanta Business Card Master Trust, Series 2005-A2, Class A-1, 3.47% 2013(5) 18,000 18,000
Metris Master Trust, Series 2000-3, Class A, 3.69% 2009(5) 14,428 14,442
AmeriCredit Automobile Receivables Trust, Series 2002-C, Class A-4, FSA insured, 3.55% 2009 5,000 4,975
AmeriCredit Automobile Receivables Trust, Series 2003-C-F, Class A-4, FSA insured, 3.48% 2010 9,000 8,918
AESOP Funding II LLC, Series 2002-1A, Class A-1, AMBAC insured, 3.85% 2006(3) 3,963 3,962
AESOP Funding II LLC, Series 2003-2, Class A-1, MBIA insured, 2.74% 2007(3) 8,000 7,919
Residential Asset Securities Corp. Trust, Series 2003-KS2, Class A-I-3, 2.66% 2028 153 153
Residential Asset Securities Corp. Trust, Series 2001-KS3, Class A-I-6, 5.96% 2031 8,433 8,547
Residential Asset Securities Corp. Trust, Series 2003-KS6, Class A-2, 3.76% 2033(5) 2,836 2,838
Consumer Credit Reference Index Securities Program Trust, Series 2002-2A, Class FL, 8.564% 2007(3,5) 5,000 5,045
Consumer Credit Reference Index Securities Program Trust, Series 2002-2A, Class FX, 10.421% 2007(3) 5,000 5,129
Home Equity Asset Trust, Series 2004-7, Class M-1, 4.08% 2035(5) 10,000 10,074
Prestige Auto Receivables Trust, Series 2005-1A, Class A-2, FSA insured, 4.37% 2012(3) 10,000 10,006
Triad Automobile Receivables Trust, Series 2005-A, Class A-4, AMBAC insured, 4.22% 2012 10,000 9,914
MBNA Master Credit Card Trust II, Series 1999-D, Class C, 6.95% 2008(3) 4,700 4,807
MBNA Master Credit Card Trust II, Series 2000-H, Class B, 3.988% 2013(5) 5,000 5,084
PG&E Energy Recovery Funding LLC, Series 2005-1, Class A-3, 4.14% 2012 10,000 9,886
Structured Asset Investment Loan Trust, Series 2004-BNC2, Class A-4, 3.78% 2034(5) 9,407 9,448
Mediterranean Re PLC, Class B, 9.12% 2005(3,5) 9,000 9,162
Drive Auto Receivables Trust, Series 2005-2, Class A-3, MBIA insured, 4.26% 2012(3) 8,900 8,814
First USA Credit Card Master Trust, Series 1997-4, Class C, 4.409% 2010(3,5) 6,500 6,524
First USA Credit Card Master Trust, Series 1998-6, Class C, 6.16% 2011(3) 2,000 2,070
Vanderbilt Mortgage and Finance, Inc., Series 1999-B, Class I-A-6, 6.925% 2024 7,706 8,174
MMCA Auto Owner Trust, Series 2001-4, Class B, 4.84% 2008 955 955
MMCA Auto Owner Trust, Series 2002-4, Class A-4, 3.05% 2009 4,264 4,233
MMCA Auto Owner Trust, Series 2002-4, Class B, 3.82% 2009 2,452 2,436
Ameriquest Mortgage Securities Inc., Series 2003-12, Class M-1, 4.21% 2033(5) 7,000 7,069
WFS Financial Owner Trust, Series 2002-3, Class A-4, 3.50% 2010 6,898 6,871
CitiFinancial Mortgage Securities Inc., Series 2003-3, Class AF-5, 4.553% 2033 6,500 6,431
Banco Itau SA, Series 2002, XLCA insured, 3.996% 2007(3,5) 6,122 6,122
PIONEER 2002 Ltd., Series 2002-I, Class D, 5.16% 2006(3,5) 6,000 6,026
Centex Home Equity Loan Trust, Series 2003-A, Class AF-3, 2.708% 2026 706 705
Centex Home Equity Loan Trust, Series 2005-A, Class AF-3, 4.14% 2028 5,000 4,927
Specialty Underwriting and Residential Finance Trust, Series 2004-BC4, Class A-2B, 3.77% 2035(5) 5,000 5,009
Chevy Chase Auto Receivables Trust, Series 2001-2, Class B, 5.16% 2008 4,332 4,349
CPS Auto Receivables Trust, Series 2002-C, Class A-2, XLCA insured, 3.52% 2009(3) 3,779 3,763
Long Beach Mortgage Loan Trust, Series 2004-A, Class M-3, 4.41% 2024(5) 3,500 3,531
Drivetime Auto Owner Trust, Series 2003-A, Class A-3, XLCA insured, 2.524% 2008(3) 2,600 2,584
California Infrastructure and Economic Development Bank, Special Purpose Trust, PG&E-1,
Series 1997-1, Class A-7, 6.42% 2008 2,470 2,506
Financial Pacific Funding II, LLC, Series 2003-A, Class A, FSA insured, 2.29% 2009(3) 2,495 2,457
SeaWest Securitization, LLC, Series 2002-A, Class A-3, XLCA insured, 3.58% 2008(3) 698 697
SeaWest Securitization, LLC, Series 2003-A, Class A-2, XLCA insured, 2.84% 2009(3) 1,121 1,113
Nebhelp Trust, Student Loan Interest Margin Securities, Series 1, Class A, MBIA insured, 6.68% 2016(3) 1,326 1,350
PECO Energy Transition Trust, Series 1999-A, Class A-7, 6.13% 2009 1,250 1,300
NPF XII, Inc., Series 1999-3, Class B, 2.389% 2003(3,5,10) 3,000 0
NPF XII, Inc., Series 2001-1A, Class A, 1.989% 2004(3,5,10) 5,000 200
NPF XII, Inc., Series 2001-3, Class A, 5.52% 2007(3,8) 1,000 40
342,573

NON-U.S. GOVERNMENT BONDS & NOTES -- 0.26%
United Mexican States Government Global 4.625% 2008 10,000 9,958
United Mexican States Government Global 8.625% 2008 5,000 5,500
United Mexican States Government Eurobonds, Global 8.375% 2011 3,000 3,449
United Mexican States Government Eurobonds, Global 7.50% 2012 6,310 7,064
United Mexican States Government Global 6.375% 2013 7,500 7,946
United Mexican States Government Global 11.375% 2016 29,684 43,561
United Mexican States Government Global 8.125% 2019 2,061 2,497
United Mexican States Government Global 8.30% 2031 1,965 2,434
United Mexican States Government Global 7.50% 2033 2,833 3,249
Russian Federation 8.25% 2010 25,250 27,502
Russian Federation 8.25% 2010(3) 10,000 10,892
Russian Federation 5.00% 2030(5) 7,770 8,644
State of Qatar 9.75% 2030 9,000 13,635
El Salvador (Republic of) 7.75% 2023 3,000 3,383
El Salvador (Republic of) 7.75% 2023(3) 1,250 1,409
Banque Centrale de Tunisie 7.375% 2012 3,500 3,968
155,091

MUNICIPALS -- 0.10%
State of California, Golden State Tobacco Securitization Corp., Tobacco
Settlement Asset-backed Bonds, Series 2003-A1, 6.25% 2033 19,750 22,031
State of New Jersey, Tobacco Settlement Financing Corp., Tobacco Settlement
Asset-backed Bonds, Series 2003, 4.375% 2019 1,945 1,973
State of New Jersey, Tobacco Settlement Financing Corp., Tobacco Settlement
Asset-backed Bonds, Series 2003, 6.125% 2024 9,625 10,901
State of Wisconsin, Badger Tobacco Asset Securitization Corp., Tobacco Settlement
Asset-backed Bonds, 6.125% 2027 9,125 9,830
State of Louisiana, Tobacco Settlement Financing Corp., Tobacco Settlement
Asset-backed Bonds, Series 2001-A, Class A, 6.36% 2025 4,805 4,804
State of California, Department of Water Resources, Power Supply Revenue Bonds,
Series 2002-E, 4.33% 2006 4,500 4,502
State of South Dakota, Educational Enhancement Funding Corp., Tobacco Settlement
Asset-backed Bonds, Series 2002-A, Class A, 6.72% 2025 4,383 4,317
58,358

MISCELLANEOUS -- 0.01%
Other bonds & notes in initial period of acquisition 4,336

Total bonds & notes (cost: $13,066,611,000) 13,296,315

Short-term securities -- 7.29%

Federal Home Loan Bank 3.08%-3.425% due 8/5-10/14/2005 383,000 381,479
Freddie Mac 3.07%-3.455% due 8/1-10/18/2005 337,200 335,877
Procter & Gamble Co. 3.20%-3.33% due 8/23-9/14/2005(3,13) 250,900 250,116
CAFCO, LLC 3.18%-3.44% due 8/12-9/14/2005(3) 175,000 174,426
Ciesco LLC 3.18% due 8/12/2005(3) 50,000 49,947
Park Avenue Receivables Co., LLC 3.21%-3.29% due 8/10-8/17/2005(3) 120,800 120,659
Preferred Receivables Funding Corp. 3.34%-3.45% due 9/20/2005(3) 100,000 99,524
DuPont (E.I.) de Nemours & Co. 3.20%-3.30% due 8/12-9/2/2005 214,235 213,750
Variable Funding Capital Corp. 3.12%-3.47% due 8/2-9/27/2005(3) 207,400 206,817
Wal-Mart Stores Inc. 3.10%-3.49% due 8/10-10/4/2005(3) 200,800 200,140
Wells Fargo & Co. 3.13%-3.45% due 8/4-9/21/2005 190,600 190,598
Edison Asset Securitization LLC 3.16% due 8/5/2005(3) 50,000 49,978
General Electric Capital Corp. 3.27% due 8/24/2005 50,000 49,895
General Electric Capital Services, Inc. 3.31% due 8/29/2005 50,000 49,867
General Electric Co. 3.47% due 9/28/2005 35,000 34,804
Bank of America Corp. 3.20%-3.50% due 8/9-10/7/2005 150,000 149,521
Ranger Funding Co. LLC 3.27% due 8/11/2005(3) 25,000 24,975
Clipper Receivables Co., LLC 3.28%-3.44% due 8/19-9/13/2005(3) 175,000 174,481
International Lease Finance Corp. 3.23%-3.42% due 8/16-9/23/2005 119,000 118,682
American General Finance Corp. 3.17% due 8/8/2005 25,000 24,982
Gannett Co. 3.10%-3.37% due 8/11-9/8/2005(3) 125,000 124,654
Three Pillars Funding, LLC 3.28%-3.44% due 8/1-9/26/2005(3) 112,495 112,261
IBM Corp. 3.22%-3.24% due 8/11-8/26/2005 104,000 103,825
HSBC Finance Corp. 3.23%-3.40% due 8/19-9/26/2005 103,900 103,620
International Bank for Reconstruction and Development 3.05%-3.30% due 8/15-9/26/2005 100,000 99,668
Tennessee Valley Authority 3.21%-3.22% due 9/15/2005 100,000 99,551
Triple-A One Funding Corp. 3.34%-3.44% due 8/15-9/8/2005(3) 90,052 89,820
Anheuser-Busch Companies, Inc. 3.14%-3.48% due 8/9-10/17/2005(3) 89,500 89,211
American Express Credit Corp. 3.21%-3.23% due 8/17-8/29/2005 75,700 75,538
Coca-Cola Co. 3.10%-3.22% due 8/8-8/18/2005 69,700 69,633
PepsiCo Inc. 3.19%-3.28% due 8/3-8/18/2005(3) 64,800 64,746
Private Export Funding Corp. 3.53%-3.54% due 10/26/2005(3) 65,000 64,448
NetJets Inc. 3.33%-3.50% due 9/6-9/29/2005(3) 55,000 54,768
USAA Capital Corp. 3.13%-3.23% due 8/1-8/15/2005 50,000 49,963
FCAR Owner Trust I 3.25%-3.38% due 8/15-9/12/2005 50,000 49,865
Hershey Co. 3.28%-3.29% due 8/16-8/31/2005(3) 42,400 42,316
Colgate-Palmolive Co. 3.22% due 8/4/2005(3) 39,100 39,086
U.S. Treasury Bills 2.923%-2.975% due 8/11-9/1/2005 36,900 36,817
Illinois Tool Works Inc. 3.22% due 8/3/2005 35,000 34,991
Bank of New York Co., Inc. 3.31% due 8/25/2005 25,000 24,943
BellSouth Corp. 3.37% due 9/9/2005(3) 25,000 24,906
Harvard University 3.38% due 9/21/2005 25,000 24,878
United Parcel Service Inc. 3.21% due 8/2/2005 5,200 5,199

Total short-term securities (cost: $4,385,264,000) 4,385,225

Total investment securities (cost: $52,717,827,000) 59,941,721
Other assets less liabilities 209,847

Net assets $60,151,568

"Miscellaneous" securities include holdings in their initial period of
acquisition that have not previously been publicly disclosed.

(1) Represents an affiliated company as defined under the Investment Company
Act of 1940.
(2) Security did not produce income during the last 12 months.
(3) Purchased in a private placement transaction; resale may be limited to
qualified institutional buyers; resale to the public may require
registration. The total value of all such restricted securities was
$4,916,930,000, which represented 8.17% of the net assets of the fund.
(4) Valued under fair value procedures adopted by authority of the Board of
Directors.
(5) Coupon rate may change periodically.
(6) Payment in kind; the issuer has the option of paying additional securities
in lieu of cash.
(7) Step bond; coupon rate will increase at a later date.
(8) Company not making scheduled 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) Company did not make principal payment upon scheduled maturity date;
reorganization pending.
(11) Index-linked bond whose principal amount moves with a government retail
price index.
(12) Scheduled interest payments not made; reorganization pending.
(13) This security, or a portion of this security, has been segregated to cover
funding requirements on investment transactions settling in the future.

ADR = American Depositary Receipts

See Notes to Financial Statements

FINANCIAL STATEMENTS

Statement of assets and liabilities
at July 31, 2005 (dollars and shares in thousands,
except per-share amounts)

Assets:
Investment securities at market:
Unaffiliated issuers (cost: $51,519,935) $58,645,101
Affiliated issuers (cost: $1,197,892) 1,296,620 $59,941,721
Cash denominated in non-U.S. currencies
(cost: $3,024) 3,322
Cash 53,261
Receivables for:
Sales of investments 139,359
Sales of fund's shares 145,328
Dividends and interest 376,444 661,131
60,659,435
Liabilities:
Payables for:
Purchases of investments 219,455
Repurchases of fund's shares 41,146
Dividends on fund's shares 205,155
Investment advisory services 10,484
Services provided by affiliates 29,361
Deferred Directors' compensation 1,887
Other fees and expenses 379 507,867
Net assets at July 31, 2005 $60,151,568

Net assets consist of:
Capital paid in on shares of capital stock $51,222,483
Undistributed net investment income 501,690
Undistributed net realized gain 1,204,347
Net unrealized appreciation 7,223,048
Net assets at July 31, 2005 $60,151,568

Total authorized capital stock - 5,500,000 shares, $.001 par value (3,219,798
total shares outstanding)

Net assets Shares outstanding Net asset value per share
(1)
Class A $47,196,081 2,523,657 $18.70
Class B 4,135,033 222,235 18.61
Class C 5,755,881 309,765 18.58
Class F 1,603,140 85,823 18.68
Class 529-A 328,233 17,567 18.68
Class 529-B 73,999 3,969 18.65
Class 529-C 153,169 8,211 18.65
Class 529-E 17,305 927 18.66
Class 529-F 5,350 286 18.68
Class R-1 18,637 999 18.65
Class R-2 270,437 14,538 18.60
Class R-3 393,908 21,100 18.67
Class R-4 120,043 6,424 18.69
Class R-5 80,352 4,297 18.70

(1) Maximum offering price and redemption price per share were equal to the net
asset value per share for all share classes, except for classes A and
529-A, for which the maximum offering prices per share were $19.84 and
$19.82, respectively.

See Notes to Financial Statements

Statement of operations
for the year ended July 31, 2005 (dollars in thousands)

Investment income:
Income:
Dividends (net of non-U.S. withholding
tax of $33,453; also includes
$55,090 from affiliates) $1,523,306
Interest (net of non-U.S. withholding
tax of $4; also includes
$1,728 from affiliates) 1,018,098 $2,541,404

Fees and expenses: (1)
Investment advisory services 131,860
Distribution services 188,300
Transfer agent services 28,610
Administrative services 13,025
Reports to shareholders 1,106
Registration statement and prospectus 3,105
Postage, stationery and supplies 3,011
Directors' compensation 601
Auditing and legal 186
Custodian 2,674
State and local taxes 1
Other 139
Total fees and expenses before reimbursements/waivers 372,618
Less reimbursement/waiver of fees and expenses:
Investment advisory services 8,405
Administrative services 310
Total fees and expenses after reimbursements/waivers 363,903
Net investment income 2,177,501

Net realized gain and unrealized
appreciation on investments
and non-U.S. currency:
Net realized gain (loss) on:
Investments (including $235 net loss from affiliates) 1,210,647
Non-U.S. currency transactions (7,242) 1,203,405
Net unrealized appreciation (depreciation) on:
Investments 3,379,489
Non-U.S. currency translations (980) 3,378,509
Net realized gain and
unrealized appreciation
on investments and non-U.S. currency 4,581,914
Net increase in net assets resulting
from operations $6,759,415

(1) Additional information related to class-specific fees and expenses is
included in the Notes to Financial Statements.

See Notes to Financial Statements

Statements of changes in net assets (dollars in thousands)

Year ended July 31
2005 2004
Operations:
Net investment income $2,177,501 $1,557,944
Net realized gain on investments and
non-U.S. currency transactions 1,203,405 732,245
Net unrealized appreciation
on investments and non-U.S. currency translations 3,378,509 2,871,155
Net increase in net assets
resulting from operations 6,759,415 5,161,344

Dividends and distributions paid or accrued to
shareholders:
Dividends from net investment income (1,825,496) (1,635,840)
Distributions from net realized gain
on investments (377,655) -
Total dividends and distributions paid or accrued
to shareholders (2,203,151) (1,635,840)

Capital share transactions 10,692,258 10,818,973

Total increase in net assets 15,248,522 14,344,477

Net assets:
Beginning of year 44,903,046 30,558,569
End of year (including undistributed
net investment income: $501,690 and $154,465, respectively) $60,151,568 $44,903,046

See Notes to Financial Statements

NOTES TO FINANCIAL STATEMENTS

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.

The fund offers 14 share classes consisting of four retail share classes, five
CollegeAmerica(R) savings plan share classes and five retirement plan share
classes. The CollegeAmerica savings plan share classes (529-A, 529-B, 529-C,
529-E and 529-F) are sponsored by the Commonwealth of Virginia and can be
utilized to save for college education. The five retirement plan share classes
(R-1, R-2, R-3, R-4 and R-5) are sold without any sales charges and do not carry
any conversion rights. The fund's share classes are described below:

---------------------------------------------------------------------------------------------------------
Share class Initial sales charge Contingent deferred sales Conversion feature
charge upon redemption
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Classes A and 529-A Up to 5.75% None (except 1% for None
certain redemptions
within one year of
purchase without an
initial sales charge)
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Classes B and 529-B None Declines from 5% to 0% Classes B and 529-B convert to
for redemptions within classes A and 529-A,
six years of purchase respectively, after eight years
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Class C None 1% for redemptions within Class C converts to Class F
one year of purchase after 10 years
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Class 529-C None 1% for redemptions within None
one year of purchase
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Class 529-E None None None
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Classes F and 529-F None None None
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Classes R-1, R-2, R-3, None None None
R-4 and R-5
---------------------------------------------------------------------------------------------------------

Holders of all share classes have equal pro rata rights to assets, dividends and
liquidation proceeds. Each share class has identical voting rights, except for
the exclusive right to vote on matters affecting only its class. Share classes
have different fees and expenses ("class-specific fees and expenses"), primarily
due to different arrangements for distribution, administrative and shareholder
services. Differences in class-specific fees and expenses will result in
differences in net investment income and, therefore, the payment of different
per-share dividends by each class.

CollegeAmerica is a registered trademark of the Virginia College Savings
Plan.(SM)

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

SECURITY VALUATION - Equity securities are valued at the official
closing price of, or 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. Prices for each security are
taken from the principal exchange or market in which the security
trades. Fixed-income securities, including short-term securities
purchased with more than 60 days left to maturity, are valued at
prices obtained from an independent pricing service when such prices
are available. However, where the investment adviser deems it
appropriate, such securities will be valued at the mean quoted bid and
asked prices (or bid prices, if asked prices are not available) or at
prices for securities of comparable maturity, quality and type.
Securities with both fixed-income and equity characteristics, or
equity securities traded principally among fixed-income dealers, are
valued in the manner described above for either equity or fixed-income
securities, depending on which method is deemed most appropriate by
the investment adviser. Short-term securities purchased within 60 days
to maturity are valued at amortized cost, which approximates market
value. The value of short-term securities originally purchased with
maturities greater than 60 days, are determined based on an amortized
value to par when they reach 60 days or less remaining to maturity.
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. Securities and other assets for
which representative market quotations are not readily available are
fair valued as determined in good faith under procedures adopted by
authority of the fund's Board of Directors. Various factors may be
reviewed in order to make a good faith determination of a security's
fair value. These factors include, but are not limited to, the type
and cost of the security; contractual or legal restrictions on resale
of the security; relevant financial or business developments of the
issuer; actively traded similar or related securities; conversion or
exchange rights on the security; related corporate actions;
significant events occurring after the close of trading in the
security; and changes in overall market conditions.

SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security
transactions are recorded by the fund as of the date the trades are
executed with brokers. Realized gains and losses from security
transactions are determined based on the specific identified cost of
the securities. In the event a security is purchased with a delayed
payment date, the fund will segregate liquid assets sufficient to meet
its payment obligations. 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
fixed-income securities are amortized daily over the expected life of
the security.

CLASS ALLOCATIONS - Income, fees and expenses (other than
class-specific fees and expenses) are allocated daily among the
various share classes based on the relative value of their settled
shares. Realized and unrealized gains and losses are allocated daily
among the various share classes based on their relative net assets.
Class-specific fees and expenses, such as distribution, administrative
and shareholder services, are charged directly to the respective share
class.

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends paid to
shareholders are declared daily from net investment income and are
paid to shareholders quarterly. Distributions paid to shareholders are
recorded on the ex-dividend date.

NON-U.S. CURRENCY TRANSLATION - Assets and liabilities, including
investment securities, denominated in non-U.S. currencies are
translated into U.S. dollars at the exchange rates in effect at the
end of the reporting period. Purchases and sales of investment
securities and income and expenses are translated into U.S. dollars at
the exchange rates on the dates of such transactions. In the
accompanying financial statements, the effects of changes in non-U.S.
exchange rates on investment securities are included with the net
realized gain or loss and net unrealized appreciation or depreciation
on investments. The realized gain or loss and unrealized appreciation
or depreciation resulting from all other transactions denominated in
non-U.S. currencies are disclosed separately.

MORTGAGE DOLLAR ROLLS - The fund may enter into mortgage dollar roll
transactions in which the fund sells a mortgage-backed security to a
counterparty and simultaneously enters into an agreement with the same
counterparty to buy back a similar security on a specific future date
at a predetermined price. Each mortgage dollar roll is treated as a
financing transaction, therefore, any gain or loss is considered
unrealized until the roll reaches completion. Risks may arise due to
the delayed payment date and the potential inability of counterparties
to complete the transaction. Income is generated as consideration for
entering into these transactions and is included in interest income in
the accompanying financial statements.

2. NON-U.S. INVESTMENTS

INVESTMENT RISK - The risks of investing in securities of non-U.S. issuers 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. withholding
taxes paid.

3. FEDERAL INCOME TAXATION AND DISTRIBUTIONS

The fund complies with the requirements under Subchapter M of the Internal
Revenue Code applicable to mutual funds and intends to distribute substantially
all of its net taxable income and net capital gains each year. The fund is not
subject to income taxes to the extent such distributions are made.

DISTRIBUTIONS - Distributions paid to shareholders are based on net investment
income and net realized gains determined on a tax basis, which may differ from
net investment income and net realized gains for financial reporting purposes.
These differences are due primarily to differing treatment for items such as
non-U.S. currency gains and losses; short-term capital gains and losses; capital
losses related to sales of certain securities within 30 days of purchase;
unrealized appreciation of certain investments in non-U.S. securities; deferred
expenses; cost of investments sold; and paydowns on investments. 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 for financial
reporting purposes. As of July 31, 2005, the cost of investment securities for
federal income tax purposes was $52,728,531,000.

During the year ended July 31, 2005, the fund reclassified $4,693,000 from
undistributed net investment income to undistributed net realized gain and
$87,000 from undistributed net investment income to capital paid in on shares of
capital stock to align financial reporting with tax reporting.

As of July 31, 2005, the components of distributable earnings on a tax basis
were as follows (dollars in thousands):

Undistributed net investment income and non-U.S. currency gains $705,922
Loss deferrals related to non-U.S. currency that were realized during the period November 1,
2004 through July 31, 2005 (5,769)
Undistributed long-term capital gains 1,210,282
Gross unrealized appreciation on investment securities 8,095,038
Gross unrealized depreciation on investment securities (881,848)
Net unrealized appreciation on investment securities 7,213,190

Undistributed net investment income and non-U.S. currency gains above include
non-U.S. currency losses of $2,755,000 that were realized during the period
November 1, 2003, through July 31, 2004. During the year ended July 31, 2005,
the fund realized, on a tax basis, a net capital gain of $1,212,777,000.

The tax character of distributions paid or accrued to shareholders was as
follows (dollars in thousands):

Year ended July 31, 2005

Distributions from Distributions from Total distributions
ordinary income long-term capital gains paid or accrued
Share class
Class A $ 1,507,294 $ 299,587 $ 1,806,881
Class B 105,906 27,212 133,118
Class C 132,396 34,316 166,712
Class F 45,544 9,107 54,651
Class 529-A 9,019 1,789 10,808
Class 529-B 1,649 447 2,096
Class 529-C 3,247 856 4,103
Class 529-E 433 95 528
Class 529-F 136 25 161
Class R-1 334 78 412
Class R-2 5,613 1,403 7,016
Class R-3 8,959 1,829 10,788
Class R-4 2,450 430 2,880
Class R-5 2,516 481 2,997
Total $ 1,825,496 $ 377,655 $ 2,203,151

Year ended July 31, 2004

Distributions from Distributions from Total distributions
Share class
Class A $ 1,387,880 - $ 1,387,880
Class B 96,494 - 96,494
Class C 99,411 - 99,411
Class F 31,594 - 31,594
Class 529-A 6,046 - 6,046
Class 529-B 1,278 - 1,278
Class 529-C 2,318 - 2,318
Class 529-E 303 - 303
Class 529-F 72 - 72
Class R-1 166 - 166
Class R-2 3,089 - 3,089
Class R-3 4,239 - 4,239
Class R-4 738 - 738
Class R-5 2,212 - 2,212
Total $ 1,635,840 - $ 1,635,840

4. FEES AND TRANSACTIONS WITH RELATED PARTIES

Capital Research and Management Company ("CRMC"), the fund's investment adviser,
is the parent company of American Funds Service Company ("AFS"), the fund's
transfer agent, and American Funds Distributors, Inc. ("AFD"), the principal
underwriter of the fund's shares.

INVESTMENT ADVISORY SERVICES - The Investment Advisory and Service Agreement
with CRMC provides for monthly fees accrued daily. At the beginning of the year,
these fees were based on a declining series of annual rates beginning with
0.250% on the first $500 million of daily net assets and decreasing to 0.129% on
such assets in excess of $44 billion. The Board of Directors approved an amended
agreement effective January 1, 2005, continuing the series of rates to include
an additional annual rate of 0.127% on daily net assets in excess of $55
billion. The agreement also provides for monthly fees, accrued daily, of 2.25%
of the fund's monthly gross income. CRMC is currently waiving a portion of
investment advisory fees. From September 1, 2004, through March 31, 2005, CRMC
waived 5% of these fees and increased the waiver to 10% on April 1, 2005. During
the year ended July 31, 2005, total investment advisory services fees waived by
CRMC were $8,405,000. As a result, the fee shown on the accompanying financial
statements of $131,860,000, which was equivalent to an annualized rate of
0.249%, was reduced to $123,455,000, or 0.233% of average daily net assets.

CLASS-SPECIFIC FEES AND EXPENSES - Expenses that are specific to individual
share classes are accrued directly to the respective share class. The principal
class-specific fees and expenses are described below:

DISTRIBUTION SERVICES - The fund has adopted plans of distribution for
all share classes, except Class R-5. Under the plans, the Board of
Directors approves certain categories of expenses that are used to
finance activities primarily intended to sell fund shares and service
existing accounts. The plans provide for payments, based on an
annualized percentage of average daily net assets, ranging from 0.25%
to 1.00% as noted below. In some cases, the Board of Directors has
limited amounts that may be paid to less than the maximum allowed by
the plans. All share classes may use up to 0.25% of average daily net
assets to pay service fees, or to compensate AFD for paying service
fees, to firms that have entered into agreements with AFD for
providing certain shareholder services. The remaining amounts
available to be paid under each plan are paid to selling dealers to
compensate them for their selling activities.

For classes A and 529-A, the Board of Directors has also approved the
reimbursement of dealer and wholesaler commissions paid by AFD for
certain shares sold without a sales charge. Each class reimburses AFD
for amounts billed within the prior 15 months but only to the extent
that the overall annual expense limit of 0.25% is not exceeded. As of
July 31, 2005, there were no unreimbursed expenses subject to
reimbursement for classes A or 529-A.

------------------------------------------------ ----------------------------- -----------------------------
Share class Currently approved limits Plan limits
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Class A 0.25% 0.25%
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Class 529-A 0.25 0.50
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes B and 529-B 1.00 1.00
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes C, 529-C and R-1 1.00 1.00
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Class R-2 0.75 1.00
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes 529-E and R-3 0.50 0.75
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes F, 529-F and R-4 0.25 0.50
------------------------------------------------ ----------------------------- -----------------------------

TRANSFER AGENT SERVICES - The fund has a transfer agent agreement with
AFS for classes A and B. Under this agreement, these share classes
compensate AFS for transfer agent services including shareholder
recordkeeping, communications and transaction processing. AFS is also
compensated for certain transfer agent services provided to all other
share classes from the administrative services fees paid to CRMC
described below.

ADMINISTRATIVE SERVICES - The fund has an administrative services
agreement with CRMC to provide transfer agent and other related
shareholder services for all share classes other than classes A and B.
Each relevant share class pays CRMC annual fees up to 0.15% (0.10% for
Class R-5) based on its respective average daily net assets. Each
relevant share class also pays AFS additional amounts for certain
transfer agent services. CRMC and AFS may use these fees to compensate
third parties for performing these services. CRMC has agreed to pay
AFS on the fund's behalf for a portion of the transfer agent services
fees for some of the retirement plan share classes. For the year ended
July 31, 2005, the total administrative services fees paid by CRMC
were $4,000 and $306,000 for classes R-1 and R-2, respectively.
Administrative services fees are presented gross of any payments made
by CRMC. Each 529 share class is subject to an additional annual
administrative services fee of 0.10% of its respective average daily
net assets; this fee is payable to the Commonwealth of Virginia for
the maintenance of the CollegeAmerica plan. Although these amounts are
included with administrative services fees in the accompanying
financial statements, the Commonwealth of Virginia is not considered a
related party.

Expenses under the agreements described on the previous page for the
year ended July 31, 2005, were as follows (dollars in thousands):

--------------------------------------------------------------------------------------------------------------
Share class Distribution Transfer agent Administrative services
services services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
CRMC Transfer agent Commonwealth of
administrative services Virginia
services administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class A $93,555 $25,980 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class B 37,442 2,630 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class C 48,394 Included $7,067 $759 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class F 3,277 Included 1,860 174 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-A 456 Included 369 29 $ 260
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-B 631 Included 90 24 63
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-C 1,237 Included 175 35 124
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-E 69 Included 19 2 14
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-F 7 Included 6 - * 4
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-1 123 Included 18 11 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-2 1,534 Included 307 852 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-3 1,403 Included 421 162 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-4 172 Included 105 7 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-5 Not applicable Included 66 2 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Total $188,300 $28,610 $10,503 $2,057 $465
--------------------------------------------------------------------------------------------------------------
*Amount less than one thousand.

DEFERRED DIRECTORS' COMPENSATION - Since the adoption of the deferred
compensation plan in 1993, Directors who are unaffiliated with CRMC may elect to
defer the cash payment of part or all of their compensation. These deferred
amounts, which remain as liabilities of the fund, are treated as if invested in
shares of the fund or other American Funds. These amounts represent general,
unsecured liabilities of the fund and vary according to the total returns of the
selected funds. Directors' compensation of $601,000, shown on the accompanying
financial statements, includes $388,000 in current fees (either paid in cash or
deferred) and a net increase of $213,000 in the value of the deferred amounts.

AFFILIATED OFFICERS AND DIRECTORS - Officers and certain Directors of the fund
are or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated
officers or Directors received any compensation directly from the fund.

5. CAPITAL SHARE TRANSACTIONS

Capital share transactions in the fund were as follows (dollars and shares in
thousands):

Reinvestments of
Share class Sales(1) dividends and distributions
Amount Shares Amount Shares
Year ended July 31, 2005
Class A $ 9,640,392 532,521 $ 1,565,111 86,078
Class B 755,566 42,102 111,888 6,179
Class C 1,867,364 103,792 133,316 7,372
Class F 660,579 36,521 41,363 2,276
Class 529-A 114,656 6,328 10,343 569
Class 529-B 17,625 977 2,028 112
Class 529-C 52,313 2,889 3,934 216
Class 529-E 5,928 328 504 27
Class 529-F 2,757 152 149 8
Class R-1 13,146 724 374 20
Class R-2 143,180 7,950 6,558 362
Class R-3 241,450 13,332 9,950 547
Class R-4 97,347 5,337 2,546 140
Class R-5 24,245 1,332 1,947 107
Total net increase
(decrease) $ 13,636,548 754,285 $ 1,890,011 104,013

Year ended July 31, 2004
Class A $ 9,206,376 549,512 $ 1,103,176 66,213
Class B 1,101,061 66,441 75,097 4,529
Class C 1,949,484 117,251 74,955 4,517
Class F 574,424 34,311 22,212 1,330
Class 529-A 92,062 5,493 5,362 321
Class 529-B 20,391 1,222 1,143 68
Class 529-C 48,073 2,875 2,065 124
Class 529-E 4,740 283 270 16
Class 529-F 2,187 130 62 4
Class R-1 6,192 371 144 9
Class R-2 94,869 5,672 2,697 162
Class R-3 144,994 8,700 3,667 219
Class R-4 23,901 1,420 638 38
Class R-5 18,243 1,090 1,123 67
Total net increase
(decrease) $ 13,286,997 794,771 $ 1,292,611 77,617

Share class Repurchases(1) Net increase
Amount Shares Amount Shares
Year ended July 31, 2005
Class A $ (3,709,618) (204,836) $ 7,495,885 413,763
Class B (287,281) (15,953) 580,173 32,328
Class C (485,019) (26,922) 1,515,661 84,242
Class F (208,234) (11,499) 493,708 27,298
Class 529-A (13,713) (756) 111,286 6,141
Class 529-B (2,180) (121) 17,473 968
Class 529-C (8,587) (473) 47,660 2,632
Class 529-E (618) (34) 5,814 321
Class 529-F (763) (43) 2,143 117
Class R-1 (3,977) (218) 9,543 526
Class R-2 (34,869) (1,935) 114,869 6,377
Class R-3 (56,185) (3,110) 195,215 10,769
Class R-4 (14,255) (782) 85,638 4,695
Class R-5 (9,002) (498) 17,190 941
Total net increase
(decrease) $ (4,834,301) (267,180) $ 10,692,258 591,118

Year ended July 31, 2004
Class A $ (3,062,800) (182,922) $ 7,246,752 432,803
Class B (204,546) (12,236) 971,612 58,734
Class C (281,356) (16,825) 1,743,083 104,943
Class F (129,030) (7,671) 467,606 27,970
Class 529-A (6,789) (402) 90,635 5,412
Class 529-B (1,439) (85) 20,095 1,205
Class 529-C (4,315) (256) 45,823 2,743
Class 529-E (516) (30) 4,494 269
Class 529-F (258) (15) 1,991 119
Class R-1 (874) (52) 5,462 328
Class R-2 (17,214) (1,031) 80,352 4,803
Class R-3 (37,073) (2,254) 111,588 6,665
Class R-4 (8,520) (523) 16,019 935
Class R-5 (5,905) (358) 13,461 799
Total net increase
(decrease) $ (3,760,635) (224,660) $ 10,818,973 647,728

(1) Includes exchanges between share classes of the fund.

6. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES

The fund made purchases and sales of investment securities, excluding short-term
securities, of $21,069,039,000 and $11,608,756,000, respectively, during the
year ended July 31, 2005.

The fund receives a reduction in its custodian fee equal to the amount of
interest calculated on certain cash balances held at the custodian bank. For the
year ended July 31, 2005, the custodian fee of $2,674,000, shown on the
accompanying financial statements, includes $450,000 that was offset by this
reduction, rather than paid in cash.

Financial highlights(1)

Income (loss) from investment operations(2)
Net
Net asset gains (losses)
value, Net on securities Total from
beginning investment (both realized investment
of period income and unrealized) operations
Class A:
Year ended 7/31/2005 $17.10 $.77 $1.61 $2.38
Year ended 7/31/2004 15.44 .70 1.70 2.40
Year ended 7/31/2003 14.49 .72 .98 1.70
Year ended 7/31/2002 16.44 .74 (1.73) (.99)
Year ended 7/31/2001 15.43 .83 1.46 2.29
Class B:
Year ended 7/31/2005 17.01 .63 1.61 2.24
Year ended 7/31/2004 15.36 .56 1.69 2.25
Year ended 7/31/2003 14.42 .61 .97 1.58
Year ended 7/31/2002 16.39 .61 (1.73) (1.12)
Year ended 7/31/2001 15.39 .72 1.46 2.18
Class C:
Year ended 7/31/2005 16.99 .61 1.60 2.21
Year ended 7/31/2004 15.34 .55 1.69 2.24
Year ended 7/31/2003 14.41 .59 .97 1.56
Year ended 7/31/2002 16.37 .59 (1.71) (1.12)
Period from 3/15/2001 to 7/31/2001 15.85 .21 .48 .69
Class F:
Year ended 7/31/2005 17.08 .75 1.61 2.36
Year ended 7/31/2004 15.42 .67 1.71 2.38
Year ended 7/31/2003 14.47 .71 .97 1.68
Year ended 7/31/2002 16.44 .71 (1.73) (1.02)
Period from 3/15/2001 to 7/31/2001 15.89 .27 .48 .75
Class 529-A:
Year ended 7/31/2005 17.08 .75 1.61 2.36
Year ended 7/31/2004 15.42 .68 1.70 2.38
Year ended 7/31/2003 14.48 .71 .97 1.68
Period from 2/15/2002 to 7/31/2002 15.76 .31 (1.20) (.89)
Class 529-B:
Year ended 7/31/2005 17.05 .59 1.61 2.20
Year ended 7/31/2004 15.36 .53 1.70 2.23
Year ended 7/31/2003 14.46 .58 .97 1.55
Period from 2/19/2002 to 7/31/2002 15.63 .25 (1.06) (.81)
Class 529-C:
Year ended 7/31/2005 17.06 .59 1.60 2.19
Year ended 7/31/2004 15.39 .53 1.71 2.24
Year ended 7/31/2003 14.46 .58 .97 1.55
Period from 2/19/2002 to 7/31/2002 15.63 .25 (1.06) (.81)
Class 529-E:
Year ended 7/31/2005 17.06 .69 1.61 2.30
Year ended 7/31/2004 15.40 .62 1.70 2.32
Year ended 7/31/2003 14.47 .66 .96 1.62
Period from 2/25/2002 to 7/31/2002 15.81 .27 (1.23) (.96)
Class 529-F:
Year ended 7/31/2005 17.08 .75 1.60 2.35
Year ended 7/31/2004 15.42 .67 1.69 2.36
Period from 9/17/2002 to 7/31/2003 14.11 .60 1.24 1.84

Financial highlights(1) (continued)

Financial highlights(1)

Dividends and distributions

Dividends
(from net Distributions Total Net asset
investment (from capital dividends and value, end
income) gains) distributions of period
Class A:
Year ended 7/31/2005 $(.65) $(.13) $(.78) $18.70
Year ended 7/31/2004 (.74) - (.74) 17.10
Year ended 7/31/2003 (.73) (.02) (.75) 15.44
Year ended 7/31/2002 (.80) (.16) (.96) 14.49
Year ended 7/31/2001 (.80) (.48) (1.28) 16.44
Class B:
Year ended 7/31/2005 (.51) (.13) (.64) 18.61
Year ended 7/31/2004 (.60) - (.60) 17.01
Year ended 7/31/2003 (.62) (.02) (.64) 15.36
Year ended 7/31/2002 (.69) (.16) (.85) 14.42
Year ended 7/31/2001 (.70) (.48) (1.18) 16.39
Class C:
Year ended 7/31/2005 (.49) (.13) (.62) 18.58
Year ended 7/31/2004 (.59) - (.59) 16.99
Year ended 7/31/2003 (.61) (.02) (.63) 15.34
Year ended 7/31/2002 (.68) (.16) (.84) 14.41
Period from 3/15/2001 to 7/31/2001 (.17) - (.17) 16.37
Class F:
Year ended 7/31/2005 (.63) (.13) (.76) 18.68
Year ended 7/31/2004 (.72) - (.72) 17.08
Year ended 7/31/2003 (.71) (.02) (.73) 15.42
Year ended 7/31/2002 (.79) (.16) (.95) 14.47
Period from 3/15/2001 to 7/31/2001 (.20) - (.20) 16.44
Class 529-A:
Year ended 7/31/2005 (.63) (.13) (.76) 18.68
Year ended 7/31/2004 (.72) - (.72) 17.08
Year ended 7/31/2003 (.72) (.02) (.74) 15.42
Period from 2/15/2002 to 7/31/2002 (.39) - (.39) 14.48
Class 529-B:
Year ended 7/31/2005 (.47) (.13) (.60) 18.65
Year ended 7/31/2004 (.54) - (.54) 17.05
Year ended 7/31/2003 (.63) (.02) (.65) 15.36
Period from 2/19/2002 to 7/31/2002 (.36) - (.36) 14.46
Class 529-C:
Year ended 7/31/2005 (.47) (.13) (.60) 18.65
Year ended 7/31/2004 (.57) - (.57) 17.06
Year ended 7/31/2003 (.60) (.02) (.62) 15.39
Period from 2/19/2002 to 7/31/2002 (.36) - (.36) 14.46
Class 529-E:
Year ended 7/31/2005 (.57) (.13) (.70) 18.66
Year ended 7/31/2004 (.66) - (.66) 17.06
Year ended 7/31/2003 (.67) (.02) (.69) 15.40
Period from 2/25/2002 to 7/31/2002 (.38) - (.38) 14.47
Class 529-F:
Year ended 7/31/2005 (.62) (.13) (.75) 18.68
Year ended 7/31/2004 (.70) - (.70) 17.08
Period from 9/17/2002 to 7/31/2003 (.51) (.02) (.53) 15.42

Financial highlights(1) (continued)

Dividends and distributions

Dividends
(from net Distributions Total Net asset
investment (from capital dividends and value, end
income) gains) distributions of period
Class R-1:
Year ended 7/31/2005 $(.49) $(.13) $(.62) $18.65
Year ended 7/31/2004 (.59) - (.59) 17.05
Year ended 7/31/2003 (.62) (.02) (.64) 15.39
Period from 6/17/2002 to 7/31/2002 - - - 14.47
Class R-2:
Year ended 7/31/2005 (.49) (.13) (.62) 18.60
Year ended 7/31/2004 (.59) - (.59) 17.01
Year ended 7/31/2003 (.64) (.02) (.66) 15.36
Period from 5/31/2002 to 7/31/2002 (.18) - (.18) 14.48
Class R-3:
Year ended 7/31/2005 (.57) (.13) (.70) 18.67
Year ended 7/31/2004 (.66) - (.66) 17.07
Year ended 7/31/2003 (.68) (.02) (.70) 15.41
Period from 6/4/2002 to 7/31/2002 (.19) - (.19) 14.48
Class R-4:
Year ended 7/31/2005 (.63) (.13) (.76) 18.69
Year ended 7/31/2004 (.72) - (.72) 17.09
Year ended 7/31/2003 (.72) (.02) (.74) 15.43
Period from 6/27/2002 to 7/31/2002 - - - 14.49
Class R-5:
Year ended 7/31/2005 (.68) (.13) (.81) 18.70
Year ended 7/31/2004 (.78) - (.78) 17.10
Year ended 7/31/2003 (.76) (.02) (.78) 15.44
Period from 5/15/2002 to 7/31/2002 (.20) - (.20) 14.49

Financial highlights(1)

Ratio of expenses Ratio of expenses
to average net to average net Ratio of
Net assets, assets before assets after net income
Total end of period reimbursements/ reimbursements/ to average
return (3) (in millions) waivers waivers (4) net assets
Class A:
Year ended 7/31/2005 14.12% $47,196 .55% .54% 4.26%
Year ended 7/31/2004 15.76 36,075 .57 .57 4.15
Year ended 7/31/2003 12.18 25,891 .61 .61 4.98
Year ended 7/31/2002 (6.35) 19,585 .61 .61 4.66
Year ended 7/31/2001 15.53 19,519 .62 .62 5.18
Class B:
Year ended 7/31/2005 13.32 4,135 1.34 1.32 3.48
Year ended 7/31/2004 14.84 3,231 1.35 1.35 3.37
Year ended 7/31/2003 11.37 2,015 1.39 1.39 4.17
Year ended 7/31/2002 (7.14) 800 1.37 1.37 3.88
Year ended 7/31/2001 14.77 254 1.38 1.38 4.15
Class C:
Year ended 7/31/2005 13.17 5,756 1.43 1.41 3.38
Year ended 7/31/2004 14.75 3,833 1.44 1.44 3.26
Year ended 7/31/2003 11.23 1,850 1.48 1.48 4.07
Year ended 7/31/2002 (7.17) 614 1.48 1.48 3.77
Period from 3/15/2001 to 7/31/2001 4.35 89 .62 .62 1.28
Class F:
Year ended 7/31/2005 14.01 1,603 .67 .65 4.14
Year ended 7/31/2004 15.65 1,000 .69 .69 4.02
Year ended 7/31/2003 12.11 471 .72 .72 4.83
Year ended 7/31/2002 (6.56) 156 .73 .73 4.52
Period from 3/15/2001 to 7/31/2001 4.71 22 .31 .31 1.58
Class 529-A:
Year ended 7/31/2005 13.98 328 .70 .68 4.13
Year ended 7/31/2004 15.61 195 .67 .67 4.06
Year ended 7/31/2003 12.10 93 .68 .68 4.87
Period from 2/15/2002 to 7/31/2002 (5.83) 24 .37 .37 2.02
Class 529-B:
Year ended 7/31/2005 13.05 74 1.55 1.53 3.28
Year ended 7/31/2004 14.67 51 1.57 1.57 3.16
Year ended 7/31/2003 11.10 28 1.60 1.60 3.95
Period from 2/19/2002 to 7/31/2002 (5.40) 7 .71 .71 1.62
Class 529-C:
Year ended 7/31/2005 13.00 153 1.54 1.52 3.29
Year ended 7/31/2004 14.69 95 1.56 1.56 3.17
Year ended 7/31/2003 11.10 44 1.59 1.59 3.96
Period from 2/19/2002 to 7/31/2002 (5.40) 12 .70 .70 1.63
Class 529-E:
Year ended 7/31/2005 13.63 17 1.02 1.01 3.80
Year ended 7/31/2004 15.24 10 1.04 1.04 3.69
Year ended 7/31/2003 11.66 5 1.06 1.06 4.48
Period from 2/25/2002 to 7/31/2002 (6.24) 1 .45 .45 1.79
Class 529-F:
Year ended 7/31/2005 13.96 5 .70 .68 4.14
Year ended 7/31/2004 15.53 3 .79 .79 3.95
Period from 9/17/2002 to 7/31/2003 13.38 1 .81 (5) .81 (5) 4.68 (5)

Financial highlights(1) (continued)

Year ended July 31
2005 2004 2003 2002 2001

Portfolio turnover rate for all classes of shares 24% 27% 28% 36% 44%

(1) Based on operations for the period shown (unless otherwise noted) and,
accordingly, may not be representative of a full year.
(2) Based on average shares outstanding.
(3) Total returns exclude all sales charges, including contingent deferred
sales charges.
(4) The ratios in this column reflect the impact, if any, of certain
reimbursements/waivers from CRMC. During the year ended 7/31/2005, CRMC
reduced fees for investment advisory services for all share classes. In
addition, during the start-up period for the retirement plan share classes
(except Class R-5), CRMC agreed to pay a portion of the fees related to
transfer agent services.
(5) Annualized.
(6) Amount less than $1 million.

See Notes to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, 2005, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of July 31, 2005, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Income Fund of America, Inc. as of July 31, 2005, 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 financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States of America.

DELOITTE & TOUCHE LLP
Costa Mesa, CA
September 9, 2005

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 certain distributions received by
shareholders during such fiscal year. The information below is provided for the
fund's fiscal year ending July 31, 2005.

During the fiscal year ended, the fund paid a long-term capital gain
distribution of $377,655,000. A portion of this amount was distributed to
shareholders in redemption of their shares.

Individual shareholders are eligible for reduced tax rates on qualified dividend
income. The fund designates $1,523,819,000 of the dividends received as
qualified dividend income.

Corporate shareholders may exclude up to 70% of qualifying dividends. The fund
designates $1,044,068,000 of dividends received as qualified dividend income.

For state tax purposes, certain states may exempt from income taxation that
portion of the income dividends paid by the fund that were derived from direct
U.S. government obligations. The fund designates $40,750,000 as interest derived
on direct U.S. government obligations.

INDIVIDUAL SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 2006 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 2005 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.