Income Fund of America, Inc.

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THE INCOME FUND OF AMERICA, INC.

Part B
Statement of Additional Information

October 1, 2006

(as supplemented January 1, 2007)

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, 2006. 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 94120-7650
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. . . . . . . . . . 10
Management of the fund . . . . . . . . . . . . . . . . . . . . . . 12
Execution of portfolio transactions . . . . . . . . . . . . . . . . 31
Disclosure of portfolio holdings. . . . . . . . . . . . . . . . . . 32
Price of shares . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Taxes and distributions . . . . . . . . . . . . . . . . . . . . . . 35
Purchase and exchange of shares . . . . . . . . . . . . . . . . . . 39
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

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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.

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

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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 $3.5 billion at the time of purchase). The
investment adviser believes that the issuers of smaller capitalization stocks
often provide attractive investment opportunities. However, investing in smaller
capitalization stocks 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 periodic interest and repay the amount borrowed
either periodically during the life of the security and/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
principal or is the subject of bankruptcy proceedings, the fund may incur
losses or expenses in seeking recovery of amounts owed to it.

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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 and some may be subject to redemption at the option of the issuer at a
predetermined price. 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 the European Union. 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 will bear certain expenses in connection
with its currency transactions. Furthermore, increased custodian costs may be
associated with maintaining assets in certain jurisdictions.

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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.

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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, net of any fees paid to
the investor guarantor on the securities. 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 such as insurance or letters of credit
issued by private companies. 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.
CMOs may be less liquid or may exhibit greater price volatility than other
types of mortgage or asset-backed securities.

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 rental payments and the
ability of a property to attract and retain tenants. Commercial
mortgage-backed securities may be less liquid or exhibit greater price
volatility than other types of mortgage or asset-backed securities.

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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 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, tax loans 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

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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.

RESTRICTED OR ILLIQUID SECURITIES -- The fund may purchase securities subject to
restrictions on resale. Restricted securities may only be sold 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. Difficulty in selling such securities may
result in a loss to the fund or cause it to incur additional administrative
costs.

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.

LOAN PARTICIPATIONS AND ASSIGNMENTS -- The fund may invest, subject to an
overall 15% limit on loans, in loan participations or assignments. Loan
participations are loans or other direct debt instruments that are interests in
amounts owed by a corporate, governmental or other borrower to another party.
They may represent amounts owed to lenders or lending syndicates to suppliers of
goods or services, or to other parties. The fund will have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the lender selling the participation and only upon receipt by the lender of the
payments from the borrower. In connection with purchasing participations, the
fund generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the loan, nor any rights of set-off
against the borrower, and the fund may not directly benefit from any collateral
supporting the loan in which it has purchased the participation. As a result,
the fund will be subject to the credit risk of both the borrower and the lender
that is selling the participation. In the event of the insolvency of the lender
selling a participation, a fund may be treated as a general creditor of the
lender and may not benefit from any set-off between the lender and the borrower.

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When the fund purchases assignments from lenders, it acquires direct rights
against the borrower on the loan. However, because assignments are arranged
through private negotiations between potential assignees and potential
assignors, the rights and obligations acquired by a fund as the purchaser of an
assignment may differ from, and be more limited than, those held by the
assigning lender. Investments in loan participations and assignments present the
possibility that the fund could be held liable as a co-lender under emerging
legal theories of lender liability. In addition, if the loan is foreclosed, the
fund could be part owner of any collateral and could bear the costs and
liabilities of owning and disposing of the collateral. The fund anticipates that
loan participations could be sold only to a limited number of institutional
investors. In addition, some loan participations and assignments may not be
rated by major rating agencies and may not be protected by the securities laws.

WHEN ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT TRANSACTIONS -- 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. After a transaction is entered into,
the fund may still dispose of or renegotiate the transaction. Additionally,
prior to receiving delivery of securities as part of a transaction, the fund may
sell such securities.

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.

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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, 2006 and 2005 were 35% and 24%, 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
shareholder 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).

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

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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 11
<PAGE>

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS AND OFFICERS

"INDEPENDENT" DIRECTORS/1/

NUMBER OF
NAME, AGE AND PORTFOLIOS/3/
POSITION WITH FUND PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS/4/ HELD
(YEAR FIRST ELECTED/2/) DURING PAST FIVE YEARS BY DIRECTOR BY DIRECTOR
-------------------------------------------------------------------------------------------------------

Robert A. Fox, 69 Managing General 7 Chemtura Corporation
Director (1972) Partner, Fox
Investments LP;
corporate director;
retired President and
CEO, Foster Farms
(poultry producer)
-------------------------------------------------------------------------------------------------------
Leonade D. Jones, 58 Co-founder, 6 None
Chairman of the Board VentureThink LLC
(Independent and (developed and managed
Non-Executive) (1993) e-commerce businesses)
and Versura Inc.
(education loan
exchange); former
Treasurer, The
Washington Post Company
-------------------------------------------------------------------------------------------------------
John M. Lillie, 69 Business consultant; 2 None
Director, (2003) former 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, 69 Professor of Finance, 8 iStar Financial, Inc.;
Director (1976) Graduate School of Plum Creek Timber Co.;
Business, Stanford Scholastic Corporation;
University Varian, Inc.
-------------------------------------------------------------------------------------------------------
Henry E. Riggs, 71 President Emeritus, 4 None
Director (1989) Keck Graduate Institute
of Applied Life
Sciences
-------------------------------------------------------------------------------------------------------
Isaac Stein, 59 President, Waverley 2 Maxygen, Inc.;
Director (2004) Associates (private Alexza Pharmaceuticals, Inc.
investment fund);
Managing Director,
Technogen Associates
L.P. (venture capital
partnership); Chairman
Emeritus, Stanford
University Board of
Trustees
-------------------------------------------------------------------------------------------------------
Patricia K. Woolf, 72 Private investor; 6 None
Director (1985) corporate director;
former Lecturer,
Department of Molecular
Biology, Princeton
University
-------------------------------------------------------------------------------------------------------

The Income Fund of America -- Page 12
<PAGE>

"INTERESTED" DIRECTOR/5/

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

Hilda L. Applbaum, 45 Senior Vice President, 1 None
Vice Chairman of the Board Capital Research Company*
(1998)
---------------------------------------------------------------------------------------------------------

The Income Fund of America -- Page 13
<PAGE>

OTHER OFFICERS/6/

NAME, AGE AND PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
POSITION WITH FUND AND POSITIONS HELD WITH AFFILIATED ENTITIES
(YEAR FIRST OR THE PRINCIPAL UNDERWRITER OF THE FUND
ELECTED/2/)
-----------------------------------------------------------------------------------

David C. Barclay, 49 Senior Vice President, Capital Research and
President (1998) Management Company; Director, The Capital Group
Companies, Inc.*
-----------------------------------------------------------------------------------
Abner D. Goldstine, 76 Senior Vice President and Director, Capital Research
Senior Vice President and Management Company
(1993)
-----------------------------------------------------------------------------------
Paul G. Haaga, Jr., 57 Vice Chairman of the Board, Capital Research and
Senior Vice President Management Company; Director, The Capital Group
(1994) Companies, Inc.*
-----------------------------------------------------------------------------------
Dina N. Perry, 60 Senior Vice President, Capital Research and
Senior Vice President Management Company
(1994)
-----------------------------------------------------------------------------------
Andrew B. Suzman, 39 Executive Vice President and Director, Capital
Senior Vice President Research Company*
(2004)
-----------------------------------------------------------------------------------
Mary E. Sheridan, 56 Vice President, Capital Research Company*
Vice President (2004)
-----------------------------------------------------------------------------------
Joanna F. Jonsson, 43 Senior Vice President, Capital Research Company*;
Vice President (2006) Director, The Capital Group Companies, Inc.*
-----------------------------------------------------------------------------------
John H. Smet, 50 Senior Vice President, Capital Research and
Vice President (1994) Management Company; Director, American Funds
Distributors, Inc.*
-----------------------------------------------------------------------------------
Steven T. Watson, 51 Senior Vice President and Director, Capital Research
Vice President (2006) Company*
-----------------------------------------------------------------------------------
Patrick F. Quan, 48 Vice President - Fund Business Management Group,
Secretary (1986) Capital Research and Management Company
-----------------------------------------------------------------------------------
Jennifer M. Buchheim, 33 Vice President - Fund Business Management Group,
Treasurer (2005) Capital Research and Management Company
-----------------------------------------------------------------------------------
R. Marcia Gould, 52 Vice President - Fund Business Management Group,
Assistant Treasurer Capital Research and Management Company
(1999)
-----------------------------------------------------------------------------------

* Company affiliated with Capital Research and Management Company.

/1/ An "independent" director refers to a director who is not an "interested
person" within the meaning of the 1940 Act.
/2/ Directors and officers of the fund serve until their resignation, removal or
retirement.
/3/ Funds managed by Capital Research and Management Company, including the
American Funds, 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.
/4/ This includes all directorships (other than those in the American Funds) that
are held by each director as a director of a public company or a registered
investment company.
/5/ "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).
/6/ 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, 2005

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

"INDEPENDENT" DIRECTORS
-------------------------------------------------------------------------------
Robert A. Fox Over $100,000 Over $100,000
-------------------------------------------------------------------------------
Leonade D. Jones Over $100,000 Over $100,000
-------------------------------------------------------------------------------
John M. Lillie Over $100,000 Over $100,000
-------------------------------------------------------------------------------
John G. McDonald 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" DIRECTOR
-------------------------------------------------------------------------------
Hilda L. Applbaum 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.

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 independent director an annual fee of
$20,000. If the aggregate annual fees paid to an independent director by all
funds advised by the investment adviser is less than $50,000, that independent
director would be eligible for a $50,000 alternative fee. This alternative fee
is paid by those funds for which the independent 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. An
independent 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 other 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 independent 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>

Independent 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 independent director each pay an equal
portion of these attendance fees.

In lieu of meeting attendance fees, members of the proxy committee receive an
annual retainer fee of $4,500 from the fund if they serve as a member of four
proxy committees, or $6,250 if they serve as a member of two proxy committees,
meeting jointly.

The nominating committee of the board of directors, a committee comprised
exclusively of independent 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.
Independent 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 independent directors.

DIRECTOR COMPENSATION PAID DURING THE FISCAL YEAR ENDED JULY 31, 2006

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

Robert A. Fox/3/ $39,714 $252,500
--------------------------------------------------------------------------------------------------
Leonade D. Jones/3/ 52,417 256,500
--------------------------------------------------------------------------------------------------
John M. Lillie 47,350 87,500
--------------------------------------------------------------------------------------------------
John G. McDonald/3/ 39,124 326,000
--------------------------------------------------------------------------------------------------
Henry E. Riggs/3/ 32,875 154,000
--------------------------------------------------------------------------------------------------
Isaac Stein 54,684 102,167
--------------------------------------------------------------------------------------------------
Patricia K. Woolf/3/ 38,459 214,500
--------------------------------------------------------------------------------------------------

/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 shown in this table for the fiscal
year ended July 31, 2006 does not include earnings on amounts deferred in
previous fiscal years. See footnote 3 to this table for more information.
/2/ Funds managed by Capital Research and Management Company, including the
American Funds, 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 2006
fiscal year for participating directors is as follows: Robert A. Fox
($803,092), Leonade D. Jones ($133,806), John G. McDonald ($535,768), Henry E.
Riggs ($543,176) and Patricia K. Woolf ($207,269). Amounts deferred and
accumulated earnings thereon are not funded and are general unsecured
liabilities of the fund until paid to the directors.

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

As of September 1, 2006, 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.

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. 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/(R)/ account owners invested in Class 529 shares 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 Class 529 shares, the Virginia College Savings
Plan/SM/ will vote any proxies relating to such 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 fund's Articles of Incorporation and by-laws as well as separate
indemnification agreements that the fund has entered into with independent
directors 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

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

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. Four audit committee meetings were held during
the 2006 fiscal year.

The fund has a contracts committee comprised of Robert A. Fox, Leonade D. Jones,
John M. Lillie, John G. McDonald, 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 principal 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. One contracts committee meeting was
held during the 2006 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 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 2006 fiscal year.

The fund has a proxy committee comprised of Robert A. Fox, Leonade D. Jones,
John G. McDonald, 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

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

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 2006 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, Endowments 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, (b) on the American
Funds website at americanfunds.com and (c) on the SEC's website at sec.gov.

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.

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

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, 2006. 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 25.28%
201 Progress Parkway Class B 13.03
Maryland Hts, MO 63043-3009
----------------------------------------------------------------------------
MLPF&S Class B 9.75
4800 Deer Lake Dr. E. Fl. 2 Class C 18.75
Jacksonville, FL 32246-6484 Class R-3 5.26
----------------------------------------------------------------------------
Citigroup Global Markets, Inc. Class B 8.60
333 W. 34th St. Class C 16.86
New York, NY 10001-2402
----------------------------------------------------------------------------
Hartford Life Insurance Co. Class R-1 25.22
PO Box 2999 Class R-3 13.31
Hartford, CT 06104-2999
----------------------------------------------------------------------------
ING National Trust Class R-2 5.97
151 Farmington Ave. #TN41
Hartford, CT 06156-0001
----------------------------------------------------------------------------
ING Life Insurance & Annuity Class R-3 14.73
151 Farmington Ave. #TN41
Hartford, CT 06156-0001
----------------------------------------------------------------------------
Nationwide Trust Company Class R-3 5.93
PO Box 182029 Class R-4 5.54
Columbus, OH 43218-2029 Class R-5 14.81
----------------------------------------------------------------------------
Amvescap Natl Trust Co. Class R-4 6.76
PO Box 105779
Atlanta, GA 30348-5779
----------------------------------------------------------------------------
Investors Bank & Trust Class R-4 5.88
4 Manhattanville Rd.
Purchase, NY 10577-2139
----------------------------------------------------------------------------
CGTC Agent Class R-5 12.31
50 W. Liberty St. Ste 980
Reno, NV 89501-1978
----------------------------------------------------------------------------
Wells Fargo Bank, NA Class R-5 6.93
PO Box 1533
Minneapolis, MN 55480-1533
----------------------------------------------------------------------------
The Northern Trust Class R-5 5.94
PO Box 92994
Chicago, IL 60675-2994
----------------------------------------------------------------------------
AST Trust Company Class R-5 5.78
PO Box 52129
Phoenix, AZ 85072-2129
----------------------------------------------------------------------------

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

INVESTMENT ADVISER -- Capital Research and Management Company, the fund's
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.

POTENTIAL CONFLICTS OF INTEREST -- The investment adviser has adopted policies
and procedures that address 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. Potential areas of conflict could involve allocation of
investment opportunities and trades among funds and accounts, use of information
regarding the timing of fund trades, personal investing activities, portfolio
counselor compensation and voting relating to portfolio securities. The
investment adviser has adopted policies and procedures that it believes are
reasonably designed to address these conflicts. However, there is no guarantee
that such policies and procedures will be effective or that the investment
adviser will anticipate all potential conflicts of interest.

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

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 portions of a fund's
portfolio within their research coverage. Portfolio counselors and investment
analysts may also make investment decisions for 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 greater
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, 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 FOLLOWING TABLE REFLECTS INFORMATION AS OF JULY 31, 2006:

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)/3/ IN BILLIONS)/4/
----------------------------------------------------------------------------------------------

Hilda L. Applbaum $100,001 -- 2 $ 52.5 None None
$500,000
----------------------------------------------------------------------------------------------
David C. Barclay Over 4 $122.4 5 $1.23 10 $2.32
$1,000,000
----------------------------------------------------------------------------------------------
Abner D. $500,001 -- 4 $113.8 None None
Goldstine $1,000,000
----------------------------------------------------------------------------------------------
Dina N. Perry $100,001 -- 3 $133.8 1 $0.48 None
$500,000
----------------------------------------------------------------------------------------------
John H. Smet $50,001 -- 6 $162.6 None 3 $2.36
$100,000
----------------------------------------------------------------------------------------------
Andrew B. Suzman Over 1 $ 68.1 None None
$1,000,000
----------------------------------------------------------------------------------------------
Joanna F. Jonsson $100,001 -- None 1 $0.04 None
$500,000
----------------------------------------------------------------------------------------------
Mark R. Macdonald $100,001 -- 2 $ 93.8 None None
$500,000
----------------------------------------------------------------------------------------------
Steven T. Watson $100,001 -- 3 $214.9 None None
$500,000
----------------------------------------------------------------------------------------------

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

/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). 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. No fund has an advisory fee that is based on the
performance of the fund.
/3/ Represents funds advised or sub-advised by Capital Research and Management
Company and sold outside the United States and/ or 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 funds or accounts and are
not indicative of the total assets managed by the individual, which is a
substantially lower amount. No fund or account has an advisory fee that is
based on the performance of the fund or account.
/4/ 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.

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).

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

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 independent directors; 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 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.

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 years ended July 31, 2006 and 2005, the investment adviser was
entitled to receive from the fund management fees of $157,792,000 and
$131,860,000, respectively. After giving effect to the management fee waiver
described below, the fund paid the investment adviser

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

management fees of $142,013,000 (a reduction of $15,779,000) and $123,455,000 (a
reduction of $8,405,000) for the fiscal years ended July 31, 2006 and 2005,
respectively. For the fiscal year ended July 31, 2004, the fund paid the
investment adviser management fees of $97,491,000.

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 the investment adviser is otherwise entitled
to receive and this waiver is expected to 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 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 independent directors. 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 and R-2 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, 2006, the total fees paid by the investment adviser were $299,000.

As compensation for its services, the investment adviser receives transfer agent
fees for transfer agent services provided to the fund's Class C, F, R and 529
shares. 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 at the annual rate of up to 0.15% of the average daily net assets
for Class C, F, R (excluding Class R-5 shares) and 529 shares for administrative
services provided to these share classes. Administrative services fees are paid
monthly and accrued daily. The investment adviser uses a portion of this fee to
compensate third parties for administrative services provided to the fund. Of
the remainder, the investment adviser does not retain more than 0.05% of the
average daily net assets for each applicable share class. For Class R-5 shares,
the administrative services fee is calculated at the annual rate of up to 0.10%
of the average daily net assets. This fee is subject to the same uses and
limitations described above.

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

During the 2006 fiscal year, administrative services fees, gross of any payments
made by the investment adviser, were:

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

CLASS C $7,417,000
--------------------------------------------------------------------------------
CLASS F 1,558,000
--------------------------------------------------------------------------------
CLASS 529-A 300,000
--------------------------------------------------------------------------------
CLASS 529-B 84,000
--------------------------------------------------------------------------------
CLASS 529-C 164,000
--------------------------------------------------------------------------------
CLASS 529-E 15,000
--------------------------------------------------------------------------------
CLASS 529-F 6,000
--------------------------------------------------------------------------------
CLASS R-1 49,000
--------------------------------------------------------------------------------
CLASS R-2 1,624,000
--------------------------------------------------------------------------------
CLASS R-3 973,000
--------------------------------------------------------------------------------
CLASS R-4 294,000
--------------------------------------------------------------------------------
CLASS R-5 117,000
--------------------------------------------------------------------------------

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.

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

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 2006 $30,657,000 $132,403,000
2005 42,979,000 188,156,000
2004 42,380,000 188,732,000
-----------------------------------------------------------------------------------------------------
CLASS B 2006 2,217,000 13,356,000
2005 3,899,000 26,188,000
2004 5,811,000 39,893,000
-----------------------------------------------------------------------------------------------------
CLASS C 2006 4,427,000 11,810,000
2005 934,000 17,670,000
2004 -- 18,410,000
-----------------------------------------------------------------------------------------------------
CLASS 529-A 2006 621,000 2,871,000
2005 648,000 3,012,000
2004 551,000 2,583,000
-----------------------------------------------------------------------------------------------------
CLASS 529-B 2006 70,000 432,000
2005 104,000 620,000
2004 138,000 757,000
-----------------------------------------------------------------------------------------------------
CLASS 529-C 2006 42,000 448,000
2005 -- 475,000
2004 -- 447,000
-----------------------------------------------------------------------------------------------------

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 independent
directors of the fund 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; and benefits to

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

the investment process from growth or stability of assets. The selection and
nomination of independent directors are committed to the discretion of the
independent directors 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, up to 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, respectively; (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 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%

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

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% 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.

As of the end of the 2006 fiscal year, total 12b-1 expenses, and the portion of
the expenses that remained unpaid, were:

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

CLASS A $115,724,000 $15,618,000
------------------------------------------------------------------------------------------------
CLASS B 42,234,000 4,340,000
------------------------------------------------------------------------------------------------
CLASS C 61,234,000 8,920,000
------------------------------------------------------------------------------------------------
CLASS F 4,328,000 759,000
------------------------------------------------------------------------------------------------
CLASS 529-A 736,000 129,000
------------------------------------------------------------------------------------------------
CLASS 529-B 816,000 91,000
------------------------------------------------------------------------------------------------
CLASS 529-C 1,739,000 283,000
------------------------------------------------------------------------------------------------
CLASS 529-E 100,000 18,000
------------------------------------------------------------------------------------------------
CLASS 529-F 0 0
------------------------------------------------------------------------------------------------
CLASS R-1 268,000 58,000
------------------------------------------------------------------------------------------------
CLASS R-2 2,400,000 436,000
------------------------------------------------------------------------------------------------
CLASS R-3 2,407,000 424,000
------------------------------------------------------------------------------------------------
CLASS R-4 482,000 97,000
------------------------------------------------------------------------------------------------

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

OTHER COMPENSATION TO DEALERS -- As of January 2006, the top dealers (or their
affiliates) that American Funds Distributors anticipates will receive additional
compensation (as described in the prospectus) include:

A. G. Edwards & Sons, Inc.
AIG Advisors Group:
Advantage Capital
AIG Financial Advisors
FSC
Royal Alliance
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.
Genworth Financial Securities Corp.
Hefren-Tillotson, Inc.
Hornor, Townsend & Kent, Inc.
ING Advisors Network Inc.:
Bancnorth Investment Group
Financial Network

ING Financial Advisors
ING Financial Partners
Multi - Financial
Primevest
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
McDonald Investments Inc./Society National Bank
Merrill Lynch, Pierce, Fenner & Smith Inc.
Metlife Enterprises
MML Investors Services, Inc.
Morgan Keegan & Company, Inc.
Morgan Stanley DW
NatCity Investment, Inc.
National Planning Holdings Inc.:
Invest
Investment Centers of America
National Planning Corp
SII Investments

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

NFP Securities, Inc.
Northwestern Mutual Investment Services, LLC.

Pacific Select Group, LLC:
Associated Securities
Contemporary Financial

Mutual Service Corporation
United Planners
Waterstone
Park Avenue Securities LLC
Piper Jaffray & Co.
Princor Financial Services
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.
The O.N. Equity Sales Company
UBS Financial Services Inc.
US Bancorp Investments, Inc.
Wachovia Securities

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.

Brokerage commissions paid on portfolio transactions, including investment
dealer concessions on underwritings, if applicable, for the fiscal years ended
July 31, 2006, 2005 and 2004 amounted to $64,725,000, $45,510,000 and
$38,953,000, 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 volume of trading activity increased during each year, resulting in
an increase in brokerage commissions paid on portfolio transactions.

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

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

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 Citigroup Global Markets Inc., Deutsche Bank AG, First
Clearing LLC and J.P. Morgan Securities Inc. As of the fund's most recent fiscal
year-end, the fund held equity securities of Citigroup Inc. in the amount of
$1,182,870,000; Wachovia Corporation in the amount of $225,246,000 and J.P.
Morgan Chase & Co. in the amount of $559,986,000. As of that date the fund held
debt securities of Citigroup Inc. in the amount of $12,336,000; Deutsche Bank AG
in the amount of $9,484,000 and J.P. Morgan Chase & Co. in the amount of
$26,597,000.

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 practice, the public portfolio
typically is posted on the website approximately 45 days after the end of the
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.
The fund's custodian, outside counsel and auditors, each of whom require
portfolio holdings information for legitimate business and fund oversight
purposes may receive the information earlier.

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

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

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 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 indicated below. The fund follows
standard industry practice by typically reflecting changes in its holdings of
portfolio securities on the first business day following a portfolio trade.

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

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

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 calculation
of the fund's net asset value.

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 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 by the investment adviser, 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. The
valuation committee employs additional fair value procedures to address issues
related to investing substantial portions of applicable fund portfolios outside
the United States. Securities owned by these funds trade in markets that open
and close at different times, reflecting time zone differences. If significant
events occur after the close of a market (and before these fund's net asset
values are next determined) which affect the value of portfolio securities,
appropriate adjustments from closing market prices may be made to reflect these
events. Events of this type could include, for example, earthquakes and other
natural disasters or significant price changes in other markets (e.g., U.S.
stock markets).

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

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

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 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 Income Fund of America -- Page 35
<PAGE>

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 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. 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 and meets the applicable holding period
requirement, 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.

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

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

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 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.

The price of a bond purchased after its original issuance may reflect
market discount which, depending on the particular circumstances, may
affect the tax character and amount of income required to be recognized by
a fund holding the bond. In determining whether a bond is purchased with
market discount, certain de minimis rules apply.

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. Some
foreign countries 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.

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

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 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 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

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

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 fund(s).

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. Any loss disallowed under this rule will be added to the
shareholder's tax basis in the new shares purchased.

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 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 APPLICABLE PROGRAM
DESCRIPTION FOR INFORMATION ON POLICIES AND SERVICES SPECIFICALLY RELATING TO
THESE 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

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

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.

The amount of time it takes for us to receive regular U.S. postal mail may
vary and there is no assurance that we will receive such mail on the day
you expect. Mailing addresses for regular U.S. postal mail can be found in
the prospectus. To send investments or correspondence to us via overnight
mail or courier service, use any of the following addresses:

American Funds
8332 Woodfield Crossing Blvd.
Indianapolis, IN 46240-2482

American Funds
3500 Wiseman Blvd.
San Antonio, TX 78251-4321

American Funds
5300 Robin Hood Rd.
Norfolk, VA 23513-2407

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)

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

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

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. As noted in the prospectus,
purchase minimums may be waived or reduced in certain cases.

In the case of American Funds non-tax-exempt funds, 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.

Certain accounts held on the fund's books, known as omnibus accounts, contain
multiple underlying accounts that are invested in shares of the fund. These
underlying accounts are maintained by entities such as financial intermediaries
and are subject to the applicable initial purchase minimums as described in the
prospectus and statement of additional information. However, in the case where
the entity maintaining these accounts aggregates the accounts' purchase orders
for fund shares, such accounts are not required to meet the minimum amount for
subsequent purchases.

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. Beginning on November 1, 2006, exchanges from
Class A shares of The Cash Management Trust of America to Class B or C shares of
Intermediate Bond Fund of America, Limited Term Tax-Exempt Bond Fund of America
and Short-Term Bond Fund will no longer be permitted. 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

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

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 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;

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

(2) currently 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") (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) currently 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.

TRANSFERS TO COLLEGEAMERICA -- A transfer from the Virginia Prepaid
Education Program/SM/ or the Virginia Education Savings Trust/SM/ to a
CollegeAmerica account will be made with no sales charge. No commission
will be paid to the dealer on such a transfer.

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

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 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 13-month 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.

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

When a shareholder elects to use a Statement, shares equal to 5% of the
dollar amount specified in the Statement may be held in escrow in the
shareholder's account out of the initial purchase (or subsequent purchases,
if necessary) by the Transfer Agent. All dividends and any capital gain
distributions on shares held in escrow will be credited to the
shareholder's account in shares (or paid in cash, if requested). If the
intended investment is not completed within the specified Statement period,
the purchaser may be required to 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. Any dealers assigned to the shareholder's account at the
time a purchase was made during the Statement period will receive a
corresponding commission adjustment if appropriate. 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 may be liable
to the Principal Underwriter for the balance still outstanding.

Certain payroll deduction retirement plans purchasing Class A shares under
a Statement on or before November 12, 2006, may continue to purchase Class
A shares at the sales charge determined by that particular Statement until
the plans' values reach the amounts specified in their Statements. Upon
reaching such amounts, the Statements for these plans will be deemed
completed and will terminate at that time. After such termination, these
plans are eligible for additional sales charge reductions by meeting the
criteria under the fund's rights of accumulation policy.

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 plans, 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

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

. 529 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;

. 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, in each case 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

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

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.

When determining your American Funds Class A sales charge, if your
investment is not in 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

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

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);

. 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 elimination of the fund by
the Virginia College Savings Plan 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. To contact American Funds Service Company via overnight mail or
courier service, see "Purchase and exchange of shares".

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 10
business 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.

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

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.

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
per fund; $25 minimum per fund in the case of employer-sponsored 529 accounts)
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

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

(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.

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.

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

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. 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
account application.

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

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

Service Company is located at 135 South State College Boulevard, Brea, CA
92821-5823. American Funds Service Company was paid a fee of $29,419,000 for
Class A shares and $2,836,000 for Class B shares for the 2006 fiscal year.
American Funds Service Company is also compensated for certain transfer agency
services provided to all other share classes from the administrative services
fees paid to Capital Research and Management Company, as described under
"Administrative services agreement."

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
independent directors 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 fund's investment portfolio
or summary 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

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

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.

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
August 30, 2006, the NASD Hearing Panel ruled against the Principal Underwriter
and imposed a $5 million fine. The Principal Underwriter intends to appeal this
decision to the NASD's National Adjudicatory Council.

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:

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

DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE
PER SHARE FOR CLASS A SHARES -- JULY 31, 2006

Net asset value and redemption price per share
(Net assets divided by shares outstanding). . $19.33
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). . . . . . . . . . . . . . . . $20.51

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
Short-Term Bond Fund of America/SM/ . . . . . . . . . . . . . 048 248 348 448
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.

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

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
Short-Term Bond Fund of America 1048 1248 1348 1548 1448
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 56
<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
Short-Term Bond Fund of America. . . 2148 2248 2348 2448 2548
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 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

[Logo - American Funds ^®]

The Income Fund of America^®

Investment portfolio

July 31, 2006


		Market value
Common stocks — 66.67%	Shares	(000)

FINANCIALS — 17.90%
Citigroup Inc.	24,485,000	$1,182,870
Washington Mutual, Inc.	16,251,200	726,429
Société Générale	4,736,500	706,466
Wells Fargo & Co.	9,731,800	703,998
HSBC Holdings PLC (United Kingdom)	26,952,825	488,878
HSBC Holdings PLC (Hong Kong)	10,543,396	190,109
J.P. Morgan Chase & Co.	12,275,000	559,986
Bank of America Corp.	10,765,550	554,749
U.S. Bancorp	13,109,953	419,518
Fifth Third Bancorp	10,994,000	419,311
Lloyds TSB Group PLC	40,349,900	406,264
Equity Residential	8,337,700	387,786
Hang Lung Properties Ltd.	156,970,000	309,904
Boston Properties, Inc.	2,995,000	294,109
iStar Financial, Inc.¹	7,240,000	287,862
SunTrust Banks, Inc.	3,480,500	274,507
ING Groep NV	6,376,076	258,761
Equity Office Properties Trust	6,775,000	256,840
National City Corp.	6,850,000	246,600
Developers Diversified Realty Corp.	4,270,000	225,371
Wachovia Corp.	4,200,000	225,246
BNP Paribas	2,145,000	208,724
PNC Financial Services Group, Inc.	2,795,100	198,005
CapitalSource Inc.	8,378,441	197,647
Banco Itaú Holding Financeira SA, preferred nominative	6,210,000	190,099
Kimco Realty Corp.	4,842,000	190,000
Cathay Financial Holding Co., Ltd.	87,116,000	186,493
Hospitality Properties Trust	3,452,200	150,412
Arthur J. Gallagher & Co.¹	5,403,700	146,819
Fannie Mae	3,006,200	144,027
Unibail Holding	595,000	110,401
Allied Capital Corp.	3,848,020	108,322
Regions Financial Corp.	2,950,000	107,056
Sunstone Hotel Investors, Inc.¹	3,593,400	101,909
Crescent Real Estate Equities Co.	5,045,000	98,478
DnB NOR ASA	7,500,000	95,037
Compass Bancshares, Inc.	1,550,000	91,357
St. George Bank Ltd.	4,046,552	88,747
Montpelier Re Holdings Ltd.¹	4,465,000	80,727
Banco Santander Central Hispano, SA	5,030,828	76,193
XL Capital Ltd., Class A	1,175,000	74,848
Archstone-Smith Trust	1,400,000	73,458
Health Care Property Investors, Inc.	2,442,300	66,968
Westpac Banking Corp.	3,671,144	61,826
Hysan Development Co. Ltd.	21,815,601	61,348
Camden Property Trust	789,300	60,342
Unibanco-União de Bancos Brasileiros SA, units (GDR)	697,000	48,351
American Financial Realty Trust	3,000,000	34,740
Sky Financial Group, Inc.	1,200,000	29,436
First Niagara Financial Group, Inc.	1,300,000	19,019
Beverly Hills Bancorp Inc.¹	1,848,400	16,765
First Midwest Bancorp, Inc.	300,074	10,713
		12,253,831

UTILITIES — 7.97%
Duke Energy Corp.	19,880,000	602,761
National Grid PLC	40,045,175	455,933
E.ON AG	3,650,000	439,910
Entergy Corp.	4,373,292	337,181
Dominion Resources, Inc.	4,158,498	326,359
Exelon Corp.	5,050,000	292,395
Progress Energy, Inc.	6,185,400	269,374
Ameren Corp.	5,098,300	262,562
Public Service Enterprise Group Inc.	3,305,500	222,890
DTE Energy Co.	5,000,000	211,600
PPL Corp.	6,000,000	204,120
Equitable Resources, Inc.	5,470,000	196,975
NiSource Inc.	7,745,000	176,199
Consolidated Edison, Inc.	3,670,000	172,013
Hongkong Electric Holdings Ltd.	33,080,000	157,526
RWE AG	1,750,000	153,684
FirstEnergy Corp.	2,440,000	136,640
Xcel Energy Inc.	5,225,000	104,709
Edison International	2,500,000	103,450
Endesa, SA	3,000,000	102,517
Southern Co.	3,000,000	101,340
American Electric Power Co., Inc.	2,500,000	90,300
KeySpan Corp.	2,160,000	86,983
MDU Resources Group, Inc.	2,655,000	65,446
FPL Group, Inc.	1,500,000	64,710
NSTAR	2,065,250	64,374
Northeast Utilities	2,386,200	53,451
		5,455,402

TELECOMMUNICATION SERVICES — 7.83%
AT&T Inc.	51,160,575	1,534,305
BellSouth Corp.	33,610,000	1,316,504
Verizon Communications Inc.	21,100,000	713,602
Koninklijke KPN NV	46,015,000	522,387
Chunghwa Telecom Co., Ltd. (ADR)	16,324,400	303,144
Chunghwa Telecom Co., Ltd.	42,803,000	78,933
Vodafone Group PLC	163,143,750	354,275
Telecom Italia SpA, nonvoting	99,445,000	239,886
SK Telecom Co., Ltd. (ADR)	6,325,000	148,068
Deutsche Telekom AG	3,750,000	57,944
Telefónica, SA	1,900,000	32,124
KT Corp.	738,480	30,322
Dobson Communications Corp., Class A^2,3	2,290,483	15,369
Sprint Nextel Corp., Series 1	760,501	15,058
American Tower Corp., Class A³	42,271	1,429
XO Holdings, Inc.³	9,158	36
		5,363,386

CONSUMER STAPLES — 7.57%
Altria Group, Inc.	10,780,000	862,077
Coca-Cola Co.	15,225,000	677,512
H.J. Heinz Co.	14,535,000	610,034
Reynolds American Inc.	4,553,500	577,293
ConAgra Foods, Inc.¹	26,327,600	566,043
General Mills, Inc.	8,700,000	451,530
Diageo PLC	17,650,000	310,250
UST Inc.	4,650,000	235,057
Unilever NV (New York registered)	5,751,750	136,201
Unilever NV	2,355,000	55,967
Tesco PLC	20,740,000	139,279
Sara Lee Corp.	8,000,000	135,200
Kimberly-Clark Corp.	2,000,000	122,100
Goodman Fielder Ltd.^1,3	67,000,000	103,089
SABMiller PLC	4,311,000	86,569
Kraft Foods Inc., Class A	2,000,000	64,800
Woolworths Ltd.	3,510,482	51,166
		5,184,167

ENERGY — 5.55%
Chevron Corp.	21,874,200	1,438,885
Royal Dutch Shell PLC, Class A (ADR)	10,196,000	721,877
Royal Dutch Shell PLC, Class B	6,314,144	232,476
Royal Dutch Shell PLC, Class B (ADR)	2,864,565	211,577
Royal Dutch Shell PLC, Class A	1,340,000	47,348
Marathon Oil Corp.	4,345,000	393,831
Kinder Morgan, Inc.	2,020,000	206,040
Occidental Petroleum Corp.	1,800,000	193,950
Enbridge Inc.	3,150,389	100,780
Exxon Mobil Corp.	1,385,000	93,820
TOTAL SA (ADR)	1,290,000	88,016
ENI SpA	2,400,000	73,586
		3,802,186

HEALTH CARE — 5.49%
Bristol-Myers Squibb Co.	43,284,000	1,037,517
Merck & Co., Inc.	18,800,000	757,076
Eli Lilly and Co.	12,335,000	700,258
Pfizer Inc	20,210,000	525,258
Brookdale Senior Living Inc.	4,785,000	222,503
GlaxoSmithKline PLC	7,183,055	198,720
Abbott Laboratories	3,500,000	167,195
Baxter International Inc.	1,972,048	82,826
Wyeth	1,431,500	69,385
Clarent Hospital Corp.^1,3,4	484,684	121
		3,760,859


MATERIALS — 4.42%
International Paper Co.	16,348,820	$ 561,255
E.I. du Pont de Nemours and Co.	13,685,000	542,747
Weyerhaeuser Co.	8,900,000	522,074
Dow Chemical Co.	8,421,500	291,216
MeadWestvaco Corp.¹	10,565,696	275,976
Packaging Corp. of America¹	6,736,800	154,475
RPM International, Inc.	5,385,000	100,915
Eastman Chemical Co.	2,000,000	99,260
Alcoa Inc.	3,200,000	95,840
UPM-Kymmene Corp.	4,100,000	90,892
Akzo Nobel NV	1,398,500	77,793
Sonoco Products Co.	2,365,000	76,933
Worthington Industries, Inc.	3,414,900	69,732
Lyondell Chemical Co.	2,220,000	49,439
Freeport-McMoRan Copper & Gold Inc., Class B	300,000	16,368
		3,024,915

INDUSTRIALS — 4.23%
General Electric Co.	33,670,000	1,100,672
Waste Management, Inc.	11,872,400	408,173
Emerson Electric Co.	4,685,000	369,740
R.R. Donnelley & Sons Co.	10,745,000	313,646
Cooper Industries, Ltd., Class A	2,100,000	180,936
Hubbell Inc.	3,213,100	151,016
Avery Dennison Corp.	2,348,182	137,674
Bidvest Group Ltd.	7,265,000	104,918
Sandvik AB	7,500,000	77,978
Brambles Industries PLC	5,103,000	41,633
Singapore Technologies Engineering Ltd.	4,823,000	8,647
Delta Air Lines, Inc.^2,3	542,911	380
		2,895,413

CONSUMER DISCRETIONARY — 2.75%
General Motors Corp.	13,775,000	443,968
Esprit Holdings Ltd.	40,949,000	311,469
DSG International PLC	45,000,000	167,700
Leggett & Platt, Inc.	6,500,000	148,330
ServiceMaster Co.	13,973,750	143,790
Snap-on Inc.	2,310,000	97,043
Kingfisher PLC	20,678,565	94,444
Regal Entertainment Group, Class A	4,022,000	79,073
KangwonLand Inc.	4,410,395	77,841
Kesa Electricals PLC	13,338,258	76,990
Tupperware Brands Corp.¹	3,865,000	66,710
Publishing & Broadcasting Ltd.	4,937,794	64,636
Marks and Spencer Group PLC	3,195,000	35,601
Harrah’s Entertainment, Inc.	585,300	35,182
SanomaWSOY OYJ, Class B	1,400,000	33,486
Greek Organization of Football Prognostics SA	208,856	7,580
TI Automotive Ltd., Class A^3,4	7,000,000	—
		1,883,843

INFORMATION TECHNOLOGY — 0.60%
Microsoft Corp.	9,200,000	$ 221,076
Taiwan Semiconductor Manufacturing Co. Ltd. (ADR)	12,710,081	110,196
Premier Farnell PLC¹	21,050,000	70,877
Micron Technology, Inc.^2,3	339,328	5,290
ZiLOG, Inc.³	455,000	1,602
		409,041

MISCELLANEOUS — 2.36%
Other common stocks in initial period of acquisition		1,609,862


Total common stocks (cost: $36,872,330,000)		45,642,905


Preferred stocks — 1.27%

FINANCIALS — 1.24%
SB Treasury Co. LLC, Series A, 9.40% noncumulative preferred^2,5	124,434,000	132,447
Fannie Mae, Series O, 7.625% preferred^2,5	2,190,000	118,260
Tokai Preferred Capital Co. LLC, Series A, 9.98% noncumulative preferred^2,5	52,000,000	55,876
MUFG Capital Finance 1 Ltd. 6.346% noncumulative preferred⁵	48,430,000	47,228
Fuji JGB Investment LLC, Series A, 9.87% noncumulative preferred^2,5	55,950,000	60,063
IBJ Preferred Capital Co. LLC, Series A, 8.79% noncumulative preferred^2,5	24,300,000	25,619
Vornado Realty Trust, Series I, 6.625% preferred	3,380,000	80,241
Shinsei Finance II (Cayman) Ltd. 7.16% noncumulative preferred^2,5	60,950,000	58,131
HSBC Capital Funding LP, Series 1, 9.547% noncumulative step-up perpetual preferred^2,5	37,500,000	42,303
HSBC Capital Funding LP, Series 2, 10.176% noncumulative step-up perpetual preferred^2,5	10,000,000	14,075
Chuo Mitsui Trust and Banking Co., Ltd. 5.506%^2,5	36,590,000	34,215
Public Storage, Inc., Series F, 6.45% preferred	1,000,000	23,000
Public Storage, Inc., Series V, 7.50% cumulative preferred depositary shares	400,000	10,296
BNP Paribas Capital Trust 9.003% noncumulative trust preferred^2,5	8,000,000	8,933
BNP Paribas 5.186% noncumulative^2,5	8,750,000	8,102
BNP U.S. Funding LLC, Series A, 7.738% noncumulative preferred^2,5	4,200,000	4,305
Wachovia Capital Trust III 5.80%⁵	20,000,000	19,695
Duke Realty Corp., Series B, 7.99% preferred cumulative step-up premium rate	300,000	14,822
National Bank of Canada, Series A, 8.35% exchangeable preferred depositary shares	520,000	13,759
Société Générale 7.85%^2,5	11,200,000	11,385
Simon Property Group, Inc., Series G, 7.89% preferred cumulative step-up premium rate	200,000	10,306
Resona Preferred Global Securities (Cayman) Ltd. 7.191%^2,5	9,825,000	10,026
iStar Financial, Inc., Series F, 7.80% cumulative redeemable preferred¹	400,000	10,004
Deutsche Bank Capital Funding Trust VII 5.628% noncumulative trust preferred^2,5	10,000,000	9,484
DBS Capital Funding Corp., Series A, 7.657% noncumulative guaranteed preference shares^2,5	6,500,000	6,985
ACE Ltd., Series C, 7.80% preferred depositary shares	256,550	6,668
New Plan Excel Realty Trust, Inc., Series D, 7.80% preferred cumulative step-up premium rate	112,500	5,664
Nationwide Health Properties, Inc., Series A, 7.677% preferred cumulative step-up premium rate	50,000	5,136
ING Capital Funding Trust III 8.439% noncumulative preferred⁵	320,000	353
		847,381

CONSUMER DISCRETIONARY — 0.03%
Delphi Corp., Series A, 8.25% cumulative trust preferred 2033³	1,201,245	17,118


INFORMATION TECHNOLOGY — 0.00%
ZiLOG, Inc. — MOD III Inc., units^3,4	513	76


TELECOMMUNICATION SERVICES — 0.00%
XO Holdings, Inc. 14.00% preferred 2009^3,4,6	12	0


Total preferred stocks (cost: $854,645,000)		864,575


Warrants — 0.00%

TELECOMMUNICATION SERVICES — 0.00%
XO Holdings, Inc., Series A, warrants, expire 2010³	18,316	11
XO Holdings, Inc., Series B, warrants, expire 2010³	13,738	5
XO Holdings, Inc., Series C, warrants, expire 2010³	13,738	3
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: $816,000)		19


	Shares or
Convertible securities — 3.40%	principal amount

FINANCIALS — 0.82%
Metropolitan Life Insurance Co., Class B, 6.375% convertible preferred 2008	6,400,000 units	175,744
Fannie Mae 5.375% convertible preferred	1,530	142,206
XL Capital Ltd. 6.50% ACES convertible preferred 2007	1,340,000 units	28,475
XL Capital Ltd. 7.00% convertible preferred	2,810,000 units	68,142
Genworth Financial, Inc. 6.00% convertible preferred 2007	2,400,000 units	88,560
Chubb Corp. 7.00% convertible preferred 2006	1,600,000 units	56,352
		559,479

INFORMATION TECHNOLOGY — 0.66%
Intel Corp. 2.95% convertible debentures 2035	$5,175,000	4,334
Intel Corp. 2.95% convertible debentures 2035²	$154,825,000	129,666
Nortel Networks Corp. 4.25% convertible notes 2008²	$40,000,000	37,700
Nortel Networks Corp. 4.25% convertible notes 2008	$80,000,000	75,400
ASM Lithography Holding NV 5.75% convertible notes 2006²	$57,500,000	62,376
SCI Systems, Inc. 3.00% convertible debentures 2007	$57,500,000	56,062
International Rectifier Corp. 4.25% convertible notes 2007	$52,000,000	51,350
Liberty Media Corp. 3.50% exchangeable debentures 2031	$30,000,000	30,525
LSI Logic Corp. 4.00% convertible notes 2006	$3,000,000	2,989
Fairchild Semiconductor Corp. 5.00% convertible notes 2008	$2,500,000	2,472
		452,874

TELECOMMUNICATION SERVICES — 0.31%
Qwest Communications International Inc. 3.50% convertible debenture 2025	$100,000,000	149,000
American Tower Corp. 5.00% convertible debentures 2010	$38,100,000	38,100
Liberty Media Corp. 4.00% exchangeable debentures 2029	$36,000,000	23,355
		210,455

INDUSTRIALS — 0.30%
UAL Corp. 4.50% convertible note 2021²	$72,600,000	71,649
Allied Waste Industries, Inc., Series D, 6.25% convertible preferred 2008	240,000	68,887
Tyco International Group SA, Series B, 3.125% convertible debentures 2023²	$50,000,000	62,813
		203,349


HEALTH CARE — 0.28%
Schering-Plough Corp. 6.00% convertible preferred 2007	2,499,900	$ 132,645
Sepracor Inc. 5.00% convertible debentures 2007	$46,000,000	45,885
Incyte Corp. 3.50% convertible notes 2011²	$15,000,000	11,700
		190,230

UTILITIES — 0.22%
PG&E Corp. 9.50% convertible notes 2010	$28,000,000	85,050
NRG Energy, Inc. 5.75% convertible preferred	200,000	50,150
AES Trust VII 6.00% convertible preferred 2008	325,000	15,990
		151,190

CONSUMER DISCRETIONARY — 0.21%
Ford Motor Co. Capital Trust II 6.50% cumulative convertible trust preferred 2032	2,132,900	61,001
Amazon.com, Inc. 4.75% convertible debentures 2009	$59,137,000	57,806
Liberty Media Corp. 3.25% exchangeable debentures 2031	$35,000,000	26,250
		145,057

MATERIALS — 0.17%
Freeport-McMoRan Copper & Gold Inc., 5.50% convertible preferred	50,000	62,322
Inco Ltd. 0% convertible notes LYON 2021	$26,000,000	53,820
		116,142

ENERGY — 0.15%
El Paso Corp. 4.99% convertible preferred²	75,000	101,625


CONSUMER STAPLES — 0.05%
Albertson’s, Inc. 7.25% convertible preferred 2007	1,500,000 units	37,485


MISCELLANEOUS — 0.23%
Other convertible securities in initial period of acquisition		160,558


Total convertible securities (cost: $2,164,179,000)		2,328,444


	Principal amount
Bonds & notes — 21.89%	(000)

CONSUMER DISCRETIONARY — 3.74%
General Motors Corp. 6.375% 2008	$ 12,580	12,014
General Motors Nova Scotia Finance Co. 6.85% 2008	20,700	19,613
General Motors Corp. 7.20% 2011	103,395	92,280
General Motors Corp. 7.125% 2013	67,640	57,832
General Motors Corp. 7.70% 2016	20,145	17,174
General Motors Corp. 8.80% 2021	9,500	8,122
General Motors Corp. 9.40% 2021	5,775	5,140
General Motors Corp. 8.25% 2023	7,000	5,810
General Motors Corp. 8.375% 2033	10,000	8,250
Delphi Automotive Systems Corp. 6.55% 2006⁷	17,105	14,026
Delphi Automotive Systems Corp. 6.50% 2009⁷	54,466	44,934
Delphi Corp. 6.50% 2013⁷	72,580	55,524
Delphi Automotive Systems Corp. 7.125% 2029⁷	104,355	80,875
Clear Channel Communications, Inc. 4.625% 2008	14,000	13,770
Chancellor Media Corp. of Los Angeles 8.00% 2008	23,750	24,766
Clear Channel Communications, Inc. 4.25% 2009	25,000	23,899
Clear Channel Communications, Inc. 7.65% 2010	15,550	16,218
Clear Channel Communications, Inc. 5.75% 2013	6,580	6,193
Clear Channel Communications, Inc. 5.50% 2014	39,170	35,589
Clear Channel Communications, Inc. 6.875% 2018	1,000	950
Comcast Cable Communications, Inc. 6.20% 2008	49,000	49,702
Lenfest Communications, Inc. 7.625% 2008	2,000	2,054
Comcast Corp. 5.80% 2009⁵	1,250	1,253
Comcast Cable Communications, Inc. 6.875% 2009	8,000	8,270
Comcast Cable Communications, Inc. 7.125% 2013	8,100	8,562
Comcast Corp. 5.85% 2015	19,200	18,710
Comcast Corp. 6.50% 2015	5,000	5,093
Comcast Corp. 5.90% 2016	8,475	8,272
Comcast Corp. 6.50% 2017	10,500	10,663
Comcast Corp. 5.65% 2035	2,650	2,289
CCH II, LLC and CCH II Capital Corp. 10.25% 2010	9,000	9,135
Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corp. 13.50% 2011	4,375	3,347
Charter Communications Operating, LLC and Charter Communications Operating Capital Corp. 8.00% 2012²	36,730	36,822
Charter Communications, Series B, Loan 8.125% 2013^5,9	31,375	31,453
CCO Holdings, LLC and CCO Holdings Capital Corp. 8.75% 2013	13,350	13,317
Charter Communications Operating, LLC and Charter Communications Operating Capital Corp. 8.375% 2014²	10,000	10,125
R.H. Donnelley Inc. 10.875% 2012²	1,000	1,104
R.H. Donnelley Corp., Series A-1, 6.875% 2013	20,650	18,843
R.H. Donnelley Corp., Series A-2, 6.875% 2013	39,025	35,610
R.H. Donnelley Corp., Series A-3, 8.875% 2016	35,175	35,219
Mirage Resorts, Inc. 7.25% 2006	4,960	4,985
MGM MIRAGE 6.00% 2009	35,100	34,310
Mandalay Resort Group 6.50% 2009	7,122	7,042
MGM MIRAGE 8.50% 2010	22,830	23,943
MGM MIRAGE 6.75% 2012	9,150	8,898
MGM MIRAGE 6.75% 2013²	8,200	7,913
J.C. Penney Co., Inc. 8.00% 2010	35,705	38,216
J.C. Penney Co., Inc. 9.00% 2012	10,506	12,139
J.C. Penney Co., Inc. 6.875% 2015	5,000	5,210
J.C. Penney Co., Inc. 7.65% 2016	4,000	4,399
J.C. Penney Co., Inc. 7.625% 2097	23,285	23,498
DaimlerChrysler North America Holding Corp. 4.05% 2008	2,560	2,486
DaimlerChrysler North America Holding Corp. 4.75% 2008	1,440	1,420
DaimlerChrysler North America Holding Corp. 5.74% 2009⁵	15,000	15,026
DaimlerChrysler North America Holding Corp. 7.20% 2009	14,000	14,539
DaimlerChrysler North America Holding Corp. 8.00% 2010	15,000	16,043
DaimlerChrysler North America Holding Corp. 7.75% 2011	26,500	28,210
DaimlerChrysler North America Holding Corp. 6.50% 2013	3,200	3,239
Royal Caribbean Cruises Ltd. 7.00% 2007	3,000	3,041
Royal Caribbean Cruises Ltd. 8.00% 2010	3,500	3,696
Royal Caribbean Cruises Ltd. 8.75% 2011	26,850	29,092
Royal Caribbean Cruises Ltd. 6.875% 2013	6,500	6,442
Royal Caribbean Cruises Ltd. 7.00% 2013	22,230	22,311
Royal Caribbean Cruises Ltd. 7.25% 2016	10,000	9,953
Liberty Media Corp. 7.75% 2009	10,950	11,442
Liberty Media Corp. 7.875% 2009	28,350	29,757
Liberty Media Corp. 5.70% 2013	6,875	6,406
Liberty Media Corp. 8.50% 2029	6,000	6,000
Liberty Media Corp. 8.25% 2030	18,310	18,067
Neiman Marcus Group, Inc. 9.00% 2015⁶	52,810	55,913
Time Warner Inc. 8.18% 2007	20,000	20,514
AOL Time Warner Inc. 6.875% 2012	9,950	10,301
Time Warner Companies, Inc. 9.125% 2013	5,000	5,726
Time Warner Companies, Inc. 7.25% 2017	8,000	8,423
AOL Time Warner Inc. 7.625% 2031	9,750	10,514
NTL Cable PLC 8.75% 2014	16,319	16,645
NTL Cable PLC 9.125% 2016	31,500	32,051
NTL Inc., Loan 10.315% 2016^5,9	6,301	6,317
Cox Communications, Inc. 5.869% 2007⁵	8,250	8,294
Cox Communications, Inc. 7.875% 2009	12,500	13,205
Cox Communications, Inc. 4.625% 2010	8,250	7,933
Cox Communications, Inc. 7.75% 2010	10,000	10,694
Cox Communications, Inc. 5.45% 2014	13,500	12,607
Harrah’s Operating Co., Inc. 7.125% 2007	4,150	4,192
Harrah’s Operating Co., Inc. 5.50% 2010	26,375	25,905
Harrah’s Operating Co., Inc. 5.625% 2015	3,800	3,551
Harrah’s Operating Co., Inc. 6.50% 2016	5,000	4,930
Harrah’s Operating Co., Inc. 5.75% 2017	10,000	9,213
News America Inc. 5.30% 2014	2,000	1,922
News America Holdings Inc. 8.00% 2016	6,000	6,795
News America Holdings Inc. 8.25% 2018	4,000	4,645
News America Inc. 6.40% 2035	10,500	9,903
News America Inc. 6.75% 2038	15,000	15,435
K. Hovnanian Enterprises, Inc. 10.50% 2007	16,275	17,007
K. Hovnanian Enterprises, Inc. 8.00% 2012	3,000	2,925
K. Hovnanian Enterprises, Inc. 7.75% 2013	2,500	2,256
K. Hovnanian Enterprises, Inc. 6.375% 2014	2,000	1,750
K. Hovnanian Enterprises, Inc. 6.25% 2016	7,000	6,020
K. Hovnanian Enterprises, Inc. 7.50% 2016	4,090	3,763
K. Hovnanian Enterprises, Inc. 8.625% 2017	5,000	4,900
Viacom Inc. 5.75% 2011²	4,500	4,421
Viacom Inc. 6.25% 2016²	20,750	20,153
Viacom Inc. 6.875% 2036²	12,500	12,025
Starwood Hotels & Resorts Worldwide, Inc. 7.375% 2007	12,350	12,489
Starwood Hotels & Resorts Worldwide, Inc. 7.875% 2012	22,450	23,797
Wynn Las Vegas, LLC and Wynn Las Vegas Capital Corp. 6.625% 2014	36,535	34,617
Linens ’n Things, Inc. 11.132% 2014^2,5	36,500	34,036
Standard Pacific Corp. 6.50% 2008	5,000	4,887
Standard Pacific Corp. 5.125% 2009	17,750	16,419
Standard Pacific Corp. 6.875% 2011	6,500	5,980
Standard Pacific Corp. 6.25% 2014	3,500	2,953
Vidéotron Ltée 6.875% 2014	21,069	20,226
Vidéotron Ltée 6.375% 2015	10,435	9,548
CanWest Media Inc., Series B, 8.00% 2012	29,691	29,097
Mohegan Tribal Gaming Authority 6.375% 2009	19,780	19,483
Mohegan Tribal Gaming Authority 8.00% 2012	2,100	2,152
Mohegan Tribal Gaming Authority 6.125% 2013	750	716
Mohegan Tribal Gaming Authority 7.125% 2014	4,950	4,826
Emmis Operating Co. 6.875% 2012	27,185	26,811
Radio One, Inc., Series B, 8.875% 2011	16,750	17,252
Radio One, Inc. 6.375% 2013	10,200	9,358
KB Home 6.375% 2011	4,000	3,806
KB Home 6.25% 2015	24,800	21,931
Visteon Corp. 8.25% 2010	10,400	9,620
Visteon Corp. 7.00% 2014	18,000	14,760
Technical Olympic USA, Inc. 9.00% 2010	9,140	8,546
Technical Olympic USA, Inc. 9.00% 2010	2,325	2,174
Technical Olympic USA, Inc. 7.50% 2011	12,775	10,667
Technical Olympic USA, Inc. 10.375% 2012	2,500	2,187
Kabel Deutschland GmbH 10.625% 2014²	19,675	20,954
American Media Operations, Inc., Series B, 10.25% 2009	13,730	12,889
American Media Operations, Inc. 8.875% 2011	8,930	7,903
Toys “R” Us, Inc. 7.625% 2011	5,915	4,902
Toys “R” Us-Delaware, Inc., Loan 4.25% 2012^5,9	12,000	12,135
Toys “R” Us, Inc. 7.875% 2013	3,110	2,476
Warner Music Group 7.375% 2014	20,000	19,400
CSC Holdings, Inc. 7.25% 2008	8,000	8,090
CSC Holdings, Inc., Series B, 8.125% 2009	8,000	8,230
Cablevision Systems Corp., Series B, 8.00% 2012	2,050	2,040
D.R. Horton, Inc. 8.00% 2009	16,650	17,323
D.R. Horton, Inc. 7.875% 2011	550	580
Tenneco Automotive Inc., Series B, 10.25% 2013	5,325	5,831
Tenneco Automotive Inc. 8.625% 2014	12,000	11,970
Hilton Hotels Corp. 7.625% 2008	2,450	2,518
Hilton Hotels Corp. 7.20% 2009	4,850	5,002
Hilton Hotels Corp. 8.25% 2011	9,618	10,251
DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. 8.375% 2013	16,536	17,404
Telenet Group Holding NV 0%/11.50% 2014^2,8	20,027	17,123
Quebecor Media Inc. 7.75% 2016	16,675	16,467
Bon-Ton Stores, Inc. 10.25% 2014²	16,850	15,586
Young Broadcasting Inc. 10.00% 2011	16,890	15,581
Centex Corp. 5.25% 2015	5,000	4,550
Centex Corp. 6.50% 2016	10,000	9,854
Hyatt Equities, LLC 6.875% 2007²	14,000	14,096
William Lyon Homes, Inc. 7.625% 2012	17,000	13,579
Toll Brothers, Inc. 4.95% 2014	5,000	4,376
Toll Brothers, Inc. 5.15% 2015	10,500	9,150
Boyd Gaming Corp. 7.75% 2012	12,950	12,950
Stoneridge, Inc. 11.50% 2012	12,985	12,693
MDC Holdings, Inc. 7.00% 2012	5,000	5,034
MDC Holdings, Inc. 5.50% 2013	8,250	7,569
Adelphia Communications Corp. 10.25% 2006⁷	13,975	8,071
Adelphia Communications Corp. 10.25% 2011⁷	6,100	3,782
YUM! Brands, Inc. 7.70% 2012	10,500	11,411
Ryland Group, Inc. 5.375% 2012	12,350	11,389
Cinemark USA, Inc. 9.00% 2013	10,575	11,130
LBI Media, Inc. 10.125% 2012	10,395	11,071
Pulte Homes, Inc. 7.875% 2011	5,000	5,314
Pulte Homes, Inc. 7.625% 2017	5,000	5,272
British Sky Broadcasting Group PLC 6.875% 2009	10,000	10,287
May Department Stores Co. 5.75% 2014	10,215	10,047
Staples, Inc. 7.375% 2012	9,000	9,735
NVR, Inc. 5.00% 2010	10,000	9,603
TRW Automotive Acquisition Corp. 9.375% 2013	8,988	9,595
Seminole Tribe of Florida 6.535% 2020²	10,000	9,575
Omnicom Group Inc. 5.90% 2016	9,750	9,562
EchoStar DBS Corp. 5.75% 2008	9,300	9,207
Six Flags, Inc. 9.75% 2013	3,525	3,256
Six Flags, Inc. 9.625% 2014	6,050	5,521
AMC Entertainment Inc., Series B, 8.625% 2012	8,305	8,523
Regal Cinemas Corp., Series B, 9.375% 2012⁴	7,250	7,679
Burlington Coat Factory Holdings, Inc. 11.125% 2014²	7,625	7,330
WCI Communities, Inc. 9.125% 2012	8,045	7,281
Morris Publishing Group, LLC and Morris Publishing Finance Co., Series B, 7.00% 2013	6,700	6,365
Fisher Communications, Inc. 8.625% 2014	5,855	6,001
Aztar Corp. 7.875% 2014	5,500	5,871
Warnaco, Inc. 8.875% 2013	5,625	5,773
Gamestop Corp. 9.383% 2011⁵	5,000	5,237
Seneca Gaming Corp. 7.25% 2012	3,275	3,209
Seneca Gaming Corp. 7.25% 2012	2,000	1,960
Viacom Inc. 5.625% 2007	5,000	5,001
Education Management LLC and Education Management Finance Corp. 10.25% 2016²	4,860	4,933
Carnival Corp. 3.75% 2007	5,000	4,886
Reader’s Digest Assn., Inc. 6.50% 2011	3,550	3,457
Walt Disney Co., Series B, 5.375% 2007	3,000	2,997
Marriott International, Inc., Series G, 5.81% 2015	3,000	2,915
Payless ShoeSource, Inc. 8.25% 2013	2,775	2,855
Sealy Mattress Co. 8.25% 2014	2,825	2,839
XM Satellite Radio Holdings Inc. 9.75% 2014²	2,525	2,342
Gray Communications Systems, Inc. 9.25% 2011	2,000	2,085
		2,561,604

FINANCIALS — 3.50%
General Motors Acceptance Corp. 6.125% 2006	10,000	9,996
General Motors Acceptance Corp. 6.039% 2007⁵	25,000	24,908
General Motors Acceptance Corp. 6.125% 2007	45,020	44,772
General Motors Acceptance Corp. 6.125% 2007	12,500	12,415
General Motors Acceptance Corp. 6.407% 2007⁵	4,000	3,993
General Motors Acceptance Corp. 6.125% 2008	50,000	49,166
Residential Capital Corp. 6.489% 2008⁵	10,000	10,092
Residential Capital Corp. 6.607% 2009⁵	10,000	10,036
Residential Capital Corp. 7.337% 2009^2,5	22,000	21,992
Residential Capital Corp. 6.375% 2010	39,900	39,800
General Motors Acceptance Corp. 7.75% 2010	5,710	5,709
Residential Capital Corp. 6.00% 2011	15,000	14,734
General Motors Acceptance Corp. 6.875% 2011	92,370	89,536
General Motors Acceptance Corp. 7.25% 2011	104,895	102,926
General Motors Acceptance Corp. 6.875% 2012	16,145	15,600
General Motors Acceptance Corp. 7.00% 2012	71,305	69,096
General Motors Acceptance Corp. 6.75% 2014	32,000	30,169
General Motors Acceptance Corp. 7.431% 2014⁵	37,000	36,439
Ford Motor Credit Co. 5.80% 2009	6,000	5,581
Ford Motor Credit Co. 7.375% 2009	78,500	74,099
Ford Motor Credit Co. 7.077% 2010⁵	5,055	4,645
Ford Motor Credit Co. 7.875% 2010	21,450	20,197
Ford Motor Credit Co. 9.75% 2010²	7,550	7,479
ASIF Global Financing XVIII 3.85% 2007²	8,500	8,326
International Lease Finance Corp. 4.75% 2009	10,000	9,792
International Lease Finance Corp. 5.125% 2010	15,000	14,782
International Lease Finance Corp. 5.00% 2012	5,000	4,824
American General Finance Corp., Series I, 5.40% 2015	17,250	16,658
ILFC E-Capital Trust I 5.90% 2065^2,5	34,000	33,672
ILFC E-Capital Trust II 6.25% 2065^2,5	10,000	9,660
Washington Mutual, Inc. 4.00% 2009	9,000	8,689
Washington Mutual, Inc. 5.00% 2012	7,000	6,731
Washington Mutual, Inc. 5.737% 2012⁵	16,000	15,971
Dime Capital Trust I, Dime Bancorp, Inc., Series A, 9.33% 2027	9,425	10,085
Providian Financial Corp., Series A, 9.525% 2027²	$10,000	$10,612
Washington Mutual Preferred Funding I Ltd. 6.534% (undated)^2,5	42,800	41,660
Capital One Financial Corp. 8.75% 2007	3,500	3,552
Capital One Bank 4.875% 2008	20,000	19,793
Capital One Financial Corp. 7.125% 2008	8,848	9,085
Capital One Financial Corp. 6.25% 2013	30,000	30,462
Capital One Financial Corp. 5.50% 2015	5,000	4,793
Capital One Capital I 6.699% 2027^2,5	10,500	10,568
Rouse Co. 3.625% 2009	32,561	30,455
Rouse Co. 7.20% 2012	38,789	39,189
Household Finance Corp. 4.125% 2009	15,000	14,389
HSBC Finance Corp. 4.625% 2010	19,000	18,359
Household Finance Corp. 6.375% 2011	6,000	6,195
Household Finance Corp. 6.375% 2012	10,000	10,343
HSBC Bank USA 4.625% 2014²	5,000	4,644
HSBC Finance Corp. 5.00% 2015	2,720	2,556
Midland Bank 5.875% Eurodollar note (undated)⁵	5,000	4,300
MBNA Corp. 5.625% 2007	10,000	10,007
Bank of America Corp. 4.50% 2010	10,000	9,678
MBNA Global Capital Funding, Series B, 5.949% 2027⁵	35,000	34,681
Société Générale 5.75% 2016²	4,000	3,990
SocGen Real Estate Co. LLC, Series A, 7.64% (undated)^2,5	45,700	46,733
Sumitomo Mitsui Banking Corp. 5.625% (undated)^2,5	51,900	49,329
Simon Property Group, LP 4.875% 2010	11,375	11,095
Simon Property Group, LP 5.375% 2011	32,700	32,266
Simon Property Group, LP 6.35% 2012	5,000	5,134
Santander Issuances, SA Unipersonal 5.774% 2016^2,5	17,200	17,222
Santander Issuances, SA Unipersonal 5.805% 2016^2,5	17,500	17,545
Abbey National PLC 6.70% (undated)⁵	3,635	3,697
Abbey National PLC 7.35% (undated)⁵	7,605	7,640
iStar Financial, Inc. 7.00% 2008¹	6,525	6,653
iStar Financial, Inc. 8.75% 2008¹	1,028	1,085
iStar Financial, Inc., Series B, 4.875% 2009¹	5,000	4,897
iStar Financial, Inc. 5.375% 2010¹	10,925	10,750
iStar Financial, Inc. 6.00% 2010¹	3,750	3,772
iStar Financial, Inc., Series B, 5.125% 2011¹	10,000	9,670
iStar Financial, Inc. 5.80% 2011¹	5,000	4,969
iStar Financial, Inc. 6.05% 2015¹	4,285	4,240
Mizuho Capital Investment (USD) 1 Ltd. and Mizuho Capital Investment (EUR) 1 Ltd. 6.686% noncumulative preferred (undated)^2,5	42,150	41,406
Host Marriott, LP, Series G, 9.25% 2007	775	804
Host Marriott, LP, Series I, 9.50% 2007	750	764
Host Marriott, LP, Series M, 7.00% 2012	28,085	28,225
Host Marriott, LP, Series K, 7.125% 2013	10,000	10,062
CIT Group Inc. 3.65% 2007	7,110	6,936
CIT Group Inc. 6.875% 2009	16,500	17,100
CIT Group Inc. 4.75% 2010	10,000	9,688
CIT Group Inc. 7.75% 2012	4,000	4,383
E*TRADE Financial Corp. 8.00% 2011	1,750	1,807
E*TRADE Financial Corp. 7.375% 2013	8,750	8,816
E*TRADE Financial Corp. 7.875% 2015	24,475	25,393
Lazard Group LLC 7.125% 2015	34,930	35,701
PRICOA Global Funding I, Series 2004-4, 4.35% 2008²	8,000	7,829
Prudential Holdings, LLC, Series C, 8.695% 2023^2,9	22,250	26,780
HBOS Treasury Services PLC 3.75% 2008²	5,500	5,313
Scotland International Finance No. 2 BV 4.25% 2013²	1,500	1,385
HBOS PLC 5.375% (undated)^2,5	5,760	5,527
HBOS PLC, Series B, 5.92% (undated)^2,5	23,600	22,182
CNA Financial Corp. 6.75% 2006	4,370	4,382
CNA Financial Corp. 6.45% 2008	2,406	2,421
CNA Financial Corp. 6.60% 2008	9,630	9,832
CNA Financial Corp. 5.85% 2014	8,975	8,603
CNA Financial Corp. 7.25% 2023	9,000	9,132
EOP Operating LP 7.75% 2007	5,000	5,128
EOP Operating LP 8.10% 2010	6,500	7,039
EOP Operating LP 7.00% 2011	15,000	15,713
EOP Operating LP 6.75% 2012	4,750	4,951
UnumProvident Finance Co. PLC 6.85% 2015²	30,500	30,220
Hospitality Properties Trust 7.00% 2008	1,210	1,233
Hospitality Properties Trust 6.75% 2013	23,315	24,148
Hospitality Properties Trust 6.30% 2016	1,500	1,502
J.P. Morgan & Co. Inc. 6.70% 2007	5,000	5,058
J.P. Morgan Chase & Co. 4.75% 2015	7,500	6,966
J.P. Morgan Chase & Co. 4.891% 2015	15,000	14,573
Lincoln National Corp. 6.20% 2011	5,000	5,108
Lincoln National Corp. 7.00% 2066⁵	18,725	19,048
Nationwide Life Insurance Co. 5.35% 2007²	8,500	8,494
North Front Pass Through Trust 5.81% 2024^2,5	10,000	9,613
Nationwide Mutual Insurance Co. 7.875% 2033²	5,000	5,640
Development Bank of Singapore Ltd. 7.875% 2010²	10,000	10,695
Development Bank of Singapore Ltd. 7.125% 2011²	5,000	5,271
DBS Bank Ltd. 5.98% 2021^2,5	7,250	7,280
Mangrove Bay Pass Through Trust 6.102% 2033^2,5	16,000	15,481
Twin Reefs Asset Trust (XLFA), Series B, 6.345% (undated)^2,5	7,200	7,200
United Dominion Realty Trust, Inc., Series E, 4.50% 2008	20,000	19,637
United Dominion Realty Trust, Inc. 5.00% 2012	2,500	2,393
Liberty Mutual Group Inc. 6.50% 2035²	23,150	20,747
Resona Bank, Ltd. 5.85% (undated)^2,5	21,675	20,652
Skandinaviska Enskilda Banken AB 4.958% (undated)^2,5	10,560	9,577
Skandinaviska Enskilda Banken 7.50% (undated)^2,5	10,405	10,976
Downey Financial Corp. 6.50% 2014	20,000	19,874
USA Education, Inc. 5.625% 2007	7,895	7,894
SLM Corp., Series A, 4.50% 2010	5,000	4,811
SLM Corp., Series A, 5.375% 2013	7,000	6,856
Kimco Realty Corp. 6.00% 2012	3,250	3,300
Kimco Realty Corp., Series C, 5.783% 2016	15,000	14,718
ReliaStar Financial Corp. 8.00% 2006	8,000	8,045
ReliaStar Financial Corp. 6.50% 2008	3,000	3,060
ING Bank NV 5.125% 2015²	3,500	3,350
ING Groep NV 5.775% (undated)⁵	3,600	3,459
American Express Co. 6.80% 2066⁵	17,250	17,457
Allstate Financial Global Funding LLC 5.25% 2007²	16,750	16,732
Monumental Global Funding II, Series 2002-A, 5.20% 2007²	16,750	16,725
HVB Funding Trust I 8.741% 2031²	2,100	2,526
HVB Funding Trust III 9.00% 2031²	7,736	9,507
UniCredito Italiano Capital Trust II 9.20% (undated)²	4,000	4,468
TuranAlem Finance BV 8.00% 2014	2,390	2,384
TuranAlem Finance BV 8.50% 2015²	10,000	10,125
TuranAlem Finance BV 8.50% 2015	2,610	2,643
Developers Diversified Realty Corp. 4.625% 2010	10,140	9,726
Developers Diversified Realty Corp. 5.50% 2015	5,000	4,768
Independence Community Bank Corp. 4.90% 2010	5,000	4,839
Independence Community Bank 3.75% 2014⁵	10,000	9,524
Standard Chartered Bank 5.688% Eurodollar note (undated)⁵	15,000	12,412
Citigroup Inc. 5.125% 2011	12,500	12,336
Assurant, Inc. 5.625% 2014	12,500	12,174
New York Life Global Funding 4.625% 2010²	12,500	12,122
Westfield Capital Corp. Ltd., WT Finance (Australia) Pty Ltd. and WEA Finance LLC 5.125% 2014²	12,500	11,860
Kazkommerts International BV 8.50% 2013²	1,500	1,567
Kazkommerts International BV 7.875% 2014²	10,000	10,050
ZFS Finance (USA) Trust I 6.15% 2065^2,5	11,250	10,934
Plum Creek Timberlands, LP 5.875% 2015	10,800	10,447
Federal Realty Investment Trust 6.125% 2007	10,000	10,037
Willis North America Inc. 5.125% 2010	4,900	4,767
Willis North America Inc. 5.625% 2015	5,500	5,154
Protective Life Insurance Co., Series 2005-C, 4.85% 2010	10,000	9,823
Popular North America, Inc., Series E, 3.875% 2008	10,000	9,637
United Overseas Bank Ltd. 5.375% 2019^2,5	10,000	9,580
Duke Realty LP 4.625% 2013	10,000	9,335
Zions Bancorporation 5.50% 2015	4,000	3,863
Zions Bancorporation 6.00% 2015	5,000	5,016
Bank of Nova Scotia 5.125% 2085⁵	10,000	8,516
ACE INA Holdings Inc. 5.875% 2014	7,000	6,883
ACE Capital Trust II 9.70% 2030	1,250	1,590
Canadian Imperial Bank of Commerce 5.125% Eurodollar note 2085⁵	10,000	8,400
Royal Bank of Scotland Group PLC 5.512% noncumulative trust preferred (undated)⁵	4,185	3,968
National Westminster Bank PLC 7.75% (undated)⁵	3,024	3,094
BOI Capital Funding (No. 2) LP 5.571% (undated)^2,5	1,700	1,604
Bank of Ireland 6.107% (undated)^2,5	5,000	4,766
BCI U.S. Funding Trust I 8.01% noncumulative preferred (undated)^2,5	5,000	5,197
ProLogis 5.625% 2015	5,000	4,830
Jackson National Life Global Funding, Series 2002-1, 5.25% 2007²	4,000	4,005
Brandywine Operating Partnership, LP 5.75% 2012	4,000	3,964
Principal Life Global Funding I 4.40% 2010²	3,000	2,865
Marsh & McLennan Companies, Inc. 5.75% 2015	2,500	2,398
		2,397,377

MORTGAGE-BACKED OBLIGATIONS⁹— 2.98%
Fannie Mae, Series 2000-T5, Class B, 7.30% 2010	19,000	20,319
Fannie Mae 9.00% 2010	261	268
Fannie Mae 4.89% 2012	10,000	9,680
Fannie Mae 4.00% 2015	7,853	7,424
Fannie Mae 7.00% 2016	282	288
Fannie Mae 5.00% 2018	18,856	18,393
Fannie Mae 5.50% 2018	16,713	16,569
Fannie Mae 10.00% 2018	402	445
Fannie Mae 6.00% 2021	2,070	2,088
Fannie Mae 9.50% 2022	361	394
Fannie Mae 7.50% 2023	150	156
Fannie Mae 7.50% 2023	18	19
Fannie Mae 10.00% 2025	232	256
Fannie Mae, Series 2001-4, Class GA, 10.263% 2025⁵	1,281	1,419
Fannie Mae, Series 2001-4, Class NA, 11.90% 2025⁵	118	131
Fannie Mae, Series 2002-W3, Class A-5, 7.50% 2028	1,090	1,124
Fannie Mae 7.00% 2031	898	922
Fannie Mae 7.00% 2031	504	517
Fannie Mae 7.50% 2031	448	464
Fannie Mae, Series 2001-20, Class E, 9.616% 2031⁵	1,126	1,221
Fannie Mae 3.753% 2033⁵	5,130	5,009
Fannie Mae 6.00% 2034	6,262	6,237
Fannie Mae 6.00% 2034	2,393	2,384
Fannie Mae 6.00% 2034	2,121	2,113
Fannie Mae 6.00% 2034	1,615	1,608
Fannie Mae 6.00% 2034	1,064	1,059
Fannie Mae 6.00% 2034	1,057	1,053
Fannie Mae 6.00% 2034	802	799
Fannie Mae 6.00% 2034	435	433
Fannie Mae 6.00% 2034	399	397
Fannie Mae 4.482% 2035⁵	2,804	2,735
Fannie Mae 4.578% 2035⁵	8,208	8,017
Fannie Mae 5.00% 2035	51,638	48,873
Fannie Mae 5.00% 2035	27,418	25,950
Fannie Mae 5.00% 2035	7,307	6,915
Fannie Mae 5.50% 2035	58,532	57,011
Fannie Mae 5.50% 2035	19,318	18,786
Fannie Mae 5.50% 2035	8,949	8,717
Fannie Mae 6.00% 2035	230	229
Fannie Mae 5.50% 2036	37,817	36,728
Fannie Mae 5.50% 2036	23,624	22,944
Fannie Mae 5.50% 2036	8,899	8,642
Fannie Mae 5.50% 2036	4,260	4,137
Fannie Mae 5.50% 2036	54	52
Fannie Mae 6.00% 2036	25,000	24,844
Fannie Mae, Series 2006-43, Class PX, 6.00% 2036	10,000	10,050
Fannie Mae 6.50% 2036	8,484	8,585
Fannie Mae, Series 2001-50, Class BA, 7.00% 2041	2,070	2,127
Fannie Mae, Series 2001-T10, Class A-1, 7.00% 2041	1,435	1,468
Fannie Mae, Series 2002-W1, Class 2A, 7.50% 2042	2,379	2,450
Countrywide Alternative Loan Trust, Series 2006-J3, Class 2-A-1, 4.75% 2020	8,276	7,911
Countrywide Alternative Loan Trust, Series 2005-J11, Class PO-A, principal only, 0% 2035	100	61
Countrywide Alternative Loan Trust, Series 2005-62, Class 2-A-1, 5.143% 2035⁵	9,840	9,840
Countrywide Alternative Loan Trust, Series 2005-49CB, Class A-1, 5.50% 2035	142,483	140,124
Countrywide Alternative Loan Trust, Series 2005-40CB, Class A-1, 5.50% 2035	33,704	32,545
Countrywide Alternative Loan Trust, Series 2005-46CB, Class A-8, 5.50% 2035	26,542	26,357
Countrywide Alternative Loan Trust, Series 2005-30CB, Class 2-A-1, 5.50% 2035	10,282	9,907
Countrywide Alternative Loan Trust, Series 2005-64CB, Class 1-A-7, 5.50% 2035	9,832	9,710
Countrywide Alternative Loan Trust, Series 2005-54CB, Class 1-A-7, 5.50% 2035	9,500	9,451
Countrywide Alternative Loan Trust, Series 2005-23CB, Class A-15, 5.50% 2035	8,681	8,502
Countrywide Alternative Loan Trust, Series 2005-21CB, Class A-17, 6.00% 2035	11,457	11,339
Countrywide Alternative Loan Trust, Series 2004-36CB, Class 1-A-1, 6.00% 2035	6,174	6,177
Countrywide Alternative Loan Trust, Series 2006-6CB, Class 1-A-1, 5.50% 2036	9,702	9,546
Countrywide Alternative Loan Trust, Series 2006-24CB, Class A-1, 6.00% 2036	19,804	19,692
Countrywide Alternative Loan Trust, Series 2006-16CB, Class A-2, 6.00% 2036	6,789	6,738
Freddie Mac 9.00% 2007	1	1
Freddie Mac 8.50% 2008	7	7
Freddie Mac, Series SF02, Class GC, 2.64% 2009	4,498	4,372
Freddie Mac 8.50% 2009	62	64
Freddie Mac 8.50% 2010	112	115
Freddie Mac 5.00% 2018	11,919	11,615
Freddie Mac 5.50% 2018	5,954	5,898
Freddie Mac 11.00% 2018	337	371
Freddie Mac, Series 178, Class Z, 9.25% 2021	118	123
Freddie Mac, Series 2289, Class NB, 11.527% 2022⁵	280	314
Freddie Mac 4.647% 2035⁵	12,188	11,880
Freddie Mac 4.789% 2035⁵	8,858	8,663
Freddie Mac 5.00% 2035	18,943	17,910
Freddie Mac 5.00% 2035	15,118	14,297
Freddie Mac 5.50% 2035	9,393	9,126
Freddie Mac 5.50% 2035	9,390	9,123
Freddie Mac, Series 3061, Class PN, 5.50% 2035	7,021	6,951
Freddie Mac 6.00% 2036	19,406	19,296
CS First Boston Mortgage Securities Corp., Series 2005-7, Class III-A-1, 5.00% 2020	6,187	5,963
CS First Boston Mortgage Securities Corp., Series 2006-4, Class C-P, principal only, 0% 2021	271	188
CS First Boston Mortgage Securities Corp., Series 2003-AR26, Class VI-A-1, 4.134% 2033⁵	34,336	33,815
CS First Boston Mortgage Securities Corp., Series 2004-5, Class IV-A-1, 6.00% 2034	4,756	4,687
CS First Boston Mortgage Securities Corp., Series 2001-CF2, Class A-3, 6.238% 2034	4,654	4,683
CS First Boston Mortgage Securities Corp., Series 2005-8, Class A-P, principal only, 0% 2035	523	361
CS First Boston Mortgage Securities Corp., Series 2005-6, Class VI-A-1, 6.00% 2035	8,312	8,253
CS First Boston Mortgage Securities Corp., Series 2005-5, Class IV-A-1, 6.25% 2035	7,104	7,088
CS First Boston Mortgage Securities Corp., Series 2001-CK1, Class A-3, 6.38% 2035	10,100	10,368
CS First Boston Mortgage Securities Corp., Series 2006-2R, Class A-PO, principal only, 0% 2036	16,470	11,001
CS First Boston Mortgage Securities Corp., Series 2006-2, Class A-P, principal only, 0% 2036	399	251
CS First Boston Mortgage Securities Corp., Series 2006-4, Class D-P, principal only, 0% 2036	324	200
CS First Boston Mortgage Securities Corp., Series 2006-1, Class A-P, principal only, 0% 2036	256	158
CS First Boston Mortgage Securities Corp., Series 2006-3, Class A-P, principal only, 0% 2036	37	24
CS First Boston Mortgage Securities Corp., Series 2006-3, Class 1-A-4A, 5.896% 2036	5,000	4,968
CS First Boston Mortgage Securities Corp., Series 2005-C3, Class A-AB, 4.614% 2037	10,000	9,475
CS First Boston Mortgage Securities Corp., Series 2002-CKN2, Class A-3, 6.133% 2037	6,910	7,098
CS First Boston Mortgage Securities Corp., Series 2005-C6, Class A-3, 5.23% 2040	10,000	9,730
CHL Mortgage Pass-Through Trust, Series 2003-35, Class 1-A-1, 4.75% 2018	8,129	7,771
CHL Mortgage Pass-Through Trust, Series 2003-27, Class A-1, 3.701% 2033⁵	2,841	2,768
CHL Mortgage Pass-Through Trust, Series 2003-56, Class 6-A-1, 4.845% 2033⁵	17,443	17,226
CHL Mortgage Pass-Through Trust, Series 2003-58, Class 2-A-2, 4.537% 2034⁵	34,262	33,758
CHL Mortgage Pass-Through Trust, Series 2004-22, Class A-2, 4.636% 2034⁵	5,372	5,269
CHL Mortgage Pass-Through Trust, Series 2005-J4, Class PO, principal only, 0% 2035	174	108
CHL Mortgage Pass-Through Trust, Series 2005-HYB8, Class 4-A-1, 5.707% 2035⁵	25,958	25,631
Government National Mortgage Assn. 9.50% 2009	326	337
Government National Mortgage Assn. 9.00% 2016	57	61
Government National Mortgage Assn. 8.50% 2017	36	39
Government National Mortgage Assn. 8.50% 2017	9	9
Government National Mortgage Assn. 8.50% 2017	4	5
Government National Mortgage Assn. 10.00% 2020	1,127	1,266
Government National Mortgage Assn. 8.50% 2021	262	281
Government National Mortgage Assn. 8.50% 2021	74	79
Government National Mortgage Assn. 8.50% 2021	7	7
Government National Mortgage Assn. 9.50% 2021	190	212
Government National Mortgage Assn. 10.00% 2021	1,669	1,875
Government National Mortgage Assn. 10.00% 2025	1,579	1,766
Government National Mortgage Assn. 4.00% 2035⁵	5,270	5,155
Government National Mortgage Assn. 4.00% 2035⁵	1,632	1,592
Government National Mortgage Assn. 4.00% 2035⁵	1,502	1,465
Government National Mortgage Assn. 6.00% 2036	71,750	71,646
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR8, Class A, 4.03% 2033⁵	4,389	4,299
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR5, Class A-7, 4.208% 2033⁵	3,109	3,039
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR6, Class A-1, 4.339% 2033⁵	1,508	1,481
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-AR1, Class A-6, 4.479% 2033⁵	841	828
WaMu Mortgage Pass-Through Certificates Trust, Series 2004-AR1, Class A, 4.229% 2034⁵	4,284	4,184
WaMu Mortgage Pass-Through Certificates Trust, Series 2004-AR11, Class A, 4.57% 2034⁵	5,671	5,542
WaMu Mortgage Pass-Through Certificates Trust, Series 2006-AR2, Class 2-A1, 5.844% 2037⁵	12,651	12,490
WaMu Mortgage Pass-Through Certificates Trust, Series 2005-AR15, Class A-1-A, 5.645% 2045⁵	23,001	23,084
Merrill Lynch Mortgage Investors, Inc., Series 1999-C1, Class A-2, 7.56% 2031	11,106	11,599
Merrill Lynch Mortgage Investors, Inc., Series 2003-A6, Class II-A, 4.202% 2033⁵	36,398	35,622
Merrill Lynch Mortgage Investors, Inc., Series 2004-A1, Class II-A-1, 4.593% 2034⁵	4,610	4,518
Tower Ventures, LLC, Series 2006-1, Class A1-FX, 5.361% 2036²	12,000	11,858
Tower Ventures, LLC, Series 2006-1, Class C, 5.707% 2036²	8,000	7,924
Tower Ventures, LLC, Series 2006-1, Class D, 6.052% 2036²	29,000	28,951
IndyMac INDX Mortgage Loan Trust, Series 2006-AR5, Class 2-A-1, 5.884% 2036⁵	47,787	47,384
Crown Castle Towers LLC, Series 2005-1, Class A-FX, 4.643% 2035²	10,000	9,693
Crown Castle Towers LLC, Series 2005-1, Class D, 5.612% 2035²	37,750	37,238
Bear Stearns ARM Trust, Series 2003-8, Class II-A-1, 4.813% 2034⁵	23,106	22,805
Bear Stearns ARM Trust, Series 2003-9, Class III-A-2, 4.978% 2034⁵	2,520	2,471
Bear Stearns ARM Trust, Series 2005-10, Class A-3, 4.65% 2035⁵	20,000	19,291
Banc of America Mortgage Securities Trust, Series 2003-G, Class 2-A-1, 4.088% 2033⁵	3,170	3,103
Banc of America Mortgage Securities Trust, Series 2003-D, Class 2-A-1, 4.183% 2033⁵	1,883	1,847
Banc of America Mortgage Securities Trust, Series 2003-J, Class 2-A-2, 4.40% 2033⁵	37,397	36,816
Morgan Stanley Mortgage Loan Trust, Series 2004-3, Class 4-A, 5.694% 2034⁵	10,711	10,327
Morgan Stanley Mortgage Loan Trust, Series 2005-10, Class 4-A-1, 5.50% 2035	14,703	14,184
Morgan Stanley Mortgage Loan Trust, Series 2005-10, Class 5-A-1, 6.00% 2035	14,519	14,463
Morgan Stanley Mortgage Loan Trust, Series 2006-3AR, Class 3-A-1, 6.098% 2036⁵	1,428	1,430
Residential Accredit Loans, Inc., Series 2004-QS6, Class A-1, 5.00% 2019	13,832	13,332
Residential Accredit Loans, Inc., Series 2005-QR1, Class A, 6.00% 2034	9,647	9,523
Residential Accredit Loans, Inc., Series 2005-QS13, Class I-A-5, 5.50% 2035	15,153	14,874
Residential Accredit Loans, Inc., Series 2005-QS9, Class A-6, 5.50% 2035	100	94
Residential Accredit Loans, Inc., Series 2005-QS14, Class 2-A-1, 6.00% 2035	2,146	2,115
Structured Adjustable Rate Mortgage Loan Trust, Series 2005-22, Class 5-A1, 6.03% 2035⁵	10,207	10,169
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-5, Class 4-A-1, 5.986% 2036⁵	24,334	24,182
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-4, Class 5-A-1, 5.988% 2036⁵	3,876	3,866
Wachovia Bank Commercial Mortgage Trust, Series 2002-C1, Class A-2, 5.681% 2034	8,200	8,202
Wachovia Bank Commercial Mortgage Trust, Series 2005-C16, Class A-PB, 4.692% 2041	15,000	14,351
Wachovia Bank Commercial Mortgage Trust, Series 2005-C17, Class A-2, 4.782% 2042	11,000	10,754
Wachovia Bank Commercial Mortgage Trust, Series 2005-C17, Class A-4, 5.083% 2042	5,000	4,790
Banc of America Commercial Mortgage Inc., Series 2001-1, Class A-2, 6.503% 2036	9,634	9,966
Banc of America Commercial Mortgage Inc., Series 2005-5, Class A-3B, 5.229% 2045⁵	17,730	17,470
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 2026²	21,393	22,721
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2004-C1, Class A-3, 4.719% 2038	7,000	6,599
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2004-C3, Class A-2, 4.223% 2042	5,687	5,461
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP1, Class A-2, 4.625% 2046	10,000	9,742
GS Mortgage Securities Corp. II, Series 1998-C1, Class D, 7.20% 2030⁵	20,000	20,665
J.P. Morgan Alternative Loan Trust, Series 2006-S1, Class 3-A-5, 5.73% 2036	19,462	19,152
Residential Funding Mortgage Securities I, Inc., Series 2004-S9, Class II-A-1, 4.75% 2019	19,998	19,109
Bear Stearns Commercial Mortgage Securities Inc., Series 1999-C1, Class X, interest only, 1.008% 2031^2,5	75,506	2,227
Bear Stearns Commercial Mortgage Securities Inc., Series 2002-PBW1, Class A-1, 3.97% 2035	8,497	8,244
Bear Stearns Commercial Mortgage Securities Inc., Series 2001-TOP2, Class A-2, 6.48% 2035	7,665	7,949
GE Commercial Mortgage Corp., Series 2005-C4, Class A-3A, 5.333% 2045	17,000	16,804
GE Commercial Mortgage Corp., Series 2005-C4, Class A-M, 5.333% 2045	1,650	1,610
Morgan Stanley Capital I Trust, Series 2005-HQ7, Class A-2, 5.205% 2042⁵	17,875	17,557
SBA CMBS Trust, Series 2005-1, Class A, 5.369% 2035²	10,000	9,899
SBA CMBS Trust, Series 2005-1, Class B, 5.565% 2035²	7,000	6,946
First Horizon Alternative Mortgage Securities Trust, Series 2005-FA11, Class I-A-5, 5.75% 2036	1,828	1,808
First Horizon Alternative Mortgage Securities Trust, Series 2006-FA3, Class A-6, 6.00% 2036	14,266	14,323
Washington Mutual Securities Corp., Series 2005-AR1, Class A-1-A, 5.645% 2035⁵	15,620	15,646
Bear Stearns ALT-A Trust, Series 2006-2, Class II-4-A-1, 5.978% 2036⁵	14,409	14,392
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC11, Class A-2, 5.016% 2037	14,040	13,818
J.P. Morgan Mortgage Trust, Series 2005-A1, Class 4-A-1, 4.78% 2035⁵	14,301	13,665
Lehman Mortgage Trust, Series 2005-2, Class 3-A3, 5.50% 2035	13,500	13,433
Chase Commercial Mortgage Securities Corp., Series 1998-1, Class A-2, 6.56% 2030	5,689	5,762
Chase Commercial Mortgage Securities Corp., Series 2000-1, Class A-2, 7.757% 2032	7,041	7,425
GMAC Commercial Mortgage Securities, Inc., Series 2001-C1, Class A-2, 6.465% 2034	12,250	12,641
Bear Stearns Asset-backed Securities I Trust, Series 2005-AC8, Class A-4, 5.50% 2035	8,056	7,969
Bear Stearns Asset-backed Securities I Trust, Series 2006-AC-2, Class II-1A-1, 6.00% 2036	4,565	4,541
Host Marriott Pool Trust, Series 1999-HMTA, Class D, 7.97% 2015²	10,990	11,703
GE Capital Commercial Mortgage Corp., Series 2001-1, Class A-1, 6.079% 2033	2,257	2,282
GE Capital Commerical Mortgage Corp., Series 2002-3, Class A-1, 4.229% 2037	8,670	8,406
American General Mortgage Loan Trust, Series 2006-1, Class A-5, 5.75% 2035²	10,000	9,755
GMAC Mortgage Loan Trust, Series 2006-AR1, Class 2-A-1, 5.653% 2036⁵	9,724	9,640
HarborView Mortgage Loan Trust, Series 2005-15, Class 2-A1A2, 6.178% 2045⁵	8,125	8,205
Wells Fargo Mortgage-backed Securities Trust, Series 2003-6, Class I-A-1, 5.00% 2018	5,688	5,497
Wells Fargo Mortgage-backed Securities Trust, Series 2006-1, Class A-PO, principal only, 0% 2021	259	183
Wells Fargo Mortgage-backed Securities Trust, Series 2006-2, Class 1-A-5, principal only, 0% 2036	1,090	802
Wells Fargo Mortgage-backed Securities Trust, Series 2005-17, Class A-PO, principal only, 0% 2036	1,930	1,194
Residential Asset Mortgage Products Trust, Series 2004-RS3, Class A-I-2, 3.052% 2029	625	622
Residential Asset Mortgage Products Trust, Series 2003-RZ4, Class A-7, 4.79% 2033⁵	7,000	6,705
Greenwich Capital Commercial Funding Corp., Series 2005-GG5, Class A-4-1, 5.243% 2037	7,000	6,847
Commercial Mortgage Trust, Series 2003-LNB1, Class A-2, 4.084% 2038	6,925	6,340
Salomon Brothers Commercial Mortgage Trust, Series 2000-C1, Class A-1, 7.46% 2008	1,221	1,237
Salomon Brothers Commercial Mortgage Trust, Series 2000-C3, Class A-1, 6.341% 2033²	3,653	3,673
Metropolitan Asset Funding, Inc., Series 1998-A, Class B-1, 7.728% 2014²	4,669	4,581
TBW Mortgage-backed Trust, Series 2006-1, Class D-P, principal only, 0% 2036	588	368
TBW Mortgage-backed Trust, Series 2006-2, Class A-P, principal only, 0% 2036	292	187
TBW Mortgage-backed Trust, Series 2006-1, Class A-P, principal only, 0% 2036	296	184
TBW Mortgage-backed Trust, Series 2006-2, Class C-P, principal only, 0% 2036	65	47
Structured Asset Securities Corp., Series 1998-RF2, Class A, 8.518% 2027^2,5	352	355
Structured Asset Securities Corp., Series 1998-RF1, Class A, 8.73% 2027^2,5	289	291
CS First Boston Mortgage Acceptance Corp., Series 2005-11, Class A-P, principal only, 0% 2035	667	435
Financial Asset Securitization, Inc., Series 1997-NAM1, Class B-1, 7.75% 2027	421	419
Citicorp Mortgage Securities Trust, Series 2006-1, Class A-PO2, principal only, 0% 2021	49	35
Citicorp Mortgage Securities Trust, Series 2006-1, Class A-PO1, principal only, 0% 2036	363	224
Residential Asset Securitization Trust, Series 2005-A13, Class PO, principal only, 0% 2035	280	167
		2,037,763

TELECOMMUNICATION SERVICES — 2.96%
Sprint Capital Corp. 4.78% 2006	7,500	7,498
Nextel Partners, Inc. 8.125% 2011	19,250	20,237
Nextel Communications, Inc., Series E, 6.875% 2013	125,730	127,257
Nextel Communications, Inc., Series D, 7.375% 2015	165,240	169,458
Sprint Capital Corp. 6.875% 2028	5,000	5,074
Qwest Capital Funding, Inc. 7.75% 2006	3,000	3,000
U S WEST Capital Funding, Inc. 6.375% 2008	7,100	7,082
Qwest Capital Funding, Inc. 7.90% 2010	29,635	30,005
Qwest Capital Funding, Inc. 7.25% 2011	34,645	33,952
Qwest Communications International Inc. 7.25% 2011	25,000	24,687
Qwest Corp. 8.875% 2012	12,400	13,423
U S WEST Capital Funding, Inc. 6.50% 2018	2,000	1,785
Qwest Capital Funding, Inc. 7.625% 2021	8,900	8,544
U S WEST Capital Funding, Inc. 6.875% 2028	37,925	33,469
Qwest Capital Funding, Inc. 7.75% 2031	54,620	52,162
Dobson Cellular Systems, Inc. 8.375% 2011²	29,600	30,784
American Cellular Corp., Series B, 10.00% 2011	71,900	75,675
Dobson Communications Corp. 9.757% 2012⁵	21,000	21,420
Dobson Cellular Systems, Inc. 9.875% 2012	3,850	4,119
Dobson Communications Corp. 8.875% 2013	62,250	61,939
American Tower Corp. 7.25% 2011	52,175	53,871
American Tower Corp. 7.125% 2012	59,975	60,575
American Tower Corp. 7.50% 2012	43,300	44,382
Triton PCS, Inc. 8.75% 2011	25,200	18,585
Triton PCS, Inc. 9.375% 2011	39,845	29,386
Triton PCS, Inc. 8.50% 2013	94,050	88,172
MetroPCS, Inc., Loan 12.00% 2007^5,9	77,765	81,653
MetroPCS, Inc., Loan 9.25% 2011^5,9	48,375	49,584
Centennial Cellular Corp. 10.75% 2008	3,858	3,945
Centennial Communications Corp. and Centennial Cellular Operating Co. LLC 10.125% 2013	16,000	16,960
Centennial Communications Corp. 11.258% 2013⁵	44,800	46,368
Centennial Communications Corp., Centennial Cellular Operating Co. LLC and
Centennial Puerto Rico Operations Corp. 8.125% 2014⁵	44,500	43,499
SBC Communications Inc. 4.125% 2009	17,465	16,747
SBC Communications Inc. 6.25% 2011	5,500	5,614
AT&T Corp. 7.30% 2011⁵	14,789	15,845
SBC Communications Inc. 5.10% 2014	38,500	36,193
SBC Communications Inc. 5.625% 2016	10,000	9,591
SBC Communications Inc. 6.15% 2034	3,500	3,264
AT&T Inc. 6.80% 2036	11,235	11,341
Intelsat (Bermuda), Ltd. 10.484% 2012⁵	20,575	20,986
Intelsat (Bermuda), Ltd. 8.25% 2013	39,135	38,450
Intelsat (Bermuda), Ltd. 8.625% 2015	6,560	6,527
Intelsat PanAmSat Opco 9.00% 2016²	10,000	10,262
Intelsat (Bermuda), Ltd. 9.25% 2016²	21,500	22,091
Intelsat (Bermuda), Ltd. 11.25% 2016²	6,800	6,902
Windstream Corp. 8.125% 2013²	6,000	6,270
Valor Telecommunications Enterprises, LLC and Valor Telecommunications Enterprises Finance Corp. 7.75% 2015	10,000	10,500
Windstream Corp. 8.625% 2016²	59,950	62,648
AT&T Wireless Services, Inc. 7.50% 2007	34,250	34,723
AT&T Wireless Services, Inc. 8.125% 2012	34,935	38,757
Telecom Italia Capital SA, Series A, 4.00% 2008	3,000	2,893
Telecom Italia Capital SA 6.20% 2011	3,000	3,025
Telecom Italia Capital SA, Series B, 5.25% 2013	10,300	9,667
Telecom Italia Capital SA 5.25% 2015	20,100	18,509
Telecom Italia Capital SA 7.20% 2036	10,500	10,741
Hawaiian Telcom Communications, Inc. 9.75% 2013	16,945	17,369
Hawaiian Telcom Communications, Inc. 10.789% 2013⁵	15,920	16,199
Hawaiian Telcom Communications, Inc., Series B, 12.50% 2015	7,075	7,499
Deutsche Telekom International Finance BV 8.00% 2010⁵	7,150	7,723
Deutsche Telekom International Finance BV 5.75% 2016	25,000	23,922
Deutsche Telekom International Finance BV 8.25% 2030⁵	7,000	8,212
France Télécom 7.75% 2011⁵	32,950	35,730
Rogers Wireless Inc. 7.25% 2012	11,825	12,032
Rogers Wireless Inc. 7.50% 2015	16,750	17,252
Cincinnati Bell Inc. 7.25% 2013	26,275	26,144
Koninklijke KPN NV 8.00% 2010	22,150	23,655
Koninklijke KPN NV 8.375% 2030	2,000	2,181
Telefónica Emisiones, SAU 6.421% 2016	5,000	5,071
Telefónica Emisiones, SAU 7.045% 2036	14,500	14,941
TELUS Corp. 7.50% 2007	19,000	19,292
Singapore Telecommunications Ltd. 6.375% 2011²	12,000	12,346
Singapore Telecommunications Ltd. 6.375% 2011	4,825	4,964
Hughes Network Systems, LLC and HNS Finance Corp. 9.50% 2014²	15,750	15,750
Verizon Global Funding Corp. 6.125% 2007	7,000	7,035
Verizon New York Inc., Series A, 6.875% 2012	6,500	6,671
Rural Cellular Corp. 8.25% 2012²	4,000	4,150
Rural Cellular Corp. 10.899% 2012⁵	8,750	9,100
Verizon Wireless Capital LLC and Cellco Partnership 5.375% 2006	11,000	10,999
BellSouth Corp. 6.55% 2034	10,000	9,682
PCCW-HKT Capital Ltd. 8.00% 2011^2,5	5,000	5,415
PCCW-HKT Capital No. 3 Ltd. 5.25% 2015²	4,300	3,923
British Telecommunications PLC 8.375% 2010⁵	2,000	2,216
British Telecommunications PLC 8.875% 2030	4,600	5,815
ALLTEL Corp. 4.656% 2007	6,435	6,411
NTELOS Inc., Series B, Loan 7.65% 2011^5,9	5,985	5,985
Nordic Telephone Co. Holding ApS 8.875% 2016²	4,000	4,140
Millicom International Cellular SA 10.00% 2013	3,500	3,762
		2,025,682

ENERGY — 1.43%
Premcor Refining Group Inc. 9.25% 2010	13,875	14,750
Premcor Refining Group Inc. 6.125% 2011	37,500	37,864
Premcor Refining Group Inc. 6.75% 2011	15,650	16,178
Premcor Refining Group Inc. 9.50% 2013	57,215	62,346
Premcor Refining Group Inc. 6.75% 2014	46,000	47,084
Premcor Refining Group Inc. 7.50% 2015	22,000	22,885
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 2009^2,9	35,568	34,257
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 2009⁹	684	659
Ras Laffan Liquefied Natural Gas Co. Ltd. 8.294% 2014^2,9	13,329	14,766
Ras Laffan Liquefied Natural Gas Co. Ltd. 8.294% 2014⁹	4,325	4,791
Ras Laffan Liquefied Natural Gas II 5.298% 2020^2,9	49,350	46,702
Ras Laffan Liquefied Natural Gas III 5.838% 2027^2,9	61,650	58,432
Williams Companies, Inc. and Credit Linked Certificate Trust 6.75% 2009²	8,000	8,020
Williams Companies, Inc. 6.375% 2010²	4,700	4,624
Williams Companies, Inc. 7.508% 2010^2,5	8,000	8,160
Northwest Pipeline Corp. 8.125% 2010	5,000	5,200
Transcontinental Gas Pipe Line Corp., Series B, 7.00% 2011	10,000	10,225
Williams Companies, Inc. 7.125% 2011	38,750	39,234
Williams Companies, Inc. 8.125% 2012	14,810	15,588
Williams Companies, Inc. 7.875% 2021	10,000	10,200
Williams Companies, Inc. 8.75% 2032	7,000	7,595
El Paso Corp. 7.625% 2007	5,000	5,081
El Paso Corp. 6.375% 2009²	800	792
El Paso Energy Corp. 7.75% 2010²	2,500	2,563
El Paso Corp. 7.00% 2011	7,800	7,771
El Paso Energy Corp. 7.375% 2012	525	526
El Paso Corp. 7.875% 2012	2,000	2,055
El Paso Natural Gas Co. 7.50% 2026	900	897
Tennessee Gas Pipeline Co. 7.00% 2028	71,500	67,789
Southern Natural Gas Co. 7.35% 2031	5,300	5,220
Southern Natural Gas Co. 8.00% 2032	3,975	4,182
Newfield Exploration Co., Series B, 7.45% 2007	6,000	6,083
Newfield Exploration Co. 7.625% 2011	1,500	1,545
Newfield Exploration Co. 6.625% 2014	32,075	31,233
Newfield Exploration Co. 6.625% 2016	44,400	43,068
Energy Transfer Partners, LP 5.65% 2012	19,125	18,675
Energy Transfer Partners, LP 5.95% 2015	43,635	42,740
Pogo Producing Co. 7.875% 2013²	18,500	18,916
Pogo Producing Co. 6.625% 2015	2,400	2,280
Pogo Producing Co. 6.875% 2017	33,650	32,010
Tengizchevroil Finance Co. S.àr.l., Series A, 6.124% 2014^2,9	28,500	28,108
Tengizchevroil Finance Co. S.àr.l., Series A, 6.124% 2014⁹	9,000	8,876
Drummond Co., Inc. 7.375% 2016²	37,705	35,537
Devon Financing Corp., ULC 6.875% 2011	29,500	31,023
Qatar Petroleum 5.579% 2011²	20,000	20,016
Overseas Shipholding Group, Inc. 8.25% 2013	16,110	16,754
Enterprise Products Operating LP, Series B, 5.00% 2015	7,000	6,428
Enterprise Products Operating LP 8.375% 2066⁵	7,500	7,684
XTO Energy Inc. 5.65% 2016	10,000	9,678
Sunoco, Inc. 4.875% 2014	10,060	9,344
Petroleum Export Ltd., Class A-2, XLCA insured, 4.633% 2010^2,9	7,556	7,426
Massey Energy Co.6.875% 2013	7,500	6,956
Pemex Project Funding Master Trust 7.875% 2009	1,600	1,668
Pemex Project Funding Master Trust 7.375% 2014	3,500	3,745
Pemex Project Funding Master Trust 8.625% 2022	500	584
OXYMAR 7.50% 2016^2,9	5,500	5,802
PETRONAS Capital Ltd. 7.00% 2012²	4,000	4,248
Reliance Industries Ltd., Series B, 10.25% 2097	3,125	4,213
Peabody Energy Corp., Series B, 6.875% 2013	4,300	4,203
Delek & Avner-Yam Tethys Ltd. 5.326% 2013^2,9	4,302	4,180
TNK-BP Finance SA 7.50% 2016²	1,500	1,519
		980,978

INDUSTRIALS — 1.25%
Continental Airlines, Inc., Series 2000-2, Class A-1, 7.487% 2012⁹	11,700	12,075
Continental Airlines, Inc., Series 2001-1, Class B, 7.373% 2017⁹	6,829	6,594
Continental Airlines, Inc., Series 1998-1, Class A, 6.648% 2019⁹	26,757	26,852
Continental Airlines, Inc., Series 1997-4, Class A, 6.90% 2019⁹	5,753	5,830
Continental Airlines, Inc., Series 1999-1, Class A, 6.545% 2020⁹	17,182	17,187
Continental Airlines, Inc., Series 1999-1, Class B, 6.795% 2020⁹	975	927
Continental Airlines, Inc., Series 2003-ERJ1, Class A, 7.875% 2020⁹	25,029	24,544
Continental Airlines, Inc., Series 1999-2, Class A-1, 7.256% 2021⁹	822	852
Continental Airlines, Inc., Series 1999-2, Class B, 7.566% 2021⁹	2,687	2,638
Continental Airlines, Inc., Series 2001-1, Class A-1, 6.703% 2022⁹	16,946	17,031
Continental Airlines, Inc., Series 2000-2, Class A-1, 7.707% 2022⁹	687	725
Continental Airlines, Inc., Series 2000-1, Class A-1, 8.048% 2022⁹	5,222	5,513
Continental Airlines, Inc., Series 2000-1, Class B, 8.388% 2022⁹	5,917	5,823
Delta Air Lines, Inc. 8.00% 2007^2,7	24,410	6,347
Delta Air Lines, Inc., Series 2001-1, Class A-2, 7.111% 2013⁹	5,000	5,003
Delta Air Lines, Inc., Series 2002-1, Class G-2, MBIA insured, 6.417% 2014⁹	46,035	46,973
Delta Air Lines, Inc., Series 1992-A2, 9.20% 2014^7,9	5,000	4,053
Delta Air Lines, Inc. 10.375% 2022⁷	3,000	795
Delta Air Lines, Inc., Series 2002-1, Class G-1, MBIA insured, 6.718% 2024⁹	23,219	23,836
United Air Lines, Inc., Series 2001-1, Class A-2, 6.201% 2010⁹	4,149	4,120
United Air Lines, Inc., Series 2000-2, Class B, 7.811% 2011⁹	5,302	5,569
United Air Lines, Inc., Series B, Loan 8.986% 2012^5,9	53,800	54,473
United Air Lines, Inc., Series 2001-1, Class A-1, 6.071% 2014⁹	10,128	10,147
United Air Lines, Inc., Series 2001-1, Class A-3, 6.602% 2015⁹	6,411	6,424
United Air Lines, Inc., Series 1996-A2, 7.87% 2019^7,9	4,492	2,842
American Airlines, Inc., Series 2003-1, Class G, AMBAC insured, 3.857% 2012⁹	1,838	1,733
American Airlines, Inc., Series 2001-1, Class A-2, 6.817% 2012⁹	17,745	17,401
American Airlines, Inc., Series 2001-2, Class A-1, 6.978% 2012⁹	3,784	3,872
AMR Corp. 9.00% 2012	9,000	8,955
American Airlines, Inc., Series 2001-2, Class A-2, 7.858% 2013⁹	17,838	18,741
American Airlines, Inc., Series 2001-1, Class B, 7.377% 2019⁹	18,180	16,374
Allied Waste North America, Inc. 8.50% 2008	8,300	8,653
Allied Waste North America, Inc., Series B, 6.50% 2010	16,000	15,700
Allied Waste North America, Inc., Series B, 5.75% 2011	10,000	9,500
Allied Waste North America, Inc., Series B, 6.125% 2014	11,375	10,451
Allied Waste North America, Inc., Series B, 7.375% 2014	4,500	4,309
Allied Waste North America, Inc. 7.25% 2015	8,500	8,245
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class B, 7.156% 2011^2,9	36,345	37,450
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class G, MBIA insured, 6.664% 2013^2,9	12,194	12,664
Hutchison Whampoa International Ltd. 7.00% 2011²	5,000	5,241
Hutchison Whampoa International Ltd. 6.50% 2013²	31,000	31,845
NTK Holdings Inc. 0%/10.75% 2014⁸	12,500	8,812
THL Buildco, Inc. 8.50% 2014	24,825	23,335
Waste Management, Inc. 7.00% 2006	7,000	7,018
Waste Management, Inc. 6.50% 2008	5,000	5,091
Waste Management, Inc. 5.00% 2014	7,000	6,618
WMX Technologies, Inc. 7.10% 2026	10,125	10,794
American Standard Inc. 7.375% 2008	5,935	6,056
American Standard Inc. 8.25% 2009	2,124	2,251
American Standard Inc. 7.625% 2010	19,501	20,487
Qantas Airways Ltd. 6.05% 2016²	25,000	24,522
General Electric Capital Corp., Series A, 5.375% 2007	8,000	7,998
General Electric Capital Corp., Series A, 6.00% 2012	8,000	8,186
General Electric Co. 5.00% 2013	5,000	4,846
Tyco International Group SA 6.125% 2008	8,000	8,077
Tyco International Group SA 6.375% 2011	6,800	7,021
Tyco International Group SA 6.00% 2013	5,100	5,137
Bombardier Inc. 6.30% 2014²	21,700	19,096
Horizon Lines, LLC and Horizon Lines Holding Corp. 9.00% 2012	11,100	11,350
H-Lines Finance Holding Corp. 0%/11.00% 2013⁸	8,448	7,371
Northwest Airlines, Inc. 9.875% 2007⁷	8,400	4,347
Northwest Airlines, Inc. 7.875% 2008⁷	4,000	2,030
Northwest Airlines, Inc. 10.00% 2009⁷	10,000	5,025
Northwest Airlines, Inc., Series 2001-1, Class A-1, 7.041% 2023⁹	3,742	3,735
DynCorp International and DIV Capital Corp., Series A, 9.50% 2013	13,952	14,510
Jacuzzi Brands, Inc. 9.625% 2010	13,441	14,281
Southwest Airlines Co. 5.25% 2014	15,000	14,231
John Deere Capital Corp., Series D, 4.375% 2008	9,000	8,849
John Deere Capital Corp. 4.875% 2009	4,000	3,947
DRS Technologies, Inc. 6.625% 2016	10,000	9,675
Accuride Corp. 8.50% 2015	10,200	9,537
RBS Global, Inc. and Rexnord Corp. 9.50% 2014²	2,100	2,110
RBS Global, Inc. and Rexnord Corp. 11.75% 2016²	7,050	7,244
Goodman Global Holdings, Inc., Series B, 7.875% 2012	10,000	9,325
CCMG Acquisition Corp. 8.875% 2014²	4,000	4,190
CCMG Acquisition Corp. 10.50% 2016²	4,500	4,916
Caterpillar Financial Services Corp., Series F, 3.10% 2007	5,000	4,906
Caterpillar Financial Services Corp. 2.70% 2008	3,000	2,848
Caterpillar Financial Services Corp., Series F, 5.57% 2008⁵	400	401
Quebecor World Inc. 8.75% 2016²	7,625	7,034
Terex Corp., Class B, 10.375% 2011	1,333	1,402
Terex Corp. 7.375% 2014	3,500	3,491
BNSF Funding Trust I 6.613% 2055⁵	5,000	4,776
Ashtead Group PLC 8.625% 2015²	3,500	3,474
H&E Equipment Services, Inc. 8.375% 2016²	2,550	2,588
Mobile Storage Group, Inc. 9.75% 2014²	1,650	1,679
United Rentals (North America), Inc. 7.75% 2013	1,750	1,676
Standard Aero Holdings, Inc. 8.25% 2014	1,050	1,016
Williams Scotsman, Inc. 8.50% 2015	500	504
Jet Equipment Trust, Series 1995-A, Class B, 8.64% 2015^2,7,9	7,790	—
Jet Equipment Trust, Series 1995-B, Class C, 9.71% 2015^2,7,9	5,500	—
		856,120

UTILITIES — 1.07%
AES Corp. 9.50% 2009	39,815	42,204
AES Corp. 9.375% 2010	13,252	14,196
AES Corp. 8.75% 2013²	68,100	73,208
AES Red Oak, LLC, Series A, 8.54% 2019⁹	33,636	35,655
AES Red Oak, LLC, Series B, 9.20% 2029⁹	7,000	7,630
Mission Energy Holding Co. 13.50% 2008	22,230	24,953
Edison Mission Energy 7.73% 2009	16,720	17,054
Edison Mission Energy 7.50% 2013²	18,400	18,262
Edison Mission Energy 7.75% 2016²	29,325	29,105
Midwest Generation, LLC, Series B, 8.56% 2016⁹	9,183	9,659
Homer City Funding LLC 8.734% 2026⁹	9,834	11,063
Midwest Generation, LLC and Midwest Finance Corp. 8.75% 2034	24,675	26,371
NRG Energy, Inc. 7.25% 2014	24,525	24,065
NRG Energy, Inc. 7.375% 2016	76,625	75,093
Nevada Power Co., General and Refunding Mortgage Bonds, Series A, 8.25% 2011	6,000	6,523
Nevada Power Co., General and Refunding Mortgage Notes, Series I, 6.50% 2012	4,250	4,299
Nevada Power Co., General and Refunding Mortgage Notes, Series G, 9.00% 2013	19,595	21,367
Sierra Pacific Resources 8.625% 2014	2,725	2,899
Nevada Power Co., General and Refunding Mortgage Notes, Series L, 5.875% 2015	5,675	5,497
Nevada Power Co., Series M, 5.95% 2016²	13,700	13,255
Sierra Pacific Resources 6.75% 2017	3,000	2,872
Israel Electric Corp. Ltd. 7.95% 2011²	5,000	5,395
Israel Electric Corp. Ltd. 7.70% 2018²	22,500	24,302
Israel Electric Corp. Ltd. 8.10% 2096²	9,155	9,749
Virginia Electric and Power Co., Series 2002-A, 5.375% 2007	8,000	7,990
Dominion Resources, Inc., Series 2002-D, 5.125% 2009	22,500	22,135
Dominion Resources, Inc., Series 2000-A, 8.125% 2010	5,000	5,402
PSEG Energy Holdings Inc. 8.625% 2008	8,800	9,097
PSEG Power LLC 7.75% 2011	7,500	8,077
PSEG Power LLC 5.00% 2014	10,000	9,355
Cilcorp Inc. 8.70% 2009	9,000	9,751
Union Electric Co. 5.40% 2016	8,000	7,704
Cilcorp Inc. 9.375% 2029	3,000	3,850
Alabama Power Co., Series X, 3.125% 2008	3,750	3,607
Alabama Power Co., Series R, 4.70% 2010	1,250	1,212
Southern Power Co., Series B, 6.25% 2012	9,000	9,149
Alabama Power Co., Series Q, 5.50% 2017	5,000	4,868
Constellation Energy Group, Inc. 6.125% 2009	12,000	12,148
Constellation Energy Group, Inc. 7.00% 2012	5,000	5,253
Exelon Corp. 6.75% 2011	1,000	1,040
Exelon Generation Co., LLC 6.95% 2011	11,300	11,852
Commonwealth Edison Co., First Mortgage Bonds, Series 103, 5.90% 2036	3,850	3,608
NiSource Finance Corp. 7.875% 2010	15,000	16,104
Appalachian Power Co., Series G, 3.60% 2008	6,770	6,547
Appalachian Power Co., Series M, 5.55% 2011	3,000	2,978
Ohio Power Co., Series K, 6.00% 2016	5,000	5,009
MidAmerican Energy Co. 4.65% 2014	3,200	2,970
MidAmerican Energy Holdings Co. 6.125% 2036²	11,650	11,248
Duke Capital Corp. 6.25% 2013	4,500	4,535
Duke Capital Corp. 5.50% 2014	5,000	4,813
Duke Capital LLC 5.668% 2014	1,500	1,450
Mirant Americas Generation, Inc. 8.30% 2011	9,000	8,820
Oncor Electric Delivery Co. 6.375% 2015	5,000	5,068
National Grid PLC 6.30% 2016	5,000	5,043
Pacific Gas and Electric Co., First Mortgage Bonds, 6.05% 2034	4,000	3,872
Centerpoint Energy, Inc., Series B, 6.85% 2015	3,000	3,109
Enersis SA 7.375% 2014	3,000	3,096
Tri-State Generation and Transmission Assn. Inc., Pass Through Trust, Series 2003-A, 6.04% 2018^2,9	2,965	2,941
FPL Energy National Wind Portfolio, LLC 6.125% 2019^2,9	2,072	2,031
		730,408

MATERIALS — 1.04%
Abitibi-Consolidated Co. of Canada 5.25% 2008	25,650	24,368
Abitibi-Consolidated Finance LP 7.875% 2009	6,136	5,952
Abitibi-Consolidated Inc. 8.55% 2010	10,193	9,874
Abitibi-Consolidated Co. of Canada 8.829% 2011⁵	11,850	11,583
Abitibi-Consolidated Co. of Canada 6.00% 2013	10,200	8,415
Abitibi-Consolidated Co. of Canada 8.375% 2015	22,145	20,346
Owens-Illinois, Inc. 8.10% 2007	750	761
Owens-Illinois, Inc. 7.35% 2008	9,800	9,898
Owens-Brockway Glass Container Inc. 8.875% 2009	18,436	19,104
Owens-Illinois, Inc. 7.50% 2010	750	743
Owens-Brockway Glass Container Inc. 7.75% 2011	13,500	13,838
Owens-Brockway Glass Container Inc. 8.75% 2012	6,000	6,360
Owens-Brockway Glass Container Inc. 8.25% 2013	14,000	14,245
Georgia-Pacific Corp., Loan 7.449% 2012^5,9	10,423	10,416
Georgia-Pacific Corp., Loan 8.30% 2013^5,9	51,675	52,192
Norske Skogindustrier ASA 7.625% 2011²	38,991	39,754
Norske Skogindustrier ASA 6.125% 2015²	11,250	10,189
Domtar Inc. 7.875% 2011	15,000	14,400
Domtar Inc. 7.125% 2015	35,750	31,639
Boise Cascade, LLC and Boise Cascade Finance Corp. 7.125% 2014	43,680	38,766
Graphic Packaging International, Inc. 8.50% 2011	23,750	23,988
Graphic Packaging International, Inc. 9.50% 2013	13,550	13,618
Lyondell Chemical Co. 9.50% 2008	18,314	18,909
Equistar Chemicals, LP 10.125% 2008	12,825	13,562
Equistar Chemicals, LP and Equistar Funding Corp. 8.75% 2009	625	645
JSG Funding PLC 9.625% 2012	8,200	8,528
JSG Funding PLC 7.75% 2015	22,350	20,506
Stone Container Corp. 9.75% 2011	752	773
Jefferson Smurfit Corp. (U.S.) 8.25% 2012	3,200	3,040
Stone Container Corp. 8.375% 2012	8,475	8,104
Jefferson Smurfit Corp. (U.S.) 7.50% 2013	14,975	13,627
United States Steel Corp. 10.75% 2008	10,500	11,393
United States Steel Corp. 9.75% 2010	13,205	14,129
Stora Enso Oyj 6.404% 2016²	14,500	14,405
Stora Enso Oyj 7.25% 2036²	10,000	10,029
Weyerhaeuser Co. 5.95% 2008	5,331	5,362
Weyerhaeuser Co. 6.75% 2012	3,390	3,500
Weyerhaeuser Co. 7.375% 2032	10,000	10,383
International Paper Co. 4.00% 2010	2,725	2,581
International Paper Co. 6.75% 2011	7,500	7,858
International Paper Co. 5.85% 2012	6,855	6,872
Crystal US Holdings 3 LLC and Crystal US Sub 3 Corp., Series B, 0%/10.50% 2014⁸	13,000	10,205
BCP Caylux Holdings Luxembourg SCA 9.625% 2014	4,550	4,908
Cytec Industries Inc. 6.00% 2015	13,230	12,764
Rhodia 10.25% 2010	11,668	12,689
UPM-Kymmene Corp. 5.625% 2014²	12,400	11,852
Allegheny Technologies, Inc. 8.375% 2011	10,500	11,130
NewPage Corp., Series A, 11.399% 2012⁵	10,000	10,850
Ainsworth Lumber Co. Ltd. 7.25% 2012	4,150	3,278
Ainsworth Lumber Co. Ltd. 6.75% 2014	10,000	7,400
Teck Cominco Ltd. 5.375% 2015	7,950	7,483
AEP Industries Inc. 7.875% 2013	7,300	7,337
Lafarge 6.15% 2011	3,000	3,022
Lafarge 6.50% 2016	3,690	3,713
AMH Holdings, Inc. 0%/11.25% 2014⁸	11,500	6,613
Building Materials Corp. of America, Series B, 8.00% 2007	3,500	3,483
Building Materials Corp. of America 8.00% 2008	3,000	3,015
Nalco Co. 8.875% 2013	1,275	1,294
Nalco Finance Holdings LLC and Nalco Finance Holdings Inc. 0%/9.00% 2014⁸	5,000	3,850
Scotia Pacific Co. LLC, Series B, Class A-2, 7.11% 2028⁹	5,780	4,541
Freeport-McMoRan Copper & Gold Inc. 6.875% 2014	3,800	3,724
Ispat Inland ULC 9.75% 2014	3,207	3,565
Covalence Specialty Materials Corp. 10.25% 2016²	2,950	2,884
Rockwood Specialties Group, Inc. 10.625% 2011	1,500	1,620
Rockwood Specialties Group, Inc. 7.50% 2014	1,175	1,152
Packaging Corp. of America 4.375% 2008¹	2,500	2,441
Earle M. Jorgensen Co. 9.75% 2012	2,000	2,140
Chemtura Corp. 6.875% 2016	2,000	1,940
Airgas, Inc. 6.25% 2014	1,750	1,638
AK Steel Corp. 7.75% 2012	1,575	1,559
Corporación Nacional del Cobre de Chile 6.375% 2012²	1,500	1,544
Arbermarle Corp. 5.10% 2015	870	808
		709,097

U.S. GOVERNMENT & GOVERNMENT AGENCY BONDS & NOTES — 1.03%
U.S. Treasury 3.25% 2007	35,000	34,349
U.S. Treasury 3.875% 2007	50,000	49,399
U.S. Treasury 3.50% 2011¹⁰	11,633	12,192
U.S. Treasury 3.625% 2013	25,000	23,137
U.S. Treasury 4.25% 2013	165,750	159,069
U.S. Treasury 2.00% 2014¹⁰	5,479	5,330
U.S. Treasury 4.25% 2014	10,000	9,536
U.S. Treasury 8.875% 2017	35,000	46,189
U.S. Treasury 6.875% 2025	66,750	80,371
U.S. Treasury 6.50% 2026	31,750	37,009
U.S. Treasury 4.50% 2036	75,100	68,587
Freddie Mac 4.125% 2010	40,375	38,768
Freddie Mac 5.50% 2011	30,000	30,299
Fannie Mae 5.25% 2007	41,500	41,415
Federal Home Loan Bank 3.70% 2007	10,000	9,825
Federal Home Loan Bank 5.823% 2009	17,000	17,207
Federal Home Loan Bank 5.625% 2016	10,000	9,977
Federal Agricultural Mortgage Corp. 4.25% 2008	20,000	19,597
Federal Agricultural Mortgage Corp. 5.50% 2011²	3,000	3,011
United States Agency for International Development, Republic of Egypt 4.45% 2015	10,000	9,353
		704,620

INFORMATION TECHNOLOGY — 0.90%
Electronic Data Systems Corp. 6.334% 2006	10,000	10,002
Electronic Data Systems Corp. 7.125% 2009	15,515	16,085
Electronic Data Systems Corp., Series B, 6.50% 2013⁵	137,150	136,200
Electronic Data Systems Corp. 7.45% 2029	10,555	11,088
Celestica Inc. 7.875% 2011	63,905	63,586
Celestica Inc. 7.625% 2013	36,195	35,471
Sanmina-SCI Corp. 6.75% 2013	3,000	2,880
Sanmina-SCI Corp. 8.125% 2016	66,950	65,611
Jabil Circuit, Inc. 5.875% 2010	53,450	53,428
Flextronics International Ltd. 6.50% 2013	46,000	44,850
Motorola, Inc. 4.608% 2007	10,000	9,893
Motorola, Inc. 8.00% 2011	23,985	26,530
Motorola, Inc. 5.22% 2097	7,500	5,632
SunGard Data Systems Inc. 9.125% 2013	21,050	21,603
SunGard Data Systems Inc. 10.25% 2015	12,500	12,735
Xerox Corp. 7.125% 2010	21,000	21,420
Freescale Semiconductor, Inc. 6.875% 2011	15,000	15,300
Nortel Networks Ltd. 9.73% 2011^2,5	6,500	6,565
Nortel Networks Ltd. 10.75% 2016²	7,700	7,902
Cisco Systems, Inc. 5.25% 2011	9,500	9,403
Sabre Holdings Corp. 6.35% 2016	9,405	8,997
Amkor Technology, Inc. 7.125% 2011	8,795	7,905
Serena Software, Inc. 10.375% 2016²	7,300	7,318
Sensata Technologies BV 8.00% 2014²	7,000	6,755
Hyundai Semiconductor America, Inc. 8.625% 2007²	4,860	4,898
MagnaChip Semiconductor SA and MagnaChip Semiconductor Finance Co. 8.579% 2011⁵	4,150	3,517
		615,574

HEALTH CARE — 0.67%
Columbia/HCA Healthcare Corp. 7.00% 2007	6,250	6,289
Columbia/HCA Healthcare Corp. 8.85% 2007	12,500	12,675
HCA Inc. 5.50% 2009	11,500	11,328
Columbia/HCA Healthcare Corp. 8.70% 2010	9,500	9,545
HCA — The Healthcare Co. 8.75% 2010	7,750	7,828
HCA — The Healthcare Co. 7.875% 2011	28,300	26,920
Warner Chilcott Corp. 8.75% 2015	69,265	69,092
Tenet Healthcare Corp. 6.375% 2011	17,300	14,921
Tenet Healthcare Corp. 9.875% 2014	39,775	38,184
Tenet Healthcare Corp. 9.25% 2015²	15,150	14,014
HealthSouth Corp. 11.418% 2014^2,5	19,450	18,964
HealthSouth Corp. 10.75% 2016²	40,000	38,400
AMR HoldCo, Inc. and EmCare HoldCo, Inc. 10.00% 2015	29,470	30,649
Humana Inc. 7.25% 2006	13,375	13,375
Humana Inc. 6.45% 2016	14,250	14,346
Team Finance LLC and Health Finance Corp. 11.25% 2013	21,500	22,360
Cardinal Health, Inc. 4.00% 2015	25,000	21,513
Wyeth 5.50% 2016	18,000	17,474
Triad Hospitals, Inc. 7.00% 2012	15,000	14,981
Health Net, Inc. 8.375% 2011⁵	10,000	11,307
Concentra Operating Corp. 9.50% 2010	4,975	5,186
Concentra Operating Corp. 9.125% 2012	4,755	4,957
Select Medical Corp. 7.625% 2015	8,500	7,267
Select Medical Holdings Corp. 10.82% 2015^2,5	1,750	1,575
Amgen Inc. 4.00% 2009	9,125	8,745
Accellent Inc. 10.50% 2013	5,800	6,003
Aetna Inc. 7.875% 2011	4,500	4,889
MedCath Holdings Corp. 9.875% 2012	3,875	4,011
Universal Health Services, Inc. 7.125% 2016	1,240	1,272
		458,070

ASSET-BACKED OBLIGATIONS⁹— 0.54%
ARG Funding Corp., Series 2005-1, Class A-1, MBIA insured, 4.02% 2009²	10,000	9,787
ARG Funding Corp., Series 2005-2, Class A-4, AMBAC insured, 4.84% 2011²	20,000	19,618
Drive Auto Receivables Trust, Series 2005-2, Class A-3, MBIA insured, 4.26% 2012²	8,900	8,720
Drive Auto Receivables Trust, Series 2005-3, Class A-4, FSA insured, 5.09% 2013²	20,000	19,888
Green Tree Financial Corp., Series 1995-3, Class B-2, 8.10% 2025⁷	12,867	3,603
Green Tree Financial Corp., Series 1995-2, Class B-2, 8.80% 2026⁷	9,283	4,456
Green Tree Financial Corp., Series 1996-2, Class B-2, 7.90% 2027⁷	8,186	1
Green Tree Financial Corp., Series 1997-6, Class B-2, 7.75% 2029⁷	6,530	1
Conseco Finance Home Loan Trust, Series 1999-G, Class B-2, 10.96% 2029⁷	17,523	16,982
Green Tree Financial Corp., Series 1998-4, Class B-2, 8.11% 2030⁷	3,999	—
CWABS, Inc., Series 2004-12, Class 2-AV-2, 5.665% 2033⁵	3,830	3,835
CWABS, Inc., Series 2005-11, Class AF-2, 4.657% 2036	11,330	11,148
CWABS, Inc., Series 2006-5, Class 2-A-1, 5.455% 2036⁵	4,479	4,479
CWABS, Inc., Series 2005-12, Class 1-A-1, 5.535% 2036⁵	3,773	3,776
Residential Funding Mortgage Securities II, Inc., Series 2005-HS1, Class A-1-2, FGIC insured, 4.66% 2020	12,500	12,092
Residential Funding Mortgage Securities II, Inc., Series 2006-HSA2, Class A-I-5, FGIC insured, 5.63% 2036	10,000	9,850
Prestige Auto Receivables Trust, Series 2005-1A, Class A-2, FSA insured, 4.37% 2012²	10,000	9,869
Prestige Auto Receivables Trust, Series 2006-1A, Class A-2, FSA insured, 5.25% 2013²	10,000	9,986
Advanta Business Card Master Trust, Series 2005-A2, Class A-2, 5.508% 2013⁵	18,000	17,983
PG&E Energy Recovery Funding LLC, Series 2005-1, Class A-3, 4.14% 2012	10,000	9,666
PG&E Energy Recovery Funding LLC, Series 2005-2, Class A-3, 5.12% 2014	8,040	7,911
Drivetime Auto Owner Trust, Series 2005-C, Class A-3, MBIA insured, 5.006% 2011²	6,709	6,670
Drivetime Auto Owner Trust, Series 2006-A, Class A-3, XLCA insured, 5.565% 2011²	10,000	10,036
UPFC Auto Receivables Trust, Series 2004-A, Class A-3, AMBAC insured, 3.27% 2010	4,001	3,942
UPFC Auto Receivables Trust, Series 2005-B, Class A-3, XLCA insured, 4.98% 2011	10,000	9,942
Consumer Credit Reference Index Securities Program Trust, Series 2002-2A, Class FX, 10.421% 2007²	5,000	5,076
Consumer Credit Reference Index Securities Program Trust, Series 2002-2A, Class FL, 10.557% 2007^2,5	5,000	5,112
Home Equity Asset Trust, Series 2004-7, Class M-1, 6.005% 2035⁵	10,000	10,102
Providian Master Note Trust, Series 2005-A1A, Class A, 5.429% 2012^2,5	10,000	10,011
CWHEQ Home Equity Loan Trust, Series 2006-S2, Class A-5, FGIC insured, 5.753% 2027	10,000	9,922
First Investors Auto Owner Trust, Series 2006-A, Class A-4, MBIA insured, 5.00% 2013²	10,000	9,916
Triad Automobile Receivables Trust, Series 2005-A, Class A-4, AMBAC insured, 4.22% 2012	10,000	9,750
AmeriCredit Automobile Receivables Trust, Series 2002-C, Class A-4, FSA insured, 3.55% 2009	2,617	2,594
AmeriCredit Automobile Receivables Trust, Series 2003-C-F, Class A-4, FSA insured, 3.48% 2010	7,179	7,111
CPS Auto Receivables Trust, Series 2002-C, Class A-2, XLCA insured, 3.52% 2009²	1,636	1,617
CPS Auto Receivables Trust, Series 2006-A, Class 1-A-4, FSA insured, 5.33% 2012²	7,500	7,504
First USA Credit Card Master Trust, Series 1997-4, Class C, 6.369% 2010^2,5	6,500	6,520
First USA Credit Card Master Trust, Series 1998-6, Class C, 6.16% 2011²	2,000	2,025
Bear Stearns Asset-backed Securities I Trust, Series 2005-CL1, Class A-1, 5.885% 2034⁵	7,926	7,944
Vanderbilt Mortgage and Finance, Inc., Series 1999-B, Class I-A-6, 6.925% 2024	7,706	7,907
Residential Asset Securities Corp. Trust, Series 2001-KS3, Class A-I-6, 5.96% 2031	7,179	7,164
Residential Asset Securities Corp. Trust, Series 2003-KS6, Class A-2, 5.685% 2033⁵	191	191
Ameriquest Mortgage Securities Inc., Series 2003-12, Class M-1, 6.135% 2034⁵	7,000	7,079
Hertz Vehicle Financing LLC, Rental Car Asset-backed Notes, Series 2005-2, Class A-6, AMBAC insured, 5.08% 2011²	6,375	6,262
Structured Asset Investment Loan Trust, Series 2004-BNC2, Class A-4, 5.705% 2034⁵	5,793	5,800
MBNA Master Credit Card Trust II, Series 2000-H, Class B, 5.969% 2013⁵	5,000	5,092
Centex Home Equity Loan Trust, Series 2005-A, Class AF-3, 4.14% 2028	5,000	4,928
Specialty Underwriting and Residential Finance Trust, Series 2004-BC4, Class A-2B, 5.695% 2035⁵	4,670	4,681
WFS Financial Owner Trust, Series 2002-3, Class A-4, 3.50% 2010	2,928	2,926
Fremont Home Loan Trust, Series 2005-E, Class 2-A-1, 5.475% 2036⁵	2,724	2,726
MMCA Auto Owner Trust, Series 2002-4, Class A-4, 3.05% 2009	902	898
MMCA Auto Owner Trust, Series 2002-4, Class B, 3.82% 2009	519	516
PECO Energy Transition Trust, Series 1999-A, Class A-7, 6.13% 2009	1,250	1,262
Nebhelp Trust, Student Loan Interest Margin Securities, Series 1, Class A, MBIA insured, 6.68% 2016²	966	966
Financial Pacific Funding II, LLC, Series 2003-A, Class A, FSA insured, 2.29% 2009²	657	652
Long Beach Mortgage Loan Trust, Series 2004-A, Class M-3, 6.335% 2024⁵	458	460
SeaWest Securitization, LLC, Series 2002-A, Class A-3, XLCA insured, 3.58% 2008²	139	138
SeaWest Securitization, LLC, Series 2003-A, Class A-2, XLCA insured, 2.84% 2009²	184	181
California Infrastructure and Economic Development Bank, Special Purpose Trust, PG&E-1, Series 1997-1, Class A-7, 6.42% 2008	291	292
NPF XII, Inc., Series 1999-3, Class B, 2.389% 2003^2,5,7	3,000	0
NPF XII, Inc., Series 2001-1A, Class A, 1.989% 2004^2,5,7	5,000	137
NPF XII, Inc., Series 2001-3, Class A, 5.52% 2007^2,7	1,000	27
		369,730

CONSUMER STAPLES — 0.52%
Rayovac Corp. 8.50% 2013	11,000	8,828
Spectrum Brands, Inc. 7.375% 2015	57,300	43,405
Rite Aid Corp. 9.50% 2011	4,500	4,725
Rite Aid Corp. 6.875% 2013	12,715	11,221
Rite Aid Corp. 9.25% 2013	26,800	26,398
Rite Aid Corp. 7.50% 2015	2,500	2,469
Delhaize America, Inc. 8.125% 2011	27,845	29,764
Delhaize America, Inc. 9.00% 2031	7,125	8,030
SUPERVALU INC. 7.50% 2012	25,720	25,569
Albertson’s, Inc. 7.45% 2029	7,650	6,670
Albertson’s, Inc. 8.00% 2031	5,000	4,572
Jean Coutu Group (PJC) Inc. 7.625% 2012	2,500	2,444
Jean Coutu Group (PJC) Inc. 8.50% 2014	33,500	31,448
Ahold Finance U.S.A., Inc. 6.25% 2009	12,015	11,985
Ahold Finance U.S.A., Inc. 8.25% 2010	5,130	5,387
Ahold Lease Pass Through Trust, Series 2001-A-2, 8.62% 2025⁹	8,375	8,605
Stater Bros. Holdings Inc. 8.829% 2010⁵	6,525	6,655
Stater Bros. Holdings Inc. 8.125% 2012	13,100	13,067
Tyson Foods, Inc. 6.60% 2016	17,600	17,397
Vitamin Shoppe Industries, Inc. 12.67% 2012^2,5	11,650	12,116
Playtex Products, Inc. 8.00% 2011	10,000	10,412
Diageo Finance BV 5.30% 2015	10,000	9,594
Cadbury Schweppes US Finance LLC 5.125% 2013²	10,000	9,520
Dole Food Co., Inc. 7.25% 2010	4,975	4,502
Dole Food Co., Inc. 8.875% 2011	4,200	3,948
Duane Reade Inc. 9.829% 2010⁵	6,000	5,955
Kellogg Co. 7.45% 2031	5,000	5,780
Gold Kist Inc. 10.25% 2014	5,306	5,598
H.J. Heinz Co. 6.428% 2020²	5,000	5,087
Molson Coors Capital Finance ULC 4.85% 2010	5,000	4,857
Winn-Dixie Pass Through Trust, Series 1999-1, Class A-1, 7.803% 2017^2,7,9	5,039	4,085
Smithfield Foods, Inc. 7.625% 2008	1,975	1,995
Smithfield Foods, Inc., Series A, 8.00% 2009	875	897
Smithfield Foods, Inc., Series B, 7.75% 2013	925	927
CVS Corp. 5.298% 2027^2,9	2,536	2,367
Pathmark Stores, Inc. 8.75% 2012	1,870	1,758
		358,037

NON-U.S. GOVERNMENT BONDS & NOTES — 0.20%
Russian Federation 8.25% 2010	22,445	23,457
Russian Federation 8.25% 2010²	8,889	9,290
Russian Federation 5.00%/7.50% 2030⁸	24,770	27,014
United Mexican States Government Eurobonds, Global 8.375% 2011	3,000	3,326
United Mexican States Government Eurobonds, Global 7.50% 2012	5,470	5,913
United Mexican States Government Global 6.375% 2013	1,475	1,520
United Mexican States Government Global 11.375% 2016	20,184	28,308
United Mexican States Government Global 5.625% 2017	4,000	3,850
United Mexican States Government Global 8.125% 2019	2,061	2,408
United Mexican States Government Global 8.30% 2031	1,965	2,368
United Mexican States Government Global 7.50% 2033	2,833	3,155
State of Qatar 9.75% 2030	9,000	12,758
El Salvador (Republic of) 7.75% 2023	3,000	3,247
El Salvador (Republic of) 7.75% 2023²	1,250	1,353
El Salvador (Republic of) 7.65% 2035²	750	761
Banque Centrale de Tunisie 7.375% 2012	3,500	3,710
Bulgaria (Republic of) 8.25% 2015	3,000	3,454
Aries Vermögensverwaltungs GmbH, Series C, 9.60% 2014	2,500	3,156
		139,048

MUNICIPALS — 0.06%
State of California, Golden State Tobacco Securitization Corp., Tobacco Settlement Asset-backed Bonds, Series 2003-A-1, 6.25% 2033	19,750	21,599
State of Wisconsin, Badger Tobacco Asset Securitization Corp., Tobacco Settlement Asset-backed Bonds, 6.125% 2027	8,700	9,250
State of Washington, Tobacco Settlement Authority, Asset-backed Bonds, Series 2002, 6.50% 2026	3,840	4,187
State of Louisiana, Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds, Series 2001-A, Class A, 6.36% 2025	4,168	4,156
State of South Dakota, Educational Enhancement Funding Corp., Tobacco Settlement Asset-backed Bonds, Series 2002-A, Class A, 6.72% 2025	4,231	4,156
		43,348


Total bonds & notes (cost: $15,115,931,000)		14,987,456



	Principal amount	Market value
Short-term securities — 7.01%	(000)	(000)

Federal Home Loan Bank 4.935%-5.285% due 8/4-10/4/2006	$467,132	$ 464,212
Bank of America Corp. 5.15%-5.36% due 8/25-9/28/2006	350,000	347,971
Wells Fargo Bank, N.A. 5.25%-5.40% due 8/21-9/19/2006	300,000	299,996
AIG Funding, Inc. 5.03%-5.225% due 8/3-9/8/2006	100,000	99,703
American General Finance Corp. 5.30%-5.31% due 9/7-9/20/2006	100,000	99,358
International Lease Finance Corp. 5.08%-5.30% due 8/1-9/12/2006	100,000	99,598
Preferred Receivables Funding Corp. 5.23%-5.34% due 8/4-9/8/2006²	200,000	199,349
Park Avenue Receivables Co., LLC 5.29%-5.34% due 8/10-9/20/2006²	75,000	74,585
Freddie Mac 4.96%-5.255% due 8/15-10/24/2006	272,900	271,307
Wal-Mart Stores Inc. 5.23%-5.26% due 8/22-9/12/2006²	250,000	248,710
CAFCO, LLC 5.11%-5.39% due 8/2-10/11/2006²	250,000	247,788
Variable Funding Capital Corp. 5.26%-5.35% due 8/7-9/25/2006²	190,200	189,148
Variable Funding Capital Corp. 5.33% due 9/22/2006^2,11	45,000	44,658
Clipper Receivables Co., LLC 5.24%-5.38% due 8/7-10/23/2006²	225,000	223,302
Fannie Mae 5.07%-5.28% due 8/28-10/18/2006	155,300	154,231
Tennessee Valley Authority 5.15%-5.185% due 8/17-9/14/2006	137,200	136,342
FCAR Owner Trust I 5.10%-5.30% due 8/3-8/23/2006	132,800	132,471
Three Pillars Funding, LLC 5.28%-5.39% due 8/1-10/20/2006²	127,087	126,432
HSBC Finance Corp. 5.08%-5.32% due 8/30-10/5/2006	125,000	124,172
Gannett Co. 5.20%-5.24% due 8/23-8/28/2006²	117,000	116,566
Atlantic Industries 5.05% due 8/1/2006²	67,500	67,490
Coca-Cola Co. 5.29% due 9/18/2006	40,500	40,209
International Bank for Reconstruction and Development 5.19% due 9/15/2006	57,500	57,110
International Bank for Reconstruction and Development 5.19% due 9/21/2006¹¹	50,000	49,614
UnionBanCal Commercial Funding Corp. 5.01%-5.35% due 8/1-9/5/2006	100,000	99,993
General Electric Capital Services, Inc. 5.15% due 8/17/2006	50,000	49,882
Edison Asset Securitization LLC 5.30%-5.31% due 8/29/2006²	50,000	49,788
IBM Capital Inc. 5.14%-5.15% due 9/8-9/11/2006²	86,100	85,616
Hershey Co. 5.23%-5.24% due 9/11-9/22/2006²	75,700	75,193
NetJets Inc. 5.24%-5.26% due 9/18-9/19/2006²	75,000	74,456
E.I. duPont de Nemours and Co. 5.25% due 9/21/2006^2,11	50,000	49,621
E.I. duPont de Nemours and Co. 5.26% due 9/18/2006²	20,000	19,857
Federal Farm Credit Banks 4.98%-5.06% due 8/14-9/1/2006	55,000	54,816
Triple-A One Funding Corp. 5.28% due 8/11/2006²	50,691	50,609
3M Co. 5.16% due 8/22/2006	50,000	49,840
General Dynamics Corp. 5.10% due 8/8-8/9/2006²	49,300	49,241
Scripps (E.W.) Co. 5.23%-5.30% due 8/10-9/19/2006²	45,000	44,817
American Express Credit Corp. 5.14% due 8/21/2006	40,000	39,878
Harvard University 5.08% due 8/14/2006	30,000	29,937
Abbott Laboratories 5.22% due 8/1/2006²	25,000	24,996
Becton, Dickinson and Co. 5.21% due 8/2/2006	24,115	24,108
USAA Capital Corp. 4.98% due 8/15/2006	7,800	7,783
Medtronic Inc. 5.18% due 8/14/2006²	5,900	5,888

Total short-term securities (cost: $4,800,632,000)		4,800,641


Total investment securities (cost: $59,808,533,000)		68,624,040
Other assets less liabilities		(165,985)

Net assets		$68,458,055

“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	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 $5,490,924,000, which represented 8.02% of the net assets of the fund.

³	Security did not produce income during the last 12 months.

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	Scheduled interest and/or principal payment was not received.

⁸	Step bond; coupon rate will increase at a later date.

⁹	Principal payments may be made periodically. Therefore, the effective maturity date may be earlier than the stated maturity date.

¹⁰	Index-linked bond whose principal amount moves with a government retail price index.

¹¹	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

GDR = Global Depositary Receipts

MFGEFP-906-0906-S6852

Summary investment portfolio, July 31, 2006



	Shares			Market			Percent
				value			of net
Common stocks - 66.67%				(000)			assets

Financials - 17.90%
Citigroup Inc.		24,485,000		$	1,182,870			1.73	%
Washington Mutual, Inc.		16,251,200			726,429			1.06
Société Générale		4,736,500			706,466			1.03
Wells Fargo & Co.		9,731,800			703,998			1.03
HSBC Holdings PLC (United Kingdom)		26,952,825			488,878
HSBC Holdings PLC (Hong Kong)		10,543,396			190,109			.99
J.P. Morgan Chase & Co.		12,275,000			559,986			.82
Bank of America Corp.		10,765,550			554,749			.81
U.S. Bancorp		13,109,953			419,518			.61
Fifth Third Bancorp		10,994,000			419,311			.61
Lloyds TSB Group PLC		40,349,900			406,264			.59
Equity Residential		8,337,700			387,786			.57
Hang Lung Properties Ltd.		156,970,000			309,904			.45
Fannie Mae		3,006,200			144,027			.21
Other securities					5,053,536			7.39
					12,253,831			17.90

Utilities - 7.97%
Duke Energy Corp.		19,880,000			602,761			.88
National Grid PLC		40,045,175			455,933			.67
E.ON AG		3,650,000			439,910			.64
Entergy Corp.		4,373,292			337,181			.49
Dominion Resources, Inc.		4,158,498			326,359			.48
Other securities					3,293,258			4.81
					5,455,402			7.97

Telecommunication services - 7.83%
AT&T Inc.		51,160,575			1,534,305			2.24
BellSouth Corp.		33,610,000			1,316,504			1.92
Verizon Communications Inc.		21,100,000			713,602			1.04
Koninklijke KPN NV		46,015,000			522,387			.76
Chunghwa Telecom Co., Ltd. (ADR)		16,324,400			303,144
Chunghwa Telecom Co., Ltd.		42,803,000			78,933			.56
Vodafone Group PLC		163,143,750			354,275			.52
Other securities					540,236			.79
					5,363,386			7.83

Consumer staples - 7.57%
Altria Group, Inc.		10,780,000			862,077			1.26
Coca-Cola Co.		15,225,000			677,512			.99
H.J. Heinz Co.		14,535,000			610,034			.89
Reynolds American Inc.		4,553,500			577,293			.84
ConAgra Foods, Inc. (1)		26,327,600			566,043			.83
General Mills, Inc.		8,700,000			451,530			.66
Diageo PLC		17,650,000			310,250			.45
Other securities					1,129,428			1.65
					5,184,167			7.57

Energy - 5.55%
Chevron Corp.		21,874,200			1,438,885			2.10
Royal Dutch Shell PLC, Class A (ADR)		10,196,000			721,877
Royal Dutch Shell PLC, Class B		6,314,144			232,476
Royal Dutch Shell PLC, Class B (ADR)		2,864,565			211,577
Royal Dutch Shell PLC, Class A		1,340,000			47,348			1.77
Marathon Oil Corp.		4,345,000			393,831			.57
Other securities					756,192			1.11
					3,802,186			5.55

Health care - 5.49%
Bristol-Myers Squibb Co.		43,284,000			1,037,517			1.51
Merck & Co., Inc.		18,800,000			757,076			1.11
Eli Lilly and Co.		12,335,000			700,258			1.02
Pfizer Inc		20,210,000			525,258			.77
Other securities					740,750			1.08
					3,760,859			5.49

Materials - 4.42%
International Paper Co.		16,348,820			561,255			.82
E.I. du Pont de Nemours and Co.		13,685,000			542,747			.79
Weyerhaeuser Co.		8,900,000			522,074			.76
Other securities					1,398,839			2.05
					3,024,915			4.42

Industrials - 4.23%
General Electric Co.		33,670,000			1,100,672			1.61
Waste Management, Inc.		11,872,400			408,173			.60
Emerson Electric Co.		4,685,000			369,740			.54
R.R. Donnelley & Sons Co.		10,745,000			313,646			.46
Other securities					703,182			1.02
					2,895,413			4.23

Consumer discretionary - 2.75%
General Motors Corp.		13,775,000			443,968			.65
Esprit Holdings Ltd.		40,949,000			311,469			.46
Other securities					1,128,406			1.64
					1,883,843			2.75

Information technology - 0.60%
Other securities					409,041			.60


Miscellaneous - 2.36%
Other common stocks in initial period of acquisition					1,609,862			2.36


Total common stocks (cost: $36,872,330,000)					45,642,905			66.67



		Shares			Market			Percent
					value			of net
Preferred stocks - 1.27%					(000	)		assets

Financials - 1.24%
Fannie Mae, Series O, 7.625% preferred (2) (3)		2,190,000			118,260			.17
HSBC Capital Funding LP, Series 1, 9.547% noncumulative step-up perpetual preferred (2) (3)		37,500,000			42,303
HSBC Capital Funding LP, Series 2, 10.176% noncumulative step-up perpetual preferred (2) (3)		10,000,000			14,075			.08
Société Générale 7.85% preferred (2) (3)		11,200,000			11,385			.02
Other securities					661,358			.97
					847,381			1.24

Other - 0.03%
Other securities					17,194			.03


Total preferred stocks (cost: $854,645,000)					864,575			1.27



		Shares			Market			Percent
					value			of net
Warrants - 0.00%					(000	)		assets

Telecommunication services - 0.00%
Other securities					19			.00


Total warrants (cost: $816,000)					19			.00



		Shares			Market			Percent
					value			of net
Convertible securities - 3.40%					(000	)		assets

Other - 3.17%
Fannie Mae 5.375% convertible preferred		1,530			142,206			.21
Other securities					2,025,680			2.96
					2,167,886			3.17

Miscellaneous - 0.23%
Other convertible securities in initial period of acquisition					160,558			.23


Total convertible securities (cost: $2,164,179,000)					2,328,444			3.40



		Principal			Market			Percent
		amount			value			of net
Bonds & notes - 21.89%		(000	)		(000	)		assets

Consumer discretionary - 3.74%
General Motors Corp. 6.375%-9.40% 2008-2033		236,035			206,622
General Motors Nova Scotia Finance Co. 6.85% 2008		20,700			19,613			.33
Other securities					2,335,369			3.41
					2,561,604			3.74

Financials - 3.50%
General Motors Acceptance Corp. 6.039%-7.75% 2006-2014 (3)		505,945			494,725
Residential Capital Corp. 6.00%-7.337% 2008-2011 (2) (3)		96,900			96,654			.86
Washington Mutual Preferred Funding I Ltd. 6.534% (undated) (2) (3)		42,800			41,660
Washington Mutual, Inc. 4.00%-5.737% 2009-2012 (3)		32,000			31,391
Providian Financial Corp., Series A, 9.525% 2027 (2)		10,000			10,612
Dime Capital Trust I, Dime Bancorp, Inc., Series A, 9.33% 2027		9,425			10,085			.14
Household Finance Corp. 4.125%-6.375% 2009-2012		31,000			30,927
HSBC Finance Corp. 4.625%-5.00% 2010-2015		21,720			20,915
HSBC Bank USA 4.625% 2014 (2)		5,000			4,644
Midland Bank 5.875% Eurodollar note (undated) (3)		5,000			4,300			.09
MBNA Global Capital Funding, Series B, 5.949% 2027 (3)		35,000			34,681
MBNA Corp. 5.625% 2007		10,000			10,007
Bank of America Corp. 4.50% 2010		10,000			9,678			.08
SocGen Real Estate Co. LLC, Series A, 7.64% (undated) (2) (3)		45,700			46,733
Société Générale 5.75% 2016 (2)		4,000			3,990			.07
J.P. Morgan Chase & Co. 4.75%-4.891% 2015		22,500			21,539
J.P. Morgan & Co. Inc. 6.70% 2007		5,000			5,058			.04
Citigroup Inc. 5.125% 2011		12,500			12,336			.02
Other securities					1,507,442			2.20
					2,397,377			3.50

Mortgage-backed obligations (4) - 2.98%
Fannie Mae 3.753%-11.90% 2010-2042 (3)		411,367			402,449			.59
Other securities					1,635,314			2.39
					2,037,763			2.98

Telecommunication services - 2.96%
SBC Communications Inc. 4.125%-6.25% 2009-2034		74,965			71,409
AT&T Corp. 7.30% 2011 (3)		14,789			15,845
AT&T Inc. 6.80% 2036		11,235			11,341			.14
Verizon Global Funding Corp. 6.125% 2007		7,000			7,035
Verizon New York Inc., Series A, 6.875% 2012		6,500			6,671			.02
BellSouth Corp. 6.55% 2034		10,000			9,682			.01
Other securities					1,903,699			2.79
					2,025,682			2.96

Energy - 1.43%
Other securities					980,978			1.43


Industrials - 1.25%
General Electric Capital Corp., Series A, 5.375%-6.00% 2007-2012		16,000			16,184
General Electric Co. 5.00% 2013		5,000			4,846			.03
Other securities					835,090			1.22
					856,120			1.25

Utilities - 1.07%
Other securities					730,408			1.07


Materials - 1.04%
Other securities					709,097			1.04


U.S. government & government agency bonds & notes - 1.03%
Fannie Mae 5.25% 2007		41,500			41,415			.06
Other securities					663,205			.97
					704,620			1.03

Other - 2.89%
Other securities					1,983,807			2.89


Total bonds & notes (cost: $15,115,931,000)					14,987,456			21.89



		Principal			Market			Percent
		amount			value			of net
Short-term securities - 7.01%		(000	)		(000	)		assets


Federal Home Loan Bank 4.935%-5.285% due 8/4-10/4/2006	$	467,132		$	464,212			.68	%
Bank of America Corp. 5.15%-5.36% due 8/25-9/28/2006		350,000			347,971			.51
Wells Fargo Bank, N.A. 5.25%-5.40% due 8/21-9/19/2006		300,000			299,996			.44
International Lease Finance Corp. 5.08%-5.30% due 8/1-9/12/2006		100,000			99,598
AIG Funding, Inc. 5.03%-5.225% due 8/3-9/8/2006		100,000			99,703
American General Finance Corp. 5.30%-5.31% due 9/7-9/20/2006		100,000			99,358			.44
Preferred Receivables Funding Corp. 5.23%-5.34% due 8/4-9/8/2006 (2)		200,000			199,349
Park Avenue Receivables Co., LLC 5.29%-5.34% due 8/10-9/20/2006 (2)		75,000			74,585			.40
CAFCO, LLC 5.11%-5.39% due 8/2-10/11/2006 (2)		250,000			247,788			.36
Fannie Mae 5.07%-5.28% due 8/28-10/18/2006		155,300			154,231			.22
HSBC Finance Corp. 5.08%-5.32% due 8/30-10/5/2006		125,000			124,172			.18
Atlantic Industries 5.05% due 8/1/2006 (2)		67,500			67,490
Coca-Cola Co. 5.29% due 9/18/2006		40,500			40,209			.16
General Electric Capital Services, Inc. 5.15% due 8/17/2006		50,000			49,882
Edison Asset Securitization LLC 5.30%-5.31% due 8/29/2006 (2)		50,000			49,788			.15
Other securities					2,382,309			3.47

Total short-term securities (cost: $4,800,632,000)					4,800,641			7.01


Total investment securities (cost: $59,808,533,000)					68,624,040			100.24
Other assets less liabilities					(165,985	)		(0.24	)

Net assets				$	68,458,055			100.00	%

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

"Other securities" includes all issues that are not disclosed separately in the summary investment portfolio.

Investments in affiliates

A company is considered to be an affiliate of the fund under the Investment Company Act of 1940 if the fund's holdings in that company represent 5% or more of the outstanding voting shares of that company. Some of the fund's affiliated holdings listed below are also among the fund's largest holdings and are shown in the preceding summary investment portfolio. Affiliated companies not among the fund's largest holdings are included in the market value of "Other securities" under their respective industry sectors. Further details on these holdings and related transactions during the year ended July 31, 2006, appear below.

									Dividend or		Market value
	Beginning								interest		of affiliates
Company	shares		Purchases		Sales		Ending shares		income		at 7/31/06
	or principal amount						or principal amount		(000)		(000)
iStar Financial, Inc.		7,240,000		-		-		7,240,000	$	14,339	$	287,862
iStar Financial, Inc. 5.375% 2010	$	10,925,000	$	-	$	-	$	10,925,000		593		10,750
iStar Financial, Inc., Series F, 7.80% cumulative redeemable preferred		400,000		-		-		400,000		780		10,004
iStar Financial, Inc., Series B, 5.125% 2011	$	10,000,000	$	-	$	-	$	10,000,000		545		9,670
iStar Financial, Inc. 7.00% 2008	$	6,525,000	$	-	$	-	$	6,525,000		351		6,653
iStar Financial, Inc. 5.80% 2011	$	-	$	5,000,000	$	-	$	5,000,000		183		4,969
iStar Financial, Inc., Series B, 4.875% 2009	$	5,000,000	$	-	$	-	$	5,000,000		280		4,897
iStar Financial, Inc. 6.05% 2015	$	4,285,000	$	-	$	-	$	4,285,000		260		4,240
iStar Financial, Inc. 6.00% 2010	$	3,750,000	$	-	$	-	$	3,750,000		228		3,772
iStar Financial, Inc. 8.75% 2008	$	1,028,000	$	-	$	-	$	1,028,000		61		1,085
Packaging Corp. of America		-		6,736,800		-		6,736,800		5,726		154,475
Packaging Corp. of America 4.375% 2008	$	9,500,000	$	-	$	7,000,000	$	2,500,000		343		2,441
Arthur J. Gallagher & Co.		5,383,200		20,500		-		5,403,700		6,268		146,819
Goodman Fielder Ltd. (5)		-		67,000,000		-		67,000,000		-		103,089
Sunstone Hotel Investors, Inc.		2,438,400		1,155,000		-		3,593,400		4,120		101,909
Premier Farnell PLC		-		23,550,000		2,500,000		21,050,000		3,917		70,877
Tupperware Brands Corp.		3,125,500		739,500		-		3,865,000		3,239		66,710
Montpelier Re Holdings Ltd.		4,120,000		345,000		-		4,465,000		2,612		80,727
MeadWestvaco Corp.		3,180,000		7,385,696		-		10,565,696		5,200		275,976
Beverly Hills Bancorp Inc.		1,939,517		-		91,117		1,848,400		970		16,765
Clarent Hospital Corp. (5) (6)		484,684		-		-		484,684		-		121
ConAgra Foods, Inc.		18,485,000		7,842,600		-		26,327,600		19,421		566,043
R.R. Donnelley & Sons Co. (7)		13,474,000		-		2,729,000		10,745,000		12,810		-
									$	82,246	$	1,929,854

The following footnotes apply to either the individual securities noted or one or more of the securities aggregated and listed as a single line item.

(1) Represents an affiliated company as defined under the Investment Company Act of 1940.

(2) 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, including those in "Other securities" in the summary investment portfolio, was $5,490,924,000, which represented 8.02% of the net assets of the fund.

(3) Coupon rate may change periodically.

(4) 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.

(5) Security did not produce income during the last 12 months.

(6) Valued under fair value procedures adopted by authority of the board of directors.

(7) Unaffiliated issuer at 7/31/2006.

ADR = American Depositary Receipts

See Notes to Financial Statements

Financial statements

Statement of assets and liabilities
at July 31, 2006 (dollars and shares in thousands, except per-share amounts)

Assets:
Investment securities at market:
Unaffiliated issuers (cost: $57,731,400)	$	66,694,186
Affiliated issuers (cost: $2,077,133)		1,929,854	$	68,624,040
Cash denominated in non-U.S. currencies (cost: $3,392)				3,374
Cash				79,711
Receivables for:
Sales of investments		130,914
Sales of fund's shares		116,823
Dividends and interest		391,106		638,843
				69,345,968
Liabilities:
Payables for:
Purchases of investments		524,199
Repurchases of fund's shares		51,217
Dividends on fund's shares		262,170
Investment advisory services		13,008
Services provided by affiliates		34,410
Deferred directors' compensation		2,258
Other fees and expenses		651		887,913
Net assets at July 31, 2006			$	68,458,055

Net assets consist of:
Capital paid in on shares of capital stock			$	57,259,143
Undistributed net investment income				674,755
Undistributed net realized gain				1,708,492
Net unrealized appreciation				8,815,665
Net assets at July 31, 2006			$	68,458,055

Total authorized capital stock - 5,500,000 shares, $.001 par value (3,546,374 total shares outstanding)

	Net assets		Shares outstanding		Net asset value per share*

Class A	$	53,188,267		2,752,224	$	19.33
Class B		4,442,194		231,113		19.22
Class C		6,675,430		347,798		19.19
Class F		1,957,407		101,414		19.30
Class 529-A		451,644		23,392		19.31
Class 529-B		91,781		4,764		19.26
Class 529-C		200,885		10,422		19.27
Class 529-E		23,392		1,214		19.28
Class 529-F		9,830		509		19.30
Class R-1		36,656		1,902		19.27
Class R-2		378,995		19,723		19.22
Class R-3		579,106		30,025		19.29
Class R-4		254,657		13,189		19.31
Class R-5		167,811		8,685		19.32
* Maximum offering price and redemption price per share were equal to the net asset value per share for all share classes, except for Class A and 529-A, for which the maximum offering prices per share were $20.51 and $20.49, respectively.

See Notes to Financial Statements

Statement of operations
for the year ended July 31, 2006	(dollars in thousands)
Investment income:
Income:
Dividends (net of non-U.S. taxes of $48,293; also includes $79,402 from affiliates)	$	1,822,844
Interest (net of non-U.S. taxes of $2; also includes $2,844 from affiliates)		1,274,118		$	3,096,962

Fees and expenses*:
Investment advisory services		157,792
Distribution services		232,468
Transfer agent services		32,255
Administrative services		13,270
Reports to shareholders		1,038
Registration statement and prospectus		2,133
Postage, stationery and supplies		3,323
Directors' compensation		592
Auditing and legal		155
Custodian		2,594
State and local taxes		1
Other		158
Total fees and expenses before reimbursements/waivers		445,779
Less reimbursements/waivers of fees and expenses:
Investment advisory services		15,779
Administrative services		299
Total fees and expenses after reimbursements/waivers					429,701
Net investment income					2,667,261

Net realized gain and unrealized appreciation on investments and non-U.S. currency:
Net realized gain on:
Investments (including $5,638 net loss from affiliates)		1,716,209
Non-U.S. currency transactions		2,057			1,718,266
Net unrealized appreciation on:
Investments		1,591,315
Non-U.S. currency translations		1,302			1,592,617
Net realized gain and unrealized appreciation on investments and non-U.S. currency					3,310,883
Net increase in net assets resulting from operations				$	5,978,144

* 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
		2006			2005
Operations:
Net investment income	$	2,667,261		$	2,177,501
Net realized gain on investments and non-U.S. currency transactions		1,718,266			1,203,405
Net unrealized appreciation on investments and non-U.S. currency translations		1,592,617			3,378,509
Net increase in net assets resulting from operations		5,978,144			6,759,415

Dividends and distributions paid or accrued to shareholders:
Dividends from net investment income and non-U.S. currency gains		(2,496,685	)		(1,825,496	)
Distributions from net realized gain on investments		(1,211,543	)		(377,655	)
Total dividends and distributions paid or accrued to shareholders		(3,708,228	)		(2,203,151	)

Capital share transactions		6,036,571			10,692,258

Total increase in net assets		8,306,487			15,248,522

Net assets:
Beginning of year		60,151,568			44,903,046
End of year (including undistributed net investment income: $674,755 and $501,690, respectively)	$	68,458,055		$	60,151,568


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

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.

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 is 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 or are considered unreliable 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 on the valuation date. 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 on the accompanying financial statements.

Loan transactions - The fund may enter into loan transactions in which the fund acquires a loan either through an agent, by assignment from another holder, or as a participation interest in another holder's portion of a loan. The loan is often administered by a financial institution that acts as agent for the holders of the loan, and the fund may be required to receive approval from the agent and/or borrower prior to the sale of the investment. The loan's interest rate and maturity date may change based on the terms of the loan, including potential early payments of principal. Risks may arise due to the delayed settlement date of the loan transaction and the ability of the agent and/or the borrower to meet the obligations of the loan.

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. 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. Therefore, no federal income tax provision is required.

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; paydowns on fixed-income securities; and income on certain 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.

During the year ended July 31, 2006, the fund reclassified $89,000 from undistributed net investment income to capital paid in on shares of capital stock. In addition, the fund reclassified $2,578,000 from undistributed net realized gain to undistributed net investment income to align financial reporting with tax reporting.

As of July 31, 2006, the components of distributable earnings, unrealized appreciation (depreciation) and cost of investments on a tax basis were as follows:

	(dollars in thousands)
Undistributed ordinary income	$924,041
Undistributed long-term capital gain	1,727,884
Gross unrealized appreciation on investment securities	9,908,898
Gross unrealized depreciation on investment securities	(1,097,562)
Net unrealized appreciation on investment securities	8,811,336
Cost of investment securities	59,812,704

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

	Year ended July 31, 2006						Year ended July 31, 2005
Share class	Ordinary income		Long-term capital gains		Total distributions paid or accrued		Ordinary income		Long-term capital gains		Total distributions paid or accrued
Class A	$	2,018,662	$	945,614	$	2,964,276	$	1,507,294	$	299,587	$	1,806,881
Class B		140,500		81,514		222,014		105,906		27,212		133,118
Class C		201,163		117,973		319,136		132,396		34,316		166,712
Class F		70,225		33,305		103,530		45,544		9,107		54,651
Class 529-A		15,421		7,171		22,592		9,019		1,789		10,808
Class 529-B		2,598		1,542		4,140		1,649		447		2,096
Class 529-C		5,562		3,248		8,810		3,247		856		4,103
Class 529-E		740		373		1,113		433		95		528
Class 529-F		313		134		447		136		25		161
Class R-1		864		485		1,349		334		78		412
Class R-2		10,343		5,960		16,303		5,613		1,403		7,016
Class R-3		17,725		8,906		26,631		8,959		1,829		10,788
Class R-4		7,679		3,433		11,112		2,450		430		2,880
Class R-5		4,890		1,885		6,775		2,516		481		2,997
Total	$	2,496,685	$	1,211,543	$	3,708,228	$	1,825,496	$	377,655	$	2,203,151

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 ^SM ("AFS"), the fund’s transfer agent, and American Funds Distributors, Inc.^SM ("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. These fees are based on a declining series of annual rates beginning with 0.250% on the first $500 million of daily net assets and decreasing to 0.125% on such assets in excess of $71 billion. The agreement also provides for monthly fees, accrued daily, of 2.25% of the fund’s monthly gross income. CRMC is currently waiving 10% of investment advisory services fees. During the year ended July 31, 2006, total investment advisory services fees waived by CRMC were $15,779,000. As a result, the fee shown on the accompanying financial statements of $157,792,000, which was equivalent to an annualized rate of 0.249%, was reduced to $142,013,000, or 0.224% 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 the 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 to provide certain shareholder services. The remaining amounts available to be paid under each plan are paid to dealers to compensate them for their sales activities.

For Class 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. These classes reimburse 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, 2006, there were no unreimbursed expenses subject to reimbursement for Class A or 529-A.

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

Transfer agent services - The fund has a transfer agent agreement with AFS for Class 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 Class 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, 2006, the total administrative services fees paid by CRMC were $2,000 and $297,000 for Class 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 on the accompanying financial statements, the Commonwealth of Virginia is not considered a related party.

Expenses under the agreements described above for the year ended July 31, 2006, were as follows (dollars in thousands):

Share class	Distribution services	Transfer agent services	Administrative services
Share class	Distribution services	Transfer agent services	CRMC administrative services	Transfer agent services	Commonwealth of Virginia administrative services
Class A	$115,724	$29,419	Not applicable	Not applicable	Not applicable
Class B	42,234	2,836	Not applicable	Not applicable	Not applicable
Class C	61,234	Included in administrative services	$6,466	$951	Not applicable
Class F	4,328		1,328	230	Not applicable
Class 529-A	736		258	42	$385
Class 529-B	816		55	29	82
Class 529-C	1,739		117	47	174
Class 529-E	100		13	2	20
Class 529-F	-		5	1	8
Class R-1	268		34	15	Not applicable
Class R-2	2,400		473	1,151	Not applicable
Class R-3	2,407		700	273	Not applicable
Class R-4	482		282	12	Not applicable
Class R-5	Not applicable		113	4	Not applicable
Total	$232,468	$32,255	$9,844	$2,757	$669

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 $592,000, shown on the accompanying financial statements, includes $332,000 in current fees (either paid in cash or deferred) and a net increase of $260,000 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):

Share class	Sales^*				Reinvestments of dividends and distributions				Repurchases*						Net increase
	Amount		Shares		Amount		Shares		Amount			Shares			Amount		Shares
Year ended July 31, 2006
Class A	$	7,526,901		404,213	$	2,634,343		142,882	$	(5,936,400	)		(318,528	)	$	4,224,844		228,567
Class B		417,059		22,507		194,060		10,594		(449,190	)		(24,223	)		161,929		8,878
Class C		1,279,488		69,133		275,082		15,037		(854,118	)		(46,137	)		700,452		38,033
Class F		579,266		31,091		80,258		4,359		(369,396	)		(19,859	)		290,128		15,591
Class 529-A		115,828		6,225		21,870		1,187		(29,602	)		(1,587	)		108,096		5,825
Class 529-B		15,280		823		4,043		220		(4,608	)		(248	)		14,715		795
Class 529-C		51,850		2,790		8,560		465		(19,447	)		(1,044	)		40,963		2,211
Class 529-E		6,516		351		1,079		59		(2,291	)		(123	)		5,304		287
Class 529-F		4,653		250		424		23		(938	)		(50	)		4,139		223
Class R-1		21,603		1,163		1,257		69		(6,100	)		(329	)		16,760		903
Class R-2		164,063		8,842		15,707		857		(83,808	)		(4,514	)		95,962		5,185
Class R-3		275,744		14,822		25,650		1,394		(135,565	)		(7,291	)		165,829		8,925
Class R-4		163,310		8,773		10,477		568		(48,034	)		(2,576	)		125,753		6,765
Class R-5		96,681		5,189		5,091		276		(20,075	)		(1,077	)		81,697		4,388
Total net increase
(decrease)	$	10,718,242		576,172	$	3,277,901		177,990	$	(7,959,572	)		(427,586	)	$	6,036,571		326,576

Year ended July 31, 2005
Class A	$	9,640,392		532,521	$	1,565,111		86,078	$	(3,709,618	)		(204,836	)	$	7,495,885		413,763
Class B		755,566		42,102		111,888		6,179		(287,281	)		(15,953	)		580,173		32,328
Class C		1,867,364		103,792		133,316		7,372		(485,019	)		(26,922	)		1,515,661		84,242
Class F		660,579		36,521		41,363		2,276		(208,234	)		(11,499	)		493,708		27,298
Class 529-A		114,656		6,328		10,343		569		(13,713	)		(756	)		111,286		6,141
Class 529-B		17,625		977		2,028		112		(2,180	)		(121	)		17,473		968
Class 529-C		52,313		2,889		3,934		216		(8,587	)		(473	)		47,660		2,632
Class 529-E		5,928		328		504		27		(618	)		(34	)		5,814		321
Class 529-F		2,757		152		149		8		(763	)		(43	)		2,143		117
Class R-1		13,146		724		374		20		(3,977	)		(218	)		9,543		526
Class R-2		143,180		7,950		6,558		362		(34,869	)		(1,935	)		114,869		6,377
Class R-3		241,450		13,332		9,950		547		(56,185	)		(3,110	)		195,215		10,769
Class R-4		97,347		5,337		2,546		140		(14,255	)		(782	)		85,638		4,695
Class R-5		24,245		1,332		1,947		107		(9,002	)		(498	)		17,190		941
Total net increase
(decrease)	$	13,636,548		754,285	$	1,890,011		104,013	$	(4,834,301	)		(267,180	)	$	10,692,258		591,118

* Includes exchanges between share classes of the fund.

6. Investment transactions

The fund made purchases and sales of investment securities, excluding short-term securities, of $25,651,014,000 and $20,471,168,000, respectively, during the year ended July 31, 2006.

Financial highlights (1)

			Income (loss) from investment operations⁽²⁾								Dividends and distributions
	Net asset value, beginning of period		Net investment income		Net gains (losses) on securities (both realized and unrealized)			Total from investment operations			Dividends (from net investment income)			Distributions (from capital gains)			Total dividends and distributions			Net asset value, end of period		Total return (3)			Net assets, end of period (in millions)				Ratio of expenses to average net assets before reimbursements/ waivers					Ratio of expenses to average net assets after reimbursements/ waivers (4)					Ratio of net income to average net assets
Class A:
Year ended 7/31/2006	$	18.70	$	.81	$	.94		$	1.75		$	(.76	)	$	(.36	)	$	(1.12	)	$	19.33		9.77	%	$	53,188				.56	%				.53	%				4.35	%
Year ended 7/31/2005		17.10		.77		1.61			2.38			(.65	)		(.13	)		(.78	)		18.70		14.12			47,196				.55					.54					4.26
Year ended 7/31/2004		15.44		.70		1.70			2.40			(.74	)		-			(.74	)		17.10		15.76			36,075				.57					.57					4.15
Year ended 7/31/2003		14.49		.72		.98			1.70			(.73	)		(.02	)		(.75	)		15.44		12.18			25,891				.61					.61					4.98
Year ended 7/31/2002		16.44		.74		(1.73	)		(.99	)		(.80	)		(.16	)		(.96	)		14.49		(6.35	)		19,585				.61					.61					4.66
Class B:
Year ended 7/31/2006		18.61		.66		.93			1.59			(.62	)		(.36	)		(.98	)		19.22		8.87			4,442				1.33					1.31					3.58
Year ended 7/31/2005		17.01		.63		1.61			2.24			(.51	)		(.13	)		(.64	)		18.61		13.32			4,135				1.34					1.32					3.48
Year ended 7/31/2004		15.36		.56		1.69			2.25			(.60	)		-			(.60	)		17.01		14.84			3,231				1.35					1.35					3.37
Year ended 7/31/2003		14.42		.61		.97			1.58			(.62	)		(.02	)		(.64	)		15.36		11.37			2,015				1.39					1.39					4.17
Year ended 7/31/2002		16.39		.61		(1.73	)		(1.12	)		(.69	)		(.16	)		(.85	)		14.42		(7.14	)		800				1.37					1.37					3.88
Class C:
Year ended 7/31/2006		18.58		.65		.93			1.58			(.61	)		(.36	)		(.97	)		19.19		8.83			6,675				1.38					1.36					3.52
Year ended 7/31/2005		16.99		.61		1.60			2.21			(.49	)		(.13	)		(.62	)		18.58		13.17			5,756				1.43					1.41					3.38
Year ended 7/31/2004		15.34		.55		1.69			2.24			(.59	)		-			(.59	)		16.99		14.75			3,833				1.44					1.44					3.26
Year ended 7/31/2003		14.41		.59		.97			1.56			(.61	)		(.02	)		(.63	)		15.34		11.23			1,850				1.48					1.48					4.07
Year ended 7/31/2002		16.37		.59		(1.71	)		(1.12	)		(.68	)		(.16	)		(.84	)		14.41		(7.17	)		614				1.48					1.48					3.77
Class F:
Year ended 7/31/2006		18.68		.80		.93			1.73			(.75	)		(.36	)		(1.11	)		19.30		9.68			1,957				.60					.57					4.30
Year ended 7/31/2005		17.08		.75		1.61			2.36			(.63	)		(.13	)		(.76	)		18.68		14.01			1,603				.67					.65					4.14
Year ended 7/31/2004		15.42		.67		1.71			2.38			(.72	)		-			(.72	)		17.08		15.65			1,000				.69					.69					4.02
Year ended 7/31/2003		14.47		.71		.97			1.68			(.71	)		(.02	)		(.73	)		15.42		12.11			471				.72					.72					4.83
Year ended 7/31/2002		16.44		.71		(1.73	)		(1.02	)		(.79	)		(.16	)		(.95	)		14.47		(6.56	)		156				.73					.73					4.52
Class 529-A:
Year ended 7/31/2006		18.68		.80		.94			1.74			(.75	)		(.36	)		(1.11	)		19.31		9.70			452				.63					.61					4.27
Year ended 7/31/2005		17.08		.75		1.61			2.36			(.63	)		(.13	)		(.76	)		18.68		13.98			328				.70					.68					4.13
Year ended 7/31/2004		15.42		.68		1.70			2.38			(.72	)		-			(.72	)		17.08		15.61			195				.67					.67					4.06
Year ended 7/31/2003		14.48		.71		.97			1.68			(.72	)		(.02	)		(.74	)		15.42		12.10			93				.68					.68					4.87
Period from 2/15/2002 to 7/31/2002		15.76		.31		(1.20	)		(.89	)		(.39	)		-			(.39	)		14.48		(5.83	)		24				.37					.37					2.02
Class 529-B:
Year ended 7/31/2006		18.65		.64		.92			1.56			(.59	)		(.36	)		(.95	)		19.26		8.71			92				1.47					1.44					3.44
Year ended 7/31/2005		17.05		.59		1.61			2.20			(.47	)		(.13	)		(.60	)		18.65		13.05			74				1.55					1.53					3.28
Year ended 7/31/2004		15.36		.53		1.70			2.23			(.54	)		-			(.54	)		17.05		14.67			51				1.57					1.57					3.16
Year ended 7/31/2003		14.46		.58		.97			1.55			(.63	)		(.02	)		(.65	)		15.36		11.10			28				1.60					1.60					3.95
Period from 2/19/2002 to 7/31/2002		15.63		.25		(1.06	)		(.81	)		(.36	)		-			(.36	)		14.46		(5.40	)		7				.71					.71					1.62
Class 529-C:
Year ended 7/31/2006		18.65		.64		.93			1.57			(.59	)		(.36	)		(.95	)		19.27		8.77			201				1.46					1.43					3.45
Year ended 7/31/2005		17.06		.59		1.60			2.19			(.47	)		(.13	)		(.60	)		18.65		13.00			153				1.54					1.52					3.29
Year ended 7/31/2004		15.39		.53		1.71			2.24			(.57	)		-			(.57	)		17.06		14.69			95				1.56					1.56					3.17
Year ended 7/31/2003		14.46		.58		.97			1.55			(.60	)		(.02	)		(.62	)		15.39		11.10			44				1.59					1.59					3.96
Period from 2/19/2002 to 7/31/2002		15.63		.25		(1.06	)		(.81	)		(.36	)		-			(.36	)		14.46		(5.40	)		12				.70					.70					1.63
Class 529-E:
Year ended 7/31/2006		18.66		.74		.93			1.67			(.69	)		(.36	)		(1.05	)		19.28		9.32			23				.94					.92					3.96
Year ended 7/31/2005		17.06		.69		1.61			2.30			(.57	)		(.13	)		(.70	)		18.66		13.63			17				1.02					1.01					3.80
Year ended 7/31/2004		15.40		.62		1.70			2.32			(.66	)		-			(.66	)		17.06		15.24			10				1.04					1.04					3.69
Year ended 7/31/2003		14.47		.66		.96			1.62			(.67	)		(.02	)		(.69	)		15.40		11.66			5				1.06					1.06					4.48
Period from 2/25/2002 to 7/31/2002		15.81		.27		(1.23	)		(.96	)		(.38	)		-			(.38	)		14.47		(6.24	)		1				.45					.45					1.79
Class 529-F:
Year ended 7/31/2006		18.68		.83		.93			1.76			(.78	)		(.36	)		(1.14	)		19.30		9.85			10				.44					.42					4.46
Year ended 7/31/2005		17.08		.75		1.60			2.35			(.62	)		(.13	)		(.75	)		18.68		13.96			5				.70					.68					4.14
Year ended 7/31/2004		15.42		.67		1.69			2.36			(.70	)		-			(.70	)		17.08		15.53			3				.79					.79					3.95
Period from 9/17/2002 to 7/31/2003		14.11		.60		1.24			1.84			(.51	)		(.02	)		(.53	)		15.42		13.38			1				.81		(5	)		.81		(5	)		4.68		(5	)
Class R-1:
Year ended 7/31/2006	$	18.65	$	.64	$	.94		$	1.58		$	(.60	)	$	(.36	)	$	(.96	)	$	19.27		8.79	%	$	37				1.45	%				1.41	%				3.46	%
Year ended 7/31/2005		17.05		.61		1.61			2.22			(.49	)		(.13	)		(.62	)		18.65		13.15			19				1.50					1.45					3.36
Year ended 7/31/2004		15.39		.55		1.70			2.25			(.59	)		-			(.59	)		17.05		14.75			8				1.55					1.48					3.27
Year ended 7/31/2003		14.47		.60		.96			1.56			(.62	)		(.02	)		(.64	)		15.39		11.19			2				1.92					1.50					4.02
Period from 6/17/2002 to 7/31/2002		15.65		.06		(1.24	)		(1.18	)		-			-			-			14.47		(7.54	)		-	(6	)		.32					.18					.42
Class R-2:
Year ended 7/31/2006		18.60		.64		.94			1.58			(.60	)		(.36	)		(.96	)		19.22		8.83			379				1.52					1.40					3.48
Year ended 7/31/2005		17.01		.61		1.60			2.21			(.49	)		(.13	)		(.62	)		18.60		13.16			271				1.58					1.42					3.39
Year ended 7/31/2004		15.36		.55		1.69			2.24			(.59	)		-			(.59	)		17.01		14.75			139				1.75					1.44					3.30
Year ended 7/31/2003		14.48		.59		.95			1.54			(.64	)		(.02	)		(.66	)		15.36		11.12			52				1.81					1.46					4.02
Period from 5/31/2002 to 7/31/2002		16.26		.09		(1.69	)		(1.60	)		(.18	)		-			(.18	)		14.48		(9.95	)		1				.29					.24					.66
Class R-3:
Year ended 7/31/2006		18.67		.73		.93			1.66			(.68	)		(.36	)		(1.04	)		19.29		9.29			579				.96					.94					3.94
Year ended 7/31/2005		17.07		.70		1.60			2.30			(.57	)		(.13	)		(.70	)		18.67		13.68			394				.97					.96					3.85
Year ended 7/31/2004		15.41		.62		1.70			2.32			(.66	)		-			(.66	)		17.07		15.25			176				1.02					1.02					3.70
Year ended 7/31/2003		14.48		.65		.98			1.63			(.68	)		(.02	)		(.70	)		15.41		11.68			56				1.12					1.08					4.42
Period from 6/4/2002 to 7/31/2002		16.09		.09		(1.51	)		(1.42	)		(.19	)		-			(.19	)		14.48		(8.90	)		1				.19					.17					.61
Class R-4:
Year ended 7/31/2006		18.69		.79		.93			1.72			(.74	)		(.36	)		(1.10	)		19.31		9.60			255				.66					.64					4.22
Year ended 7/31/2005		17.09		.76		1.60			2.36			(.63	)		(.13	)		(.76	)		18.69		14.00			120				.67					.65					4.17
Year ended 7/31/2004		15.43		.68		1.70			2.38			(.72	)		-			(.72	)		17.09		15.64			30				.69					.69					4.05
Year ended 7/31/2003		14.49		.70		.98			1.68			(.72	)		(.02	)		(.74	)		15.43		12.07			12				.72					.72					4.81
Period from 6/27/2002 to 7/31/2002		15.25		.08		(.84	)		(.76	)		-			-			-			14.49		(4.98	)		-	(6	)		5.11					.03					.52
Class R-5:
Year ended 7/31/2006		18.70		.85		.93			1.78			(.80	)		(.36	)		(1.16	)		19.32		9.92			168				.36					.34					4.56
Year ended 7/31/2005		17.10		.80		1.61			2.41			(.68	)		(.13	)		(.81	)		18.70		14.33			81				.37					.35					4.45
Year ended 7/31/2004		15.44		.73		1.71			2.44			(.78	)		-			(.78	)		17.10		16.01			57				.37					.37					4.35
Year ended 7/31/2003		14.49		.75		.98			1.73			(.76	)		(.02	)		(.78	)		15.44		12.43			39				.40					.40					5.17
Period from 5/15/2002 to 7/31/2002		16.31		.15		(1.77	)		(1.62	)		(.20	)		-			(.20	)		14.49		(9.99	)		22				.09					.09					.97


	Year ended July 31
		2006		2005		2004		2003		2002

Portfolio turnover rate for all classes of shares		35	%	24	%	27	%	28	%	36	%

(1) Based on operations for the periods 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 some of the periods shown, 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

<PAGE>

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, 2006, 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, 2006, 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, 2006, 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, California

September 14, 2006

<PAGE>

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 fund hereby designates the following amounts for the fund’s fiscal year ended July 31, 2006:

Long-term capital gains	$1,211,543,000
Qualified dividend income	1,857,970,000
Corporate dividends received deduction	1,192,146,000
U.S. government income that may be exempt from state taxation	54,632,000

Individual shareholders should refer to their Form 1099-DIV or other tax information, which will be mailed in January 2007, to determine the calendar year amounts to be included on their 2006 tax returns. Shareholders should consult their tax advisers.