-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QshsZm+YzTUNvcw3WnC6OPzsl/x1oWM3lP4lX/kQcwZOOHD0EKj1gkpq1VpoeVGg zvF2yVOt75Ts47XKgColGw== 0000013075-98-000020.txt : 19981231 0000013075-98-000020.hdr.sgml : 19981231 ACCESSION NUMBER: 0000013075-98-000020 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19981230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOND FUND OF AMERICA INC CENTRAL INDEX KEY: 0000013075 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 952884967 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 002-50700 FILM NUMBER: 98778391 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-02444 FILM NUMBER: 98778392 BUSINESS ADDRESS: STREET 1: 333 S HOPE ST - 52ND FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2134869200 485APOS 1 SIGNED SEC. File Nos. 2- 50700 811-2444 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A Registration Statement Under the Securities Act of 1933 Post-Effective Amendment No. 43 and Registration Statement Under The Investment Company Act of 1940 Amendment No. 24 THE BOND FUND OF AMERICA, INC. (Exact Name of Registrant as specified in charter) 333 South Hope Street Los Angeles, California 90071 (Address of principal executive offices) Registrant's telephone number, including area code: (213) 486-9200 JULIE F. WILLIAMS, Secretary The Bond Fund of America, Inc. 333 South Hope Street Los Angeles, California 90071 (name and address of agent for service) Copies to: ROBERT E. CARLSON, ESQ. PAUL, HASTINGS, JANOFSKY & WALKER LLP 555 S. Flower Street Los Angeles, CA 90071-2371 (Counsel for the Registrant) Approximate date of proposed public offering: It is proposed that this filing become effective on March 1, 1999, pursuant to paragraph (a) of rule 485. The Bond Fund of America PROSPECTUS MARCH 1, 1999 THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE BOND FUND OF AMERICA, INC. 333 South Hope Street Los Angeles, CA 90071 TICKER SYMBOL: ABNDX NEWSPAPER ABBREV.: Bond FUND NO.: 08 TABLE OF CONTENTS Risk/Return Summary Fees and Expenses of the Fund Investment Objective, Strategies and Risks Year 2000 Management and Organization Shareholder Information Purchase and Exchange of Shares Distribution Arrangements Financial Highlights RISK/RETURN SUMMARY The fund seeks to maximize your level of current income and preserve your capital by investing primarily in bonds. The fund is designed for investors seeking income and more price stability than stocks, and capital preservation over the long term. An investment in the fund is subject to risks, including the possibility that the fund may decline in value in response to certain events, such as changes in markets or economies. The values of debt securities held by the fund may be affected by changing interest rates and credit ratings. Lower quality and longer maturity bonds will be subject to greater credit risk and price fluctuations than higher quality and shorter maturity bonds. Investing outside the U.S. can also involve additional risks, such as currency fluctuations or political, social and economic instability. You may lose money by investing in the fund. The likelihood of loss is greater if you invest for a shorter period of time. Your investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person. INVESTMENT RESULTS The following information illustrates how the fund's results may vary: Here are the fund's results calculated without a sales charge on a CALENDAR YEAR basis. (If a sales charge were included, results would be lower.) [begin bar chart] 1989 10.13 1990 3.27 1991 21.04 1992 11.34 1993 14.14 1994 -5.02 1995 18.25 1996 6.71 1997 9.24 1998 xx.xx [end bar chart] The fund's highest/lowest quarterly results during this time period were: - - HIGHEST xx.xx% (quarter ended xx, 19xx) - - LOWEST xx.xx% (quarter ended xx, 19xx) For periods ended December 31, 1998:
AVERAGE ANNUAL THE FUND WITH MAXIMUM SALES LEHMAN TOTAL RETURN CHARGE DEDUCTED /1/ BROTHERS AGGREGATE BOND INDEX /2/ One Year xx.xx% xxx.xx% Five Years xx.xx% xxx.xx% Ten Years xx.xx% xxx.xx% Lifetime /3/ xx.xx% xxx.xx%
Yield/1/: x.xx% (For current yield information call American FundsLine(r) at 1-800-325-3590) /1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A FORMULA THAT WHICH REQUIRES THAT THE MAXIMUM SALES CHARGE OF 4.75% BE DEDUCTED. RESULTS WOULD BE HIGHER IF THEY WERE CALCULATED AT NET ASSET VALUE. /2/ LEHMAN BROTHERS AGGREGATE BOND INDEX REPRESENTS INVESTMENT GRADE DEBT. THIS INDEX IS UNMANAGED AND DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR EXPENSES. /3/ THE FUND BEGAN INVESTMENT OPERATIONS ON DECEMBER 3, 1973. These results illustrate the potential fluctuations on the fund's results over shorter periods of time. Past results are not an indication of future results. FEES AND EXPENSES OF THE FUND THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD SHARES OF THE FUND.
SHAREHOLDER FEES (FEED PAID DIRECTLY FROM YOUR INVESTMENT) 4.75%/1/ MAXIMUM SALES CHARGE IMPOSED ON PURCHASES (AS A PERCENTAGE OF OFFERING PRICE) MAXIMUM SALES CHARGE IMPOSED ON REINVESTED DIVIDENDS 0% MAXIMUM DEFERRED SALES CHARGE 0%/2/ REDEMPTION OR EXCHANGE FEES 0%
/1/ SALES CHARGES ARE REDUCED OR ELIMINATED FOR LARGER PURCHASES. /2/ A CONTINGENT DEFERRED SALES CHARGE OF 1% APPLIES ON CERTAIN REDEMPTIONS MADE WITHIN 12 MONTHS FOLLOWNG ANY PURCHASES YOU MADE WITHOUT A SALES CHARGE.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM THE FUND ASSETS) X.XX% MANAGEMENT FEES SERVICE (12B-1) FEES X.XX%* OTHER EXPENSES X.XX%
TOTAL ANNUAL FUND OPERATING EXPENSES X.XX% *12B-1 EXPENSES MAY NOT EXCEED 0.25% OF THE FUND'S AVERAGE NET ASSETS ANNUALLY. EXAMPLE This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
One Year $xx Three Years $xx Five Years $xx Ten Years $xx
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS The fund's investment objective is to provide as high a level of current income as is consistent with the preservation of capital. Normally, the fund invests the majority of its assets in bonds and debt securities rated A and above, including securities issued and guaranteed by the U.S. government and securities backed by mortgages and other assets. The fund may also invest significantly in lower quality, lower rated bonds. The value of debt securities held by the fund may be affected by factors such as changing interest rates, credit ratings, and effective maturities. For example, the value of bonds in the fund's portfolio generally will decline when interest rates rise and vice versa. The values of lower quality and longer maturity bonds will be subject to greater credit risks and price fluctuations than higher quality and shorter maturity bonds. A security backed by the U.S. Treasury or the full faith and credit of the United States is guaranteed only as to the timely payment of interest and principal when held to maturity. Accordingly, the current market prices for such securities are not guaranteed and will fluctuate. In addition, many types of debt securities, including mortgage-related securities are subject to prepayment risk. For example, when interest rates fall, homeowners are more likely to refinance their mortgages and prepay their principal earlier than expected. The fund must then reinvest the unanticipated principal in new securities when interest rates on new mortgage investments are falling, thus reducing the income of the fund. The value of non-U.S. securities can decline in response to currency fluctuations, political, social and economic instability, differing securities regulations, and administrative difficulties such as delays in clearing and settling portfolio transactions. The fund may also hold a substantial portion of its portfolio in cash or cash equivalents, for example, in response to abnormal market conditions. The extent of the fund's cash position will depend on market conditions, fund purchases and redemptions, and other factors. This may detract from the achievement of the fund's objectives over the short-term, or may protect the fund during a market downturn. The fund relies on the professional judgment of its investment adviser, Capital Research and Management Company, to make decisions about the fund's portfolio securities. The basic investment philosophy of Capital Research and Management Company is to seek undervalued securities that represent good long-term investment opportunities. ADDITIONAL INVESTMENT RESULTS The following additional Investment results are for periods ended December 31, 1998.
AVERAGE ANNUAL THE FUND WITH NO SALES CPI /2/ TOTAL RETURN CHARGE DEDUCTED /1/ One Year xx.xx% xx.xx % Five Years xx.xx% xx.xx % Ten Years xx.xx% xx.xx % Lifetime /3/ xx.xx% xx.xx %
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A FORMULA THAT IS REQUIRED FOR ALL STOCK AND BOND FUNDS. /2/ CONSUMER PRICE INDEX IS A MEASURE OF INFLATION AND IS COMPUTED FROM DATA SUPPLIED BY THE U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS. /3/ THE FUND BEGAN INVESTMENT OPERATIONS ON DECEMBER 3, 1973. The following chart illustrates the asset mix of the fund's investment portfolio as of the end of the fund's fiscal year, December 31, 1998. Asset Mix [pie chart] Bond Holdings by Quality Category [table] Country Breakdown [table] BECAUSE THE FUND IS ACTIVELY MANAGED, ITS HOLDINGS WILL CHANGE FROM TIME TO TIME. YEAR 2000 The date-related computer issue known as the "Year 2000 problem" could have an adverse impact on the quality of services provided to the fund and its shareholders. However, the fund understands that its key service providers--including the investment adviser and its affiliates--are taking steps to address the issue. In addition, the Year 2000 problem may adversely affect the issuers in which the fund invests. For example, issuers may incur substantial costs to address the problem. They may also suffer losses caused by corporate and governmental data processing errors. The fund and its investment adviser will continue to monitor developments relating to this issue. MANAGEMENT AND ORGANIZATION INVESTMENT ADVISER Capital Research and Management Company, an experienced investment management organization founded in 1931, serves as investment adviser to the fund and other funds, including those in The American Funds Group. Capital Research and Management Company, a wholly owned subsidiary of The Capital Group Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital Research and Management Company manages the investment portfolio and business affairs of the fund. The total management fee paid by the fund, as a percentage of average net assets, for the previous fiscal year is discussed earlier under "Fees and Expenses." Capital Research and Management Company and its affiliated companies have adopted a personal investing policy that is consistent with the recommendations contained in the May 9, 1994 report issued by the Investment Company Institute's Advisory Group on Personal Investing. This policy has also been incorporated into the fund's code of ethics. MULTIPLE PORTFOLIO COUNSELOR SYSTEM Capital Research and Management Company uses a system of multiple portfolio counselors in managing mutual fund assets. Under this system the portfolio of a fund is divided into segments which are managed by individual counselors. Counselors decide how their respective segments will be invested (within the limits provided by a fund's objective(s) and policies and by Capital Research and Management Company's investment committee). In addition, Capital Research and Management Company's research professionals may make investment decisions with respect to a portion of a fund's portfolio. The primary individual portfolio counselors for The Bond Fund of America are listed on the following page.
APPROXIMATE YEARS OF EXPERIENCE AS AN INVESTMENT PROFESSIONAL (INCLUDING THE LAST FIVE YEARS) PORTFOLIO PRIMARY YEARS OF EXPERIENCE AS WITH CAPITAL TOTAL YEARS COUNSELORS TITLE(S) PORTFOLIO COUNSELOR (AND RESEARCH AND FOR THE BOND RESEARCH PROFESSIONAL, IF MANAGEMENT FUND OF APPLICABLE) FOR THE BOND COMPANY OR AMERICA FUND OF AMERICA AFFILIATES (APPROXIMATE) Abner D. President 25 years (since the fund 32 years 47 years Goldstine and began operations) Director of the fund. Senior Vice President and Director, Capital Research and Management Company David C. Vice 4 years 11 years 18 years Barclay President of the fund. Vice President, Capital Research and Management Company John H. Smet Vice 10 years 16 years 17 years President of the fund. Vice President, Capital Research and Management Company Mark H. Vice 5 years 11 years 21 years Dalzell President - Investment Management Group, Capital Research and Management Company Susan M. Vice 1 year (plus 7 9 years 11 years Tolson President, years as a research Director, professional prior to Capital becoming a portfolio Research counselor for the fund) Company*
The fund began operations on May 28, 1974 *Company affiliated with Capital Research and Management Company. SHAREHOLDER INFORMATION Shareholder Services American Funds Service Company, the fund's transfer agent, offers you a wide range of services you can use to alter your investment program should your needs and circumstances change. These services are available only in states where they may be legally offered and may be terminated or modified at any time upon 60 days' written notice. For your convenience, American Funds Service Company has four service centers across the country. AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS CALL TOLL-FREE FROM ANYWHERE IN THE U.S. (8 a.m. to 8 p.m. ET): 800/421-0180 (Insert Service Center Map)
WESTERN SERVICE CENTER EASTERN CENTRAL SERVICE American Funds Service CENTER Company American Funds Service P.O. Box 2205 Company Brea, California P.O. Box 6007 92822-2205 Indianapolis, Indiana Fax: 714/671-7080 46206-6007 Fax: 317/735-6620 WESTERN CENTRAL SERVICE EASTERN SERVICE CENTER CENTER American Funds Service American Funds Service Company Company P.O. Box 2280 P.O. Box 659522 Norfolk, Virginia San Antonio, Texas 23501-2280 78265-9522 Fax: 757/670-4773 Fax: 210/474-4050
A COMPLETE DESCRIPTION OF THE SERVICES WE OFFER ARE DESCRIBED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION. In addition, an easy-to-read guide to owning a fund in The American Funds Group titled "Welcome to the Family" is sent to new shareholders and is available by writing or calling American Funds Service Company. You may invest in the fund through various retirement plans. However, some retirement plans or accounts held by investment dealers may not offer certain services. If you have any questions, please contact your plan administrator/trustee or dealer. PURCHASE AND EXCHANGE OF SHARES PURCHASE Generally, you may open an account by contacting any investment dealer authorized to sell the fund's shares. You may purchase additional shares using various options described in the statement of additional information and "Welcome to the Family." EXCHANGE You may exchange your shares into other funds in The American Funds Group generally without a sales charge. Exchange of shares from the money market funds initially purchased without a sales charge generally will be subject to the appropriate sales charge. Exchanges have the same tax consequences as ordinary sales and purchases. See "Transactions by Telephone..." for information regarding electronic exchanges. THE FUND AND AMERICAN FUNDS DISTRIBUTORS, THE FUND'S PRINCIPAL UNDERWRITER, RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER FOR ANY REASON. ALTHOUGH THERE IS CURRENTLY NO SPECIFIC LIMIT ON THE NUMBER OF EXCHANGES YOU CAN MAKE IN A PERIOD OF TIME, THE FUND AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER AND MAY TERMINATE THE EXCHANGE PRIVILEGE OF ANY INVESTOR WHOSE PATTERN OF EXCHANGE ACTIVITY THEY HAVE DETERMINED INVOLVES ACTUAL OR POTENTIAL HARM TO THE FUND. INVESTMENT MINIMUMS To establish an account $ 1,000 For a retirement plan account $ 250 For a retirement plan account through payroll deduction $ 25 To add to an account $ 50 For a retirement plan account through payroll deduction $ 25 SHARE PRICE The fund calculates its share price, also called net asset value, as of 4:00 p.m. New York time which is the normal close of trading on the New York Stock Exchange, every day the Exchange is open. In calculating net asset value, market prices are used when available. If a market price for a particular security is not available, the fund will determine the appropriate price for the security. Your shares will be purchased at the offering price, or sold at the net asset value, next determined after American Funds Service Company receives and accepts your request. The offering price is the net asset value plus a sales charge, if applicable. SALES CHARGE A sales charge may apply to your purchase. Your sales charge may be reduced for larger purchases as indicated below.
SALES CHARGE AS A PERCENTAGE OF INVESTMENT OFFERING NET DEALER PRICE AMOUNT CONCESSION INVESTED AS % OF OFFERING PRICE Less than $25,000 4.75% 4.99% 4.00% $25,000 but less than 4.50% 4.71% 3.75% $50,000 $50,000 but less than 4.00% 4.17% 3.25% $100,000 $100,000 but less than 3.50% 3.63% 2.75% $250,000 $250,000 but less than 2.50% 2.56% 2.00% $500,000 $500,000 but less $1 million 2.00% 2.04% 1.60% $1 million or more and see below see below see below certain other investments described below
PURCHASES NOT SUBJECT TO SALES CHARGE Investments of $1 million or more and investments made by employer-sponsored defined contribution-type plans with 100 or more eligible employees are sold with no initial sales charge. A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE IMPOSED ON CERTAIN REDEMPTIONS BY ACCOUNTS THAT INVEST WITH NO INITIAL SALES CHARGE (OTHER THAN EMPLOYER-SPONSORED PLANS), IF REDEMPTIONS ARE MADE WITHIN ONE YEAR OF PURCHASE. A dealer concession of up to 1% may be paid by the fund under its Plan of Distribution and/or by American funds Distributors on investments made with no initial sales charge. REDUCING YOUR SALES CHARGE You and your immediate family may combine investments to reduce your sales charge. You must let your investment dealer or American Funds Service Company know if you qualify for a reduction in your sales charge using one or any combination of the methods described in the statement of additional information and "Welcome to the Family." PLAN OF DISTRIBUTION The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance activities primarily intended to sell shares, provided the categories of expenses are approved in advance by the fund's board of directors. Up to 0.25% of average net assets is paid annually to qualified dealers for providing certain services pursuant to the fund's Plan of Distribution. The 12b-1 fee paid by the fund, as a percentage of average net assets, fund for the previous fiscal year is indicated earlier under "Fees and Expenses of the Fund." Since these fees are paid out of the fund's assets on an ongoing basis, over time they will increase the cost of an investment and may cost you more than paying higher initial sales charges. OTHER COMPENSATION TO DEALERS American Funds Distributors may provide additional compensation to, or sponsor informational meetings for dealers as described in the statement of additional information. HOW TO SELL SHARES Once a sufficient period of time has passed to reasonably assure that checks or drafts (including certified or cashiers' checks) for shares purchased have cleared (normally 15 calendar days), you may sell (redeem) those shares in any of the following ways: Through Your Dealer (certain charges may apply) - - Shares held for you in your dealer's name must be sold through the dealer. Writing to American Funds Service Company - - Requests must be signed by the registered shareholder(s) - - A signature guarantee is required if the redemption is: - --- Over $50,000; - --- Made payable to someone other than the registered shareholder(s); or - --- Sent to an address other than the address of record, or an address of record which has been changed within the last 10 days. - - Additional documentation may be required for sales of shares held in corporate, partnership or fiduciary accounts. Telephoning or Faxing American Funds Service Company, or by using American FundsLine(r) or American FundsLine OnLine(r): - - Redemptions by telephone or fax (including American FundsLine and American FundsLine OnLine) are limited to $50,000 per shareholder each day - - Checks must be made payable to the registered shareholder - - Checks must be mailed to an address of record that has been used with the account for at least 10 days TRANSACTIONS BY TELEPHONE, FAX, AMERICAN FUNDSLINE, OR AMERICAN FUNDSLINE ONLINE Generally, you are automatically eligible to use these services for redemptions and exchanges unless you notify us in writing that you do not want any or all of these services. You may reinstate these services at any time. Unless you decide not to have telephone, fax, or computer services on your account(s), you agree to hold the fund, American Funds Service Company, any of its affiliates or mutual funds managed by such affiliates, and each of their respective directors, trustees, officers, employees and agents harmless from any losses, expenses, costs or liabilities (including attorney fees) which may be incurred in connection with the exercise of these privileges, provided American Funds Service Company employs reasonable procedures to confirm that the instructions received from any person with appropriate account information are genuine. If reasonable procedures are not employed, the fund may be liable for losses due to unauthorized or fraudulent instructions. DISTRIBUTION ARRANGEMENTS DIVIDENDS AND DISTRIBUTIONS The fund declares dividends from net investment income daily and distributes the accrued dividends, which may fluctuate, to shareholders each month. Dividends begin accruing one day after payment for shares is received by the fund or American Funds Service Company. Capital gains, if any, are usually distributed in December. You may elect to reinvest dividends and/or capital gain distributions to purchase additional shares of this fund or any other fund in The American Funds Group or you may elect to receive them in cash. TAX CONSEQUENCES Dividends and capital gains are taxable whether they are reinvested or received in cash -- unless you are exempt from taxation or entitled to tax deferral. Capital gains may be taxed at different rates depending on the length of time the fund holds its assets. The tax treatment of redemptions from a retirement plan account may differ from redemptions from an ordinary shareholder account. You must provide the fund with a certified correct taxpayer identification number (generally your Social Security Number) and certify that you are not subject to backup withholding. If you fail to do so, the IRS can require the fund to withhold 31% of your taxable distributions and redemptions. Federal law also requires the fund to withhold 30% or the applicable tax treaty rate from dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder accounts. Please see the statement of additional information, "Welcome to the Family," and your tax adviser for further information. FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand the fund's results for the past five years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned or lost on an investment in the fund (assuming reinvestment of all dividends and distributions). This information has been audited by Deloitte & Touche LLP, whose report, along with the fund's financial statements, are included in the statement of additional information, which is available upon request. YEAR ENDED DECEMBER 31
1998 1997 1996 1995 1994 Net asset value, beginning of year $13.75 $13.88 $12.69 $14.45 INCOME FROM INVESTMENT OPERATIONS: Net investment income .98 1.02 1.05 1.05 Net realized and unrealized gain (loss) on investments .25 (.13) 1.18 (1.76) Total income (loss) from investment operations 1.23 .89 2.23 (.71) LESS DISTRIBUTIONS: Dividends from net investment income (.98) (1.02) (1.04) (1.05) Distributions from net realized gains -- -- -- -- Total distributions (.98) (1.02) (1.04) (1.05) Net asset value, end of year $14.00 $13.75 $13.88 $12.69 Total return/1/ 9.24% 6.71% 18.25% (5.02)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (in millions) $8,176 $7,002 $6,290 $4,941 Ratio of expenses to average net assets .68% .71% .74% .69% Ratio of net income to average net assets 6.95% 7.47% 7.87% 7.77% Portfolio turnover rate 51.96% 43.43% 43.80% 56.98%
/1/ Excludes maximum sales charge of 4.75%.
FOR SHAREHOLDER FOR RETIREMENT PLAN FOR DEALER SERVICES SERVICES SERVICES American Funds Call your employer or American Funds Service Company plan administrator Distributors 800/421-0180 800/421-9900 ext.11
FOR 24-HOUR INFORMATION
American American Funds FundsLine(r) Internet Web site 800/325-3590 http://www.americanfunds.com
Telephone conversations may be recorded or monitored for verification, recordkeeping and quality assurance purposes. MULTIPLE TRANSLATIONS This prospectus may be translated into other languages. In the event of any inconsistencies or ambiguity as to the meaning of any word or phrase in a translation, the English text will prevail. OTHER FUND INFORMATION ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS Contains additional information about the fund including financial statements, investments results, portfolio holdings, a statement from portfolio management discussing market conditions and the fund's investment strategies, and the independent auditors' report (in the annual report). STATEMENT OF ADDITIONAL INFORMATION (SAI) Contains more detailed information on all aspects of the fund, including the fund's financial statements. A current SAI has been filed with the Securities and Exchange Commission ("SEC") and is incorporated by reference into this prospectus. The SAI and other related materials about the fund are available for review or to be copied at the SEC's Public Reference Room (1-800-SEC-0330) or on the SEC's Internet Web site at http://www.sec.gov. CODE OF ETHICS Includes a description of the fund's personal investing policy. To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary of the fund Service Company 333 South Hope Street 800/421-0180 ext.1 Los Angeles, CA 90071
Investment Company File No. 2-50700 THE BOND FUND OF AMERICA, INC. PART B STATEMENT OF ADDITIONAL INFORMATION MARCH 1, 1999 This document is not a prospectus but should be read in conjunction with the current Prospectus of The Bond Fund of America, Inc. (the "fund") dated March 1, 1999. The Prospectus may be obtained from your investment dealer or financial planner or by writing to the fund at the following address: The Bond Fund of America, Inc. Attention: Secretary 333 South Hope Street Los Angeles, CA 90071 (213) 486-9200 Shareholders who purchase shares at net asset value through eligible retirement plans should note that not all of the services or features described below may be available to them, and they should contact their employer for details. TABLE OF CONTENTS
ITEM PAGE NO. Certain Investment Limitations and Guidelines 2 Description of Certain Securities and Investment Techniques 2 Investment Restrictions 9 Fund Organization 11 Fund Officers and Directors 12 Management 16 Dividends, Distributions and Federal Taxes 18 Purchase of Shares 22 Selling Shares 28 Shareholder Account Services and Privileges 30 Execution of Portfolio Transactions 32 General Information 32 Investment Results and Related Statistics 34 Description of Bond Ratings 40 Financial Statements Attached
CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES The following limitations and guidelines are considered at the time of purchase, under normal market conditions, and are based on a percentage of the fund's net assets unless otherwise noted. This summary is not intended to reflect all of the fund's investment limitations. DEBT SECURITIES - - The fund will invest at least 65% of its assets in bonds (any debt securities, including convertible securities and non-voting, non-convertible preferred securities having initial maturities in excess of one year). - - The fund will invest at least 60% in marketable debt rated A or better by Moody's Investors Service, Inc. or Standard & Poor's Corporation at time of purchase, U.S. Government securities, pass-through securities rated A or better, other asset-backed securities rated A or better, and cash or money market instruments. - - The fund may invest up to 40% of its assets in debt securities rated below A or in unrated securities that are determined to be of equivalent quality. - - The fund may invest up to 35% of its assets in debt securities rated Ba or BB or below on in unrated securities determined to be of equivalent quality. - - The fund may invest up to 10% of its assets in preferred stocks. NON-U.S. SECURITIES - - The fund may invest up to 25% of its assets on securities of issuers domiciled outside the U.S. DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES The descriptions below are intended to supplement the material in the Prospectus under "Investment Policies and Risks." DEBT SECURITIES - Bonds and other debt securities are used by issuers to borrow money. Issuers pay investors interest and generally must repay the amount borrowed at maturity. Some debt securities, such as zero coupon bonds, do not pay current interest but are purchased at a discount from their face values. The prices of debt securities fluctuate depending on such factors as interest rates, credit quality, and maturity. In general their prices decline when interest rates rise and vice versa. The fund may invest up to 35% of its assets in debt securities rated Ba and BB or below by Moody's Investors Service, Inc. or Standard & Poor's Corporation or in unrated securities that are determined to be of equivalent quality. The fund's high-yield, high-risk securities may be rated as low as Ca or CC which are described by the rating agencies as "speculative in a high degree; often in default or [having] other marked shortcomings." Capital Research and Management Company attempts to reduce the risks described above through diversification of the portfolio and by credit analysis as well as by monitoring broad economic trends and corporate and legislative developments. CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK BONDS SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high-risk bonds can be sensitive to adverse economic changes and corporate developments. During an economic downturn or substantial period of rising interest rates, highly leveraged issuers may experience financial stress that would adversely affect their ability to service their principal and interest payment obligations, to meet projected business goals, and to obtain additional financing. If the issuer of a bond defaulted on its obligations to pay interest or principal or entered into bankruptcy proceedings, the fund may incur losses or expenses in seeking recovery of amounts owed to it. In addition, periods of economic uncertainty and changes can be expected to result in increased volatility of market prices and yields of high-yield, high-risk bonds. PAYMENT EXPECTATIONS - High-yield, high-risk bonds may contain redemption or call provisions. If an issuer exercised these provisions in a declining interest rate market, the fund would have to replace the security with a lower yielding security, resulting in a decreased return for investors. Conversely, a high-yield, high-risk bond's value will decrease in a rising interest rate market, as will the value of the fund's assets. LIQUIDITY AND VALUATION - There may be little trading in the secondary market for particular bonds, which may affect adversely the fund's ability to value accurately or dispose of such bonds. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of high-yield, high-risk bonds, especially in a thin market. DOWNGRADE POLICY - The fund is not normally required to dispose of a security in the event that its rating is reduced below the current minimum rating for its purchase (or it is not rated and its quality becomes equivalent to such a security). The fund's investment adviser, Capital Research and Management Company (the Investment Adviser), attempts to reduce these risks through diversification of the portfolio, by credit analysis of each issuer as well as by monitoring broad economic trends and corporate developments, but there can be no assurance that it will be successful in doing so. INFLATION-INDEXED BONDS - The fund may invest in inflation-indexed bonds issued by governments, their agencies or instrumentalities or corporations. The principal value of this type of bond is periodically adjusted according to changes in the rate of inflation. The interest rate is generally fixed at issuance; however, interest payments are based on an inflation adjusted principal value. For example, in a period of falling inflation, principal value will be adjusted downward, reducing the interest payable. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation indexed bonds, even during a period of deflation. However, the current market value of the bonds is not guaranteed, and will fluctuate. The fund may also invest in other bonds which may or may not provide a similar guarantee. If a guarantee of principal is not provided, the adjusted principal value of the bond repaid at maturity may be less than the original principal. OTHER SECURITIES - The fund may also invest in securities that have a combination of equity and debt characteristics such as non-convertible preferred stocks and convertible securities. These securities may at times resemble equity more than debt and vice versa. Non-convertible preferred stocks are similar to debt in that they have a stated dividend rate akin to the coupon of a bond or note even though they are often classified as equity securities. The prices and yields of non- convertible preferred stocks generally move with changes in interest rates and the issuer's credit quality, similar to the factors affecting debt securities. The fund may invest up to 10% of its assets in preferred stocks. Bonds, preferred stocks, and other securities may sometimes be converted into shares of common stock or other securities at a stated exchange ratio. These securities prior to conversion pay a fixed rate of interest or a dividend. Because convertible securities have both debt and equity characteristics their value varies in response to many factors, including the value of the underlying equity, general market and economic conditions, convertible market valuations, as well as changes in interest rates, credit spreads, and the credit quality of the issuer. While the fund may not make direct purchases of common stocks or warrants or rights to acquire common stocks, the fund may invest in debt securities that are issued together with common stock or other equity interests, or have equity conversion, exchange, or purchase rights. The fund may continue to hold up to 5% of its assets in common stock, warrants and rights so acquired after sales of the corresponding debt securities. U.S. GOVERNMENT SECURITIES - Securities guaranteed by the U.S. Government include: (1) direct obligations of the U.S. Treasury (such as Treasury bills, notes and bonds) and (2) federal agency obligations guaranteed as to principal and interest by the U.S. Treasury. Certain securities issued by U.S. Government instrumentalities and certain federal agencies are neither direct obligations of, nor guaranteed by, the Treasury. However, they generally involve federal sponsorship in one way or another; some are backed by specific types of collateral; some are supported by the issuer's right to borrow from the Treasury; some are supported by the discretionary authority of the Treasury to purchase certain obligations of the issuer; and others are supported only by the credit of the issuing government agency or instrumentality. PASS-THROUGH SECURITIES - The fund may invest in various debt obligations backed by a pool of mortgages or other assets including loans on single family residences, home equity loans, mortgages on commercial buildings, credit card receivables, and leases on airplanes or other equipment. Principal and interest payments made on the underlying asset pools backing these obligations are typically passed through to investors. Pass-through securities may have either fixed or adjustable coupons. These securities include those discussed below. "Mortgage-backed securities" are issued both by U.S. government agencies, including the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC), and by private entities. The payment of interest and principal on securities issued by U.S. government agencies is guaranteed by the full faith and credit of the U.S. government (in the case of GNMA securities) or the issuer (in the case of FNMA and FHLMC securities). However, the guarantees do not apply to the market prices and yields of these securities, which vary with changes in interest rates. Mortgage-backed securities issued by private entities are structured similarly to mortgage-backed securities issued by GNMA, FNMA, and FHLMC. These securities and the underlying mortgages are not guaranteed by government agencies. In addition, these securities generally are structured with one or more types of credit enhancement. Mortgage-backed securities generally permit borrowers to prepay their underlying mortgages. Prepayments can alter the effective maturity of these instruments. "Collateralized mortgage obligations" (CMOs) are also backed by a pool of mortgages, mortgage-backed securities or mortgage loans, which are divided into two or more separate bond issues. CMOs issued by U.S. government agencies are backed by agency mortgages, while privately issued CMOs may be backed by either government agency mortgages or private mortgages. Payments of principal and interest are passed-through to each bond at varying schedules resulting in bonds with different coupons, effective maturities, and sensitivities to interest rates. In fact, some CMOs may be structured in a way that when interest rates change the impact of changing prepayment rates on these securities' effective maturities is magnified. "Commercial mortgage-backed securities" are backed by commercial property, such as hotels, office buildings, retail stores, hospitals, and other commercial buildings. These securities may have a lower prepayment risk than other mortgage-related securities because commercial mortgage loans generally prohibit or impose penalties on prepayments of principal. In addition, commercial mortgage-related securities often are structured with some form of credit enhancement to protect against potential losses on the underlying mortgage loans. Many of the risks of investing in commercial mortgage-backed securities reflect the risks of investing in the real estate securing the underlying mortgage loans, including the effects of local and other economic conditions on real estate markets, the ability of tenants to make loan payments, and the ability of a property to attract and retain tenants. "Asset-backed securities" are backed by other assets such as credit card, automobile or consumer loan receivables, retail installment loans, or participations in pools of leases. Credit support for these securities may be based on the underlying assets and/or provided through credit enhancements by a third party. The values of these securities are sensitive to changes in the credit quality of the underlying collateral, the credit strength of the credit enhancement, changes in interest rates, and at times the financial condition of the issuer. Some asset-backed securities also may receive prepayments which can change the securities' effective maturities. OTHER MORTGAGE-RELATED SECURITIES - The fund may invest in real estate investment conduits which are issued in portions or tranches with varying maturities and characteristics; some tranches may only receive the interest paid on the underlying mortgages (IOs) and others may only receive the principal payments (POs); the values of IOs and POs are extremely sensitive to interest rate fluctuations and prepayment rates, and IOs are also subject to the risk of early repayment of the underlying mortgage which will substantially reduce or eliminate interest payments. The fund does not intend to invest more than 5% of its assets in IOs and Pos. INVESTING IN VARIOUS COUNTRIES - The fund has the flexibility to invest up to 25% of its assets in securities of issuers domiciled outside the U.S. Investing outside the U.S. involves special risks, particularly in certain developing countries, caused by, among other things: fluctuating currency values; different accounting, auditing, and financial reporting regulations and practices in some countries; changing local and regional economic, political, and social conditions; expropriation or confiscatory taxation; greater market volatility; differing securities market structures; and various administrative difficulties such as delays in clearing and settling portfolio transactions or in receiving payment of dividends. However, in the opinion of Capital Research and Management Company, investing outside the U.S. also can reduce certain portfolio risks due to greater diversification opportunities. The risks described above are potentially heightened in connection with investments in developing countries. Although there is no universally accepted definition, a developing country is generally considered to be a country which is in the initial stages of its industrialization cycle with a low per capita gross national product. For example, political and/or economic structures in these countries may be in their infancy and developing rapidly. Historically, the markets of developing countries have been more volatile than the markets of developed countries. The fund may only invest in securities of issuers in developing countries to a limited extent. Additional costs could be incurred in connection with the fund's investment activities outside the U.S. Brokerage commissions may be higher outside the U.S., and the fund will bear certain expenses in connection with its currency transactions. Furthermore, increased custodian costs may be associated with the maintenance of assets in certain jurisdictions. FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell securities at a future date. When the fund agrees to purchase such securities it assumes the risk of any decline in value of the security beginning on the date of the agreement. When the fund agrees to sell such securities, it does not participate in further gains or losses with respect to the securities beginning on the date of the agreement. If the other party to such a transaction fails to deliver or pay for the securities, the fund could miss a favorable price or yield opportunity, or could experience a loss beginning on the date of the agreement. As the fund's aggregate commitments under these transactions increase, the opportunity for leverage similarly may increase. The fund will not use these transactions for the purpose of leveraging and will segregate liquid assets which will be marked to market daily in an amount sufficient to meet its payment obligations in these transactions. Although these transactions will not be entered into for leveraging purposes, to the extent the fund's aggregate commitments under these transactions exceed its segregated assets, the fund temporarily could be in a leveraged position (because it may have an amount greater than its net assets subject to market risk). Should market values of the fund's portfolio securities decline while the fund is in a leveraged position, greater depreciation of its net assets will likely occur than were it not in such a position. The fund will not borrow money to settle these transactions and, therefore, will liquidate other portfolio securities in advance of settlement if necessary to generate additional cash to meet its obligations thereunder. Although the fund has no current intention of doing so during the next 12 months, the fund is authorized to enter into "roll" transactions. A "roll" transaction is the sale of mortgage-backed securities or other securities together with a commitment to purchase similar, but not identical, securities at a future date. The fund will segregate liquid assets which will be marked to market daily in an amount sufficient to cover its obligations under "roll" transactions. Under the Investment Company Act of 1940 (the "1940 Act"), these transactions may be considered borrowings by the fund; accordingly, the fund will limit these transactions, together with any other borrowings, to no more than one-third of its total assets. Although these transactions will not be entered into for the purpose of leveraging, to the extent the fund's aggregate commitments under these transactions exceed its segregated assets, the fund temporarily could be in a leveraged position (because it will have an amount greater than its net assets subject to market risk). Should market values of the fund's portfolio securities decline while the fund is in a leveraged position, greater depreciation of its net assets would likely occur than were it not in such a position. As the fund's aggregate commitments under these transactions increase, the opportunity for leverage similarly increases. If the income and gains on securities purchased with the proceeds of roll agreements exceed the costs of the agreements, the fund's earnings or net asset value will increase faster than otherwise would be the case; conversely, if the income and gains fail to exceed the costs, earnings or net asset value would decline faster than otherwise would be the case. REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements, under which it buys a security and obtains a simultaneous commitment from the seller to repurchase the security at a specified time and price. 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 Capital Research and Management Company. The fund only enters into repurchase agreements involving securities in which it could otherwise invest and with selected banks and securities dealers whose financial condition is monitored by Capital Research and Management Company. If the seller under the repurchase agreements 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, liquidation of the collateral by the fund may be delayed or limited. RESTRICTED SECURITIES AND LIQUIDITY - The fund may purchase securities subject to restrictions on resale. All such securities whose principal trading market is in the U.S. 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. MATURITY - There are no restrictions on the maturity composition of the portfolio, although it is anticipated that the fund normally will be invested substantially in securities with maturities in excess of three years. Under normal market conditions, longer term securities yield more than shorter term securities, but are subject to greater price fluctuations. REAL ESTATE INVESTMENT TRUSTS - The fund may invest in debt securities issued by real estate investment trusts (REITs), which are pooled investment vehicles that primarily invest in real estate or real estate related loans. REITs are not taxed on income distributed to shareholders provided they meet requirements imposed by the Internal Revenue Code. The risks associated with REIT debt investments are similar to the risks of investing in corporate-issued debt. In addition, the return on REITs is dependent on such factors as the skill of management and the real estate environment in general. Debt that is issued by REITs is typically rated by the credit rating agencies as investment grade or above. CASH AND CASH EQUIVALENTS - Subject to the requirement that it maintain at least 65% of its assets in bonds under normal market conditions, the fund may maintain assets in cash or cash equivalents. Cash equivalents include (1) commercial paper (short-term notes up to 9 months in maturity issued by corporations or governmental bodies); (2) commercial bank obligations such as certificates of deposit, (interest-bearing time deposits); and bankers' acceptances, (time drafts on a commercial bank where the bank accepts an irrevocable obligation to pay at maturity); (3) savings association and bank obligations (certificates of deposit issued by mutual savings banks or savings and loan associations); (4) securities of the U.S. Government, its agencies or instrumentalities that at time of purchase mature, or may be redeemed, in one year or less; and (5) corporate bonds and notes that at time of purchase mature, or that may be redeemed, in one year or less. CURRENCY TRANSACTIONS - The fund may 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 and price, both of which are set at the time of the contract. The fund intends to enter into forward currency contracts solely to hedge into the U.S. dollar its exposure to other currencies. The fund will segregate liquid assets which will be marked to market daily to meet its forward contract commitments to the extent required by the Securities and Exchange Commission. Certain provisions of the Code may affect the extent to which the fund may enter into forward contracts. Such transactions may also affect, for U.S. federal income tax purposes, the character and timing of income, gain or loss recognized by the fund. LOAN PARTICIPATIONS AND ASSIGNMENTS - The fund may invest, subject to an overall 10% limit on loans, in loan participations or assignments. Loan participations are loans or other direct debt instruments which 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 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 assume 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. When the fund purchases assignments from lenders it will acquire 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. Because there is no liquid market for such securities, the fund anticipates that such securities could be sold only to a limited number of institutional investors. In addition, loan participation and assignments are generally not rated by major rating agencies and may not be protected by the securities laws. LOANS OF PORTFOLIO SECURITIES - Although the fund has no current intention of doing so during the next 12 months, the fund is authorized to lend portfolio securities to selected securities dealers or to other institutional investors whose financial condition is monitored by Capital Research and Management Company (the "Investment Adviser"). The borrower must maintain with the fund's custodian collateral consisting of cash, cash equivalents or U.S. Government securities equal to at least 100% of the value of the borrowed securities, plus any accrued interest. The Investment Adviser will monitor the adequacy of the collateral on a daily basis. The fund may at any time call in a loan of its portfolio securities and obtain the return of the loaned securities. The fund will receive any interest paid on the loaned securities and a fee or a portion of the interest earned on the collateral. The fund will limit its loans of portfolio securities to an aggregate of one-third of the value of its total assets, measured at the time any such loan is made. INVERSE FLOATING RATE NOTES - The fund is authorized to invest up to 1% of the fund's net assets in inverse floating rate notes (a type of derivative instrument). These notes have rates that move in the opposite direction of prevailing interest rates; thus, a change in prevailing interest rates will often result in a greater change in the instruments' interest rates. As a result, these instruments may have a greater degree of volatility than other types of interest-bearing securities. PORTFOLIO TRADING - The fund intends to engage in portfolio trading when the Investment Adviser believes that the sale of a security owned by the fund and the purchase of another security of better value can enhance principal and/or increase income. A security may be sold to avoid any prospective decline in market value in light of what is evaluated as an expected rise in prevailing yields, or a security may be purchased in anticipation of a market rise (a decline in prevailing yields). A security also may be sold and a comparable security purchased coincidentally in order to take advantage of what is believed to be a disparity in the normal yield and price relationship between the two securities, or in connection with a "roll" transaction as described above under "Forward Commitments." STRATEGIC PORTFOLIO ADJUSTMENT - The composition of the fund's portfolio will change from time to time primarily in response to expected changes in interest rates and in the yield relationships among sectors of the fixed-income market. The Investment Adviser continually monitors the creditworthiness of companies, the price and yield relationships among different sections of the debt market and the outlook for interest rates in general and in particular parts of the debt market. Yield relationships among securities of various types of issuers, maturities, coupon rates or quality ratings frequently change in response to changing supply-demand influences in the market. When it appears to the Investment Adviser that the yield relationships may change, the composition of the portfolio may be adjusted, should such changes offer the opportunity to further the fund's investment objective. Changes may also be made if the Investment Adviser believes that there is a temporary disparity among individual securities of comparable characteristics. Some such changes may result in short-term gains or losses to the fund. This information, which is shared among the Investment Adviser's other departments and its affiliates, makes up a part of the Investment Adviser's investment decisions. PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the length of time particular investments may have been held. High portfolio turnover (100% or more) involves correspondingly greater transaction costs in the form of dealer spreads or brokerage commissions, and may result in the realization of net capital gains, which are taxable when distributed to shareholders. Fixed-income securities are generally traded on a net basis and usually neither brokerage commissions nor transfer taxes are involved. The fund does not anticipate its portfolio turnover will exceed 100% annually. The fund's portfolio turnover rate would equal 100% if each security in the fund's portfolio were replaced once per year. See "Financial Highlights" in the Prospectus for the fund's portfolio turnover for each of the last five years. INVESTMENT RESTRICTIONS The fund has adopted certain additional investment restrictions which may not be changed without approval of the holders of a majority of its outstanding shares. Such majority is defined by the Investment Company Act of 1940 ("1940 Act") as the vote of the lesser of (i) 67% or more of the outstanding voting securities present at a meeting, if the holders of more than 50% of the outstanding voting securities are present in person or by proxy, or (ii) more than 50% of the outstanding voting securities. Investment limitations expressed in the following restrictions are considered at the time securities are purchased. These restrictions provide that the fund may not: 1. Purchase any security (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 investment (a) more than 5% of the value of the fund's total assets would be invested in securities of the issuer; or (b) the fund would hold more than 10% of the voting securities of the issuer; or (c) 25% or more of the value of the fund's assets would be invested in a single industry. Each of the electric utility, natural gas distribution, natural gas pipeline, combined electric and natural gas utility, and telephone industries shall be considered as a separate industry for this purpose; 2. Invest in companies for the purpose of exercising control or management; 3. Knowingly purchase securities of other investment companies, except in connection with a merger, consolidation, acquisition, or reorganization; 4. Buy or sell real estate in the ordinary course of its business; however, the fund may invest in debt securities secured by real estate or interests therein or issued by companies, including real estate investment trusts, which invest in real estate or interests therein; 5. Buy or sell commodities or commodity contracts in the ordinary course of its business, provided, however, that this shall not prohibit the fund from purchasing or selling currencies including forward currency contracts; 6. Invest more than 15% of the value of its net assets in securities that are illiquid; 7. Engage in the business of underwriting of securities of other issuers, except to the extent that the disposal of an investment position may technically constitute the fund an underwriter as that term is defined under the Securities Act of 1933; 8. Make loans in an aggregate amount in excess of 10% of the value of the fund's total assets, taken at the time any loan is made, provided, (i) that the purchase of debt securities pursuant to the fund's investment objectives and entering into repurchase agreements maturing in seven days or less shall not be deemed loans for the purposes of this restriction, and (ii) that loans of portfolio securities as described under "Loans of Portfolio Securities," shall be made only in accordance with the terms and conditions therein set forth; 9. Sell securities short, except to the extent that the fund contemporaneously owns or has the right to acquire at no additional cost securities identical to those sold short; 10. Purchase securities at margin; 11. Borrow money except from banks for temporary or emergency purposes, not in excess of 5% of the value of the fund's total assets; 12. Mortgage, pledge, or hypothecate any of its assets; 13. Purchase or retain the securities of any issuer, if those individual officers and directors of the fund, its investment adviser, or distributor, each owning beneficially more than 1/2 of 1% of the securities of such issuer, together own more than 5% of the securities of such issuer. The fund has adopted the following non-fundamental investment policies, which may be changed by action of the Board of Directors without shareholder approval: (a) the fund will not invest more than 5% of its total assets in securities of companies having, together with their predecessors, a record of less than three years of continuous operation, and (b) the fund will not purchase partnership interests or invest in leases to develop, or explore for, oil, gas or minerals. Notwithstanding Investment Restriction #3, the fund may invest in securities of other investment companies if deemed advisable by its officers in connection with the administration of a deferred compensation plan adopted by Directors pursuant to an exemptive order granted by the Securities and Exchange Commission. Notwithstanding Investment Restriction #9, the fund has no current intention (at least during the next 12 months) to sell securities short to the extent the fund contemporaneously owns or has the right to acquire at no additional cost securities identical to those sold short. FUND ORGANIZATION The fund, an open-end, diversified management investment company, was organized as a Maryland corporation on December 3, 1973. All fund operations are supervised by the fund's board of directors which meets periodically and performs duties required by applicable state and federal laws. Members of the board who are not employed by Capital Research and Management Company or its affiliates are paid certain fees for services rendered to the fund as described in the statement of additional information. They may elect to defer all or a portion of these fees through a deferred compensation plan in effect for the fund. FUND OFFICERS AND DIRECTORS Directors and Director Compensation
NAME, POSITION PRINCIPAL AGGREGATE TOTAL TOTAL ADDRESS AND WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER AGE REGISTRANT DURING (INCLUDING (INCLUDING OF FUND PAST 5 YEARS VOLUNTARILY VOLUNTARILY BOARDS/2/ DEFERRED DEFERRED ON COMPENSATION/1/) COMPENSATION/1/) WHICH FROM THE FUND FROM ALL FUNDS DIRECTOR DURING FISCAL MANAGED BY SERVES YEAR ENDED CAPITAL RESEARCH DECEMBER 31, AND MANAGEMENT 1998 COMPANY OR ITS AFFILIATES/2/ FOR THE YEAR ENDED DECEMBER 31, 1998 H. Frederick Director Private $/3/ $ 19 Christie Age: 65 Investor. P. O. Box Former 144 President and Palos Verdes, CA CEO, The 90274 Mission Group (non-utility holding company, subsidiary of Southern California Edison Company) +Don R. Conlan Director President none/4/ none/4/ 12 Age: 62 (retired), 1630 Milan The Capital Avenue Group South Companies, Pasadena, CA Inc. 91030 Diane C. Director CEO and $ $ 12 Creel President, Age: 50 The Earth 100 W. Broadway Technology Suite 5000 Corporation Long Beach, CA 90802 Martin Director Chairman, $/3/ $ 15 Fenton, Jr. Senior Age:63 Resource 4660 La Group Jolla (management Village of senior Drive living Suite 725 centers) San Diego, CA 92121-2116 Leonard R. Director President, $/3/ $ 12 Fuller Fuller Age: 52 Consulting 4333 (financial Admiralty management Way consulting Suite 841 firm) ETH Marina del Rey, CA 90292 +*Abner D. President, Senior Vice none/4/ none/4/ 12 Goldstine PEO and President and Age: 69 Director Director, Capital Research and Management Company +**Paul G. Chairman of Executive none/4/ none/4/ 14 Haaga, Jr. the Board Vice Age: 50 President and Director, Capital Research and Management Company Herbert Director Private $ $ 13 Hoover III Investor Age: 71 1520 Circle Drive San Marino, CA 91108 Richard G. Director Chairman, $/3/ $ 13 Newman President and Age: 64 CEO, 3250 AECOM Wilshire Technology Boulevard Corporation Los Angeles, (architectural CA 90010-1599 engineering)
+ Directors who are considered "interested persons of the fund as defined in the 1940 Act, on the basis of their affiliation with the fund's Investment Adviser, Capital Research and Management Company. * Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025. ** Address is 333 South Hope Street, Los Angeles, CA 90071 /1/ Amounts may be deferred by eligible directors under a non-qualified deferred compensation plan adopted by the Fund in 1993. Deferred amounts accumulate at an earnings rate determined by the total return of one or more funds in The American Funds Group as designated by the Director. /2/ Capital Research and Management Company manages The American Funds Group consisting of 28 funds: AMCAP Fund, American Balanced Fund, Inc., American High-Income Municipal Bond Fund, Inc., American High-Income Trust, American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management Trust of America, Capital Income Builder, Inc., Capital World Growth and Income Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America, Inc., Intermediate Bond Fund of America, The Investment Company of America, Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of America, The U. S. Treasury Money Fund of America, U.S. Government Securities Fund and Washington Mutual Investors Fund, Inc. Capital Research and Management Company also manages American Variable Insurance Series and Anchor Pathway Fund which serve as the underlying investment vehicle for certain variable insurance contracts; and Endowments, whose shareholders are limited to (i) any entity exempt from taxation under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended ("501(c)(3) organization"); (ii) any trust, the present or future beneficiary of which is a 501(c)(3) organization, and (iii) any other entity formed for the primary purpose of benefiting a 501(c)(3) organization. An affiliate of Capital Research and Management Company, Capital International, Inc., manages Emerging Markets Growth Fund, Inc. /3/ Since the deferred compensation plan's adoption, the total amount of deferred compensation accrued by the fund (plus earnings thereon) as of the fiscal year ended December 31, 1998 for participating Directors is as follows: H. Frederick Christie ($ ), Diane C. Creel ($ ), Martin Fenton, Jr. ($ ), Leonard R. Fuller ($ ) and Richard G. Newman ($ ). Amounts deferred and accumulated earnings thereon are not funded and are general unsecured liabilities of the fund until paid to the Director. /4/ Don R. Conlan, Abner D. Goldstine and Paul G. Haaga, Jr. are affiliated with the Investment Adviser and, accordingly, receive no compensation from the fund. OFFICERS (with their principal occupations during the past five years)
NAME AND ADDRESS AGE POSITION(S) PRINCIPAL OCCUPATION(S) HELD WITH DURING PAST 5 YEARS REGISTRANT David C. Barclay 41 Vice Senior Vice President 11100 Santa Monica President and Director, Capital Blvd. Research Company Los Angeles, CA 90025 Michael J. Downer 43 Vice Senior Vice President - 333 South Hope President Fund Business Street Management Group, Los Angeles, CA Capital Research and 90071 Management Company John H. Smet 42 Vice Vice President, Capital 11100 Santa Monica President Research and Management Blvd. Company Los Angeles, CA 90025 Julie F. Williams 50 Secretary Vice President - Fund 333 South Hope Business Management Street Group, Capital Research Los Angeles, CA and Management Company 90071 Anthony W. Hynes, 35 Treasurer Vice President - Fund Jr. Business Management 135 South State Group, Capital Research College Blvd. and Management Company Brea, CA 92821 Kimberly S. Verdick 33 Assistant Assistant Vice 333 South Hope Secretary President - Fund Street Business Management Los Angeles, CA Group, Capital Research 90071 and Management Company Todd L. Miller 39 Assistant Assistant Vice 135 South State Treasurer President - Fund College Blvd. Business Management Brea, CA 92821 Group, Capital Research and Management Company
No compensation is paid by the fund to any officer or director who is a director, officer or employee of the Investment Adviser or affiliated companies. The fund pays annual fees of $10,000 to Directors who are not affiliated with the Investment Adviser, plus $200 for each Board of Directors meeting attended, plus $200 for each meeting attended as a member of a committee of the Board of Directors. No pension or retirement benefits are accrued as part of fund expenses. The Directors may elect, on a voluntary basis, to defer all or a portion of these fees through a deferred compensation plan in effect for the fund. The fund also reimburses certain expenses of the Directors who are not affiliated with the Investment Adviser. As of December 1, 1998, the officers and Directors and their families, as a group, owned beneficially or of record less than 1% of the outstanding shares of the fund. MANAGEMENT INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains research facilities in the U.S. and abroad (Los Angeles, San Francisco, New York, Washington, D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a staff of professionals, many of whom have a number of years of investment experience. The Investment Adviser is located at 333 South Hope Street, Los Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821. The Investment Adviser's research professionals travel several million miles a year, making more than 5,000 research visits in more than 50 countries around the world. The Investment Adviser believes that it is able to attract and retain quality personnel. The Investment Adviser is a wholly owned subsidiary of The Capital Group Companies, Inc. An affiliate of the Investment Adviser compiles indices for major stock markets around the world and compiles and edits the Morgan Stanley Capital International Perspective, providing financial and market information about more than 2,400 companies around the world. The Investment Adviser is responsible for more than $175 billion of stocks, bonds and money market instruments and serve over eight million investors of all types throughout the world. These investors include privately owned businesses and large corporations, as well as schools, colleges, foundations and other non-profit and tax-exempt organizations. INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service Agreement (the "Agreement") between the fund and the Investment Adviser will continue until October 31, 1999 unless sooner terminated and may be renewed from year to year thereafter, provided that any such renewal has been specifically approved at least annually by (i) the Board of Directors, or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities, and (ii) the vote of a majority of directors who are not parties to the Agreement or interested persons (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. The Agreement provides that the Investment Adviser has no liability to the fund for its acts or omissions in the performance of its obligations to the fund not involving willful misconduct, bad faith, gross negligence or reckless disregard of its obligations under the Agreement. The Agreement also provides that either party has the right to terminate it, without penalty, upon 60 days' written notice to the other party and that the Agreement automatically terminates in the event of its assignment (as defined in the 1940 Act). The Investment Adviser has agreed to reduce the fee payable to it under the agreement, (a) by the amount by which the ordinary operating expenses of the fund for any fiscal year of the fund, excluding interest, taxes and extraordinary expenses such as litigation, shall exceed the greater of (i) one percent (1%) of the average month-end net assets of the fund for such fiscal year, or (ii) ten percent (10%) of the fund's gross investment income, and (b) by any additional amount necessary to assure that such ordinary operating expenses of the fund in any year after such reduction do not exceed the lesser of (i) one and one-half percent (1 1/2%) of the first $30 million of average month-end net assets of the fund, plus one percent (1%) of the average month-end net assets in excess thereof or (ii) twenty-five percent (25%) of the fund's gross investment income. The Investment Adviser, in addition to providing investment advisory services, furnishes the services and pays the compensation and travel expenses of persons to perform the executive, administrative, clerical and bookkeeping functions of the fund, provides suitable office space and utilities, necessary small office equipment and general purpose accounting forms, supplies, and postage used at the offices of the fund. The fund pays all expenses not assumed by the Investment Adviser, including, but not limited to, custodian, stock transfer and dividend disbursing fees and expenses; costs of the designing, printing and mailing of reports, prospectuses, proxy statements, and notices to its shareholders; taxes; expenses of the issuance and redemption of shares (including stock certificates, registration and qualification fees and expenses); legal and auditing expenses; compensation, fees, and expenses paid to directors unaffiliated with the Investment Adviser; association dues; costs of stationery and forms prepared exclusively for the fund; and costs of assembling and storing shareholder account data. The management fee is based upon the net assets of the fund and monthly gross investment income. Gross investment income means gross income, computed without taking account of gains or losses from sales of capital assets, but including original issue discount as defined for federal income tax purposes. The Code in general defines original issue discount to mean the difference between the issue price and the stated redemption price at maturity of certain debt obligations. The holder of such indebtedness is in general required to treat as ordinary income the proportionate part of the original issue discount attributable to the period during which the holder held the indebtedness. The management fee is based upon the annual rates of 0.30% of the first $60 million of the fund's average net assets, 0.21% on average net assets in excess of $60 million but not exceeding $1 billion, 0.18% on average net assets in excess of $1 billion but not exceeding $3 billion, plus 0.16% on average net assets in excess of $3 billion but not exceeding $6 billion, plus 0.15% on average net assets over $6 billion but not exceeding $10 billion, plus 0.14% on average net assets in excess of $10 billion, plus 2.25% of the first $8,333,333 of the fund's monthly gross investment income for the preceding month, plus 2% of such income in excess of $8,333,333 of the fund's gross investment income for the preceding month. Assuming net assets of $9 billion and gross investment income levels of 5%, 6%, 7%, 8% and 9%, management fees would be %, %, %, % and %, respectively. During the fiscal years ended December 31, 1998, 1997, and 1996, the Investment Adviser's total fees amounted to $ , $24,460,000, and $22,728,000, respectively. The fund pays all expenses not specifically assumed by the Investment Adviser, including, but not limited to, registration and filing fees with federal and state agencies, blue sky expenses, expenses of shareholders meetings, the expense of reports to existing shareholders, expenses of printing proxies and prospectuses, insurance premiums, legal and auditing fees, dividend disbursement expenses, the expense of the issuance, transfer and redemption of its shares, expenses pursuant to the fund's Plan of Distribution, custodian fees, costs of printing and preparation of registration statements, taxes and compensation and expenses of Directors who are not affiliated with the Investment Adviser. PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the "Principal Underwriter") is the Principal Underwriter of the fund's shares. The Principal Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135 South State College Boulevard, Brea, CA 92821, 3500 Wiseman Boulevard, San Antonio, TX 78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240, and 5300 Robin Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of Distribution (the "Plan"), pursuant to rule 12b-1 under the 1940 Act. The Principal Underwriter receives amounts payable pursuant to the Plan (see below) and commissions consisting of that portion of the sales charge remaining after the discounts which it allows to investment dealers. Commissions retained by the Principal Underwriter on sales of fund shares during the fiscal year ended December 31, 1998 amounted to $ after allowance of $ to dealers. During the fiscal years ended December 31, 1997 and 1996 the Principal Underwriter retained $5,397,000 and $5,534,000, respectively. As required by rule 12b-1, the Plan (together with the Principal Underwriting Agreement) has been approved by the full Board of Directors and separately by a majority of the Directors who are not "interested persons" of the fund and who have no direct or indirect financial interest in the operation of the Plan or the Principal Underwriting Agreement, and the Plan has been approved by the vote of a majority of the outstanding voting securities of the fund. The officers and directors who are "interested persons" of the fund due to present or past affiliations with the investment adviser and related companies may be considered to have a direct or indirect financial interest in the operation of the Plan. Potential benefits of the plan to the fund include improved shareholder services, savings to the fund in transfer agency costs, savings to the fund in advisory fees and other expenses, benefits to the investment process from growth or stability of assets and maintenance of a financially healthy management organization. The selection and nomination of Directors who are not "interested persons" of the fund is committed to the discretion of the Directors who are not "interested persons" during the existence of the Plan. Plan expenditures are reviewed quarterly and must be renewed annually by the Board of Directors. Under the Plan the fund may expend up to 0.25% of its average net assets annually to finance any activity which is primarily intended to result in the sale of fund shares, provided the fund's Board of Directors has approved the category of expenses for which payment is being made. These include service fees for qualified dealers and dealer commissions and wholesaler compensation on sales of shares exceeding $1 million (including purchases by any employer-sponsored 403(b) plan or purchases by any defined contribution plan qualified under Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 100 or more eligible employees or a community foundation). Commissions on sales of shares exceeding $1 million (including purchases by any employer-sponsored 403(b) plan or purchases by any defined contribution plan qualified under Section 401(a) of the Internal Revenue Code, including any "401(k)" plan with 100 or more eligible employees) in excess of the Plan limitation not reimbursed during the most recent fiscal quarter are recoverable for five quarters, provided that such commissions do not exceed the annual expense limit. After five quarters, commissions are not recoverable. During the fiscal year ended December 31, 1998, the fund paid $ under the Plan as compensation to dealers. As of December 31, 1998 accrued and unpaid distribution expenses were $ . The Glass-Steagall Act and other applicable laws, among other things, generally prohibit commercial banks from engaging in the business of underwriting, selling or distributing securities, but permit banks to make shares of mutual funds available to their customers and to perform administrative and shareholder servicing functions. However, judicial or administrative decisions or interpretations of such laws, as well as changes in either federal or state statutes or regulations relating to the permissible activities of banks or their subsidiaries of affiliates, could prevent a bank from continuing to perform all or a part of its servicing activities. If a bank were prohibited from so acting, shareholder clients of such bank would be permitted to remain shareholders of the fund and alternate means for continuing the servicing of such shareholders would be sought. In such event, changes in the operation of the fund might occur and shareholders serviced by such bank might no longer be able to avail themselves of any automatic investment or other services then being provided by such bank. It is not expected that shareholders would suffer with adverse financial consequences as a result of any of these occurrences. In addition, state securities laws on this issue may differ from the interpretations of federal law expressed herein and certain banks and financial institutions may be required to be registered as dealers pursuant to state law. DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES The fund intends to meet all the requirements and has elected the tax status of a "regulated investment company" under the provisions of Subchapter M of the Code . Under Subchapter M, if the fund distributes within specified times at least 90% of the sum of its investment company taxable investment income (net investment income and the excess of net short-term capital gains over net long-term capital losses) and its tax-exempt interest, if any, it will be taxed only on that portion (if any) of the investment company taxable income and net capital gain that it retains. To qualify, the fund must (a) derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of stock, securities, currencies or other income derived with respect to its business of investing in such stock, 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 other securities which must be limited, in respect of any one issuer, to an amount not greater than 5% 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 any one issuer (other than U.S. Government securities or the securities of other regulated investment companies), or in two or more issuers which the fund controls and which are engaged in the same or similar trades or businesses or related trades or businesses. 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 (i) 98% of ordinary income (generally net investment income) for the calendar year, (ii) 98% of capital gain (both long-term and short-term) for the one-year period ending on October 31 (as though the one-year period ending on October 31 were the regulated investment company's taxable year), and (iii) the sum of any untaxed, undistributed net investment income and net capital gains of the regulated investment company for prior periods. The term "distributed amount" generally means the sum of (i) amounts actually distributed by the fund from its current year's ordinary income and net capital gain and (ii) any amount on which the fund pays income tax during the periods described above. The fund intends to distribute net investment income and net capital gains so as to minimize or avoid the excise tax liability. The fund also intends to distribute to shareholders all of the excess of net long-term capital gain over net short-term capital loss on sales of securities. If the net asset value of shares of the fund should, by reason of a distribution of realized capital gains, be reduced below a shareholder's cost, such distribution would in effect be a return of capital to that shareholder even though taxable to the shareholder, and a sale of shares by a shareholder at net asset value at that time would establish a capital loss for federal tax purposes. In particular, investors should consider the tax implications of purchasing shares just prior to a dividend or distribution record date. Those investors purchasing shares just prior to such a date will then receive a partial return of capital upon the dividend or distribution, which will nevertheless be taxable to them as an ordinary or capital gains dividend. Dividends generally are taxable to shareholders at the time they are paid. However, dividends and distributions declared in October, November and December and made payable to shareholders of record in such a month are treated as paid and are thereby taxable as of December 31, provided that the fund pays the dividend no later than the end of January of the following year. 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 purpose 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 shares. Also, any loss realized on a redemption or exchange of shares of a 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. Under the Code, distributions of net investment income by the fund to a shareholder who, as to the U.S., is a nonresident alien individual, nonresident alien fiduciary of a trust or estate, non-U.S. corporation, or non-U.S. partnership (a "non-U.S. shareholder") will be subject to U.S. withholding tax (at a rate of 30% or lower treaty rate). Withholding will not apply if a dividend paid by the fund to a non-U.S. shareholder is "effectively connected" with a U.S. trade or business, in which case the reporting and withholding requirements applicable to U.S. citizens, U.S. residents or domestic corporations will apply. However, if the distribution is effectively connected with the conduct of the non-U.S. shareholder's trade or business within the U.S., the distribution would be included in the net income of the shareholder and subject to U.S. income tax at the applicable marginal rate. Distributions of capital gains not effectively connected with a U.S. trade or business are not subject to the withholding, but if the non-U.S. shareholder was an individual who was physically present in the U.S. during the tax year for more than 182 days and such shareholder is nonetheless treated as a nonresident alien, the distributions would be subject to a 30% tax. The fund may be required to pay withholding and other taxes imposed by countries outside the United States which would reduce the fund's investment income, generally at rates from 10% to 40%. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. If more than 50% in value of the fund's total assets at the close of its taxable year consist of securities of non-U.S. corporations, the fund will be eligible to file elections with the Internal Revenue Service pursuant to which shareholders of the fund will be required to include their respective pro rata portions of such withholding taxes in their federal income tax returns as gross income, treat such amounts as foreign taxes paid by them, and deduct such amounts in computing their taxable incomes or, alternatively, use them as foreign tax credits against their federal income taxes. The fund does not currently expect to meet the eligibility requirement for filing this election as its investments in securities of non-U.S. issuers are limited. Sales of forward currency contracts which are intended to hedge against a change in the value of securities or currencies held by the fund may affect the holding period of such securities or currencies and, consequently, the nature of the gain or loss on such securities or currencies upon disposition. The amount of any realized gain or loss on closing out a forward currency contract such as a forward commitment for the purchase or sale of non-U.S. currency will generally result in a realized capital gain or loss for tax purposes. Under Code Section 1256, forward currency contracts held by the fund at the end of each fiscal year will be required to be "marked to market" for federal income tax purposes, that is, deemed to have been sold at market value. Except for transactions in forward currency contracts which are classified as part of a "mixed straddle," any gain or loss recognized with respect to forward currency contracts is considered to be 60% long-term capital gain or loss, and 40% short-term capital gain or loss, without regard to the holding period of the contract. In the case of a transaction classified as a "mixed straddle," the recognition of losses may be deferred to a later taxable year. Code Section 988 may also apply to forward currency contracts. Under Section 988, each non-U.S. currency gain or loss is generally computed separately and treated as ordinary income or loss. In the case of overlap between Sections 1256 and 988, special provisions determine the character and timing of any income, gain or loss. The fund will attempt to monitor Section 988 transactions to avoid an adverse tax impact. Under the Code, a fund's taxable income for each year will be computed without regard to any net non-U.S. currency loss attributable to transactions after October 31, and any such net non-U.S. currency loss will be treated as arising on the first day of the following taxable year. As of the date of this statement of additional information, the maximum federal individual stated tax rate generally applicable to ordinary income is 39.6% (effective tax rates may be higher for some individuals due to phase out of exemptions and elimination of deductions); the maximum individual tax rate applicable to net capital gains on assets held more than one year is 20%, and the maximum corporate tax applicable to ordinary income and net capital gain is 35%. However, to eliminate the benefit of lower marginal corporate income tax rates, corporations which have taxable income in excess of $100,000 for a taxable year will be required to pay an additional amount of income tax of up to $11,750 and corporations which have taxable income in excess of $15,000,000 for a taxable year will be required to pay an additional amount of income tax of up to $100,000. Naturally, the amount of tax payable by an individual will be affected by a combination of tax law rules covering, E.G., deductions, credits, deferrals, exemptions, sources of income and other matters. Under the Code, an individual is entitled to establish and contribute to an Individual Retirement Account ("IRA") each year (prior to the tax return filing deadline for that year) whereby earnings on investments are tax-deferred. In addition, in some cases, the IRA contribution itself may be deductible. The foregoing is limited to a summary discussion of federal taxation and should not be viewed as a comprehensive discussion of all provisions of the Code relevant to investors. Dividends and distributions may also be subject to state or local taxes. Investors should consult their own tax advisers for additional details as to their particular tax status. PURCHASE OF SHARES
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS See "Investment Minimums $50 minimum (except where and Fund Numbers" for a lower minimum is noted initial investment under "Investment Minimums minimums. and Fund Numbers"). By Visit any investment Mail directly to your contacting dealer who is registered investment dealer's your in the state where the address printed on your investment purchase is made and who account statement. dealer has a sales agreement with American Funds Distributors. By mail Make your check payable Fill out the account to the fund and mail to additions form at the the address indicated on bottom of a recent account the account application. statement, make your check Please indicate an payable to the fund, write investment dealer on the your account number on account application. your check, and mail the check and form in the envelope provided with your account statement. By Please contact your Complete the "Investments telephone investment dealer to by Phone" section on the open account, then account application or follow the procedures American FundsLink for additional Authorization Form. Once investments. you establish the privilege, you, your financial advisor or any person with your account information can call American FundsLine(r) and make investments by telephone (subject to conditions noted in "Telephone and Computer Sales and Exchanges" below). By computer Please contact your Complete the American investment dealer to FundsLink Authorization open account, then Form. Once you establish follow the procedures the privilege, you, your for additional financial advisor or any investments. person with your account information may access American FundsLine OnLine(r) on the Internet and make investments by computer (subject to conditions noted in "Telephone and Computer Purchases, Redemptions and Exchanges" below). By wire Call 800/421-0180 to Your bank should wire your obtain your account additional investments in number(s), if necessary. the same manner as Please indicate an described under "Initial investment dealer on the Investment." account. Instruct your bank to wire funds to: Wells Fargo Bank 155 Fifth Street Sixth Floor San Francisco, CA 94106 (ABA #121000248) For credit to the account of: American Funds Service Company a/c #4600-076178 (fund name) (your fund acct. no.) THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER.
INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial investments required by the funds in The American Funds Group along with fund numbers for use with our automated phone line, American FundsLine(r) (see description below):
FUND MINIMUM FUND INITIAL NUMBER INVESTMENT STOCK AND STOCK/BOND FUNDS AMCAP Fund(r) $1,000 02 American Balanced Fund(r) 500 11 American Mutual Fund(r) 250 03 Capital Income Builder(r) 1,000 12 Capital World Growth and Income 1,000 33 Fund(sm) EuroPacific Growth Fund(r) 250 16 Fundamental Investors(sm) 250 10 The Growth Fund of America(r) 1,000 05 The Income Fund of America(r) 1,000 06 The Investment Company of America(r) 250 04 The New Economy Fund(r) 1,000 14 New Perspective Fund(r) 250 07 SMALLCAP World Fund(r) 1,000 35 Washington Mutual Investors Fund(sm) 250 01 BOND FUNDS American High-Income Municipal Bond 1,000 40 Fund(r) American High-Income Trust(sm) 1,000 21 The Bond Fund of America(sm) 1,000 08 Capital World Bond Fund(r) 1,000 31 Intermediate Bond Fund of 1,000 23 America(sm) Limited Term Tax-Exempt Bond Fund of 1,000 43 America(sm) The Tax-Exempt Bond Fund of 1,000 19 America(r) The Tax-Exempt Fund of 1,000 20 California(r)* The Tax-Exempt Fund of Maryland(r)* 1,000 24 The Tax-Exempt Fund of Virginia(r)* 1,000 25 U.S. Government Securities Fund(sm) 1,000 22 MONEY MARKET FUNDS The Cash Management Trust of 2,500 09 America(r) The Tax-Exempt Money Fund of 2,500 39 America(sm) The U.S. Treasury Money Fund of 2,500 49 America(sm) ___________ *Available only in certain states.
For retirement plan investments, the minimum is $250, except that the money market funds have a minimum of $1,000 for IRAs. Minimums are reduced to $50 for purchases through "Automatic Investment Plans" (except for the money market funds) or to $25 for purchases by retirement plans through payroll deductions and may be reduced or waived for shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for additional investments (except as noted above). SALES CHARGES - The sales charges you pay when purchasing the stock, stock/bond, and bond funds of The American Funds Group are set forth below. The money market funds of The American Funds Group are offered at net asset value. (See "Investment Minimums and Fund Numbers" for a listing of the funds.)
AMOUNT OF PURCHASE SALES CHARGE AS DEALER AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION AS PERCENTAGE OF THE OFFERING PRICE NET AMOUNT OFFERING INVESTED PRICE STOCK AND STOCK/BOND FUNDS Less than $50,000 6.10% 5.75% 5.00% $50,000 but less than 4.71 4.50 3.75 $100,000 BOND FUNDS Less than $25,000 4.99 4.75 4.00 $25,000 but less than 4.71 4.50 3.75 $50,000 $50,000 but less than 4.17 4.00 3.25 $100,000 STOCK, STOCK/BOND, AND BOND FUNDS $100,000 but less than 3.63 3.50 2.75 $250,000 $250,000 but less than 2.56 2.50 2.00 $500,000 $500,000 but less than 2.04 2.00 1.60 $1,000,000 $1,000,000 or more none none (see below)
PURCHASES NOT SUBJECT TO SALES CHARGES -- Investments of $1 million or more and investments made by employer-sponsored defined contribution-type plans with 100 or more eligible employees are sold with no initial sales charge. A contingent deferred sales charge may be imposed on certain redemptions by these accounts made within one year of purchase. Investments by retirement plans, foundations or endowments with $50 million or more in assets, and employer-sponsored defined contribution-type plans with 100 or more eligible employees may be made with no sales charge and are not subject to a contingent deferred sales charge. In addition, the stock, stock/bond and bond funds may sell shares at net asset value to: (1) current or retired directors, trustees, officers and advisory board members of the funds managed by Capital Research and Management Company, employees of Washington Management Corporation, employees and partners of The Capital Group Companies, Inc. and its affiliated companies, certain family members of the above persons, and trusts or plans primarily for such persons; (2) current registered representatives, retired registered representatives with respect to accounts established while active, or full-time employees (and their spouses, parents, and children) of dealers who have sales agreements with American Funds Distributors (or who clear transactions through such dealers) and plans for such persons or the dealers; (3) companies exchanging securities with the fund through a merger, acquisition or exchange offer; (4) trustees or other fiduciaries purchasing shares for certain retirement plans of foundations or endowments with assets of $50 million or more; (5) insurance company separate accounts; (6) accounts managed by subsidiaries of The Capital Group Companies, Inc.; and (7) The Capital Group Companies, Inc., its affiliated companies and Washington Management Corporation. Shares are offered at net asset value to these persons and organizations due to anticipated economies in sales effort and expense. DEALER COMMISSIONS - Commissions of up to 1% will be paid to dealers who initiate and are responsible for purchases of $1 million or more, for purchases by any employer-sponsored 403(b) plan or purchases by any defined contribution plan qualified under Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 100 or more eligible employees, and for purchases made at net asset value by certain retirement plans of organizations with collective retirement plan assets of $100 million or more: 1.00% on amounts of $1 million to $2 million, 0.80% on amounts over $2 million to $3 million, 0.50% on amounts over $3 million to $50 million, 0.25% on amounts over $50 million to $100 million, and 0.15% on amounts over $100 million. The level of dealer commissions will be determined based on sales made over a 12-month period commencing from the date of the first sale at net asset value. OTHER COMPENSATION TO DEALERS - American Funds Distributors, at its expense (from a designated percentage of its income), currently provides additional compensation to dealers. Currently these payments are limited to the top one hundred dealers who have sold shares of the fund or other funds in The American Funds Group. These payments will be based on a pro rata share of a qualifying dealer's sales. American Funds Distributors will, on an annual basis, determine the advisability of continuing these payments. Qualified dealers currently are paid a continuing service fee not to exceed 0.25% of average net assets (0.15% in the case of the money market funds) annually in order to promote selling efforts and to compensate them for providing certain services. These services include processing purchase and redemption transactions, establishing shareholder accounts and providing certain information and assistance with respect to the fund. REDUCING YOUR SALES CHARGE -- You and your immediate family may combine investments to reduce your costs. You must let your investment dealer or American Funds Service Company know if you qualify for a reduction in your sales charge using one or any combination of the methods described below. STATEMENT OF INTENTION - You may enter into a non-binding commitment to purchase shares of a fund(s) over a 13-month period and receive the same sales charge as if all shares had been purchased at once. This includes purchases made during the previous 90 days, but does not include appreciation of your investment or reinvested distributions. The reduced sales charges and offering prices set forth in the Prospectus apply to purchases of $50,000 or more made within a 13-month period subject to the following statement of intention (the "Statement") terms. The Statement is not a binding obligation to purchase the indicated amount. When a shareholder elects to use the Statement in order to qualify for a reduced sales charge, shares equal to 5% of the dollar amount specified in the Statement will be held in escrow in the shareholder's account out of the initial purchase (or subsequent purchases, if necessary) by American Funds Service Company (the "Transfer Agent"). All dividends and capital gain distributions on shares held in escrow will be credited to the shareholder's account in shares (or paid in cash, if requested). If the intended investment is not completed within the specified 13-month period, the purchaser will pay to the Principal Underwriter the difference between the sales charge actually paid and the sales charge which would have been paid if the total of such purchases had been made at a single time. If the difference is not paid within 45 days after written request by the Principal Underwriter or the securities dealer, the appropriate number of shares held in escrow will be redeemed to pay such difference. If the proceeds from this redemption are inadequate, the purchaser will be liable to the Principal Underwriter for the balance still outstanding. The Statement may be revised upward at any time during the 13-month period, and such a revision will be treated as a new Statement, except that the 13-month period during which the purchase must be made will remain unchanged and there will be no retroactive reduction of the sales charges paid on prior purchases. Existing holdings eligible for rights of accumulation (see the prospectus and account application) may be credited toward satisfying the Statement. During the Statement period reinvested dividends and capital gain distributions, investments in money market funds, and investments made under a right of reinstatement will not be credited toward satisfying the Statement. When the trustees of certain retirement plans purchase shares by payroll deduction, the sales charge for the investments made during the 13-month period will be handled as follows: The regular monthly payroll deduction investment will be multiplied by 13 and then multiplied by 1.5. The current value of existing American Funds investments (other than money market fund investments) and any rollovers or transfers reasonably anticipated to be invested in non-money market American Funds during the 13-month period are added to the figure determined above. The sum is the Statement amount and applicable breakpoint level. On the first investment and all other investments made pursuant to the statement of intention, a sales charge will be assessed according to the sales charge breakpoint thus determined. There will be no retroactive adjustments in sales charges on investments previously made during the 13-month period. Shareholders purchasing shares at a reduced sales charge under a Statement indicate their acceptance of these terms with their first purchase. AGGREGATION - Sales charge discounts are available for certain aggregated investments. Qualifying investments include those by you, your spouse and your children under the age of 21, if all parties are purchasing shares for their own account(s), which may include purchases through employee benefit plan(s) such as an IRA, individual-type 403(b) plan or single-participant Keogh-type plan or by a business solely controlled by these individuals (for example, the individuals own the entire business) or by a trust (or other fiduciary arrangement) solely for the benefit of these individuals. Individual purchases by a trustee(s) or other fiduciary(ies) may also be aggregated if the investments are (1) for a single trust estate or fiduciary account, including an employee benefit plan other than those described above or (2) made for two or more employee benefit plans of a single employer or of affiliated employers as defined in the 1940 Act, again excluding employee benefit plans described above, or (3) for a diversified common trust fund or other diversified pooled account not specifically formed for the purpose of accumulating fund shares. Purchases made for nominee or street name accounts (securities held in the name of an investment dealer or another nominee such as a bank trust department instead of the customer) may not be aggregated with those made for other accounts and may not be aggregated with other nominee or street name accounts unless otherwise qualified as described above. CONCURRENT PURCHASES -- You may combine purchases of two or more funds in The American Funds Group, except direct purchases of the money market funds. Shares of money market funds purchased through an exchange, reinvestment or cross-reinvestment from a fund having a sales charge do qualify. RIGHT OF ACCUMULATION -- You may take into account the current value of your existing holdings in The American Funds Group, as well as your holdings in Endowments (shares of which may be owned only by tax-exempt organizations), to determine your sales charge on investments in accounts eligible to be aggregated, or when making a gift to an individual or charity. Direct purchases of the money market funds are excluded. PRICE OF SHARES - Shares are purchased at the offering price next determined after the purchase order is received and accepted by the fund or the Transfer Agent; this offering price is effective for orders received prior to the time of determination of the net asset value and, in the case of orders placed with dealers, accepted by the Principal Underwriter prior to its close of business. In case of orders sent directly to the fund or the Transfer Agent, an investment dealer MUST be indicated. The dealer is responsible for promptly transmitting purchase orders to the Principal Underwriter. Orders received by the investment dealer, the Transfer Agent, or the fund after the time of the determination of the net asset value will be entered at the next calculated offering price. Prices which appear in the newspaper do not always indicate the prices at which you will be purchasing and redeeming shares of the fund, since such prices generally reflect the previous day's closing price whereas purchases and redemptions are made at the next calculated price. The price you pay for shares, the offering price, is based on the net asset value per share which is calculated once daily at the normal close of trading (currently 4:00 p.m., New York time) each day the New York Stock Exchange is open. For example, if the Exchange closes at 1:00 p.m. on one day and at 4:00 p.m. on the next, the fund's share price would be determined as of 4:00 p.m. New York time on both days. The New York Stock Exchange is currently closed on weekends and on the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. All portfolio securities of funds managed by Capital Research and Management Company, other than the money market funds, are valued, and the net asset value per share is determined as follows: 1. Equity securities, including depositary receipts, are valued at the last reported sale price on the exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. In cases where equity securities are traded on more than one exchange, the securities are valued on the exchange or market determined by the Investment Adviser to be the broadest and most representative market, which may be either a securities exchange or the over-the-counter market. Fixed-income securities are valued at prices obtained from a pricing service, when such prices are available; however, in circumstances where the Investment Adviser deems it appropriate to do so, such securities will be valued at the mean quoted bid and asked prices or at prices for securities of comparable maturity, quality and type. 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 foreign currencies are translated into U.S. dollars at the prevailing market rates at the end of the reporting period. Purchase and sale of securities and income and expenses are translated into U.S. dollars at the prevailing market rates on the dates of such transactions. The effects of changes in foreign currency exchange rates on investment securities are included with the net realized and unrealized gain or loss on investment securities. Securities and assets for which representative market quotations are not readily available are valued at fair value as determined in good faith under policies approved by the fund's Board. The fair value of all other assets is added to the value of securities to arrive at the total assets. 2. Liabilities, including accruals of taxes and other expense items, are deducted from total assets. 3. Net assets so obtained are then divided by the total number of shares outstanding, and the result, rounded to the nearer cent, is the net asset value per share. Any purchase order may be rejected by the Principal Underwriter or by the fund. The fund will not knowingly sell shares (other than for the reinvestment of dividends or capital gain distributions) directly or indirectly or through a unit investment trust to any other investment company, person or entity, where, after the sale, such investment company, person, or entity would own beneficially directly, indirectly, or through a unit investment trust more than 3% of the outstanding shares of the fund without the consent of a majority of the Board of Directors. Shareholders purchasing shares at a reduced sales charge under a Statement indicate their acceptance of these terms with their first purchase. SELLING SHARES Shares are sold at the net asset value next determined after your request is received in good order by American Funds Service Company. You may sell (redeem) shares in your account in any of the following ways: THROUGH YOUR DEALER (certain charges may apply) - - Shares held for you in your dealer's street name must be sold through the dealer. WRITING TO AMERICAN FUNDS SERVICE COMPANY - - Requests must be signed by the registered shareholder(s) - - A signature guarantee is required if the redemption is: -- Over $50,000; -- Made payable to someone other than the registered shareholder(s); or -- Sent to an address other than the address of record, or an address of record which has been changed within the last 10 days. Your signature may be guaranteed by a domestic stock exchange or the National Association of Securities Dealers, Inc., bank, savings association or credit union that is an eligible guarantor institution. - - Additional documentation may be required for sales of shares held in corporate, partnership or fiduciary accounts. - - You must include any shares you wish to sell that are in certificate form. TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN FUNDSLINE(R) OR AMERICAN FUNDSLINE ONLINE(R) - - Redemptions by telephone or fax (including American FundsLine and American FundsLine OnLine) are limited to $50,000 per shareholder each day. - - Checks must be made payable to the registered shareholder(s). - - Checks must be mailed to an address of record that has been used with the account for at least 10 days. MONEY MARKET FUNDS - - You may have redemptions of $1,000 or more wired to your bank by writing American Funds Service Company. - - You may establish check writing privileges (use the money market funds application) -- If you request check writing privileges, you will be provided with checks that you may use to draw against your account. These checks may be made payable to anyone you designate and must be signed by the authorized number or registered shareholders exactly as indicated on your checking account signature card. Redemption proceeds will not be mailed until sufficient time has passed to provide reasonable assurance that checks or drafts (including certified or cashier's checks) for shares purchased have cleared (which may take up to 15 calendar days from the purchase date). Except for delays relating to clearance of checks for share purchases or in extraordinary circumstances (and as permissible under the Investment Company Act of 1940), sale proceeds will be paid on or before the seventh day following receipt and acceptance of an order. Interest will not accrue or be paid on amounts that represent uncashed distribution or redemption checks. You may reinvest proceeds from a redemption or a dividend or capital gain distribution without a sales charge (any contingent deferred sales charge paid will be credited to your account) in any fund in The American Funds Group within 90 days after the date of the redemption or distribution. Redemption proceeds of shares representing direct purchases in the money market funds are excluded. Proceeds will be reinvested at the next calculated net asset value after your request is received and accepted by American Funds Service Company. CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1% applies to certain redemptions made within twelve months of purchase on investments of $1 million or more(other than redemptions by employer-sponsored retirement plans). The charge is 1% of the lesser of the value of the shares redeemed (exclusive of reinvested dividends and capital gain distributions) or the total cost of such shares. Shares held for the longest period are assumed to be redeemed first for purposes of calculating this charge. The charge is waived for exchanges (except if shares acquired by exchange were then redeemed within 12 months of the initial purchase); for distributions from 403(b) plans or IRAs due to death, disability or attainment of age 591/2; for tax-free returns of excess contributions to IRAs; and for redemptions through certain automatic withdrawals not exceeding 10% of the amount that would otherwise be subject to the charge. REDEMPTION OF SHARES - The fund's Articles of Incorporation permit the fund to direct the Transfer Agent to redeem your shares if, through redemptions, or otherwise, they have a value of less than $150 (determined, for this purpose only, as the greater of the shareholder's cost or the current net asset value of the shares, including any shares acquired through reinvestment of income dividends and capital gain distributions), or are fewer than ten shares. We will give you prior notice of at least 60 days before the involuntary redemption provision is made effective with respect to your account. You will have not less than 30 days from the date of such notice within which to bring the account up to the minimum determined as set forth above. 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. SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables you to make regular monthly or quarterly investments in shares through automatic charges to your bank accounts. With shareholder authorization and bank approval, the Transfer Agent will automatically charge the bank account for the amount specified ($50 minimum), which will be automatically invested in shares at the offering price on or about the dates you select. Bank accounts will be charged on the day or a few days before investments are credited, depending on the bank's capabilities, and you will receive a confirmation statement at least quarterly. Participation in the plan will begin within 30 days after receipt of the account application. If your bank account cannot be charged due to insufficient funds, a stop-payment order or closing of the account, the plan may be terminated and the related investment reversed. You may change the amount of the investment or discontinue the plan at any time by writing the Transfer Agent. AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are reinvested in additional shares at no sales charge unless you indicate otherwise on the account application. You also may elect to have dividends and/or capital gain distributions paid in cash by informing the fund, the Transfer Agent or your investment dealer. CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - You may elect to cross-reinvest dividends or dividends and capital gain distributions paid by that fund (the "paying fund") into any other fund in The American Funds Group (the "receiving fund") subject to the following conditions: (i) the aggregate value of your account(s) in the paying fund(s) must equal or exceed $5,000 (this condition is waived if the value of the account in the receiving fund equals or exceeds that fund's minimum initial investment requirement), (ii) as long as the value of the account in the receiving fund is below that fund's minimum initial investment requirement, dividends and capital gain distributions paid by the receiving fund must be automatically reinvested in the receiving fund, and (iii) if this privilege is discontinued with respect to a particular receiving fund, the value of the account in that fund must equal or exceed the fund's minimum initial investment requirement or the fund will have the right, if you fail to increase the value of the account to such minimum within 90 days after being notified of the deficiency, automatically to redeem the account and send the proceeds to you. These cross-reinvestments of dividends and capital gain distributions will be at net asset value (without sales charge). EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American Funds Group. Exchange purchases are subject to the minimum investment requirements of the fund purchased and no sales charge generally applies. However, exchanges of shares from the money market funds are subject to applicable sales charges on the fund being purchased, unless the money market fund shares were acquired by an exchange from a fund having a sales charge, or by reinvestment or cross-reinvestment of dividends or capital gain distributions. You may exchange shares by writing to the Transfer Agent (see "Redeeming Shares"), by contacting your investment dealer, by using American FundsLine and American FundsLine OnLine (see "American FundsLine and American FundsLine OnLine" below), or by telephoning 800/421-0180 toll-free, faxing (see "Shareholder Information -- American Funds Service Company Service Areas" in the Prospectus for the appropriate fax numbers) or telegraphing the Transfer Agent. (See "Telephone and Computer Redemptions and Exchanges" below.) Shares held in corporate-type retirement plans for which Capital Guardian Trust Company serves as trustee may not be exchanged by telephone, computer, fax or telegraph. Exchange redemptions and purchases are processed simultaneously at the share prices next determined after the exchange order is received. (See "Purchase of Shares--Price of Shares.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES. AUTOMATIC EXCHANGES - You may automatically exchange shares (in amounts of $50 or more) among any of the funds in The American Funds Group on any day (or preceding business day if the day falls on a non-business day) of each month you designate. You must either meet the minimum initial investment requirement for the receiving fund OR the originating fund's balance must be at least $5,000 and the receiving fund's minimum must be met within one year. AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as dividends, yield or income. Automatic investments may not be made into a shareholder account from which there are automatic withdrawals. Withdrawals of amounts exceeding reinvested dividends and distributions and increases in share value would reduce the aggregate value of the shareholder's account. The Transfer Agent arranges for the redemption by the fund of sufficient shares, deposited by the shareholder with the Transfer Agent, to provide the withdrawal payment specified. ACCOUNT STATEMENTS - Your account is opened in accordance with your registration instructions. Transactions in the account, such as additional investments , will be reflected on regular confirmation statements from the Transfer Agent. Dividend and capital gain reinvestments and purchases through automatic investment plans and certain retirement plans will be confirmed at least quarterly. AMERICAN FUNDSLINE AND AMERICAN FUNDSLINE ONLINE - You may check your share balance, the price of your shares, or your most recent account transaction, redeem shares (up to $50,000 per shareholder each day), or exchange shares around the clock with American FundsLine and American FundsLine OnLine. To use these services, call 800/325-3590 from a TouchTonet telephone or access the American Funds Web site on the Internet at www.americanfunds.com. Redemptions and exchanges through American FundsLine and American FundsLine OnLine are subject to the conditions noted above and in "Redeeming Shares--Telephone and Computer Redemptions and Exchanges" below. You will need your fund number (see the list of funds in The American Funds Group under "Purchase of Shares--Investment Minimums and Fund Numbers"), personal identification number (the last four digits of your Social Security number or other tax identification number associated with your account) and account number. TELEPHONE AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES - By using the telephone or computer (including American FundsLine and American FundsLine OnLine), fax or telegraph redemption and/or exchange options, you agree to hold the fund, the Transfer Agent, any of its affiliates or mutual funds managed by such affiliates, and each of their respective directors, trustees, officers, employees and agents harmless from any losses, expenses, costs or liability (including attorney fees) which may be incurred in connection with the exercise of these privileges. Generally, all shareholders are automatically eligible to use these options. However, you may elect to opt out of these options by writing the Transfer Agent (you may also reinstate them at any time by writing the Transfer Agent). If the Transfer Agent does not employ reasonable procedures to confirm that the instructions received from any person with appropriate account information are genuine, the fund may be liable for losses due to unauthorized or fraudulent instructions. In the event that shareholders are unable to reach the fund by telephone because of technical difficulties, market conditions, or a natural disaster, redemption and exchange requests may be made in writing only. SHARE CERTIFICATES -- Shares are credited to your account and certificates are not issued unless you request them by writing to American Funds Service Company. EXECUTION OF PORTFOLIO TRANSACTIONS The Investment Adviser places orders for the fund's portfolio securities transactions . The Investment Adviser strives to obtain the best available prices in its portfolio transactions taking into account the costs and promptness of executions. When circumstances relating to a proposed transaction indicate that a particular broker (either directly or through its correspondent clearing agent) is in a position to obtain the best price and execution, the order is placed with that broker. This may or may not be a broker who has provided investment research statistical, or other related services to the Investment Adviser or has sold shares of the fund or other funds served by the Investment Adviser. The fund does not have an obligation to obtain the lowest available commission rate to the exclusion of price, service and qualitative considerations. Portfolio transactions for the fund may be executed as part of concurrent authorizations to purchase or sell the same security for other funds served by the Investment Adviser, or for trusts or other accounts served by affiliated companies of the Investment Adviser. Although such concurrent authorizations potentially could be either advantageous or disadvantageous to the fund, they are effected only when the Investment Adviser believes that to do so is in the interest of the fund. When such concurrent authorizations occur, the objective is to allocate the executions in an equitable manner. The fund does not intend to pay a mark-up in exchange for research in connection with principal transactions. Brokerage commissions paid on portfolio transactions, including dealer concessions on underwritings, for the fiscal years ended December 31, 1998, 1997, and 1996, amounted to $____, $58,367,000, and $9,568,000, respectively. GENERAL INFORMATION CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds from the sale of shares of the fund and of securities in the fund's portfolio, are held by The Chase Manhattan Bank, One Chase Manhattan Plaza, New York, NY 10081, as Custodian. Non-U.S. securities may be held by the Custodian pursuant to sub-custodial agreements in non-U.S. banks or non-U.S. branches of U.S. banks. TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of the Investment Adviser, maintains the records of each shareholder's account, processes purchases and redemptions of the fund's shares, acts as dividend and capital gain distribution disbursing agent, and performs other related shareholder service functions. American Funds Service Company was paid a fee of $ _______ for the fiscal year ended December 31, 1998. When fund shares are purchased by an insurance company separate account to serve as the underlying investment vehicle for variable insurance contracts, the fund may pay a fee to the insurance company or another party for performing certain transfer agent services with respect to contract owners having interests in the fund. The fund has entered into such an agreement with Nationwide Life Insurance Company. INDEPENDENT AUDITORS - Deloitte & Touche LLP, 1000 Wilshire Boulevard, 15th Floor, Los Angeles, CA 90017, has served as the fund's independent auditors since its inception, 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 attached Annual Report, have been so included in reliance on the independent auditors' report given on the authority of said firm as experts in accounting and auditing. The selection of the fund's independent auditor is reviewed and determined annually by the Board of Directors. SHAREHOLDER VOTING RIGHTS - At any meeting of shareholders, duly called and at which a quorum is present, the shareholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon, remove any director or directors from office and may elect a successor or successors to fill any resulting vacancies for the unexpired terms of removed directors. The fund has made an undertaking, 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 shall promptly call a meeting of shareholders for the purpose of voting upon the question of removal of any Director when requested in writing to do so by the record holders of not less than 10% of the outstanding 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. REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on December 31. It provides shareholders at least semi-annually with reports showing the investment portfolio, financial statements and other information. The fund's financial statements are audited annually by the fund's independent auditors, Deloitte & Touche LLP, whose selection is determined by the Board of Directors. In an effort to reduce the volume of mail shareholders receive from the fund when a household owns more than one account, the Transfer Agent has taken steps to eliminate duplicate mailings of shareholder reports. To receive additional copies of a report, shareholders should contact the Transfer Agent. YEAR 2000 - The fund and its shareholders depend on the proper functioning of computer systems maintained by the Investment Adviser and its affiliates and other key service providers. Many computer systems in use today will require reprogramming or replacement prior to the year 2000 because of the way they store dates and make date-related calculations. The fund understands that these service providers are taking steps to address the "Year 2000 problem." However, there can be no assurance that these steps will be sufficient to avoid any adverse impact on the fund. In addition, the fund's investments could be adversely affected by the Year 2000 problem. For example, the markets for securities in which the fund invests could experience settlement problems and liquidity issues. Corporate and governmental data processing errors may cause losses for individual companies and overall economic uncertainties. Earnings of individual issuers are likely to be affected by the costs of addressing the problem, which may be substantial and may be reported inconsistently. PERSONAL INVESTING POLICY - The Investment Adviser and its affiliated companies have adopted a personal investing policy consistent with Investment Company Institute guidelines. This policy includes: a ban on acquisitions of securities pursuant to an initial public offering; restrictions on acquisitions of private placement securities; pre-clearance and reporting requirements; review of duplicate confirmation statements; annual recertification of compliance with codes of ethics; blackout periods on personal investing for certain investment personnel; a 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. You may obtain a summary of the personal investing policy by contacting the Secretary of the fund. The financial statements including the investment portfolio and the report of Independent Auditors contained in the Annual Report are included in this Statement of Additional Information. The following information is not included in the Annual Report:
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE PER SHARE - DECEMBER 31, 1998 Net asset value and redemption price per share $ (Net assets divided by shares outstanding) Maximum offering price per share $ (100/95.25 of net asset value per share, which takes into account the fund's current maximum sales charge)
INVESTMENT RESULTS AND RELATED STATISTICS The fund's yield was % based on a 30-day (or one month) period ended December 31, 1998, computed by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period, according to the following formula: YIELD = 2[( a-b/cd + 1)/6/ -1] Where: a = dividends and interest earned during the period. b = expenses accrued for the period (net of reimbursements). c = the average daily number of shares outstanding during the period that were entitled to receive dividends. d = the maximum offering price per share on the last day of the period. The fund may also calculate a distribution rate on a taxable and tax equivalent basis. The distribution rate is computed by annualizing the current month's dividend and dividing by the average net asset value or maximum offering price for the month. The distribution rate may differ from the yield. The fund's total annual return over the past twelve months and average annual total returns over the past 5-year and 10-year periods ending on December 31, 1998, were %, %, and %, respectively. The fund's total return at net asset value over the past 12 months and average annual total return for the 5-and 10-year periods ending on December 31, 1998 was ____%, ____%, and ____%, respectively. The average total return ("T") is computed by equating the value at the end of the period ("ERV") with a hypothetical initial investment of $1,000 ("P") over a period of years ("n") according to the following formula as required by the Securities and Exchange Commission: P(1+T)/n/ = ERV. In calculating average annual total return, the fund assumes: (1) deduction of the maximum sales charge of 4.75% from the $1,000 initial investment; (2) reinvestment of dividends and distributions at net asset value on the reinvestment date determined by the Board; and (3) a complete redemption at the end of any period illustrated. EXPERIENCE OF INVESTMENT ADVISER -- The Investment Adviser manages nine growth and growth-income funds that are at least 10 years old. In the rolling 10-year periods since January 1, 1968 (133 in all), those funds have had better total returns than their comparable Lipper Indexes in 124 of the 133 periods. Note that past results are not an indication of future investment results. Also, the fund has different investment policies than the funds mentioned above. These results are included solely for the purpose of informing investors about the experience and history of Capital Research and Management Company. The fund may include, in advertisements or in reports furnished to present or prospective shareholders, information on its investment results and/or comparisons of its investment results to various unmanaged indices or results of other mutual funds or investment or savings vehicles. The fund may also combine its results with those of other funds in The American Funds Group for purposes of illustrating investment strategies involving multiple funds. The investment results for the fund (also referred to as "BFA") set forth below were calculated as described in the fund's prospectus. Data contained in Salomon Brothers' Market Performance and Lehman Brother's The Bond Market Report are used to calculate cumulative total return from their base period (12/31/79 and 12/31/72, respectively) for each index. The percentage increases shown in the table below or used in published reports of the fund are obtained by subtracting the index results at the beginning of the period from the index results at the end of the period and dividing the difference by the index results at the beginning of the period. THE FUND VS. VARIOUS UNMANAGED INDICES
Period The Fund Salomon Lehman Average 1/1 - 12/31 Brothers (1) Brothers(2) Savings Deposit (3) 1989 - 1998 1988 - 1997 + 141% + 142% + 158% + 55% 1987 - 1996 + 125 + 126 + 140 + 57 1986 - 1995 + 143 + 152 + 171 + 62 1985 - 1994 + 160 + 160 + 175 + 69 1984 - 1993 + 207 + 208 + 233 + 81 1983 - 1992 + 194 + 203 + 225 + 92 1982 - 1991 + 252 + 271 + 316 + 105 1981 - 1990 + 210 + 240 + 261 + 116 1980 - 1989 + 210 + 221 + 236 + 121 1979 - 1988 + 191 n/a + 189 + 122 1978 - 1987 + 168 n/a + 165 + 124 1977 - 1986 + 176 n/a + 167 + 125 1976 - 1985 + 184 n/a + 173 + 123 1975 - 1984 + 152 n/a + 157 + 119 1974*- 1983 + 134 n/a + 118 + 109
* From May 28. (1) The Salomon Brothers Broad Investment Grade Bond Index spans the available market for U.S. Treasury/Agency securities, investment grade corporate bonds which have a rating of BBB or better by Standard and Poor's Corporation, and mortgage pass-through securities. This index's inception date is 12/31/79. (2) The Lehman Brothers Corporate Bond Index is comprised of a large universe of bonds issued by industrial, utility and financial companies which have a minimum rating of Baa by Moody's Investors Service, BBB by Standard and Poor's Corporation or, in the case of bank bonds not rated by either of the previously mentioned services, BBB by Fitch Investors Service. (3) Based on figures supplied by the U.S. League of Savings Institutions and the Federal Reserve Board which reflect all kinds of savings deposits, including longer-term certificates. Savings accounts offer a guaranteed return of principal, but no opportunity for capital growth. During a portion of the period, the maximum rates paid on some savings deposits were fixed by law. IF YOU ARE CONSIDERING THE FUND FOR AN INDIVIDUAL RETIREMENT ACCOUNT . . .
Here's how much you would have if you had invested $2,000 on January 1 of each year in the Fund over the past 5 and 10 years: 5 Years 10 Years (1/1/94-12/31/98) (1/1/89-12/31/98) $ $
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
If you had ...and taken all invested distributions in shares, $10,000 in the your investment would Fund this many have been worth this years ago... much at Dec. 31, 1998 | Period | Number of Years 1/1-12/31 Value 1 1998 $ 2 1997 - 1998 10,402 3 1996 - 1998 11,105 4 1995 -1998 13,132 5 1994 -1998 12,471 6 1993 -1998 14,232 7 1992 -1998 15,852 8 1991 -1998 19,180 9 1990 -1998 19,809 10 1989 -1998 21,817 11 1988 -1998 24,143 12 1987 -1998 24,622 13 1986 -1998 28,357 14 1985 -1998 35,893 15 1984 -1998 40,191 16 1983 -1998 44,005 17 1982 -1998 58,491 18 1981 -1998 62,334 19 1980 -1998 64,545 20 1979 -1998 66,588 21 1978 -1998 67,941 22 1977 -1998 71,439 23 1976 -1998 84,411 24 1975 -1998 95,094 25 1974*-1998 98,670
* From May 28, 1974, the fund's inception date FUND COMPARISONS According to Lipper Analytical Services, during the period May 31, 1974 through December 31, 1998 (the fund's lifetime), the fund ranked among the thirteen similar bond funds that were in existence for that period. The fund may include information on its investment results and/or comparisons of its investment results to various unmanaged indices or results of other mutual funds or investment or savings vehicles in advertisements or in reports furnished to present to prospective shareholders. The fund may also, from time to time, combine its results with those of other funds in The American Funds Group for purposes of illustrating investment strategies involving multiple funds. The fund may also refer to results and surveys compiled by organizations such as CDA Investment Technologies, Ibbottson Associates, Lipper Analytical Services ("Lipper"), Morningstar, Inc., Wiesenberger Investment Companies Services and the U.S. Department of Commerce. Additionally, the Fund may refer to results published in various periodicals, including Barrons, Forbes, Institutional Investor, Kiplinger's Personal Finance Magazine, Money, U.S. News and World Report and The Wall Street Journal. In addition, the fund may also illustrate the benefits of tax deferral by comparing taxable investments to investments made through tax-deferred retirement plans. Past results are not an indication of future investment results. ILLUSTRATION OF A $10,000 INVESTMENT IN THE FUND WITH DIVIDENDS REINVESTED AND CAPITAL GAIN DISTRIBUTIONS TAKEN IN SHARES (For the lifetime of the Fund May 28, 1974 through December 31, 1998)
COST OF SHARES VALUE OF SHARES Fiscal Annual Dividends Total From From From Total Year End Dividends (cumulative) Investment Initial Capital Dividends Value Dec. 31 Cost Investment Gains Reinvested Reinvested 1974 $ 413 $ 413 $10,413 $ 9,473 $ 0 $ 411 $ 9,884 1975 897 1,310 11,310 9,799 0 1,338 11,137 1976 1,010 2,320 12,320 10,555 126 2,473 13,154 1977 1,114 3,434 13,434 10,125 240 3,466 13,831 1978 1,198 4,632 14,632 9,438 278 4,396 14,112 1979 1,387 6,019 16,019 8,848 260 5,448 14,556 1980 1,706 7,725 17,725 8,147 240 6,685 15,072 1981 2,096 9,821 19,821 7,564 222 8,287 16,073 1982 2,408 12,229 22,229 8,799 259 12,303 21,361 1983 2,529 14,758 24,758 8,612 253 14,517 23,382 1984 2,838 17,596 27,596 8,563 252 17,360 26,175 1985 3,193 20,789 30,789 9,722 286 23,132 33,140 1986 3,566 24,355 34,355 9,861 1,325 26,980 38,166 1987 3,746 28,101 38,101 9,119 1,225 28,571 38,915 1988 3,912 32,013 42,013 9,188 1,235 32,657 43,080 1989 4,425 36,438 46,438 9,181 1,234 37,028 47,443 1990 4,650 41,088 51,088 8,598 1,155 39,240 48,993 1991 4,859 45,947 55,947 9,507 1,277 48,519 59,303 1992 5,221 51,168 61,168 9,709 1,491 54,828 66,028 1993 5,269 56,437 66,437 10,028 3,501 61,833 75,362 1994 5,673 62,110 72,110 8,806 3,075 59,701 71,582 1995 6,112 68,222 78,222 9,632 3,363 71,650 84,645 1996 6,405 74,627 84,627 9,542 3,332 77,449 90,323 1997 6,635 81,262 91,262 9,715 3,392 85,563 98,670 1998
The dollar amount of capital gain distributions during the period was $ DESCRIPTION OF BOND RATINGS MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by various entities from "Aaa" to "C," according to quality as described below: "AAA -- Best quality. These securities carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large, or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues." "AA -- High quality by all standards. They are rated lower than the best bond because margins of protection may not be as large as in Aaa securities, fluctuation of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat greater." "A -- Upper medium grade obligations. These bonds possess many favorable investment attributes. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future." "BAA -- Medium grade obligations. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and, in fact, have speculative characteristics as well." "BA -- Have speculative elements; future cannot be considered as well assured. The protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Bonds in this class are characterized by uncertainty of position." "B -- Generally lack characteristics of the desirable investment; assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small." "CAA -- Of poor standing. Issues may be in default or there may be present elements of danger with respect to principal or interest." "CA -- Speculative in a high degree; often in default or have other marked shortcomings." "C -- Lowest rated class of bonds; can be regarded as having extremely poor prospects of ever attaining any real investment standing." STANDARD & POOR'S CORPORATION rates the long-term securities debt of various entities in categories ranging from "AAA" to "D" according to quality as described below: "AAA -- Highest rating. Capacity to pay interest and repay principal is extremely strong." "AA -- High grade. Very strong capacity to pay interest and repay principal. Generally, these bonds differ from AAA issues only in a small degree." "A -- Have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of change in circumstances and economic conditions, than debt in higher rated categories." "BBB -- Regarded as having adequate capacity to pay interest and repay principal. These bonds normally exhibit adequate protection parameters, but adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for debt in higher rated categories." "BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions." "C1 -- Reserved for income bonds on which no interest is being paid." "D -- In default and payment of interest and/or repayment of principal is in arrears." PART C THE BOND FUND OF AMERICA, INC. OTHER INFORMATION ITEM 23. EXHIBITS. (a) Previously filed (see Post-Effective Amendment No. 41 filed 2/28/97). (b) Previously filed (see Post-Effective Amendment No. 41 filed 2/28/97). (c) Previously filed (see Post-Effective Amendment No. 41 filed 2/28/97). (d) Copy of Investment Advisory and Service Agreement dated November 1, 1998. (e) Previously filed (see Post-Effective Amendment No. 41 filed 2/28/97). (f) None. (g) Previously filed (see Post-Effective Amendment No. 41 filed 2/28/97). (h) None. (I) Not applicable to this filing. (j) Consent of Independent Auditors - to be provided by amendment. (k) None. (l) None. (m) Previously filed (see Post-Effective Amendment No. 41 filed 2/28/97). (n) EX-27 Financial data schedule (EDGAR) (o) None. ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. None. ITEM 25. INDEMNIFICATION. Registrant is a joint-insured under Investment Advisor/Mutual fund Errors and Omissions Policies written by American International Surplus Lines Insurance Company, Chubb Custom Insurance Company, and ICI Mutual Insurance Company which insures its officers and directors against certain liabilities. However, in no event will Registrant maintain insurance to indemnify any such person for any act for which Registrant itself is not permitted to indemnify the individual. Article VIII of the Articles of Incorporation of the Fund provides that "The Corporation shall indemnify (1) its directors to the full extent provided by the general laws of the State of Maryland now or hereafter in force, including the advance of expenses under the procedures provided by such laws; (2) its officers to the same extent it shall indemnify its directors; and (3) its officers who are not directors to such further extent as shall be authorized by the Board of Directors and be consistent with law. The foregoing shall not limit the authority of the Corporation to indemnify other employees and agents. Any indemnification by the Corporation shall be consistent with the requirements of law, including the Investment Company Act of 1940." Subsection (b) of Section 2-418 of the General Corporation Law of Maryland empowers a corporation to indemnify any person who was or is party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against reasonable expenses (including attorneys' fees), judgments, penalties, fines and amounts paid in settlement actually incurred by him in connection with such action, suit or proceeding unless it is proved that: (i) the act or omission of the person was material to the cause of action adjudicated in the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty; (ii) the person actually received an improper personal benefit of money, property or services; or (iii) with respect to any criminal action or proceeding, the person had reasonable cause to believe his act or omission was unlawful. Indemnification under subsection (b) of Section 2-418 may not be made by a corporation unless authorized for a specific proceeding after a determination has been made that indemnification is permissible in the circumstances because the party to be indemnified has met the standard of conduct set forth in subsection (b). This determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors not, at the time, parties to the proceeding, or, if such quorum cannot be obtained, then by a majority vote of a committee of the Board consisting solely of two or more directors not, at the time, parties to such proceeding and who were duly designated to act in the matter by a majority vote of the full Board in which the designated directors who are parties may participate; (ii) by special legal counsel selected by the Board of Directors of a committee of the Board by vote as set forth in subparagraph (i), or, if the requisite quorum of the full Board cannot be obtained therefor and the committee cannot be established, by a majority vote of the full Board in which any director who is a party may participate; or (iii) by the stockholders (except that shares held by any party to the specific proceeding may not be voted). A court of appropriate jurisdiction may also order indemnification if the court determines that a person seeking indemnification is entitled to reimbursement under subsection (b). Section 2-418 further provides that indemnification provided for by Section 2-418 shall not be deemed exclusive of any rights to which the indemnified party may be entitled; that the scope of indemnification extends to directors, officers, employees or agents of a constituent corporation absorbed in a consolidation or merger and persons serving in that capacity at the request of the constituent corporation for another; and empowers the corporation to purchase and maintain insurance on behalf of a director, officer, employee or agent of the corporation against any liability asserted against or incurred by such person in any such capacity or arising out of such person's status as such whether or not the corporation would have the power to indemnify such person against such liabilities under Section 2-418. ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER. None. ITEM 27. PRINCIPAL UNDERWRITERS. (a) American Funds Distributors, Inc. is also the Principal Underwriter of shares of: AMCAP Fund, Inc., American Balanced Fund, Inc., The American Funds Income Series, The American Funds Tax-Exempt Series I, The American Funds Tax-Exempt Series II, American High-Income Municipal Bond Fund, Inc., American High-Income Trust, American Mutual Fund, Inc., Capital Income Builder, Inc., Capital World Bond Fund, Inc., Capital World Growth and Income Fund, Inc., The Cash Management Trust of America, EuroPacific Growth Fund, Fundamental Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America, Inc., Intermediate Bond Fund of America, The Investment Company of America, Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of America, Inc., The Tax-Exempt Money Fund of America, The U. S. Treasury Money Fund of America and Washington Mutual Investors Fund, Inc.
(B) (1) (2) (3) NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT David L. Abzug Regional Vice President None 27304 Park Vista Road Agoura Hills, CA 91301 John A. Agar Vice President None 1501 N. University Drive, Suite 227A Little Rock, AR 72207 Robert B. Aprison Vice President None 2983 Bryn Wood Drive Madison, WI 53711 L William W. Bagnard Vice President None Steven L. Barnes Senior Vice President None 5400 Mt. Meeker Road Suite 1 Boulder, CO 80301-3508 B Carl R. Bauer Assistant Vice President None Michelle A. Bergeron Senior Vice President None 4160 Gateswalk Drive Smyrna, GA 30080 Joseph T. Blair Senior Vice President None 27 Drumlin Road West Simsbury, CT 06092 John A. Blanchard Vice President None 6421 Aberdeen Road Mission Hills, KS 66208 Ian B. Bodell Senior Vice President None P.O. Box 1665 Brentwood, TN 37024-1665 Michael L. Brethower Senior Vice President None 2320 North Austin Avenue Georgetown, TX 78626 C. Alan Brown Regional Vice President None 4129 Laclede Avenue St. Louis, MO 63108 B J. Peter Burns Vice President None Brian C. Casey Regional Vice President None 8002 Greentree Road Bethesda, MD 20817 Victor C. Cassato Senior Vice President None 609 W. Littleton Blvd., Suite 310 Littleton, CO 80120 Christopher J. Cassin Senior Vice President None 111 W. Chicago Avenue, Suite G3 Hinsdale, IL 60521 Denise M. Cassin Vice President None 1301 Stoney Creek Drive San Ramon, CA 94538 L Larry P. Clemmensen Director None L Kevin G. Clifford Director, President and Co- None Chief Executive Officer Ruth M. Collier Senior Vice President None 145 West 67th St., #12K New York, NY 10023 S David Coolbaugh Assistant Vice President None Thomas E. Cournoyer Vice President None 2333 Granada Boulevard Coral Gables, FL 33134 Douglas A. Critchell Senior Vice President None 3521 Rittenhouse Street, N.W. Washington, D.C. 20015 L Carl D. Cutting Vice President None Daniel J. Delianedis Regional Vice President None 8689 Braxton Drive Eden Prairie, MN 55347 Michael A. Dilella Vice President None P. O. Box 661 Ramsey, NJ 07446 G. Michael Dill Senior Vice President None 505 E. Main Street Jenks, OK 74037 Kirk D. Dodge Senior Vice President None 633 Menlo Avenue, Suite 210 Menlo Park, CA 94025 Peter J. Doran Senior Vice President None 1205 Franklin Avenue Garden City, NY 11530 L Michael J. Downer Secretary Vice President Robert W. Durbin Vice President None 74 Sunny Lane Tiffin, OH 44883 I Lloyd G. Edwards Senior Vice President None L Paul H. Fieberg Sr. Vice President None John R. Fodor Vice President None 15 Latisquama Road Southborough, MA 01772 L Mark P. Freeman, Jr. Director None Clyde E. Gardner Senior Vice President None Route 2, Box 3162 Osage Beach, MO 65065 B Evelyn K. Glassford Vice President None Jeffrey J. Greiner Vice President None 12210 Taylor Road Plain City, OH 43064 L Paul G. Haaga, Jr. Director Chairman of the Board B Mariellen Hamann Assistant Vice President None David E. Harper Senior Vice President None R.D. 1, Box 210, Rte 519 Frenchtown, NJ 08825 Ronald R. Hulsey Vice President None 6744 Avalon Dallas, TX 75214 Robert S. Irish Regional Vice President None 1225 Vista Del Mar Drive Delray Beach, FL 33483 L Robert L. Johansen Vice President, Controller None Michael J. Johnston Director None 630 Fifth Ave., 36th Floor New York, NY 10111-0121 B Damien M. Jordan Vice President None Arthur J. Levine Senior Vice President None 12558 Highlands Place Fishers, IN 46038 B Karl A. Lewis Assistant Vice President None T. Blake Liberty Regional Vice President None 5506 East Mineral Lane Littleton, CO 80122 Mark J. Lien Regional Vice President None 5570 Beechwood Terrace West Des Moines, IA 50266 L Lorin E. Liesy Assistant Vice President None L Susan G. Lindgren Vice President - Institutional None Investment Services Division LW Robert W. Lovelace Director None Stephen A. Malbasa Vice President None 13405 Lake Shore Blvd. Cleveland, OH 44110 Steven M. Markel Senior Vice President None 5241 South Race Street Littleton, CO 80121 L John C. Massar Director, Senior Vice None President L E. Lee McClennahan Senior Vice President None L Jamie R. McCrary Assistant Vice President None S John V. McLaughlin Senior Vice President None Terry W. McNabb Vice President None 2002 Barrett Station Road St. Louis, MO 63131 L R. William Melinat Vice President - Institutional None Investment Services Division David R. Murray Vice President None 60 Briant Avenue Sudbury, MA 01776 Stephen S. Nelson Vice President None P.O. Box 470528 Charlotte, NC 28247 William E. Noe Regional Vice President None 304 River Oaks Road Brentwood, TN 37207 Peter A. Nyhus Vice President None 3084 Wilds Ridge Court Prior Lake, MN 55372 Eric P. Olson Vice President None 62 Park Drive Glenview, IL 60025 Fredric Phillips Senior Vice President None 175 Highland Avenue, 4th Floor Needham, MA 02194 B Candance D. Pilgrim Assistant Vice President None Carl S. Platou Vice President None 4021 96th Avenue, SE Mercer Island, WA 98040 L John O. Post, Jr. Vice President None S Richard P. Prior Assistant Vice President None Steven J. Reitman Senior Vice President None 212 The Lane Hinsdale, IL 60521 Brian A. Roberts Vice President None 11404 Foxhaven Drive Charlotte, NC 28277 George S. Ross Senior Vice President None 55 Madison Avenue Morristown, NJ 07962 L Julie D. Roth Vice President None L James F. Rothenberg Director None Douglas F. Rowe Vice President None 30008 Oakland Hills Drive Georgetown, TX 78628 Christopher Rowey Regional Vice President None 9417 Beverlywood Street Los Angeles, CA 90034 Dean B. Rydquist Senior Vice President None 1080 Bay Pointe Crossing Alpharetta, GA 30005 Richard R. Samson Senior Vice President None 4604 Glencoe Avenue, #4 Marina del Rey, CA 90292 Joe D. Scarpitti Vice President None 31465 St. Andrews Westlake, OH 44145 L R. Michael Shanahan Director None David W. Short Director, Chairman of the None 1000 RIDC Plaza, Suite 212 Board and Co-Chief Executive Pittsburgh, PA 15238-2941 Officer William P. Simon, Jr. Senior Vice President None 912 Castlehill Lane Devon, PA 91333 L John C. Smith Vice President - None Institutional Investment Services Division Rodney G. Smith Vice President None 100 N. Central Expressway, Suite 1214 Richardson, TX 75080 Anthony L. Soave Regional Vice President None 8831 Morning Mist Drive Clarkston, MI 48348 Nicholas D. Spadaccini Regional Vice President None 855 Markley Woods Way Cincinnati, OH 45230 L Kristen J. Spazafumo Assistant Vice President None Daniel S. Spradling Senior Vice President None 1400 Southdown Road Hillsborough, CA 94010 B Max D. Stites Vice President None Thomas A. Stout Regional Vice President None 3919 Whooping Crane Circle Virginia Beach, VA 23455 Craig R. Strauser Vice President None 3 Dover Way Lake Oswego, OR 97034 Francis N. Strazzeri Senior Vice President None 31641 Saddletree Drive Westlake Village, CA 91361 L Drew Taylor Assistant Vice President None S James P. Toomey Vice President None I Christopher E. Trede Vice President None George F. Truesdail Vice President None 400 Abbotsford Court Charlotte, NC 28270 Scott W. Ursin-Smith Vice President None 60 Reedland Woods Way Tiburon, CA 94920 Thomas E. Warren Regional Vice President None 119 Faubel Street Sarasota, FL 34242 L J. Kelly Webb Sr. Senior Vice President, None Treasurer Gregory J. Weimer Vice President None 206 Hardwood Drive Venetia, PA 15367 B Timothy W. Weiss Director None George J. Wenzel Regional Vice President None 3406 Shakespeare Drive Troy, MI 48084 N. Dexter Williams Senior Vice President None P.O. Box 2200 Danville, CA 94526 Timothy J. Wilson Vice President None 113 Farmview Place Venetia, PA 15367 B Laura L. Wimberly Vice President None H Marshall D. Wingo Director, Senior Vice None President L Robert L. Winston Director, Sr. Vice President None William R. Yost Vice President None 9320 Overlook Trail Eden Prairie, MN 55347 Janet M. Young Regional Vice President None 1616 Vermont Houston, TX 77006 Scott D. Zambon Regional Vice President None 320 Robinson Drive Tustin Ranch, CA 92782
____________ L Business Address, 333 South Hope Street, Los Angeles, CA 90071 LW Business Address, 11100 Santa Monica Boulevard, 15th Floor, Los Angeles, CA 90025 B Business Address, 135 South State College Boulevard, Brea, CA 92821 S Business Address, 3500 Wiseman Boulevard, San Antonio, TX 78251 H Business Address, 5300 Robin Hood Road, Norfolk, VA 23513 I Business Address, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240 (c) None. ITEM 28. LOCATION OF ACCOUNTS AND RECORDS. Accounts, books and other records required by Rules 31a-1 and 31a-2 under the Investment Company Act of 1940, as amended, are maintained and kept in the offices of the fund and its investment adviser, Capital Research and Management Company, 333 South Hope Street, Los Angeles, CA 90071. Certain accounting records are maintained and kept in the offices of the fund's accounting department, 135 South State College Blvd., Brea, CA 92821. Records covering shareholder accounts are maintained and kept by the transfer agent, American Funds Service Company, 135 South State College Blvd., Brea, CA 92821, 3500 Wiseman Boulevard, San Antonio, TX 78230, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240 and 5300 Robin Hood Road, Norfolk, VA 23514. Records covering portfolio transactions are also maintained and kept by the custodian, The Chase Manhattan Bank, N.A., One Chase Manhattan Plaza, New York, New York, 10081. ITEM 29. MANAGEMENT SERVICES. None. ITEM 30. UNDERTAKINGS. n/a SIGNATURE OF REGISTRANT Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, and State of California, on the 29th day of December, 1998. THE BOND FUND OF AMERICA, INC. By /s/ Paul G. Haaga, Jr. (Paul G. Haaga, Jr., Chairman of the Board) Pursuant to the requirements of the Securities Act of 1933, this amendment to registration statement has been signed below on December 29, 1998, by the following persons in the capacities indicated.
SIGNATURE TITLE (1) Principal Executive Officer: /s/ Abner D. Goldstine President and Director (Abner D. Goldstine) (2) Principal Financial Officer and Principal Accounting Officer: /s/ Anthony W. Hynes, Jr. Treasurer (Anthony W. Hynes, Jr.) (3) Directors: H. Frederick Christie* Director Don R. Conlan* Director Diane C. Creel* Director Martin Fenton, Jr.* Director Leonard R. Fuller* Director /s/ Abner D. Goldstine President and Director (Abner D. Goldstine) /s/ Paul G. Haaga, Jr. Chairman and Director (Paul G. Haaga, Jr.) Herbert Hoover III* Director Richard G. Newman* Director
*By /s/ Julie F. Williams Julie F. Williams, Attorney-in-Fact EX-99.B5ADVSRCONTR 2 EXHIBIT D INVESTMENT ADVISORY AND SERVICE AGREEMENT THIS AGREEMENT, dated and effective as of the 1st day of November 1998, is made and entered into by and between THE BOND FUND OF AMERICA, INC., a Maryland corporation, (hereinafter called the "Fund"), and CAPITAL RESEARCH AND MANAGEMENT COMPANY, a Delaware corporation, (hereinafter called the "Investment Adviser"). The parties agree as follows: W I T N E S S E T H The Fund is an open-end diversified investment company of the management type, registered under the Investment Company Act of 1940 (the "1940 Act"). The Investment Adviser is registered under the Investment Advisers Act of 1940 and is engaged in the business of providing investment advisory and related services to the Fund and to other investment companies. NOW, THEREFORE, in consideration of the premises and the mutual undertaking of the parties, it is covenanted and agreed as follows: 1. The Investment Adviser shall determine what securities and other assets shall be purchased or sold by the Fund. 2. The Investment Adviser shall furnish the services of persons to perform the executive, administrative, clerical, and bookkeeping functions of the Fund, including the daily determination of net asset value per share. The Investment Adviser shall pay the compensation and travel expenses of all such persons, and they shall serve without any additional compensation from the Fund. The Investment Adviser shall also, at its expense, provide the Fund with necessary office space (which may be in the offices of the Investment Adviser); all necessary office equipment and utilities; and general purpose forms, supplies, and postage used at the offices of the Fund. 3. The Fund shall pay all its expenses not assumed by the Investment Adviser as provided herein. Such expenses shall include, but shall not be limited to, custodian, stock transfer and dividend disbursing fees and expenses; distribution expenses pursuant to a plan under rule 12b-1 of the 1940 Act; costs of the designing and of printing and mailing to its shareholders reports, prospectuses, proxy statements, and notices to its shareholders; taxes; expenses of the issuance, sale, redemption, or repurchase of shares of the Fund (including registration and qualification expenses); legal and auditing fees and expenses; compensation, fees, and expenses paid to directors; association dues; and costs of any share certificates, stationery and forms prepared exclusively for the Fund. 4. The Fund shall pay to the Investment Adviser on or before the tenth (10th) day of each month, as compensation for the services rendered by the Investment Adviser during the preceding month, the sum of the following amounts: (a) 0.3% per annum of the first $60 million of the Fund's average daily net assets during the month, plus 0.21% per annum of such assets in excess of $60 million but not exceeding $1 billion, plus 0.18% per annum of such assets in excess of $1 billion but not exceeding $3 billion, plus 0.16% per annum of such assets in excess of $3 billion but not exceeding $6 billion, plus 0.15% per annum of such assets in excess of $6 billion but not exceeding $10 billion, plus 0.14% per annum of such assets in excess of $10 billion ("Net Asset Portion"), plus (b) 2.25% of the first $8,333,333 of the Fund's monthly gross investment income for the preceding month, plus 2% of such income in excess of $8,333,333 of the Fund's gross investment income for the preceding month ("Investment Income Portion"). The Net Asset Portion shall be accrued daily at 1/365th of the applicable annual rate set forth above. The net assets of the Fund shall be determined in the manner and on the dates set forth in the prospectus of the Fund, and on days on which the net assets are not determined, shall be as of the last preceding day on which the net assets shall have been determined. The Investment Income Portion shall be accrued daily and "gross investment income" for this purpose shall include amortization of original issue and market discount and bond premium as defined for federal income tax purposes but shall not include net gains from the sale of securities. For the purposes hereof, the net assets of the Fund shall be determined in the manner set forth in the Articles of Incorporation and prospectus of the Fund. The advisory fee shall be payable for the period commencing on the date on which operations of the Fund begin and ending on the date of termination hereof and shall be prorated for any fraction of a month at the termination of such period. 5. The Investment Adviser agrees to reduce the fee payable to it under this Agreement (a) by the amount by which ordinary operating expenses of the Fund for any fiscal year of the Fund, excluding interest, taxes and extraordinary expenses such as litigation, shall exceed the greater of (i) one percent (1%) of the average month-end net assets of the Fund for such fiscal year or (ii) ten percent (10%) of the Fund's gross investment income, and (b) by any additional amount necessary to assure that such ordinary operating expenses of the Fund in any year after such reduction, do not exceed the lesser of (i) one and one-half percent (1-1/2%) of the first $30 million of average month-end assets of the Fund, plus one percent (1%) of the average month-end net assets in excess thereof or (ii) twenty-five percent (25%) of the Fund's gross investment income. Costs incurred in connection with the purchase or sale of portfolio securities, including brokerage fees and commissions, which are capitalized in accordance with generally accepted accounting principles applicable to investment companies, shall be accounted for as capital items and not as expenses. Proper accruals shall be made by the Fund for any projected reduction hereunder, and corresponding amounts shall be withheld from the fees paid by the Fund to the Investment Adviser. Any additional reduction computed at the end of the fiscal year shall be deducted from the fee for the last month of such fiscal year, and any excess shall be paid to the Fund immediately after the fiscal year end, and in any event prior to publication of the Fund's Annual Report as a reduction of the fees previously paid during the fiscal year. 6. This agreement may be terminated at any time, without payment of any penalty, by the Directors of the Fund or by vote of a majority (within the meaning of the 1940 Act) of the outstanding voting securities of the Fund, on sixty (60) days' written notice to the Investment Adviser, or by the Investment Adviser on like notice to the Fund. Unless sooner terminated in accordance with this provision, this agreement shall continue until October 31, 1999. It may thereafter be renewed from year to year by mutual consent; provided that such renewal shall be specifically approved at least annually by the Board of Directors of the Fund, or by vote of a majority (within the meaning of the 1940 Act) of the outstanding voting securities of the Fund. In either event, it must be approved by a majority of those Directors who are not parties to such agreement nor interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. 7. This agreement shall not be assignable by either party hereto, and in the event of assignment (within the meaning of the 1940 Act) by the Investment Adviser shall automatically be terminated forthwith. The term "assignment" shall have the meaning defined in the 1940 Act. 8. Nothing contained in this Agreement shall be construed to prohibit the Investment Adviser from performing investment advisory, management, or distribution services for other investment companies and other persons or companies, nor to prohibit affiliates of the Investment Adviser from engaging in such business or in other related or unrelated businesses. 9. The Investment Adviser shall not be liable to the Fund or its stockholders for any error of judgment, act, or omission not involving willful misfeasance, bad faith, gross negligence, or reckless disregard of its obligations and duties hereunder. 10. It is understood that the name "American Funds" or any derivative thereof or logo associated with that name is the valuable property of the Investment Adviser and its affiliates, and that the Fund shall have the right to use such name (or derivative or logo) only so long as this Agreement shall continue in effect. Upon termination of this Agreement the Fund shall forthwith cease to use such name (or derivative or logo). IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed in duplicate original by their duly authorized officers. THE BOND FUND OF AMERICA, INC. CAPITAL RESEARCH AND MANAGEMENT COMPANY By /s/ Paul G. Haaga, Jr. By /s/ James F. Rothenberg Paul G. Haaga, Jr., Chairman James F. Rothenberg, President By /s/ Julie F. Williams By /s/ Michael J. Downer Julie F. Williams, Secretary Michael J. Downer, Secretary -----END PRIVACY-ENHANCED MESSAGE-----