Documents

AMERICAN FUNDS INSURANCE SERIES

Part B
Statement of Additional Information

May 1, 2006

This document is not a prospectus but should be read in conjunction with the
current prospectus of American Funds Insurance Series (the "Series") dated May
1, 2006. You may obtain a prospectus from your financial adviser or by writing
to the Series at the following address:

American Funds Insurance Series
Attention: Secretary
333 South Hope Street
Los Angeles, California 90071
213/486-9200

TABLE OF CONTENTS

Item Page No.
---- --------

Certain investment limitations and guidelines . . . . . . . . . . . 2
Description of certain securities and investment techniques . . . . 8
Fundamental policies and investment restrictions. . . . . . . . . . 20
Management of the Series . . . . . . . . . . . . . . . . . . . . . 25
Execution of portfolio transactions . . . . . . . . . . . . . . . . 46
Disclosure of portfolio holdings. . . . . . . . . . . . . . . . . . 49
Taxes and distributions . . . . . . . . . . . . . . . . . . . . . . 50
Price of shares . . . . . . . . . . . . . . . . . . . . . . . . . . 53
General information . . . . . . . . . . . . . . . . . . . . . . . . 54
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Financial statements

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CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES

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

GLOBAL DISCOVERY FUND

General

. The fund invests primarily in stocks of companies in the services and
information areas of the global economy.

. The fund may invest up to 25% of its assets in companies outside the
services and information area of the global economy. Under normal
market conditions, the fund will invest in equity securities,
including common and preferred stocks or other securities convertible
into stocks.

. The fund may hold cash and cash equivalents, government and other debt
securities of companies outside the services and information area.

Non-U.S. securities

. Although the fund currently expects to invest a majority of its assets
in the United States, it may invest its assets on a global basis. The
fund may invest in securities of issuers domiciled outside the United
States, including securities denominated in currencies other than the
U.S. dollar.

Debt securities

. The fund may not invest in debt securities rated below Ca by Moody's
Investors Service ("Moody's") and below CC by Standard & Poor's
Corporation ("S&P") or in unrated securities determined to be of
equivalent quality.

GLOBAL GROWTH FUND

General

. The fund invests primarily in common stocks of companies located
around the world.

Debt securities

. The fund may invest up to 10% of its assets in straight debt
securities (i.e., debt securities that do not have equity conversion
or purchase rights) rated Baa or below by Moody's and BBB or below by
S&P or in unrated securities that are determined to be of equivalent
quality.

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GLOBAL SMALL CAPITALIZATION FUND

Equity securities

. Normally, the fund invests at least 80% of its assets in equity
securities of companies with small market capitalizations. The
investment adviser currently defines "small market capitalization"
companies to be companies with market capitalizations of $3.5 billion
or less. The investment adviser has periodially reevaluated and
adjusted this definition and may continue to do so in the future.

Debt securities

. The fund may invest up to 10% of its assets in straight debt
securities rated Baa or below by Moody's and BBB or below by S&P, or
unrated but determined to be of equivalent quality.

GROWTH FUND

General

. The fund invests primarily in common stocks of companies that appear
to offer superior opportunities for growth of capital.

Non-U.S. securities

. The fund may invest up to 15% of its assets in securities of issuers
domiciled outside the United States and Canada.

Debt securities

. The fund may invest up to 10% of its assets in straight debt
securities rated Ba or below by Moody's and BB or below by S&P or in
unrated securities that are determined to be of equivalent quality.

INTERNATIONAL FUND

General

. The fund invests primarily in common stocks of companies located
outside the United States.

Debt securities

. The fund may invest up to 5% of its assets in straight debt securities
rated Baa or below by Moody's and BBB or below by S&P or in unrated
securities that are determined to be of equivalent quality.

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NEW WORLD FUND

General

. The fund invests primarily in stocks of companies with significant
exposure to countries with developing economies and/or markets.

. The fund will invest at least 35% of its assets in equity and debt
securities of issuers primarily based in qualified countries which
have developing economies and/or markets.

Equity securities

. The fund may invest the balance of its assets in equity securities of
any company regardless of where it is based, provided the adviser has
determined that a significant portion of its assets or revenues
(generally 20% or more) is attributable to developing countries.

Debt securities

. The fund may invest up to 25% of its assets in straight debt
securities of issuers primarily based in qualified countries which
have developing economies and/or markets, or issuers that the fund's
investment adviser determines have a significant portion of their
assets or revenues (generally 20% or more) attributable to developing
countries.

. The fund may invest up to 25% of its assets in straight debt
securities rated Ba or below by Moody's and BB or below by S&P or in
unrated securities that are determined to be of equivalent quality.

BLUE CHIP INCOME AND GROWTH FUND

General

. The fund invests primarily in common stocks of larger, more
established companies based in the United States.

Equity securities

. The fund ordinarily will invest at least 90% of its equity assets in
the stock of companies in business for five or more years (including
predecessor companies); that pay regular dividends; whose debt
securities are rated Baa or above by Moody's or BBB or above by S&P or
unrated but determined to be of equivalent quality; and reflect a
market capitalization of $4 billion and above. The fund will not
invest in private companies.

Non-U.S. securities

. The fund may invest up to 10% of its assets in equity securities of
larger non-U.S. companies that are listed or traded in the United
States.

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GLOBAL GROWTH AND INCOME FUND

General

. The fund seeks to make your investment grow over time and provide you
with current income by investing primarily in stocks of
well-established companies located around the world.

Non-U.S. securities

. The fund may invest a majority of its assets outside the United
States. For temporary defensive purposes, the fund may invest
principally or entirely in securities that are denominated in U.S.
dollars or whose issuers are domiciled in the United States.

Debt securities

. The fund may invest up to 10% of its assets in straight debt
securities rated Baa or below by Moody's and BBB or below by S&P or
unrated but determined to be of equivalent quality.

. The fund may invest up to 5% of its assets in straight debt securities
rated Ba or below by Moody's and BB or below by S&P or unrated but
determined to be of equivalent quality.

GROWTH-INCOME FUND

General

. The fund invests primarily in common stocks or other securities that
demonstrate the potential for appreciation and/or dividends.

Non-U.S. securities

. The fund may invest up to 15% of its assets in securities of issuers
domiciled outside the United States and not in the S&P 500.

Debt securities

. The fund may invest up to 5% of its assets in straight debt securities
rated Ba or below by Moody's and BB or below by S&P or in unrated
securities that are determined to be of equivalent quality.

ASSET ALLOCATION FUND

General

. The fund will generally invest 40% to 80% of its assets in equity
securities; 20% to 50% in debt securities; and 0% to 40% in money
market instruments (including cash).

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Debt securities

. Up to 25% of the fund's debt assets may be invested in straight debt
securities (i.e., not convertible into equity) rated Ba and BB or
below by Moody's or S&P or in unrated securities that are determined
to be of equivalent quality.

Non-U.S. securities

. The fund may invest up to 15% of its assets in equity securities of
issuers domiciled outside the United States and not in the S&P 500.

. The fund may invest up to 5% of its assets in debt securities of
issuers domiciled outside the United States.

BOND FUND

Equity securities

. The fund may invest up to 20% of its assets in preferred stocks,
including convertible and nonconvertible preferred stocks. The fund
may not purchase other equity securities directly, but may retain up
to 5% of its assets in common stock, warrants and rights after the
sale of the corresponding debt securities or received in exchange for
debt securities.

Debt securities

. The fund will invest at least 80% of its assets in bonds. For purposes
of this limit, bonds include any debt instrument and cash equivalents,
and may include certain preferred securities.

. The fund will invest at least 35% of its assets in debt securities
(including cash and cash equivalents) rated A or better by Moody's or
S&P or in unrated securities that are determined to be of equivalent
quality.

. The fund will invest at least 65% of its assets in debt securities
(including cash and cash equivalents) that are rated Baa or better by
Moody's or BBB or better by S&P 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 below by Moody's and BB or below by S&P or in unrated securities
that are determined to be of equivalent quality.

Non-U.S. securities

. The fund may invest up to 20% of its assets in non-U.S. dollar
denominated securities.

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HIGH-INCOME BOND FUND

Debt securities

. The fund will invest at least 80% of its assets in bonds. For purposes
of this limit, bonds include any debt instrument and cash equivalents,
and may include certain preferred securities.

. The fund will invest at least 65% of its assets in debt securities
rated Ba or below by Moody's or BB or below by S&P or in unrated
securities that are determined to be of equivalent quality.

Equity and other securities

. The fund may invest up to 20% of its assets in equity securities, such
as common and preferred stocks and convertible securities.

Maturity

. The fund generally will invest in securities with maturities in excess
of three years.

Non-U.S. securities

. The fund may invest up to 25% of its assets in securities of issuers
domiciled outside the United States.

U.S. GOVERNMENT/AAA-RATED SECURITIES FUND

General

. The fund will invest at least 80% of its assets in securities
guaranteed by the "full faith and credit" pledge of the U.S.
government or debt securities that are rated Aaa by Moody's or AAA by
S&P or unrated but determined to be of equivalent quality.

CASH MANAGEMENT FUND

General

. The fund will invest in high quality money market instruments rated in
the two highest quality categories by at least two nationally
recognized statistical rating organizations.

Maturity

. The fund may purchase securities that mature or may be redeemed in 13
months or less (25 months or less if U.S. government securities), even
if their original maturity is greater than one year.

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Non-U.S. securities

. The fund may invest up to 35% of its assets in U.S. dollar-denominated
securities issued by non-U.S. or Canadian entities or in securities
with credit and liquidity support features provided by non-U.S. or
Canadian entities.

DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES

With respect to all funds, portfolio changes will be made without regard to the
length of time a particular investment may have been held.

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

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

The growth-oriented, equity-type securities generally purchased by certain of
the funds may involve large price swings and potential for loss.

DEBT SECURITIES -- Debt securities are used by issuers to borrow money.
Generally, issuers pay investors periodic interest and repay the amount borrowed
either periodically during the life of the security and/or at maturity. Some
debt securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values and accrue interest at the
applicable coupon rate over a specified time period. The market prices of debt
securities fluctuate depending on such factors as interest rates, credit quality
and maturity. In general, market prices of debt securities decline when interest
rates rise and increase when interest rates fall.

Lower rated debt securities, rated Ba or below by Moody's and/or BB or below by
S&P or unrated but determined to be of equivalent quality, are described by the
rating agencies as speculative and involve greater risk of default or price
changes due to changes in the issuer's creditworthiness than higher rated debt
securities, or they may already be in default. The market prices of these
securities may fluctuate more than higher quality securities and may decline
significantly in periods of general economic difficulty. It may be more
difficult to dispose of, and to determine the value of, lower rated debt
securities.

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

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

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economic change and uncertainty also can be expected to result in increased
volatility of market prices and yields of certain debt securities.

PAYMENT EXPECTATIONS -- Debt securities may contain redemption or call
provisions. If an issuer exercises these provisions in a lower interest
rate market, the funds would have to replace the security with a lower
yielding security, resulting in decreased income to investors. If the
issuer of a debt security defaults on its obligations to pay interest or
principal or is the subject of bankruptcy proceedings, the funds may incur
losses or expenses in seeking recovery of amounts owed to them.

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

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

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

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

INVESTING IN SMALLER CAPITALIZATION STOCKS -- Global Discovery Fund, Global
Growth Fund, Global Small Capitalization Fund, Growth Fund, International Fund,
New World Fund, Global Growth and Income Fund, Growth-Income Fund and Asset
Allocation Fund may invest in the stocks of smaller capitalization companies
(typically companies with market capitalizations of less than $3.5 billion at
the time of purchase). The investment adviser believes that the issuers of
smaller capitalization stocks often provide attractive investment opportunities.
However, investing in smaller capitalization stocks can involve greater risk
than is customarily associated with investing in stocks of larger, more
established companies. For example, smaller companies often have limited product
lines, limited markets, or financial resources, may be dependent for management
on one or a few key persons, and can be more susceptible to losses. Also, their
securities may be thinly traded (and therefore have to be sold at a discount
from current prices or sold in small lots over an extended period of time), may
be followed by fewer investment research analysts and may be subject to wider
price swings, thus creating a greater chance of loss than

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securities of larger capitalization companies. Because Global Small
Capitalization Fund in particular emphasizes the stocks of issuers with smaller
market capitalizations (by U.S. standards), it can be expected to have more
difficulty obtaining information about the issuers or valuing or disposing of
its securities than if it were to concentrate on larger capitalization stocks.
The funds determine relative market capitalizations using U.S. standards.
Accordingly, the funds' non-U.S. investments may have large capitalizations
relative to market capitalizations of companies based outside the United States.

INVESTING IN PRIVATE COMPANIES -- Global Discovery Fund, Global Growth Fund,
Global Small Capitalization Fund, Growth Fund, International Fund, New World
Fund, Global Growth and Income Fund, Growth-Income Fund, Asset Allocation Fund,
Bond Fund and High-Income Bond Fund may invest in companies that have not
publicly offered their securities. Investing in private companies can involve
greater risks than those associated with investing in publicly traded companies.
For example, the securities of a private company may be subject to the risk that
market conditions, developments within the company, investor perception, or
regulatory decisions may delay or prevent the company from ultimately offering
its securities to the public. Furthermore, these investments are generally
considered to be illiquid until a company's public offering and are often
subject to additional contractual restrictions on resale that would prevent the
funds from selling their company shares for a period of time following the
public offering.

Investments in private companies can offer the funds significant growth
opportunities at attractive prices. However these investments can pose greater
risk, and, consequently, there is no guarantee that positive results can be
achieved in the future.

INVESTING IN VARIOUS COUNTRIES -- Global Discovery Fund, Global Growth Fund,
Global Small Capitalization Fund, Growth Fund, International Fund, New World
Fund, Blue Chip Income and Growth Fund, Global Growth and Income Fund,
Growth-Income Fund, Asset Allocation Fund, Bond Fund and High-Income Bond Fund
may invest in securities of issuers domiciled outside the United States and
which may be denominated in currencies other than the U.S. dollar. Investing
outside the United States may involve additional risks caused by, among other
things, currency controls and fluctuating currency values; different accounting,
auditing, financial reporting and legal standards and practices in some
countries; changing local, regional and global economic, political and social
conditions; expropriation; changes in tax policy; greater market volatility;
differing securities market structures; higher transaction costs; and various
administrative difficulties, such as delays in clearing and settling portfolio
transactions or in receiving payment of dividends. However, in the opinion of
the investment adviser, investing outside the United States also can reduce
certain portfolio risks due to greater diversification opportunities.

The risks described above may be heightened in connection with investments in
developing countries. Although there is no universally accepted definition, the
investment adviser generally considers a developing country as a country that is
in the earlier stages of its industrialization cycle with a low per capita gross
domestic product ("GDP") and a low market capitalization to GDP ratio relative
to those in the United States and the European Union. Historically, the markets
of developing countries have been more volatile than the markets of developed
countries, reflecting the greater uncertainties of investing in less established
markets and economies. In particular, developing countries may have less stable
governments; may present the risks of nationalization of businesses,
restrictions on foreign ownership and prohibitions on the repatriation of
assets; and may have less protection of property rights than more developed
countries. The economies of developing countries may be reliant on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions and may suffer from high and

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volatile debt burdens or inflation rates. Local securities markets may trade a
small number of securities and may be unable to respond effectively to increases
in trading volume, potentially making prompt liquidation of holdings difficult
or impossible at times.

Additional costs could be incurred in connection with the funds' investment
activities outside the United States. Brokerage commissions may be higher
outside the United States, and the funds will bear certain expenses in
connection with their currency transactions. Furthermore, increased custodian
costs may be associated with maintaining assets in certain jurisdictions.

U.S. Government/AAA-Rated Securities Fund and Cash Management Fund may purchase
obligations of non-U.S. corporations or governmental entities, provided they are
U.S. dollar-denominated and highly liquid. Accordingly, while the risks
mentioned above are still present, they are present to a lesser extent.

Certain risk factors related to developing countries are discussed below:

CURRENCY FLUCTUATIONS -- Certain funds may invest in securities valued in
currencies other than the U.S. dollar. Certain developing countries'
currencies have experienced and may in the future experience significant
declines against the U.S. dollar. For example, if the U.S. dollar
appreciates against foreign currencies, the value of the funds' securities
holdings would generally depreciate and vice versa. Consistent with their
investment objectives, the funds can engage in certain currency
transactions to hedge against currency fluctuations. See "Currency
Transactions" below.

GOVERNMENT REGULATION -- The political, economic and social structures of
certain developing countries may be more volatile and less developed than
those in the United States. Certain developing countries lack uniform
accounting, auditing and financial reporting standards, have less
governmental supervision of financial markets than in the United States,
and do not honor legal rights enjoyed in the United States. Certain
governments may be more unstable and present greater risks of
nationalization or restrictions on foreign ownership of local companies.

Repatriation of investment income, capital and the proceeds of sales by
foreign investors may require governmental registration and/or approval in
some developing market countries. While the funds will only invest in
markets where these restrictions are considered acceptable, a country could
impose new or additional repatriation restrictions after the funds'
investment. If this happened, the funds' response might include, among
other things, applying to the appropriate authorities for a waiver of the
restrictions or engaging in transactions in other markets designed to
offset the risks of decline in that country. Such restrictions will be
considered in relation to the funds' liquidity needs and all other positive
and negative factors. Further, some attractive equity securities may not be
available to the funds because foreign shareholders hold the maximum amount
legally permissible.

While government involvement in the private sector varies in degree among
developing countries, such involvement may in some cases include government
ownership of companies in certain sectors, wage and price controls or
imposition of trade barriers and other protectionist measures. With respect
to any developing country, there is no guarantee that some future economic
or political crisis will not lead to price controls,

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forced mergers of companies, expropriation or creation of government
monopolies to the possible detriment of the funds' investments.

LESS DEVELOPED SECURITIES MARKETS -- Developing countries may have less
well-developed securities markets and exchanges. The securities markets
have lower trading volumes than the securities markets of more developed
countries. These markets may be unable to respond effectively to increases
in trading volume. Consequently, these markets may be substantially less
liquid than those of more developed countries and the securities of issuers
located in these markets may have limited marketability. These factors may
make prompt liquidation of substantial portfolio holdings difficult or
impossible at times.

SETTLEMENT RISKS -- Settlement systems in developing countries are
generally less well organized than in developed markets. Supervisory
authorities may also be unable to apply standards comparable with those in
developed markets. Thus, there may be risks that settlement may be delayed
and that cash or securities belonging to the funds may be in jeopardy
because of failures of or defects in the systems. In particular, market
practice may require that payment be made before receipt of the security
being purchased or that delivery of a security be made before payment is
received. In such cases, default by a broker or bank (the "counterparty")
through whom the transaction is effected might cause the funds to suffer a
loss. The funds will seek, where possible, to use counterparties whose
financial status is such that this risk is reduced. However, there can be
no certainty that the funds will be successful in eliminating this risk,
particularly as counterparties operating in developing countries frequently
lack the substance or financial resources of those in developed countries.
There may also be a danger that, because of uncertainties in the operation
of settlement systems in individual markets, competing claims may arise
with respect to securities held by or to be transferred to the funds.

INVESTOR INFORMATION -- The funds may encounter problems assessing
investment opportunities in certain developing securities markets in light
of limitations on available information and different accounting, auditing
and financial reporting standards. In such circumstances, the investment
adviser will seek alternative sources of information, and to the extent the
investment adviser is not satisfied with the sufficiency of the information
obtained with respect to a particular market or security, the funds will
not invest in such market or security.

TAXATION -- Taxation of dividends and capital gains received by
non-residents varies among developing countries and, in some cases, is
comparatively high. In addition, developing countries typically have less
well-defined tax laws and procedures and such laws may permit retroactive
taxation so that the funds could in the future become subject to local tax
liability that they had not reasonably anticipated in conducting their
investment activities or valuing their assets.

LITIGATION -- The funds and their shareholders may encounter substantial
difficulties in obtaining and enforcing judgments against non-U.S. resident
individuals and companies.

FRAUDULENT SECURITIES -- Securities purchased by the funds may subsequently
be found to be fraudulent or counterfeit, resulting in a loss to the funds.

LOAN PARTICIPATIONS -- New World Fund may invest, subject to its overall
limitation on debt securities, in loan participations, typically made by a
syndicate of banks to govern-

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mental or corporate borrowers for a variety of purposes. The underlying
loans to developing market governmental borrowers may be in default and may
be subject to restructuring under the Brady Plan. The underlying loans may
be secured or unsecured, and will vary in term and legal structure.

CURRENCY TRANSACTIONS -- Global Discovery Fund, Global Growth Fund, Global Small
Capitalization Fund, Growth Fund, International Fund, New World Fund, Global
Growth and Income Fund, Asset Allocation Fund, Bond Fund and High-Income Bond
Fund can purchase and sell currencies to facilitate securities transactions and
enter into forward currency contracts to protect against changes in currency
exchange rates. Blue Chip Income and Growth Fund and Growth-Income Fund do not
currently intend to engage in any such transactions other than purchasing and
selling currencies and foreign exchange contracts which will be used to
facilitate settlement of trades. A forward currency contract is an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. Forward currency contracts entered into
by the funds will involve the purchase or sale of one currency against the U.S.
dollar. While entering into forward currency transactions could minimize the
risk of loss due to a decline in the value of the hedged currency, it could also
limit any potential gain which might result from an increase in the value of the
currency. The funds will not generally attempt to protect against all potential
changes in exchange rates. The funds will segregate liquid assets which will be
marked to market daily to meet their forward contract commitments to the extent
required by the Securities and Exchange Commission.

Bond Fund and High-Income Bond Fund may enter into the transactions described
above and may also enter into exchange-traded futures contracts relating to
foreign currencies ("currency contracts") in connection with investments in
securities of foreign issuers in anticipation of, or to protect against,
fluctuations in exchange rates. In addition, forward currency contracts may be
used by these funds to purchase or sell a currency against another currency at a
future date and price as agreed upon by the parties. An exchange-traded futures
contract relating to foreign currency is similar to a forward foreign currency
contract but has a standardized size and exchange date. Although currency
contracts typically will involve the purchase and sale of a currency against the
U.S. dollar, these funds also may enter into currency contracts not involving
the U.S. dollar. In connection with these futures transactions, the Series has
filed a notice of eligibility with the Commodity Futures Trading Commission
("CFTC") that exempts the Series from CFTC registration as a "commodity pool
operator" as defined under the Commodity Exchange Act. Pursuant to this notice,
these funds will observe certain CFTC guidelines with respect to its futures
transactions that, among other things, limit initial margin deposits in
connection with the use of futures contracts and related options for purposes
other than "hedging" (as defined by CFTC rules) up to 5% of a fund's net assets.

Bond Fund and High-Income Bond Fund may attempt to accomplish objectives similar
to those involved in their use of currency contracts by purchasing put or call
options on currencies. A put option gives a fund, as purchaser, the right (but
not the obligation) to sell a specified amount of currency at the exercise price
until the expiration of the option. A call option gives a fund, as purchaser,
the right (but not the obligation) to purchase a specified amount of currency at
the exercise price until its expiration. A fund might purchase a currency put
option, for example, to protect itself during the contract period against a
decline in the U.S. dollar value of a currency in which they hold or anticipate
holding securities. If the currency's value should decline against the U.S.
dollar, the loss in currency value should be offset, in whole or in part, by an
increase in the value of the put. If the value of the currency instead should
rise against the U.S. dollar, any gain

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to the fund would be reduced by the premium it had paid for the put option. A
currency call option might be purchased, for example, in anticipation of, or to
protect against, a rise in the value against the U.S. dollar of a currency in
which the fund anticipates purchasing securities.

Currency options may be either listed on an exchange or traded over-the-counter
("OTC options"). Listed options are third-party contracts (i.e., performance of
the obligations of the purchaser and seller is guaranteed by the exchange or
clearing corporation) and have standardized strike (exercise) prices and
expiration dates. OTC options are two-party contracts with negotiated strike
prices and expiration dates. Bond Fund and High-Income Bond Fund will not
purchase an OTC option unless the investment adviser believes that daily
valuations for such options are readily obtainable. OTC options differ from
exchange-traded options in that OTC options are transacted with dealers directly
and not through a clearing corporation which guarantees performance.
Consequently, there is a risk of non-performance by the dealer. Since no
exchange is involved, OTC options are valued on the basis of a quote provided by
the dealer. In the case of OTC options, there can be no assurance that a liquid
secondary market will exist for any particular option at any specific time.

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

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

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

Asset Allocation Fund, Bond Fund, High-Income Bond Fund and U.S.
Government/AAA-Rated Securities Fund may also enter into "roll" transactions
which involve the sale of mortgage-backed or other securities together with a
commitment to purchase similar, but not identical, securities at a later date.
The funds assume the risk of price and yield fluctuations during the time of the
commitment. The funds will segregate liquid assets which will be marked to
market daily in an amount sufficient to meet their payment obligations in these
transactions.

REPURCHASE AGREEMENTS -- The funds may enter into repurchase agreements under
which the funds buy a security and obtain a simultaneous commitment from the
seller to repurchase the

American Funds Insurance Series -- Page 14
<PAGE>

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

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

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

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

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

PASS-THROUGH SECURITIES -- The funds may invest in various debt obligations
backed by pools of mortgages or other assets including, but not limited to,
loans on single family residences, home equity loans, mortgages on commercial
buildings, credit card receivables and leases on airplanes or other equipment.
Principal and interest payments made on the underlying asset pools backing these
obligations are typically passed through to investors. Pass-through securities
may have either fixed or adjustable coupons. These securities include:

"MORTGAGE-BACKED SECURITIES" -- These securities may be issued by U.S.
government agencies and government-sponsored entities, such as Ginnie Mae,
Fannie Mae and Freddie Mac, and by private entities. The payment of
interest and principal on mortgage--

American Funds Insurance Series -- Page 15
<PAGE>

backed obligations issued by U.S. government agencies may be guaranteed by
the full faith and credit of the U.S. government (in the case of Ginnie
Mae), or may be guaranteed by the issuer (in the case of Fannie Mae and
Freddie Mac). However, these guarantees do not apply to the market prices
and yields of these securities, which vary with changes in interest rates.

Mortgage-backed securities issued by private entities are structured
similarly to those issued by U.S. government agencies. However, these
securities and the underlying mortgages are not guaranteed by any
government agencies. These securities generally are structured with one or
more types of credit enhancement. Mortgage-backed securities generally
permit borrowers to prepay their underlying mortgages. Prepayments can
alter the effective maturity of these instruments.

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) -- CMOs are also backed by a
pool of mortgages or mortgage loans, which are divided into two or more
separate bond issues. CMOs issued by U.S. government agencies are backed by
agency mortgages. Payments of principal and interest are passed through to
each bond issue at varying schedules resulting in bonds with different
coupons, effective maturities and sensitivities to interest rates. Some
CMOs may be structured in a way that when interest rates change, the impact
of changing prepayment rates on the effective maturities of certain issues
of these securities is magnified.

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

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

"IOs" and "POs" 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 mortgages that will substantially reduce or
eliminate interest payments.

American Funds Insurance Series -- Page 16
<PAGE>

WARRANTS AND RIGHTS -- The funds may purchase warrants, which may be issued
together with bonds or preferred stocks. Warrants generally entitle the holder
to buy a proportionate amount of common stock at a specified price, usually
higher than the current market price. Warrants may be issued with an expiration
date or in perpetuity. Rights are similar to warrants except that they normally
entitle the holder to purchase common stock at a lower price than the current
market price.

INFLATION-INDEXED BONDS -- Asset Allocation Fund, Bond Fund, High-Income Bond
Fund and U.S. Government/AAA-Rated Securities Fund may invest in
inflation-indexed bonds issued by governments, their agencies or
instrumentalities and corporations. The principal value of this type of bond is
adjusted in response to changes in the level of the consumer price index. The
interest rate is fixed at issuance as a percentage of this adjustable principal.
The actual interest income may therefore both rise and fall as the level of the
consumer price index rises and falls. In particular, in a period of deflation
the interest income would fall. While the interest income may adjust upward or
downward without limit in response to changes in the consumer price index, the
principal has a floor at par, meaning that the investor receives at least the
par value at redemption.

Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds,
even during a period of deflation. However, the current market value of the
bonds is not guaranteed and will fluctuate.

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

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

Cash Management Fund may only purchase commercial paper judged by the investment
adviser to be of suitable investment quality. This includes (a) commercial paper
that is rated in the two highest categories by at least two nationally
recognized statistical rating organizations (each, a "NRSRO"), or (b) other
commercial paper deemed on the basis of the issuer's creditworthiness to be of a
quality appropriate for Cash Management Fund. No more than 5% of Cash Management
Fund's assets may be invested in commercial paper rated in the second tier
(e.g., P-2/A-2) by

American Funds Insurance Series -- Page 17
<PAGE>

any NRSRO; no more than the greater of 1% of Cash Management Fund's assets or $1
million may be invested in such securities of any one issuer. See the
"Description of Commercial Paper Ratings" for a description of the ratings.

"Short-term bank obligations" can include certificates of deposit
(interest-bearing time deposits), bankers acceptances (time drafts drawn on a
commercial bank where the bank accepts an irrevocable obligation to pay at
maturity) representing direct or contingent obligations of commercial banks.

Cash Management Fund may purchase corporate obligations that mature or that will
be redeemed in one year or less. These obligations originally may have been
issued with maturities in excess of one year. Cash Management Fund may invest
only in corporate bonds or notes of issuers having outstanding short-term
securities rated as described above in "Commercial Paper."

"Savings association obligations" include certificates of deposit
(interest-bearing time deposits) issued by savings banks or savings and loan
associations.

"Floating rate obligations" have a coupon rate that changes at least annually
and generally more frequently. The coupon rate is set in relation to money
market rates. The obligations, issued primarily by banks, other corporations,
governments and semi-governmental bodies, may have a maturity in excess of one
year. In some cases, the coupon rate may vary with changes in the yield on
Treasury bills or notes or with changes in LIBOR (London Interbank Offering
Rate). The investment adviser considers floating rate obligations to be liquid
investments because a number of U.S. and non-U.S. securities dealers make active
markets in these securities.

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

Securities (including restricted securities) not actively traded will be
considered illiquid unless they have been specifically determined to be liquid
under procedures adopted by the Series' board of trustees, 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 funds may incur certain additional costs in
disposing of illiquid securities.

LOAN PARTICIPATIONS AND ASSIGNMENTS -- New World Fund (as previously described),
Bond Fund and High-Income Bond Fund may invest in loan participations or
assignments. Loan participations are loans or other direct debt instruments that
are interests in amounts owed by a corporate, governmental or other borrower to
another party. They may represent amounts owed to lenders or lending syndicates
to suppliers of goods or services, or to other parties. A 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, a fund generally will have no right to

American Funds Insurance Series -- Page 18
<PAGE>

enforce compliance by the borrower with the terms of the loan agreement relating
to the loan, nor any rights of set-off against the borrower, and a fund may not
directly benefit from any collateral supporting the loan in which it has
purchased the participation. As a result, a fund will be subject to the credit
risk of both the borrower and the lender that is selling the participation. In
the event of the insolvency of the lender selling a participation, a fund may be
treated as a general creditor of the lender and may not benefit from any set-off
between the lender and the borrower.

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

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

REVERSE REPURCHASE AGREEMENTS -- Bond Fund and U.S. Government/AAA-Rated
Securities Fund are authorized to enter into reverse repurchase agreements. A
reverse repurchase agreement is the sale of a security by a fund and its
agreement to repurchase the security at a specified time and price. Each fund
will segregate liquid assets which will be marked to market daily in an amount
sufficient to cover its obligations under reverse repurchase agreements with
broker-dealers (no collateral is required on reverse repurchase agreements with
banks). Under the 1940 Act, reverse repurchase agreements may be considered
borrowing by a fund. The use of reverse repurchase agreements by a fund creates
leverage which increases the fund's investment risk. As a fund's aggregate
commitments under these reverse repurchase agreements increase, the opportunity
for leverage similarly increases. If the income and gains on securities
purchased with the proceeds of reverse repurchase agreements exceed the costs of
the agreements, a 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, a fund's earnings or net asset value would decline faster than
otherwise would be the case. The funds do not currently intend to engage in this
investment practice over the next 12 months.

LOANS OF PORTFOLIO SECURITIES -- Asset Allocation Fund, Bond Fund, High-Income
Bond Fund and U.S. Government/AAA-Rated Securities Fund are authorized to lend
portfolio securities to selected securities dealers or other institutional
investors whose financial condition is monitored

American Funds Insurance Series -- Page 19
<PAGE>

by the investment adviser. The borrower must maintain with the Series' 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. A fund may at any time call 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. Each fund will limit its loans of portfolio securities
to an aggregate of 10% of the value of its total assets, measured at the time
any such loan is made. The funds do not currently intend to engage in this
investment practice over the next 12 months.

* * * * * *

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

Under certain market conditions, the investment policies of Asset Allocation
Fund, Bond Fund, High-Income Bond Fund, and U.S. Government/AAA-Rated Securities
Fund may result in higher portfolio turnover than those of the other funds,
although, other than Cash Management Fund, no fund's annual portfolio turnover
rate is expected to exceed 100%. A 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 funds' annual portfolio
turnover rates for each of the last five fiscal years.

FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS

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

INVESTMENT RESTRICTIONS OF GLOBAL DISCOVERY FUND, GLOBAL GROWTH FUND, GLOBAL
SMALL CAPITALIZATION FUND, GROWTH FUND, INTERNATIONAL FUND, NEW WORLD FUND, BLUE
CHIP INCOME AND GROWTH FUND, GLOBAL GROWTH AND INCOME FUND, GROWTH-INCOME FUND,
ASSET ALLOCATION FUND, BOND FUND AND HIGH-INCOME BOND FUND

Global Discovery Fund, Global Growth Fund, Global Small Capitalization Fund,
Growth Fund, International Fund, New World Fund, Blue Chip Income and Growth
Fund, Global Growth and

American Funds Insurance Series -- Page 20
<PAGE>

Income Fund, Growth-Income Fund, Asset Allocation Fund, Bond Fund and
High-Income Bond Fund may not:

1. Invest more than 5% of the value of the total assets of the fund in the
securities of any one issuer, provided that this limitation shall apply only to
75% of the value of the fund's total assets and, provided further, that the
limitation shall not apply to obligations of the government of the U.S. under a
general Act of Congress. The short-term obligations of commercial banks are
excluded from this 5% limitation with respect to 25% of the fund's total assets.

2. As to 75% of its total assets, purchase more than 10% of the outstanding
voting securities of an issuer.

3. Invest more than 25% of the fund's total assets in the securities of
issuers in the same industry. Obligations of the U.S. government, its agencies
and instrumentalities, are not subject to this 25% limitation on industry
concentration. In addition, the fund may, if deemed advisable, invest more than
25% of its assets in the obligations of domestic commercial banks.

4. Invest in real estate (including limited partnership interests, but
excluding securities of companies, such as real estate investment trusts, which
deal in real estate or interests therein).

5. Purchase commodities or commodity contracts; except that Global Discovery
Fund, Global Small Capitalization Fund, International Fund, New World Fund,
Asset Allocation Fund, Bond Fund and High-Income Bond Fund may engage in
transactions involving currencies (including forward or futures contracts and
put and call options).

6. Invest in companies for the purpose of exercising control or management.

7. Make loans to others except for (a) the purchase of debt securities; (b)
entering into repurchase agreements; (c) the loaning of its portfolio
securities; and (d) entering into loan participations.

8. Borrow money, except from banks for temporary purposes, and then in an
amount not in excess of 5% of the value of the fund's total assets. Moreover, in
the event that the asset coverage for such borrowings falls below 300%, the fund
will reduce, within three days, the amount of its borrowings in order to provide
for 300% asset coverage.

9. Purchase securities on margin.

10. 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.

11. Invest in puts, calls, straddles, spreads or any combination thereof;
except as described above in Investment Restriction number 5.

12. Invest in securities of other investment companies, except as permitted by
the 1940 Act.

13. Engage in underwriting of securities issued by others, except to the extent
it may be deemed to be acting as an underwriter in the purchase or resale of
portfolio securities.

American Funds Insurance Series -- Page 21
<PAGE>

Notwithstanding investment restriction number 12, if deemed advisable by its
officers, compensation paid by the Series to its Trustees may be invested in
securities of these or other investment companies under a deferred compensation
plan adopted by Trustees pursuant to an exemptive order granted by the
Securities and Exchange Commission.

Notwithstanding investment restriction number 13, the funds may not engage in
the business of underwriting 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.

Notwithstanding investment restriction number 7, Bond Fund may purchase loan
assignments.

NONFUNDAMENTAL POLICIES -- The following nonfundamental policies of Global
Discovery Fund, Global Growth Fund, Global Small Capitalization Fund, Growth
Fund, International Fund, New World Fund, Blue Chip Income and Growth Fund,
Growth-Income Fund, Global Growth and Income Fund, Asset Allocation Fund, Bond
Fund and High-Income Bond Fund may be changed without shareholder approval:

1. The fund may not invest more than 15% of its net assets in illiquid
securities.

2. The fund may not issue senior securities, except as permitted by the 1940
Act.

INVESTMENT RESTRICTIONS OF U.S. GOVERNMENT/AAA-RATED SECURITIES FUND

U.S. Government/AAA-Rated Securities Fund may not:

1. Purchase any security (other than securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities ("U.S. government
securities")) if, immediately after and as a result of such investment, more
than 5% of the value of the fund's total assets would be invested in securities
of the issuer.

2. Invest 25% or more of the value of its total assets in the securities of
issuers conducting their principal business activities in the same industry,
except that this limitation shall not apply to U.S. government securities or
other securities to the extent they are backed by or represent interests in U.S.
government securities or U.S. government-guaranteed mortgages.

3. Invest in companies for the purpose of exercising control or management.

4. Invest in securities of other investment companies, except as permitted by
the 1940 Act.

5. Buy or sell real estate or commodities or commodity contracts in the
ordinary course of its business; however, the fund may purchase or sell readily
marketable debt securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein, including real
estate investment trusts.

6. Engage in the business of underwriting securities of other issuers, except
to the extent that the disposal of an investment position may technically cause
it to be considered an underwriter as that term is defined under the Securities
Act of 1933.

American Funds Insurance Series -- Page 22
<PAGE>

7. Make loans, except that the fund may: (a) purchase readily marketable debt
securities; (b) invest in repurchase agreements; (c) make loans of portfolio
securities; and (d) enter into loan participations. The fund will not invest in
repurchase agreements maturing in more than seven days if any such investment,
together with any illiquid securities (including securities which are subject to
legal or contractual restrictions on resale) held by the fund, exceeds 10% of
the value of its total assets.

8. 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.

9. Purchase securities on margin, except that the fund may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities.

10. Borrow money, except from banks for temporary or emergency purposes not in
excess of 5% of the value of the fund's total assets, except that the fund may
enter into reverse repurchase agreements.

11. Write, purchase or sell puts, calls or combinations thereof.

Notwithstanding investment restriction number 4, if deemed advisable by its
officers, compensation paid by the Series to its Trustees may be invested in
securities of these or other investment companies under a deferred compensation
plan adopted by Trustees pursuant to an exemptive order granted by the
Securities and Exchange Commission.

NONFUNDAMENTAL POLICIES -- The following nonfundamental policies of U.S.
Government/AAA-Rated Securities Fund may be changed without shareholder
approval:

1. The fund may not invest more than 15% of its net assets in illiquid
securities.

2. The fund may not issue senior securities, except as permitted by the 1940
Act.

INVESTMENT RESTRICTIONS OF CASH MANAGEMENT FUND

Cash Management Fund may not:

2. As to 75% of its total assets, purchase more than 10% of the outstanding
voting class of securities of an issuer.

American Funds Insurance Series -- Page 23
<PAGE>

4. Enter into any repurchase agreement maturing in more than seven days or
invest in any other illiquid security if, as a result, more than 10% of the
fund's total assets would be so invested.

5. Make loans to others except for the purchase of the debt securities listed
above. The fund may enter into repurchase agreements as described above.

6. Borrow money, except from banks for temporary purposes, and then in an
amount not in excess of 5% of the value of the fund's total assets. Moreover, in
the event that the asset coverage for such borrowings falls below 300%, the fund
will reduce, within three days, the amount of its borrowings in order to provide
for 300% asset coverage.

7. 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.

8. Invest in puts, calls, straddles, spreads or any combination thereof.

9. Purchase or sell securities of other investment companies (except in
connection with a merger, consolidation, acquisition or reorganization), real
estate or commodities.

10. Act as underwriter of securities issued by others, engage in distribution
of securities for others, or make investments in other companies for the purpose
of exercising control or management.

NONFUNDAMENTAL POLICIES -- The following nonfundamental policies of Cash
Management Fund may be changed without shareholder approval:

Notwithstanding investment restriction number 1 above, in order to comply with
Rule 2a-7 under the 1940 Act, Cash Management Fund has adopted a policy of
investing no more than 5% of its assets (measured at the time of purchase) in
the securities of any one issuer (other than the U.S. government); provided
however, that Cash Management Fund may invest, as to 25% of its assets, more
than 5% of its assets in certain high-quality securities (as defined in the
Rule) of a single issuer for a period of up to three business days. Investment
restriction number 9 above does not prevent the purchase by Cash Management Fund
of securities that have "put" or "stand-by" commitment features.

Notwithstanding investment restriction number 9 above, if deemed advisable by
its officers, compensation paid by the Series to its Trustees may be invested in
securities of these or other investment companies under a deferred compensation
plan adopted by Trustees pursuant to an exemptive order granted by the
Securities and Exchange Commission.

American Funds Insurance Series -- Page 24
<PAGE>

MANAGEMENT OF THE SERIES

BOARD OF TRUSTEES AND OFFICERS

"NON-INTERESTED" TRUSTEES/1/

NUMBER OF
NAME, AGE AND BOARDS/3/
POSITION WITH FUND PRINCIPAL OCCUPATION(S) ON WHICH OTHER DIRECTORSHIPS/4/
(YEAR FIRST ELECTED/2/) DURING PAST FIVE YEARS TRUSTEE SERVES HELD BY TRUSTEE
-----------------------------------------------------------------------------------------------------------

Lee A. Ault III, 69 Chairman of the Board, In-Q-Tel, 1 Anworth Mortgage Asset
Chairman of the Board Inc. (an independent technology Corporation; Office
(Independent and venture company funded principally Depot, Inc.
Non-Executive) (1999) by the Central Intelligence
Agency); former Chairman of the
Board, President and CEO,
Telecredit, Inc.
-----------------------------------------------------------------------------------------------------------
H. Frederick Christie, Private investor; former President 19 Ducommun Incorporated;
72 and CEO, The Mission Group IHOP Corporation;
Trustee (1994) (non-utility holding company, Southwest Water Company
subsidiary of Southern California
Edison Company)
-----------------------------------------------------------------------------------------------------------
Joe E. Davis, 71 Private investor; former Chairman 1 Anworth Mortgage Asset
Trustee (1991) of the Board, Linear Corporation Corporation; Natural
(linear motor design and Alternatives, Inc.
production); former President and
CEO, National Health Enterprises,
Inc.
-----------------------------------------------------------------------------------------------------------
Martin Fenton, 70 Chairman of the Board, Senior 16 None
Trustee (1995) Resource Group LLC (development
and management of senior living
communities)
-----------------------------------------------------------------------------------------------------------
Leonard R. Fuller, 59 President and CEO, Fuller 14 None
Trustee (1999) Consulting (financial management
consulting firm)
-----------------------------------------------------------------------------------------------------------
Mary Myers Kauppila, 51 Private investor; Chairman of the 5 None
Trustee (1994) Board and CEO, Ladera Management
Company (venture capital and
agriculture); former owner and
President, Energy Investment, Inc.

-----------------------------------------------------------------------------------------------------------
Kirk P. Pendleton, 66 Chairman of the Board and CEO, 6 None
Trustee (1996) Cairnwood, Inc. (venture capital
investment)
-----------------------------------------------------------------------------------------------------------

American Funds Insurance Series -- Page 25
<PAGE>

"INTERESTED" TRUSTEES/5,6/

PRINCIPAL OCCUPATION(S)
DURING PAST FIVE YEARS NUMBER OF
AND POSITIONS BOARDS/3/
NAME,AGE AND HELD WITH AFFILIATED ENTITIES ON WHICH OTHER DIRECTORSHIPS/4/
POSITION WITH FUND OR THE PRINCIPAL UNDERWRITER TRUSTEE OR HELD BY
(YEAR FIRST ELECTED/2/) OF THE SERIES OFFICER SERVES TRUSTEE OR OFFICER
----------------------------------------------------------------------------------------------------

James K. Dunton, 68 Senior Vice President and 2 None
Vice Chairman of the Director, Capital Research and
Board (1993) Management Company
----------------------------------------------------------------------------------------------------
Donald D. O'Neal, 45 Senior Vice President, Capital 3 None
President and Trustee Research and Management
(1998) Company
----------------------------------------------------------------------------------------------------

OTHER OFFICERS/6/

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

Alan N. Berro, 45 Vice President, Capital Research and Management
Senior Vice Company; Senior Vice President, Capital Research
President (1998) Company*
-------------------------------------------------------------------------------
Michael J. Downer, Vice President and Secretary, Capital Research and
51 Management Company; Secretary and Director, American
Senior Vice Funds Distributors, Inc.*; Director, Capital Bank and
President (1991) Trust Company
-------------------------------------------------------------------------------
Abner D. Goldstine, Senior Vice President and Director, Capital Research
76 and Management Company
Senior Vice
President (1993)
-------------------------------------------------------------------------------
John H. Smet, 49 Senior Vice President, Capital Research and Management
Senior Vice Company; Director, American Funds Distributors, Inc.*
President (1994)
-------------------------------------------------------------------------------
Claudia P. Senior Vice President, Capital Research and Management
Huntington, 53 Company; Director, The Capital Group Companies, Inc.*
Vice President
(1994)
-------------------------------------------------------------------------------
Robert W. Lovelace, Senior Vice President, Capital Research and Management
43 Company; Chairman of the Board, Capital Research
Vice President Company*; Director, The Capital Group Companies, Inc.*
(1997)
-------------------------------------------------------------------------------
Susan M. Tolson, 43 Senior Vice President, Capital Research Company*
Vice President
(1999)
-------------------------------------------------------------------------------
Chad L. Norton, 45 Vice President - Fund Business Management Group,
Secretary (1994) Capital Research and Management Company
-------------------------------------------------------------------------------
David A. Pritchett, Vice President - Fund Business Management Group,
39 Capital Research and Management Company
Treasurer (1999)
-------------------------------------------------------------------------------
Steven I. Koszalka, Assistant Vice President - Fund Business Management
41 Group, Capital Research and Management Company
Assistant Secretary
(2003)
-------------------------------------------------------------------------------
Karl C. Grauman, 34 Vice President - Fund Business Management Group,
Assistant Treasurer Capital Research and Management Company
(2006)
-------------------------------------------------------------------------------
Sheryl F. Johnson, Vice President - Fund Business Management Group,
37 Capital Research and Management Company
Assistant Treasurer
(1997)
-------------------------------------------------------------------------------

American Funds Insurance Series -- Page 26
<PAGE>

* Company affiliated with Capital Research and Management Company.
1 A "non-interested" trustee refers to a trustee who is not an "interested
person" within the meaning of the 1940 Act.

2 Trustees and officers of the Series serve until their resignation, removal or
retirement.
3 Fund managed by Capital Research and Management Company, including the
American Funds and Endowments, whose shareholders are limited to certain
nonprofit organizations.
4 This includes all directorships (other than those of the American Funds) that
are held by each trustee as a director of a public company or a registered
investment company.
5 "Interested persons," within the meaning of the 1940 Act, on the basis of
their affiliation with the Series' investment adviser, Capital Research and
Management Company, or affiliated entities.
6 All of the trustees and officers listed are officers and/or directors/trustees
of one or more of the other funds for which Capital Research and Management
Company serves as investment adviser.

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

American Funds Insurance Series -- Page 27
<PAGE>

FUND SHARES OWNED BY TRUSTEES AS OF DECEMBER 31, 2005

AGGREGATE DOLLAR RANGE/1/
OF SHARES
OWNED IN ALL FUNDS
IN THE AMERICAN FUNDS
DOLLAR RANGE/1/ OF FAMILY OVERSEEN
NAME FUND SHARES OWNED/2/ BY TRUSTEE
-------------------------------------------------------------------------------

"NON-INTERESTED" TRUSTEES
-------------------------------------------------------------------------------
Lee A. Ault III None None
-------------------------------------------------------------------------------
H. Frederick Christie None Over $100,000
-------------------------------------------------------------------------------
Joe E. Davis None None
-------------------------------------------------------------------------------
Martin Fenton None Over $100,000
-------------------------------------------------------------------------------
Leonard R. Fuller None $50,001 - $100,000
-------------------------------------------------------------------------------
Mary Myers Kauppila None Over $100,000
-------------------------------------------------------------------------------
Kirk P. Pendleton None Over $100,000
-------------------------------------------------------------------------------
"INTERESTED" TRUSTEES
-------------------------------------------------------------------------------
James K. Dunton None Over $100,000
-------------------------------------------------------------------------------
Donald D. O'Neal None Over $100,000
-------------------------------------------------------------------------------

1 Ownership disclosure is made using the following ranges: None; $1 - $10,000;
$10,001 - $50,000; $50,001 - $100,000; and Over $100,000. The amounts listed
for "interested" trustees include shares owned through The Capital Group
Companies, Inc. retirement plan and 401(k) plan.
2 All of the Series' outstanding shares are owned of record by the separate
accounts of insurance companies that use the Series as the underlying
investments for variable annuity and variable life insurance contracts.

TRUSTEE COMPENSATION -- No compensation is paid by the Series to any officer or
trustee who is a director, officer or employee of the investment adviser or its
affiliates. The Series typically pays each non-interested trustee an annual fee
of $31,000. If the aggregate annual fees paid to a non-interested trustee by all
funds advised by the investment adviser is less than $50,000, that
non-interested trustee would be eligible for a $50,000 alternative fee. This
alternative fee is paid by those funds for which the non-interested trustee
serves as a trustee on a pro-rata basis according to each fund's relative share
of the annual fees that it would typically pay. The alternative fee reflects the
significant time and labor commitment required for a trustee to oversee even one
fund. A non-interested trustee who is chairman of the board (an "independent
chair") also receives an additional annual fee of $25,000. The Series pays to
its independent chair an attendance fee (as described below) for each meeting of
a committee of the board of trustees attended as a non-voting ex-officio member.

In addition, the Series generally pays to non-interested trustees fees of (a)
$5,000 for each board of trustees meeting attended and (b) $3,000 for each
meeting attended as a member of a committee of the board of trustees.

Non-interested trustees also receive attendance fees of (a) $2,500 for each
director seminar or information session organized by the investment adviser, (b)
$1,500 for each joint audit

American Funds Insurance Series -- Page 28
<PAGE>

committee meeting with all other audit committees of funds advised by the
investment adviser and (c) $500 for each meeting of the board or committee
chairs of other funds advised by the investment adviser. The fund and the other
funds served by each non-interested trustee each pay an equal portion of these
attendance fees.

The nominating committee of the board of trustees, a committee comprised
exclusively of non-interested trustees, reviews trustee compensation
periodically, and typically recommends adjustments every other year. In making
its recommendations, the nominating committee considers a number of factors,
including operational, regulatory and other developments affecting the
complexity of the board's oversight obligations, as well as comparative industry
data.

No pension or retirement benefits are accrued as part of Series expenses.
Non-interested trustees may elect, on a voluntary basis, to defer all or a
portion of their fees through a deferred compensation plan in effect for the
Series. The Series also reimburses certain expenses of the non-interested
trustees.

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

Lee A. Ault III $88,500 $ 88,500
-----------------------------------------------------------------------------------
H. Frederick 61,419 319,920
Christie/3/
-----------------------------------------------------------------------------------
Joe E. Davis 91,000 91,000
-----------------------------------------------------------------------------------
Martin Fenton/3/ 65,482 262,670
-----------------------------------------------------------------------------------
Leonard R. Fuller 51,320 187,420
-----------------------------------------------------------------------------------
Mary Myers 57,900 184,500
Kauppila/3/
-----------------------------------------------------------------------------------
Kirk P. Pendleton/3/ 51,750 207,500
-----------------------------------------------------------------------------------

Trustee compensation paid during the fiscal year ended December 31, 2005

1 Amounts may be deferred by eligible trustees under a nonqualified deferred
compensation plan adopted by the Series in 1993. Deferred amounts accumulate at
an earnings rate determined by the total return of one or more American Funds
as designated by the trustees. Compensation shown in this table for the fiscal
year ended December 31, 2005 does not include earnings on amounts deferred in
previous fiscal years. See footnote 3 to this table for more information.
2 Fund managed by Capital Research and Management Company, including the
American Funds and Endowments, whose shareholders are limited to certain
nonprofit organizations.

3 Since the deferred compensation plan's adoption, the total amount of deferred
compensation accrued by the Series (plus earnings thereon) through the 2005
fiscal year for participating trustees is as follows:
H. Frederick Christie ($315,534), Martin Fenton ($171,528), Mary Myers Kauppila
($747,730) and Kirk P. Pendleton ($548,774).
Amounts deferred and accumulated earnings thereon are not funded and are general
unsecured liabilities of the Series until paid to the trustees.

SERIES ORGANIZATION AND THE BOARD OF TRUSTEES -- The Series, an open-end
investment company, was organized as a Massachusetts business trust on September
13, 1983. All Series operations are supervised by its board of trustees, which
meets periodically and performs duties required by applicable state and federal
laws. Members of the board who are not employed by

American Funds Insurance Series -- Page 29
<PAGE>

Capital Research and Management Company or its affiliates are paid certain fees
for services rendered to the Series as described above. They may elect to defer
all or a portion of these fees through a deferred compensation plan in effect
for the Series.

Massachusetts common law provides that a trustee of a Massachusetts business
trust owes a fiduciary duty to the trust and must carry out his or her
responsibilities as a trustee in accordance with that fiduciary duty. Generally,
a trustee will satisfy his or her duties if he or she acts in good faith and
uses ordinary prudence.

The Series currently consists of separate funds which have separate assets and
liabilities, and invest in separate investment portfolios. The board of trustees
may create additional funds in the future. Income, direct liabilities and direct
operating expenses of a fund will be allocated directly to that fund and general
liabilities and expenses of the Series will be allocated among the funds in
proportion to the total net assets of each fund.

Each fund has three classes of shares - Class 1, Class 2 and Class 3. The shares
of each class represent an interest in the same investment portfolio. Each class
has equal rights as to voting, redemption, dividends and liquidation, except
that each class bears different distribution expenses and other expenses
properly attributable to the particular class as approved by the board of
trustees and set forth in the Series' amended and restated rule 18f-3 Plan.
Class 2 and Class 3 shareholders have exclusive voting rights with respect to
their respective rule 12b-1 Plans adopted in connection with the distribution of
Class 2 and Class 3 shares. Shares of each Class of the Series vote together on
matters that affect all classes in substantially the same manner. Each class
votes as a class on matters that affect that class alone.

The Series 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 Series will hold a meeting at which any member of the board could be removed
by a majority vote.

COMMITTEES OF THE BOARD OF TRUSTEES -- The Series has an audit committee
comprised of H. Frederick Christie, Joe E. Davis, Martin Fenton and Leonard R.
Fuller, none of whom is an "interested person" of the Series within the meaning
of the 1940 Act. The committee provides oversight regarding the Series'
accounting and financial reporting policies and practices, their internal
controls and the internal controls of the Series' principal service providers.
The committee acts as a liaison between the Series' independent registered
public accounting firm and the full board of trustees. Five audit committee
meetings were held during the 2005 fiscal year.

The Series has a contracts committee comprised of Lee A. Ault III, H. Frederick
Christie, Joe E. Davis, Martin Fenton, Leonard R. Fuller, Mary Myers Kauppila
and Kirk P. Pendleton, none of whom is an "interested person" of the Series
within the meaning of the 1940 Act. The committee's principal function is to
request, review and consider the information deemed necessary to evaluate the
terms of certain agreements between the Series and its investment adviser or the
investment adviser's affiliates, such as the Investment Advisory and Service
Agreement and plan of distribution adopted pursuant to rule 12b-1 under the 1940
Act, that the Series may enter into, renew or continue, and to make its
recommendations to the full board of

American Funds Insurance Series -- Page 30
<PAGE>

trustees on these matters. Two contracts committee meetings were held during the
2005 fiscal year.

The Series has a nominating committee comprised of Lee A. Ault III, Joe E.
Davis, Martin Fenton and Mary Myers Kauppila, none of whom is an "interested
person" of the Series within the meaning of the 1940 Act. The committee
periodically reviews such issues as the board's composition, responsibilities,
committees, compensation and other relevant issues, and recommends any
appropriate changes to the full board of trustees. The committee also evaluates,
selects and nominates non-interested trustee candidates to the full board of
trustees. While the committee normally is able to identify from its own and
other resources an ample number of qualified candidates, it will consider
shareholder suggestions of persons to be considered as nominees to fill future
vacancies on the board. Such suggestions must be sent in writing to the
nominating committee of the Series, addressed to the Series' secretary, and must
be accompanied by complete biographical and occupational data on the prospective
nominee, along with a written consent of the prospective nominee for
consideration of his or her name by the committee. Two nominating committee
meetings were held during the 2005 fiscal year.

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

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

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

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

American Funds Insurance Series -- Page 31
<PAGE>

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

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

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

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

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

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

PRINCIPAL FUND SHAREHOLDERS -- The following tables identify those investors who
own of record or are known by the funds to own beneficially 5% or more of any
class of a fund's shares as of the opening of business on April 1, 2006. Unless
otherwise indicated, the ownership percentages below represent ownership of
record rather than beneficial ownership.

GLOBAL DISCOVERY