<PAGE>
The
American
Funds
Group (R)
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New World
Fund
Prospectus
SEPTEMBER 15, 1999
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE
SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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New World Fund, Inc.
333 South Hope Street
Los Angeles, California 90071
TICKER SYMBOL: NEWFX NEWSPAPER ABBREV.: NwWrld FUND NO.: 36
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary 2
............................................................................
Fees and Expenses of the Fund 3
............................................................................
Investment Objective, Strategies and Risks 4
............................................................................
Year 2000 6
............................................................................
Management and Organization 6
............................................................................
Shareholder Information 8
............................................................................
Purchase and Exchange of Shares 9
............................................................................
Distribution Arrangements 14
</TABLE>
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36-010-0999/RRD New World Fund / Prospectus 1
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RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
stocks of companies with significant exposure to countries with developing
economies and/or markets. The fund may also invest in debt securities of
issuers, including issuers of high-yield, high-risk bonds, with exposure to
these countries.
The fund is designed for investors seeking capital appreciation. Investors in
the fund should have a long-term perspective and be able to tolerate
potentially wide price fluctuations. An investment in the fund is subject to
risks, including the possibility that the fund may decline in value in response
to economic, political and social events in the U.S. or abroad. In addition,
the prices of equity securities will be affected by events specifically
involving the companies whose securities are owned by the fund. The value of
debt securities held by the fund may be affected by changing interest rates and
credit ratings. High-yield, high-risk and longer maturity bonds will be subject
to greater credit risk and price fluctuations than higher quality and shorter
maturity bonds.
Although all securities in the fund's portfolio, including U.S. securities, may
be adversely affected by currency fluctuations or world political, social and
economic instability, investments outside the U.S., particularly in countries
with developing economies or markets, may be affected to a greater extent.
Your investment in the fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency, entity or person.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time.
2 New World Fund / Prospectus
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FEES AND EXPENSES OF THE FUND
The following describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
Shareholders Fees (fees paid directly from your investment)
<TABLE>
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<S> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.75%/1/
................................................................................
Maximum sales charge imposed on reinvested dividends 0%
................................................................................
Maximum deferred sales charge 0%/2/
................................................................................
Redemption or exchange fees 0%
</TABLE>
/1/ Sales charges are reduced or eliminated for larger purchases.
/2/ A contingent deferred sales charge of 1% applies to certain redemptions made
within 12 months following any purchases you made without a sales charge.
Annual Fund Operating Expenses/1/
(expenses deducted from fund assets)
<TABLE>
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<S> <C>
Management Fees .85%
................................................................................
Service (12b-1) Fees .10%/2/
................................................................................
Other Expenses .29%
................................................................................
Total Annual Fund Operating Expenses 1.24%
</TABLE>
/1/ Based on estimated amounts for the current fiscal year.
/2/ 12b-1 expenses may not exceed 0.30% of the fund's average net assets
annually.
Example
This Example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that
the fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
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<TABLE>
<S> <C>
One year $694
................................................................................
Three years $946
................................................................................
</TABLE>
New World Fund / Prospectus 3
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INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
The fund's investment objective is long-term capital appreciation. The fund may
invest in equity securities of any company, regardless of where it is based, if
the fund's investment adviser determines that a significant portion of a
company's assets or revenues (generally 20% or more) is attributable to devel-
oping countries. Under normal market conditions, the fund will invest at least
35% of its assets in equity and debt securities of issuers primarily based in
"qualified" countries that have developing economies and/or markets. In addi-
tion, the fund may invest up to 25% of its assets in debt securities of is-
suers, including issuers of high-yield, high-risk and government bonds, primar-
ily based in qualified countries or that have a significant portion of their
assets or revenues attributable to developing countries.
In determining whether a country is qualified, the fund will consider such fac-
tors as the country's per capita gross domestic product, the percentage of the
country's economy that is industrialized, market capital as a percentage of
gross domestic product, the overall regulatory environment, the presence of
government regulation limiting or banning foreign ownership, and restrictions
on repatriation of initial capital, dividends, interest, and/or capital gains.
The fund's investment adviser, Capital Research and Management Company, will
maintain an eligible list of qualified countries and securities in which the
fund may invest. Qualified developing countries in which the fund may invest
currently include, but are not limited to Argentina, Brazil, Chile, China, Co-
lumbia, Czech Republic, Greece, Hungary, India, Israel, Jordan, Malaysia, Mexi-
co, Morocco, Peru, Philippines, Poland, Russia, South Africa, South Korea,
Thailand, Turkey, and Venezuela.
The prices of equity securities will decline in response to certain events, in-
cluding those directly involving the companies whose securities are owned in
the fund, adverse conditions affecting the general economy, overall market de-
clines, world political, social and economic instability, and currency fluctua-
tions. Investments outside the U.S. may be affected by these events to a
greater extent and may also be affected by differing securities regulations,
higher transaction costs, and administrative difficulties such as delays in
clearing and settling portfolio transactions.
Investing in countries with developing economies and/or markets generally in-
volves risks in addition to and greater than those generally associated with
investing in developed countries. For instance, developing countries may have
less developed legal and accounting systems. The governments of these countries
may be more unstable and likely to impose capital controls, nationalize a
4 New World Fund / Prospectus
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company or industry, place restrictions on foreign ownership and on withdrawing
sale proceeds of securities from the country, and/or impose punitive taxes that
could adversely affect security prices. In addition, the economies of these
countries may be dependent on relatively few industries that are more suscepti-
ble to local and global changes. Securities markets in these countries are also
relatively small and have substantially lower trading volumes. As a result, se-
curities issued in these countries may be more volatile and potentially less
liquid than securities issued in countries with more developed economies or
markets.
The value of debt securities held by the fund may be affected by the risks
described above for developing countries, as well as by factors such as chang-
ing interest rates, credit ratings, and effective maturities. For example, the
value of bonds in the fund's portfolio generally will decline when interest
rates rise and vice versa. In addition, the values of high-yield, high-risk and
longer maturity bonds will be subject to greater credit risk and price fluctua-
tions than higher quality and shorter maturity bonds.
The fund may also hold cash or money market instruments of any issuer to any
extent deemed appropriate. The size of the fund's cash position will vary and
will depend on various factors, including market conditions and purchases and
redemptions of fund shares. A larger cash position could detract from the
achievement of the fund's objective, but it also provides greater liquidity to
meet redemptions or to make additional investments, and it would reduce the
fund's exposure in the event of a market downturn.
The fund relies on the professional judgment of Capital Research and Management
Company to make decisions about the fund's portfolio securities. The basic
investment philosophy of Capital Research and Management Company is to seek
undervalued securities that represent good long-term investment opportunities.
Securities may be sold when they are judged to no longer represent good long-
term value.
New World Fund / Prospectus 5
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YEAR 2000
The date-related computer issue known as the "Year 2000 problem" could have an
adverse impact on the quality of services provided to the fund and its
shareholders. However, the fund understands that its key service providers --
including the investment adviser and its affiliates -- are taking steps to
address the issue. In addition, the Year 2000 problem may adversely affect the
issuers in which the fund invests. For example, issuers may incur substantial
costs to address the problem. They may also suffer losses caused by corporate
and governmental data processing errors. These risks may be particularly acute
in certain developing countries in which the fund may invest and may adversely
affect the fund's net asset value and total return. The fund and its investment
adviser will continue to monitor developments relating to this issue.
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MANAGEMENT AND ORGANIZATION
Investment Adviser
Capital Research and Management Company, an experienced investment management
organization founded in 1931, serves as investment adviser to the fund and
other funds, including those in The American Funds Group. Capital Research and
Management Company, a wholly owned subsidiary of The Capital Group Companies,
Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital
Research and Management Company manages the investment portfolio and business
affairs of the fund. The estimated total management fee to be paid by the fund,
as a percentage of average net assets, is discussed earlier under "Fees and
Expenses of the Fund."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has also been
incorporated into the fund's code of ethics.
6 New World Fund / Prospectus
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Multiple Portfolio Counselor System
Capital Research and Management Company uses a system of multiple portfolio
counselors in managing mutual fund assets. Under this approach the portfolio of
a fund is divided into segments managed by individual counselors. Counselors
decide how their respective segments will be invested, within the limits
provided by a fund's objective(s) and policies and by Capital Research and
Management Company's investment committee. In addition, Capital Research and
Management Company's research professionals may make investment decisions with
respect to a portion of a fund's portfolio. The primary individual portfolio
counselors for New World Fund are listed below.
<TABLE>
<CAPTION>
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Approximate
Years of Experience as an
Investment Professional
(including the last five years)
................................
With Capital
Portfolio Years of Experience Research and
Counselors as Portfolio Counselor Management
for New World for New World Fund Company or
Fund Primary Title(s) (approximate) Affiliates Total Years
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert W. President of the fund. Less than one year 14 years 14 years
Lovelace Executive Vice President (since the fund
and Director, Capital began
Research Company* operations)
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Mark E. Senior Vice President of Less than one year 17 years 17 years
Denning the fund. Director, (since the fund
Capital Research and began
Management Company operations)
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David C. Vice President of the Less than one year 11 years 18 years
Barclay fund. Vice President, (since the fund
Capital Research and began
Management Company operations)
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Alwyn Heong Vice President of the Less than one year 7 years 11 years
fund. Vice President, (since the fund
Capital Research began
Company* operations)
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Carl M. Vice President of the Less than one year 8 years 12 years
Kawaja fund. Vice President, (since the fund
Capital Research began
Company* operations)
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The fund began investment operations on June 17, 1999.
* Company affiliated with Capital Research and Management Company.
----------------------------------------------------------------------------------------------
</TABLE>
New World Fund / Prospectus 7
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SHAREHOLDER INFORMATION
Shareholder Services
American Funds Service Company, the fund's transfer agent, offers you a wide
range of services you can use to alter your investment program should your
needs and circumstances change. These services are available only in states
where they may be legally offered and may be terminated or modified at any time
upon 60 days written notice. For your convenience, American Funds Service
Company has four service centers across the country.
[MAPS APPEAR HERE]
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Call toll-free from anywhere in the U.S.
(8 a.m. to 8 p.m. ET):
800/421-0180
Western Western Central Eastern Central Eastern
Service Center Service Center Service Center Service Center
American Funds American Funds American Funds American Funds
Service Company Service Company Service Company Service Company
P.O. Box 2205 P.O. Box 659522 P.O. Box 6007 P.O. Box 2280
Brea, california San Antonio, Texas Indianapolis, Indiana Norfolk, Virginia
92822-2205 78265-9522 46206-6007 23501-2280
Fax: 714/671-7080 Fax: 210/474-4050 Fax: 317/735-6620 Fax: 757/670-4773
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A complete description of the services we offer is described in the fund's
statement of additional information. In addition, an easy-to-read guide to
owning a fund in The American Funds Group titled "Welcome to the Family" is
sent to new shareholders and is available by writing or calling American Funds
Service Company.
You may invest in the fund through various retirement plans. However, some
retirement plans or accounts held by investment dealers may not offer certain
services. If you have any questions, please contact your plan
administrator/trustee or dealer.
8 New World Fund / Prospectus
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PURCHASE AND EXCHANGE OF SHARES
Purchase
Generally, you may open an account by contacting any investment dealer
authorized to sell the fund's shares. You may purchase additional shares using
various options described in the statement of additional information and
"Welcome to the Family."
Exchange
You may exchange your shares into other funds in The American Funds Group gen-
erally without a sales charge. Exchanges of shares from the money market funds
initially purchased without a sales charge generally will be subject to the ap-
propriate sales charge. Exchanges have the same tax consequences as ordinary
sales and purchases. See "Transactions by Telephone . . ." for information re-
garding electronic exchanges.
The fund and American Funds Distributors, the fund's principal underwriter, re-
serve the right to reject any purchase order for any reason. Although there is
currently no specific limit on the number of exchanges you can make in a period
of time, the fund and American Funds Distributors reserve the right to reject
any purchase order and may terminate the exchange privilege of any investor
whose pattern of exchange activity they have determined involves actual or po-
tential harm to the fund.
Investment Minimums
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<TABLE>
<S> <C>
To establish an account $1,000
For a retirement plan account $ 250
For a retirement plan account through payroll deduction $ 25
To add to an account $ 50
For a retirement plan account through payroll deduction $ 25
</TABLE>
Share Price
The fund calculates its share price, also called net asset value, as of 4:00
p.m. New York time, which is the normal close of trading on the New York Stock
Exchange, every day the Exchange is open. In calculating net asset value,
market prices are used when available. If a market price for a particular
security is not available, the fund will determine the appropriate price for
the security.
New World Fund / Prospectus 9
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Your shares will be purchased at the offering price, or sold at the net asset
value, next determined after American Funds Service Company receives and ac-
cepts your request. The offering price is the net asset value plus a sales
charge, if applicable.
Sales Charge
A sales charge may apply to your purchase. Your sales charge may be reduced for
larger purchases as indicated below.
<TABLE>
<CAPTION>
Sales Charge as a Percentage of
...............................
Net Dealer Concession
Offering Amount as % of
Investment Price Invested Offering Price
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<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
..................................................................................................
$50,000 but less than
$100,000 4.50% 4.71% 3.75%
..................................................................................................
$100,000 but less than
$250,000 3.50% 3.63% 2.75%
..................................................................................................
$250,000 but less than
$500,000 2.50% 2.56% 2.00%
..................................................................................................
$500,000 but less $1
million 2.00% 2.04% 1.60%
..................................................................................................
$1 million or more and certain
other investments described below see below see below see below
</TABLE>
Purchases Not Subject to Sales Charge
Investments of $1 million or more are sold with no initial sales charge. How-
ever, a 1% contingent deferred sales charge may be imposed if redemptions are
made within one year of purchase. Employer-sponsored defined contribution-type
plans investing $1 million or more, or with 100 or more eligible employees may
invest with no sales charge and are not subject to a contingent deferred sales
charge. Investments made by retirement plans, endowments or foundations with
$50 million or more in assets may also be made with no sales charge and are not
subject to a contingent deferred sales charge. A dealer concession of up to 1%
may be paid by the fund under its Plan of Distribution on investments made with
no initial sales charge.
Reducing Your Sales Charge
You and your immediate family may combine investments to reduce your sales
charge. You must let your investment dealer or American Funds Service Company
know if you qualify for a reduction in your sales charge using one or any
10 New World Fund / Prospectus
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combination of the methods described below and in the statement of additional
information and "Welcome to the Family."
Aggregating Accounts
To receive a reduced sales charge, investments made by you, your spouse and
your children under the age of 21 may be aggregated if made for their own ac-
count(s) and/or:
. trust accounts established by the above individuals. However, if the
person(s) who established the trust is deceased, the trust account may be
aggregated with accounts of the person who is the primary beneficiary of
the trust
. solely controlled business accounts
. single-participant retirement plans
Other types of accounts may be aggregated. You should check with your financial
adviser or consult the statement of additional information or "Welcome to the
Family" for more information.
Concurrent Purchases
You may combine simultaneous purchases of two or more American Funds, except
direct purchases of money market funds to qualify for a reduced sales charge.
Right of Accumulation
You may take into account the current value of you existing holdings in The
American Funds Group, as well as individual holdings in various American Legacy
products to determine your sales charge. Direct purchases of the money market
funds are excluded.
Statement of Intention
You may establish a Statement of Intention (SOI) that allows you to combine the
purchases you intend to make over a 13-month period in any non-money market
fund or individual American Legacy product. At your request purchases made
during the previous 90 days may be included; however capital appreciation and
reinvested dividends and capital gains do not apply toward these combined
purchases. An SOI allows you to take immediate advantage of the maximum
quantity discount available. A portion of your account may be held in escrow to
cover additional sales charges which may be due if your total invest-
New World Fund / Prospectus 11
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ments over the 13-month period are insufficient to qualify for the applicable
sales charge reduction.
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Plan of Distribution
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of ex-
penses are approved in advance by the fund's board of directors. Up to 0.25% of
average net assets is paid annually to qualified dealers for providing certain
services pursuant to the fund's Plan of Distribution. The estimated 12b-1 fee,
as a percentage of average net assets, to be paid by the fund is indicated ear-
lier under "Fees and Expenses of the Fund." Since these fees are paid out of
the fund's assets on an ongoing basis, over time they will increase the cost of
an investment and may cost you more than paying higher initial sales charges.
Other Compensation to Dealers
American Funds Distributors may provide additional compensation to, or sponsor
informational meetings for, dealers as described in the statement of additional
information.
How To Sell Shares
Once a sufficient period of time has passed to reasonably assure that checks or
drafts (including certified or cashiers' checks) for shares purchased have
cleared (normally 15 calendar days), you may sell (redeem) those shares in any
of the following ways:
Through Your Dealer (certain charges may apply)
. Shares held for you in your dealer's name must be sold through the dealer
Writing to American Funds Service Company
. Requests must be signed by the registered shareholder(s)
. A signature guarantee is required if the redemption is:
-- Over $50,000;
-- Made payable to someone other than the registered shareholder(s); or
-- Sent to an address other than the address of record, or an address of
record which has been changed within the last 10 days
12 New World Fund / Prospectus
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. Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
Telephoning or Faxing American Funds Service Company, or by using American
FundsLine(R) or American FundsLine OnLine(R):
. Redemptions by telephone or fax (including American FundsLine and American
FundsLine OnLine) are limited to $50,000 per shareholder each day
. Checks must be made payable to the registered shareholder
. Checks must be mailed to an address of record that has been used with the
account for at least 10 days
Transactions by Telephone, Fax, American FundsLine, or American FundsLine
OnLine
Generally, you are automatically eligible to use these services for redemptions
and exchanges unless you notify us in writing that you do not want any or all
of these services. You may reinstate these services at any time.
Unless you decide not to have telephone, fax, or computer services on your ac-
count(s), you agree to hold the fund, American Funds Service Company, any of
its affiliates or mutual funds managed by such affiliates, and each of their
respective directors, trustees, officers, employees and agents harmless from
any losses, expenses, costs or liabilities (including attorney fees) that may
be incurred in connection with the exercise of these privileges, provided Amer-
ican Funds Service Company employs reasonable procedures to confirm that the
instructions received from any person with appropriate account information are
genuine. If reasonable procedures are not employed, the fund may be liable for
losses due to unauthorized or fraudulent instructions.
New World Fund / Prospectus 13
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DISTRIBUTION ARRANGEMENTS
Dividends and Distributions
The fund intends to distribute dividends to you once each year, usually in
December. Capital gains, if any, are usually distributed in December.
You may elect to reinvest dividends and/or capital gain distributions to pur-
chase additional shares of this fund or any other fund in The American Funds
Group or you may elect to receive them in cash.
Tax Consequences
As with any investment, your investment in the fund could have tax conse-
quences. If you are not investing through a tax-advantaged retirement account,
you should consider these tax consequences.
Taxes on Distributions
Distributions you receive from the fund are subject to income tax and may also
be subject to state or local taxes--unless you are exempt from taxation or en-
titled to tax deferral.
For federal tax purposes, the fund's dividends and distributions of short-term
capital gains are taxable to you as ordinary income. The fund's distributions
of long-term capital gains are taxable to you as capital gains. Any taxable
distributions you receive from the fund will normally be taxable to you when
made, regardless of whether you reinvest distributions or receive them in cash.
Taxes on Transactions
Your redemptions, including exchanges, may result in a capital gain or loss for
federal tax purposes. A capital gain or loss on your investment in the fund is
the difference between the cost of your shares, including any sales charges,
and the price you receive when you sell them.
Please see the statement of additional information, the "Welcome to the Family"
guide, and your tax adviser for further information.
14 New World Fund / Prospectus
<PAGE>
For Shareholder For Retirement Plan For Dealer
Services Services Services
American Funds Call your employer or American Funds
Service Company plan administrator Distributors
800/421-0180 800/421-9900 ext. 11
For 24-hour Information
American American
FundsLine(R) FundsLine OnLine(R)
800/325-3590 http://www.americanfunds.com
Telephone conversations may be recorded or monitored for verification,
recordkeeping and quality assurance purposes.
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Multiple Translations
This prospectus may be translated into other languages. In the event of any
inconsistency or ambiguity as to the meaning of any word or phrase in a
translation, the English text will prevail.
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OTHER FUND INFORMATION
Annual/Semi-Annual Report to Shareholders
Contains additional information about the fund including financial statements,
investment results, portfolio holdings, a statement from portfolio management
discussing market conditions and the fund's investment strategies, and the
independent accountants' report (in the annual report).
Statement of Additional Information (SAI)
Contains more detailed information on all aspects of the fund, including the
fund's financial statements.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into this prospectus. The SAI and other related
materials about the fund are available for review or to be copied at the
Securities and Exchange Commission's Public Reference Room (1-800-SEC-0330) in
Washington, D.C. or on its Internet Web site at http://www.sec.gov.
Code of Ethics
Includes a description of the fund's personal investing policy.
To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary of the fund
Service Company 333 South Hope Street
800/421-0180 ext. 1 Los Angeles, CA 90071
Investment Company File No. 811-9105 [LOGO] Printed on recycled paper
<PAGE>
NEW WORLD FUND, INC.
Part B
Statement of Additional Information
SEPTEMBER 15, 1999
This document is not a prospectus but should be read in conjunction with the
current prospectus of New World Fund, Inc. (the fund or NWF) dated September
15, 1999. The prospectus may be obtained from your investment dealer or
financial planner or by writing to the fund at the following address:
New World Fund, Inc.
Attention: Secretary
333 South Hope Street
Los Angeles, CA 90071
(213) 486-9200
Shareholders who purchase shares at net asset value through eligible retirement
plans should note that not all of the services or features described below may
be available to them, and they should contact their employer for details.
TABLE OF CONTENTS
Item Page No.
CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES 2
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES 2
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS 7
FUND ORGANIZATION 9
FUND DIRECTORS AND OFFICERS 10
MANAGEMENT 15
DIVIDENDS, DISTRIBUTIONS AND TAXES 17
PURCHASE OF SHARES 22
SELLING SHARES 28
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 30
EXECUTION OF PORTFOLIO TRANSACTIONS 32
GENERAL INFORMATION 33
INVESTMENT RESULTS AND RELATED STATISTICS 34
DESCRIPTION OF BOND RATINGS 36
FINANCIAL STATEMENTS 38
CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES
The following limitations and guidelines are considered at the time of
purchase, under normal market conditions, and are based on a percentage of the
fund's net assets unless otherwise noted. This summary is not intended to
reflect all of the fund's investment limitations.
GENERAL
- - The fund will invest at least 35% of its assets in equity and debt securities
of companies based primarily in qualified countries with developing economies
and/or markets.
EQUITY SECURITIES
- - The fund may invest its assets in equity securities of any company,
regardless of where it is based, if the fund's investment adviser determines
that a significant portion of the company's assets or revenues (generally 20%
or more) are attributable to developing countries.
DEBT SECURITIES
- - The fund may invest up to 25% of its assets in straight debt securities (not
including convertible securities) of issuers, including government issuers,
primarily based in qualified countries with 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 will generally purchase debt
securities considered consistent with its objective of long-term capital
appreciation.
- - The fund may invest up to 25% of its assets in straight debt securities (not
including convertible securities) rated Ba and BB or below by Moody's Investors
Services, Inc. or Standard & Poor's Corporation or unrated but determined to be
of equivalent quality.
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
The descriptions below are intended to supplement the material in the
prospectus under the "Risk/Return Summary" and "Investment Objective,
Strategies and Risks."
EQUITY SECURITIES -- Equity securities represent an ownership position in a
company. The prices of equity securities fluctuate based on changes in the
financial condition of their issuers and on market and economic conditions. The
fund's results will be related to the overall market for these securities. The
growth-oriented, equity-type securities generally purchased by the fund may
involve large price swings and potential for loss, particularly in the case of
smaller capitalization stocks. (See "Certain Risk Factors Related to
Developing Countries" below.)
INVESTING IN VARIOUS COUNTRIES -- Investing outside the U.S. involves special
risks, caused by, among other things: currency controls; fluctuating currency
values; different accounting, auditing and financial reporting regulations and
practices in some countries; changing local and regional economic, political
and social conditions; greater market volatility; differing securities market
structures; and various administrative difficulties such as delays in clearing
and settling portfolio transactions or in receiving payment of dividends.
The risks described above are potentially heightened in connection with
investments in developing countries. Although there is no universally accepted
definition, a developing country is generally considered to be a country in the
initial stages of its industrialization cycle with a low per capita gross
national product. Political and/or economic structures in these countries may
be in their infancy and developing rapidly. Historically, the markets of
developing countries have been more volatile than the markets of developed
countries.
In determining where an issuer of a security is based, the Investment Adviser
may consider such factors as where the country is legally organized, maintains
its principal corporate offices, and/or conducts its principal operations.
Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. The fund may purchase and sell currencies to
facilitate transactions in securities denominated in currencies other than the
US. dollar. Brokerage commissions may be higher outside the U.S. and the fund
will bear certain expenses in connection with its currency transactions.
Furthermore, increased custodian costs may be associated with the maintenance
of assets in certain jurisdictions.
CERTAIN RISK FACTORS RELATED TO DEVELOPING COUNTRIES
CURRENCY FLUCTUATIONS -- The fund's investments may be 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 fund's securities holdings would generally
depreciate and vice versa. Consistent with its investment objective, the fund
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 U.S. Certain developing countries lack uniform accounting, auditing and
financial reporting standards, have less governmental supervision of financial
markets than in the U.S., and do not honor legal rights enjoyed in the U.S.
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 fund will only invest in markets where
these restrictions are considered acceptable, a country could impose new or
additional repatriation restrictions after the fund's investment. If this
happened, the fund's 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 fund's
liquidity needs and all other positive and negative factors. Further, some
attractive equity securities may not be available to the fund 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, forced mergers of companies,
expropriation, or creation of government monopolies to the possible detriment
of the fund's investments.
LESS DEVELOPED SECURITIES MARKETS -- Developing countries may have less
well-developed securities markets and exchanges. They 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 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 fund 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
fund to suffer a loss. The fund 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 fund 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 fund.
INVESTOR INFORMATION -- The fund 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 fund's investment adviser will
seek alternative sources of information, and to the extent the investment
adviser may not be satisfied with the sufficiency of the information obtained
with respect to a particular market or security, the fund 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 fund could
in the future become subject to local tax liability that it had not reasonably
anticipated in conducting its investment activities or valuing its assets.
LITIGATION -- The fund and its shareholders may encounter substantial
difficulties in obtaining and enforcing judgments against non-U.S. resident
individuals and companies.
FRAUDULENT SECURITIES -- Securities purchased by the fund may subsequently be
found to be fraudulent or counterfeit resulting in a loss to the fund.
LOAN PARTICIPATIONS -- The fund may invest, subject to its overall limitation
on debt securities, in loan participations, typically made by a syndicate of
banks to governmental 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. When
purchasing such instruments, the fund may assume the credit risks associated
with the original bank lender as well as the credit risks associated with the
borrower. Investment in loan participations presents the possibility that in
the U.S., the fund could be held liable as a co-lender under emerging legal
theories of lender liability. In addition, if the loan is foreclosed, the fund
could be part owner of any collateral, and could bear the costs and liabilities
of owning and disposing of the collateral. Loan participations are generally
not rated by major rating agencies, may not be protected by securities laws and
are often considered to be illiquid.
DEBT SECURITIES -- Bonds and other debt securities are used by issuers to
borrow money. Issuers pay investors interest and generally must repay the
amount borrowed at maturity. Some debt securities, such as zero coupon bonds,
do not pay current interest, but are purchased at a discount from their face
values. The prices of debt securities fluctuate depending on such factors as
interest rates, credit quality and maturity. In general their prices decline
when interest rates rise and vice versa.
INVESTMENTS IN LOWER RATED BONDS -- The fund may invest up to 25% of it's
assets in lower rated straight debt securities (securities rated Ba or below by
Moody's and BB or below by S&P and commonly referred to as "high-yield,
high-risk bonds" or "junk bonds") or in unrated securities that are determined
to be of equivalent quality. High-yield, high-risk bonds carry a higher degree
of investment risk and are considered speculative.
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK BONDS
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES -- High-yield, high-risk
bonds can be sensitive to adverse economic changes and political and corporate
developments and may be less sensitive to interest rate changes. During an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress that would adversely affect
their ability to service their principal and interest payment obligations, to
meet projected business goals and to obtain additional financing. In addition,
periods of economic uncertainty and changes can be expected to result in
increased volatility of market prices and yields of high-yield, high-risk
bonds.
PAYMENT EXPECTATIONS -- High-yield, high-risk bonds may contain redemption or
call provisions. If an issuer exercised these provisions in a declining
interest rate market, the fund would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. In addition,
if the issuer of a bond defaulted on its obligations to pay interest or
principal or entered into bankruptcy proceedings, the fund may incur losses or
expenses in seeking recovery of amounts owed to it.
LIQUIDITY AND VALUATION -- There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
Capital Research and Management Company attempts to reduce the risks described
above through diversification of the portfolio and by credit analysis of each
issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
OTHER SECURITIES -- The fund may also invest in securities that have equity and
debt characteristics. These securities may at times resemble equity more than
debt and vice versa. Non-convertible preferred stocks are similar to debt in
that they have a stated dividend rate akin to the coupon of a bond or note even
though they are often classified as equity securities. The prices and yields of
non- convertible preferred stocks generally move with changes in interest rates
and the issuer's credit quality, similar to the factors affecting debt
securities.
Bonds, preferred stocks and other securities may sometimes be converted into
common stock or other securities at a stated exchange ratio. These securities
prior to conversion pay a fixed rate of interest or a dividend. Because
convertible securities have both debt and equity characteristics, their value
varies in response to many factors, including the value of the underlying
equity, general market and economic conditions, convertible market valuations,
as well as changes in interest rates, credit spreads and the issuer's credit
quality.
U.S. GOVERNMENT SECURITIES -- Securities guaranteed by the U.S. Government
include: (1) direct obligations of the U.S. Treasury (such as Treasury bills,
notes and bonds) and (2) federal agency obligations guaranteed as to principal
and interest by the U.S. Treasury. In these securities, the payment of
principal and interest is unconditionally guaranteed by the U.S. Government,
and thus they are of the highest possible credit quality. Such securities are
subject to variations in market value due to fluctuations in interest rates,
but, if held to maturity, will be paid in full.
Certain securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the U.S.
Treasury. However, they generally involve federal sponsorship in one way or
another; some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the U.S. Treasury; some are supported by the
discretionary authority of the U.S. Treasury to purchase certain obligations of
the issuer; others are supported only by the credit of the issuing government
agency or instrumentality. These agencies and instrumentalities include, but
are not limited to, Federal Land Banks, Farmers Home Administration, Central
Bank Cooperatives, and Federal Intermediate Credit Banks.
CASH AND CASH EQUIVALENTS -- These securities include (i) commercial paper
(short-term notes up to 9 months in maturity issued by corporations or
governmental bodies), (ii) commercial bank obligations (E.G., certificates of
deposit, bankers' acceptances (time drafts on a commercial bank where the bank
accepts an irrevocable obligation to pay at maturity)), (iii) savings
association and saving bank obligations (E.G., certificates of deposit issued
by savings banks or savings associations), (iv) securities of the U.S.
Government, its agencies or instrumentalities that mature, or may be redeemed,
in one year or less, and (v) corporate bonds and notes that mature, or that may
be redeemed, in one year or less.
INVESTMENT COMPANIES -- The fund has the ability to invest up to 5% of its
total assets in shares of closed-end investment companies, but will not acquire
more than 3% of the outstanding voting securities of any one closed-end
investment company. (If the fund invests in another investment company, it
would pay an investment advisory fee in addition to the fee paid to the
Investment Adviser.)
CURRENCY TRANSACTIONS -- The fund has the ability to enter into forward
currency contracts to protect against changes in currency exchange rates. A
forward currency contract is an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set on the date of the
contract. Forward currency contracts entered into by the fund will involve the
purchase or sale of a currency against the U.S. dollar. The fund will
segregate liquid assets, which will be marked to market daily, to meet its
forward contract commitments to the extent required by the Securities and
Exchange Commission.
Certain provisions of the Internal Revenue Code may affect the extent to which
the fund may enter into forward contracts. Such transactions may also affect,
for U.S. federal income tax purposes, the character and timing of income, gain
or loss recognized by the fund.
RESTRICTED SECURITIES AND LIQUIDITY -- The fund may purchase securities subject
to restrictions on resale. All such securities not actively traded outside the
U.S. will be considered illiquid unless they have been specifically determined
to be liquid under procedures that may be adopted by the fund's Board of
Directors, taking into account factors such as the frequency and volume of
trading, the commitment of dealers to make markets and the availability of
qualified investors, all of which can change from time to time. The fund may
incur certain additional costs in disposing of illiquid securities.
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
The fund has adopted the following fundamental policies and investment
restrictions which may not be changed without a majority vote of its
outstanding shares. Such majority is defined by the Investment Company Act of
1940 (the 1940 Act) as the vote of the lesser of (i) 67% or more of the
outstanding voting securities present at a meeting, if the holders of more than
50% of the outstanding voting securities are present in person or by proxy or
(ii) more than 50% of the outstanding voting securities. Investment
limitations expressed in the following restrictions are considered at the time
securities are purchased and are based on the fund's net assets unless
otherwise indicated. These restrictions provide that:
1. The fund may not borrow money or securities, except for temporary or
emergency purposes in an amount not exceeding 33$% of its total assets.
2. The fund may not make loans, if, as a result, more than 33$% of its total
assets would be lent to other parties (this limitation does not apply to
purchases of debt securities, repurchase agreements or loans of portfolio
securities).
3. The fund may not invest 25% or more of its assets in securities of issuers
in any one industry (other than securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities).
4. The fund may not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business, such as real
estate investment trusts).
5. The fund may not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical commodities).
6. The fund may not engage in the business of underwriting securities of other
issuers, except to the extent that the purchase or disposal of an investment
position may technically constitute the fund as an underwriter as that term is
defined under the Securities Act of 1933.
7. The fund may not issue senior securities, except as permitted under the
Investment Company Act of 1940.
In addition, the fund will not change its subclassification from a diversified
to non-diversified company except as permitted under the Investment Company Act
of 1940.
The fund has also adopted the following investment restrictions which may be
changed without shareholder approval:
1. The fund may not with respect to 75% of its total assets, invest more than
5% of its assets in securities of any one issuer or acquire more than 10% of
the voting securities of any one issuer. These limitations do not apply to
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
2. The fund may not invest more than 15% of its net assets in securities which
are not readily marketable.
3. The fund may not purchase securities on margin, except for such short-term
credits as are necessary for the clearance of transactions, and provided that
the fund may make margin payments in connection with purchases or sales of
futures contracts or of options on futures contracts.
4. The fund may not engage in short sales except to the extent it owns or has
the right to obtain securities equivalent in kind and amount to those sold
short.
5. The fund may not invest in other companies for the purpose of exercising
control or management.
6. The fund may not invest more than 5% of its total assets in the securities
of other managed investment companies; such investments shall be limited to 3%
of the voting stock of any investment company, provided, however, that
investment in the open market of a closed-end investment company where no more
than customary brokers' commissions are involved and investment in connection
with a merger, consolidation, acquisition or reorganization shall not be
prohibited by this restriction.
Fund Organization
The fund is an open-end, diversified management investment company. It was
organized as a Maryland corporation on November 13, 1998.
All fund operations are supervised by the fund's Board of Directors. The board
meets periodically and performs duties required by applicable state and federal
laws. Members of the board who are not employed by Capital Research and
Management Company or its affiliates are paid certain fees for services
rendered to the fund as described in "Directors and Director Compensation"
below. They may elect to defer all or a portion of these fees through a
deferred compensation plan in effect for the fund.
FUND DIRECTORS AND OFFICERS
DIRECTORS AND DIRECTOR COMPENSATION
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION PRINCIPAL TOTAL COMPENSATION TOTAL NUMBER OF
AND AGE WITH OCCUPATION(S) (INCLUDING FUND BOARDS
REGISTRANT DURING PAST 5 VOLUNTARILY ON WHICH
YEARS DEFERRED DIRECTOR
COMPENSATION/1/) SERVES/3/
FROM ALL FUNDS
MANAGED BY CAPITAL
RESEARCH AND
MANAGEMENT COMPANY
OR ITS
AFFILIATES/2/ FOR
THE YEAR ENDED
10/31/98
<S> <C> <C> <C> <C>
Elizabeth Director Administrative $42,600 3
Allison Director, ANZI,
ANZI, Ltd. Ltd. (financial
1770 publishing and
Massachusetts consulting);
Ave. Publishing
Cambridge, MA Consultant,
02140 Harvard Medical
Age: 53 School; former
Senior Vice
President,
Planning and
Development,
McGraw Hill, Inc.
Michael R. Director Chairman of the $39,800 3
Bonsignore Board and Chief
Honeywell Executive Officer,
Plaza Honeywell Inc.
P.O. Box 524
Minneapolis,
MN 55440
Age: 58
+Gina H. Vice Senior Vice None/4/ 3
Despres Chairman President, Capital
3000 K. and Research and
Street, N.W. Director Management Company
Suite 230
Washington,
D.C. 20007
Age: 57
Robert A. Fox Director President and $105,417 7
P.O. Box 457 Chief Executive
Livingston, Officer, Foster
CA 95334 Farms, Inc.
Age: 62
Alan Greenway Director President, $75,500 5
7413 Fairway Greenway
Road Associates, Inc.
La Jolla, CA (management
92037 consulting
Age: 72 services)
+William R. Chairman Senior Vice None/4/ 5
Grimsley of the President and
One Market Board Director, Capital
Steuart Research and
Tower, Suite Management Company
1800
San
Francisco, CA
94105
Age: 61
Koichi Itoh Director Group Vice $43,900 3
Autosplice President,
Inc. Autosplice, Inc.,
3-7-39 former President
Minami-cho and Chief
Higashi-Kurume City Executive Officer,
Tokyo, Japan IMPAC (management
203-0031 consulting
Age: 58 services); former
Managing Partner,
VENCA Management
(venture capital)
William H. Director President, $79,000 5
Kling Minnesota Public
45 East Radio; President,
Seventh Greenspring Co.;
Street former President,
St. Paul, MN American Public
55101 Radio (now Public
Age: 57 Radio
International)
John G. Director The IBJ Professor $189,100 9
McDonald of Finance,
Graduate Graduate School of
School of Business, Stanford
Business University
Stanford
University
Stanford, CA
94305
Age: 62
++William I. Director Chairman of the $43,900 3
Miller Board, Irwin
500 Financial
Washington Corporation
Street
Box 929
Columbus, IN
47202
Age: 43
Kirk P. Director Chairman/Chief $102,434 6
Pendleton Executive Officer,
Cairnwood, Cairnwood, Inc.
Inc. (venture capital
75 James Way investment)
Southhampton,
PA 18966
Age: 59
Donald E. Director Former Chairman of $75,000 5
Petersen the Board and
222 East Chief Executive
Brown, Suite Officer, Ford
460 Motor Company
Birmingham,
MI 48009
Age: 73
</TABLE>
+ Directors who are considered "interested persons" of the fund as defined in
the 1940 Act on the basis of their affiliation with the fund's Investment
Adviser, Capital Research and Management Company.
++ Directors who may be deemed "interested persons" of the fund as defined in
the 1940 Act due to membership on the board of directors of the parent company
of a registered broker-dealer.
1 Amounts may be deferred by eligible Directors under a non-qualified deferred
compensation plan adopted by the fund in 1999. Deferred amounts accumulate at
an earnings rate determined by the total return of one or more of the funds in
The American Funds Group as designated by the director.
2 Capital Research and Management Company manages The American Funds Group
consisting of 29 funds: AMCAP Fund, American Balanced Fund, Inc., American
High-Income Municipal Bond Fund, Inc., American High-Income Trust, American
Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management Trust of
America, Capital Income Builder, Inc., Capital World Growth and Income Fund,
Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America.
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., New World Fund, Inc., SMALLCAP World Fund, Inc., The
Tax-Exempt Bond Fund of America, Inc., The Tax-Exempt Fund of California, The
Tax-Exempt Fund of Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt
Money Fund of America, The U.S. Treasury Money Fund of America, U.S. Government
Securities Fund and Washington Mutual Investors Fund, Inc. Capital Research
and Management Company also manages American Variable Insurance Series and
Anchor Pathway Fund which serve as the underlying investment vehicles for
certain variable insurance contracts; and Endowments, whose shareholders are
limited to (i) any entity exempt from taxation under Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended ("501(c)(3) organization"); (ii) any
trust, the present or future beneficiary of which is a 501(c)(3) organization;
and (iii) any other entity formed for the primary purpose of benefiting a
501(c)(3) organization.
3 Includes funds managed by Capital Research and Management Company and
affiliates.
4 Gina H. Despres and William R. Grimsley are affiliated with the Investment
Adviser and, accordingly, receive no compensation from the fund.
OFFICERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) PRINCIPAL OCCUPATION(S)
HELD WITH DURING PAST 5 YEARS
REGISTRANT
<S> <C> <C> <C>
Robert W. Lovelace 36 President Executive Vice President
11100 Santa Monica and Director, Capital
Blvd. Research Company; Vice
Los Angeles, CA President, Capital
90025 Research and Management
Company
Mark E. Denning 41 Senior Vice Senior Vice President and
25 Bedford Street President Director, Capital
London, England Research Company;
Director, Capital
Research and Management
Company
David C. Barclay 42 Vice Senior Vice President,
11100 Santa Monica President Capital Research Company
Blvd.
Los Angeles, CA
90025
Alwyn Heong 39 Vice Vice President, Capital
630 Fifth Avenue President Research Company
New York, NY
10111
Joseph R. Higdon 57 Vice Director and Senior Vice
3000 K. Street, President President, Capital
N.W. Strategy Research, Inc.
Suite 230
Washington, D.C.
20007
Carl M. Kawaja 35 Vice Vice President, Capital
One Market President Research Company
Steuart Tower,
Suite 1800
San Francisco, CA
94105
Vincent P. Corti 43 Secretary Vice President - Fund
333 South Hope Business Management
Street Group, Capital Research
Los Angeles, CA and Management Company
90071
R. Marcia Gould 44 Treasurer Vice President - Fund
135 South State Business Management
College Blvd. Group, Capital Research
Brea, CA 92821 and Management Company
Dayna Yamabe 32 Assistant Assistant Vice President
135 South State Treasurer - Fund Business
College Blvd. Management Group, Capital
Brea, CA 92821 Research and Management Company
</TABLE>
All of the officers listed are officers or employees of the Investment Adviser
or affiliated companies. No compensation is paid by the fund to any director
or officer who is a director, officer or employee of the Investment Adviser or
affiliated companies. The fund expects to pay an annual fee to Directors who
are not affiliated with the Investment Adviser, plus a fee for each Board of
Directors meeting attended, plus a fee for each meeting attended as a member of
a committee of the Board of Directors. No pension or retirement benefits are
accrued as part of fund expenses. The Directors may elect, on a voluntary
basis, to defer all or a portion of these fees through a deferred compensation
plan in effect for the fund.
MANAGEMENT
INVESTMENT ADVISER -- The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington D.C., London, Geneva, Hong Kong, Singapore and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience. The Investment Adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821.
The Investment Adviser's professionals travel several million miles a year,
making more than 5,000 research visits in more than 50 countries around the
world. The Investment Adviser believes that it is able to attract and retain
quality personnel. The Investment Adviser is a wholly-owned subsidiary of The
Capital Group Companies, Inc.
An affiliate of the Investment Adviser compiles indices for major stock markets
around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for managing more than $200 billion of
stocks, bonds and money market instruments and serves over eight million
investors of all types. These investors include individuals, various
retirement benefit plans, privately-owned businesses and large corporations as
well as schools, colleges, foundations and other non-profit and tax-exempt
organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT -- The Investment Advisory and
Service Agreement (the Agreement) between the fund and the Investment Adviser
is dated April 16, 1999. The Agreement will continue in effect until December
31, 2000, unless sooner terminated, and may be renewed from year to year
thereafter, provided that any such renewal has been specifically approved at
least annually by (i) the Board of Directors of the fund, or by the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the fund, and (ii) the vote of a majority of Directors who are not parties to
the Agreement or interested persons (as defined in the 1940 Act) of any such
party, cast in person, at a meeting called for the purpose of voting on such
approval. The Agreement provides that the Investment Adviser has no liability
to the fund for its acts or omissions in the performance of its obligations to
the fund not involving willful misconduct, bad faith, gross negligence or
reckless disregard of its obligations under the Agreement. The Agreement also
provides that either party has the right to terminate it, without penalty, upon
60 days' written notice to the other party, and that the Agreement
automatically terminates in the event of its assignment (as defined in the 1940
Act).
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
who perform the executive, administrative, clerical and bookkeeping functions
of the fund, provides suitable office space and utilities, necessary office
equipment and general purpose forms and supplies used at the office of the
fund, and will pay the travel expenses of Directors incurred in connection with
attendance at meetings of those Boards. The fund will pay all expenses not
expressly assumed by the Investment Adviser, including, but not limited to,
fees and expenses of the transfer agent, dividend disbursing agent, legal
counsel and independent public accountants and custodian, including charges of
such custodian for the preparation and maintenance of the books of account and
records of the fund, cost of designing, printing and mailing reports,
prospectuses, proxy statements and notices to shareholders; fees and expenses
of registration, qualification and issuance of fund shares; expenses pursuant
to the fund's Plan of Distribution (described below); association dues;
interest; taxes; and compensation of Directors who are not affiliated persons
of the Investment Adviser.
The Investment Adviser has agreed that in the event the expenses of the fund
(with the exclusion of interest, taxes, brokerage costs, distribution expenses
pursuant to a plan under Rule 12b-1 and extraordinary expenses such as
litigation and acquisitions) for any fiscal year ending on a date on which the
Agreement is in effect, exceed the expense limitations, if any, applicable to
the fund pursuant to state securities laws or any regulations thereunder, it
will reduce its fee by the extent of such excess and, if required pursuant to
any such laws or regulations, will reimburse the fund in the amount of such
excess.
As compensation for its services, the Investment Adviser receives a monthly fee
which is accrued daily, calculated at the annual rate of 0.85% of average net
assets.
PRINCIPAL UNDERWRITER -- American Funds Distributors, Inc. (the Principal
Underwriter) is the principal underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 3500 Wiseman Boulevard, San
Antonio, TX 78251, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240
and 5300 Robin Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of
Distribution (the Plan), pursuant to rule 12b-1 under the 1940 Act. The
Principal Underwriter receives amounts payable pursuant to the Plan (see below)
and commissions consisting of that portion of the sales charge remaining after
the discounts which it allows to investment dealers.
As required by rule 12b-1 and the 1940 Act, the Plan (together with the
Principal Underwriting Agreement) has been approved by the full Board of
Directors, and separately by a majority of the Directors who are not interested
persons of the fund and who have no direct or indirect financial interest in
the operation of the Plan or the Principal Underwriting Agreement, and the Plan
has been approved by the vote of a majority of the outstanding voting
securities of the fund. The officers and Directors who are interested persons
of the fund may be considered to have a direct or indirect financial interest
in the operation of the Plan due to present or past affiliations with the
Investment Adviser and related companies. Potential benefits of the Plan to
the fund include improved shareholder services, savings to the fund in transfer
agency costs, savings to the fund in advisory fees and other expenses, benefits
to the investment process from growth or stability of assets and maintenance of
a financially healthy management organization. The selection and nomination of
Directors who are not interested persons of the fund are committed to the
discretion of the Directors who are not interested persons during the existence
of the Plan. The Plan is reviewed quarterly and must be renewed annually by
the Board of Directors.
Under the Plan the fund may expend up to 0.30% of its average net assets
annually to finance any activity primarily intended to result in the sale of
fund shares, provided the fund's Board of Directors has approved the category
of expenses for which payment is being made. These include service fees for
qualified dealers and dealer commissions and wholesaler compensation on sales
of shares exceeding $1 million (including purchases by any employer-sponsored
403(b) plan, any defined contribution plan qualified under Section 401(a) of
the Internal Revenue Code including a "401(k)" plan with 100 or more eligible
employees or a community foundation).
Commissions on sales of shares exceeding $1 million (including purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code, including any
"401(k)" plan with 100 or more eligible employees) in excess of the Plan
limitation not reimbursed during the most recent fiscal quarter are recoverable
for five quarters, provided that such commissions do not exceed the annual
expense limit. After five quarters, commissions are not recoverable.
The Glass-Steagall Act and other applicable laws, among other things, generally
prohibit commercial banks from engaging in the business of underwriting,
selling or distributing securities, but permit banks to make shares of mutual
funds available to their customers and to perform administrative and
shareholder servicing functions. However, judicial or administrative decisions
or interpretations of such laws, as well as changes in either federal or state
statutes or regulations relating to the permissible activities of banks or
their subsidiaries of affiliates, could prevent a bank from continuing to
perform all or a part of its servicing activities. If a bank were prohibited
from so acting, shareholder clients of such bank would be permitted to remain
shareholders of the fund and alternate means for continuing the servicing of
such shareholders would be sought. In such event, changes in the operation of
the fund might occur, and shareholders serviced by such bank might no longer be
able to avail themselves of any automatic investment or other services then
being provided by such bank. It is not expected that shareholders would suffer
adverse financial consequences as a result of any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein, and certain banks and
financial institutions may be required to be registered as dealers pursuant to
state law.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS -- The fund intends to follow the practice of distributing
substantially all of its investment company taxable income which includes any
excess of net realized short-term gains over net realized long-term capital
losses. The fund may follow the practice of distributing the entire excess of
net realized long-term capital gains over net realized short-term capital
losses. However, the fund may retain all or part of such gain for
reinvestment, after paying the related federal taxes for which shareholders may
then be able to claim a credit against their federal tax liability. If the
fund does not distribute the amount of capital gain and/or net investment
income required to be distributed by an excise tax provision of the Code, the
fund may be subject to that excise tax. In certain circumstances, the fund may
determine that it is in the interest of shareholders to distribute less than
the required amount. In this case, the fund will pay any income or excise
taxes due.
The fund intends to distribute annually in December its investment company
taxable income, including any net short-term capital gains in excess of net
long-term capital losses, and any net capital gains realized during each fiscal
year. Additional distributions may be made, if necessary.
Dividends will be reinvested in shares of the fund unless shareholders indicate
in writing that they wish to receive them in cash or in shares of other
American Funds, as provided in the prospectus.
TAXES -- The fund intends to elect to be treated as a regulated investment
company under Subchapter M of the Code. A regulated investment company
qualifying under Subchapter M of the Code is required to distribute to its
shareholders at least 90% of its investment company taxable income (including
the excess of net short-term capital gain over net long-term capital losses)
and generally is not subject to federal income tax to the extent that it
distributes annually its investment company taxable income and net realized
capital gains in the manner required under the Code. The fund intends to
distribute annually all of its investment company taxable income and net
realized capital gains and therefore does not expect to pay federal income tax,
although in certain circumstances the fund may determine that it is in the
interest of shareholders to distribute less than that amount.
The fund will be subject to a 4% nondeductible excise tax on amounts required
to be but not distributed under a prescribed formula. The formula requires the
fund to distribute to shareholders for a calendar year an amount equal to at
least 98% of the fund's ordinary income for that calendar year, at least 98% of
the excess of its capital gains over capital losses realized during the
one-year period ending October 31 during such year, and all ordinary income and
capital gains for prior years that were not previously distributed.
Investment company taxable income generally includes dividends, interest, net
short-term capital gains in excess of net long-term capital losses, and certain
foreign currency gains, if any, less expenses and certain foreign currency
losses, if any. Net capital gains for a fiscal year are computed by taking
into account any capital loss carry-forward of the fund.
If any net long-term capital gains in excess of net short-term capital losses
are retained by a fund for reinvestment, requiring federal income taxes to be
paid thereon by the fund, the fund intends to elect to treat such capital gains
as having been distributed to shareholders. As a result, each shareholder will
report such capital gains as long-term capital gains taxable to individual
shareholders at a maximum 20% capital gains rate, will be able to claim a pro
rata share of federal income taxes paid by the fund on such gains as a credit
against personal federal income tax liability, and will be entitled to
increase the adjusted tax basis on fund shares by the difference between a pro
rata share of the retained gains and their related tax credit.
Distributions of investment company taxable income are taxable to shareholders
as ordinary income.
Distributions of the excess of net long-term capital gains over net short-term
capital losses which the fund properly designates as "capital gain dividends"
generally will be taxable to individual shareholders at a maximum 20% capital
gains rate, regardless of the length of time the shares of the fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less from the date of their
purchase will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gain during such
six-month period.
Distributions of investment company taxable income and net realized capital
gains to individual sharesholders will be taxable as described above, whether
received in shares or in cash. Shareholders electing to receive distributions
in the form of additional shares will have a cost basis for federal income tax
purposes in each share so received equal to the net asset value of a share on
the reinvestment date.
All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder subject to tax on his or her federal income tax return. Dividends
and capital gains distributions declared in October, November or December and
payable to shareholders of record in such a month will be deemed to have been
received by shareholders on December 31 if paid during January of the following
year. Redemptions of shares, including exchanges for shares of another
American Fund, may result in tax consequences (gain or loss) to the shareholder
and must also be reported on the shareholder's federal income tax return.
Dividends from domestic corporations are expected to comprise some portion of
the fund's gross income.
To the extent that such dividends constitute any of the fund's gross income, a
portion of the income distributions of the fund will be eligible for the
deduction for dividends received by corporations. Shareholders will be
informed of the portion of dividends which so qualify. The dividends-received
deduction is reduced to the extent that either the fund shares, or the
underlying shares of stock held by the fund, with respect to which dividends
are received are treated as debt-financed under federal income tax law and is
eliminated if the shares are deemed to have been held by the shareholder or the
fund, as the case may be, for less than 46 days.
Distributions by the fund result in a reduction in the net asset value of the
fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to
the shareholder as ordinary income or capital gain as described above, even
though, from an investment standpoint, it may constitute a partial return of
investment capital. For this reason, investors should consider the tax
implications of buying shares just prior to a distribution. The price of
shares purchased at that time includes the amount of the forthcoming
distribution. Those purchasing just prior to a distribution will then receive
a partial return of investment capital upon the distribution, which will
nevertheless be taxable to them.
Dividend and interest income received by the fund from sources outside the U.S.
may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may
reduce or eliminate these foreign taxes, however. Most foreign countries do
not impose taxes on capital gains in respect of investments by foreign
investors.
The fund may make the election permitted under Section 853 of the Code so that
shareholders may (subject to limitations) be able to claim a credit or
deduction on their federal income tax returns for, and will be required to
treat as part of the amounts distributed to them, their pro rata portion of
qualified taxes paid by the Fund to foreign countries (which taxes relate
primarily to investment income). The fund may make an election under Section
853 of the Code, provided that more than 50% of the value of the total assets
of the fund at the close of the taxable year consists of securities in foreign
corporations. The foreign tax credit available to shareholders is subject to
certain limitations imposed by the Code.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the fund accrues receivables or liabilities
denominated in a foreign currency and the time the fund actually collects such
receivables, or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in
a foreign currency and on disposition of certain futures contracts, forward
contracts and options, gains or losses attributable to fluctuations in the
value of foreign currency between the date of acquisition of the security or
contract and the date of disposition are also treated as ordinary gain or loss.
These gains or losses, referred to under the Code as "Section 988" gains or
losses, may increase or decrease the amount of the fund's investment company
taxable income to be distributed to its shareholders as ordinary income.
A portion of the difference between the issue price of zero coupon securities
and their face value ("original issue discount") is considered to be income to
the Fund each year, even though the fund will not receive cash interest
payments from these securities.
This original issue discount (imputed income) will comprise a part of the
investment company taxable income of the fund which must be distributed to
shareholders in order to maintain the qualification of the fund as a regulated
investment company and to avoid federal income tax at the level of the fund.
Shareholders will be subject to income tax on such original issue discount,
whether or not they elect to receive their distributions in cash.
If the fund invests in stock of certain passive foreign investment companies,
the fund may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the fund's holding period for the stock. The
distribution or gain so allocated to any taxable year of the fund, other than
the taxable year of the excess distribution or disposition, would be taxed to
the fund at the highest ordinary income rate in effect for such year, and the
tax would be further increased by an interest charge to reflect the value of
the tax deferral deemed to have resulted from the ownership of the foreign
company's stock. Any amount of distribution or gain allocated to the taxable
year of the distribution or disposition would be included in the fund's
investment company taxable income and, accordingly, would not be taxable to the
fund to the extent distributed by the fund as a dividend to its shareholders.
To avoid such tax and interest, the fund intends to elect to treat these
securities as sold on the last day of its fiscal year and recognize any gains
for tax purposes at that time. Under this election, deductions for losses are
allowable only to the extent of any prior recognized gains, and both gains and
losses will be treated as ordinary income or loss. The fund will be required
to distribute any resulting income even though it has not sold the security and
received cash to pay such distributions.
The fund will be required to report to the IRS all distributions of investment
company taxable income and capital gains as well as gross proceeds from the
redemption or exchange of fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of investment company taxable income and capital gains and
proceeds from the redemption or exchange of the shares of a regulated
investment company may be subject to withholding of federal income tax at the
rate of 31% in the case of non-exempt shareholders who fail to furnish the
investment company with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law.
Withholding may also be required if the fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
Shareholders of the fund may be subject to state and local taxes on
distributions received from the fund and on redemptions of the fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year fund shareholders will
receive a statement of the federal income tax status of all distributions.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, I.E., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is
not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of the fund, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a
lower rate under an applicable income tax treaty) on dividend income received
by him or her.
hareholders should consult their tax advisers about the application of the
provisions of tax law described in this statement of additional information in
light of their particular tax situations.
PURCHASE OF SHARES
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
<S> <C> <C>
See "Investment $50 minimum (except where a
Minimums and Fund lower minimum is noted under
Numbers" for initial "Investment Minimums and Fund
investment minimums. Numbers").
By Visit any investment Mail directly to your
contacting dealer who is investment dealer's address
your registered in the printed on your account
investment state where the statement.
dealer purchase is made and
who has a sales
agreement with
American Funds
Distributors.
By mail Make your check Fill out the account
payable to the fund additions form at the bottom
and mail to the of a recent account
address indicated on statement, make your check
the account payable to the fund, write
application. Please your account number on your
indicate an check, and mail the check and
investment dealer on form in the envelope provided
the account with your account statement.
application.
By Please contact your Complete the "Investments by
telephone investment dealer to Phone" section on the account
open account, then application or American
follow the procedures FundsLink Authorization Form.
for additional Once you establish the
investments. privilege, you, your
financial advisor or any
person with your account
information can call American
FundsLine(r) and make
investments by telephone
(subject to conditions noted
in "Telephone Purchases,
Redemptions and Exchanges"
below).
By Please contact your Complete the American
computer investment dealer to FundsLink Authorization Form.
open account, then Once you establish the
follow the procedures privilege, you, your
for additional financial advisor or any
investments. person with your account
information may access
American FundsLine OnLine(r)
on the Internet and make
investments by computer
(subject to conditions noted
in "Telephone and Computer
Purchases, Redemptions and
Exchanges" below).
By wire Call 800/421-0180 to Your bank should wire your
obtain your account additional investments in the
number(s), if same manner as described
necessary. Please under "Initial Investment."
indicate an
investment dealer on
the account.
Instruct your bank to
wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA
94106
(ABA #121000248)
For credit to the
account of:
American Funds
Service Company a/c
#4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO
REJECT ANY PURCHASE ORDER.
</TABLE>
INVESTMENT MINIMUMS AND FUND NUMBERS -- Here are the minimum initial
investments required by the funds in The American Funds Group along with fund
numbers for use with our automated phone line, American FundsLine(r) (see
description below):
<TABLE>
<CAPTION>
FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
<S> <C> <C>
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(r) $1,000 02
American Balanced Fund(r) 500 11
American Mutual Fund(r) 250 03
Capital Income Builder(r) 1,000 12
Capital World Growth and Income 1,000 33
Fund(sm)
EuroPacific Growth Fund(r) 250 16
Fundamental Investors(sm) 250 10
The Growth Fund of America(r) 1,000 05
The Income Fund of America(r) 1,000 06
The Investment Company of America(r) 250 04
The New Economy Fund(r) 1,000 14
New Perspective Fund(r) 250 07
New World Fund(sm) 1,000+ 36
SMALLCAP World Fund(r) 1,000 35
Washington Mutual Investors Fund(sm) 250 01
BOND FUNDS
American High-Income Municipal Bond 1,000 40
Fund(r)
American High-Income Trust(sm) 1,000 21
The Bond Fund of America(sm) 1,000 08
Capital World Bond Fund(r) 1,000 31
Intermediate Bond Fund of 1,000 23
America(sm)
Limited Term Tax-Exempt Bond Fund of 1,000 43
America(sm)
The Tax-Exempt Bond Fund of 1,000 19
America(r)
The Tax-Exempt Fund of 1,000 20
California(r)*
The Tax-Exempt Fund of Maryland(r)* 1,000 24
The Tax-Exempt Fund of Virginia(r)* 1,000 25
U.S. Government Securities Fund(sm) 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of 2,500 09
America(r)
The Tax-Exempt Money Fund of 2,500 39
America(sm)
The U.S. Treasury Money Fund of 2,500 49
America(sm)
___________
*Available only in certain states.
</TABLE>
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
SALES CHARGES -- The sales charges you pay when purchasing the stock,
stock/bond and bond funds of The American Funds Group are set forth below. The
money market funds of The American Funds Group are offered at net asset value.
(See "Investment Minimums and Fund Numbers" for a listing of the funds.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND
FUNDS
Less than $50,000 6.10% 5.75% 5.00%
$50,000 but less than 4.71 4.50 3.75
$100,000
BOND FUNDS
Less than $25,000 4.99 4.75 4.00
$25,000 but less than 4.71 4.50 3.75
$50,000
$50,000 but less than 4.17 4.00 3.25
$100,000
STOCK, STOCK/BOND AND
BOND FUNDS
$100,000 but less than 3.63 3.50 2.75
$250,000
$250,000 but less than 2.56 2.50 2.00
$500,000
$500,000 but less than 2.04 2.00 1.60
$1,000,000
$1,000,000 or more none none (see below)
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES -- Investments of $1 million or more are
sold with no initial sales charge. However, a 1% contingent deferred sales
charge may be imposed if redemptions are made within one year of purchase.
Employer-sponsored defined contribution-type plans investing $1 million or
more, or with 100 or more eligible employees may invest with no sales charge
and are not subject to a contingent sales charge. Investments made by
retirement plans, endowments or foundations with $50 million or more in assets
may also be made with no sales charge. A dealer concession of up to 1% may be
paid by the fund under its Plan of Distribution on investments made with no
initial sales charge.
In addition, the stock, stock/bond and bond funds may sell shares at net asset
value to:
(1) current or retired directors, trustees, officers and advisory board members
of the funds managed by Capital Research and Management Company, employees of
Washington Management Corporation, employees and partners of The Capital Group
Companies, Inc. and its affiliated companies, certain family members of the
above persons and trusts or plans primarily for such persons;
(2) current registered representatives, retired registered representatives with
respect to accounts established while active, or full-time employees (and their
spouses, parents and children) of dealers who have sales agreements with
American Funds Distributors (or who clear transactions through such dealers)
and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer;
(4) trustees or other fiduciaries purchasing shares for certain retirement
plans of organizations with retirement plan assets of $50 million or more;
(5) insurance company separate accounts;
(6) accounts managed by subsidiaries of The Capital Group Companies, Inc.; and
(7) The Capital Group Companies, Inc., its affiliated companies and Washington
Management Corporation. Shares are offered at net asset value to these persons
and organizations due to anticipated economies in sales effort and expense.
DEALER COMMISSIONS -- Commissions of up to 1% will be paid to dealers who
initiate and are responsible for purchases of $1 million or more, for purchases
by any employer-sponsored 403(b) plan or purchases by any defined contribution
plan qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $50 million or more: 1.00% on amounts of $1 million
to $4 million, 0.50% on amounts over $4 million to $10 million, and 0.25% on
amounts over $10 million.
OTHER COMPENSATION TO DEALERS -- American Funds Distributors, at its expense
(from a designated percentage of its income), currently provides additional
compensation to dealers. Currently these payments are limited to the top 100
dealers who have sold shares of the fund or other funds in The American Funds
Group. These payments will be based principally on a pro rata share of a
qualifying dealer's sales. American Funds Distributors will, on an annual
basis, determine the advisability of continuing these payments.
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
REDUCING YOUR SALES CHARGE -- You and your immediate family may combine
investments to reduce your costs. You must let your investment dealer or
American Funds Service Company know if you qualify for a reduction in your
sales charge using one or any combination of the methods described below.
STATEMENT OF INTENTION -- You may enter into a non-binding commitment to
purchase shares of a fund(s) over a 13-month period and receive the same sales
charge as if all shares had been purchased at once. This includes purchases
made during the previous 90 days, but does not include appreciation of your
investment or reinvested distributions. The reduced sales charges and offering
prices set forth in the Prospectus apply to purchases of $50,000 or more made
within a 13-month period subject to the following statement of intention (the
"Statement") terms. The Statement is not a binding obligation to purchase the
indicated amount. When a shareholder elects to utilize a Statement in order to
qualify for a reduced sales charge, shares equal to 5% of the dollar amount
specified in the Statement will be held in escrow in the shareholder's account
out of the initial purchase (or subsequent purchases, if necessary) by American
Funds Service Company. All dividends and any capital gain distributions on
shares held in escrow will be credited to the shareholder's account in shares
(or paid in cash, if requested). If the intended investment is not completed
within the specified 13-month period, the purchaser will remit to the Principal
Underwriter the difference between the sales charge actually paid and the sales
charge which would have been paid if the total of such purchases had been made
at a single time. If the difference is not paid by the close of the period,
the appropriate number of shares held in escrow will be redeemed to pay such
difference. If the proceeds from this redemption are inadequate, the purchaser
will be liable to the Principal Underwriter for the balance still outstanding.
The Statement may be revised upward at any time during the 13-month period, and
such a revision will be treated as a new Statement, except that the 13-month
period during which the purchase must be made will remain unchanged. Existing
holdings eligible for rights of accumulation (see the account application) and
any individual investments in American Legacy products (American Legacy,
American Legacy II and American Legacy III variable annuities, American Legacy
Life, American Legacy Variable Life, and American Legacy Estate Builder) may be
credited toward satisfying the Statement. During the Statement period,
reinvested dividends and capital gain distributions, investments in money
market funds and investments made under a right of reinstatement will not be
credited toward satisfying the Statement.
When the trustees of certain retirement plans purchase shares by payroll
deduction, the sales charge for the investments made during the 13-month period
will be handled as follows: The regular monthly payroll deduction investment
will be multiplied by 13 and then multiplied by 1.5. The current value of
existing American Funds investments (other than money market fund investments)
any rollovers or transfers reasonably anticipated to be invested in non-money
market American Funds during the 13-month period, and any individual
investments in American Legacy products are added to the figure determined
above. The sum is the Statement amount and applicable breakpoint level. On
the first investment and all other investments made pursuant to the Statement,
a sales charge will be assessed according to the sales charge breakpoint thus
determined.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION -- Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own accounts and/or:
- - employee benefit plan(s), such as an IRA, individual-type 403(b) plan, or
single-participant Keogh-type plan;
- - business accounts solely controlled by these individuals (for example, the
individuals own the entire business);
- - trust accounts established by the above individuals. However, if the
person(s) who established the trust is deceased, the trust account may be
aggregated with accounts of the person who is the primary beneficiary of the
trust.
Individual purchases by a trustee(s) or other fiduciary(ies) may also be
aggregated if the investments are:
- - for a single trust estate or fiduciary account, including an employee benefit
plan other than those described above;
- - made for two or more employee benefit plans of a single employer or of
affiliated employers as defined in the 1940 Act, again excluding employee
benefit plans described above; or
- - for a diversified common trust fund or other diversified pooled account not
specifically formed for the purpose of accumulating fund shares.
Purchases made for nominee or street name accounts (securities held in the name
of an investment dealer or another nominee such as a bank trust department
instead of the customer) may not be aggregated with those made for other
accounts and may not be aggregated with other nominee or street name accounts
unless otherwise qualified as described above.
CONCURRENT PURCHASES -- You may combine purchases of two or more funds in The
American Funds Group, except direct purchases of the money market funds.
Shares of money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
RIGHT OF ACCUMULATION -- You may take into account the current value of your
existing holdings in The American Funds Group, as well as your holdings in
Endowments (shares of which may be owned only by tax-exempt organizations), to
determine your sales charge on investments in accounts eligible to be
aggregated, or when making a gift to an individual or charity. When
determining your sales charge, you may also take into account the value of your
individual holdings, as of the end of the week prior to your investment, in
various American Legacy products (American Legacy, American Legacy II and
American Legacy III variable annuities, American Legacy Life, American Legacy
Variable Life, and American Legacy Estate Builder). Direct purchases of the
money market funds are excluded.
PRICE OF SHARES -- Shares are purchased at the offering price next determined
after the purchase order is received and accepted by the fund or American Funds
Service Company; this offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. In the case of orders sent directly to the fund or American Funds
Service Company, an investment dealer must be indicated. The dealer is
responsible for promptly transmitting purchase orders to the Principal
Underwriter. Orders received by the investment dealer, American Funds Service
Company, or the fund after the time of the determination of the net asset value
will be entered at the next calculated offering price. Prices which appear in
the newspaper do not always indicated prices at which you will be purchasing
and redeeming shares of the fund, since such prices generally reflect the
previous day's closing price whereas purchases and redemptions are made at the
next calculated price.
The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily at the normal close of trading
(currently 4:00 p.m., New York time) each day the New York Stock Exchange is
open. For example, if the Exchange closes at 1:00 p.m. on one day and at 4:00
p.m. on the next, the fund's share price would be determined as of 4:00 p.m.
New York time on both days. The New York Stock Exchange is currently closed on
weekends and on the following holidays: New Year's Day, Martin Luther King Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas Day.
All portfolio securities of funds managed by Capital Research and Management
Company (other than money market funds) are valued, and the net asset value per
share is determined, as follows:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Debt securities are valued at prices obtained
from a pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
Securities with original maturities of one year or less having 60 days or less
to maturity are amortized to maturity based on their cost if acquired within 60
days of maturity or, if already held on the 60th day, based on the value
determined on the 61st day. Forward currency contracts are valued at the mean
of representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of non-U.S. currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board. The fair value of all other assets is
added to the value of securities to arrive at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share.
Any purchase order may be rejected by the Principal Underwriter or the fund.
The Principal Underwriter will not knowingly sell shares of the fund directly
or indirectly to any person or entity, where, after the sale, such person or
entity would own beneficially directly or indirectly more than 4.5% of the
outstanding shares of the fund without the consent of a majority of the fund's
Directors.
SELLING SHARES
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. You may sell
(redeem) shares in your account in any of the following ways:
THROUGH YOUR DEALER (certain charges may apply)
- - Shares held for you in your dealer's street name must be sold through the
dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- - Requests must be signed by the registered shareholder(s)
- - A signature guarantee is required if the redemption is:
- -- Over $50,000;
- -- Made payable to someone other than the registered shareholder(s); or
- -- Sent to an address other than the address of record, or an address of record
which has been changed within the last 10 days.
Your signature may be guaranteed by a domestic stock exchange or the National
Association of Securities Dealers, Inc., bank, savings association or credit
union that is an eligible guarantor institution.
- - Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
- - You must include any shares you wish to sell that are in certificate form.
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE(R) OR AMERICAN FUNDSLINE ONLINE(R)
- - Redemptions by telephone or fax (including American FundsLine(r) and American
FundsLine OnLine(R)) are limited to $50,000 per shareholder each day.
- - Checks must be made payable to the registered shareholder(s).
- - Checks must be mailed to an address of record that has been used with the
account for at least 10 days.
MONEY MARKET FUNDS
- - You may have redemptions of $1,000 or more wired to your bank by writing
American Funds Service Company.
- - You may establish check writing privileges (use the money market funds
application).
- -- If you request check writing privileges, you will be provided with checks
that you may use to draw against your account. These checks may be made
payable to anyone you designate and must be signed by the authorized number or
registered shareholders exactly as indicated on your checking account signature
card.
Redemption proceeds will not be mailed until sufficient time has passed to
provide reasonable assurance that checks or drafts (including certified or
cashier's checks) for shares purchased have cleared (which may take up to 15
calendar days from the purchase date). Except for delays relating to clearance
of checks for share purchases or in extraordinary circumstances (and as
permissible under the 1940 Act), sale proceeds will be paid on or before the
seventh day following receipt and acceptance of an order. Interest will not
accrue or be paid on amounts that represent uncashed distribution or redemption
checks.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Redemption
proceeds of shares representing direct purchases in the money market funds are
excluded. Proceeds will be reinvested at the next calculated net asset value
after your request is received and accepted by American Funds Service Company.
CONTINGENT DEFERRED SALES CHARGE -- A contingent deferred sales charge of 1%
applies to certain redemptions from funds other than the money market funds
made within twelve months of purchase on investments of $1 million or more
(other than redemptions by employer-sponsored retirement plans). The charge is
1% of the lesser of the value of the shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the total cost of such shares.
Shares held for the longest period are assumed to be redeemed first for
purposes of calculating this charge. The charge is waived for exchanges
(except if shares acquired by exchange were then redeemed within 12 months of
the initial purchase); for distributions from 403(b) plans or IRAs due to
death, disability or attainment of age 591/2; for tax-free returns of excess
contributions to IRAs; and for redemptions through certain automatic
withdrawals not exceeding 10% of the amount that would otherwise be subject to
the charge.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN -- The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, American Funds Service Company will automatically charge the bank
account for the amount specified ($50 minimum), which will be automatically
invested in shares at the offering price on or about the dates you select.
Bank accounts will be charged on the day or a few days before investments are
credited, depending on the bank's capabilities, and shareholders will receive a
confirmation statement at least quarterly. Participation in the plan will
begin within 30 days after receipt of the account application. If the
shareholder's bank account cannot be charged due to insufficient funds, a
stop-payment order or the closing of the account, the plan may be terminated
and the related investment reversed. The shareholder may change the amount of
the investment or discontinue the plan at any time by writing to American Funds
Service Company.
AUTOMATIC REINVESTMENT -- Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS -- A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the paying fund) into any other fund in The
American Funds Group (the receiving fund) subject to the following conditions:
(i) the aggregate value of the shareholder's account(s) in the paying fund(s)
must equal or exceed $5,000 (this condition is waived if the value of the
account in the receiving fund equals or exceeds that fund's minimum initial
investment requirement), (ii) as long as the value of the account in the
receiving fund is below that fund's minimum initial investment requirement,
dividends and capital gain distributions paid by the receiving fund must be
automatically reinvested in the receiving fund, and (iii) if this privilege is
discontinued with respect to a particular receiving fund, the value of the
account in that fund must equal or exceed the fund's minimum initial investment
requirement or the fund shall have the right, if the shareholder fails to
increase the value of the account to such minimum within 90 days after being
notified of the deficiency, to automatically redeem the account and send the
proceeds to the shareholder. These cross-reinvestments of dividends and
capital gain distributions will be at net asset value (without sales charge).
EXCHANGE PRIVILEGE -- You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLine(r) or American FundsLine OnLine(r) (see "American FundsLine(r) and
American FundsLine OnLine(r)" below), or by telephoning 800/421-0180
toll-free, faxing (see "Principal Underwriter and Transfer Agent" in the
prospectus for the appropriate fax numbers) or telegraphing American Funds
Service Company. (See "Telephone and Computer Purchases, Redemptions and
Exchanges" below.) Shares held in corporate-type retirement plans for which
Capital Guardian Trust Company serves as trustee may not be exchanged by
telephone, computer, fax or telegraph. Exchange redemptions and purchases are
processed simultaneously at the share prices next determined after the exchange
order is received. (See "Purchase of Shares--Price of Shares.") THESE
TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES -- You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS -- Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. American
Funds Service Company arranges for the redemption by the fund of sufficient
shares, deposited by the shareholder with American Funds Service Company, to
provide the withdrawal payment specified.
ACCOUNT STATEMENTS -- Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments and dividend reinvestments, will be reflected on regular
confirmation statements from American Funds Service Company. Purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINE(r) -- You may check your
share balance, the price of your shares, or your most recent account
transaction, redeem shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(r) or American
FundsLine OnLine(r). To use this service, call 800/325-3590 from a
TouchTone(TM) telephone or access the American Funds Web site on the Internet
at www.americanfunds.com. Redemptions and exchanges through American
FundsLine(r) and American FundsLine OnLine(r) are subject to the conditions
noted above and in "Shareholder Account Services and Privileges -- Telephone
and Computer Purchases, Redemptions and Exchanges" below. You will need your
fund number (see the list of funds in The American Funds Group under "Purchase
of Shares -- Investment Minimums and Fund Numbers"), personal identification
number (the last four digits of your Social Security number or other tax
identification number associated with your account) and account number.
TELEPHONE AND COMPUTER REDEMPTIONS AND EXCHANGES -- By using the telephone or
computer (including American FundsLine(r) or American FundsLine OnLine(r)),
fax or telegraph redemption and/or exchange options, you agree to hold the
fund, American Funds Service Company, any of its affiliates or mutual funds
managed by such affiliates, and each of their respective directors, trustees,
officers, employees and agents harmless from any losses, expenses, costs or
liability (including attorney fees) which may be incurred in connection with
the exercise of these privileges. Generally, all shareholders are
automatically eligible to use these options. However, you may elect to opt out
of these options by writing American Funds Service Company (you may also
reinstate them at any time by writing American Funds Service Company). If
American Funds Service Company does not employ reasonable procedures to confirm
that the instructions received from any person with appropriate account
information are genuine, the fund may be liable for losses due to unauthorized
or fraudulent instructions. In the event that shareholders are unable to reach
the fund by telephone because of technical difficulties, market conditions, or
a natural disaster, redemption and exchange requests may be made in writing
only.
SHARE CERTIFICATES -- Shares are credited to your account and certificates are
not issued unless you request them by writing to American Funds Service
Company.
REDEMPTION OF SHARES -- The fund's Articles of Incorporation permit the fund to
direct American Funds Service Company to redeem your shares for their then
current net asset value per share if at such time you own of record, shares
having an aggregate net asset value of less than the minimum initial investment
amount required of new shareholders as set forth in the fund's current
registration statement under the 1940 Act, and subject to such further terms
and conditions as the Board of Directors of the fund may from time to time
adopt. Prior notice of at least 60 days will be given to a shareholder before
the involuntary redemption provision is made effective with respect to the
shareholder's account. The shareholder will have not less than 30 days from
the date of such notice within which to bring the account up to the minimum
determined as set forth above.
EXECUTION OF PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by the
Investment Adviser. The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions. When, in the opinion of the Investment Advisor,
two or more brokers (either directly or through their correspondent clearing
agents) are in a position to obtain the best price and execution, preference
may be given to brokers who have sold shares of the fund or who have provided
investment research, statistical, or other related services to the Investment
Adviser. The fund does not consider that it has an obligation to obtain the
lowest available commission rate to the exclusion of price, service and
qualitative considerations.
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner. The fund will not pay a mark-up for
research in principal transactions.
GENERAL INFORMATION
CUSTODIAN OF ASSETS -- Securities and cash owned by the fund, including
proceeds from the sale of shares of the fund and of securities in the fund's
portfolio, are held by The Chase Manhattan Bank, One Chase Manhattan Plaza,
New York, NY 10081, as Custodian. Non-U.S. securities may be held by the
Custodian pursuant to subcustodial arrangements in non-U.S. banks or foreign
branches of U.S. banks.
TRANSFER AGENT -- American Funds Service Company, a wholly-owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent and performs other related
shareholder service functions.
INDEPENDENT ACCOUNTANTS -- Deloitte & Touche LLP, 1000 Wilshire Boulevard,
15th floor, Los Angeles, California 90017, has served as the fund's
independent accountants since the fund's inception, and will provide audit
services, prepare tax returns and review certain documents to be filed with the
Securities and Exchange Commission. The financial statements included in this
Statement of Additional Information have been so included in reliance on the
report of the independent auditors given on the authority of that firm as
experts in auditing and accounting.
SHAREHOLDER VOTING RIGHTS -- The fund does not hold annual meetings of
shareholders. However, significant matters that require shareholder approval,
such as certain elections of board members or a change in a fundamental
investment policy, will be presented to shareholders at a meeting called for
such purpose. At any meeting of shareholders, duly called and at which a
quorum is present, the shareholders may, by the affirmative vote of the holders
of a majority of the votes entitled to be cast thereon, remove any director or
directors from office and may elect a successor or successors to fill any
resulting vacancies for the unexpired terms of removed directors. Accordingly,
the Directors of the fund will promptly call a meeting of shareholders for the
purpose of voting upon the removal of any director when requested in writing
to do so by the record holders of at least 10% of the outstanding shares.
Shareholders have one vote per share owned.
REPORTS TO SHAREHOLDERS -- The fund's fiscal year ends on October 31.
Shareholders will be provided at least semi-annually with reports showing the
investment portfolio, financial statements and other information. The fund's
annual financial statements will be audited by the fund's independent
accountants, Deloitte & Touche LLP, whose selection will be determined annually
by the Board of Directors. In an effort to reduce the volume of mail
shareholders receive from the fund when a household owns more than one account,
American Funds Service Company has taken steps to eliminate duplicate mailings
of shareholder reports. To receive additional copies of a report, shareholders
should contact American Funds Service Company.
YEAR 2000 -- The fund and its shareholders depend on the proper functioning of
computer systems maintained by the Investment Adviser and its affiliates and
other key service providers. Many computer systems in use today will require
reprogramming or replacement prior to the year 2000 because of the way they
store dates and make date-related calculations. The fund understands that
these service providers are taking steps to address the "Year 2000 problem".
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the fund. In addition, the fund's investments could be
adversely affected by the Year 2000 problem. For example, the markets for
securities in which the fund invests could experience settlement problems and
liquidity issues. Corporate and governmental data processing errors may cause
losses for individual companies and overall economic uncertainties. Earnings of
individual issuers are likely to be affected by the costs of addressing the
problem, which may be substantial and may be reported inconsistently.
PERSONAL INVESTING POLICY -- Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions.
INVESTMENT RESULTS AND RELATED STATISTICS
The fund's yield will be computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
YIELD = 2[(a-b/cd+1)/6/-1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The average annual total return (T) will be computed by using the value at the
end of the period (ERV) of a hypothetical initial investment of $1,000 (P) over
a period of years (n) according to the following formula as required by the
Securities and Exchange Commission: P(1+T)/n/ = ERV.
In calculating average annual total return, the fund will assume: (1) deduction
of the maximum sales load of 5.75% from the $1,000 initial investment; (2)
reinvestment of dividends and distributions at net asset value on the
reinvestment date determined by the Board; and (3) a complete redemption at the
end of any period illustrated.
The fund may also, at times, calculate total return based on net asset value
per share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the computation. Total return
calculated in this manner will be higher. These total returns may be
calculated over periods in addition to those described above. Total return for
unmanaged indices will be calculated assuming reinvestment of dividends and
interest, but will not reflect any deductions for advisory fees, brokerage
costs or administrative expenses.
The fund may also calculate a distribution rate on a taxable and tax equivalent
basis. The distribution rate will be computed by dividing the dividends paid
by the fund over the last 12 months by the sum of the month-end net asset value
or maximum offering price and the capital gains paid over the last 12 months.
The distribution rate may differ from the yield.
The fund may include, in advertisements or in reports furnished to present or
prospective shareholders, information on its investment results and/or
comparisons of its investment results to various unmanaged indices (such as the
Morgan Stanley Capital International (MSCI) World Free Index and MSCI Emerging
Markets Free Index) or results of other mutual funds or investment or savings
vehicles. The fund may also, from time to time, combine its results with those
of other funds in The American Funds Group for purposes of illustrating
investment strategies involving multiple funds. For educational purposes, fund
literature may contain discussions and/or illustrations of volatility, risk
tolerance, asset allocation and investment strategies.
The fund may refer to results and surveys compiled by organizations such as CDA
Investment Technologies, Ibbottson Associates, Lipper Analytical Services,
Morningstar, Inc. and Wiesenberger Investment Companies Services and by the
U.S. Department of Commerce. Additionally, the fund may refer to results
published in various newspapers or periodicals, including BARRONS, FORBES,
FORTUNE, INSTITUTIONAL INVESTOR, KIPLINGER'S PERSONAL FINANCE MAGAZINE, MONEY,
U.S. NEWS AND WORLD REPORT and THE WALL STREET JOURNAL.
The fund may illustrate the benefits of tax-deferral by comparing taxable
investments to investments made through tax-deferred retirement plans.
The fund may compare its investment results with the Consumer Price Index,
which is a measure of the average change in prices over time in a fixed market
basket of goods and services (E.G. food, clothing, fuels, transportation, and
other goods and services that people buy for day-to-day living).
EXPERIENCE OF INVESTMENT ADVISER - The Investment Adviser manages nine growth
and growth-income funds that are at least 10 years old. In the rolling 10-year
periods since January 1, 1969 (138 in all), those funds have had better total
returns than their comparable Lipper indexes in 128 of 138 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of the Investment Adviser.
DESCRIPTION OF BOND RATINGS
Corporate Debt Securities
MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by
various entities in categories ranging from "Aaa" to "C" according to quality.
"AAA -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as 'gilt edge.' Interest payments are
protected by a large or by an exceptionally stable margin, and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
"AA -- High quality by all standards. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
"A -- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
"BAA -- Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and , in fact, have
speculative characteristics as well."
"BA -- Have speculative elements; future cannot be considered as well assured.
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
"B -- Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"CAA -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"CA -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
STANDARD & POOR'S CORPORATION rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality.
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree."
"A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C-1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is in
arrears."
Financial Statements
New World Fund, Inc.
Statement of Assets and Liabilities
April 16, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Cash $175,000
Prepaid Offering Expenses 59,100
(Note 5)
Total Assets 234,100
LIABILITIES:
Payable to CRMC (Note 4) 70,100
NET ASSETS: Equivalent to $22.08 per share on $164,000
7,427.8438 shares of $0.01 par value capital stock
issued and outstanding (authorized capital stock -
200,000,000 shares)(Note 1)
NET ASSETS CONSIST OF:
Paid-in-capital - Equivalent to $23.56 per share $175,000
Net Loss (11,000)
NET ASSETS $164,000
</TABLE>
New World Fund, Inc.
Statement of Operations
For the period from November 13, 1998 (inception) through April 16, 1999
<TABLE>
<CAPTION>
<S> <C>
Expenses (Note 4) $11,000
Net Loss ($11,000)
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. New World Fund, Inc. (the "fund") was organized on November 13, 1998 as a
Maryland corporation. To date, the fund has had no transactions other than
those relating to organization matters and the sale of 7,427.8438 shares of
capital stock for $175,000 to Capital Research and Management Company ("CRMC"),
the Investment Adviser. The fund's fiscal year ends on October 31. The fund
will upon declaration of effectiveness by the Securities and Exchange
Commission ("SEC"), be registered under the Investment Company Act of 1940, as
an open-end, diversified management investment company.
2. The fund has entered into an Investment Advisory and Service Agreement with
CRMC and a Principal Underwriting Agreement with American Funds Distributors,
Inc. ("AFD"). Pursuant to the Investment Advisory and Service Agreement with
CRMC, the fund will pay a monthly fee, accrued daily, at an annual rate of
0.85% of the average net assets.
3. It is the fund's policy to comply in its initial year and thereafter with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its net taxable income, including
any net realized gain on investments to its shareholders.
4. Organizational expenses are expensed as incurred. The fund has accrued a
payable to CRMC representing expenses paid on behalf of the fund. The fund
intends to repay CRMC upon commencement of operations. Organizational expenses
are primarily audit, legal, accounting and printing fees.
5. The fund recorded prepaid offering expenses relating to state and SEC
registration fees which will be amortized over the initial 60 day offering
period of the fund's shares.
Independent Auditors' Report
To the Board of Directors of New World Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of New
World Fund, Inc. (the "Fund"), as of April 16, 1999, and the related statement
of operations for the period from November 13, 1998 (inception) through April
16, 1999. These financial statements are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New World Fund, Inc. at April
16, 1999, and the results of its operations for the period from November 13,
1998 (inception) through April 16, 1999, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
April 16, 1999
<PAGE>
SIGNATURE OF REGISTRANT
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this amended
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Los Angeles, and State of California, on the
13th day of September, 1999.
New World Fund, Inc.
By /s/ William R. Grimsley
William R. Grimsley, Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this amendment to
Registration Statement has been signed below on September 13, 1999, by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE Title
<S> <C>
(1) Principal Executive Officer:
/s/ William R. Grimsley Chairman
William R. Grimsley
(2) Principal Financial Officer and
Principal Accounting Officer:
/s/ R. Marcia Gould Treasurer
R. Marcia Gould
(3) Trustees:
Elisabeth Allison* Director
Michael R. Bonsignore* Director
Gina H. Despres Vice Chairman
Robert A. Fox* Director
Alan Greenway* Director
William R. Grimsley* Chairman of the Board
Koichi Itoh* Director
William H. Kling* Director
John G. McDonald* Director
William I. Miller* Director
Kirk P. Pendleton Director
Donald E. Petersen* Director
</TABLE>
*By /s/ Vincent P. Corti
Vincent P. Corti, Attorney-in-Fact
Counsel represents that this amendment does not contain disclosures that would
make the amendment ineligible for effectiveness under the provisions of rule
485(b).
/s/ Michael J. Downer
(Michael J. Downer)
