SEC. File Nos. 2- 50700
811-2444
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement
Under
the Securities Act of 1933
Post-Effective Amendment No. 40
and
Registration Statement
Under
The Investment Company Act of 1940
Amendment No. 21
THE BOND FUND OF AMERICA, INC.
(Exact Name of Registrant as specified in charter)
333 South Hope Street
Los Angeles, California 90071
(Address of principal executive offices)
Registrant's telephone number, including area code:
(213) 486-9200
JULIE F. WILLIAMS
333 South Hope Street
Los Angeles, California 90071
(name and address of agent for service)
Copies to:
ROBERT E. CARLSON, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 S. Flower Street
Los Angeles, CA 90071-2371
(Counsel for the Registrant)
The Registrant has filed a declaration pursuant to rule 24f-2
registering an indefinite number of shares under the Securities Act of 1933.
On February 24, 1997, it will file its 24f-2 notice for fiscal 1996
Approximate date of proposed public offering:
It is proposed that this filing become effective on March 1, 1997, pursuant to
paragraph (a) of rule 485.
<PAGE>
THE BOND FUND OF AMERICA, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number of Captions in Prospectus (Part "A")
Part "A" of Form N-1A
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Expenses
3. Condensed Financial Information Financial Highlights; Investment Results
4. General Description of Registrant Investment Policies and Risks
5. Management of the Fund Financial Highlights;
6. Capital Stock and Other Securities Investment Policies and Risks; Securities
and Investment Techniques; Fund Organization
and Management; Dividends, Distributions and Taxes
7. Purchase of Securities Being Offered Purchasing Shares; Other Important Things to Remember
8. Redemption or Repurchase Selling Shares
9. Legal Proceedings N/A
</TABLE>
<TABLE>
<CAPTION>
Item Number of Captions in Statement of
Part "B" of Form N-1A Additional Information (Part "B")
<S> <C> <C>
10. Cover Page Cover
11. Table of Contents Table of Contents
12. General Information and History n/a
13. Investment Objectives and Policies The Fund's Investment Objective and
Policies; Investment Restrictions
14. Management of the Registrant Fund Officers and Directors;
15. Control Persons and Principal Holders of Fund Officers and Directors
Securities
16. Investment Advisory and Other Services Fund Officers and Directors; Management;
General Information
17. Brokerage Allocation and Other Practices Execution of Portfolio Transactions
18. Capital Stock and Other Securities None
19. Purchase, Redemption and Pricing of Purchase of Shares; Shareholder
Securities Being Offered Account Services and Privileges
20. Tax Status Dividends, Distributions and Federal Taxes
21. Underwriter Management -- Principal Underwriter
22. Calculation of Performance Data Investment Results
23. Financial Statements Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Item in Part "C"
<S> <C>
24. Financial Statements and Exhibits
25. Persons Controlled by or under
Common Control with Registrant
26. Number of Holders of Securities
27. Indemnification
28. Business and Other Connections of
Investment Adviser
29. Principal Underwriters
30. Location of Accounts and Records
31. Management Services
32. Undertakings
Signature Page
</TABLE>
<PAGE>
[LOGO OF THE AMERICAN FUNDS GROUP(R)]
- --------------------------------------------------------------------------------
The Bond Fund
of America(SM)
Prospectus
MARCH 1, 1997
<PAGE>
THE BOND FUND OF AMERICA
333 South Hope Street
Los Angeles, CA 90071
================================================================================
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expenses 3
.............................................................................
Financial Highlights 4
.............................................................................
Investment Policies and Risks 5
.............................................................................
Securities and Investment Techniques 6
.............................................................................
Multiple Portfolio Counselor System 11
.............................................................................
Investment Results 13
.............................................................................
Dividends, Distributions and Taxes 14
.............................................................................
Fund Organization and Management 15
.............................................................................
Shareholder Services 18
.............................................................................
</TABLE>
================================================================================
The fund's primary investment objective is to provide as high a level of
current income as is consistent with the preservation of capital by investing
primarily in bonds.
This prospectus presents information you should know before investing in the
fund. You should keep it on file for future reference.
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU INVEST FOR A SHORTER PERIOD OF TIME. YOUR INVESTMENT IN THE FUND IS NOT
A DEPOSIT OR OBLIGATION OF, OR INSURED OR GUARANTEED BY, ANY ENTITY OR PERSON
INCLUDING THE U.S. GOVERNMENT AND THE FEDERAL DEPOSIT INSURANCE CORPORATION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
================================================================================
EXPENSES
The effect of the expenses described below is reflected in the fund's share
price or return.
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Fund operating expenses are paid out of the fund's earned
income.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 4.75%
................................................................................
</TABLE>
SALES CHARGES ARE REDUCED OR ELIMINATED FOR LARGER PURCHASES. There is no sales
charge on reinvested dividends, and no deferred sales charge or redemption or
exchange fees. A contingent deferred sales charge of 1% applies on certain
redemptions made within 12 months following purchases without a sales charge.
FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Management fees 0.35%
................................................................................
12b-1 expenses 0.25%/1/
................................................................................
Other expenses 0.11%
................................................................................
Total fund operating expenses 0.71%
</TABLE>
/1/ 12b-1 expenses may not exceed 0.25% of the fund's average net assets
annually. Due to these distribution expenses, long-term shareholders may
pay more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
EXAMPLES
Assuming a hypothetical annual return of 5% and shareholder transaction and
operating expenses as described above, for every $1,000 you invested, you would
pay the following total expenses over the following periods:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
One year $ 54
................................................................................
Three years $ 69
................................................................................
Five years $ 85
................................................................................
Ten years $132
</TABLE>
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY. YOUR EXPENSES WILL BE LESS IF YOU QUALIFY TO PURCHASE
SHARES AT A REDUCED OR NO SALES CHARGE.
- --------------------------------------------------------------------------------
THE BOND FUND OF AMERICA / PROSPECTUS 3
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
The following information has been audited by Deloitte & Touche LLP,
independent auditors. This table should be read together with the financial
statements which are included in the statement of additional information and
annual report.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
......................
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year XXXX $12.69 $14.45 $13.99 $13.70 $12.39 $13.23 $13.24 $13.14 $14.21
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income XXX 1.05 1.05 1.09 1.15 1.21 1.24 1.31 1.28 1.28
...............................................................................................................................
Net realized and
unrealized gain (loss)
on investments XXX 1.18 (1.76) .84 .34 1.28 (.84) (.02) .08 (1.02)
...............................................................................................................................
Total income (loss) from
investment operations XXX 2.23 (.71) 1.93 1.49 2.49 .40 1.29 1.36 .26
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from
net investment
income XXXX (1.04) (1.05) (1.08) (1.16) (1.18) (1.24) (1.30) (1.26) (1.23)
...............................................................................................................................
Distributions from
net realized gains XX -- -- (.39) (.04) -- -- -- -- (.10)/1/
...............................................................................................................................
Total distributions XXXX (1.04) (1.05) (1.47) (1.20) (1.18) (1.24) (1.30) (1.26) (1.33)
...............................................................................................................................
Net asset value,
end of year XXXX $13.88 $12.69 $14.45 $13.99 $13.70 $12.39 $13.23 $13.24 $13.14
- -------------------------------------------------------------------------------------------------------------------------------
Total return/2/ XXXX 18.25% (5.02)% 14.14% 11.34% 21.04% 3.27% 10.13% 10.70% 1.96%
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in millions) XXXXX $6,290 $4,941 $5,285 $3,917 $2,859 $1,945 $1,481 $1,021 $ 825
...............................................................................................................................
Ratio of expenses to
average net assets XXX .74% .69% .71% .73% .77% .76% .76% .66% .59%
...............................................................................................................................
Ratio of net income
to average net assets XXXX 7.87% 7.77% 7.53% 8.36% 9.28% 9.70% 9.73% 9.54% 9.45%
...............................................................................................................................
Portfolio turnover
rate XXXXX 43.80% 56.98% 44.68% 49.70% 56.50% 59.90% 64.28% 93.00% 93.00%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Represents only short-term realized gains.
/2/ Excludes maximum sales charge of 4.75%.
- --------------------------------------------------------------------------------
4 THE BOND FUND OF AMERICA / PROSPECTUS
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<PAGE>
================================================================================
INVESTMENT POLICIES AND RISKS
The fund's investment objective is to provide as high a level of current income
as is consistent with the preservation of capital.
The fund invests substantially all of its assets in marketable corporate debt
securities, U.S. Government securities, mortgage-related securities, other
asset-backed securities and cash or money market instruments. Normally, at
least 65% of the fund's assets will be invested in bonds. (For this purpose,
bonds are considered any debt securities having initial maturities in excess of
one year.)
At least 60% of the value of the fund's assets, measured at the time of any
purchase, must be invested in the following categories:
. marketable corporate debt securities such as bonds rated at the time of
purchase within the three highest investment grade ratings (A or better)
assigned by Moody's Investors Service, Inc. or Standard & Poor's
Corporation (all ratings discussed below refer to those assigned by these
two rating agencies) or, if not rated by either of these rating agencies,
determined by the fund's investment adviser, Capital Research and
Management Company, as being of investment quality equivalent to
securities rated A or better;
. U.S. Government securities;
. mortgage-related securities rated A or better or determined to be of
equivalent quality by the fund's investment adviser;
. other asset-backed securities rated A or better or unrated securities that
are determined to be of equivalent quality; and
. cash or money market instruments.
The remaining 40% of the fund's assets, measured at the time of purchase, may
be invested in debt securities rated below A or unrated securities that are
determined to be of equivalent quality.
In addition, the fund may from time to time invest in fixed-income securities
of corporations or governmental entities outside the U.S., may purchase or sell
various currencies and enter into forward currency contracts in connection with
these investments, and may hold, to a limited extent, inverse floating rate
notes. MORE INFORMATION ON THE FUND'S INVESTMENT POLICIES IS CONTAINED IN ITS
STATEMENT OF ADDITIONAL INFORMATION.
The fund's fundamental investment restrictions (described in the statement of
additional information) and objective may not be changed without shareholder
approval. All other investment practices may be changed by the fund's board of
directors.
ACHIEVEMENT OF THE FUND'S INVESTMENT OBJECTIVE CANNOT, OF COURSE, BE ASSURED
DUE TO THE RISK OF CAPITAL LOSS FROM FLUCTUATING PRICES INHERENT IN ANY
INVESTMENT IN SECURITIES.
- --------------------------------------------------------------------------------
THE BOND FUND OF AMERICA / PROSPECTUS 5
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
SECURITIES AND INVESTMENT TECHNIQUES
DEBT SECURITIES
Bonds and other debt securities are used by issuers to borrow money. Issuers
pay investors interest and generally must repay the amount borrowed at
maturity. Some debt securities, such as zero coupon bonds, do not pay current
interest but are purchased at a discount from their face values.
The prices of debt securities fluctuate depending on such factors as interest
rates, credit quality, and maturity. In general their prices decline when
interest rates rise and vice versa.
The fund may invest less than 35% of its assets in debt securities rated Ba and
BB or below by Moody's Investors Service, Inc. or Standard & Poor's Corporation
or in unrated securities that are determined to be of equivalent quality. These
securities are commonly known as "high-yield, high-risk" or "junk" bonds. High-
yield, high-risk bonds are described by the ratings agencies as speculative and
involve greater risk of default or price changes due to changes in the issuer's
creditworthiness, or they may already be in default. The market prices of these
securities may fluctuate more than higher quality securities and may decline
significantly. It may be more difficult to dispose of, or to determine the
value of, high-yield, high-risk bonds. The fund's high-yield, high-risk
securities may be rated as low as Ca or CC which are described by the rating
agencies as "speculative in a high degree; often in default or [having] other
marked shortcomings." See the statement of additional information for a
complete description of the ratings.
EQUITY SECURITIES
The fund may invest up to 10% of its assets in preferred stocks. Preferred
stocks generally have characteristics similar to debt securities with a stated
dividend rate akin to the coupon of a bond or note. The prices and yields of
preferred stocks generally move with changes in interest rates and the issuers'
credit quality, similar to the factors affecting debt securities. In the event
of a liquidation of a corporation's assets, holders of debt securities are
entitled to payment before preferred stockholders; but preferred stockholders
are generally entitled to payment before common stockholders.
While, the fund may not make direct purchases of common stocks or warrants or
rights to acquire common stocks, the fund may, however, invest in debt
securities that are issued together with common stock or other equity
interests,
- --------------------------------------------------------------------------------
6 THE BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
or have equity conversion, exchange, or purchase rights. The fund may continue
to hold up to 5% of its assets in common stock, warrants and rights so acquired
after sales of the corresponding debt securities.
PORTFOLIO COMPOSITION
The average monthly composition of the fund's portfolio based on the higher of
Moody's or S&P ratings for the fiscal year ended December 31, 1996 was as
follows:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Aaa/AAA 42.57%
................................................................................
Aa/AA 4.30%
................................................................................
A/A 6.62%
................................................................................
Baa/BBB 12.07%
................................................................................
Ba/BB 7.52%
................................................................................
B/B 11.70%
................................................................................
Caa/CCC 1.03%
................................................................................
Non-rated 2.56%
</TABLE>
Some or all of these non-rated securities were determined to be equivalent to
securities rated by Moody's or S&P as follows:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
A/A 0.60%
................................................................................
Baa/BBB 0.53%
................................................................................
Ba/BB 0.07%
................................................................................
B/B 0.22%
................................................................................
Caa/CCC 1.14%
</TABLE>
During this period, equity-type securities and money market instruments and
cash made up an average of 2.70% and 8.93%, respectively, of the fund's
portfolio.
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.
- --------------------------------------------------------------------------------
THE BOND FUND OF AMERICA / PROSPECTUS 7
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
Certain securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the
Treasury. However, they generally involve federal sponsorship in one way or
another; some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; and others are supported only by the credit of the issuing government
agency or instrumentality.
The fund may invest in notes and bonds issued by the U.S. Treasury and Federal
agencies whose interest payments vary with the rate of inflation.
MORTGAGE-RELATED SECURITIES
The fund may invest in Government National Mortgage Association certificates,
which are securities representing part ownership of a pool of mortgage loans on
which timely payment of interest and principal is guaranteed by the U.S.
Government. GNMA certificates differ from typical bonds because principal is
repaid monthly over the term of the loan rather than returned in a lump sum at
maturity.
Although the mortgage loans in the pool will have stated maturities of up to 30
years, the actual average life or effective maturity of the GNMA certificates
typically will be substantially less because the mortgages will be subject to
normal principal amortization and may be prepaid prior to maturity.
The fund also may invest in securities representing interests in pools of
conventional mortgage loans issued by the Federal National Mortgage Association
(FNMA) or by the Federal Home Loan Mortgage Corporation (FHLMC).
In addition, the fund may invest in collateralized mortgage obligations (CMOs)
and mortgage-backed bonds and interest-only or principal-only STRIPs which may
be issued by various governmental entities or private institutions. A CMO is
made up of a series of bonds of varying maturities that together are fully
collateralized directly or indirectly by a pool of mortgages on which the
payments of principal and interest are dedicated to payment of principal and
interest on the bonds. Mortgage-backed bonds are general obligations fully
collateralized directly or indirectly by a pool of mortgages, but on which
payments are not passed through directly. The fund will only purchase CMOs or
mortgage-backed bonds which are fully collateralized by securities issued by
GNMA, FNMA or FHLMC and/or mortgages insured by GNMA.
- --------------------------------------------------------------------------------
8 THE BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
OTHER ASSET-BACKED SECURITIES
The fund may invest in other asset-backed securities (unrelated to mortgage
loans). The assets backing such securities include, for example, interests or
participations in pools of leases, retail installment loans, and consumer
receivables. Credit support for asset-backed securities may be based on the
underlying assets and/or provided through credit enhancements by a third party.
INVESTING IN VARIOUS COUNTRIES
The fund has the flexibility to invest up to 25% of its total assets in
securities of issuers domiciled outside the U.S. Investing outside the U.S.
involves special risks, particularly in certain developing countries, caused
by, among other things: fluctuating currency values; different accounting,
auditing, and financial reporting regulations and practices in some countries;
changing local and regional economic, political, and social conditions; greater
market volatility; differing securities market structures; and various
administrative difficulties such as delays in clearing and settling portfolio
transactions or in receiving payment of dividends. However, in the opinion of
Capital Research and Management Company, investing outside the U.S. also can
reduce certain portfolio risks due to greater diversification opportunities.
Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. Brokerage commissions may be higher outside the
U.S., and the fund will bear certain expenses in connection with its currency
transactions. Furthermore, increased custodian costs may be associated withthe
maintenance of assets in certain jurisdictions.
CURRENCY TRANSACTIONS
The fund can purchase and sell currencies to facilitate securities transactions
and enter into forward currency contracts to hedge against changes in currency
exchange rates. While entering into forward currency transactions could
minimize the risk of loss due to a decline in the value of the hedged currency,
it could also limit any potential gain which might result from an increase in
the value of the currency. The fund will not generally attempt to protect
against all potential changes in exchange rates.
FORWARD COMMITMENTS
The fund may enter into commitments to purchase or sell securities at a future
date. When the fund agrees to purchase such securities, it assumes the risk of
- --------------------------------------------------------------------------------
THE BOND FUND OF AMERICA / PROSPECTUS 9
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
any decline in value of the securities beginning on the date of the agreement.
When the fund agrees to sell such securities, it does not participate in
further gains or losses with respect to the securities beginning on the date of
the agreement. If the other party to such a transaction fails to deliver or pay
for the securities, the fund could miss a favorable price or yield opportunity,
or could experience a loss. In addition, the fund may also enter into "roll"
transactions which generally are the sale of a security by the fund and its
agreement to purchase the security or a similar security at a specified time
and price at a later date. The fund assumes the rights and risks of ownership,
including the risk of price and yield fluctuations as of the time of the
agreement.
REPURCHASE AGREEMENTS
The fund may enter into repurchase agreements, under which it buys a security
and obtains a simultaneous commitment from the seller to repurchase the
security at a specified time and price. The seller must maintain with the
fund's custodian collateral equal to at least 100% of the repurchase price
including accrued interest as monitored daily by Capital Research and
Management Company. The fund only enters into repurchase agreements involving
securities in which it could otherwise invest and with selected banks and
securities dealers whose financial condition is monitored by Capital Research
and Management Company. If the seller under the repurchase agreements defaults,
the fund may incur a loss if the value of the collateral securing the
repurchase agreement has declined and may incur disposition costs in connection
with liquidating the collateral. If bankruptcy proceedings are commenced with
respect to the seller, liquidation of the collateral by the fund may be delayed
or limited.
LOAN PARTICIPATIONS
The fund may invest, subject to an overall 10% limit on loans, in loan
participations, typically made by a syndicate of banks to U.S. and non-U.S.
corporate or governmental borrowers for a variety of purposes. 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. Investments in loan participations present the possibility
that the fund could be held liable as a co-lender under emerging legal theories
of lender liability. In addition, if the loan is foreclosed, the fund could be
part owner of any collateral, and could bear the costs and liabilities of
owning and disposing of the collateral. Loan participations are generally not
rated by major rating agencies and may not be protected by the securities laws.
Also, loan participations are generally considered to be illiquid.
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10 THE BOND FUND OF AMERICA / PROSPECTUS
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<PAGE>
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U.S. PRIVATE PLACEMENTS
Private placements may be either purchased from another institutional investor
that originally acquired the securities in a private placement or directly from
the issuers of the securities. Generally, securities acquired in such private
placements are subject to contractual restrictions on resale and may not be
resold except pursuant to a registration statement under the Securities Act of
1933 or in reliance upon an exemption from the registration requirements under
the Act (for example, private placements sold pursuant to Rule 144A).
Accordingly, all such private placements will be considered illiquid unless
they have been specifically determined to be liquid taking into account factors
such as the frequency and volume of trading and the commitment of dealers to
make markets under procedures adopted by the fund's board of directors.
Additionally, investing in private placement securities could have the effect
of increasing the level of illiquidity of the fund's portfolio to the extent
that "qualified" institutional investors become, for a period of time,
uninterested in purchasing these securities. The fund will not invest more than
15% of its total assets in illiquid securities.
MATURITY
There are no restrictions on the maturity composition of the portfolio,
although it is anticipated that the fund normally will be invested
substantially in securities with maturities in excess of three years. Under
normal market conditions, longer term securities yield more than shorter term
securities, but are subject to greater price fluctuations.
================================================================================
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
The basic investment philosophy of Capital Research and Management Company is
to seek fundamental values at reasonable prices, using a system of multiple
portfolio counselors in managing mutual fund assets. Under this system the
portfolio of the fund is divided into segments which are managed by individual
counselors. Counselors decide how their respective segments will be invested
(within the limits provided by the fund's objective and policies and by Capital
Research and Management Company's investment committee). In addition, Capital
Research and Management Company's research professionals make investment
decisions with respect to a portion of the fund's portfolio. The primary
individual portfolio counselors for the fund are listed on the next page.
- --------------------------------------------------------------------------------
THE BOND FUND OF AMERICA / PROSPECTUS 11
- --------------------------------------------------------------------------------
<PAGE>
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<TABLE>
<CAPTION>
===================================================================================================
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
...............................
YEARS OF EXPERIENCE AS WITH CAPITAL
PORTFOLIO COUNSELORS PORTFOLIO COUNSELOR RESEARCH AND
FOR FOR THE BOND FUND OF MANAGEMENT
THE BOND FUND OF AMERICA, INC. COMPANY OR TOTAL
AMERICA, INC. PRIMARY TITLE(S) (APPROXIMATE) ITS AFFILIATES YEARS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ABNER D. President and 13 years 30 years 45 years
GOLDSTINE Director of the (since the
fund. Senior Vice fund began
President and operations)
Director, Capital
Research and
Management Company
- ---------------------------------------------------------------------------------------------------
RICHARD T. Senior Vice 19 years 19 years 30 years
SCHOTTE President of the
fund. Senior Vice
President, Capital
Research and
Management Company
- ---------------------------------------------------------------------------------------------------
JOHN H. Vice President of 8 years 14 years 15 years
SMET the fund. Vice
President, Capital
Research and
Management Company
- ---------------------------------------------------------------------------------------------------
MARK H. Vice President -- 3 years 9 years 19 years
DALZELL Investment
Management Group,
Capital Research
and Management
Company
- ---------------------------------------------------------------------------------------------------
</TABLE>
The fund began operations on May 28, 1974.
================================================================================
- --------------------------------------------------------------------------------
12 THE BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
<PAGE>
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INVESTMENT RESULTS
The fund may from time to time compare investment results to various indices or
other mutual funds. Fund results may be calculated on a total return, yield
and/or distribution rate basis. Results calculated without a sales charge will
be higher.
X TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gain
distributions.
X YIELD is computed by dividing the net investment income per share earned by
the fund over a given period of time by the maximum offering price per share
on the last day of the period, according to a formula mandated by the
Securities and Exchange Commission. A yield calculated using this formula
may be different than the income actually paid to shareholders.
X DISTRIBUTION RATE reflects dividends that were paid by the fund. The
distribution rate is calculated by annualizing the current month's dividend
and dividing by the average price for the month.
INVESTMENT RESULTS
(FOR PERIODS ENDED DECEMBER 31, 1996)
<TABLE>
<CAPTION>
THE FUND THE FUND AT LEHMAN
AVERAGE ANNUAL AT NET MAXIMUM BROTHERS
TOTAL RETURNS: ASSET VALUE/1/ SALES CHARGE/1/,/2/ INDEX/3/
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
One year 6.71% 1.66% 3.63%
................................................................................
Five years 8.78% 7.73% 7.04%
................................................................................
Ten years 9.00% 8.47% 8.47%
................................................................................
Lifetime 10.47% 10.23% 9.73%/4/
- --------------------------------------------------------------------------------
</TABLE>
Yield/1/,/2/: 6.34%
Distribution rate/2/: 6.84%
/1/ These fund results were calculated according to a standard that is required
for all stock and bond funds.
/2/ The maximum sales charge has been deducted.
/3/ The Lehman Brothers Aggregate Bond Index represents investment grade debt.
This index is unmanaged and does not reflect sales charges, commissions, or
expenses.
/4/ From May 31, 1974 through December 31, 1975, the Lehman Brothers Corporate
Bond Index was used because the Lehman Brothers Aggregate Bond Index did not
yet exist. As of January 1, 1976, the Lehman Brothers Aggregate Bond Index
has been used.
- --------------------------------------------------------------------------------
THE BOND FUND OF AMERICA / PROSPECTUS 13
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<PAGE>
================================================================================
[GRAPH APPEARS HERE]
Past results are not an indication of future results.
================================================================================
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The fund declares dividends, which may fluctuate, from its net investment
income daily and distributes the accrued dividends to shareholders each month.
Dividends begin accruing one day after payment for shares is received by the
fund or American Funds Service Company. All capital gains, if any, are
distributed annually, usually in December. When a dividend or capital gain is
distributed, the net asset value per share is reduced by the amount of the
payment.
FEDERAL TAXES
In any fiscal year in which the fund qualifies as a regulated investment
company and distributes to shareholders all of its net investment income and
net capital gains, the fund itself is relieved of federal income tax.
Generally, all dividends and capital gains are taxable whether they are
reinvested or received in cash -- unless you are exempt from taxation or
entitled to tax deferral. Early each year, you will be notified as to the
amount and federal tax
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14 THE BOND FUND OF AMERICA / PROSPECTUS
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<PAGE>
================================================================================
status of all income distributions paid during the prior year. Such
distributions may also be subject to state or local taxes. The tax treatment of
redemptions from a retirement plan account may differ from redemptions from an
ordinary shareholder account.
YOU MUST PROVIDE THE FUND WITH A CERTIFIED CORRECT TAXPAYER IDENTIFICATION
NUMBER (GENERALLY YOUR SOCIAL SECURITY NUMBER) AND CERTIFY THAT YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING. IF YOU FAIL TO DO SO THE IRS CAN REQUIRE THE
FUND TO WITHHOLD 31% OF YOUR TAXABLE DISTRIBUTIONS AND REDEMPTIONS. Federal law
also requires the fund to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
This is a brief summary of some of the tax laws that affect your investment in
the fund. Please see the statement of additional information and your tax
adviser for further information.
================================================================================
FUND ORGANIZATION AND MANAGEMENT
FUND ORGANIZATION AND VOTING RIGHTS
The fund, an open-end, diversified management investment company, was organized
as a Maryland corporation in 1973. All fund operations are supervised by the
fund's board of directors who meet periodically and perform duties required by
applicable state and federal laws. Members of the board who are not employed by
Capital Research and Management Company or its affiliates are paid certain fees
for services rendered to the fund as described in the statement of additional
information. They may elect to defer all or a portion of these fees through a
deferred compensation plan in effect for the fund. The fund does not hold
annual meetings of shareholders. However, significant corporate matters which
require shareholder approval, such as certain elections of board members or a
change in a fundamental investment policy, will be presented to shareholders at
a meeting called for such purpose. Shareholders have one vote per share owned.
At the request of the holders of at least 10% of the shares, the fund will hold
a meeting at which any member of the board could be removed by a majority vote.
THE INVESTMENT ADVISER
Capital Research and Management Company, a large and experienced investment
management organization founded in 1931, is the investment adviser to the fund
and other funds, including those in The American Funds
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THE BOND FUND OF AMERICA / PROSPECTUS 15
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<PAGE>
================================================================================
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 management fee paid
by the fund to Capital Research and Management Company is composed of a
management fee, which may not exceed 0.30% of the fund's average net assets
annually and declines at certain asset levels, plus an amount which may not
exceed 3% of the fund's gross investment income for the preceding month and
which also declines at certain annual gross investment levels. The total
management fee paid by the fund, as a percentage of average net assets, for the
previous fiscal year is listed earlier under "Expenses."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has also been
incorporated into the fund's "code of ethics."
PLAN OF DISTRIBUTION
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the board and the expenses paid under the
Plan were incurred within the preceding 12 months and accrued while the Plan is
in effect. The 12b-1 fee paid by the fund, as a percentage of average net
assets, for the previous fiscal year is listed earlier under "Expenses."
PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by Capital
Research and Management Company, which strives to obtain the best available
prices, taking into account the costs and quality of executions. Fixed-income
securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are usually purchased at a fixed price which includes an
amount of compensation to the dealer, generally referred to as a concession or
discount. On occasion, securities may be purchased directly from an issuer, in
which case no commissions or discounts are paid. In the over-the-counter
market, purchases and sales are transacted directly with principal market-
makers except in those circumstances where it appears better prices and
executions are available elsewhere.
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16 THE BOND FUND OF AMERICA / PROSPECTUS
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<PAGE>
================================================================================
Subject to the above policy, when two or more brokers are in a position to
offer comparable prices and executions, preference may be given to brokers who
have sold shares of the fund or have provided investment research, statistical,
and other related services for the benefit of the fund and/or other funds
served by Capital Research and Management Company.
PRINCIPAL UNDERWRITER AND TRANSFER AGENT
American Funds Distributors, Inc. and American Funds Service Company serve as
the principal underwriter and transfer agent for the fund, respectively. They
are headquartered at 333 South Hope Street, Los Angeles, CA 90071 and 135 South
State College Boulevard, Brea, CA 92821, respectively.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
[MAP OF THE UNITED STATES APPEARS HERE]
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THE BOND FUND OF AMERICA / PROSPECTUS 17
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<PAGE>
================================================================================
SHAREHOLDER SERVICES
The fund offers you a valuable array of services you can use to alter your
investment program as your needs and circumstances change. These services,
which are summarized below, 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. A COMPLETE DESCRIPTION OF SHAREHOLDER SERVICES AND ACCOUNT
POLICIES IS CONTAINED 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.
THE SERVICES DESCRIBED MAY NOT BE AVAILABLE THROUGH SOME RETIREMENT PLANS. IF
YOU ARE INVESTING THROUGH A RETIREMENT PLAN, YOU SHOULD CONTACT YOUR PLAN
ADMINISTRATOR/TRUSTEE ABOUT WHAT SERVICES ARE AVAILABLE AND WITH QUESTIONS
ABOUT YOUR ACCOUNT.
================================================================================
PURCHASING SHARES
HOW TO PURCHASE SHARES
Generally, you may open an account by contacting any investment dealer
authorized to sell the fund's shares. You may add to your account through your
dealer or directly through American Funds Service Company by mail, wire, or
bank debit. You may also establish or add to your account by exchanging shares
from any of your other accounts in The American Funds Group. The fund and
American Funds Distributors reserve the right to reject any purchase order.
Various purchase options are available as described below subject to certain
investment minimums and limitations described in the statement of additional
information and "Welcome to the Family."
X Automatic Investment Plan
You may invest monthly or quarterly through automatic withdrawals from your
bank account.
X Automatic Reinvestment
You may reinvest your dividends and capital gain distributions into the fund
(with no sales charge). This will be done automatically unless you elect to
have the dividends and/or capital gain distributions paid to you in cash.
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18 THE BOND FUND OF AMERICA / PROSPECTUS
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<PAGE>
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X Cross-Reinvestment
You may invest your dividends and capital gain distributions into any other
fund in The American Funds Group.
X Exchange Privilege
You may exchange your shares into other funds in The American Funds Group
generally with no sales charge. Exchanges of shares from the money market
funds that were initially purchased with no sales charge will generally be
subject to the appropriate sales charge. You may also elect to automatically
exchange shares among any of the funds in The American Funds Group. Exchange
requests may be made in writing, by telephone including American
FundsLine(R) (see below) or by fax. EXCHANGES HAVE THE SAME TAX CONSEQUENCES
AS ORDINARY SALES AND PURCHASES.
X Retirement Plans
You may invest in the fund through various retirement plans. For further
information contact your investment dealer or American Funds Distributors.
SHARE PRICE
The fund's share price, also called net asset value, is determined as of the
close of trading (normally 4:00 p.m., Eastern time) every day the New York
Stock Exchange is open. The fund calculates its net asset value per share,
generally using market prices, by dividing the total value of its assets after
subtracting liabilities by the number of its shares outstanding. Shares are
purchased at the offering price next determined after your investment is
received and accepted by American Funds Service Company. The offering price is
the net asset value plus a sales charge, if applicable.
SHARE CERTIFICATES
Shares are credited to your account and certificates are not issued unless you
request them by writing to American Funds Service Company.
INVESTMENT MINIMUMS
<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 $ 25
</TABLE>
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THE BOND FUND OF AMERICA / PROSPECTUS 19
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<PAGE>
================================================================================
SALES CHARGES
A sales charge may apply, as described below, when purchasing shares. Sales
charges may be reduced for larger purchases as indicated below.
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF
.................
- --------------------------------------------------------------------------------
DEALER
NET CONCESSION AS
OFFERING AMOUNT % OF OFFERING
INVESTMENT PRICE INVESTED PRICE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 4.75% 4.99% 4.00%
................................................................................
$25,000 but less than $50,000 4.50% 4.71% 3.75%
................................................................................
$50,000 but less than $100,000 4.00% 4.17% 3.25%
................................................................................
$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 than $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 CHARGES
Investments of $1 million or more and investments made by employer-sponsored
defined contribution-type plans with 200 or more eligible employees are sold
with no initial sales charge. A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF PURCHASE BY THESE
ACCOUNTS. A dealer concession of up to 1% may be paid by the fund from its Plan
of Distribution on these investments. Investments by retirement plans,
foundations or endowments with $50 million or more in assets may 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 American Funds Distributors on
these investments. Investments by certain individuals and entities including
employees and other associated persons of dealers authorized to sell shares of
the fund and Capital Research and Management Company and its affiliated
companies are not subject to a sales charge.
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20 THE BOND FUND OF AMERICA / PROSPECTUS
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<PAGE>
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ADDITIONAL DEALER COMPENSATION
In addition to the concessions listed, 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. During 1997, American Funds Distributors will
also provide additional compensation to the top one hundred dealers who have
sold shares of funds in The American Funds Group based on the pro rata share of
a qualifying dealer's sales.
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.
X Aggregation
Investments that may be aggregated include those made by you, your spouse
and your children under the age of 21, if all parties are purchasing shares
for their own account(s), including any business account solely "controlled
by," as well as any retirement plan or trust account solely for the benefit
of, these individuals. Investments made for multiple employee benefit plans
of a single employer or "affiliated" employers may be aggregated provided
they are not also aggregated with individual accounts. Finally, investments
made by a common trust fund or other diversified pooled account not
specifically formed for the purpose of accumulating fund shares may be
aggregated.
Purchases made for nominee or street name accounts will generally not be
aggregated with those made for other accounts unless qualified as described
above.
X Concurrent Purchases
You may combine concurrent purchases of two or more funds in The American
Funds Group, except direct purchases of the money market funds. Shares of
the money market funds purchased through an exchange, reinvestment or cross-
reinvestment from a fund having a sales charge do qualify.
X Right of Accumulation
You may take into account the current value of your existing holdings in The
American Funds Group to determine your sales charge. Direct purchases of the
money market funds are excluded.
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THE BOND FUND OF AMERICA / PROSPECTUS 21
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<PAGE>
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X Statement of Intention
You may enter into a non-binding commitment to invest a certain amount
(which, at your request, may include purchases made during the previous 90
days) in non-money market fund shares over a 13-month period. A portion of
your account may be held in escrow to cover additional sales charges which
may be due if your total investments over the statement period are
insufficient to qualify for the applicable sales charge reduction.
================================================================================
SELLING SHARES
HOW TO SELL SHARES
You may sell (redeem) shares in your account by contacting your investment
dealer or American Funds Service Company. You may also use American
FundsLine(R) (see below). In addition, you may sell shares in amounts of $50 or
more automatically. If you sell shares through your investment dealer you may
be charged for this service. Shares held for you in your dealer's street name
must be sold through the dealer.
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. Sale requests may be
made in writing, by telephone, including American FundsLine(R) (see below), or
by fax. Sales by telephone or fax are limited to $10,000 in accounts registered
to individual(s) (including non-retirement trust accounts). In addition, checks
must be made payable to the registered shareholder(s) and mailed to an address
of record that has been used with the account for at least 10 days. Proceeds
will not be mailed until sufficient time has passed to provide reasonable
assurance that checks or drafts (including certified or cashier's checks) for
shares purchased have cleared (which may take up to 15 calendar days from the
purchase date). Except for delays relating to clearance of checks for share
purchases or in extraordinary circumstances (and as permissible under the
Investment Company Act of 1940), sale proceeds will be paid on or before the
seventh day following receipt and acceptance of an order. The fund may, with 60
days' written notice, close your account if due to a sale of shares the account
has a value of less than the minimum required initial investment.
Generally, written requests to sell shares must be signed by you and must
include any shares you wish to sell that are in certificate form. Your
signature must be guaranteed by a bank, savings association, credit union, or
member firm of a domestic stock exchange or the National Association of
Securities Dealers, Inc., that is an eligible guarantor institution. A
signature guarantee is not currently required for any sale of $50,000 or less
provided the check is made
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22 THE BOND FUND OF AMERICA / PROSPECTUS
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<PAGE>
================================================================================
payable to the registered shareholder(s) and is mailed to the address of record
on the account, and provided the address has been used with the account for at
least 10 days. Additional documentation may be required for sales of shares
held in corporate, partnership or fiduciary accounts.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge in any fund in The American Fund Group
within 90 days after the date of the redemption or distribution. Reinvestment
will be at the next calculated net asset value after receipt and acceptance by
American Funds Service Company.
================================================================================
OTHER IMPORTANT THINGS TO REMEMBER
AMERICAN FUNDSLINE(R)
You may check your share balance, the price of your shares, or your most recent
account transactions, sell shares (up to $10,000 per fund, per account each
day), or exchange shares around the clock with American FundsLine(R). To use
this service, call 800/325-3590 from a TouchTone(TM) telephone.
TELEPHONE PURCHASES, SALES AND EXCHANGES
Unless you opt out of the telephone (including American FundsLine(R)) or fax
purchase, sale and/or exchange options (see below), 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 provided American Funds Service Company employs reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine. If reasonable procedures are not
employed, the fund may be liable for losses due to unauthorized or fraudulent
instructions.
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 to
American Funds Service Company.)
ACCOUNT STATEMENTS
You will receive regular confirmation statements reflecting transactions in
your account. Purchases through automatic investment plans and certain
retirement plans will be confirmed at least quarterly.
- --------------------------------------------------------------------------------
THE BOND FUND OF AMERICA / PROSPECTUS 23
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
<TABLE>
<CAPTION>
FOR SHAREHOLDER FOR DEALER FOR 24-HOUR
SERVICES SERVICES INFORMATION
<S> <C> <C>
American Funds American Funds American
Service Company Distributors FundsLine(R)
800/421-0180 ext. 1 800/421-9900 ext. 11 800/325-3590
</TABLE>
Telephone conversations may be recorded or monitored for
verification, recordkeeping and quality assurance purposes.
================================================================================
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL STATEMENT OF ADDITIONAL
REPORT TO SHAREHOLDERS INFORMATION (SAI)
Includes financial Contains more detailed
statements, detailed information on all aspects
performance information, of the fund, including the
portfolio holdings, a fund's financial statements.
statement from portfolio
management and the auditor's
report.
A current SAI has been filed
with the Securities and
CODE OF ETHICS Exchange Commission and is
incorporated by reference
Includes a description of (is legally part of the
the fund's personal prospectus).
investing policy.
To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary of
Service Company the fund 333 South Hope
800/421-0180 ext. 1 StreetLos Angeles, CA 90071
================================================================================
This prospectus has been printed on recycled paper.
- --------------------------------------------------------------------------------
24 THE BOND FUND OF AMERICA / PROSPECTUS
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<PAGE>
THE BOND FUND OF AMERICA, INC.
PART B
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1997
This document is not a prospectus but should be read in conjunction with the
current Prospectus of The Bond Fund of America, Inc. (the "fund") dated March
1, 1997. The Prospectus may be obtained from your investment dealer or
financial planner or by writing to the fund at the following address:
The Bond Fund of America, Inc.
Attention: Secretary
333 South Hope Street
Los Angeles, CA 90071
(213) 486-9200
Shareholders who purchase shares at net asset value through eligible
retirement plans should note that not all of the services or features described
below may be available to them, and they should contact their employer for
details.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE NO.
<S> <C>
Description of Certain Securities 1
Investment Restrictions 6
Fund Officers and Directors 8
Management 11
Dividends, Distributions and Federal Taxes 14
Purchase of Shares 17
Redeeming Shares 23
Shareholder Account Services and Privileges 24
Execution of Portfolio Transactions 26
General Information 27
Investment Results 29
Description of Bond Ratings 33
Financial Statements Attached
</TABLE>
DESCRIPTION OF CERTAIN SECURITIES
The descriptions below are intended to supplement the material in the
Prospectus under "Investment Policies and Risks."
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK BONDS
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high-risk bonds
can be sensitive to adverse economic changes and corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress that would adversely
affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaulted on its obligations to pay
interest or principal or entered into bankruptcy proceedings, the fund may
incur losses or expenses in seeking recovery of amounts owed to it. In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices and yields of high-yield, high-risk
bonds.
PAYMENT EXPECTATIONS - High-yield, high-risk bonds may contain redemption or
call provisions. If an issuer exercised these provisions in a declining
interest rate market, the fund would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely,
a high-yield, high-risk bond's value will decrease in a rising interest rate
market, as will the value of the fund's assets.
LIQUIDITY AND VALUATION - There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
DOWNGRADE POLICY - The fund is not normally required to dispose of a security
in the event that its rating is reduced to Ba or below by Moody's Investors,
Inc. or BB or below by Standard & Poors Corporation (or it is not rated and its
quality becomes equivalent to such a security). The fund, however, has no
current intention to hold 35% or more of its net assets in these securities
(also known as "high-yield, high-risk" or "junk" bonds).
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES - Certificates issued by
the Government National Mortgage Association ("GNMA") are mortgage-backed
securities representing part ownership of a pool of mortgage loans, which are
issued by lenders such as mortgage bankers, commercial banks and savings and
loan associations, and are either insured by the Federal Housing Administration
or guaranteed by the Veterans Administration. A pool of these mortgages is
assembled and, after being approved by GNMA, is offered to investors through
securities dealers. The timely payment of interest and principal on each
mortgage is guaranteed by GNMA and backed by the full faith and credit of the
U.S. Government.
Principal is paid back monthly by the borrower over the term of the loan.
Reinvestment of prepayments may occur at higher or lower rates than the
original yield on the certificates. Due to the prepayment feature and the need
to reinvest prepayments of principal at current market rates, GNMA certificates
can be less effective than typical bonds of similar maturities at "locking in"
yields during periods of declining interest rates. GNMA certificates typically
appreciate or decline in market value during periods of declining or rising
interest rates, respectively. Due to the regular repayment of principal and
the prepayment feature, the effective maturities of mortgage pass-through
securities are shorter than stated maturities, will vary based on market
conditions and cannot be predicted in advance. The effective maturities of
newly-issued GNMA certificates backed by relatively new loans at or near the
prevailing interest rates are generally assumed to range between approximately
9 and 12 years.
FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS - FNMA, a federally chartered and
privately-owned corporation, issues pass-through securities representing
interests in a pool of conventional mortgage loans. FNMA guarantees the timely
payment of principal and interest but this guarantee is not backed by the full
faith and credit of the U.S. Government.
FHLMC, a corporate instrumentality of the U.S. Government, issues
participation certificates which represent an interest in a pool of
conventional mortgage loans. FHLMC guarantees the timely payment of interest
and the ultimate collection of principal, and maintains reserves to protect
holders against losses due to default, but the certificates are not backed by
the full faith and credit of the U.S. Government.
As is the case with GNMA certificates, the actual maturity of and realized
yield on particular FNMA and FHLMC pass-through securities will vary based on
the prepayment experience of the underlying pool of mortgages.
OTHER MORTGAGE-RELATED SECURITIES - The fund may invest in mortgage-related
securities issued by financial institutions such as commercial banks, savings
and loan associations, mortgage bankers and securities broker-dealers (or
separate trusts or affiliates of such institutions established to issue these
securities). These securities include mortgage pass-through certificates,
collateralized mortgage obligations (including real estate mortgage investment
conduits as authorized under the Internal Revenue Code of 1986) (CMOs) or
mortgage-backed bonds. Each class of bonds in a CMO series may have a
different maturity, bear a different coupon, and have a different priority in
receiving payments. All principal payments, both regular principal payments as
well as any prepayment of principal, are passed through to the holders of the
various CMO classes dependent on the characteristics of each class. In some
cases, all payments are passed through first to the holders of the class with
the shortest stated maturity until it is completely retired. Thereafter,
principal payments are passed through to the next class of bonds in the series,
until all the classes have been paid off. In other cases, payments are passed
through to holders of whichever class first has the shortest effective maturity
at the time payments are made. As a result, an acceleration in the rate of
prepayments that may be associated with declining interest rates shortens the
expected life of each class. The impact of an acceleration in prepayments
affects the expected life of each class differently depending on the unique
characteristics of that class. In the case of some CMO series, each class may
receive a differing proportion of the monthly interest and principal repayments
on the underlying collateral. In these series the classes would be more
affected by an acceleration (or slowing) in the rate of prepayments than CMOs
which share principal and interest proportionally.
The fund may also invest in real estate investment conduits which are issued
in portions or tranches with varying maturities and characteristics; some
tranches may only receive the interest paid on the underlying mortgages (Ios)
and others may only receive the principal payments (POs); the values of IOs and
POs are extremely sensitive to interest rate fluctuations and prepayment rates,
and Ios are also subject to the risk of early repayment of the underlying
mortgage which will substantially reduce or eliminate interest payments.
Mortgage-backed bonds are general obligations of the issuer fully
collateralized directly or indirectly by a pool of mortgages. The mortgages
serve as collateral for the issuer's payment obligations on the bonds, but
interest and principal payments on the mortgages are not passed through either
directly (as with GNMA certificates and FNMA and FHLMC pass-through securities)
or on a modified basis (as with CMO's). Accordingly, a change in the rate of
prepayments on the pool of mortgages could change the effective maturity of a
CMO but not that of a mortgage-backed bond (although, like many bonds,
mortgage-backed bonds can provide that they are callable by the issuer prior to
maturity).
OTHER ASSET-BACKED SECURITIES - The fund may invest in securities backed by
loans or accounts receivable originated by banks, credit card companies, or
other providers of credit. Generally, the originator of the loan or accounts
receivable sells it to a specially created trust, which repackages it as
securities with a term of five years or less. Examples of these types of
securities include trade and automobile receivables, and credit card, home
improvement, home equity and commercial mortgage backed loans. The loans
underlying these securities are subject to prepayments which can decrease
maturities and returns. The values of these securities are ultimately
dependent upon payment of the underlying loans by individuals, and the holders
generally have no recourse against the originator of the loans. Holders of
these securities may experience losses or delays in payment if the original
payments of principal and interest are not made to the trust with respect to
the underlying loans.
To lessen the effect of failures by obligors on underlying assets to make
payments, asset-backed securities may contain elements of credit support
provided through guarantees, insurance policies or letters of credit issued by
a financial institution affiliated or unaffiliated with the originator of the
pool. Such credit support typically covers only a portion of the par value
until exhausted. The credit quality of most asset-backed securities depends
primarily on the credit quality of the assets underlying such securities. In
addition, the amount and quality of any credit support provided to the
securities and the degree to which the issuer is insulated from the credit risk
of the originator or any other affiliated entities are factors in determining
credit quality.
CASH AND CASH EQUIVALENTS - Subject to the requirement that it maintain at
least 65% of its assets in bonds under normal market conditions, the fund may
maintain assets in cash or cash equivalents. Cash equivalents include (1)
commercial paper (short-term notes up to 9 months in maturity issued by
corporations or governmental bodies); (2) commercial bank obligations such as
certificates of deposit, (interest-bearing time deposits); and bankers'
acceptances, (time drafts on a commercial bank where the bank accepts an
irrevocable obligation to pay at maturity); (3) savings association
obligations (certificates of deposit issued by mutual savings banks or savings
and loan associations); (4) securities of the U.S. Government, its agencies or
instrumentalities that at time of purchase mature, or may be redeemed, in one
year or less; and (5) corporate bonds and notes that at time of purchase
mature, or that may be redeemed, in one year or less.
CURRENCY TRANSACTIONS - The fund 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 and price, both of which are set at the time of the contract. The
fund intends to enter into forward currency contracts solely to hedge into the
U.S. dollar its exposure to other currencies. The fund will segregate liquid
assets which will be marked to market daily to meet its forward contract
commitments to the extent required by the Securities and Exchange
Commission.
Certain provisions of the 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.
LOANS OF PORTFOLIO SECURITIES - Although the fund has no current intention of
doing so during the next 12 months, the fund is authorized to lend portfolio
securities to selected securities dealers or to other institutional investors
whose financial condition is monitored by Capital Research and Management
Company (the "Investment Adviser"). The borrower must maintain with the fund's
custodian collateral consisting of cash, cash equivalents or U.S. Government
securities equal to at least 100% of the value of the borrowed securities, plus
any accrued interest. The Investment Adviser will monitor the adequacy of the
collateral on a daily basis. The fund may at any time call in a loan of its
portfolio securities and obtain the return of the loaned securities. The fund
will receive any interest paid on the loaned securities and a fee or a portion
of the interest earned on the collateral. The fund will limit its loans of
portfolio securities to an aggregate of one-third of the value of its total
assets, measured at the time any such loan is made.
PORTFOLIO TRADING - The fund intends to engage in portfolio trading when the
Investment Adviser believes that the sale of a security owned by the fund and
the purchase of another security of better value can enhance principal and/or
increase income. A security may be sold to avoid any prospective decline in
market value in light of what is evaluated as an expected rise in prevailing
yields, or a security may be purchased in anticipation of a market rise (a
decline in prevailing yields). A security also may be sold and a comparable
security purchased coincidentally in order to take advantage of what is
believed to be a disparity in the normal yield and price relationship between
the two securities, or in connection with a "roll" transaction as described in
the Prospectus under "Securities and Investment Techniques."
INVERSE FLOATING RATE NOTES - The fund is authorized to invest up to 1% of the
fund's net assets in inverse floating rate notes (a type of derivative
instrument). These notes have rates that move in the opposite direction of
prevailing interest rates; thus, a change in prevailing interest rates will
often result in a greater change in the instruments' interest rates. As a
result, these instruments may have a greater degree of volatility than other
types of interest-bearing securities.
STRATEGIC PORTFOLIO ADJUSTMENT - The composition of the fund's portfolio will
change from time to time primarily in response to expected changes in interest
rates and in the yield relationships among sectors of the fixed-income market.
The Investment Adviser continually monitors the creditworthiness of companies,
the price and yield relationships among different sections of the debt market
and the outlook for interest rates in general and in particular parts of the
debt market. Yield relationships among securities of various types of issuers,
maturities, coupon rates or quality ratings frequently change in response to
changing supply-demand influences in the market. When it appears to the
Investment Adviser that the yield relationships may change, the composition of
the portfolio may be adjusted, should such changes offer the opportunity to
further the fund's investment objective. Changes may also be made if the
Investment Adviser believes that there is a temporary disparity among
individual securities of comparable characteristics. Some such changes may
result in short-term gains or losses to the fund. This information, which is
shared among the Investment Adviser's other departments and its affiliates,
makes up a part of the Investment Adviser's investment decisions.
PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the
length of time particular investments may have been held. High portfolio
turnover (100% or more) involves correspondingly greater transaction costs in
the form of dealer spreads or brokerage commissions, and may result in the
realization of net capital gains, which are taxable when distributed to
shareholders. Fixed-income securities are generally traded on a net basis and
usually neither brokerage commissions nor transfer taxes are involved. The
fund does not anticipate its portfolio turnover to exceed 100% annually. The
fund's portfolio turnover rate would equal 100% if each security in the fund's
portfolio were replaced once per year. See "Financial Highlights" in the
Prospectus for the fund's portfolio turnover for each of the last 10 years.
INVESTMENT RESTRICTIONS
The fund has adopted certain additional investment restrictions which may not
be changed without approval of the holders of a majority of its outstanding
shares. Such majority is defined by the Investment Company Act of 1940 ("1940
Act") as the vote of the lesser of (i) 67% or more of the outstanding voting
securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities are present in person or by proxy, or (ii) more
than 50% of the outstanding voting securities. These restrictions provide that
the fund may not:
1. Purchase any security (other than securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities) if, immediately after and
as a result of such investment (a) more than 5% of the value of the fund's
total assets would be invested in securities of the issuer; or (b) the fund
would hold more than 10% of the voting securities of the issuer; or (c) 25% or
more of the value of the fund's assets would be invested in a single industry.
Each of the electric utility, natural gas distribution, natural gas pipeline,
combined electric and natural gas utility, and telephone industries shall be
considered as a separate industry for this purpose;
2. Invest in companies for the purpose of exercising control or management;
3. Knowingly purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition, or reorganization;
4. Buy or sell real estate in the ordinary course of its business; however,
the fund may invest in debt securities secured by real estate or interests
therein or issued by companies, including real estate investment trusts, which
invest in real estate or interests therein;
5. Buy or sell commodities or commodity contracts in the ordinary course of
its business, provided, however, that this shall not prohibit the fund from
purchasing or selling currencies including forward currency contracts;
6. Invest more than 15% of the value of its net assets in securities that are
illiquid;
7. Engage in the business of underwriting of securities of other issuers,
except to the extent that the disposal of an investment position may
technically constitute the fund an underwriter as that term is defined under
the Securities Act of 1933;
8. Make loans in an aggregate amount in excess of 10% of the value of the
fund's total assets, taken at the time any loan is made, provided, (i) that the
purchase of debt securities pursuant to the fund's investment objectives and
entering into repurchase agreements maturing in seven days or less shall not be
deemed loans for the purposes of this restriction, and (ii) that loans of
portfolio securities as described under "Loans of Portfolio Securities," shall
be made only in accordance with the terms and conditions therein set forth;
9. Sell securities short, except to the extent that the fund contemporaneously
owns or has the right to acquire at no additional cost securities identical to
those sold short;
10. Purchase securities at margin;
11. Borrow money except from banks for temporary or emergency purposes, not in
excess of 5% of the value of the fund's total assets;
12. Mortgage, pledge, or hypothecate any of its assets;
13. Purchase or retain the securities of any issuer, if those individual
officers and directors of the fund, its investment adviser, or distributor,
each owning beneficially more than 1/2 of 1% of the securities of such issuer,
together own more than 5% of the securities of such issuer;
The fund has adopted the following non-fundamental investment policies, which
may be changed by action of the Board of Directors without shareholder
approval: (a) the fund will not invest more than 5% of its total assets in
securities of companies having, together with their predecessors, a record of
less than three years of continuous operation, and (b) the fund will not
purchase partnership interests or invest in leases to develop, or explore for,
oil, gas or minerals.
Notwithstanding Investment Restriction #3, the fund may invest in securities
of other investment companies if deemed advisable by its officers in
connection with the administration of a deferred compensation plan adopted by
Directors pursuant to an exemptive order granted by the Securities and Exchange
Commission.
FUND OFFICERS AND DIRECTORS
Directors and Director Compensation
(with their principal occupations during the past five years)#
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH PRINCIPAL OCCUPATION(S) DURING AGGREGATE TOTAL COMPENSATION TOTAL
REGISTRANT PAST 5 YEARS (POSITIONS WITHIN COMPENSATION (INCLUDING VOLUNTARILY NUMBER
THE ORGANIZATIONS LISTED MAY (INCLUDING DEFERRED OF FUND
HAVE CHANGED DURING THIS VOLUNTARILY COMPENSATION/1/) BOARDS/2/
PERIOD) DEFERRED FROM ALL FUNDS ON
COMPENSATION/1/) MANAGED BY CAPITAL WHICH
FROM THE FUND RESEARCH AND DIRECTOR
DURING FISCAL MANAGEMENT SERVES
YEAR ENDED 12/31/96 COMPANY/2/
<S> <C> <C> <C> <C> <C>
++ H. Frederick Christie Director Private Investor. Former President 18
P. O. Box 144 and Chief Executive Officer, The $7,350/3/ $156,350
Palos Verdes, CA 90274 Mission Group (non-utility holding
Age: 63 company, subsidiary of Southern
California Edison Company)
+ Don R. Conlan Age: 61 Director President Emeritus, The Capital none/4/ none/4/ 12
1630 Milan Avenue Group Companies, Inc.
South Pasadena, CA 91030
Diane C. Creel Age: 48 Director CEO and President, 12
100 W. Broadway The Earth Technology Corporation 6,750 39,000
Suite 5000
Long Beach, CA 90802
Martin Fenton, Jr. Age: 61 Director Chairman, Senior Resource Group 16
4350 Executive Drive (management of senior living 6,950/3/ 124,400
Suite 101 centers)
San Diego, CA 92121-2116
Leonard R. Fuller Age: 50 Director President, Fuller & Company, Inc. 12
4333 Admiralty Way (financial management consulting 7,350/3/ 42,900
Suite 841 ETH firm)
Marina del Rey, CA 90292
+* Abner D. Goldstine Age: 67 President, PEO Capital Research and Management 12
and Director Company, Senior Vice President none/4/ none/4/
and Director
+** Paul G. Haaga, Jr. Age: 48 Chairman of Capital Research and Management 14
the Board Company, Executive Vice President none/4/ none/4/
and Director
Herbert Hoover III Age: 69 Director Private Investor
1520 Circle Drive $7,150 $61,700 14
San Marino, CA 91108
Richard G. Newman Age: 62 Director Chairman, President and CEO,
3250 Wilshire Boulevard AECOM Technology Corporation 6,950/3/ 72,500 13
Los Angeles, CA 90010-1599 (architectural engineering)
Peter C. Valli Age: 70 Director Chairman, BW/IP International Inc.
45 Sea Isle Drive (industrial manufacturing) 6,950/3/ 40,500 12
Long Beach, CA 90803
</TABLE>
+ Directors who are considered "interested persons as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), on the basis of their
affiliation with the fund's Investment Adviser, Capital Research and Management
Company.
++ May be deemed an "interested person" of the fund due to membership on the
board of directors of the parent company of a registered broker-dealer.
* Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025.
** Address is 333 South Hope Street, Los Angeles, CA 90071
/1/ Amounts may be deferred by eligible directors under a non-qualified
deferred compensation plan adopted by the Fund in 1993. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more
funds in The American Funds Group as designated by the Director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, American Balanced Fund, Inc., American
High-Income Municipal Bond Fund, Inc., American High-Income Trust, American
Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management Trust of
America, Capital Income Builder, Inc., Capital World Growth and Income Fund,
Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America,
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U. S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc. Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serve as the underlying investment vehicle for certain
variable insurance contracts; and Bond Portfolio for Endowments, Inc. and
Endowments, Inc. whose shares may be owned only by tax-exempt organizations.
/3/ Since the plan's adoption, the total amount of deferred compensation
accrued by the fund (plus earnings thereon) for participating Directors is as
follows:
H. Frederick Christie ($10,582), Martin Fenton, Jr. ($8,661), Leonard Fuller
($4,086), Richard G. Newman ($22,426) and Peter C. Valli ($21,883). Amounts
deferred and accumulated earnings thereon are not funded and are general
unsecured liabilities of the fund until paid to the Director.
/4/ Don R. Conlan, Abner D. Goldstine and Paul G. Haaga, Jr. are affiliated
with the Investment Adviser and, accordingly, receive no compensation from the
Fund.
OFFICERS
(with their principal occupations during the past five years)#
* RICHARD T. SCHOTTE, SENIOR VICE PRESIDENT. Capital Research Company, Senior
Vice
President
* JOHN H. SMET, VICE PRESIDENT. Capital Research and Management Company, Vice
President
*** MICHAEL J. DOWNER, VICE PRESIDENT. Capital Research and Management
Company,
Senior Vice President - Fund Business Management Group
** MARY C. HALL, VICE PRESIDENT . Capital Research and Management Company,
Senior Vice President - Fund Business Management Group
*** JULIE F. WILLIAMS, SECRETARY. Capital Research and Management Company,
Vice President - Fund Business Management Group
** ANTHONY W. HYNES, JR., Treasurer. Capital Research and Management Company,
Vice President - Fund Business Management Group
*** KIMBERLY S. VERDICK, ASSISTANT SECRETARY. Capital Research and Management
Company,
Assistant Vice President - Fund Business Management Group
** TODD L. MILLER, Assistant Treasurer. Capital Research and Management
Company
Assistant Vice President - Fund Business Management Group
# Positions within the organizations listed may have changed during this
period.
* Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025.
** Address is 135 South State College Boulevard, Brea, CA 92821.
*** Address is 333 South Hope Street, Los Angeles, CA 90071.
The fund pays annual fees of $7,500 to Directors who are not affiliated with
the Investment Adviser, plus $200 for each Board of Directors meeting attended,
plus $200 for each meeting attended as a member of a committee of the Board of
Directors. The Directors may elect, on a voluntary basis, to defer all or a
portion of these fees through a deferred compensation plan in effect for the
fund. The fund also reimburses certain expenses of the Directors who are not
affiliated with the Investment Adviser. As of February 1, 1997, the officers
and Directors and their families, as a group, owned beneficially or of record
less than 1% of the outstanding shares of the fund.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington, D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience. The Investment Adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821.
The Investment Adviser's research professionals travel several million miles a
year, making more than 5,000 research visits in more than 50 countries around
the world. The Investment Adviser believes that it is able to attract and
retain quality personnel. The Investment Adviser is a wholly owned subsidiary
of The Capital Group Companies, Inc.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for more than $100 billion of stocks,
bonds and money market instruments and serve over five million investors of all
types throughout the world. These investors include privately owned businesses
and large corporations, as well as schools, colleges, foundations and other
non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and
Service Agreement (the "Agreement") between the fund and the Investment Adviser
will continue until October 31, 1997 unless sooner terminated and may be
renewed from year to year thereafter, provided that any such renewal has been
specifically approved at least annually by (i) the Board of Directors, or by
the vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities, and (ii) the vote of a majority of directors who are not parties to
the Agreement or interested persons (as defined in the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. The Agreement provides that the Investment Adviser has no liability
to the fund for its acts or omissions in the performance of its obligations to
the fund not involving willful misconduct, bad faith, gross negligence or
reckless disregard of its obligations under the Agreement. The Agreement also
provides that either party has the right to terminate it, without penalty, upon
60 days' written notice to the other party and that the Agreement automatically
terminates in the event of its assignment (as defined in the 1940 Act).
The Investment Adviser has agreed to reduce the fee payable to it under the
agreement, (a) by the amount by which the ordinary operating expenses of the
fund for any fiscal year of the fund, excluding interest, taxes and
extraordinary expenses such as litigation, shall exceed the greater of (i) one
percent (1%) of the average month-end net assets of the fund for such fiscal
year, or (ii) ten percent (10%) of the fund's gross investment income, and (b)
by any additional amount necessary to assure that such ordinary operating
expenses of the fund in any year after such reduction do not exceed the lesser
of (i) one and one-half percent (1 1/2%) of the first $30 million of average
month-end net assets of the fund, plus one percent (1%) of the average
month-end net assets in excess thereof or (ii) twenty-five percent (25%) of the
fund's gross investment income.
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the fund, provides suitable office space and utilities, necessary small office
equipment and general purpose accounting forms, supplies, and postage used at
the offices of the fund. The fund pays all expenses not assumed by the
Investment Adviser, including, but not limited to, custodian, stock transfer
and dividend disbursing fees and expenses; costs of the designing, printing and
mailing of reports, prospectuses, proxy statements, and notices to its
shareholders; taxes; expenses of the issuance and redemption of shares
(including stock certificates, registration and qualification fees and
expenses); legal and auditing expenses; compensation, fees, and expenses paid
to directors unaffiliated with the Investment Adviser; association dues; and
costs of stationery and forms prepared exclusively for the fund; and costs of
assembling and storing shareholder account data.
The management fee is based upon the net assets of the fund and monthly gross
investment income. Gross investment income means gross income, computed
without taking account of gains or losses from sales of capital assets, but
including original issue discount as defined for federal income tax purposes.
The Internal Revenue Code in general defines original issue discount to mean
the difference between the issue price and the stated redemption price at
maturity of certain debt obligations. The holder of such indebtedness is in
general required to treat as ordinary income the proportionate part of the
original issue discount attributable to the period during which the holder held
the indebtedness. The management fee is based upon the annual rates of 0.30%
of the first $60 million of the fund's average net assets, plus 0.21% on
average net assets in excess of $60 million but not exceeding $1 billion, plus
0.18% on average net assets in excess of $1 billion but not exceeding $3
billion, plus 0.16% on average net assets in excess of $3 billion but not
exceeding $6 billion, plus 0.15% on average net assets over $6 billion, plus 3%
of the first $5.4 million of annual gross income, plus 2.25% of annual gross
investment income in excess of $5.4 million but not exceeding $100 million,
plus 2% of annual gross investment income in excess of $100 million. Assuming
net assets of $7 billion and gross investment income levels of 5%, 6%, 7%, 8%
and 9%, management fees would be .25%, .27%, .29%, .31%, and .33%,
respectively.
During the fiscal years ended December 31, 1996, 1995, and 1994, , the
Investment Adviser's total fees amounted to $22,728,000, $20,858,000, and
$18,755,000, respectively.
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, 8000 IH-10 West, San Antonio, TX
78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240, and 5300
Robin Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of
Distribution (the "Plan"), pursuant to rule 12b-1 under the 1940 Act. The
Principal Underwriter receives amounts payable pursuant to the Plan (see below)
and commissions consisting of that portion of the sales charge remaining after
the discounts which it allows to investment dealers. Commissions retained by
the Principal Underwriter on sales of fund shares during the fiscal year ended
December 31, 1996 amounted to $5,534,000 after allowance of $232,568,000 to
dealers. During the fiscal years ended December 31, 1995 and 1994 the
Principal Underwriter retained $4,814,000 and $4,562,000, respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by the full Board of Directors and separately by a
majority of the Directors who are not "interested persons" of the fund and who
have no direct or indirect financial interest in the operation of the Plan or
the Principal Underwriting Agreement, and the Plan has been approved by the
vote of a majority of the outstanding voting securities of the fund. The
officers and directors who are "interested persons" of the fund due to present
or past affiliations with the investment adviser and related companies may be
considered to have a direct or indirect financial interest in the operation of
the Plan. Potential benefits of the plan to the fund include improved
shareholder services, savings to the fund in transfer agency costs, savings to
the fund in advisory fees and other expenses, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management organization. The selection and nomination of Directors who
are not "interested persons" of the fund is committed to the discretion of the
Directors who are not "interested persons" during the existence of the Plan.
Plan expenditures are reviewed quarterly and must be renewed annually by the
Board of Directors.
Under the Plan the fund may expend up to 0.25% of its average net assets
annually to finance any activity which is primarily intended to result in the
sale of fund shares, provided the fund's Board of Directors has approved the
category of expenses for which payment is being made. These include service
fees for qualified dealers and dealer commissions and wholesaler compensation
on sales of shares exceeding $1 million (including purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees). Only expenses incurred
during the preceding 12 months and accrued while the Plan is in effect may be
paid by the fund. During the fiscal year ended December 31, 1996, the fund
paid $16,348,000 under the Plan as compensation to dealers. As of December 31,
1996 accrued and unpaid distribution expenses were $1,062,000.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit commercial banks from engaging in the business of
underwriting, selling or distributing securities, but permit banks to make
shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries of affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer with adverse financial consequences as a result of
any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements and has elected the tax status
of a "regulated investment company" under the provisions of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). Under Subchapter M, if
the fund distributes within specified times at least 90% of the sum of its
investment company taxable investment income (net investment income and the
excess of net short-term capital gains over net long-term capital losses) and
its tax-exempt interest, if any, it will be taxed only on that portion (if any)
of the investment company taxable income and net capital gain that it
retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities, currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) derive less than 30% of its gross income from the sale or other
disposition of stock or securities held for less than three months; and (c)
diversify its holdings so that at the end of each fiscal quarter, (i) at least
50% of the market value of the fund's assets is represented by cash, U.S.
Government securities and other securities which must be limited, in respect of
any one issuer, to an amount not greater than 5% of the fund's assets and 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its assets is invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies), or in two or more issuers which the fund controls and
which are engaged in the same or similar trades or businesses or related trades
or businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gain (both long-term and short-term)
for the one-year period ending on October 31 (as though the one-year period
ending on October 31 were the regulated investment company's taxable year), and
(iii) the sum of any untaxed, undistributed net investment income and net
capital gains of the regulated investment company for prior periods. The term
"distributed amount" generally means the sum of (i) amounts actually
distributed by the fund from its current year's ordinary income and net capital
gain and (ii) any amount on which the fund pays income tax during the periods
described above. The fund intends to distribute net investment income and net
capital gains so as to minimize or avoid the excise tax liability.
The fund also intends to distribute to shareholders all of the excess of net
long-term capital gain over net short-term capital loss on sales of
securities. If the net asset value of shares of the fund should, by reason of
a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes. In particular, investors should consider the tax
implications of purchasing shares just prior to a dividend or distribution
record date. Those investors purchasing shares just prior to such a date will
then receive a partial return of capital upon the dividend or distribution,
which will nevertheless be taxable to them as an ordinary or capital gains
dividend.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends and distributions declared in October, November and December
and made payable to shareholders of record in such a month are treated as paid
and are thereby taxable as of December 31, provided that the fund pays the
dividend no later than the end of January of the following year.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred in acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, non-U.S. corporation, or non-U.S.
partnership (a "non-U.S. shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or lower treaty rate). Withholding will not apply if a
dividend paid by the fund to a non-U.S. shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents or domestic
corporations will apply. However, if the distribution is effectively connected
with the conduct of the non-U.S. shareholder's trade or business within the
U.S., the distribution would be included in the net income of the shareholder
and subject to U.S. income tax at the applicable marginal rate. Distributions
of capital gains not effectively connected with a U.S. trade or business are
not subject to the withholding, but if the non-U.S. shareholder was an
individual who was physically present in the U.S. during the tax year for more
than 182 days and such shareholder is nonetheless treated as a nonresident
alien, the distributions would be subject to a 30% tax.
The fund may be required to pay withholding and other taxes imposed by
countries outside the United States which would reduce the fund's investment
income, generally at rates from 10% to 40%. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. If more
than 50% in value of the fund's total assets at the close of its taxable year
consist of securities of non-U.S. corporations, the fund will be eligible to
file elections with the Internal Revenue Service pursuant to which shareholders
of the fund will be required to include their respective pro rata portions of
such withholding taxes in their federal income tax returns as gross income,
treat such amounts as foreign taxes paid by them, and deduct such amounts in
computing their taxable incomes or, alternatively, use them as foreign tax
credits against their federal income taxes. The fund does not currently expect
to meet the eligibility requirement for filing this election as its investments
in securities of non-U.S. issuers are limited.
Sales of forward currency contracts which are intended to hedge against a
change in the value of securities or currencies held by the fund may affect the
holding period of such securities or currencies and, consequently, the nature
of the gain or loss on such securities or currencies upon disposition.
The amount of any realized gain or loss on closing out a forward currency
contract such as a forward commitment for the purchase or sale of non-U.S.
currency will generally result in a realized capital gain or loss for tax
purposes. Under Code Section 1256, forward currency contracts held by the fund
at the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes, that is, deemed to have been sold at market value.
Except for transactions in forward currency contracts which are classified as
part of a "mixed straddle," any gain or loss recognized with respect to forward
currency contracts is considered to be 60% long-term capital gain or loss, and
40% short-term capital gain or loss, without regard to the holding period of
the contract. In the case of a transaction classified as a "mixed straddle,"
the recognition of losses may be deferred to a later taxable year. Code
Section 988 may also apply to forward currency contracts. Under Section 988,
each non-U.S. currency gain or loss is generally computed separately and
treated as ordinary income or loss. In the case of overlap between Sections
1256 and 988, special provisions determine the character and timing of any
income, gain or loss. The fund will attempt to monitor Section 988
transactions to avoid an adverse tax impact.
Under the Code, a fund's taxable income for each year will be computed without
regard to any net non-U.S. currency loss attributable to transactions after
October 31, and any such net non-U.S. currency loss will be treated as arising
on the first day of the following taxable year.
As of the date of this statement of additional information, the maximum
federal individual stated tax rate applicable to ordinary income is 39.6%
(effective tax rates may be higher for some individuals due to phase out of
exemptions and elimination of deductions); the maximum individual tax rate
applicable to net capital gain is 28%; and the maximum corporate tax applicable
to ordinary income and net capital gain is 35%. However, to eliminate the
benefit of lower marginal corporate income tax rates, corporations which have
taxable income in excess of $100,000 for a taxable year will be required to pay
an additional amount of income tax of up to $11,750 and corporations which have
taxable income in excess of $15,000,000 for a taxable year will be required to
pay an additional amount of income tax of up to $100,000. Naturally, the
amount of tax payable by an individual will be affected by a combination of tax
law rules covering, E.G., deductions, credits, deferrals, exemptions, sources
of income and other matters. Under the Code, an individual is entitled to
establish and contribute to an IRA each year (prior to the tax return filing
deadline for that year) whereby earnings on investments are tax-deferred. In
addition, in some cases, the IRA contribution itself may be deductible.
The foregoing is limited to a summary discussion of federal taxation and
should not be viewed as a comprehensive discussion of all provisions of the
Code relevant to investors. Dividends and distributions may also be subject to
state or local taxes. Investors should consult their own tax advisers for
additional details as to their particular tax status.
PURCHASE OF SHARES
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METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums and $50 minimum (except where a lower
Fund Numbers" for initial minimum is noted under "Investment
investment minimums. Minimums and Fund Numbers").
By contacting Visit any investment dealer who is Mail directly to your investment
your registered in the state where the dealer's address printed on your
investment purchase is made and who has a account statement.
dealer sales agreement with American
Funds Distributors.
By mail Make your check payable to the Fill out the account additions form at
fund and mail to the address the bottom of a recent account
indicated on the account application. statement, make your check payable
Please indicate an investment to the fund, write your account number
dealer on the account application. on your check, and mail the check and
form in the envelope provided with
your account statement.
By telephone Please contact your investment Complete the "Investments by Phone"
dealer to open account, then follow section on the account application or
the procedures for additional American FundsLink Authorization
investments. Form. Once you establish the
privilege, you, your financial advisor or
any person with your account
information can call American
FundsLine(R) and make investments
by telephone (subject to conditions
noted in "Telephone Purchases, Sales
and Exchanges" below).
By wire Call 800/421-0180 to obtain Your bank should wire your additional
your account number(s), if investments in the same manner as
necessary. Please indicate an described under "Initial Investment."
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.
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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):
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FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R) 02
$1,000
American Balanced Fund(R) 11
500
American Mutual Fund(R) 03
250
Capital Income Builder(R) 12
1,000
Capital World Growth and Income Fund(SM) 33
1,000
EuroPacific Growth Fund(R) 16
250
Fundamental Investors(SM) 10
250
The Growth Fund of America(R) 05
1,000
The Income Fund of America(R) 06
1,000
The Investment Company of America(R) 04
250
The New Economy Fund(R) 14
1,000
New Perspective Fund(R) 07
250
SMALLCAP World Fund(R) 35
1,000
Washington Mutual Investors Fund(SM) 01
250
BOND FUNDS
American High-Income Municipal Bond Fund(R) 40
1,000
American High-Income Trust(SM) 21
1,000
The Bond Fund of America(SM) 08
1,000
Capital World Bond Fund(R) 31
1,000
Intermediate Bond Fund of America(SM) 23
1,000
Limited Term Tax-Exempt Bond Fund of 43
America(SM) 1,000
The Tax-Exempt Bond Fund of America(R) 19
1,000
The Tax-Exempt Fund of California(R)* 20
1,000
The Tax-Exempt Fund of Maryland(R)* 24
1,000
The Tax-Exempt Fund of Virginia(R)* 25
1,000
U.S. Government Securities Fund(SM) 22
1,000
MONEY MARKET FUNDS
The Cash Management Trust of America(R) 09
2,500
The Tax-Exempt Money Fund of America(SM) 39
2,500
The U.S. Treasury Money Fund of America(SM) 49
2,500
___________
*Available only in certain states.
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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).
DEALER COMMISSIONS - 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.)
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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 $100,000
4.71 4.50 3.75
BOND FUNDS
Less than $25,000
4.99 4.75 4.00
$25,000 but less than $50,000
4.71 4.50 3.75
$50,000 but less than $100,000
4.17 4.00 3.25
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000
3.63 3.50 2.75
$250,000 but less than $500,000
2.56 2.50 2.00
$500,000 but less than $1,000,000
2.04 2.00 1.60
$1,000,000 or more (see below)
none none
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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 200 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $100 million or more: 1.00% on amounts of $1 million
to $2 million, 0.80% on amounts over $2 million to $3 million, 0.50% on amounts
over $3 million to $50 million, 0.25% on amounts over $50 million to $100
million, and 0.15% on amounts over $100 million. The level of dealer
commissions will be determined based on sales made over a 12-month period
commencing from the date of the first sale at net asset value.
American Funds Distributors, at its expense (from a designated percentage of
its income), will, during calendar year 1997, provide additional compensation
to dealers. Currently these payments are limited to the top one hundred dealers
who have sold shares of the fund or other funds in The American Funds Group.
These payments will be based on a pro rata share of a qualifying dealer's
sales. American Funds Distributors will, on an annual basis, determine the
advisability of continuing these payments.
Any employer-sponsored 403(b) plan or defined contribution plan qualified
under Section 401(a) of the Internal Revenue Code including a "401(k)" plan
with 200 or more eligible employees or any other purchaser investing at least
$1 million in shares of the fund (or in combination with shares of other funds
in The American Funds Group other than the money market funds) may purchase
shares at net asset value; however, a contingent deferred sales charge of 1% is
imposed on certain redemptions made within twelve months of the purchase.
Investments by retirement plans, foundations or endowments with $50 million or
more in assets may be made with no sales charge and are not subject to a
contingent deferred sales charge. (See "Redeeming Shares--Contingent Deferred
Sales Charge.")
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.
NET ASSET VALUE PURCHASES - 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 $100
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.
STATEMENT OF INTENTION - The reduced sales charges and offering prices set
forth in the Prospectus apply to purchases of $25,000 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 the Statement in order
to qualify for a reduced sales charge, shares equal to 5% of the dollar amount
specified in the Statement will be held in escrow in the shareholder's account
out of the initial purchase (or subsequent purchases, if necessary) by the
Transfer Agent. All dividends and capital gain distributions on shares held in
escrow will be credited to the shareholder's account in shares (or paid in
cash, if requested). If the intended investment is not completed within the
specified 13-month period, the purchaser will 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 within 45 days after written
request by the Principal Underwriter or the securities dealer, the appropriate
number of shares held in escrow will be redeemed to pay such difference. If
the proceeds from this redemption are inadequate, the purchaser will be liable
to the Principal Underwriter for the balance still outstanding. The Statement
may be revised upward at any time during the 13-month period, and such a
revision will be treated as a new Statement, except that the 13-month period
during which the purchase must be made will remain unchanged and there will be
no retroactive reduction of the sales charges paid on prior purchases.
Existing holdings eligible for rights of accumulation (see the prospectus and
account application) may be credited toward satisfying the Statement. During
the Statement period reinvested dividends and capital gain distributions,
investments in money market funds, and investments made under a right of
reinstatement will not be credited toward satisfying the Statement.
In the case of purchase orders by the trustees of certain retirement plans by
payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: The regular monthly payroll
deduction investment will be multiplied by 13 and then multiplied by 1.5. The
current value of existing American Funds investments (other than money market
fund investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period are
added to the figure determined above. The sum is the Statement amount and
applicable breakpoint level. On the first investment and all other investments
made pursuant to the statement of intention, a sales charge will be assessed
according to the sales charge breakpoint thus determined. There will be no
retroactive adjustments in sales charges on investments previously made during
the 13-month period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the Investment Company Act of 1940, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received 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 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 are not always indicative of 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 close of trading
(currently 4:00 p.m., New York time) each day the New York Stock Exchange is
open. The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The net
asset value per share is determined as follows:
1. Equity-type securities traded on a national securities exchange (or
reported on the NASDAQ national market) and securities traded in the
over-the-counter market are stated at the last reported sales price on the day
of valuation; other securities, and securities for which no sale was reported
on that date, are stated at the last quoted bid price.
Bonds and notes are valued at prices obtained from a bond-pricing service
provided by a major dealer in bonds, 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 of their representative quoted bid
and asked prices or, if such prices are not available, at prices for securities
of comparable maturity, quality and type. The value of each security
denominated in a currency other than U.S. dollars will be translated into U.S.
dollars at the prevailing market rate provided by a pricing service in
accordance with procedures established by the fund's officers. Short-term
securities with more than 60 days remaining to maturity, including forward
currency contracts, are valued at the mean of their representative quoted bid
and asked prices. Where pricing service or market quotations are not readily
available, securities will be valued at fair value by the Board of Directors or
a committee thereof. Short-term securities with 60 days or less to maturity
are valued at amortized cost, which approximates market value. The maturities
of variable or floating rate instruments are deemed to be the time remaining
until the next interest rate adjustment date.
2. Where pricing service or market quotations are not readily available,
securities will be valued at fair value by the Valuation Committee of the Board
of Directors.
3. There are deducted from the total assets, thus determined, the liabilities,
including proper accruals of taxes and other expense items; and
4. The net assets so obtained is then divided by the total number of shares
outstanding, and the result, rounded to the nearest cent, is the net asset
value per share.
Any purchase order may be rejected by the Principal Underwriter or by the
fund. The fund will not knowingly sell shares (other than for the reinvestment
of dividends or capital gain distributions) directly or indirectly or through a
unit investment trust to any other investment company, person or entity, where,
after the sale, such investment company, person, or entity would own
beneficially directly, indirectly, or through a unit investment trust more than
3% of the outstanding shares of the fund without the consent of a majority of
the Board of Directors.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
REDEEMING SHARES
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By writing to American Send a letter of instruction specifying the name of the fund,
Funds Service Company (at the number of shares or dollar amount to be sold, your name
the appropriate address and account number. You should also enclose any share
indicated under "Principal certificates you wish to redeem. For redemptions over
Underwriter and Transfer $50,000 and for certain redemptions of $50,000 or less (see
Agent" in the Prospectus) below), your signature must be guaranteed by a bank,
savings association, credit union, or member firm of a
domestic stock exchange or the National Association of
Securities Dealers, Inc. that is an eligible guarantor
institution. You should verify with the institution that
it is an eligible
guarantor prior to signing. Additional documentation may be
required for redemption of shares held in corporate,
partnership or fiduciary accounts. Notarization by a Notary
Public is not an acceptable signature guarantee.
By contacting your If you redeem shares through your investment dealer, you
investment dealer may be charged for this service. SHARES HELD FOR YOU IN
YOUR INVESTMENT DEALER'S STREET NAME MUST BE REDEEMED
THROUGH THE DEALER.
You may have a redemption You may use this option, provided the account is registered in
check sent to you by using the name of an individual(s), a UGMA/UTMA custodian, or a
American FundsLine(R) or non-retirement plan trust. These redemptions may not
by telephoning, faxing, or exceed $10,000 per day, per fund account and the check
telegraphing American must be made payable to the shareholder(s) of record and be
Funds Service Company sent to the address of record provided the address has been
(subject to the conditions used with the account for at least 10 days. See "Principal
noted in this section and in Underwriter and Transfer Agent" in the Prospectus and
"Telephone Purchases, "Exchange Privilege" below for the appropriate telephone or
Sales and Exchanges" fax number.
below)
In the case of the money Upon request (use the account application for the money
market funds, you may have market funds) you may establish telephone redemption
redemptions wired to your privileges (which will enable you to have a redemption sent to
bank by telephoning your bank account) and/or check writing privileges. If you
American Funds Service request check writing privileges, you will be provided with
Company ($1,000 or more) checks that you may use to draw against your account.
or by writing a check ($250 These checks may be made payable to anyone you
or more) designate and must be signed by the authorized number of
registered shareholders exactly as indicated on your checking
account signature card.
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A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY REDEMPTION OF $50,000
OR LESS PROVIDED THE REDEMPTION CHECK IS MADE PAYABLE TO THE REGISTERED
SHAREHOLDER(S) AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE ADDRESS HAS
BEEN USED WITH THE ACCOUNT FOR AT LEAST 10 DAYS.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees. 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 qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer-sponsored
retirement plan; 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; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
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, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the dates you select. Bank accounts will be
charged on the day or a few days before investments are credited, depending on
the bank's capabilities, and 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 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 the Transfer Agent.
AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, 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, automatically to 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) (see "American FundsLine(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 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, fax or telegraph.
Exchange redemptions and purchases are processed simultaneously at the share
prices next determined after the exchange order is received. (See "Purchase of
Shares--Price of Shares.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS
ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES - You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS - Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments 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) - You may check your share balance, the price of your
shares, or your most recent account transaction, redeem shares (up to $10,000
per fund, per account each day), or exchange shares around the clock with
American FundsLine(R). To use this service, call 800/325-3590 from a TouchTonet
telephone. Redemptions and exchanges through American FundsLine(R) are subject
to the conditions noted above and in "Redeeming Shares--Telephone 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 REDEMPTIONS AND EXCHANGES - By using the telephone (including
American FundsLine(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.
REDEMPTION OF SHARES - The fund's Articles of Incorporation permit the fund to
direct the Transfer Agent to redeem the shares of any shareholder if the shares
owned by such shareholder through redemptions, market decline or otherwise,
have a value of less than $150 (determined, for this purpose only as the
greater of the shareholder's cost or the current net asset value of the shares,
including any shares acquired through reinvestment of income dividends and
capital gain distributions), or are fewer than ten shares. 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.
While payment of redemptions normally will be in cash, the fund's Articles of
Incorporation permit payment of the redemption price wholly or partly in
securities or other property included in the assets belonging to the fund when
in the opinion of the fund's Board of Directors, which shall be conclusive,
conditions exist which make payment wholly in cash unwise or undesirable.
EXECUTION OF PORTFOLIO TRANSACTIONS
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 does not intend to pay a mark-up
in exchange for research in connection with principal transactions.
Brokerage commissions paid on portfolio transactions, including dealer
concessions on underwritings, for the fiscal years ended December 31, 1996,
1995, and 1994, , amounted to $9,568,000, $7,096,214, and $6,648,000,
respectively.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds
from the sale of shares of the fund and of securities in the fund's portfolio,
are held by The Chase Manhattan Bank , One Chase Manhattan Plaza, New York, NY
10081, as Custodian. Non-U.S. securities may be held by the Custodian pursuant
to sub-custodial agreements in non-U.S. banks or non-U.S. branches of U.S.
banks.
TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee
of $4,788,000 for the fiscal year ended December 31, 1996.
When fund shares are purchased by an insurance company separate account to
serve as the underlying investment vehicle for variable insurance contracts,
the fund may pay a fee to the insurance company or another party for performing
certain transfer agent services with respect to contract owners having
interests in the fund. The fund has entered into such an agreement with
Nationwide Life Insurance Company.
INDEPENDENT AUDITORS - Deloitte & Touche LLP, 1000 Wilshire Boulevard, 15th
Floor, Los Angeles, CA 90017, has served as the fund's independent auditors
since its inception, providing audit services, preparation of tax returns and
review of certain documents to be filed with the Securities and Exchange
Commission. The financial statements, included in this Statement of Additional
Information from the attached Annual Report, have been so included in reliance
on the independent auditors' report given on the authority of said firm as
experts in accounting and auditing.
REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any director or directors from office and may elect a successor
or successors to fill any resulting vacancies for the unexpired terms of
removed directors. The fund has made an undertaking, at the request of the
staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of directors, as
though the fund were a common-law trust. Accordingly, the Directors of the
fund shall promptly call a meeting of shareholders for the purpose of voting
upon the question of removal of any Director when requested in writing to do so
by the record holders of not less than 10% of the outstanding shares.
REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on December 31.
Shareholders are provided at least semi-annually with reports showing the
investment portfolio, financial statements and other information. The fund's
financial statements are audited annually by the fund's independent auditors,
Deloitte & Touche LLP, whose selection is determined by the Board of
Directors.
PERSONAL INVESTING POLICY - The Investment Adviser and its affiliated companies
have adopted a personal investing policy consistent with Investment Company
Institute guidelines. This policy includes: a ban on acquisitions of
securities pursuant to an initial public offering; restrictions on acquisitions
of private placement securities; pre-clearance and reporting requirements;
review of duplicate confirmation statements; annual recertification of
compliance with codes of ethics; 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. You may obtain a summary of the personal investing policy by
contacting the Secretary of the fund.
The financial statements including the investment portfolio and the report of
Independent Auditors contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
<TABLE>
<CAPTION>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE - DECEMBER 31, 1996
<S> <C>
Net asset value and redemption price per share $13.75
(Net assets divided by shares outstanding)
Maximum offering price per share $14.44
(100/95.25 of net asset value per share, which takes
into account the fund's current maximum sales charge)
</TABLE>
INVESTMENT RESULTS
The fund's yield is 6.34% based on a 30-day (or one month) period ended
December 31, 1996, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[( a-b/cd + 1)/6/ -1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
The fund may also calculate a distribution rate on a taxable and tax
equivalent basis. The distribution rate is computed by annualizing the current
month's dividend and dividing by the average net asset value or maximum
offering price for the month. The distribution rate may differ from the yield.
The fund's total annual return over the past twelve months and average annual
total returns over the past 5-year and 10-year periods ending on December 31,
1996, were 1.66%, 7.73%, and 8.47%, respectively. The average total return
("T") is computed by equating the value at the end of the period ("ERV") with a
hypothetical initial investment of $1,000 ("P") over a period of years ("n")
according to the following formula as required by the Securities and Exchange
Commission: P(1+T)/n/ = ERV.
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) deduction of the maximum sales charge of
4.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated.
The investment results for the fund (also referred to as "BFA") set forth
below were calculated as described in the fund's prospectus. Data contained in
Salomon Brothers' Market Performance and Lehman Brother's The Bond Market
Report are used to calculate cumulative total return from their base period
(12/31/79 and 12/31/72, respectively) for each index. The percentage increases
shown in the table below or used in published reports of the fund are obtained
by subtracting the index results at the beginning of the period from the index
results at the end of the period and dividing the difference by the index
results at the beginning of the period.
THE FUND VS. VARIOUS UNMANAGED INDICES
<TABLE>
<CAPTION>
Period The Fund Salomon Lehman Average
1/1 - 12/31 Brothers (1) Brothers (2) Savings
Deposit (3)
<S> <C> <C> <C> <C>
1987 - 1996 + 125% + 126% + 140% + 67%
1986 - 1995 + 143 + 152 + 171 + 69
1985 - 1994 + 160 + 160 + 175 + 77
1984 - 1993 + 207 + 208 + 233 + 88
1983 - 1992 + 194 + 203 + 225 + 99
1982 - 1991 + 252 + 271 + 316 + 112
1981 - 1990 + 210 + 240 + 261 + 122
1980 - 1989 + 210 + 221 + 236 + 126
1979 - 1988 + 191 n/a + 189 + 125
1978 - 1987 + 168 n/a + 165 + 125
1977 - 1986 + 176 n/a + 167 + 125
1976 - 1985 + 184 n/a + 173 + 123
1975 - 1984 + 152 n/a + 157 + 119
1974*- 1983 + 134 n/a + 118 + 109
</TABLE>
* From May 28.
(1) The Salomon Brothers Broad Investment Grade Bond Index spans the available
market for U.S. Treasury/Agency securities, investment grade corporate bonds
which have a rating of BBB or better by Standard and Poor's Corporation, and
mortgage pass-through securities. This index's inception date is 12/31/79.
(2) The Lehman Brothers Corporate Bond Index is comprised of a large universe
of bonds issued by industrial, utility and financial companies which have a
minimum rating of Baa by Moody's Investors Service, BBB by Standard and Poor's
Corporation or, in the case of bank bonds not rated by either of the previously
mentioned services, BBB by Fitch Investors Service.
(3) Based on figures supplied by the U.S. League of Savings Institutions and
the Federal Reserve Board which reflect all kinds of savings deposits,
including longer-term certificates. Savings accounts offer a guaranteed return
of principal, but no opportunity for capital growth. During a portion of the
period, the maximum rates paid on some savings deposits were fixed by law.
IF YOU ARE CONSIDERING THE FUND FOR AN INDIVIDUAL RETIREMENT ACCOUNT . . .
<TABLE>
<CAPTION>
<S> <C>
Here's how much you would have if you had invested $2,000 on
January 1 of each year in the Fund over the past 5 and 10 years:
5 Years 10 Years
(1/1/92-12/31/96) (1/1/87-12/31/96)
$12,228 $32,294
</TABLE>
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
If you had invested ...and taken all distributions in
$10,000 in the Fund shares, your investment would
this many years ago... have been worth this much at
Dec. 31, 1996
| Period |
Number of Years 1/1-12/31 Value
<S> <C> <C>
1 1996
$10,165
2 1995 - 1996
12,021
3 1994 - 1996
11.416
4 1993 - 1996
13,028
5 1992 - 1996
14,511
6 1991 - 1996
17,557
7 1990 - 1996
18,134
8 1989 - 1996
19,971
9 1988 - 1996
22,101
10 1987 - 1996
22,539
11 1986 - 1996
25,958
12 1985 - 1996
32,857
13 1984 - 1996
36,791
14 1983 - 1996
40,282
15 1982 - 1996
53,543
16 1981 - 1996
57,061
17 1980 - 1996
59,085
18 1979 - 1996
60,955
19 1978 - 1996
62,193
20 1977 - 1996
65,396
21 1976 - 1996
77,270
22 1975 - 1996
87,050
23 1974*- 1996
90,323
</TABLE>
* From May 28, 1974, the fund's inception date
FUND COMPARISONS
According to Lipper Analytical Services, during the period May 31, 1974
through December 31, 1996 (the fund's lifetime), the fund ranked first among
the thirteen similar bond funds that were in existence for that period.
The fund may also refer to results compiled by organizations such as CDA
Investment Technologies, Ibbottson Associates, Lipper Analytical Services and
Wiesenberger Investment Companies Services. Additionally, the Fund may, from
time to time, refer to results published in various periodicals, including
Barrons, Forbes, Institutional Investor, Kiplinger's Personal Finance Magazine,
Money, U.S. News and World Report and The Wall Street Journal.
In addition, the fund may also, from time to time, illustrate the benefits of
tax deferral by comparing taxable investments to investments made through
tax-deferred retirement plans.
Past results are not an indication of future investment results.
ILLUSTRATION OF A $10,000 INVESTMENT IN THE FUND WITH
DIVIDENDS REINVESTED AND CAPITAL GAIN DISTRIBUTIONS TAKEN IN SHARES
(For the lifetime of the Fund May 28, 1974 through December 31, 1996)
<TABLE>
<CAPTION>
COST OF SHARES VALUE
OF SHARES
Fiscal Annual Dividends Total From From From Total
Year End Dividends (cumulative) Investment Initial Capital Gains Dividends Value
Dec. 31 Cost Investment Reinvested Reinvested
<S> <C> <C> <C> <C> <C> <C> <C>
1974 $ 413 $ 413 $10,413 $ 9,473 $ 0 $ 411 $ 9,884
1975 897 1,310 11,310 9,799 0 1,338 11,137
1976 1,010 2,320 12,320 10,555 126 2,473 13,154
1977 1,114 3,434 13,434 10,125 240 3,466 13,831
1978 1,198 4,632 14,632 9,438 278 4,396 14,112
1979 1,387 6,019 16,019 8,848 260 5,448 14,556
1980 1,706 7,725 17,725 8,147 240 6,685 15,072
1981 2,096 9,821 19,821 7,564 222 8,287 16,073
1982 2,408 12,229 22,229 8,799 259 12,303 21,361
1983 2,529 14,758 24,758 8,612 253 14,517 23,382
1984 2,838 17,596 27,596 8,563 252 17,360 26,175
1985 3,193 20,789 30,789 9,722 286 23,132 33,140
1986 3,566 24,355 34,355 9,861 1,325 26,980 38,166
1987 3,746 28,101 38,101 9,119 1,225 28,571 38,915
1988 3,912 32,013 42,013 9,188 1,235 32,657 43,080
1989 4,425 36,438 46,438 9,181 1,234 37,028 47,443
1990 4,650 41,088 51,088 8,598 1,155 39,240 48,993
1991 4,859 45,947 55,947 9,507 1,277 48,519 59,303
1992 5,221 51,168 61,168 9,709 1,491 54,828 66,028
1993 5,269 56,437 66,437 10,028 3,501 61,833 75,362
1994 5,673 62,110 72,110 8,806 3,075 59,701 71,582
1995 6,112 68,222 78,222 9,632 3,363 71,650 84,645
1996 6,405 74,627 84,627 9,542 3,332 77,449 90,323
</TABLE>
The dollar amount of capital gain distributions during the period was $3,490
DESCRIPTION OF BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by
various entities from "Aaa" to "C," according to quality as described below:
"Aaa -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large, or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
"Aa -- High quality by all standards. They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
"A -- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
"Baa -- Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
"Ba -- Have speculative elements; future cannot be considered as well assured.
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
"B -- Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"Caa -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"Ca -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
STANDARD & POOR'S CORPORATION rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality as
described below:
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
"A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is in
arrears."
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS.
Included in Prospectus - Part A
Financial Highlights (to be provided by amendment)
Included in Statement of Additional Information - Part B (to be provided by
amendment)
Statement of Assets and Liabilities Notes to Financial Statements
Statement of Operations Per-Share Data and Ratios
Statement of Changes in Net Assets Independent Auditors' Report
(B) EXHIBITS.
1. On file (see SEC files nos. 811-2444 and 2-50700)
2. On file (see SEC files nos. 811-2444 and 2-50700)
3. None.
4. On file (see SEC files nos. 811-2444 and 2-50700)
5. On file (see SEC files nos. 811-2444 and 2-50700)
6. On file (see SEC files nos. 811-2444 and 2-50700)
7. None.
8. On file (see SEC files nos. 811-2444 and 2-50700)
9. On file (see SEC file Nos. 811-2444 and 2-50700, Post-Effective Amendment
No. 39 filed 2/29/96)
10. Not applicable to this filing.
11. Consent of Independent Auditors (to be provided by amendment)
12. None.
13. None.
14. On file (see SEC files nos. 811-2444 and 2-50700)
15. On file (see SEC files nos. 811-2444 and 2-50700)
16. On file (see SEC file Nos. 811-2444 and 2-50700, Post-Effective Amendment
No. 39 filed 2/29/96)
17. Financial data schedule (EDGAR) (to be provided by amendment)
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
As of December 31, 1996
<S> <C>
Title of Class Number of
Record Holders
Capital Stock 261,073
($1.00 par value)
</TABLE>
ITEM 27. INDEMNIFICATION.
Registrant is a joint-insured under an Investment Advisor/Mutual fund Errors
and Omissions Policy written by American International Surplus Lines Insurance
Company, Chubb Custom Insurance Company, and ICI Mutual Insurance Company which
insures its officers and directors against certain liabilities. However, in no
event will Registrant maintain insurance to indemnify any such person for any
act for which Registrant itself is not permitted to indemnify the
individual.
Article VIII of the Articles of Incorporation of the Fund provides that "The
Corporation shall indemnify (1) its directors to the full extent provided by
the general laws of the State of Maryland now or hereafter in force, including
the advance of expenses under the procedures provided by such laws; (2) its
officers to the same extent it shall indemnify its directors; and (3) its
officers who are not directors to such further extent as shall be authorized by
the Board of Directors and be consistent with law. The foregoing shall not
limit the authority of the Corporation to indemnify other employees and agents.
Any indemnification by the Corporation shall be consistent with the
requirements of law, including the Investment Company Act of 1940."
Subsection (b) of Section 2-418 of the General Corporation Law of Maryland
empowers a corporation to indemnify any person who was or is party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against reasonable expenses (including attorneys' fees), judgments, penalties,
fines and amounts paid in settlement actually incurred by him in connection
with such action, suit or proceeding unless it is proved that: (i) the act or
omission of the person was material to the cause of action adjudicated in the
proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty; (ii) the person actually received an improper personal
benefit of money, property or services; or (iii) with respect to any criminal
action or proceeding, the person had reasonable cause to believe his act or
omission was unlawful.
Indemnification under subsection (b) of Section 2-418 may not be made by a
corporation unless authorized for a specific proceeding after a determination
has been made that indemnification is permissible in the circumstances because
the party to be indemnified has met the standard of conduct set forth in
subsection (b). This determination shall be made (i) by the Board of Directors
by a majority vote of a quorum consisting of directors not, at the time,
parties to the proceeding, or, if such quorum cannot be obtained, then by a
majority vote of a committee of the Board consisting solely of two or more
directors not, at the time, parties to such proceeding and who were duly
designated to act in the matter by a majority vote of the full Board in which
the designated directors who are parties may participate; (ii) by special legal
counsel selected by the Board of Directors of a committee of the Board by vote
as set forth in subparagraph (i), or, if the requisite quorum of the full Board
cannot be obtained therefor and the committee cannot be established, by a
majority vote of the full Board in which any director who is a party may
participate; or (iii) by the stockholders (except that shares held by any party
to the specific proceeding may not be voted). A court of appropriate
jurisdiction may also order indemnification if the court determines that a
person seeking indemnification is entitled to reimbursement under subsection
(b).
Section 2-418 further provides that indemnification provided for by Section
2-418 shall not be deemed exclusive of any rights to which the indemnified
party may be entitled; that the scope of indemnification extends to directors,
officers, employees or agents of a constituent corporation absorbed in a
consolidation or merger and persons serving in that capacity at the request of
the constituent corporation for another; and empowers the corporation to
purchase and maintain insurance on behalf of a director, officer, employee or
agent of the corporation against any liability asserted against or incurred by
such person in any such capacity or arising out of such person's status as such
whether or not the corporation would have the power to indemnify such person
against such liabilities under Section 2-418.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
None.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) American Funds Distributors, Inc. is also the Principal Underwriter of
shares of: AMCAP Fund, Inc., American Balanced Fund, Inc., The American Funds
Income Series, The American Funds Tax-Exempt Series I, The American Funds
Tax-Exempt Series II, American High-Income Municipal Bond Fund, Inc., American
High-Income Trust, American Mutual Fund, Inc., Capital Income Builder, Inc.,
Capital World Bond Fund, Inc., Capital World Growth and Income Fund, Inc., The
Cash Management Trust of America, EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America,
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Money Fund of America, The U. S. Treasury Money
Fund of America and Washington Mutual Investors Fund, Inc.
<TABLE>
<CAPTION>
(B) (1) (2) (3)
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
<S> <C> <C> <C>
# David L. Abzug Regional Vice President None
5657 Lemona Avenue
Van Nuys, CA 91411
John A. Agar Regional Vice President None
1501 N. University Drive, Suite 227A
Little Rock, AR 72207
Robert B. Aprison Vice President None
2983 Bryn Wood Drive
Madison, WI 53711
S Richard Armstrong Assistant Vice President None
L William W. Bagnard Vice President None
Steven L. Barnes Senior Vice President None
800 Town Line Avenue South
Suite 204
Minneapolis, MY 55438
Michelle A. Bergeron Vice President None
4160 Gateswalk Drive
Smyrna, GA 30080
Joseph T. Blair Senior Vice President None
27 Drumlin Road
West Simsbury, CT 06092
John A. Blanchard Regional Vice President None
6421 Aberdeen Road
Mission Hills, KS 66208
Ian B. Bodell Senior Vice President None
3100 West End Ave., Suite 870
Nashville, TN 37215
Michael L. Brethower Vice President None
108 Hagen Court
Georgetown, TX 78628
C. Alan Brown Regional Vice President None
4619 McPherson Avenue
St. Louis, MO 63108
L Daniel C. Brown Sr. Vice President None
H J. Peter Burns Vice President None
Brian C. Casey Regional Vice President None
9508 Cable Drive
Kensington, MD 20895
Victor C. Cassato Vice President None
609 W. Littleton Blvd., Suite 310
Littleton, CO 80120
Christopher J. Cassin Senior Vice President None
111 W. Chicago Avenue, Suite G3
Hinsdale, IL 60521
Denise M. Cassin Regional Vice President None
1301 Stoney Creek Drive
San Ramon, CA 94538
L Larry P. Clemmensen Director None
L Kevin G. Clifford Director, Senior Vice President None
Ruth M. Collier Vice President None
145 West 67th St., Ste. 12K
New York, NY 10023
Thomas E. Cournoyer Vice President None
2333 Granada Boulevard
Coral Gables, FL 33134
Douglas A. Critchell Vice President None
4116 Woodbine st.
Chevy Chase, MD 20815
L Carl D. Cutting Vice President None
Dan J. Delianedis Regional Vice President None
8689 Braxton Drive
Eden Prairie, MN 55347
Michael A. Dilella Vice President None
P. O. Box 661
Ramsey, NJ 07446
G. Michael Dill Senior Vice President None
505 E. Main Street
Jenks, OK 74037
Kirk D. Dodge Regional Vice President None
3034 Parkridge Drive
Ann Arbor, MI 48103
Peter Doran Senior Vice President None
1205 Franklin Avenue
Garden City, NY 11530
L Michael J. Downer Secretary Vice President
Robert W. Durbin Vice President None
74 Sunny Lane
Tiffin, OH 44883
I Lloyd G. Edwards Vice President None
L Paul H. Fieberg Sr. Vice President None
John R. Fodor Regional Vice President None
15 Latisquama Road
Southborough, MA 01772
L Mark P. Freeman, Jr. Director, President None
Clyde E. Gardner Vice President None
Route 2, Box 3162
Osage Beach, MO 65065
B Evelyn K. Glassford Vice President None
Jeffrey J. Greiner Regional Vice President None
5898 Heather Glen Court
Dublin, OH 43017
David E. Harper Vice President None
R.D. 1, Box 210, Rte 519
Frenchtown, NJ 08825
Ronald R. Hulsey Regional Vice President None
6744 Avalon
Dallas, TX 75214
Robert S. Irish Regional Vice President None
1225 Vista Del Mar Drive
Delray Beach, FL 33483
L Robert L. Johansen Vice President, Controller None
Michael J. Johnston Chairman of the Board None
630 Fifth Ave., 36th Floor
New York, NY 10111-0121
V. John Kriss Vice President None
P.O. Box 274
Surfside, CA 90743
Arthur J. Levine Vice President None
12558 Highlands Place
Fishers, IN 46038
B Karl A. Lewis Assistant Vice President None
T. Blake Liberty Regional Vice President None
1940 Blake St., Suite 303
Denver, CO 80202
L Lorin E. Liesy Assistant Vice President None
* Susan G. Lindgren Vice President - Institutional
Investment Services Division None
S Stella Lopez Vice President None
LW Robert W. Lovelace Director None
Stephen A. Malbasa Regional Vice President None
13405 Lake Shore Blvd.
Cleveland, OH 44110
Steven M. Markel Vice President None
5241South Race Street
Littleton, CO 80121
L John C. Massar Director, Senior Vice President None
L E. Lee McClennahan Senior Vice President None
Laurie B. McCurdy Regional Vice President None
3500 West Camino de Urania
Tucson, AZ 85741
S John V. McLaughlin Senior Vice President None
Terry W. McNabb Vice President None
2002 Barrett Station Road
St. Louis, MO 63131
L R. William Melinat Vice President - Institutional None
Investment Services Division
David R. Murray Vice President None
25701 S.E. 32nd Place
Issaquah, WA 98027
Stephen S. Nelson Vice President None
7215 Trevor Court
Charlotte, NC 28226
William E. Noe Regional Vice President None
304 River Oaks Road
Brentwood, TN 37207
Peter A. Nyhus Regional Vice President None
3084 Wilds Ridge Court
Prior Lake, MN 55372
Eric P. Olson Regional Vice President None
62 Park Drive
Glenview, IL 60025
Fredric Phillips Vice President None
32 Ridge Avenue
Newton Centre, MA 02159
B Candance D. Pilgrim Assistant Vice President None
Carl S. Platou Regional Vice President None
4021 96th Avenue, SE
Mercer Island, WA 98040
L John O. Post, Jr. Vice President None
Steven J. Reitman Vice President None
212 The Lane
Hinsdale, IL 60521
Brian A. Roberts Regional Vice President None
12025 Delmahoy Drive
Charlotte, NC 28277
George S. Ross Vice President None
55 Madison Avenue
Morristown, NJ 07962
L Julie D. Roth Vice President None
L James F. Rothenberg Director None
Douglas F. Rowe Regional Vice President None
30309 Oak Tree Drive
Georgetown, TX 78628
Christopher Rowey Regional Vice President None
9417 Beverlywood Street
Los Angeles, CA 90034
Dean B. Rydquist Vice President None
1080 Bay Pointe Crossing
Alpharetta, GA 30202
Richard R. Samson Vice President None
4604 Glencoe Avenue, No. 4
Marina del Rey, CA 90292
Joe D. Scarpitti Regional Vice President None
31465 St. Andrews
Westlake, OH 44145
L Daniel B. Seivert Assistant Vice President None
L R. Michael Shanahan Director None
David W. Short Director, Senior Vice President None
Suite 212, 1000 RIDC Plaza
Pittsburgh, PA 15238-2941
L Victor S. Sidhu Vice President - Institutional None
Investment Services Division
William P. Simon, Jr. Vice President None
554 Canterbury Lane
Berwyn, PA 19312
L John C. Smith Vice President - None
Institutional Investment
Services Division
L Mary E. Smith Assistant Vice President - None
Institutional Investment
Services Division
Rodney G. Smith Vice President None
100 N. Central Expressway, Suite 1214
Richardson, TX 75080
Nicholas D. Spadaccini Regional Vice President None
855 Markley Woods Way
Cincinnati, OH 45230
Daniel S. Spradling Senior Vice President None
#4 West Fourth Avenue, Suite 406
San Mateo, CA 94402
Thomas A. Stout Regional Vice President None
12913 Kendale Lane
Bowie, MD 20715
Craig R. Strauser Regional Vice President None
17040 Summer Place
Lake Oswego, OR 97035
Francis N. Strazzeri Regional Vice President None
31641 Saddletree Drive
Westlake Village, CA 91361
L Drew Taylor Assistant Vice President None
S James P. Toomey Assistant Vice President None
I Christopher E. Trede Assistant Vice President None
George F. Truesdail Vice President None
400 Abbotsford Court
Charlotte, NC 28270
Scott W. Ursin-Smith Regional Vice President None
606 Glenwood Avenue
Mill Valley, CA 94941
L David M. Ward Assistant Vice President - None
Institutional Investment
Services Division
Thomas E. Warren Regional Vice President None
4001 Crockers Lake Blvd., #1012
Sarasota, FL 34238
L J. Kelly Webb Sr. Senior Vice President, Treasurer None
Gregory J. Weimer Vice President None
125 Surrey Drive
Canonsburg, PA 15317
B Timothy W. Weiss Director None
SF N. Dexter Williams Vice President None
Timothy J. Wilson Regional Vice President None
113 Farmview Place
Venetia, PA 15367
B Laura L. Wimberly Assistant Vice President None
H Marshall D. Wingo Sr. Director, Senior Vice President None
L Robert L. Winston Director, Sr. Vice President None
William R. Yost Regional Vice President None
9320 Overlook Trail
Eden Prairie, MN 55347
Janet M. Young Regional Vice President None
1616 Vermont
Houston, TX 77006
Scott D. Zambon Regional Vice President None
209 Robinson Drive
Tustin Ranch, CA 92782
</TABLE>
____________
L Business Address, 333 South Hope Street, Los Angeles, CA 90071
LW Business Address, 11100 Santa Monica Boulevard, 15th Floor, Los Angeles, CA
90025
SF Business Address, One Market Plaza, Steuart Towers, Suite 1800, San
Francisco, CA 94111
B Business Address, 135 South State College Boulevard, Brea, CA 92821
S Business Address, 8000 IH-10, Suite 1400, San Antonio, TX 78230
H Business Address, 5300 Robin Hood Road, Norfolk, VA 23513
I Business Address, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Accounts, books and other records required by Rules 31a-1 and 31a-2 under the
Investment Company Act of 1940, as amended, are maintained and kept in the
offices of the Fund and its investment adviser, Capital Research and Management
Company, 333 South Hope Street, Los
Angeles, CA 90071. Certain accounting records are maintained and kept in the
offices of the Fund's accounting department, 135 South State College Blvd.,
Brea, CA 92821.
Records covering shareholder accounts are maintained and kept by the transfer
agent, American Funds Service Company, 135 South State College Blvd., Brea, CA
92821, 8000 IH-10 Suite 1400, San Antonio, TX 78230, 8332 Woodfield Crossing
Blvd., Indianapolis, IN 46240 and 5300 Robin Hood Road, Norfolk, VA 23514.
Records covering portfolio transactions are also maintained and kept by the
custodian, The Chase Manhattan Bank, N.A., One Chase Manhattan Plaza, New York,
New York, 10081.
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS.
As reflected in the prospectus, the fund undertakes to provide each person to
whom a prospectus is delivered with a copy of the fund's latest annual report
to shareholders, upon request and without charge.
<PAGE>
SIGNATURE OF REGISTRANT
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this 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 18th
day of February, 1997.
THE BOND FUND OF AMERICA, INC.
By /s/ Paul G. Haaga, Jr.
(Paul G. Haaga, Jr., Chairman of the Board)
Pursuant to the requirements of the Securities Act of 1933, this amendment to
Registration Statement has been signed below on February 18, 1997, by the
following persons in the capacities indicated.
SIGNATURE TITLE
(1) Principal Executive Officer:
/s/ Abner D. Goldstine President and Director
(Abner D. Goldstine)
(2) Principal Financial Officer and
Principal Accounting Officer:
/s/ Anthony W. Hynes, Jr. Treasurer
(Anthony W. Hynes, Jr.)
(3) Directors:
H. Frederick Christie* Director
Don R. Conlan*/1/ Director
Diane C. Creel* Director
Martin Fenton, Jr.* Director
Leonard R. Fuller* Director
/s/ Abner D. Goldstine President and Director
(Abner D. Goldstine)
/s/ Paul G. Haaga, Jr. Chairman of the Board
(Paul G. Haaga, Jr.)
Herbert Hoover III* Director
Richard G. Newman* Director
Peter C. Valli* Director
/1/ Power of Attorney attached hereto.
*By /s/ Julie F. Williams
Julie F. Williams, Attorney-in-Fact
<PAGE>
POWER OF ATTORNEY
I, Don R. Conlan, the undersigned Director of The Bond Fund of America, Inc.,
a Maryland corporation, revoking all prior powers of attorney given as a
Director of The Bond Fund of America, Inc. do hereby constitute and appoint
Michael J. Downer, Paul G. Haaga, Jr., Mary C. Hall, Anthony W. Hynes, Jr.,
Kimberly S. Verdick and Julie F. Williams, or any of them, to act as
attorneys-in-fact for and in my name, place and stead (1) to sign my name as
Director of said Corporation to any and all Registration Statements of The Bond
Fund of America, Inc., File No. 2-50700, under the Securities Act of 1933 as
amended and/or the Investment Company Act of 1940, as amended, and any and all
amendments thereto, said Registration Statements and amendments to be filed
with the Securities and Exchange Commission, and to any and all reports,
applications or renewal of applications required by any State in the United
States of America in which this Corporation is registered to sell shares, and
(2) to deliver any and all such Registration Statements and amendments, so
signed, for filing with the Securities and Exchange Commission under the
provisions of the Securities Act of 1933 as amended and/or the Investment
Company Act of 1940, as amended, granting to said attorneys-in-fact, and each
of them, full power and authority to do and perform every act and thing
whatsoever requisite and necessary to be done in and about the premises as
fully to all intents and purposes as the undersigned might or could do if
personally present, hereby ratifying and approving the acts of said
attorneys-in-fact.
EXECUTED at Los Angeles, California, this 16th day of January, 1997.
/s/ Don R. Conlan
Don R. Conlan, Director
