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