SEC File Nos.
811-1880
2-33371
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 49 (X)
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 30 (X)
THE INCOME FUND OF AMERICA, INC.
(Exact name of registrant as specified in charter)
P.O. Box 7650, One Market, Steuart Tower, San Francisco, California 94120
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (415) 421-9360
Patrick F. Quan
Secretary
The Income Fund of America, Inc.
P.O. Box 7650, One Market, Steuart Tower
San Francisco, California 94120
(Name and address of agent for service)
Copy to:
Robert E. Carlson, Esq.
Paul, Hastings, Janofsky & Walker, LLP
555 South Flower Street
Los Angeles, California 90071
The Registrant has filed a declaration
pursuant to Rule 24f-2. On
September 26, 1997, it filed its 24f-2
Notice for fiscal 1997.
Approximate date of proposed public offering:
[X] It is proposed that this filing will
become effective on October 1, 1998
pursuant to paragraph (a) of Rule 485.
THE INCOME FUND OF AMERICA, INC.
Cross Reference Sheet
<TABLE>
<CAPTION>
Captions in
Item Number Prospectus
of Part "A" (Part "A")
of Form N-1A
<S> <C> <C>
1. Front and Back Cover Pages Front and Back Cover
Pages
2. Risk/Return Summary: Investments, Risks, and Risk/Return Summary
Performance
3. Risk/Return Summary: Fee Table Risk/Return Summary
4. Investment Objectives, Principal Strategies, and Investment Objective,
Related Risks
Strategies and Risks
5. Management's Discussion of Fund Performance N/A
6. Management, Organization, and Capital Structure Management and
Organization
7. Shareholder Information Shareholder
Information
8. Distribution Arrangements Shareholder
9. Financial Highlights Information Financial Highlights
</TABLE>
<TABLE>
<CAPTION>
Captions in Statement
Item Number of Additional
of Part "B" Information
of Form N-1A (Part "B")
<S> <C> <C>
10. Cover Page and Table of Contents Cover Page and Table
of Contents
11. Fund History Fund Organization
and Voting Rights
12. Description of the Fund and Its Investments and Fund Organization
Risks
and Voting Rights;
Fund Policies and
Investment
Restrictions;
Description of Certain
Securities and
Investment Techniques
13. Management of the Fund Management;
Fund Officers and
Directors
14. Control Persons and Principal Holders of Securities N/A
15. Investment Advisory and Other Services Management; General
Information; Fund
Officers and Directors
16. Brokerage Allocation and Other Practices Management;
Execution of
Portfolio Transactions
17. Capital Stock and Other Securities None
18. Purchase, Redemption and Pricing of Shares Purchase of Shares;
Redeeming Shares;
Shareholder Account
Services and
Privileges; Purchasing
Shares (Part "A");
General Information
19. Taxation of Fund Dividends,
Distributions and
Federal Taxes
20. Underwriters Management;
Management and
Organization (Part "A")
21. Calculation of Performance Data Investment Results
22. Financial Statements Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Item in
Part "C"
<S> <C>
23. Exhibits
24. Persons Controlled by or Under Common Control
with the Fund
25. Indemnification
26. Business and Other Connections of the Investment
Adviser
27. Principal Underwriters
28. Location of Accounts and Records
29. Management Services
30. Undertakings
Signature Page
</TABLE>
The Income Fund of
America(r)
PROSPECTUS
OCTOBER 1, 1998
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT CONSIDERED THE MERITS 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 INCOME FUND OF AMERICA, INC.
One Market
Steuart Tower, Suite 1800
San Francisco, CA 94105
TICKER SYMBOL: AMECX
NEWSPAPER ABBREV.: Inco
FUND NO.: 06
TABLE OF CONTENTS
Risk/Return Summary
Fees and Expenses
Investment Objective, Strategies and Risks
Important Recent Developments
Management and Organization
Shareholder Information
Distribution Arrangements
Financial Highlights
RISK/RETURN SUMMARY
The fund seeks to provide you with current income and secondarily, to make your
investment grow by investing primarily in a broad range of income-producing
securities, including stocks and bonds.
The fund is suited for investors seeking current income and capital
appreciation through a mix of investments that generally provide price
stability.
The value of your investment may decline in response to certain events
including those directly involving issuers of securities held in the fund's
portfolio, adverse conditions affecting the general economy, or overall market
declines. In addition, the value of bonds in the fund's portfolio generally
will decline when interest rates rise. Accordingly, 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 entity or
person.
INVESTMENT RESULTS
The fund calculates its results in the following ways:
- - TOTAL RETURN is the change in value of an investment in the fund over a given
period, assuming reinvestment of any dividends and capital gain distributions.
- - YIELD generally reflects the income return on the fund's investments based on
the current portfolio as calculated by a formula mandated by the Securities and
Exchange Commission. Yield is computed by dividing the net investment income
per share earned by the fund over a given period of time by the maximum
offering price per share on the last day of the period. A yield calculated
using this formula may be different than the income actually paid to
shareholders.
- - DISTRIBUTION RATE reflects dividends that were paid by the fund. The
distribution rate is calculated by dividing the dividends paid by the fund's
price for the 12 month period.
The following information illustrates how the fund's results fluctuate:
For periods ended December 31, 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Average Annual The fund at The fund at Bond Index/3/ S&P 500/4/
Total Return/1/ net asset value/1/ at maximum
sales charge
/1,2/
One Year xx.xx% xx.xx% xx.xx% xx.xx%
Five Years xx.xx% xx.xx% xx.xx% xx.xx%
Ten Years xx.xx% xx.xx% xx.xx% xx.xx%
Lifetime/5/ xx.xx% xx.xx% xx.xx%/6/ xx.xx%
</TABLE>
SEC Yield/1,2/: x.xx%
Distribution Rate/2/: x.xx%
(For current yield and distribution rate information please call,
1-800-421-9900)
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A STANDARD FORMULA THAT IS
REQUIRED FOR ALL STOCK AND BOND FUNDS.
/2/ INCLUDES THE MAXIMUM SALES CHARGE.
/3/ LEHMAN BROTHERS AGGREGATE BOND INDEX REPRESENTS INVESTMENT GRADE DEBT.
THIS INDEX IS UNMANAGED AND DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR
EXPENSES.
/4/ THE STANDARD & POOR'S 500 INDEX REPRESENTS STOCKS. THIS INDEX IS UNMANAGED
AND DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR EXPENSES.
/5/ FOR THE PERIOD BEGINNING DECEMBER 1, 1973 (WHEN CAPITAL RESEARCH AND
MANAGEMENT COMPANY BECAME THE FUND'S INVESTMENT ADVISER).
/6/ FROM DECEMBER 1, 1973 THROUGH DECEMBER 31, 1975, THE LEHMAN BROTHERS
GOVERNMENT/CORPORATE BOND INDEX WAS USED BECAUSE THE LEHMAN BROTHERS AGGREGATE
BOND INDEX DID NOT YET EXIST.
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.)
[GRAPH APPEARS HERE]
1987 - 0.72
1988 - 14.79
1989 - 22.99
1990 - -3.03
1991 - 23.78
1992 - 12.03
1993 - 14.01
1994 - -2.50
1995 - 29.08
1996 - 15.23
The fund's year-to-date return for the period ending June 30, 1998 was __%.
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)
[GRAPH APPEARS HERE]
The Fund's Dividend Rates
as Compared with the Dividend Rates of the S&P 500/1/
Dividend Rate (percent)
Period IFA S&P 500
- -------- -----------------------
7/31/87 6.70 2.67
7/31/88 6.84 3.27
7/31/89 6.67 3.04
7/31/90 7.07 3.31
7/31/91 7.09 3.11
7/31/92 6.05 2.89
7/31/93 6.19 2.79
7/31/94 6.06 2.80
7/31/95 5.55 2.41
7/31/96 5.19 2.28
7/31/97 4.74 1.61
Past results are not an indication of future results.
FEES AND EXPENSES OF THE FUND
The following describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.75%
Sales charges are reduced or eliminated for larger purchases. There is no
sales charge on reinvested dividends, and no deferred sales charge or
redemption or exchange fees. A contingent deferred sales charge of 1% applies
on certain redemptions made within 12 months following any purchases you made
without a sales charge.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)
<S> <C> <C>
Management Fees xx.xx%
Service (12b-1) Fees xx.xx%*
Other Expenses xx.xx%
____________________ xx.xx%
____________________ xx.xx%
____________________ xx.xx%
Total Annual Fund Operating Expenses xx.xx%
</TABLE>
*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 costs of investing in various
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 emphasize current income while
secondarily striving for capital growth. Normally, the fund invests primarily
in income-producing securities. These include equity securities such as
dividend-paying common stocks and debt securities such as interest-paying
bonds. However, the fund may temporarily invest in securities of any type in
response to unfavorable market conditions (which would prevent the fund from
achieving its investment objective).
Your investment may be affected by adverse market conditions and other factors.
The prices of the equity securities held by the fund may decline in response to
certain events including those directly involving the issuers of these
securities, adverse conditions affecting the general economy, or overall market
declines. The value of debt securities held by the fund generally will decline
when interest rates rise. In addition, the value of these securities may be
impacted by their effective maturities and credit ratings.
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 fundamental values at reasonable prices.
The following chart illustrates the asset mix of the fund's investment
portfolio as of the end of the fund's fiscal year.
[PIE CHART]
FIVE LARGEST INDUSTRIES IN EQUITY HOLDING Percent of Net Assets
TEN LARGEST EQUITY HOLDINGS
BOND HOLDINGS BY QUALITY CATEGORY
Because the fund is actively managed, its holdings will change from time to
time.
IMPORTANT RECENT DEVELOPMENTS
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.
EURO INTRODUCTION
On January 1, 1999, the European Union will introduce a single European
currency, the Euro. The first group of countries that will begin to convert
their currencies to the Euro include Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain. The
expected introduction of the Euro present unique uncertainties, including:
whether the payment and operational systems of banks and other financial
institutions will be ready by the scheduled launch date; the legal treatment of
certain outstanding financial contracts after January 1, 1999 that refer to
existing currencies rather than the Euro; and the creation of suitable clearing
and settlement payment systems for the new currency. These or other factors,
including political and economic risks, could cause market disruptions before
or after the introduction of the Euro. The fund understandings that the
investment adviser and other key service providers are taking steps to address
Euro-related issues.
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 indicated
earlier under "Fees and Expenses of the Fund."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investment. 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 Income Fund of America are listed on the following
page.
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
------------------------
YEARS OF EXPERIENCE
AS PORTFOLIO COUNSELOR WITH CAPITAL
(AND RESEARCH PROFESSIONAL, RESEARCH AND
PORTFOLIO COUNSELORS IF APPLICABLE) FOR THE MANAGEMENT
FOR THE INCOME FUND INCOME FUND OF AMERICA, INC. COMPANY OR
OF AMERICA, INC. PRIMARY TITLE(S) (APPROXIMATE) ITS AFFILIATES TOTAL YEARS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STEPHEN Senior Vice 13 years (in 25 years 31 years
E. President addition to 11
BEPLER of the fund. years as a
Senior Vice research
President, professional
Capital prior to
Research becoming a
Company* portfolio
counselor for
the fund)
- ---------------------------------------------------------------------------------------------
ABNER D. Senior Vice 24 years 30 years 45 years
GOLDSTINE President
of the fund.
Senior Vice
President and
Director,
Capital
Research and
Management
Company
- ---------------------------------------------------------------------------------------------
GREGG E. Vice President, 8 years (in 24 years 24 years
IRELAND Capital addition to
Research and 5 years as a
Management research
Company professional
prior to
becoming a
portfolio
counselor for
the fund)
- ---------------------------------------------------------------------------------------------
JANET A. President of 4 years (in 15 years 21 years
MCKINLEY the fund. addition to
Director, 8 years as a
Capital research
Research and professional
Management prior to
Company; Senior becoming a
Vice President, portfolio
Capital counselor for
Research the fund)
Company*
- ---------------------------------------------------------------------------------------------
DINA N. Vice President 5 years 6 years 31 years
PERRY of the fund.
Vice President,
Capital
Research and
Management
Company
- ---------------------------------------------------------------------------------------------
RICHARD Senior Vice 19 years 20 years 31 years
T. President
SCHOTTE of the fund.
Senior Vice
President,
Capital
Research and
Management
Company
- ---------------------------------------------------------------------------------------------
JOHN H. Vice President 5 years 14 years 15 years
SMET of the fund.
Vice President,
Capital
Research and
Management
Company
- ---------------------------------------------------------------------------------------------
</TABLE>
*Company affiliated with Capital Research and Management Company.
SHAREHOLDER INFORMATION
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
[MAP OF UNITED STATES]
WESTERN SERVICE CENTER
American Funds
Service Company
P.O. Box 2205
Brea, California
92822-2205
Fax: 714/671-7080
WESTERN CENTRAL
SERVICE CENTER
American Funds
Service Company
P.O. Box 659522
San Antonio, Texas
78265-9522
Fax: 210/530-4050
EASTERN CENTRAL
SERVICE CENTER
American Funds
Service Company
P.O. Box 6007
Indianapolis, Indiana
46206-6007
Fax: 317/735-6620
EASTERN SERVCE CENTER
American Funds
Service Company
P.O. Box 2280
Norfolk, Virginia
23501-2280
Fax: 804/670-4773
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. Exchanges 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
Investment Offering Net Dealer
Price Amount Concession
Invested as % of
Offering
Price
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 3.75%
$100,000 but less than $250,000 3.50% 3.63% 2.75%
$250,000 but less than $500,000 2.50% 2.56% 2.00%
$500,000 but less $1 million 2.00% 2.04% 1.60%
$1 million or more and certain see see below see below
other investments described below 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 THESE ACCOUNTS 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,
as a percentage of average net assets, paid by the 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(SM):
- - Redemptions by telephone or fax (including American FundsLine(r) and American
FundsLine OnLine(sm)) 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(R), OR AMERICAN FUNDSLINE
ONLINE(sm)
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 intends to distribute dividends to you, usually in March, June,
September and December. 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 generally 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.
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% of the applicable tax treaty rate
from dividends paid to certain non-resident alien, non-US 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.
<TABLE>
<CAPTION>
Years ended July 31
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning $15.89 $14.92 $13.59 $14.47
of Period
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income .86 .87 .85 .83
Net Gains or Losses on
Securities (both realized 3.55 1.11 1.29 (.53)
and unrealized)
Total From Investment 4.41 1.98 2.14 .30
Operations
LESS DISTRIBUTIONS:
Dividends (from net (.90) (.83) (.75) (.83)
investment income)
Distributions (from (.81) (.18) (.06) (.35)
capital gains)
Returns of Capital xx.xx xx.xx xx.xx xx.xx
Total Distributions (1.71) (1.01) (.81) (1.18)
Net Asset Value, End of $18.59 $15.89 $14.92 $13.59
Period
TOTAL RETURN 29.28% 13.46% 16.42% 1.98%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period $18,814 $14,459 $12,290 $10,537
Ratio of Expenses to .61% .62% .65% .63%
Average Net Assets
Ratio of Net Income to 5.09% 5.56% 6.12% 5.92%
Average Net Assets
Portfolio Turnover Rate 40.92% 37.77% 26.26% 26.42%
</TABLE>
/1/ Excludes maximum sales charge of 5.75%.
<TABLE>
<CAPTION>
<S> <C> <C>
For Shareholder For Retirement Plan For Dealer Services
Services Services American Funds
American Funds Call your employer or Distributors
Service Company plan administrator 800/421-9900 ext.11
800/421-0180
</TABLE>
For 24-hour Information
<TABLE>
<CAPTION>
<S> <C>
American FundsLine(r) American Funds
800/352-3590 Internet Web site
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,
investment results, portfolio holdings, a statement from portfolio management
discussing market conditions and the fund's investment strategies, and the
independent accountants' report (in the annual report).
Statement of Additional Information (SAI)
Contains more detailed information on all aspects of the fund, including the
fund's financial statements.
A current SAI has been filed with the Securities and Exchange Commission
("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>
Call American Funds or Write to the Secretary of the fund
Service Company P.O. Box 7650
800/421-0180 ext.1 San Francisco, CA 94120
Investment Company File No. 811-1880
</TABLE>
THE INCOME FUND OF AMERICA, INC.
Part B
Statement of Additional Information
OCTOBER 1, 1998
This document is not a prospectus but should be read in conjunction with
the current Prospectus of The Income Fund of America, Inc. (the fund or IFA)
dated October 1, 1998. The Prospectus may be obtained from your investment
dealer or financial planner or by writing to the fund at the following
address:
THE INCOME FUND OF AMERICA, INC.
ATTENTION: SECRETARY
ONE MARKET, STEUART TOWER
P.O. BOX 7650
SAN FRANCISCO, CA 94120
Shareholders who purchase shares at net asset value through eligible
retirement plans should note that not all of the services or features described
below may be available to them, and they should contact their employer for
details.
Table of Contents
Item Page No.
CERTAIN INVESTMENT LIMITATIONS 2
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES 3
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS 8
FUND ORGANIZATION AND VOTING RIGHTS 9
FUND OFFICERS AND DIRECTORS 11
MANAGEMENT 15
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 17
PURCHASE OF SHARES 20
SELLING SHARES 27
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 28
EXECUTION OF PORTFOLIO TRANSACTIONS 30
GENERAL INFORMATION 31
INVESTMENT RESULTS 32
DESCRIPTION OF BOND RATINGS 37
FINANCIAL STATEMENTS ATTACHED
CERTAIN INVESTMENT LIMITATIONS
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.
OBJECTIVE
- - Portion of the fund that must be in income producing securities 65%
EQUITY SECURITIES
- - Portion normally invested in equity securities 60%
(However, at times the fund may be substantially invested in equity
or fixed-income securities (i.e., more than 60%) or may be
solely invested in equity or fixed-income securities (i.e., 100%)).
DEBT SECURITIES
- - Non-Investment grade straight debt (rated below BBB/Baa) 20%
- - Debt rated below CC or Ca 0%
- - Inverse floating rate notes 11/2%
- - Reinsurance related notes and bonds 5%
SECURITIES SUBJECT TO RESTRICTIONS ON RESALE
- - Illiquid securities - including all restricted securities unless determined
10%
to be liquid under procedures adopted by the board of directors
SECURITIES OF ISSUERS DOMICILED OUTSIDE THE U.S.
- - Equity securities of issuers domiciled outside the U.S. and not included 10%
in the Standard & Poor's 500 Composite Index
- - Fixed-income securities of issuers domiciled outside the U.S. - must be 10%
U.S. dollar denominated
Description of Certain Securities and Investment Techniques
EQUITY SECURITIES - The fund will invest in equity securities. Equity
securities represent an ownership position in a company. These securities may
include common stocks and securities with equity conversion or purchase rights.
The prices of equity securities fluctuate based on changes in the financial
condition of their issuers and on market and economic conditions. The fund's
results will be related to the overall market for these securities.
DEBT SECURITIES - The fund will invest in 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 20% 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 by
Capital Research and Management Company, the fund's investment adviser. These
securities are commonly known as "high-yield, high-risk" or "junk" bonds.
High-yield, high-risk bonds are described by the rating agencies as speculative
and involve greater risk of default or price changes due to changes in the
issuer's creditworthiness than higher rated bonds, or they may already be in
default. The market prices of these securities may fluctuate more than higher
quality securities and may decline significantly. It may be more difficult to
dispose of, or to determine the value of, high-yield, high-risk bonds. The
fund's high-yield, high-risk securities may be rated as low as Ca by Moody's or
CC by S&P which are described by the rating agencies as "speculative in a high
degree; often in default or [having] other marked shortcomings." See
"Description of Bond Ratings" for a complete description of the bond ratings.
The 20% limit does not apply to debt securities that have equity conversion or
purchase rights.
Certain risk factors relating to investing in below investment grade
securities ("high-yield, high-risk bonds") are discussed below.
Sensitivity to Interest Rate and Economic Changes - High-yield, high-risk
bonds are very sensitive to adverse economic changes and corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers or issuers whose revenue is very
sensitive to economic conditions 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 defaults on its obligations to pay interest
or principal or enters 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 of high-yield, high-risk bonds.
Payment Expectations - High-yield, high-risk bonds, like other 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 is likely to
decrease in a rising interest rate market, as is generally true with all
bonds.
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.
The fund may invest no more than 20% of its total assets in securities rated
BB and Ba or below (or unrated but considered of similar quality). The 20%
limit shall not apply to debt securities that have equity conversion or
purchase rights. In addition, the fund has no current intention of holding
more than 25% of its assets in high-yield, high-risk bonds, INCLUDING those
that have equity conversion or purchase rights.
The fund's investment adviser, Capital Research and Management Company,
attempts to reduce the fund's 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. The fund's investment policy with respect to investing
in high-yield, high-risk securities is a "non-fundamental" policy and thus may
be changed by the board of directors at any time.
SECURITIES WITH EQUITY AND DEBT CHARACTERISTICS - The fund may 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
like the coupon of a bond or note even though they are often classified as
equity securities. The prices and yields of non-convertible preferred stocks
generally move with changes in interest rates and the issuer's credit quality,
similar to the factors affecting debt securities.
Bonds, preferred stocks, and other securities may sometimes be converted
into 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.
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.
REINSURANCE RELATED NOTES AND BONDS - The fund may invest up to 5% of its
assets in reinsurance related notes and bonds. These instruments, which are
typically issued by special purpose reinsurance companies, transfer an element
of insurance risk to the note or bond holders. For example, the reinsurance
company would not be required to repay all or a portion of the principal value
of the notes or bonds if losses due to a catastrophic event under the policy
(such as a major hurricane) exceed certain dollar thresholds. Consequently,
the fund may lose the entire amount of its investment in such bonds or notes if
such an event occurs and losses exceed certain dollar thresholds. In this
instance, investors would have no recourse against the insurance company.
These instruments may be issued with fixed or variable interest rates and rated
in a variety of credit quality categories by the rating agencies.
INVERSE FLOATING RATE NOTES - The fund may invest to a very limited extent (no
more than 11/2% of its 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. A change in prevailing interest rates
will often result in a greater change in the instruments' interest rates.
Therefore, these securities have a greater degree of volatility than other
types of interest-bearing securities.
SECURITIES SUBJECT TO RESTRICTIONS ON RESALE - 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 which have been
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.
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. However, these securities generally are structured with one or more
types of credit enhancement by a third party. Mortgage-backed securities permit
borrowers to prepay their underlying mortgages. Prepayments by borrowers on
underlying obligations can alter the effective maturity of these
instruments.
"Collateralized mortgage obligations" (CMOs) are also backed by a pool of
mortgages or mortgage loans, which are divided into two or more separate bond
issues. CMOs issued by U.S. government agencies are backed by agency mortgages,
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 mortgages of
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 bonds' effective maturities.
Although the fund has no current intention to do so (at least during the
next 12 months) the fund may also invest in real estate investment conduits
which are issued in portions or tranches with varying maturities and
characteristics; some tranches may only receive the interest paid on the
underlying mortgages (IOs) and others may only receive the principal payments
(POs); the values of IOs and POs are extremely sensitive to interest rate
fluctuations and prepayment rates, and IOs are also subject to the risk of
early repayment of the underlying mortgages 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.
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.
SECURITIES OF ISSUERS DOMICILED OUTSIDE THE U.S. - The fund may invest in
securities of issuers domiciled outside the U.S. Up to 10% of the fund's assets
may be invested in equity-type securities of non-U.S. issuers which are not
included in the Standard & Poor's 500 Composite Index, and up to 10% may be
invested in debt securities of non-U.S. issuers payable in U.S. dollars.
Investing outside the U.S. involves special risks, particularly in certain
developing countries, caused by, among other things: fluctuating currency
values; differing accounting, auditing and financial reporting regulations and
practices in some countries; changing local and regional economic, political,
and social conditions; greater market volatility; differing securities market
structures; and various administrative difficulties such as delays in clearing
and settling portfolio transactions or in receiving payment of dividends.
However, in the opinion of Capital Research and Management Company, investing
outside the U.S. also can reduce certain portfolio risks due to greater
diversification opportunities.</>
Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. The fund can purchase and sell currencies to
facilitate transactions in securities denominated in currencies other than the
U.S. dollar. Brokerage commissions may be higher outside the U.S., and the fund
may bear certain expenses in connection with currency transactions.
Furthermore, increased custodian costs may be associated with the maintenance
of assets in certain jurisdictions.
CASH AND CASH EQUIVALENTS - They fund may invest in cash and cash
equivalents. These securities include (1) commercial paper (short-term notes
issued by corporations or governmental bodies), (2) commercial bank obligations
(E.G., 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 savings
bank obligations (E.G., certificates of deposit issued by savings banks or
savings associations), (4) securities of the U.S. Government, its agencies or
instrumentalities that mature at the time of purchase, or may be redeemed, in
one year or less, and (5) corporate bonds and notes that mature at the time of
purchase, or that may be redeemed, in one year or less.
CURRENCY TRANSACTIONS - The fund has the ability to enter into forward
currency contracts to protect against changes in currency exchange rates. A
forward currency contract is an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. Forward currency contracts entered into by the fund will involve the
purchase or sale of a currency against the U.S. dollar. The fund will
segregate liquid assets which will be marked to market daily to meet its
forward contract commitments to the extent required by the Securities and
Exchange Commission.
Certain provisions of the Internal Revenue Code may affect the extent to which
the fund may enter into forward contracts. Such transactions may also affect,
for U.S. federal income tax purposes, the character and timing of income, gain
or loss recognized by the fund.
FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell
securities at a future date. When a fund purchases such securities it assumes
the risk of any decline in value of the security beginning on the date of the
agreement. When a fund sells such securities it does not participate in
further gains or losses with respect to such 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.
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 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. 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.
The fund also may enter into "roll" transactions, which consist of 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
assumes the rights and risks of ownership, including the risk of price and
yield fluctuations as of the time of the agreement. The fund intends to treat
roll transactions as two separate transactions: one involving the purchase of a
security and a separate transaction involving the sale of a security. Since
the fund does not intend to enter into roll transactions for financing
purposes, it may treat these transactions as not falling within the definition
of "borrowing" set forth in Section 2(a)(23) of the Investment Company Act of
1940.
* * *
TEMPORARY DEFENSIVE POLICY - The fund may temporarily invest, in response
to unfavorable market conditions, solely in equity-type securities or solely in
debt securities, cash or cash equivalents.
PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the
length of time particular investments may have been held. Short-term trading
profits are not the fund's objective and changes in its investments are
generally accomplished gradually, though short-term transactions may
occasionally be made. 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's portfolio turnover rate would
equal 100% if each security in the fund's portfolio were replaced once per
year. Under normal circumstances, it is anticipated that portfolio turnover
for common stocks in the fund's portfolio will not exceed 100% on an annual
basis, and that portfolio turnover for other securities will not exceed 100% on
an annual basis.
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
The fund has adopted certain fundamental policies and investment restrictions
which cannot be changed without shareholder approval. Approval requires the
affirmative vote of 67% or more of the voting securities present at a meeting
of shareholders, provided more than 50% of such securities are represented at
the meeting, or the vote of more than 50% of the outstanding voting securities,
whichever is less.
The fund may not:
1. Act as underwriter of securities issued by other persons.
2. Invest more than 10% of the value of its total assets in securities that
are illiquid.
3. Borrow amounts in excess of 5% of its gross assets taken at cost or market
value, whichever is lower, determined at the time of borrowing, and then only
from banks as a temporary measure for extraordinary or emergency purposes; or
pledge, mortgage, or hypothecate its assets taken at market value to any extent
greater than 15% of its gross assets taken at cost or market value, whichever
is lower, at the time of such action.
4. Purchase real estate (including limited partnership interests but excluding
securities of companies, such as real estate investment trusts, which deal in
real estate or interests therein) or purchase oil, gas, or other mineral
leases.
5. Purchase or deal in commodities or commodity contracts.
6. Make loans to other persons, except by making time or demand deposits with
banks or by purchasing a portion of an issue (not prohibited by any investment
restriction set forth herein) of bonds, debentures, commercial paper or other
debt securities at original issue or otherwise.
7. Purchase securities of any company for the purpose of exercising control or
management.
8. Purchase securities of any other managed investment company.
9. Purchase any securities on "margin", except that it may obtain such
short-term credit as may be necessary for the clearance of purchases of
securities.
10. Sell or contract to sell any security which it does not own unless by
virtue of its ownership of other securities it has at the time of sale a right
to obtain securities, without payment of further consideration, equivalent in
kind and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions.
11. Purchase or sell puts, calls, straddles, or spreads, but this restriction
shall not prevent the purchase or sale of rights represented by warrants or
convertible securities.
12. Purchase any securities of any issuer, except the U.S. Government (or its
instrumentalities), if immediately after and as a result of such investment (1)
the market value of the securities of such other issuer shall exceed 5% of the
market value of the total assets of the fund, or (2) the fund shall own more
than 10% of the outstanding voting securities of such issuer, provided that
this restriction shall apply only as to 75% of the fund's total assets.
13. Purchase any securities (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 purchase 25% or more of the market value of the total
assets of the fund would be invested in securities of companies in any one
industry.
14. Purchase securities of companies (other than real estate investment
trusts) which, with their predecessors, have a record of less than three years'
continuous operations, if such purchase would cause more than 5% of the fund's
total assets to be invested in the securities of such companies.
For purposes of Investment Restriction #2, restricted securities are treated
as illiquid by the fund, with the exception of those securities that have been
determined to be liquid pursuant to procedures adopted by the fund's Board of
Directors. Notwithstanding Investment Restriction #8, 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. In addition, the fund may not issue senior securities.
Fund Organization and Voting Rights
The fund is an open-end, diversified management investment company. It was
organized as a Delaware corporation in 1969 and reorganized as a Maryland
Corporation in 1983.
All fund operations are supervised by the fund's board of directors. The
board meets periodically and performs duties required by applicable state and
federal laws. Members of the board who are not employed by Capital Research
and Management Company or its affiliates are paid certain fees for services
rendered to the fund as described in "Directors and Director Compensation"
below. They may elect to defer all or a portion of these fees through a
deferred compensation plan in effect for the fund.
The fund does not hold annual meetings of shareholders. However,
significant matters which require shareholder approval, such as certain
elections of board members or a change in a fundamental investment policy, will
be presented to shareholders at a meeting called for such purpose.
Shareholders have one vote per share owned. At the request of the holders of
at least 10% of the shares, the fund will hold a meeting at which any member of
the board could be removed by a majority vote.
FUND OFFICERS AND DIRECTORS
DIRECTORS AND DIRECTOR COMPENSATION
<TABLE>
<CAPTION>
NAME, POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
ADDRESS AND WITH OCCUPATION(S) COMPENSATION COMPENSATION FROM NUMBER
AGE REGISTRANT DURING PAST (INCLUDING ALL FUNDS OF FUND
5 YEARS VOLUNTARILY MANAGED BY BOARDS
(POSITIONS DEFERRED CAPITAL ON WHICH
WITHIN THE COMPENSATION/1/) RESEARCH DIRECTOR
ORGANIZATIONS FROM THE FUND AND SERVES/3/
LISTED MAY HAVE DURING FISCAL MANAGEMENT
CHANGED DURING YEAR ENDED COMPANY
THIS PERIOD) 7/31/98 FOR THE
YEAR ENDED
7/31/98/2/
<S> <C> <C> <C> <C> <C>
Robert A. Director President and $ ______/4/ $_______/4/ 5
Fox Chief Executive
P.O. Box 457 Officer, Foster
1000 Davis Farms; former
Street President,
Livingston, Revlon
CA 95334 International
Age: 60
Roberta L. Director Consultant; $ ______ $ ______ 3
Hazard Rear Admiral,
1419 Audmar United
Drive States Navy
McLean, VA (Retired)
22101
Age: 62
Leonade D. Director Former $ ______/4/ $_______/4/ 5
Jones Treasurer, The
1536 Los Washington
Montes Drive Post Company
Burlingame,
CA 94010
Age: 49
John G. Director The IBJ $ ______/4/ $______/4/ 7
McDonald Professor of
Stanford Finance,
University Graduate School
Stanford, CA of Business,
94305 Stanford
Age: 60 University
+Janet A. President Director, None/5/ None/5/ 1
McKinley and Capital
630 Fifth Director Research and
Avenue Management
New York, NY Company; Senior
10111 Vice President,
Age: 42 Capital
Research
Company
+James W. Director Senior Partner, None/5/ None/5/ 8
Ratzlaff The Capital
P.O. Box Group
7650 Partners L.P.
San
Francisco,
CA 94120
Age: 61
Henry E. Director President, Keck $ ______/4/ $_______/4/ 5
Riggs Graduate
1263 North Institute of
Dartmouth Applied Life
Claremont, Sciences;
CA 91711 former
Age: 62 President and
Professor of
Engineering,
Harvey Mudd
College
+Walter P. Chairman of Chairman, None/5/ None/5/ 8
Stern the Board Capital Group
630 Fifth International,
Avenue Inc.; Vice
New York, NY Chairman,
10111 Capital
Age: 69 Research
International;
Chairman,
Capital
International,
Inc.; Director,
Temple-Inland
Inc. (forest
products)
Patricia K. Director Private $ ______ $ ______ 5
Woolf investor;
506 Quaker Lecturer,
Road Department of
Princeton, Molecular
NJ 08540 Biology,
Age: 63 Princeton
University
</TABLE>
+ "Interested persons" within the meaning of the Investment Company Act of 1940
(the 1940 Act) on the basis of their affiliation with the fund's Investment
Adviser, Capital Research and Management Company or the parent company of the
Investment Adviser, The Capital Group Companies, Inc.
/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 of
the funds in The American Funds Group as designated by the director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, Inc., 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 vehicles for certain
variable insurance contracts; and Bond Portfolio for Endowments, Inc. and
Endowments, Inc. whose shares may be owned only by tax-exempt organizations.
/3/ Includes funds managed by Capital Research and Management Company and
affiliates.
/4/ Since the plan's adoption, the total amounts of deferred compensation
accrued by the fund (plus earnings thereon) for participating directors are as
follows: Robert A. Fox ($141,587), Leonade D. Jones ($58,309), John G.
McDonald ($71,813) and Henry E. Riggs ($93,944). Amounts deferred and
accumulated earnings thereon are not funded and are general unsecured
liabilities of the fund until paid to the director.
/5/ Janet A. McKinley, James W. Ratzlaff and Walter P. Stern are affiliated
with the Investment Adviser and, accordingly, receive no compensation from the
fund.
OFFICERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) HELD PRINCIPAL OCCUPATION(S) DURING
WITH REGISTRANT PAST 5 YEARS
<S> <C> <C> <C>
Stephen E. Bepler 55 Senior Vice Senior Vice President, Capital
630 Fifth Avenue President Research Company
New York, NY 10111
Abner D. Goldstine 67 Senior Vice Senior Vice President and Director,
11100 Santa Monica President Capital Research and Management
Boulevard Company
Los Angeles, CA 90025
Paul G. Haaga, Jr. 48 Senior Vice Executive Vice President and
333 South Hope Street President Director, Capital Research and
Los Angeles, CA 90071 Management Company; Director,
American Funds Service Company;
Director, American Funds
Distributors, Inc.
Richard T. Schotte 55 Senior Vice Senior Vice President, Capital
11100 Santa Monica President Research and Management Company
Boulevard
Los Angeles, CA 90025
Hilda L. Applbaum 39 Vice President Vice President, Capital Research
P.O. Box 7650 Company
San Francisco, CA 94120
Dina N. Perry 57 Vice President Vice President, Capital Research and
3000 K Street, N.W. Management Company
Washington, D.C. 20007
John H. Smet 41 Vice President Director, Capital Research Company;
11100 Santa Monica Vice President, Capital Research and
Boulevard Management Company
Los Angeles, CA 90025
Patrick F. Quan 39 Secretary Vice President - Fund Business
P.O. Box 7650 Management Group, Capital Research
San Francisco, CA 94120 and Management Company
Mary C. Hall 39 Treasurer Senior Vice President - Fund
135 South State College Business Management Group, Capital
Boulevard Research and Management Company
Brea, CA 92821
R. Marcia Gould 43 Assistant Treasurer Vice President - Fund Business
135 South State College Management Group, Capital Research
Boulevard and Management Company
Brea, CA 92821
Anthony W. Hynes, Jr. 34 Assistant Treasurer Vice President - Fund Business
135 South State College Management Group, Capital Research
Blvd. and Management Company
Brea, CA 92821
</TABLE>
All of the directors and officers are also officers and/or directors and/or
trustees of one or more of the other funds for which Capital Research and
Management Company serves as Investment Adviser. 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 fees of $18,000
per annum to directors who are not affiliated with the Investment Adviser, plus
$1,000 for each Board of Directors meeting attended, plus $500 for each meeting
attended as a member of a committee of the Board of Directors. The directors
may elect, on a voluntary basis, to defer all or a portion of these fees
through a deferred compensation plan in effect for the fund. The fund also
reimburses certain expenses of the directors who are not affiliated with the
Investment Adviser. As of July 31, 1998 the officers and directors of the fund
and their families, as a group, owned beneficially or of record less than 1% of
the outstanding shares.
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 managing more than $175 billion of
stocks, bonds and money market instruments and serves over eight million
investors of all types. 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,
dated January 1, 1994, and approved by the shareholders on December 14, 1993,
was amended by the Board of Directors effective on November 1, 1997. Its
renewal was approved by the unanimous vote of the Board of Directors of the
fund on December 12, 1997. The Agreement will be in effect until the close of
business on December 31, 1998 and may be renewed from year to year thereafter,
provided that any such renewal has been specifically approved at least annually
by (i) the Board of Directors of the fund, or by the vote of a majority (as
defined in the 1940 Act) of the outstanding voting securities of the fund, and
(ii) the vote of a majority of directors who are not parties to the Agreement
or interested persons (as defined in said Act) of any such party, cast in
person, at a meeting called for the purpose of voting on such approval. 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 said Act).
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, and provides suitable office space, necessary small office equipment
and utilities, as well as general purpose accounting forms, supplies, and
postage to be used at the offices of the fund relating to the services
furnished by the Investment Adviser. The fund pays all expenses not
specifically assumed by the Investment Adviser, including, but not limited to,
custodian, stock transfer and dividend disbursing fees and expenses; costs of
designing, printing and mailing reports, prospectuses, proxy statements, and
notices to shareholders; taxes; expenses for the issuance and redemption of
shares of the fund (including stock certificates, registration and
qualification fees and expenses); expenses pursuant to the fund's Plan of
Distribution (described below); 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 Internal Revenue Code in general defines original issue discount to mean
the difference between the issue price and the stated redemption price at
maturity of certain debt obligations. The holder of such indebtedness is in
general required to treat as ordinary income the proportionate part of the
original issue discount attributable to the period during which the holder held
the indebtedness. The management fee is based upon the annual rates of 0.24%
on the first $1 billion of the fund's net assets, 0.20% on net assets in excess
of $1 billion but not exceeding $2 billion, 0.18% on net assets in excess of $2
billion but not exceeding $3 billion, 0.165% on net assets in excess of $3
billion but not exceeding $5 billion, 0.155% on net assets in excess of $5
billion but not exceeding $8 billion, 0.15% on net assets in excess of $8
billion but not exceeding $13 billion, 0.145% on net assets in excess of $13
billion but not exceeding $21 billion, and 0.14% on net assets in excess of $21
billion, plus 2.25% of the fund's gross investment income for the preceding
month. Assuming net assets of $19 billion and gross investment income levels of
3%, 4%, 5%, 6%, 7% and 8%, management fees would be 0.39%, 0.42%, 0.45%, 0.48%,
0.52% and 0.55% of net assets, respectively.
The Agreement provides for a management fee reduction to the extent that the
fund's annual ordinary operating expenses exceed 1-1/2% of the first $30
million of the net assets of the fund and 1% of the net assets in excess
thereof. Expenses which are not subject to this limitation are interest,
taxes, and extraordinary expenses. Expenditures, including costs incurred in
connection with the purchase or sale of portfolio securities, which are
capitalized in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital items and not
as expenses.
For the fiscal year ended July 31, 1998, the Investment Adviser received
$__________ for the basic management fee (based on a percentage of the net
assets of the fund as expressed above) plus $__________ (based on a percentage
of the fund's gross income as expressed above), for a total fee of $47,820,000.
For the fiscal years ended July 31, 1997 and 1996, management fees paid by the
fund amounted to $47,820,000 and $42,065,000, respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the Principal
Underwriter) is the principal underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 8000 IH-10 West, San Antonio, TX
78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240, and 5300
Robin Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of Distribution
(the Plan), pursuant to rule 12b-1 under the 1940 Act. The Principal
Underwriter receives amounts payable pursuant to the Plan (see below) and
commissions consisting of that portion of the sales charge remaining after the
discounts which it allows to investment dealers. Commissions retained by the
Principal Underwriter on sales of fund shares during the fiscal year ended July
31, 1998 amounted to $__________ after allowance of $__________ to dealers.
During the fiscal years ended 1997 and 1996, the Principal Underwriter received
$10,140,000 and $11,114,000, after allowance of $49,612,000 and $56,184,000,
respectively.
As required by rule 12b-1 and the 1940 Act, the Plan (together with the
Principal Underwriting Agreement) has been approved by the full Board of
Directors, and separately by a majority of the directors who are not interested
persons of the fund and who have no direct or indirect financial interest in
the operation of the Plan or the Principal Underwriting Agreement, and the Plan
has been approved by the vote of a majority of the outstanding voting
securities of the fund. The officers and directors who are "interested"
persons of the fund may be considered to have a direct or indirect financial
interest in the operation of the Plan due to present or past affiliations with
the Investment Adviser and related companies. Potential benefits of the Plan
to the fund include improved shareholder services, savings to the fund in
transfer agency costs, savings to the fund in advisory fees and other expenses,
benefits to the investment process from growth or stability of assets and
maintenance of a financially healthy management organization. The selection
and nomination of directors who are not "interested persons" of the fund are
committed to the discretion of the directors who are not interested persons
during the existence of the Plan. The Plan is reviewed quarterly and must be
renewed annually by the Board of Directors.
Under the Plan the fund may expend up to 0.25% of its 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).
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 July 31, 1998, the fund paid or accrued $__________ for
compensation to dealers under the Plan.
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 or affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer adverse financial consequences as a result of any of
these occurrences. In addition, state securities laws on this issue may differ
from the interpretations of federal law expressed herein and certain banks and
financial institutions may be required to be registered as dealers pursuant to
state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements, and has elected the tax status
of, a "regulated investment company," under the provisions of Subchapter M of
the Internal Revenue Code of 1986, as amended, (the Code). Under Subchapter M,
if the fund distributes within specified times at least 90% of the sum of its
investment company taxable 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 of such investment
company taxable income 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, cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities (but such other
securities 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 gains (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
capital gain net income 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 continue distributing to shareholders all of the
excess of net long-term capital gain over net short-term capital loss on sales
of securities. If the net asset value of shares of the fund should, by reason
of a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends 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 has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, or the shareholder does
not respond to mailings from American Funds Service Company with regard to
uncashed distribution checks, the shareholder's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares.
Corporate shareholders of the fund may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gain distributions) paid
by the fund to the extent the fund's income is derived from dividends (which
if received directly would qualify for such deduction) received from domestic
corporations. In order to qualify for the dividends-received deduction, a
corporate shareholder must hold the fund shares paying the dividends upon which
the deduction is based for at least 46 days.
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 acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation or foreign
partnership (a foreign 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 foreign 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. Distributions of net long-term capital gains not
effectively connected with a U.S. trade or business are not subject to tax
withholding, but in the case of a foreign shareholder who is a nonresident
alien individual, such distributions ordinarily will be subject to U.S. income
tax at a rate of 30% if the individual is physically present in the U.S. for
more than 182 days during the taxable year.
Income and dividends received by the fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Because not more than 50% of the value of the
total assets of the fund is expected to consist of securities of foreign
issuers, the fund will not be eligible to elect to "pass through" foreign tax
credits to shareholders.
As of the date of this statement of additional information, the maximum
federal individual stated tax rate applicable to ordinary income is 39.6%
(effective tax rates may be higher for some individuals due to phase out of
exemptions and elimination of deductions); the maximum individual tax rate
applicable to net capital gains on assets held more than eighteen months or
20%, and on assets held more than one year and not more than eighteen months is
28%; and the maximum corporate tax applicable to ordinary income and net
capital gains 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 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
tax of up to $100,000. Naturally, the amount of tax payable by a shareholder
with respect to either distributions from the fund or disposition of fund
shares 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 an IRA each
year (prior to the tax return filing deadline for the 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 of federal taxation and should not be
viewed as a comprehensive discussion of all provisions of the Code relevant to
investors. Dividends and capital gain distributions may also be subject to
state or local taxes. Shareholders 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 and Fund $50 minimum (except where a lower
Numbers" for initial investment minimum is noted under "Investment
minimums. Minimums and Fund Numbers").
By contacting Visit any investment dealer who Mail directly to your investment
your is registered in the state where dealer's address printed on your
investment the purchase is made and who has account statement.
dealer a sales agreement with American
Funds Distributors.
By mail Make your check payable to the Fill out the account additions form
fund and mail to the address at the bottom of a recent account
indicated on the account statement, make your check payable
application. Please indicate an to the fund, write your account
investment dealer on the account number on your check, and mail the
application. check and form in the envelope
provided with your account
statement.
By telephone Please contact your investment Complete the "Investments by Phone"
dealer to open account, then section on the account application
follow the procedures for or American FundsLink Authorization
additional investments. Form. Once you establish the
privilege, you, your financial
advisor or any person with your
account information can call
American FundsLine(r) and make
investments by telephone (subject
to conditions noted in "Telephone
and Computer Purchases, Redemptions
and Exchanges" below).
By computer Please contact your investment Complete the American FundsLink
dealer to open account, then Authorization Form. Once you
follow the procedures for establish the privilege, you, your
additional investments. financial advisor or any person
with your account information may
access American FundsLine(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 obtain your Your bank should wire your
account number(s), if necessary. additional investments in the same
Please indicate an investment manner as described under "Initial
dealer on the account. Instruct Investment."
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) 02
$1,000
American Balanced Fund(r) 11
500
American Mutual Fund(r) 03
250
Capital Income Builder(r) 12
1,000
Capital World Growth and Income Fund(sm) 33
1,000
EuroPacific Growth Fund(r) 16
250
Fundamental Investors(sm) 10
250
The Growth Fund of America(r) 05
1,000
The Income Fund of America(r) 06
1,000
The Investment Company of America(r) 04
250
The New Economy Fund(r) 14
1,000
New Perspective Fund(r) 07
250
SMALLCAP World Fund(r) 35
1,000
Washington Mutual Investors Fund(sm) 01
250
BOND FUNDS
American High-Income Municipal Bond Fund(r) 40
1,000
American High-Income Trust(sm) 21
1,000
The Bond Fund of America(sm) 08
1,000
Capital World Bond Fund(r) 31
1,000
Intermediate Bond Fund of America(sm) 23
1,000
Limited Term Tax-Exempt Bond Fund of America(sm) 43
1,000
The Tax-Exempt Bond Fund of America(r) 19
1,000
The Tax-Exempt Fund of California(r)* 20
1,000
The Tax-Exempt Fund of Maryland(r)* 24
1,000
The Tax-Exempt Fund of Virginia(r)* 25
1,000
U.S. Government Securities Fund(sm) 22
1,000
MONEY MARKET FUNDS
The Cash Management Trust of America(r) 09
2,500
The Tax-Exempt Money Fund of America(sm) 39
2,500
The U.S. Treasury Money Fund of America(sm) 49
2,500
___________
*Available only in certain states.
</TABLE>
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
SALES CHARGES - The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
<TABLE>
<CAPTION>
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
<S> <C> <C> <C>
STOCK AND STOCK/BOND FUNDS
Less than $50,000 6.10%
5.75% 5.00%
$50,000 but less than $100,000 4.71
4.50 3.75
BOND FUNDS
Less than $25,000 4.99
4.75 4.00
$25,000 but less than $50,000 4.71
4.50 3.75
$50,000 but less than $100,000 4.17
4.00 3.25
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000 3.63
3.50 2.75
$250,000 but less than $500,000 2.56
2.50 2.00
$500,000 but less than $1,000,000 2.04
2.00 1.60
$1,000,000 or more none (see below)
none
</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 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 organizations with retirement plan assets of $50 million or more;
(5) insurance company separate accounts;
(6) accounts managed by subsidiaries of The Capital Group Companies, Inc.; and
(7) The Capital Group Companies, Inc., its affiliated companies and Washington
Management Corporation. Shares are offered at net asset value to these persons
and organizations due to anticipated economies in sales effort and expense.
DEALER COMMISSIONS
Commissions of up to 1% will be paid to dealers who initiate and are
responsible for purchases of $1 million or more, for purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $50 million or more: 1.00% on amounts of $1 million
to $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 the
Transfer Agent. All dividends and any capital gain distributions on shares
held in escrow will be credited to the shareholder's account in shares (or paid
in cash, if requested). If the intended investment is not completed within the
specified 13-month period, the purchaser will 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, a sales charge will be assessed according to the
sales charge breakpoint thus determined. There will be no retroactive
adjustments in sales charges on investments previously made during the 13-month
period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the Investment Company Act of 1940, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
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, Inc. (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
American Funds Service Company. This offering price is effective for orders
received prior to the time of determination of the net asset value and, in the
case of orders placed with dealers, accepted by the Principal Underwriter prior
to its close of business. In case of orders sent directly to the fund or
American Funds Service Company, an investment dealer MUST be indicated. The
dealer is responsible for promptly transmitting purchase orders to the
Principal Underwriter. Orders received by the investment dealer, 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 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 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 prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board; the fair value of all other assets is
added to the value of securities at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share.
Any purchase order may be rejected by the Principal Underwriter or the fund.
The Principal Underwriter will not knowingly sell fund shares directly,
indirectly, or through a unit investment trust to any other investment company,
or to any 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 4.5% of the outstanding shares of the fund
without the consent of a majority of the fund's directors.
Selling Shares
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. You may sell
(redeem) shares in your account in any of the following ways:
THROUGH YOUR DEALER (certain charges may apply)
- - Shares held for you in your dealer's street name must be sold through the
dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- - Requests must be signed by the registered shareholder(s)
- - A signature guarantee is required if the redemption is:
- -- Over $50,000;
- -- Made payable to someone other than the registered shareholder(s); or
- -- Sent to an address that has not been used with the account for at least 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(SM)
- - Redemptions by telephone or fax (including American FundsLine(r) and American
FundsLine OnLine(sm)) 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.
Redemptions 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.
The fund may, with 60 days' written notice, close your account if due to a
sale of shares the account has a value of less than the minimum required
initial investment.
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 and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares. Shares held
for the longest period are assumed to be redeemed first for purposes of
calculating this charge. The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer-sponsored
retirement plan; for distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 591/2; for tax-free returns of excess
contributions to IRAs; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
REDEMPTION OF SHARES - The fund's Articles of Incorporation permits the fund
to direct the Transfer Agent to redeem the shares of any shareholder for their
then current net asset value per share if at such time the shareholder owns of
record shares having an aggregate net asset value of less than the minimum
initial investment amount required of new shareholders as set forth in the
fund's current registration statement under the 1940 Act, and subject to such
further terms and conditions as the Board of Directors of the fund may from
time to time adopt.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - An automatic investment plan enables you to make
monthly or quarterly investments into the American Funds through automatic
debits from your bank account. To set up a plan you must fill out an account
application and specify the amount you would like to invest ($50 minimum) and
the date on which you would like your investments to occur. The plan will
begin within 30 days after your account application is received. Your bank
account will be debited on the day or a few days before your investment is
made, depending on the bank's capabilities. American Funds Service Company will
then invest your money into the fund you specified on or around the date you
specified. If your account cannot be debited due to insufficient funds, a
stop-payment, or the 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 to American Funds Service Company.
AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - You may cross-reinvest
dividends and capital gains ("distributions") into any other fund in The
American Funds Group at net asset value, subject to the following conditions:
a) The aggregate value of your account(s) in the fund(s) paying distributions
equals or exceeds $5000 (this is waived if the value of the account in the fund
receiving the distributions equals or exceeds that fund's minimum initial
investment requirement),
b) If the value of the account of the fund receiving distributions is below
the minimum initial investment requirement, distributions must be automatically
reinvested,
c) If you discontinue the cross-reinvestment of distributions, the value of
the account of the fund receiving distribution must equal or exceed the minimum
initial investment requirement. If you do not meet this requirement within 90
days of notification, the fund has the right to automatically redeem the
account.
EXCHANGE PRIVILEGE - Exchange purchases are subject to the minimum investment
requirements of the fund purchased. Shares held in corporate-type retirement
plans for which Capital Guardian Trust Company serves as trustee may not be
exchanged by telephone, fax or telegraph. Exchange redemptions and purchases
are processed simultaneously at the share prices next determined after the
exchange order is received. (See "Purchase of Shares-Price of Shares.") These
transactions have the same tax consequences as ordinary sales and purchases.
AUTOMATIC EXCHANGES - You may automatically exchange shares in amounts of $50
or more among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either (a) meet the minimum initial investment
requirement for the receiving fund, or (b) the originating fund's balance must
be at least $5000 and the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS - Automatic investments may not be made into an account
from which there are automatic withdrawals. Withdrawals of amounts that exceed
any reinvested distributions and capital appreciation reduce the value of your
account. See the account application or call American Funds Service Company
for more information.
ACCOUNT STATEMENTS - We will open your account according to your
registration instructions. You will receive regular confirmation statements
reflecting transactions in your account. Purchases through automatic
investment plans, dividend and capital gain reinvestments, and certain
retirement plans will be confirmed at least quarterly.
AMERICAN FUNDSLINE AND AMERICAN FUNDSLINE ONLINE - You may check your share
balance, share prices, or your most recent account transaction, redeem shares
(up to $50,000 per shareholder each day fund), or exchange shares using
American FundsLine and American FundsLine OnLine. To use this service, call
800/325-3590 from a TouchTone 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 in "Redeeming Shares-Telephone and Computer Purchases, Redemptions
and Exchanges" below. You will need your fund number (see the list of funds
in The American Funds Group under "Purchase of Shares-Investment Minimums and
Fund Numbers"), personal identification number (the last four digits of your
Social Security number or other tax identification number associated with your
account) and account number.
TELEPHONE AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES - By using the
telephone (including American FundsLine and American FundsLine OnLine), fax or
telegraph redemption and/or exchange options, you agree to hold the fund,
American Funds Service Company, any of its affiliates or mutual funds managed
by such affiliates, and each of their respective directors, trustees, officers,
employees and agents harmless from any losses, expenses, costs or liability
(including attorney fees) which may be incurred in connection with the exercise
of these privileges. Generally, all shareholders are automatically eligible to
use these options. However, you may elect to opt out of these options by
writing American Funds Service Company (you may also reinstate them at any time
by writing American Funds Service Company). If American Funds Service Company
does not employ reasonable procedures to confirm that the instructions received
from any person with appropriate account information are genuine, the fund may
be liable for losses due to unauthorized or fraudulent instructions. In the
event that shareholders are unable to reach the fund by telephone because of
technical difficulties, market conditions, or a natural disaster, redemption
and exchange requests may be made in writing only.
SHARE CERTIFICATES - Shares are credited to your account and certificates
are not issued unless you request them by writing to American Funds Service
Company.
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 their
correspondent clearing agents) 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 will not pay a
mark-up for research in principal transactions.
Brokerage commissions paid on portfolio transactions during the fiscal years
ended July 31, 1998, 1997 and 1996, amounted to $_________, $9,637,000 and
$7,865,000, 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. The Custodian may hold non-U.S. securities
pursuant to sub-custodial arrangements in non-U.S. banks or foreign branches of
U.S. banks.
TRANSFER AGENT - American Funds Service Company, a wholly-owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee
of $_________ for the fiscal year ended July 31, 1998.
INDEPENDENT AUDITORS - Deloitte & Touche LLP, located at 1000 Wilshire
Boulevard, Los Angeles, CA 90017, serves as the fund's independent auditors
providing audit services, preparation of tax returns and review of certain
documents of the fund to be filed with the Securities and Exchange Commission.
The financial statements included in this statement of additional information
from the annual report have been so included in reliance on the report of
Deloitte & Touche LLP given on the authority of said firm as experts in
accounting and auditing.
REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on July 31. It
provides shareholders at least semi-annually with reports showing the
investment portfolio, financial statements and other information. The annual
financial statements are audited by the fund's independent auditors, Deloitte &
Touche LLP, whose selection is determined by the Board of Directors.
YEAR 2000 - The fund and its shareholders depend on the proper functioning of
computer systems maintained by the Investment Adviser and its affiliates and
other key service providers. Many computer systems in use today will require
reprogramming or replacement prior to the year 2000 because of the way they
store dates and make date-related calculations. The fund understands that
these service providers are taking steps to address the "Year 2000 problem".
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the fund. In addition, the fund's investments could be
adversely affected by the Year 2000 problem. For example, the markets for
securities in which the fund invests could experience settlement problems and
liquidity issues. Corporate and governmental data processing errors may cause
losses for individual companies and overall economic uncertainties. Earnings of
individual issuers are likely to be affected by the costs of addressing the
problem, which may be substantial and may be reported inconsistently.
PERSONAL INVESTING POLICY - Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions.
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--JULY 31, 1998
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $__
Maximum offering price per share
(100/94.25 of net asset value per share
which takes into account the fund's current
maximum sales charge) $__
</TABLE>
REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly
called and at which a quorum is present, shareholders holding a majority of the
votes entitled to be cast, 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 agreed, 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 will promptly call a meeting of shareholders for the purpose of voting
upon the removal of any director when requested in writing to do so by the
record holders of at least 10% of the outstanding shares.
INVESTMENT RESULTS
The fund's yield is ____% based on a 30-day (or one month) period ended July
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's average annual total return for the one-, five- and ten-year
periods ended on July 31, 1998 was +_____%, +_____% and +_____%, respectively.
The average annual 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 load of 5.75% from the $1,000 initial investment; (2)
reinvestment of dividends and distributions at net asset value on the
reinvestment date determined by the Board; and (3) a complete redemption at the
end of any period illustrated.
The fund may also, at times, calculate total return based on net asset
value per share (rather than the offering price), in which case the figure
would not reflect the effect of any sales charges which would have been paid if
shares were purchased during the period reflected in the computation. Total
return calculated in this manner will be higher. These total returns may be
calculated over periods in addition to those described above. Total return for
unmanaged indices will be calculated assuming reinvestment of dividends and
interest, but will not reflect any deductions for advisory fees, brokerage
costs or administrative expenses.
The fund may also calculate a distribution rate on a taxable and tax
equivalent basis. The distribution rate is computed by dividing the dividends
paid by the fund over the last 12 months by the sum of the month-end net asset
value or maximum offering price and the capital gains paid over the last 12
months. The distribution rate may differ from the yield.
The fund may include, in advertisements or in reports furnished to present
or prospective shareholders, information on its investment results and/or
comparisons of its investment results to various unmanaged indices (such as The
Dow Jones Average of 30 Industrial Stocks, The Standard & Poor's 500 Stock
Composite Index, the Lehman Brothers Corporate Bond Index, the Lehman Brothers
Aggregate Bond Index and the Salomon Brothers High-Grade Corporate Bond Index)
or results of other mutual funds or investment or savings vehicles.
The fund may refer to results compiled by organizations such as CDA
Investment Services, Ibbotson Associates, Lipper Analytical Services and
Morningstar, Inc. and by the U.S. Department of Commerce. Additionally, the
fund may refer to results published in various newspapers and periodicals,
including Barrons, Forbes, Fortune, Institutional Investor, Kiplinger's
Personal Finance Magazine, Money, U.S. News and World Report and The Wall
Street Journal.
The fund may illustrate the benefits of tax-deferral by comparing taxable
investments to investments made through tax-deferred retirement plans.
The fund may compare its investment results with the Consumer Price Index,
which is a measure of the average change in prices over time in a fixed market
basket of goods and services (E.G. food, clothing, fuels, transportation, and
other goods and services that people buy for day-to-day living).
The investment results for the fund set forth below were calculated as
described in the fund's prospectus. Data contained in Salomon's Market
Performance and Lehman Brothers' The Bond Market Report are used to calculate
cumulative total return from their base period (12/31/68 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.
IFA vs. Various Unmanaged Indices
<TABLE>
<CAPTION>
Lehman
10-Year Lehman Lehman Brothers Average
Period Brothers Brothers Government/ Salomon Savings
8/1 - IFA DJIA/1/ S&P 500/2/ Corporate/3/ Aggregate/4/ Corporate/5/ High- Account/7/
7/31
Grade/6/
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1987 - +212% +303% +157% +139% +138% +177 +65%
1997 +336% %
1986 - +181 +269 +141 +126 +123 +149 +69
1996 +330
1985 - +197 +306 +179 +160 +158 +206 + 74
1995 +391
1984 - +241 +327 +217 +193 +189 +254 + 83
1994 +385
1983 - +254 +294 +241 +218 +213 +281 + 94
1993 +333
1982 - +351 +478 +295 +251 +242 +330 +106
1992 +528
1981 - +298 +343 +304 +269 +256 +329 +117
1991 +392
1980 - +293 +344 +235 +217 +209 +239 +124
1990 +392
1979 - +317 +416 +202 +201 +197 +202 +125
1989 +409
1978 - +267 +326 +180 +178 +175 +166 +125
1988 +308
1977 - +283 +417 +159 +164 +162 +146 +125
1987 +388
1976 - +265 +271 +184 +181 +180 +177 +124
1986 +209
1975 - +295 +250 +161 N/A +158 +134 +121
1985 +177
1974 - +270 +210 +136 N/A +136 +112 +116
1984 +153
1973#- +237 +172 + 95 N/A +105 + 76 +106
1983 +147
</TABLE>
________________
# From December 1, 1973
/1/ The Dow Jones Average of 30 Industrial Stocks is comprised of 30 industrial
companies such as General Motors and General Electric.
/2/ The Standard & Poor's 500 Stock Composite Index is comprised of industrial,
transportation, public utilities, and financial stocks and represents a large
portion of the value of issues traded on the New York Stock Exchange. Selected
issues traded on the American Stock Exchange are also included.
/3/ The Lehman Brothers Corporate Bond Index is comprised of all public, fixed
rate, non-convertible investment grade domestic corporate debt. Issues
included in this index are rated at least Baa by Moody's Investors Service, BBB
by Standard & Poor's Corporation or, in the case of bank bonds not rated by
either of the previously mentioned services, BBB by Fitch Investors Service.
/4/ The Lehman Brothers Aggregate Bond Index covers all sectors of the fixed
income market and is a combination of the Lehman Brothers Treasury Bond Index,
the Agency Bond Index, the Corporate Bond Index, the Yankee Bond Index and the
Mortgage Backed Securities Index. Its inception date is December 31, 1975.
/5/ The Lehman Brothers Government/Corporate Bond Index is comprised of all
public obligations of the U.S. Treasury, all publicly issued debt of U.S.
Government agencies, and corporate debt guaranteed by the U.S. Government
(excluding mortgage-backed securities). It also includes all U.S. dollar
denominated, SEC registered, public, non-convertible debt issued or guaranteed
by foreign or international governments/agencies. Also included are all
public, fixed-rate non-convertible investment grade domestic corporate debt.
/6/ The Salomon Brothers High-Grade Corporate Bond Index is comprised of a
sample of high-grade corporate bonds which have a rating of AAA or AA by
Standard & Poor's Corporation.
/7/ 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.
<TABLE>
<CAPTION>
If you are considering IFA for an
Individual Retirement Account. . .
Here's how much you would have if you had invested $2,000 a year
on August 1
of each year in IFA over the past 5 and 10 years:
<S> <C>
5 years 10 years
(8/1/93-7/31/98) (8/1/88-7/31/98)
$______ $______
</TABLE>
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
. . . and had taken all
dividends and capital
gain distributions
in shares, your
If you had investment would
invested $10,000 have been worth
in IFA this many this much at
years ago . . . 7/31/97
| |
Number Periods
of Years 8/1 - 7/31 Value
<S> <C> <C>
1 1996 - 1997 $12,184
2 1995 - 1997 13,825
3 1994 - 1997 16,094
4 1993 - 1997 16,416
5 1992 - 1997 18,360
6 1991 - 1997 21,869
7 1990 - 1997 24,548
8 1989 - 1997 24,830
9 1988 - 1997 30,661
10 1987 - 1997 31,171
11 1986 - 1997 36,376
12 1985 - 1997 43,616
13 1984 - 1997 58,178
14 1983 - 1997 61,718
15 1982 - 1997 87,843
16 1981 - 1997 92,472
17 1980 - 1997 103,092
18 1979 - 1997 109,826
19 1978 - 1997 119,482
20 1977 - 1997 126,848
21 1976 - 1997 140,939
22 1975 - 1997 182,545
23 1974 - 1997 228,663
24 1973#- 1997 220,586
</TABLE>
# From December 1, 1973
Illustration of a $10,000 investment in IFA with
dividends reinvested and capital gain distributions taken in shares
(for the period December 1, 1973 through July 31, 1997)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES
Year Annual Dividends Total From From From Total
Ended Dividends (cumulative) Investment Initial Capital Dividends Value
July 31 Cost Investment Gains Reinvested
Reinvested
<S> <C> <C> <C> <C> <C> <C> <C>
1974# $ 347 $ 347 $10,347 $ 8,767 - $ 321 $ 9,088
1975 785 1,132 11,132 10,141 - 1,250 11,391
1976 998 2,130 12,130 12,155 - 2,596 14,751
1977 969 3,099 13,099 12,701 - 3,691 16,392
1978 1,117 4,216 14,216 12,584 - 4,820 17,404
1979 1,333 5,549 15,549 12,693 - 6,228 18,921
1980 1,463 7,012 17,012 12,490 - 7,672 20,162
1981 1,743 8,755 18,755 12,818 - 9,667 22,485
1982 2,187 10,942 20,942 12,256 - 11,408 23,664
1983 2,549 13,491 23,491 16,112 - 17,573 33,685
1984 2,896 16,387 26,387 15,254 $1,013 19,455 35,722
1985 3,365 19,752 29,752 18,236 2,637 26,804 47,677
1986 3,909 23,661 33,661 18,907 6,434 31,807 57,148
1987 4,431 28,092 38,092 19,578 9,644 37,452 66,674
1988 4,479 32,571 42,571 17,955 10,904 38,957 67,816
1989 5,338 37,909 47,909 20,609 12,515 50,578 83,702
1990 5,269 43,178 53,178 18,907 13,755 51,497 84,159
1991 6,311 49,489 59,489 19,578 14,787 60,070 94,435
1992 6,578 56,067 66,067 21,764 17,093 73,764 112,621
1993 6,995 63,062 73,062 22,592 19,653 83,771 126,016
1994 7,471 70,533 80,533 21,218 21,364 85,868 128,450
1995 8,046 78,579 88,579 23,294 24,107 102,984 150,385
1996 8,581 87,160 97,160 24,809 27,526 118,291 170,626
1997 10,075 97,235 107,235 29,024 42,085 149,477 220,586
</TABLE>
# From December 1, 1973
The dollar amount of capital gain distributions during the period was $29,988.
EXPERIENCE OF INVESTMENT ADVISER - Capital Research and Management Company
manages nine common stock funds that are at least 10 years old. In the rolling
10-year periods since January 1, 1967 (127 in all), those funds have had better
total returns than the Standard & Poor's 500 Composite Stock Index in 91 of the
127 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.
DESCRIPTION OF BOND RATINGS
Corporate Debt Securities
MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued
by various entities from "Aaa" to "C" according to quality.
"AAA -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large, or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
"AA -- High quality by all standards. They are rated lower than the best 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."
Moody's supplies numerical indicators 1, 2 and 3 to rating categories. The
modifier 1 indicates that the obligation ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and 3 indicates
a ranking toward the lower end of that generic rating category.
STANDARD & POOR'S CORPORATION rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality.
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
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."
Standard & Poor's applies indicators "+", no character and "-" to its rating
categories. The indicators show relative standing within the major rating
categories.
OTHER INFORMATION
Item 23. Exhibits.
a. On file (see SEC files nos. 811-1880 and 2-33371)
b. On file (see SEC files nos. 811-1880 and 2-33371)
c. On file (see SEC files nos. 811-1880 and 2-33371)
d. On file (see SEC files nos. 811-1880 and 2-33371)
e. On file (see SEC files nos. 811-1880 and 2-33371)
f. None
g. On file (see SEC files nos. 811-1880 and 2-33371)
h. None
i. Not applicable to this filing
j. To be provided by Amendment
k. None
l. Not applicable to this filing
m. On file (see SEC files nos. 811-1880 and 2-33371)
n. EX-27 Financial Data Schedule (EDGAR)
o. None
Item 24. Persons Controlled by or under Common Control with the Fund
None.
Item 25. Indemnification.
Registrant is a joint-insured under Investment Adviser/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.
The Articles of Incorporation state:
The Corporation shall indemnify (a) 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;
(b) its officers to the same extent it shall indemnify its directors; and (c)
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 consistent with law.
The By-Laws of the Corporation state:
Section 5.01. Any person who was or is a 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, 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, partnership, joint
venture, trust or other enterprise, may be indemnified by the Corporation
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding in the manner and on the terms provided by, and to
the fullest extent authorized by, applicable state law, and shall be
indemnified by the Corporation against such expenses, judgments, fines, and
amounts in the manner and to the fullest extent required by applicable state
law. However, no indemnification may be made under this section in the absence
of a judicial or administrative determination absolving the prospective
indemnitee of liability to the Corporation or its security holders unless,
based upon a review of all material facts, (1) a majority of a quorum of
directors who are neither interested persons of the Corporation nor parties to
the proceeding, or (2) independent legal counsel in a written opinion,
concludes that such person was not guilty of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties initiated in the conduct
of his office.
Section 5.02. No expenses incurred by a director, officer,
employee, or agent of the Corporation in defending a civil or criminal action,
suit, or proceeding to which he is a party may be paid or reimbursed by the
Corporation in advance of the final disposition of such action, suit, or
proceeding unless:
(1) One of the following determines, on the basis of the facts then known to
it, that there is reason to believe that indemnification would be permissible:
(a) a majority of a quorum of disinterested non-party directors, or, if such
a quorum cannot be obtained, a majority of a committee of two or more
disinterested non-party directors duly designated to act in the matter by a
majority vote of the full board;
(b) special legal counsel selected by such a committee or such a quorum of
disinterested non-party directors; or
(c) the stockholders; and
(2) the Corporation receives the following from the prospective recipient of
the advance:
(a) a written affirmation of his good faith belief that he met the standard
of conduct necessary for indemnification; and
(b) an undertaking to repay the advance if it is ultimately determined that
he is not entitled to indemnification under this Article.
Section 5.03. The Corporation is authorized to purchase and
maintain insurance on behalf of any person who 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, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have
the power to indemnify him against such liability under the provisions of this
Article. Anything in this Article V to the contrary notwithstanding, however,
the Corporation shall not pay for insurance which protects any director or
officer against liabilities arising from action involving willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in
the conduct of his office; provided, that any such insurance may cover any of
such categories if it provides only for payment to the Corporation and/or third
parties of any damages caused by a director or officer, and also provides that
the insurance company would be subrogated to the rights of the Corporation to
recover from the director or officer.
Item 26. Business and Other Connections of the 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., 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., The Bond Fund of America, Inc.,
Capital Income Builder, Capital World Bond Fund, 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.,
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 WITH POSITIONS AND OFFICES
BUSINESS ADDRESS 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 Regional Vice President None
1501 N. University Drive,
Suite 227A
Little Rock, AR 72207
Robert B. Aprison Vice President None
2983 Bryn Wood Drive
Madison, WI 53711
S Richard L. Armstrong Assistant Vice President None
L William W. Bagnard Vice President None
Steven L. Barnes Senior Vice President None
5400 Mt. Meeker
Boulder, CO 80301
B Carl R. Bauer Assistant Vice President None
Michelle A. Bergeron Vice President None
4160 Gateswalk Drive
Smyrna, GA 30080
Joseph T. Blair Senior Vice President None
27 Drumlin Road
West Simsbury, CT 06092
John A. Blanchard Regional Vice President None
6421 Aberdeen Road
Mission Hills, KS 66208
Ian B. Bodell Senior Vice President None
P.O. Box 1665
Brentwood, TN 37024-1665
Michael L. Brethower Vice President None
2320 N. Austin Avenue
Georgetown, TX 78626
C. Alan Brown Regional Vice President
4129 Laclede Avenue None
St. Louis, MO 63108
L Daniel C. Brown Senior Vice President None
H J. Peter Burns Vice President None
Brian C. Casey Regional Vice President None
9508 Cable Drive
Kensington, MD 20895
Victor C. Cassato 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 94583
L Larry P. Clemmensen Director None
L Kevin G. Clifford Director, President and Co-Chief Executive Officer None
Ruth M. Collier Vice President None
145 West 67th Street, #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 None
Robert W. Durbin Vice President None
74 Sunny Lane
Tiffin, OH 44883
I Lloyd G. Edwards Senior Vice President None
L Paul H. Fieberg Senior Vice President None
John 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 Senior Vice President
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 None
Michael J. Johnston Director None
630 Fifth Ave., 36th Floor
New York, NY 10111-0121
B Damien M. Jordan Vice President None
V. John Kriss Senior Vice President None
P.O. Box 274
Surfside, CA 90743
Arthur J. Levine Vice President None
12558 Highlands Place
Fishers, IN 46038
B Karl A. Lewis Assistant Vice President None
T. Blake Liberty Regional Vice President None
5506 East Mineral Lane
Littleton, CO 80122
L Lorin E. Liesy Assistant Vice President None
L Susan G. Lindgren Vice President - Institutional None
Investment Services
S Stella Lopez Vice President None
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 J. Clifton Massar Director, Senior Vice None
President
L E. Lee McClennahan Senior Vice President None
L James 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
David R. Murray Vice President None
60 Briant Drive
Sudbury, MA 01776
Stephen S. Nelson Vice President None
P. O. Box 470528
Charlotte, NC 28247-0528
William E. Noe Regional Vice President None
304 River Oaks Road
Brentwood, TN 37027
Peter A. Nyhus Regional Vice President None
3084 Wilds Ridge Court
Prior Lake, MN 55372
Eric P. Olson Regional Vice President None
62 Park Drive
Glenview, IL 60025
Frederic Phillips Vice President None
175 Highland Avenue
Needham, MA 02194
B Candance D. Pilgrim Assistant Vice President None
Carl S. Platou Regional Vice President None
4021 96th Avenue, S.E.
Mercer Island, WA 98040
L John O. Post, Jr. Vice President None
S Richard P. Prior Assistant Vice President None
Steven J. Reitman Vice President None
212 The Lane
Hinsdale, IL 60521
Brian A. Roberts Vice President None
P.O. Box 472245
Charlotte, NC 28247
George S. Ross Senior Vice President None
55 Madison Avenue
Morristown, NJ 07960
L Julie D. Roth Vice President None
L James F. Rothenberg Director None
Douglas F. Rowe Regional Vice President None
30008 Oakland Hills Drive
Georgetown, TX 78628
Christopher S. Rowey Regional Vice President None
9417 Beverlywood Street
Los Angeles, CA 90034
Dean B. Rydquist Vice President None
1080 Bay Pointe Crossing
Alpharetta, GA 30005
Richard R. Samson Vice President None
4604 Glencoe Avenue, #4
Marina del Rey, CA 90292
Joseph D. Scarpitti Regional Vice President None
31465 St. Andrews
Westlake, OH 44145
L R. Michael Shanahan Director None
David W. Short Director, Chairman of the Board and Co-Chief Executive Officer None
11 Chestnut Lane
Cheswick, PA15024
William P. Simon, Jr. Senior Vice President None
554 Canterbury Lane
Berwyn, PA 19312
L John C. Smith Assistant Vice President - None
Institutional Investment Services
Rodney G. Smith Vice President None
100 N. Central Expressway, Suite 1214
Richardson, TX 75080
Nicholas D. Spadaccini Regional Vice President None
855 Markley Woods Way
Cincinnati, OH 45230
L Kris J. Spazafumo Assistant Vice President None
Daniel S. Spradling Senior Vice President None
181 Second Avenue, Suite 228
San Mateo, CA 94401
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 Regional Vice President None
3 Dover Way
Lake Oswego, OR 97034
Francis N. Strazzeri Vice President None
31641 Saddletree Drive
Westlake Village, CA 91361
L Drew W. 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 Regional Vice President None
60 Reedland Woods Way
Tiburon, CA 94920
L David M. Ward Vice President - Institutional None
Investment Services
Thomas E. Warren Regional Vice President None
119 Faubel Street
Sarasota, FL 34242
L J. Kelly Webb Senior Vice President, None
Treasurer
Gregory J. Weimer Vice President None
125 Surrey Drive
Canonsburg, PA 15317
B Timothy W. Weiss Director None
N. Dexter Williams Senior Vice President None
P.O. Box 2200
Danville, CA 94526
Timothy J. Wilson Regional Vice President None
113 Farmview Place
Venetia, PA 15367
B Laura Wimberly Vice President None
H Marshall D. Wingo Director, Senior Vice None
President
L Robert L. Winston Director, Senior Vice None
President
Laurie B. Wood Regional Vice President None
3500 W. Camino de Urania
Tucson, AZ 85741
William R. Yost Regional Vice President None
9320 Overlook Trail
Eden Prairie, MN 55347
Janet M. Young Regional Vice President None
1616 Vermont
Houston, TX 77006
Scott D. Zambon Regional Vice President None
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, CA 90025
B Business Address, 135 South State College Blvd., Brea, CA 92821
S Business Address, 8000 IH-10 West, Suite 1400, San Antonio, TX 78230
H Business Address, 5300 Robin Hood Road, Norfolk, VA 23513
I Business Address, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240
(c) None.
Item 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, are maintained and held in the offices of its
investment adviser, Capital Research and Management Company, 333 South Hope
Street, Los Angeles, California 90071, and/or 135 South State College
Boulevard, Brea, California 92821, and/or the offices of the Registrant, One
Market, Steuart Tower, Suite 1800, San Fracisco, CA 94105.
Registrant's records covering shareholder accounts are maintained and kept by
the fund's transfer agent, American Funds Service Company, 135 South State
College Boulevard, Brea, California 92821, 8332 Woodfield Crossing Boulevard,
Indianapolis, IN 46240, 8000 IH-10, Suite 1400, San Antonio, Texas 78230 and
5300 Robin Hood Road, Norfolk, VA 23513.
Registrant's records covering portfolio transactions are maintained and kept
by the fund's custodian, The Chase Manhattan Bank, One Chase Manhattan Plaza,
New York, New York 10081.
Item 29. Management Services.
None.
Item 30. Undertakings.
None.
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 and County of San Francisco, and State of California on the 29th day
of July, 1998.
THE INCOME FUND OF AMERICA, INC.
By /s/ Patrick F. Quan
Patrick F. Quan, Secretary
ATTEST:
/s/ Jennifer L. Yardley
Jennifer L. Yardley
Pursuant to the requirements of the Securities Act of 1933, this amendment to
its registration statement has been signed below on July 29, 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
<S> <C> <C>
(1) Principal Executive Officer: President and
Director
/s/ Janet A. McKinley
(Janet A. McKinley)
(2) Principal Financial Officer and
Principal Accounting Officer: Treasurer
/s/ Mary C. Hall
(Mary C. Hall)
(3) Directors:
Robert A. Fox* Director
Roberta L. Hazard* Director
Leonade D. Jones* Director
John G. McDonald* Director
/s/ James W. Ratzlaff Director
(James W. Ratzlaff)
Henry E. Riggs* Director
Walter P. Stern* Chairman
Patricia K. Woolf* Director
</TABLE>
*By /s/ Patrick F. Quan
Patrick F. Quan, Attorney-in-Fact
