<PAGE>
[LOGO OF THE AMERICAN FUNDS GROUP(R)]
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Intermediate Bond Fund
of America(R)
Prospectus
JANUARY 1, 1997
<PAGE>
INTERMEDIATE BOND FUND OF AMERICA
333 South Hope Street
Los Angeles, CA 90071
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TABLE OF CONTENTS
Expenses 3
Financial Highlights 4
Investment Policies and Risks 5
Securities and Investment Techniques 6
Multiple Portfolio Counselor System 8
Investment Results 9
Dividends, Distributions and Taxes 10
Fund Organization and Management 11
Shareholder Services 14
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The fund's investment objective is to provide investors with current income
consistent with its stated maturity and quality standards and preservation of
capital. It seeks to achieve this objective primarily through investing in
bonds with effective maturities of between 3 and 10 years.
This prospectus presents information you should know before investing in the
fund. You should keep it on file for future reference.
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU INVEST FOR A SHORTER PERIOD OF TIME. YOUR INVESTMENT IN THE FUND IS NOT
A DEPOSIT OR OBLIGATION OF, OR INSURED OR GUARANTEED BY, ANY ENTITY OR PERSON
INCLUDING THE U.S. GOVERNMENT AND THE FEDERAL DEPOSIT INSURANCE CORPORATION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
23-010-0197
<PAGE>
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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EXPENSES
The effect of the expenses described below is reflected in the fund's share
price or return.
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Annual fund operating expenses are paid out of the fund's
earned income.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge on purchases
(as a percentage of offering price) 4.75%
................................................................................
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 purchases without a sales charge.
FUND OPERATING EXPENSES
(as a percentage of average net assets for the fiscal period ended August 31,
1996)
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Management fees .40%
12b-1 expenses .30%/1/
Other expenses .10%
Total fund operating expenses .80%
/1/ 12b-1 expenses may not exceed 0.30% of the fund's average net assets
annually. Due to these distribution expenses, long-term shareholders may pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
EXAMPLES
Assuming a hypothetical annual return of 5% and shareholder transaction and
operating expenses as described above, for every $1,000 you invested, you would
pay the following total expenses over the following periods:
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One year $ 55
Three years $ 72
Five years $ 90
Ten years $142
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY. YOUR EXPENSES WILL BE LESS IF YOU QUALIFY TO PURCHASE
SHARES AT A REDUCED OR NO SALES CHARGE.
3
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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FINANCIAL HIGHLIGHTS
The following information has been audited by Deloitte & Touche llp,
independent auditors. This table should be read together with the financial
statements which are included in the statement of additional information and
annual report.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31
-------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988/1/
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $13.52 $13.38 $ 14.64 $14.28 $13.69 $13.37 $13.78 $13.81 $ 14.29
- ---------------------------------------------------------------------------------------------------------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income .88 .93 .95 1.00 1.09 1.21 1.20 1.25 .61
Net realized and
unrealized gain (loss)
on investments (.27) .13 (1.20) .37 .59 .30 (.35) (.07) (.48)
Total income (loss) from
investment operations .61 1.06 (.25) 1.37 1.68 1.51 .85 1.18 .13
- ---------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.87) (.92) (.94) (1.01) (1.09) (1.19) (1.26) (1.21) (.61)
Distributions from
capital gains -- -- (.07) -- -- -- -- -- --
Total distributions (.87) (.92) (1.01) (1.01) (1.09) (1.19) (1.26) (1.21) (.61)
Net asset value,
end of year $13.26 $13.52 $13.38 $14.64 $14.28 $13.69 $13.37 $13.78 $13.81
Total return/2/ 4.63% 8.33% (1.80)% 9.95% 12.79% 11.73% 6.43% 8.99% .93%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in millions) $1,429 $1,501 $ 1,626 $1,686 $1,215 $ 407 $ 162 $ 100 $ 67
Ratio of expenses
to average net assets .80% .78% .83% .82% .90% 1.00% 1.00% .88% .41%/3/
Ratio of net income
to average net assets 6.53% 6.96% 6.79% 7.00% 7.66% 8.67% 8.75% 9.12% 4.79%/3/
Portfolio
turnover rate 48.25% 71.91% 52.94% 42.59% 45.01% 83.00% 86.10% 76.10% 22.40%/3/
</TABLE>
/1/ The period ended August 31, 1988 represents the initial period of operations
from February 19, 1988 to August 31, 1988.
/2/ Excludes maximum sales charge of 4.75%.
/3/ Based on operations for the period shown and, accordingly, are not
representative of a full year's operations.
4
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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INVESTMENT POLICIES AND RISKS
The investment objective of the fund is to seek current income consistent with
its stated maturity and quality standards and preservation of capital. The fund
will attempt to achieve this objective primarily through investing in bonds
with effective maturities of 3 to 10 years and will not purchase any bonds with
an effective maturity greater than 10 years.
The fund will purchase only high-quality bonds (those that are rated with the
two highest categories by either Moody's Investors Service, Inc. (Aaa, Aa) or
Standard & Poor's Corporation (AAA, AA) or if not rated by either of these
rating agencies, determined to be of comparable quality by Capital Research and
Management Company, the fund's investment adviser). See the Appendix to the
statement of additional information for a further description of these ratings.
The fund's investments may include U.S. Government bonds or notes, Government
National Mortgage Association certificates and other mortgage-related
securities of governmental or private issuers, other asset-backed securities
(as described below), and other marketable debt securities issued by
corporations or other entities. The fund may purchase obligations of non-U.S.
corporations or governmental entities, provided they are dollar denominated and
highly liquid and meet the maturity and quality standards set forth above. The
fund also may maintain assets in cash or cash equivalents and may enter into
repurchase agreements. Except when the fund is in a temporary defensive
investment position, at least 65% of the fund's total assets will be invested
in bonds. MORE INFORMATION ON THE FUND'S INVESTMENT POLICIES IS CONTAINED IN
ITS STATEMENT OF ADDITIONAL INFORMATION.
The fund's investment restrictions (which are described in the statement of
additional information as fundamental) and objective may not be changed without
shareholder approval. All other investment practices may be changed by the
fund's board of trustees.
ACHIEVEMENT OF THE FUND'S INVESTMENT OBJECTIVE CANNOT, OF COURSE, BE ASSURED
DUE TO THE RISK OF CAPITAL LOSS FROM FLUCTUATING PRICES INHERENT IN ANY
INVESTMENT IN SECURITIES.
5
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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SECURITIES AND INVESTMENT TECHNIQUES
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.
The fund may invest in notes and bonds issued by the U.S. Treasury and Federal
agencies whose interest payments vary with the rate of inflation.
MORTGAGE-RELATED SECURITIES
The fund may invest in Government National Mortgage Association certificates,
which are securities representing part ownership of a pool of mortgage loans on
which timely payment of interest and principal is guaranteed by the U.S.
Government. GNMA certificates differ from typical bonds because principal is
repaid monthly over the term of the loan rather than returned in a lump sum at
maturity.
Although the mortgage loans in the pool will have stated maturities of up to 30
years, the actual average life or effective maturity of the GNMA certificates
typically will be substantially less because the mortgages will be subject to
normal principal amortization and may be prepaid prior to maturity.
The fund also may invest in securities representing interests in pools of
conventional mortgage loans issued by the Federal National Mortgage Association
(FNMA) or by the Federal Home Loan Mortgage Corporation (FHLMC).
In addition, the fund may invest in collateralized mortgage obligations (CMOs)
and mortgage-backed bonds which may be issued by various governmental entities
or private institutions. A CMO is made up of a series of bonds of varying
maturities that together are fully collateralized directly or indirectly by a
pool of mortgages on which the payments of principal and interest are dedicated
6
<PAGE>
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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to payment of principal and interest on the bonds. Mortgage-backed bonds are
general obligations fully collateralized directly or indirectly by a pool of
mortgages, but on which payments are not passed through directly. The fund will
only purchase CMOs or mortgage-backed bonds which are fully collateralized by
securities issued by GNMA, FNMA or FHLMC and/or mortgages insured by GNMA.
OTHER ASSET-BACKED SECURITIES
The fund may invest in other asset-backed securities (unrelated to mortgage
loans). The assets backing such securities include, for example, interests or
participations in pools of leases, retail installment loans, and consumer
receivables. Credit support for asset-backed securities may be based on the
underlying assets and/or provided through credit enhancements by a third party.
FORWARD COMMITMENTS
The fund may enter into commitments to purchase or sell securities for which
payment and delivery for the securities take place at a future date. When the
fund purchases such securities it assumes the risk of any decline in value of
the securities beginning on the date of the agreement or purchase. When the
fund sells such securities, it does not participate in further gains or losses
with respect to the securities. If the other party to such a transaction fails
to deliver or pay for the securities, the fund could miss a favorable price or
yield opportunity, or could experience a loss. In addition, the fund may also
enter into reverse repurchase agreements, which are the sale of a security by
the fund and its agreement to repurchase the security at a specified time and
price at a later date. The fund may also enter into "roll" transactions, which
generally are the sale of a security by the fund and its agreement to purchase
the security or a similar security at a specified time and price at a later
date. The fund assumes the rights and risks of ownership, including the risk of
price and yield fluctuations as of the time of the agreement.
MATURITY
Under normal market conditions, the fund's dollar-weighted average effective
portfolio maturity will range between 3 and 10 years. The fund will not
purchase any securities with effective maturities of greater than 10 years.
7
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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MULTIPLE PORTFOLIO COUNSELOR SYSTEM
The basic investment philosophy of Capital Research and Management Company is
to seek fundamental values at reasonable prices, using a system of multiple
portfolio counselors in managing mutual fund assets. Under this system the
portfolio of the fund is divided into segments which are managed by individual
counselors. Counselors decide how their respective segments will be invested
(within the limits provided by the fund's objective and policies and by Capital
Research and Management Company's investment committee). In addition, Capital
Research and Management Company's research professionals make investment
decisions with respect to a portion of the fund's portfolio. The primary
individual portfolio counselors for the fund are listed below.
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
--------------------------
YEARS OF EXPERIENCE WITH CAPITAL
PORTFOLIO COUNSELORS AS PORTFOLIO COUNSELOR RESEARCH AND
FOR INTERMEDIATE FOR INTERMEDIATE MANAGEMENT
BOND FUND BOND FUND OF AMERICA COMPANY OR
OF AMERICA PRIMARY TITLE(S) (APPROXIMATE) ITS AFFILIATES TOTAL YEARS
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ABNER D. President and Since the fund 29 years 44 years
GOLDSTINE Trustee began
of the fund. operations*
Senior Vice
President and
Director,
Capital
Research and
Management
Company
- -----------------------------------------------------------------------------------------
JOHN W. Vice 5 years 8 years 8 years
RESSNER President--
Investment
Management
Group, Capital
Research and
Management
Company
- -----------------------------------------------------------------------------------------
RICHARD T. Senior Vice 3 years 19 years 30 years
SCHOTTE President,
Capital
Research and
Management
Company
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JOHN H. Vice President 5 years 13 years 14 years
SMET of the fund.
Vice President,
Capital
Research and
Management
Company
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</TABLE>
* The fund began operations on February 19, 1988.
8
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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INVESTMENT RESULTS
The fund may from time to time compare investment results to various indices or
other mutual funds. Fund results may be calculated on a total return, yield,
and/or distribution rate basis. Results calculated without a sales charge will
be higher.
- - 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 is computed by dividing the net investment income per share earned by
the fund over a given period of time by the maximum offering price per share
on the last day of the period, according to a formula mandated by the
Securities and Exchange Commission. A yield calculated using this formula
may be different than the income actually paid to shareholders.
- - DISTRIBUTION RATE reflects dividends that were paid by the fund. The
distribution rate is calculated by annualizing the current month's dividend
and dividing by the average price for the month. The SEC yield reflects
income the fund expects to earn based on its current portfolio of
securities, while the distribution rate is based solely on the fund's past
dividends. Accordingly, the fund's SEC yield and distribution rate may
differ.
INVESTMENT RESULTS
(FOR PERIODS ENDED SEPTEMBER 30, 1996)
<TABLE>
<CAPTION>
AVERAGE
ANNUAL THE FUND AT THE FUND AT SALOMON
TOTAL NET MAXIMUM BROTHERS
RETURNS: ASSET VALUE SALES CHARGE/1/ INDEX/2/ CPI/3/
- --------------------------------------------------------
<S> <C> <C> <C> <C>
One year 4.99% -0.03% 5.43% 3.00%
........................................................
Five years 6.49% 5.46% 7.09% 2.84%
........................................................
Lifetime/4/ 7.24% 6.64% 8.32% 3.64%
- --------------------------------------------------------
</TABLE>
SEC Yield1: 5.90%
Distribution Rate: 6.02%
/1/ These fund results were calculated according to a standard formula that is
required for all stock and bond funds. The maximum sales charge has been
deducted.
/2/ Salomon Brothers Broad Investment Grade Medium Term Index represents a
market capitalization-weighted index that includes Treasury, Government-
sponsored, mortgage, and investment-grade fixed-rate corporates (BBB-/Baa3)
with a maturity of one to ten years. This index is unmanaged and does not
reflect sales charges, commissions or expenses.
/3/ Consumer Price Index
/4/ The fund began investment operations on February 19, 1988.
9
<PAGE>
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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[PERFORMANCE GRAPH APPEARS HERE]
Here are the fund's annual total returns calculated without a sales charge. This
information is being supplied on a calendar year basis.
(%)
-5 0 5 10 15
--------------------------------------------
1988 3.21
1989 10.02
1990 7.92
1991 14.3
1992 6.35
1993 9.13
1994 -2.99
1995 13.86
Past results are not an indication of future results.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The fund declares dividends from its net investment income daily and
distributes the accrued dividends to shareholders each month. Dividends begin
accruing one day after payment for shares is received by the fund or American
Funds Service Company. All capital gains, if any, are distributed annually,
usually in December. When a capital gain is declared, the net asset value per
share is reduced by the amount of the payment.
FEDERAL TAXES
In any fiscal year in which the fund qualifies as a regulated investment
company and distributes to shareholders all of its net investment income and
net capital gains, the fund itself is relieved of federal income tax.
Generally, all dividends and capital gains are taxable whether they are
reinvested or received in cash -- unless you are exempt from taxation or
entitled to tax deferral. Early each year, you will be notified as to the
amount and federal tax
10
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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status of all income distributions paid during the prior year. Such
distributions may also be subject to state or local taxes. The tax treatment of
redemptions from a retirement plan account may differ from redemptions from an
ordinary shareholder account.
YOU MUST PROVIDE THE FUND WITH A CERTIFIED CORRECT TAXPAYER IDENTIFICATION
NUMBER (GENERALLY YOUR SOCIAL SECURITY NUMBER) AND CERTIFY THAT YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING. IF YOU FAIL TO DO SO THE IRS CAN REQUIRE THE
FUND TO WITHHOLD 31% OF YOUR TAXABLE DISTRIBUTIONS AND REDEMPTIONS. Federal law
also requires the fund to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
This is a brief summary of some of the tax laws that affect your investment in
the fund. Please see the statement of additional information and your tax
adviser for further information.
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FUND ORGANIZATION AND MANAGEMENT
FUND ORGANIZATION AND VOTING RIGHTS
The fund, an open-end, diversified management investment company, was organized
as a Massachusetts business trust in 1987. All fund operations are supervised
by the fund's board of trustees who meet periodically and perform duties
required by applicable state and federal laws. Members of the board who are not
employed by Capital Research and Management Company or its affiliates are paid
certain fees for services rendered to the fund as described in the statement of
additional information. They may elect to defer all or a portion of these fees
through a deferred compensation plan in effect for the fund. The fund does not
hold annual meetings of shareholders. However, significant corporate matters
which require shareholder approval, such as certain elections of board members
or a change in a fundamental investment policy, will be presented to
shareholders at a meeting called for such purpose. Shareholders have one vote
per share owned. At the request of the holders of at least 10% of the shares,
the fund will hold a meeting at which any member of the board could be removed
by a majority vote.
THE INVESTMENT ADVISER
Capital Research and Management Company, a large and experienced investment
management organization founded in 1931, is the investment adviser to the fund
and other funds, including those in The American Funds
11
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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Group. Capital Research and Management Company, a wholly owned subsidiary of
The Capital Group Companies, Inc., is headquartered at 333 South Hope Street,
Los Angeles, CA 90071. Capital Research and Management Company manages the
investment portfolio and business affairs of the fund. The management fee paid
by the fund to Capital Research and Management Company is composed of a
management fee, which may not exceed 0.30% of the fund's average net assets
annually and declines at certain asset levels, plus an amount which may not
exceed 3% of the fund's gross investment income for the preceding month and
which also declines at certain annual gross investment levels. The total
management fee paid by the fund, as a percentage of average net assets, for the
previous fiscal year is listed above under "Expenses."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has also been
incorporated into the fund's "code of ethics."
PLAN OF DISTRIBUTION
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the board and the expenses paid under the
plan were incurred within the preceding 12 months and accrued while the plan is
in effect. The 12b-1 fee paid by the fund, as a percentage of average net
assets, for the previous fiscal year is listed above under "Expenses."
PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by Capital
Research and Management Company, which strives to obtain the best available
prices, taking into account the costs and quality of executions. Fixed-income
securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are usually purchased at a fixed price which includes an
amount of compensation to the dealer, generally referred to as a concession or
discount. On occasion, securities may be purchased directly from an issuer, in
which case no commissions or discounts are paid. In the over-the-counter
market, purchases and sales are transacted directly with principal market-
makers except in those circumstances where it appears better prices and
executions are available elsewhere.
12
<PAGE>
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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Subject to the above policy, when two or more brokers are in a position to
offer comparable prices and executions, preference may be given to brokers who
have sold shares of the fund or have provided investment research, statistical,
and other related services for the benefit of the fund and/or other funds
served by Capital Research and Management Company.
PRINCIPAL UNDERWRITER AND TRANSFER AGENT
American Funds Distributors, Inc. and American Funds Service Company serve as
the principal underwriter and transfer agent for the fund, respectively. They
are headquartered at 333 South Hope Street, Los Angeles, CA 90071 and 135 South
State College Boulevard, Brea, CA 92821, respectively.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
CALL TOLL-FREE FROM ANYWHERE IN THE U.S.
(8 A.M. TO 8 P.M. ET):
800/421-0180
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 SERVICE CENTER
American Funds Service Company
P.O. Box 2280
Norfolk, Virginia 23501-2280
Fax: 804/670-4773
13
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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SHAREHOLDER SERVICES
The fund offers you a valuable array of services you can use to alter your
investment program as your needs and circumstances change. These services,
which are summarized below, are available only in states where they may be
legally offered and may be terminated or modified at any time upon 60 days'
written notice. A COMPLETE DESCRIPTION OF SHAREHOLDER SERVICES AND ACCOUNT
POLICIES IS CONTAINED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION. In
addition, an easy-to-read guide to owning a fund in The American Funds Group
titled "Welcome to the Family" is sent to new shareholders and is available by
writing or calling American Funds Service Company.
THE SERVICES DESCRIBED MAY NOT BE AVAILABLE THROUGH SOME RETIREMENT PLANS. IF
YOU ARE INVESTING THROUGH A RETIREMENT PLAN, YOU SHOULD CONTACT YOUR PLAN
ADMINISTRATOR/TRUSTEE ABOUT WHAT SERVICES ARE AVAILABLE AND WITH QUESTIONS
ABOUT YOUR ACCOUNT.
- --------------------------------------------------------------------------------
PURCHASING SHARES
HOW TO PURCHASE SHARES
Generally, you may open an account by contacting any investment dealer
authorized to sell the fund's shares. You may add to your account through your
dealer or directly through American Funds Service Company by mail, wire, or
bank debit. You may also establish or add to your account by exchanging shares
from any of your other accounts in The American Funds Group. The fund and
American Funds Distributors reserve the right to reject any purchase order.
Various purchase options are available as described below subject to certain
investment minimums and limitations described in the statement of additional
information and "Welcome to the Family."
- - Automatic Investment Plan
You may invest monthly or quarterly through automatic withdrawals from your
bank account.
- - Automatic Reinvestment
You may reinvest your dividends and capital gain distributions into the
fund (with no sales charge). This will be done automatically unless you
elect to have the dividends and/or capital gain distributions paid to you
in cash.
14
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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- - Cross-Reinvestment
You may invest your dividend and capital gain distributions into any other
fund in The American Funds Group.
- - Exchange Privilege
You may exchange your shares into other funds in The American Funds Group
generally with no sales charge. Exchanges of shares from the money market
funds that were initially purchased with no sales charge will generally be
subject to the appropriate sales charge. You may also elect to
automatically exchange shares among any of the funds in The American Funds
Group. Exchange requests may be made in writing, by telephone including
American FundsLine (R) (see below) or by fax. EXCHANGES HAVE THE SAME TAX
CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
- - Retirement Plans
You may invest in the fund through various retirement plans. For further
information contact your investment dealer or American Funds Distributors.
SHARE PRICE
The fund's share price, also called net asset value, is determined as of the
close of trading (normally 4:00 p.m., Eastern time) every day the New York
Stock Exchange is open. The fund calculates its net asset value per share,
generally using market prices, by dividing the total value of its assets after
subtracting liabilities by the number of its shares outstanding. Shares are
purchased at the offering price next determined after your investment is
received and accepted by American Funds Service Company. The offering price is
the net asset value plus a sales charge, if applicable.
SHARE CERTIFICATES
Shares are credited to your account and certificates are not issued unless you
request them by writing to American Funds Service Company.
INVESTMENT MINIMUMS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
To establish an account $1,000
For a retirement plan account $ 250
For a retirement plan account through payroll deduction $ 25
To add to an account $ 50
For a retirement plan account $ 25
</TABLE>
15
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
SALES CHARGES
A sales charge may apply, as described below, when purchasing shares. Sales
charges may be reduced for larger purchases as indicated below.
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF
--------------------
DEALER
NET CONCESSION AS
OFFERING AMOUNT % OF OFFERING
INVESTMENT PRICE INVESTED PRICE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 4.75% 4.99% 4.00%
................................................................................
$25,000 but less than $50,000 4.50% 4.71% 3.75%
................................................................................
$50,000 but less than $100,000 4.00% 4.17% 3.25%
................................................................................
$100,000 but less than $250,000 3.50% 3.63% 2.75%
................................................................................
$250,000 but less than $500,000 2.50% 2.56% 2.00%
................................................................................
$500,000 but less than $1 million 2.00% 2.04% 1.60%
................................................................................
$1 million or more and certain other
investments described below see below see below see below
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES
Investments of $1 million or more and investments made by employer-sponsored
defined contribution-type plans with 200 or more eligible employees are sold
with no initial sales charge. A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF PURCHASE BY THESE
ACCOUNTS. A dealer concession of up to 1% may be paid by the fund from its Plan
of Distribution on these investments. Investments by retirement plans with $100
million or more in assets may be made with no sales charge and are not subject
to a contingent deferred sales charge. A dealer concession of up to 1% may be
paid by American Funds Distributors on these investments. Investments by
certain individuals and entities including employees and other associated
persons of dealers authorized to sell shares of the fund and Capital Research
and Management Company and its affiliated companies are not subject to a sales
charge.
16
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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ADDITIONAL DEALER COMPENSATION
In addition to the concessions listed, up to 0.25% of average net assets is
paid annually to qualified dealers for providing certain services pursuant to
the fund's Plan of Distribution. During 1997, American Funds Distributors will
also provide additional compensation to the top one hundred dealers who have
sold shares of funds in The American Funds Group based on the pro rata share of
a qualifying dealer's sales.
REDUCING YOUR SALES CHARGE
You and your immediate family may combine investments to reduce your costs. You
must let your investment dealer or American Funds Service Company know if you
qualify for a reduction in your sales charge using one or any combination of
the methods described below.
- - Aggregation
Investments that may be aggregated include those made by you, your spouse
and your children under the age of 21, if all parties are purchasing shares
for their own account(s), including any business account solely "controlled
by," as well as any retirement plan or trust account solely for the benefit
of, these individuals. Investments made for multiple employee benefit plans
of a single employer or "affiliated" employers may be aggregated provided
they are not also aggregated with individual accounts. Finally, investments
made by a common trust fund or other diversified pooled account not
specifically formed for the purpose of accumulating fund shares may be
aggregated.
Purchases made for nominee or street name accounts will generally not be
aggregated with those made for other accounts unless qualified as described
above.
- - Concurrent Purchases
You may combine concurrent purchases of two or more funds in The American
Funds Group, except direct purchases of the money market funds. Shares of
the money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
- - Right of Accumulation
You may take into account the current value of your existing holdings in
The American Funds Group to determine your sales charge. Direct purchases
of the money market funds are excluded.
17
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
- - Statement of Intention
You may enter into a non-binding commitment to invest a certain amount in
non-money market fund shares over a 13-month period. A portion of your
account may be held in escrow to cover additional sales charges which may
be due if your total investments over the statement period are insufficient
to qualify for the applicable sales charge reduction.
- --------------------------------------------------------------------------------
SELLING SHARES
HOW TO SELL SHARES
You may sell (redeem) shares in your account by contacting your investment
dealer or American Funds Service Company. You may also use American
FundsLine(R) (see below). In addition, you may sell shares in amounts of $50 or
more automatically. If you sell shares through your investment dealer you may
be charged for this service. Shares held for you in your dealer's street name
must be sold through the dealer.
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. Sale requests may be
made in writing, by telephone, including American FundsLine(R) (see below), or
by fax. Sales by telephone or fax are limited to $10,000 in accounts registered
to individual(s) (including non-retirement trust accounts). In addition, checks
must be made payable to the registered shareholder(s) and mailed to an address
of record that has been used with the account for at least 15 days. Proceeds
will not be mailed until sufficient time has passed to provide reasonable
assurance that checks or drafts (including certified or cashier's checks) for
shares purchased have cleared (which may take up to 15 calendar days from the
purchase date). Except for delays relating to clearance of checks for share
purchases or in extraordinary circumstances (and as permissible under the
Investment Company Act of 1940), sale proceeds will be paid on or before the
seventh day following receipt and acceptance of an order. The fund may, with 60
days' written notice, close your account if due to a sale of shares the account
has a value of less than the minimum required initial investment.
Generally, written requests to sell shares must be signed by you and must
include any shares you wish to sell that are in certificate form. Your
signature must be guaranteed by a bank, savings association, credit union, or
member firm of a domestic stock exchange or the National Association of
Securities Dealers, Inc., that is an eligible guarantor institution. A
signature guarantee is not currently required for any sale of $50,000 or less
provided the check is made
18
<PAGE>
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
payable to the registered shareholder(s) and is mailed to the address of record
on the account, and provided the address has been used with the account for at
least 15 days. Additional documentation may be required for sale of shares held
in corporate, partnership or fiduciary accounts.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Reinvestment
will be at the next calculated net asset value after receipt and acceptance by
American Funds Service Company.
- --------------------------------------------------------------------------------
OTHER IMPORTANT THINGS TO REMEMBER
AMERICAN FUNDSLINE(R)
You may check your share balance, the price of your shares, or your most recent
account transactions, sell shares (up to $10,000 per fund, per account each
day), or exchange shares around the clock with American FundsLine(R). To use
this service, call 800/325-3590 from a TouchTone(TM) telephone.
TELEPHONE PURCHASES, SALES AND EXCHANGES
Unless you opt out of the telephone (including American FundsLine(R)) or fax
purchase, sale and/or exchange options (see below), you agree to hold the fund,
American Funds Service Company, any of its affiliates or mutual funds managed
by such affiliates, and each of their respective directors, trustees, officers,
employees and agents harmless from any losses, expenses, costs or liability
(including attorney fees) which may be incurred in connection with the exercise
of these privileges provided American Funds Service Company employs reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine. If reasonable procedures are not
employed, the fund may be liable for losses due to unauthorized or fraudulent
instructions.
Generally, all shareholders are automatically eligible to use these options.
However, you may elect to opt out of these options by writing American Funds
Service Company. (You may also reinstate them at any time by writing to
American Funds Service Company.)
ACCOUNT STATEMENTS
You will receive regular confirmation statements reflecting transactions in
your account. Purchases through automatic investment plans and certain
retirement plans will be confirmed at least quarterly.
19
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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NOTES
20
<PAGE>
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
NOTES
21
<PAGE>
- --------------------------------------------------------------------------------
INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
NOTES
22
<PAGE>
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
NOTES
23
<PAGE>
- --------------------------------------------------------------------------------
INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
FOR SHAREHOLDER FOR DEALER FOR 24-HOUR
SERVICES SERVICES INFORMATION
American Funds American Funds American
Service Company Distributors FundsLine(R)
800/421-0180 ext. 1 800/421-9900 ext. 11 800/325-3590
Telephone conversations may be recorded or monitored for
verification, recordkeeping and quality assurance purposes.
--------------------------------------------------------------
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL STATEMENT OF ADDITIONAL
REPORT TO SHAREHOLDERS INFORMATION (SAI)
Includes financial
statements, detailed Contains more detailed
performance information, information on all aspects of
portfolio holdings, a the fund, including the
statement from portfolio fund's financial statements.
management and the auditor's
report.
CODE OF ETHICS A current SAI has been filed
with the Securities and
Includes a description of the Exchange Commission and is
fund's personal investing incorporated by reference (is
policy. legally part of the
prospectus).
To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary of the
Service Company Fund 333 South Hope Street
800/421-0180 ext. 1 Los Angeles, CA 90071
This prospectus has been printed on recycled paper.
[RECYCLE LOGO]
24
INTERMEDIATE BOND FUND OF AMERICA
Part B
Statement of Additional Information
JANUARY 1, 1997
This document is not a prospectus but should be read in conjunction with
the current prospectus dated January 1, 1997 of Intermediate Bond Fund of
America (the "fund"). The prospectus may be obtained from your investment
dealer or financial planner or by writing to the fund at the following address:
Intermediate Bond Fund of America
Attention: Secretary
333 South Hope Street
Los Angeles, CA 90071
(213) 486-9200
Shareholders who purchase shares at net asset value through eligible
retirement plans should note that not all of the services or features described
below may be available to them, and they should contact their employer for
details.
Table of Contents
.
<TABLE>
<CAPTION>
Item Page No
<S> <C>
Investment Objective and Policies 2
Description of Securities and Investment Techniques 2
Investment Restrictions 6
Fund Officers and Trustees 9
Management 12
Dividends, Distributions and Federal Taxes 15
Purchase of Shares 18
Redeeming Shares 24
Shareholder Account Services and Privileges 25
Execution of Portfolio Transactions 27
General Information 27
Investment Results 29
Appendix 32
Financial Statements Attached
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
The fund's investment objective is to seek current income consistent with
its stated maturity and quality standards and preservation of capital.
Consistent with this objective, over the long term, the fund seeks to provide
shareholders an opportunity to earn more income than generally available in
money market instruments, accounts or funds, with more stability than some
other types of bond funds.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
The descriptions below are intended to supplement the material in the
Prospectus under "Investment Policies and Risks."
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES - Certificates issued by
the Government National Mortgage Association ("GNMA") are mortgage-backed
securities representing part ownership of a pool of mortgage loans, which are
issued by lenders such as mortgage bankers, commercial banks and savings and
loan associations, and are either insured by the Federal Housing Administration
or guaranteed by the Veterans Administration. A pool of these mortgages is
assembled and, after being approved by GNMA, is offered to investors through
securities dealers. The timely payment of interest and principal on each
mortgage is guaranteed by GNMA and backed by the full faith and credit of the
U.S. Government.
Principal is paid back monthly by the borrower over the term of the loan.
Reinvestment of prepayments may occur at higher or lower rates than the
original yield on the certificates. Due to the prepayment feature and the need
to reinvest prepayments of principal at current market rates, GNMA certificates
can be less effective than typical bonds of similar maturities at "locking in"
yields during periods of declining interest rates. GNMA certificates typically
appreciate or decline in market value during periods of declining or rising
interest rates, respectively. Due to the regular repayment of principal and
the prepayment feature, the effective maturities of mortgage pass-through
securities are shorter than stated maturities, will vary based on market
conditions and cannot be predicted in advance. The effective maturities of
newly-issued GNMA certificates backed by relatively new loans at or near the
prevailing interest rates are generally assumed to range between approximately
9 and 12 years.
FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS - FNMA, a privately-owned corporate
instrumentality of the U.S. Government, issues pass-through securities
representing interests in a pool of conventional mortgage loans. FNMA
guarantees the timely payment of principal and interest but this guarantee is
not backed by the full faith and credit of the U.S. Government.
FHLMC, a corporate instrumentality of the U.S. Government, issues
participation certificates which represent an interest in a pool of
conventional mortgage loans. FHLMC guarantees the timely payment of interest
and the ultimate collection of principal, and maintains reserves to protect
holders against losses due to default, but the certificates are not backed by
the full faith and credit of the U.S. Government.
FNMA and FHLMC securities are considered by the fund to be "U.S.
Government securities" for the purpose of the fund's fundamental investment
restriction stating that the fund may not purchase any security (other than
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government securities")) if, immediately after and as
a result of such investment, more than 5% of the value of the fund's total
assets would be invested in securities of the issuer.
As is the case with GNMA certificates, the actual maturity of and realized
yield on particular FNMA and FHLMC pass-through securities will vary based on
the prepayment experience of the underlying pool of mortgages.
OTHER MORTGAGE-RELATED SECURITIES - The fund may invest in mortgage-related
securities issued by financial institutions such as commercial banks, savings
and loan associations, mortgage bankers and securities broker-dealers (or
separate trusts or affiliates of such institutions established to issue these
securities). These securities include mortgage pass-through certificates,
collateralized mortgage obligations (including real estate mortgage investment
conduits as authorized under the Internal Revenue Code of 1986) (CMOs) or
mortgage-backed bonds. Each class of bonds in a CMO series may have a
different effective maturity, bear a different coupon, and have a different
priority in receiving payments. All principal payments, both regular principal
payments as well as any prepayment of principal, are passed through to the
holders of the various CMO classes dependent on the characteristics of each
class. In some cases, all payments are passed through first to the holders of
the class with the shortest stated maturity until it is completely retired.
Thereafter, principal payments are passed through to the next class of bonds in
the series, until all the classes have been paid off. In other cases, payments
are passed through to holders of whichever class first has the shortest
effective maturity at the time payments are made. As a result, an acceleration
in the rate of prepayments that may be associated with declining interest rates
shortens the expected life of each class. The impact of an acceleration in
prepayments affects the expected life of each class differently depending on
the unique characteristics of that class. In the case of some CMO series, each
class may receive a differing proportion of the monthly interest and principal
repayments on the underlying collateral. In these series the classes would be
more affected by an acceleration (or slowing) in the rate of prepayments than
CMOs which share principal and interest proportionally.
Mortgage-backed bonds are general obligations of the issuer fully
collateralized directly or indirectly by a pool of mortgages. The mortgages
serve as collateral for the issuer's payment obligations on the bonds, but
interest and principal payments on the mortgages are not passed through either
directly (as with GNMA certificates and FNMA and FHLMC pass-through securities)
or on a modified basis (as with CMOs). Accordingly, a change in the rate of
prepayments on the pool of mortgages could change the effective maturity of a
CMO but not that of a mortgage-backed bond (although, like many bonds,
mortgage-backed bonds can provide that they are callable by the issuer prior to
maturity).
OTHER ASSET-BACKED SECURITIES - The fund may invest in securities backed by
loans or accounts receivable originated by banks, credit card companies, or
other providers of credit. Generally, the originator of the loan or accounts
receivable sells it to a specially created trust, which repackages it as
securities with a term of five years or less. Examples of these types of
securities include trade and automobile receivables, and credit card, home
improvement, home equity and commercial mortgage backed loans. The loans
underlying these securities are subject to prepayments which can decrease
maturities and returns. The values of these securities are ultimately
dependent upon payment of the underlying loans by individuals, and the holders
generally have no recourse against the originator of the loans. Holders of
these securities may experience losses or delays in payment if the original
payments of principal and interest are not made to the trust with respect to
the underlying loans.
To lessen the effect of failures by obligors on underlying assets to make
payments, asset-backed securities may contain elements of credit support
provided through guarantees, insurance policies or letters of credit issued by
a financial institution affiliated or unaffiliated with the originator of the
pool. Such credit support typically covers only a portion of the par value
until exhausted. The credit quality of most asset-backed securities depends
primarily on the credit quality of the assets underlying such securities. In
addition, the amount and quality of any credit support provided to the
securities and the degree to which the issuer is insulated from the credit risk
of the originator or any other affiliated entities are factors in determining
credit quality.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements, under
which it buys a security and obtains a simultaneous commitment from the seller
to repurchase the security at a specified time and price. Repurchase
agreements permit the fund to maintain liquidity and earn income over periods
of time as short as overnight. The seller must maintain with the fund's
custodian collateral equal to at least 100% of the repurchase price including
accrued interest as monitored daily by Capital Research and Management Company.
If the seller under the repurchase agreement defaults, the fund may incur a
loss if the value of the collateral securing the repurchase agreement has
declined and may incur disposition costs in connection with liquidating the
collateral. If bankruptcy proceedings are commenced with respect to the
seller, liquidation of the collateral by the fund may be delayed or limited.
FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell
securities for which payment and delivery for the securities take place at a
future date. When the fund purchases such securities it assumes the risk of
any decline in the value of the securities beginning on the date of the
agreement or purchase. When the fund sells such securities, it does not
participate in further gains or losses with respect to the securities. 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 segregate
liquid assets which will be marked to market daily in an amount sufficient to
meet its payment obligations in these transactions. Although these
transactions will not be entered into for leveraging purposes, to the extent
the fund's aggregate commitments under these transactions exceed its segregated
assets , the fund temporarily could be in a leveraged position (because it
may have an amount greater than its net assets subject to market risk). Should
market values of the fund's portfolio securities decline while the fund is in a
leveraged position, greater depreciation of its net assets 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 securities together with a commitment (for which the fund typically
receives a fee) to purchase similar, but not identical, securities at a later
date. 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.
REVERSE REPURCHASE AGREEMENTS - The fund may enter into reverse repurchase
agreements. A reverse repurchase agreement is the sale of a security by a fund
and its agreement to repurchase the security at a specified time and price.
This type of agreement involves the sale of a security by the fund and its
commitment to repurchase the security at a specified time and price. The fund
will maintain in a segregated account with its custodian liquid assets such as
cash, U.S. Government securities or other appropriate high-grade debt
obligations in an amount sufficient to cover its obligations under reverse
repurchase agreements with broker-dealers (but no collateral is required on
reverse repurchase agreements with banks). Under the Investment Company Act of
1940, as amended (the "1940 Act"), reverse repurchase agreements may be
considered borrowings by the fund; accordingly, the fund will limit its
investments in reverse repurchase agreements, together with any other
borrowings, to no more than one-third of its total assets. The use of reverse
repurchase agreements by the fund creates leverage which increases the fund's
investment risk. As the fund's aggregate commitments under these reverse
repurchase agreements increases, the opportunity for leverage similarly
increases. If the income and gains on securities purchased with the proceeds
of reverse repurchase agreements exceed the costs of the agreements, the fund's
earnings or net asset value will increase faster than otherwise would be the
case; conversely if the income and gains fail to exceed the costs, earnings or
net asset value would decline faster than otherwise would be the case.
CASH AND CASH EQUIVALENTS - Subject to the requirement that it maintain at
least 65% of its assets in bonds under normal market conditions, the fund may
maintain assets in cash or cash equivalents. Cash equivalents include: (1)
commercial paper (short-term notes up to 9 months in maturity issued by
corporations or governmental bodies); (2) commercial bank obligations such as
certificates of deposit (interest-bearing time deposits); bankers' acceptances,
(time drafts on a commercial bank where the bank accepts an irrevocable
obligation to pay at maturity); and documented discount notes (corporate
promissory discount notes accompanied by a commercial bank guarantee to pay at
maturity); (3) savings association obligations (certificates of deposit issued
by mutual savings banks or savings and loan associations); (4) securities of
the U.S. Government, its agencies or instrumentalities that mature, or may be
redeemed, in one year or less; and (5) corporate bonds and notes that mature,
or that may be redeemed, in one year or less.
PORTFOLIO TRADING - The fund intends to engage in portfolio trading when
Capital Research and Management Company (the "Investment Adviser") believes
that the sale of a security owned by the fund and the purchase of another
security of better value can enhance principal and/or increase income. A
security may be sold to avoid any prospective decline in market value in light
of what is evaluated as an expected rise in prevailing yields, or a security
may be purchased in anticipation of a market rise (a decline in prevailing
yields). A security also may be sold and a comparable security purchased
coincidentally in order to take advantage of what is believed to be a disparity
in the normal yield and price relationship between the two securities, or in
connection with a "roll" transaction as described in the Prospectus under "
Securities and Investment Techniques" and above.
LOANS OF PORTFOLIO SECURITIES - Although the fund has no current intention of
doing so during the next 12 months, the fund is authorized to lend portfolio
securities to selected securities dealers or to other institutional investors
whose financial condition is monitored by the Investment Adviser. The borrower
must maintain with the fund's custodian collateral consisting of cash, cash
equivalents or U.S. Government securities equal to at least 100% of the value
of the borrowed securities, plus any accrued interest. The Investment Adviser
will monitor the adequacy of the collateral on a daily basis. The fund may at
any time call a loan of its portfolio securities and obtain the return of the
loaned securities. The fund will receive any interest paid on the loaned
securities and a fee or a portion of the interest earned on the collateral.
The fund will limit its loans of portfolio securities to an aggregate of
one-third of the value of its total assets, measured at the time any such loan
is made.
VARIABLE RATE OBLIGATIONS - The fund may invest in securities with interest
rates that are not fixed but fluctuate based upon changes in market rates or
designated indexes. Variable rate obligations have interest rates that are
adjusted at designated intervals, and interest rates on floating rate
obligations are adjusted whenever there are exchanges in the indexes or market
rates on which their interest rates are based. In some cases the fund has the
ability to demand payment from the dealer or issuer at par plus accrued
interest on short notice (seven days or less). The effective maturity of a
floating or variable rate obligation is deemed to be the longer of (i) the
notice period required before the fund is entitled to receive payment of the
obligation upon demand or (ii) the period remaining until the obligation's next
interest rate adjustment. If not sold or redeemed by the fund through the
demand feature, these obligations would mature on a specified date which may
range up to 30 years or more from the date of issuance.
ADJUSTMENT OF MATURITIES -- The Investment Adviser seeks to anticipate
movements in interest rates and adjusts the maturity distribution of the
portfolio accordingly subject to maintaining, under normal market conditions,
an average dollar-weighted effective portfolio maturity of 3 to 10 years.
Longer term securities ordinarily yield more than shorter term securities but
are subject to greater and more rapid price fluctuation. Keeping in mind the
fund's objective, the Investment Adviser will increase the Fund's exposure to
this price volatility only when it appears likely to increase current income
without undue risk to capital.
PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the
length of time particular investments may have been held. High portfolio
turnover involves correspondingly greater transaction costs in the form of
dealer spreads or brokerage commissions, and may result in the realization of
net capital gains, which are taxable when distributed to shareholders.
Fixed-income securities are generally traded on a net basis and usually neither
brokerage commissions nor transfer taxes are involved. The fund does not
anticipate its portfolio turnover to exceed 100% annually. The fund's
portfolio turnover rate would equal 100% if each security in the fund's
portfolio were replaced once per year. See "Financial Highlights" in the
Prospectus for the fund's portfolio turnover for each of the last eight years.
INVESTMENT RESTRICTIONS
The fund has adopted certain investment restrictions which may not be
changed as to the fund without a majority vote of the fund's outstanding
shares. Such majority is defined by the 1940 Act as the vote of the lesser of
(i) 67% or more of the outstanding voting securities of the fund present at a
meeting, if the holders of more than 50% of the outstanding voting securities
are present in person or by proxy, or (ii) more than 50% of the outstanding
voting securities. These restrictions provide that the fund may not:
1. Purchase any security (other than securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities ("U.S. Government
securities")) if, immediately after and as a result of such investment, more
than 5% of the value of the fund's total assets would be invested in securities
of the issuer;
2. Invest 25% or more of the value of its total assets in the securities of
issuers conducting their principal business activities in the same industry,
except that this limitation shall not apply to U.S. Government securities;
3. Invest in companies for the purpose of exercising control or management;
4. Knowingly purchase securities of other managed investment companies,
except in connection with a merger, consolidation, acquisition, or
reorganization;
5. Buy or sell real estate or commodities or commodity contracts in the
ordinary course of its business; however, the fund may purchase or sell readily
marketable debt securities secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein, including
real estate investment trusts;
6. Acquire securities subject to contractual restrictions preventing their
ready disposition or enter into repurchase agreements or purchase time deposits
maturing in more than seven days if, immediately after and as a result, the
value of illiquid securities held by the fund would exceed, in the aggregate,
10% of the value of the fund's total assets;
7. Engage in the business of underwriting securities of other issuers, except
to the extent that the disposal of an investment position may technically cause
it to be considered an underwriter as that term is defined under the Securities
Act of 1933;
8. Make loans, except that this does not prevent the fund from purchasing
marketable debt securities and entering into repurchase agreements or making
loans of portfolio securities;
9. Sell securities short, except to the extent that the fund
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short;
10. Purchase securities on margin, except that the fund may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities;
11. Borrow money, except from banks for temporary or emergency purposes, not
in excess of 5% of the value of the fund's total assets, except that the fund
may enter into reverse repurchase agreements, provided that the fund will limit
its aggregate borrowings to no more than one-third of its total assets;
12. Mortgage, pledge, or hypothecate any of its assets, provided that this
restriction shall not apply to the sale of securities pursuant to a reverse
repurchase agreement;
13. Purchase or retain the securities of any issuer, if those individual
officers and Trustees of the fund, its investment adviser, or distributor, each
owning beneficially more than 1/2 of 1% of the securities of such issuer,
together own more than 5% of the securities of such issuer;
14. Invest in interests in oil, gas, or other mineral exploration or
development programs;
15. Invest more than 5% of its total assets in warrants which are unattached
to securities;
16. Write, purchase or sell puts, calls or combinations thereof;
17. Invest more than 5% of its total assets in securities of companies having,
together with their predecessors, a record of less than three years of
continuous operation.
A further investment policy of the fund, which may be changed by action of
the Board of Trustees without shareholder approval, is that the fund will not
invest in securities of an issuer if the investment would cause the fund to own
more than 10% of the outstanding voting securities of any one issuer. With
respect to Investment Restriction #15, investments in warrants, valued at the
lower of cost or market, will not exceed 5% of the value of the fund's net
assets, with no more than 2% being unlisted on the New York or American Stock
Exchanges. (Warrants acquired by the fund in units or attached to securities
may be deemed to be without value.)
Notwithstanding Investment Restriction #4, 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
the Trustees pursuant to an exemptive order granted by the Securities and
Exchange Commission.
FUND OFFICERS AND TRUSTEES
Trustees and Trustee Compensation
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NAME, ADDRESS AND AGE POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
WITH OCCUPATION(S) DURING COMPENSATION COMPENSATION NUMBER
REGISTRANT PAST 5 YEARS (INCLUDING (INCLUDING OF FUND
(POSITIONS WITHIN THE VOLUNTARILY VOLUNTARILY BOARDS ON
ORGANIZATIONS LISTED DEFERRED DEFERRED WHICH
MAY HAVE COMPENSATION COMPENSATION/1/)TRUSTEE
CHANGED DURING THIS /1/) FROM FROM ALL FUNDS SERVES /2/
PERIOD) THE COMPANY MANAGED BY
DURING FISCAL CAPITAL RESEARCH
YEAR ENDED AND MANAGEMENT
AUGUST 31, COMPANY
1996
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++H. Frederick Christie Trustee Private Investor. 3,500/3/ $145,450 18
P.O. Box 144 Former President and
Palos Verdes Estates, CA Chief Executive
90274 Officer, The Mission
Age: 63 Group (non-utility
holding company,
subsidiary of
Southern California
Edison Company)
+Don R. Conlan Trustee President Emeritus, The none/4/ none/4/ 12
1630 Milan Avenue Capital Group Companies,
South Pasadena, CA 91030 Inc.
Diane C. Creel Trustee CEO and President, 3,700 $37,450 12
100 W. Broadway The Earth Technology
Suite 5000 Corporation
Long Beach, CA 90802
Age: 48
Martin Fenton, Jr. Trustee Chairman, Senior 4,100/3/ $116,150 16
4350 Executive Drive Resource Group
Suite 101 (management of senior
San Diego, CA 92121-2116 living centers)
Age: 61
Leonard R. Fuller Trustee President, Fuller & 3,500 $31,575 12
4337 Marina City Drive Company, Inc.
Suite 841 ETN (financial management
Marina del Rey, CA 90292 consulting firm)
Age: 50
+*Abner D. Goldstine President, Senior Vice President none /4/ 12
Age: 67 PEO and and Director, Capital none /4/
Trustee Research and
Management Company
+**Paul G. Haaga, Jr. Executive Vice none /4/
Age: 48 Chairman of President and none /4/ 14
the Board Director, Capital
Research and
Management Company
Herbert Hoover III Trustee Private Investor $3,300 $63,950 14
1520 Circle Drive
San Marino, CA 91108
Age: 69
Richard G. Newman Trustee Chairman, President $3,900/3/ $65,450 13
3250 Wilshire Boulevard and CEO,
Los Angeles, CA 90010-1599 AECOM Technology
Age: 62 Corporation
(architectural
engineering)
Peter C. Valli Trustee Chairman , BW/IP $3,500/3/ $38,050 12
45 Sea Isle Drive International Inc.
Long Beach, CA 90803 (industrial
Age: 69 manufacturing)
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+ Trustees who are considered "interested persons as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), on the basis of their
affiliation with the fund's Investment Adviser, Capital Research and
Management Company.
++ May be deemed an "interested person" of the fund due to membership on the
board of trustees of the parent company of a registered broker-dealer.
* Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025
** Address is 333 South Hope Street, Los Angeles, CA 90071
/1/ Amounts may be deferred by eligible Trustees under a non-qualified deferred
compensation plan adopted by the fund in 1994. Deferred amounts accumulate at
an earnings rate determined by the total return of one or more funds in The
American Funds Group as designated by the Trustee.
/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 vehicle for certain
variable insurance contracts; and Bond Portfolio for Endowments, Inc. and
Endowments, Inc. whose shares may be owned only by tax-exempt organizations.
/3/ Since the plan's adoption, the total amount of deferred compensation
accrued by the fund (plus earnings thereon) for participating Trustees is as
follows: H. Frederick Christie ($6,145), Martin Fenton, Jr. ($$6,565),
Richard G. Newman ($12,861), and Peter C. Valli (12,218). Amounts deferred and
accumulated earnings thereon are not funded and are general unsecured
liabilities of the fund until paid to the Director.
/4/ Don R. Conlan, Abner D. Goldstine and Paul G. Haaga, Jr. are affiliated
with the Investment Adviser and, accordingly, receive no compensation from the
fund.
OFFICERS
(with their principal occupations during the past five years)#
* MICHAEL J. DOWNER, VICE PRESIDENT, Capital Research and Management Company,
Senior Vice President - Fund Business Management Group
** MARY C. HALL, VICE PRESIDENT . Capital Research and Management Company,
Senior Vice President - Fund Business Management Group
*** JOHN H. SMET, VICE PRESIDENT. Capital Research and Management Company, Vice
President
* JULIE F. WILLIAMS, SECRETARY. Capital Research and Management Company,
Vice President - Fund Business Management Group
** ANTHONY W. HYNES, JR., TREASURER. Capital Research and Management Company,
Vice President - Fund Business Management Group
* KIMBERLY S. VERDICK, ASSISTANT SECRETARY. Capital Research and Management
Company Assistant Vice President - Fund Business Management Group
** TODD L. MILLER, ASSISTANT TREASURER. Capital Research and Management
Company, Assistant Vice President - Fund Business Management Group
# Positions within the organizations listed may have changed during this
period.
* Address is 333 South Hope Street, Los Angeles, CA 90071.
** Address is 135 South State College Boulevard, Brea, CA 92821.
*** Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025.
No compensation is paid by the fund to any officer or Trustee who is a
director or officer of the Investment Adviser. The fund pays annual fees of
$2,500 to Trustees who are not affiliated with the Investment Adviser, plus
$200 for each Board of Trustees meeting attended, plus $200 for each meeting
attended as a member of a committee of the Board of Trustees. The Trustees 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 Trustees who are not affiliated with the Investment
Adviser. As of December 1, 1996, the officers and Trustees and their families
as a group, owned beneficially or of record fewer than 1% of the outstanding
shares of the fund.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington, D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience. The Investment Adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821.
The Investment Adviser's research professionals travel several million miles a
year, making more than 5,000 research visits in more than 50 countries around
the world. The Investment Adviser believes that it is able to attract and
retain quality personnel. The Investment Adviser is a wholly owned subsidiary
of The Capital Group Companies, Inc.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for more than $100 billion of stocks,
bonds and money market instruments and serves over five million investors of
all types throughout the world. These investors include privately owned
businesses and large corporations as well as schools, colleges, foundations and
other non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service
Agreement (the "Agreement") between the fund and the Investment Adviser will
continue in effect until October 24, 1997, unless sooner terminated, and may
be renewed from year to year thereafter provided that any such renewal has been
specifically approved at least annually by (i) the Board of Trustees 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 Trustees who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any such part, cast in person, at a meeting called for the purpose of voting on
such approval. The Agreement provides that the Investment Adviser has no
liability to the fund of its acts or omissions in the performance of its
obligations to the fund not involving willful misconduct, bad faith, gross
negligence or reckless disregard of its obligations under the Agreement. The
Agreement also provides that either party has the right to terminate it without
penalty, upon 60 days' written notice to the other party and that the Agreement
automatically terminates in the event of its assignment (as defined in the 1940
Act).
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the fund, provides suitable office space and utilities, necessary small office
equipment and general purpose accounting forms, supplies, and postage used at
the offices of the fund. The fund pays all expenses not assumed by the
Investment Adviser, including, but not limited to, custodian, stock transfer
and dividend disbursing fees and expenses; costs of the designing, printing and
mailing of reports, prospectuses, proxy statements, and notices to its
shareholders; taxes; expenses of the issuance and redemption of shares
(including stock certificates, registration and qualification fees and
expenses); legal and auditing expenses; compensation, fees, and expenses paid
to directors unaffiliated with the Investment Adviser; association dues; and
costs of stationery and forms prepared exclusively for the fund; and costs of
assembling and storing shareholder account data.
The management fee is based upon the net assets of the fund and monthly gross
investment income. Gross investment income means gross income, computed
without taking account of gains or losses from sales of capital assets, but
including original issue discount as defined for federal income tax purposes.
The Internal Revenue Code in general defines original issue discount to mean
the difference between the issue price and the stated redemption price at
maturity of certain debt obligations. The holder of such indebtedness is in
general required to treat as ordinary income the proportionate part of the
original issue discount attributable to the period during which the holder held
the indebtedness. The management fee is based upon the annual rates of 0.30%
of the first $60 million of the fund's average net assets, plus 0.21% on
average net assets in excess of $60 million but not exceeding $1 billion, plus
0.18% on average net assets in excess of $1 billion but not exceeding $3
billion, plus 0.16% on average net assets in excess of $3 billion, plus 3% of
the first $40 million of annual gross income, plus 2.5% of annual gross
investment income in excess of $40 million but not exceeding $100 million, plus
2% of annual gross investment income in excess of $100 million. Assuming net
assets of $1.4 billion and gross investment income levels of 6%, 7%, 8%, 9% and
10%, management fees would be 0.36%, 0.38%, 0.40%, 0.42%, and 0.44%,
respectively.
After Board approval of the new fees, the Investment Adviser voluntarily
agreed to waive its fees by any amount necessary to assure that the fund's
expenses would not exceed 1.00% of the average daily net assets and waive its
fees by any additional amount necessary to assure that such expenses did not
exceed applicable expense limitations in any state in which the fund's shares
were being offered for sale. Only one state (California) continues to impose
expense limitations on funds registered for sale therein. The California
provision currently limits annual expenses to the sum of 2-1/2% of the first
$30 million of average net assets, 2% of the next $70 million and 1-1/2% of the
remaining average net assets. Rule 12b-1 distribution plan expenses would be
excluded from this limit. Expenses which are not subject to these limitations
include interest, taxes, brokerage commissions, transaction costs, and
extraordinary items such as litigation, as well as, for purposes of the state
expense limitations, any amounts excludable under the applicable regulation.
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.
During the fiscal years ended August 31, 1996, 1995, and 1994, , the
Investment Adviser's total fees amounted to $5,990,000, $6,106,000, and
$6,742,000, respectively.
The fund pays all expenses not specifically assumed by the Investment Adviser,
including, but not limited to, registration and filing fees with federal and
state agencies, blue sky expenses, expenses of shareholders meetings, the
expense of reports to existing shareholders, expenses of printing proxies and
prospectuses, insurance premiums, legal and auditing fees, dividend
disbursement expenses, the expense of the issuance, transfer and redemption of
its shares, expenses pursuant to the fund's Plan of Distribution, custodian
fees, printing and preparation of registration statements, taxes and
compensation and expenses of Trustees who are not affiliated with the
Investment Adviser.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the "Principal
Underwriter") is the principal underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 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 (see
"Principal Underwriter" in the Prospectus). 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 August 31, 1996 amounted to
$1,785,683 after allowance of $7,438,022 to dealers. During the fiscal year
ended August 31, 1995 and 1994, the Principal Underwriter retained $1,581,362
and $3,558,588 , respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by the full Board of Trustees and separately by a
majority of the Trustees 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 Trustees who are "interested persons" of the fund due to present
affiliations with the Investment Adviser and related companies may be
considered to have a direct or indirect financial interest in the operation of
the Plan. Potential benefits of the Plan to the fund include improved
shareholder services, savings to the fund in transfer agency costs, savings to
the fund in advisory fees and other expenses, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management organization. The selection and nomination of Trustees who
are not "interested persons" of the fund is committed to the discretion of the
Trustees 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
Trustees.
Under the Plan the fund may expend up to 0.30% of its average net assets
annually to finance any activity which is primarily intended to result in the
sale of fund shares, provided the fund's Board of Trustees has approved the
category of expenses for which payment is made. These include service fees for
qualified dealers and dealer commissions and wholesaler compensation on sales
of shares exceeding $1 million (including purchases by any employer-sponsored
403(b) plan or purchases by any defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a "401(k) plan with 200
or more eligible employees). During the fund's fiscal year ended August 31,
1996, such expenses were $4,456,000 under the Plan as compensation to dealers.
As of August 31, 1996 accrued and unpaid distribution expenses were $674,000.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit federally chartered or supervised banks from engaging in the
business of underwriting, selling or distributing securities, but permit banks
to make shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries of affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer with adverse financial consequences as a result of
any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements and has elected the tax status
of a "regulated investment company" under the provisions of Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Under Subchapter M, if the fund
distributes within specified times at least 90% of its investment company
taxable income (net investment income and the excess of net short-term capital
gains over net long-term capital losses), it will be taxed only on that portion
of the 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; (b) derive less than 30% of its gross income from the sale or other
disposition of stock or securities held less than three months; and (c)
diversify its holdings so that, at the end of each fiscal quarter, (i) at least
50% of the market value of the fund's assets is represented by cash, cash
items, U.S. Government securities, securities of other regulated investment
companies and other securities which must be limited, in respect of any one
issuer, to an amount not greater than 5% of the fund's assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
U.S. Government securities or the securities of other regulated investment
companies), or in two or more issuers which the fund controls and which are
engaged in the same or similar trades or businesses or related trades or
businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gain (both long-term and short-term)
for the one-year period ending on October 31 (as though the one-year period
ending on October 31 were the regulated investment company's taxable year), and
(iii) the sum of any untaxed, undistributed net investment income and net
capital gains of the regulated investment company for prior periods. The term
"distributed amount" generally means the sum of (i) amounts actually
distributed by the fund from its current year's ordinary income and capital
gain net income and (ii) any amount on which the Fund pays income tax for the
year. The fund intends to distribute net investment income and net capital
gains so as to minimize or avoid the excise tax liability.
The fund also intends to distribute to shareholders all of the excess of net
long-term capital gain over net short-term capital loss on sales of
securities. If the net asset value of shares of the fund should, by reason of
a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes. In particular, investors should consider the tax
implications of purchasing shares just prior to a dividend or distribution
record date. Those investors purchasing shares just prior to such a date will
then receive a partial return of capital upon the dividend or distribution,
which will nevertheless be taxable to them as an ordinary or capital gains
dividend.
Dividends and distributions generally are taxable to shareholders at the time
they are paid. However, dividends and distributions declared payable in
October, November and December and made payable to shareholders of record in
such a month are treated as paid and are thereby taxable as of December 31,
provided that the fund pays the dividend no later than the end of January of
the following year.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred in acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, non-U.S. corporation, or non-U.S.
partnership (a "non-U.S. shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or lower treaty rate). Withholding will not apply if a
dividend paid by the fund to a non-U.S. shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents, or domestic
corporations will apply. However, if the distribution is effectively connected
with the conduct of the non-U.S. shareholder's trade or business within the
U.S., the distribution would be included in the net income of the shareholder
and subject to U.S. income tax at the applicable marginal rate. Distributions
of capital gains not effectively connected with a U.S. trade or business are
not subject to the withholding, but if the non-U.S. shareholder was an
individual who was physically present in the U.S. during the tax year for more
than 182 days and such shareholder is nonetheless treated as a nonresident
alien, the distributions would be subject to a 30% tax.
The fund may be required to pay withholding and other taxes imposed by
countries outside the U.S. which would reduce the fund's investment income,
generally at rates from 10% to 40%. Tax conventions between certain countries
and the U.S. may reduce or eliminate such taxes. If more than 50% in value of
the fund's total assets at the close of its taxable year consist of securities
of non-U.S. corporations, the fund will be eligible to file elections with the
Internal Revenue Service pursuant to which shareholders of the fund will be
required to include their respective pro rata portions of such withholding
taxes in their federal income tax returns as gross income, treat such amounts
as foreign taxes paid by them, and deduct such amounts in computing their
taxable incomes or, alternatively, use them as foreign tax credits against
their federal income taxes. The fund does not currently expect to meet the
eligibility requirement for filing this election as its investments in
securities of non-U.S. issuers are extremely limited.
As of the date of this statement of additional information, the maximum stated
individual tax rate applicable to ordinary income is 39.6% (effective tax rates
may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual tax rate applicable to net
capital gain is 28%; and the maximum corporate tax applicable to ordinary
income and net capital 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 in 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 income tax up to $100,000. Naturally, the amount of tax
payable by a taxpayer 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 that year) whereby
earnings on investments are tax-deferred. In addition, in some cases, the IRA
contribution itself may be deductible.
The foregoing is limited to a discussion of federal taxation and should not be
viewed as a comprehensive discussion of all provisions of the Code relevant to
investors. Dividends and distributions may also be subject to state or local
taxes. Investors should consult their own tax advisers for additional details
as to their particular tax status.
PURCHASE OF SHARES
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METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums $50 minimum (except where
and Fund Numbers" for a lower minimum is noted
initial investment under "Investment
minimums. Minimums and Fund
Numbers").
By Visit any investment Mail directly to your
contacting dealer who is registered investment dealer's
your in the state where the address printed on your
investment purchase is made and who account statement.
dealer has a sales agreement
with American Funds
Distributors.
By mail Make your check payable Fill out the account
to the fund and mail to additions form at the
the address indicated on bottom of a recent account
the account application. statement, make your check
Please indicate an payable to the fund, write
investment dealer on the your account number on
account application. your check, and mail the
check and form in the
envelope provided with
your account statement.
By Please contact your Complete the "Investments
telephone investment dealer to by Phone" section on the
open account, then account application or
follow the procedures American FundsLink
for additional Authorization Form. Once
investments. you establish the
privilege, you, your
financial advisor or any
person with your account
information can call
American FundsLineR and
make investments by
telephone (subject to
conditions noted in
"Telephone Purchases,
Sales and Exchanges"
below).
By wire Call 800/421-0180 to Your bank should wire your
obtain additional
your account number(s), investments in the same
if manner as
necessary. Please described under "Initial
indicate an Investment."
investment dealer on the
account. Instruct your
bank to
wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the
account of:
American Funds Service
Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO
REJECT ANY PURCHASE ORDER.
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INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial
investments required by the funds in The American Funds Group along with fund
numbers for use with our automated phone line, American FundsLineR (see
description below):
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MINIMUM FUND
FUND INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP FundR 02
$1,000
American Balanced FundR 11
500
American Mutual FundR 03
250
Capital Income BuilderR 12
1,000
Capital World Growth and Income Fund(sm) 33
1,000
EuroPacific Growth FundR 16
250
Fundamental Investors(sm) 10
250
The Growth Fund of AmericaR 05
1,000
The Income Fund of AmericaR 06
1,000
The Investment Company of AmericaR 04
250
The New Economy FundR 14
1,000
New Perspective FundR 07
250
SMALLCAP World FundR 35
1,000
Washington Mutual Investors Fund(sm) 01
250
BOND FUNDS
American High-Income Municipal Bond FundR 40
1,000
American High-Income Trust(sm) 21
1,000
The Bond Fund of America(sm) 08
1,000
Capital World Bond FundR 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 AmericaR 19
1,000
The Tax-Exempt Fund of CaliforniaR* 20
1,000
The Tax-Exempt Fund of MarylandR* 24
1,000
The Tax-Exempt Fund of VirginiaR* 25
1,000
U.S. Government Securities Fund(sm) 22
1,000
MONEY MARKET FUNDS
The Cash Management Trust of AmericaR 09
2,500
The Tax-Exempt Money Fund of America(sm) 39
2,500
The U.S. Treasury Money Fund of America(sm) 49
2,500
___________
*Available only in certain states.
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For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
DEALER COMMISSIONS - The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SALES CHARGE AS DEALER
AMOUNT OF PURCHASE PERCENTAGE OF THE: CONCESSION
AT THE OFFERING PRICE AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND FUNDS
Less than $50,000
6.10% 5.75% 5.00%
$50,000 but less than $100,000
4.71 4.50 3.75
BOND FUNDS
Less than $25,000
4.99 4.75 4.00
$25,000 but less than $50,000
4.71 4.50 3.75
$50,000 but less than $100,000
4.17 4.00 3.25
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000
3.63 3.50 2.75
$250,000 but less than $500,000
2.56 2.50 2.00
$500,000 but less than $1,000,000
2.04 2.00 1.60
$1,000,000 or more (see below)
none none
</TABLE>
Commissions of up to 1% will be paid to dealers who initiate and are
responsible for purchases of $1 million or more, for purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $100 million or more: 1.00% on amounts of $1 million
to $2 million, 0.80% on amounts over $2 million to $3 million, 0.50% on amounts
over $3 million to $50 million, 0.25% on amounts over $50 million to $100
million, and 0.15% on amounts over $100 million. The level of dealer
commissions will be determined based on sales made over a 12-month period
commencing from the date of the first sale at net asset value.
American Funds Distributors, at its expense (from a designated percentage of
its income), will, during calendar year 1997, provide additional compensation
to dealers. Currently these payments are limited to the top one hundred dealers
who have sold shares of the fund or other funds in The American Funds Group.
These payments will be based on a pro rata share of a qualifying dealer's
sales. American Funds Distributors will, on an annual basis, determine the
advisability of continuing these payments.
Any employer-sponsored 403(b) plan or defined contribution plan qualified
under Section 401(a) of the Internal Revenue Code including a "401(k)" plan
with 200 or more eligible employees or any other purchaser investing at least
$1 million in shares of the fund (or in combination with shares of other funds
in The American Funds Group other than the money market funds) may purchase
shares at net asset value; however, a contingent deferred sales charge of 1% is
imposed on certain redemptions made within twelve months of the purchase. (See
"Redeeming Shares--Contingent Deferred Sales Charge.")
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
NET ASSET VALUE PURCHASES - The stock, stock/bond and bond funds may sell
shares at net asset value to: (1) current or retired directors, trustees,
officers and advisory board members of the funds managed by Capital Research
and Management Company, employees of Washington Management Corporation,
employees and partners of The Capital Group Companies, Inc. and its affiliated
companies, certain family members of the above persons, and trusts or plans
primarily for such persons; (2) current registered representatives, retired
registered representatives with respect to accounts established while active,
or full-time employees (and their spouses, parents, and children) of dealers
who have sales agreements with American Funds Distributors (or who clear
transactions through such dealers) and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer; (4) trustees or other fiduciaries purchasing shares for
certain retirement plans of organizations with retirement plan assets of $100
million or more; (5) insurance company separate accounts; (6) accounts managed
by subsidiaries of The Capital Group Companies, Inc.; and (7) The Capital Group
Companies, Inc., its affiliated companies and Washington Management
Corporation. Shares are offered at net asset value to these persons and
organizations due to anticipated economies in sales effort and expense.
STATEMENT OF INTENTION - The reduced sales charges and public offering prices
set forth in the Prospectus apply to purchases of $25,000 or more made within a
13-month period subject to the following statement of intention (the
"Statement") terms: The Statement is not a binding obligation to purchase the
indicated amount. When a shareholder elects to utilize the Statement in order
to qualify for a reduced sales charge, shares equal to 5% of the dollar amount
specified in the Statement will be held in escrow in the shareholder's account
out of the initial purchase (or subsequent purchases, if necessary) by the
Transfer Agent. All dividends and any capital gain distributions on shares
held in escrow will be credited to the shareholder's account in shares (or paid
in cash, if requested). If the intended investment is not completed within the
specified 13-month period, the purchaser will remit to the Principal
Underwriter the difference between the sales charge actually paid and the sales
charge which would have been paid if the total purchases had been made at a
single time. If the difference is not paid within 45 days after written
request by the Principal Underwriter or the securities dealer, the appropriate
number of shares held in escrow will be redeemed to pay such difference. If
the proceeds from this redemption are inadequate, the purchaser will be liable
to the Principal Underwriter for the balance still outstanding. The Statement
may be revised upward at any time during the 13-month period, and such a
revision will be treated as a new Statement, except that the 13-month period
during which the purchase must be made will remain unchanged and there will be
no retroactive reduction of the sales charges paid on prior purchases.
Existing holdings eligible for rights of accumulation (see the prospectus and
account application) may be credited toward satisfying the Statement. During
the Statement period reinvested dividends and capital gain distributions,
investments in money market funds, and investments made under a right of
reinstatement will not be credited toward satisfying the Statement.
In the case of purchase orders by the trustees of certain retirement plans by
payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: the regular monthly payroll
deduction investment will be multiplied by 13 and then multiplied by 1.5. The
current value of existing American Funds investments (other than money market
fund investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period are
added to the figure determined above. The sum is the Statement amount and
applicable breakpoint level. On the first investment and all other investments
made pursuant to the statement of intention, a sales charge will be assessed
according to the sales charge breakpoint thus determined. There will be no
retroactive adjustments in sales charges on investments previously made during
the 13-month period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the Investment Company Act of 1940, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company. This offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. In case of orders sent directly to the fund or American Funds
Service Company, an investment dealer MUST be indicated. The dealer is
responsible for promptly transmitting purchase orders to the Principal
Underwriter. Orders received by the investment dealer, 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 are not always indicative of prices at which you will be purchasing
and redeeming shares of the fund, since such prices generally reflect the
previous day's closing price whereas purchases and redemptions are made at the
next calculated closing price.
The price you pay for fund shares, the public offering price, is based on the
net asset value per share which is calculated once daily at the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open as set forth below. The New York Stock Exchange is currently
closed on weekends and on the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas Day. The net asset value per share of the fund is determined as
follows:
1. Long-term debt securities and U.S. Treasury notes are valued at prices
obtained from a bond pricing service provided by a major dealer in bonds, when
such prices are available; however, in circumstances where the Investment
Adviser deems it appropriate to do so, such securities will be valued at the
mean of representative quoted bid and asked prices. Short-term securities with
60 days or less to maturity are amortized to maturity based on their cost to
the fund if acquired within 60 days of maturity or, if already held by the fund
on the 60th day, based on the value determined on the 61st day. Securities for
which market quotations are not readily available are valued at fair value as
determined in good faith by the Board of Trustees or a committee thereof. The
fair value of any other assets is added to the value of securities to arrive at
total assets; and
2. The fund's liabilities, including proper accruals of expense items, are
deducted from total assets; and
3. The net assets so obtained are then divided by the total number of shares
outstanding and the result, rounded to the nearer cent, is the net asset value
per share.
Any purchase order may be rejected by the Principal Underwriter or by the
fund. The fund will not knowingly sell fund shares (other than for the
reinvestment of dividends or capital gain distributions) directly or indirectly
or through a unit investment trust to any other person or entity, where, after
the sale, such 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 Board of Trustees.
REDEEMING SHARES
<TABLE>
<CAPTION>
<S> <C>
By writing to Send a letter of instruction specifying
American Funds the name of the fund, the number of shares
Service Company (at or dollar amount to be sold, your name and
the appropriate account number. You should also enclose
address indicated any share certificates you wish to redeem.
under "Principal For redemptions over $50,000 and for
Underwriter and certain redemptions of $50,000 or less
Transfer (see below), your signature must be
Agent" in the guaranteed by a bank, savings association,
Prospectus) credit union, or member firm of a domestic
stock exchange or the National Association
of Securities Dealers, Inc. that is an
eligible guarantor institution. You
should verify with the institution that it
is an eligible guarantor prior to signing.
Additional documentation may be required
for redemption of shares held in
corporate, partnership or fiduciary
accounts. Notarization by a Notary Public
is not an acceptable signature guarantee.
By contacting your If you redeem shares through your
investment investment dealer, you may be charged for
dealer this service. SHARES HELD FOR YOU IN YOUR
INVESTMENT DEALER'S STREET NAME MUST BE
REDEEMED THROUGH THE DEALER.
You may have a You may use this option, provided the
redemption account is registered in the name of an
check sent to you individual(s), a UGMA/UTMA custodian, or a
by using non-retirement plan trust. These
American FundsLineR redemptions may not exceed $10,000 per
or by day, per fund account and the check must
telephoning, be made payable to the shareholder(s) of
faxing, or record and be sent to the address of
telegraphing record provided the address has been used
American Funds with the account for at least 10 days.
Service Company See "Principal Underwriter and Transfer
(subject to the Agent" in the Prospectus and "Exchange
conditions noted in Privilege" below for the appropriate
this section and in telephone or fax number.
"Telephone
Purchases, Sales and
Exchanges" below)
In the case of the Upon request (use the account application
money for the money market funds) you may
market funds, you establish telephone redemption privileges
may have (which will enable you to have a
redemptions wired redemption sent to your bank account)
to your and/or check writing privileges. If you
bank by telephoning request check writing privileges, you will
American Funds be provided with checks that you may use
Service Company to draw against your account. These
($1,000 or more) or checks may be made payable to anyone you
by writing a check designate and must be signed by the
($250 or more) authorized number of registered
shareholders exactly as indicated on your
checking account signature card.
</TABLE>
A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY REDEMPTION OF $50,000
OR LESS PROVIDED THE REDEMPTION CHECK IS MADE PAYABLE TO THE REGISTERED
SHAREHOLDER(S) AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE ADDRESS HAS
BEEN USED WITH THE ACCOUNT FOR AT LEAST 15 DAYS.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares. Shares held
for the longest period are assumed to be redeemed first for purposes of
calculating this charge. The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer-sponsored
retirement plan; for distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 591/2; for tax-free returns of excess
contributions to IRAs; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the dates you select Bank accounts will be
charged on the day or a few days before investments are credited, depending on
the bank's capabilities, and shareholders will receive a confirmation statement
showing the current transaction. Participation in the plan will begin within
30 days after receipt of the account application. If the shareholder's bank
account cannot be charged due to insufficient funds, a stop-payment order or
closing of the account, the plan may be terminated and the related investment
reversed. The shareholder may change the amount of the investment or
discontinue the plan at any time by writing the Transfer Agent.
AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the "paying fund") into any other fund in The
American Funds Group (the "receiving fund") subject to the following
conditions: (i) the aggregate value of the shareholder's account(s) in the
paying fund(s) must equal or exceed $5,000 (this condition is waived if the
value of the account in the receiving fund equals or exceeds that fund's
minimum initial investment requirement), (ii) as long as the value of the
account in the receiving fund is below that fund's minimum initial investment
requirement, dividends and capital gain distributions paid by the receiving
fund must be automatically reinvested in the receiving fund, and (iii) if this
privilege is discontinued with respect to a particular receiving fund, the
value of the account in that fund must equal or exceed the fund's minimum
initial investment requirement or the fund shall have the right, if the
shareholder fails to increase the value of the account to such minimum within
90 days after being notified of the deficiency, automatically to redeem the
account and send the proceeds to the shareholder. These cross-reinvestments of
dividends and capital gain distributions will be at net asset value (without
sales charge).
EXCHANGE PRIVILEGE- You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLineR (see "American FundsLineR" below), or by telephoning 800/421-0180
toll-free, faxing (see "Principal Underwriter and Transfer Agent" in the
Prospectus for the appropriate fax numbers) or telegraphing American Funds
Service Company. (See "Telephone Redemptions and Exchanges" below.) Shares held
in corporate-type retirement plans for which Capital Guardian Trust Company
serves as trustee may not be exchanged by telephone, fax or telegraph. Exchange
redemptions and purchases are processed simultaneously at the share prices next
determined after the exchange order is received. (See "Purchase of
Shares--Price of Shares.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS
ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES - You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS - Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments and dividend reinvestments, will be reflected on regular
confirmation statements from American Funds Service Company. Purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
AMERICAN FUNDSLINER - You may check your share balance, the price of your
shares, or your most recent account transaction, redeem shares (up to $10,000
per fund, per account each day), or exchange shares around the clock with
American FundsLineR. To use this service, call 800/325-3590 from a TouchTonet
telephone. Redemptions and exchanges through American FundsLineR are subject
to the conditions noted above and in "Redeeming Shares--Telephone Redemptions
and Exchanges" below. You will need your fund number (see the list of funds in
The American Funds Group under "Purchase of Shares--Investment Minimums and
Fund Numbers"), personal identification number (the last four digits of your
Social Security number or other tax identification number associated with your
account) and account number.
TELEPHONE REDEMPTIONS AND EXCHANGES - By using the telephone (including
American FundsLineR), 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.
EXECUTION OF PORTFOLIO TRANSACTIONS
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the Fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the Fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner.
Brokerage commissions paid on portfolio transactions, including dealer
concessions on underwritings, for the fiscal years ended August 31, 1996, 1995,
and 1994, amounted to $333,703, $124,750, and $224,500, 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.
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 $1,138,000 for the fiscal year ended August 31, 1996.
INDEPENDENT AUDITORS - Deloitte & Touche LLP, 1000 Wilshire Boulevard, 15th
Floor, Los Angeles, CA 90017, has served as the fund's independent auditors
since its inception, providing audit services, preparation of tax returns and
review of certain documents to be filed with the Securities and Exchange
Commission. The financial statements included in this Statement of Additional
Information have been so included in reliance on the report of the independent
auditors given on the authority of said firm as experts in accounting and
auditing.
REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on August 31.
Shareholders are provided at least semiannually with reports showing the
investment portfolio, financial statements and other information. The fund's
annual financial statements are audited annually by the Trust's independent
auditors, Deloitte & Touche LLP, whose selection is determined by the
Trustees.
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. You may obtain a summary of
the personal investing policy by contacting the Secretary of the fund.
The financial statements including the investment portfolio and the report of
Independent Auditors contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
OFFERING PRICE PER SHARE -- AUGUST 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Net asset value and redemption price per share
(Net assets divided by $13.26
shares outstanding)
Offering price per share (100/95.25 of per share
net asset value, which
takes into account the
Fund's current $13.92
maximum sales charge)
</TABLE>
SHAREHOLDER AND TRUSTEE RESPONSIBILITY - Under the laws of certain states,
including Massachusetts, where the fund was organized, and California, where
the fund's principal office is located, shareholders of a Massachusetts
business trust may, under certain circumstances, be held personally liable as
partners for the obligations of the fund. However, the risk of a shareholder
incurring any financial loss on account of shareholder liability is limited to
circumstances in which the fund itself would be unable to meet its obligations.
The Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the fund and provides that notice of the
disclaimer may be given in each agreement, obligation, or instrument which is
entered into or executed by the fund or Trustees. The Declaration of Trust
provides for indemnification out of fund property of any shareholder held
personally liable for the obligations of the fund and also provides for the
fund to reimburse such shareholder for all legal and other expenses reasonably
incurred in connection with any such claim or liability.
Under the Declaration of Trust, the Trustees or officers are not liable for
actions or failure to act; however, they are not protected from liability by
reason of their willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their office. The fund will
provide indemnification to its Trustees and officers as authorized by its
By-Laws and by the 1940 Act and the rules and regulations thereunder.
SHAREHOLDER VOTING RIGHTS - All shares of the fund have equal voting rights and
may be voted in the elections of Trustees and on other matters submitted to the
vote of shareholders. As permitted by Massachusetts law, there will normally
be no meetings of shareholders for the purpose of electing Trustees unless and
until such time as less than a majority of the Trustees holding office have
been elected by shareholders. At that time, the Trustees then in office will
call a shareholders' meeting for the election of Trustees. The Trustees must
call a meeting of shareholders for the purpose of voting upon the question of
removal of any Trustee when requested to do so by the record holders of 10% of
the outstanding shares. At such a meeting, a Trustee may be removed after the
holders of record of not less than two-thirds of the outstanding shares have
declared that the Trustee be removed either by declaration in writing or by
votes cast in person or by proxy. Except as set forth above, the Trustees
shall continue to hold office and may appoint successor Trustees. The shares
do not have cumulative voting rights, which means that the holders of a
majority of the shares voting for the election of Trustees can elect all the
Trustees. No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the fund except
that amendments may be made upon the sole approval of the Trustees to conform
the Declaration of Trust to the requirements of applicable Federal laws or
regulations or the requirements of the regulated investment company provisions
of the Code; however, the Trustees shall not be held liable for failing to do
so. If not terminated by the vote or written consent of a majority of the
outstanding shares, the fund will continue indefinitely.
INVESTMENT RESULTS
The fund's yield is 5.77% based on the 30-day (or one month) period ended
August 31, 1996, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[( a-b/cd + 1)/6/ - 1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The fund may also calculate a distribution rate on a taxable and tax
equivalent basis. The distribution rate is computed by annualizing the current
month's dividend and dividing by average net asset value or maximum offering
price for the month. The distribution rate may differ from the yield.
In addition, investments in premium bonds may affect the fund's distribution
rate. A premium bond is bond which is purchased for more than its face value.
Because of this, the bond usually pays a higher than market rate interest, but
the value of the bond (which affects the net asset value of the fund) will be
lower than its purchase price as it nears maturity. The SEC yield takes into
account the long-term effects of premium bonds (I.E., for a premium bond, the
income must be regularly reduced (amortized) by an amount that provides for the
future decrease in value of the bond) whereas the distribution rate may not.
Therefore, the distribution rates of bond funds that invest in premium bonds
(and do not amortize) usually are higher than their SEC yields.
Income from "roll" transactions (the sale of GNMA certificates or other
securities together with a commitment, for which the fund receives a fee, to
purchase similar securities at a future date) is recorded for accounting
purposes as interest income ratably over the term of each roll and is included
in net investment income for purposes of determining the fund's yield.
As of August 31, 1996, the fund's total return over the past 12 months and
average annual total returns over the past five-year and lifetime periods were
% -0.32%, 5.63% and 6.56%. The average annual total return ("T") will be
computed by equating the value at the end of the period ("ERV") with a
hypothetical initial investment of $1,000 ("P") over a period of years ("n")
according to the following formula as required by the Securities and Exchange
Commission: P(1+T)/n/ = ERV.
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) deduction of the maximum sales load of
4.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated. The
Fund will calculate total return for one-, five- and ten-year periods after
such periods have elapsed. In addition, the Fund will provide lifetime average
total return figures.
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, 1996 ( 121 in all), those funds
have had better total returns that the Standard and Poor's 500 Composite Stock
Index in 94 of the 121 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
The fund may also refer to results compiled by organizations such as Lipper
Analytical Services, Morningstar, Inc. and Wiesenberger Investment Companies
Services. Additionally, the fund may, from time to time, refer to results
published in various newspapers or periodicals, including Barrons, Forbes,
Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine, Money,
U.S. News and World Report and The Wall Street Journal.
The Benefits of Systematic Investing
<TABLE>
<CAPTION>
Here's how much you would have if you
invested $2,000 a year in the fund:
<S> <C> <C>
2 years 4 years Lifetime
(9/1/94-8/31/96) (9/1/92-8/31/96) (2/19/88-8/31/96)
$4,153 $8,605 $23,525
</TABLE>
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
If you had invested Periods ... and taken all
$10,000 in the fund 9/1-8/31 distributions in shares,
this many years ago... your investment would
Number of Years have been worth this
much at August 31, 1996
Value**
<S> <C> <C>
1 1995 - 1996 $9,969
2 1994 - 1996 10,794
3 1993 - 1996 10,602
4 1992 - 1996 11,658
5 1991 - 1996 13,150
6 1990 - 1996 14,687
7 1989 - 1996 15,632
8 1988 - 1996 17,040
Lifetime 1988* - 1996 17,199
</TABLE>
* From inception, 2/19/88 through 8/31/95.
** Results assume deduction of the maximum sales charge of 4.75% from the
initial purchase payment.
* * * * * * * *
Illustration of a $10,000 investment in the Fund WITH DIVIDENDS REINVESTED
(For the lifetime of the Fund February 19, 1988 - August 31, 1996)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES**
Fiscal Annual Dividends Total From From From Total
Year End Dividends (cumulative) Investment Initial Capital Gains Dividends Value
August 31 Cost Investment Reinvested Reinvested
<S> <C> <C> <C> <C> <C> <C> <C>
1988* $ 411 $ 411 $10,411 $9,207 --- $ 406 $ 9,613
1989 885 1,296 11,296 9,187 --- 1,291 10,478
1990 1,000 2,296 12,296 8,913 --- 2,239 11,152
1991 1,029 3,325 13,325 9,127 --- 3,333 12,460
1992 1,033 4,358 14,358 9,520 --- 4,534 14,054
1993 1,022 5,380 15,380 9,760 --- 5,692 15,452
1994 1,020 6,400 16,400 8,920 70 6,184 15,174
1995 1,084 7,484 17,484 9,013 71 7,355 16,439
1996 1,096 8,580 18,580 8,840 70 8,289 17,199
</TABLE>
The dollar amount of capital gain distributions during the period was $75.
* From inception on February 19, 1988.
** Results assume deduction of the maximum sales charge of 4.75% from the
initial purchase payment.
APPENDIX
DESCRIPTION OF BOND RATINGS
Moody's Investors Service, Inc. rates "investment grade" long-term debt
obligations issued by various entities from "Aaa" to "Baa." The two top
ratings are as follows:
"Bonds which are rated Aaa are judged to be of the best quality. They 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."
"Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities."
Standard & Poor's Corporation rates the investment grade long-term debt
obligations of various entities in categories ranging from "AAA" to "BBB"
according to quality. The two top ratings are as follows:
"Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong."
"Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree."
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc. employs the designations "Prime-1," "Prime-2"
and "Prime-3" to indicate commercial paper having the highest capacity for
timely repayment. Issuers rated Prime-1 have a superior capacity for repayment
of short-term promissory obligations. Prime-1 repayment capacity will normally
be evidenced by the following characteristics: leading market positions in
well-established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt and ample
asset protections; broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and well-established access to a
range of financial markets and assured sources of alternate liquidity. Issues
rated Prime-2 have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Standard & Poor's Corporation's ratings of commercial paper are graded into
four categories ranging from "A" for the highest quality obligations to "D" for
the lowest. A -- Issues assigned its highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with numbers 1, 2, and 3 to indicate the relative degree of safety. A-1 --
This designation indicates that the degree of safety regarding timely payment
is either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics will be denoted with a plus (+) sign
designation. A-2 -- Capacity for timely payments on issues with this
designation is strong. However, the relative degree of safety is not as high
as for issues designated "A-1."
_____
SUBSEQUENT TO ITS PURCHASE BY THE FUND, THE RATING OF AN ISSUE OF SECURITIES
MAY BE REDUCED BELOW THE CURRENT MINIMUM RATING REQUIRED FOR ITS PURCHASE, OR
IN THE CASE OF AN UNRATED ISSUE OF SECURITIES, ITS CREDIT QUALITY MAY BECOME
EQUIVALENT TO AN ISSUE OF SECURITIES RATED BELOW THAT REQUIRED FOR PURCHASE.
NEITHER EVENT REQUIRES THE ELIMINATION OF SUCH AN OBLIGATION FROM THE FUND'S
PORTFOLIO, BUT CAPITAL RESEARCH AND MANAGEMENT COMPANY WILL CONSIDER SUCH AN
EVENT IN DETERMINING WHETHER THE FUND SHOULD CONTINUE TO HOLD SUCH AN
OBLIGATION IN ITS PORTFOLIO.
<TABLE>
Intermediate Bond Fund of America
Investment Portfolio August 31, 1996
Principal Market Percent
Amount Value of Net
Bonds & Notes (000) (000) Assets
<S> <C> <C> <C>
Industrial & Service- 0.47%
BP America Inc. 10.00% 2018 (1998) /1/ $2,600 $2,836 .20%
Schering-Plough Corp. 0% 1996 4,000 3,945 .27
------------- --------
6,781 .47
------------ --------
Utilities- 1.00%
Big Rivers Electric Corp. 9.50% 2017 10,000 10,818 .76
Northern Telecom Ltd. 8.75% 2001 3,250 3,449 .24
------------ --------
14,267 1.00
----------- --------
Financial Services- 3.59%
AB Svensk Exportkredit (Swedish Export Credit
Corp.) Debentures 9.875% 2038 4,000 4,349 .31
ABN AMRO Bank NV, Chicago Branch 7.25% 2005 4,000 4,006 .28
Airplanes Pass Through Trust, pass-through certificates,
Series 1, Class A-3 5.89% 2015 (2001) /1/ /3/ 10,000 10,038 .70
Barclays North American Capital Corp. 9.75% 2021 7,230 7,954 .56
Beverly Finance Corp. 8.36% 2004 10,000 10,203 .71
Corporate Property Investors:
9.00% 2002 9,500 10,089
7.75% 2004 2,000 1,989 .85
General Electric Capital Corp. 8.375% 2001 1,500 1,575 .11
National Westminster Bancorp Inc. 12.125% 2002 (1997) /1/ 1,000 1,062 .07
------------ --------
51,265 3.59
------------ --------
Collateralized Mortgage Obligations
(Privately Originated) /2/- 8.54%
Chase Manhattan Bank, NA:
Series 1996-1, Class A1, 7.60% 2005 1,996 2,016
Series 1993-I, Class 2A-5, 7.25% 2024 7,500 7,013 .63
CS First Boston Mortgage Securities Corp., Series 1995-AEW1:
Class A-1, 6.665% 2027 7,119 7,012
Class B, 7.182% 2027 /3/ 7,200 6,930 .98
J.P. Morgan Commercial Mortgage Finance Corp., pass-through
certificates, Series 1995-C1, Class A-2, 7.399% 2010 /2/ 18,155 17,860 1.25
Merrill Lynch Mortgage Investors Inc.:
Series 1992B, Class A-2, 8.05% 2012 7,977 8,022
Series 1992B, Class A-3, 8.30% 2012 10,000 10,203
Series 1995-C2, Class A, 7.471% 2021 /3/ 8,944 8,955 2.24
Series 1995-C3, Class A-2, 6.848% 2025 /3/ 5,000 4,850
Morgan Stanley Capital Inc.,
Series 1995-GA1, Class A1, 7.00% 2002 8,168 8,128 .57
Paine Webber CMO Pac, Series O, Class 5, 9.50% 2019 5,000 5,278 .37
Prudential Home Mortgage Securities Co., Inc.:
Series 1992-33, Class A-12, 7.50% 2022 1,610 1,610
Series 1992-37, Class A-6, 7.00% 2022 8,029 7,999 .67
Structured Asset Securities Corp.,
Series 1996-CFL, Class A1-C, 5.944% 2028 4,900 4,689 .33
Wells Fargo Capital Martkets APT Financing Trust 6.56% 2002 10,000 9,925 .69
Westam Mortgage, Class 4-H, 8.95% 2018 11,000 11,615 .81
------------ --------
122,105 8.54
------------ --------
Asset-Backed Obligations /2/- 6.87%
Case Equipment Loan Trust 1995-A 7.30% 2002 5,269 5,250 .37
Chemical Financial Acceptance Corp., 1989-A, 9.25% 1998 9,922 10,126 .71
Ford Motor Credit Co. 1994-A, 6.35% 1999 844 845 .06
GCC Home Equity Trust, asset-backed certificates,
1990-1, 10.00% 2005 3,551 3,649 .25
Green Tree Financial Corp., pass-through certificates:
Series 1993-3, Class A5, 5.75% 2018 10,000 9,541
Series 1995-1, Class A2, 7.80% 2025 9,349 9,413
Series 1995-1, Class A3, 7.95% 2025 4,000 4,064 1.90
Series 1995-9, Class A4, 6.45% 2027 4,250 4,107
MBNA Credit Card Trust, asset-backed certificates,
1991-1, 7.75% 1998 (1997) /1/ 1,333 1,339 .09
Standard Credit Card Master Trust I, credit card
participation certificates:
Series 1991-3, Class A, 8.875% 1999 (1998) /1/ 9,050 9,384
Series 1991-6, Class A, 7.875% 2000 (1998) /1/ 23,750 24,284 2.36
Town & Country Funding Corp. 5.85% 2000 (1998) /1/ 15,000 14,663 1.03
UCFC Acceptance corp. pass-through certificates,
Series 1996-B1, Class A2, 7.075% 2010 1,500 1,503 .10
------------ --------
98,168 6.87
------------- --------
Governments (Excluding U.S. Government) &
Government Authorities- 3.55%
British Columbia Hydro & Power Authority 12.50% 2013 (1998)1 2,000 2,281 .16
Ontario (Province of):
7.75% 2002 10,000 10,310
7.00% 2005 5,000 4,872
17.00% 2011 (1996) /1/ 3,100 3,358
15.25% 2012 (1997) /1/ 5,550 6,305 1.98
15.75% 2012 (1997) /1/ 105 116
11.50% 2013 (1997) /1/ 3,000 3,326
County of Orange, California Taxable Pension Obligation
Bonds, Series 1994A, 6.81% 1996 5,000 4,988 .35
Finland (Republic of) Debenture 9.625% 2028 10,639 11,447 .80
Victorian (Territory of) Public Authorities Finance Agency
8.45% 2001 3,500 3,705 .26
------------ --------
50,708 3.55
------------ --------
Development Authorities- 0.59%
International Bank for Reconstruction and Development
14.90% 1997 8,000 8,500 .59
Federal Agency Mortgage Pass-Through Obligations /2/- 25.58%
Federal Home Loan Mortgage Corp.:
8.00% 2003-2017 6,723 6,808
8.50% 2008-2021 8,860 9,154
8.75% 2008-2009 1,282 1,325
9.50% 2013 738 791
10.00% 2004-2026 23,568 25,493 3.09
11.00% 2018 49 55
12.00% 2013 252 282
12.50% 2013 130 151
12.75% 2019 70 80
Federal National Mortgage Assn.:
7.00% 2008-2023 14,135 13,861
7.50% 2009-2024 26,200 26,090
8.00% 2002-2005 2,397 2,436
8.50% 2008-2023 12,466 12,812
9.00% 2001-2022 15,276 16,015
9.50% 2009-2020 4,693 5,065 7.93
10.00% 2017-2025 26,818 29,174
10.50% 2004-2020 2,471 2,708
11.00% 2000-2020 4,665 5,172
12.25% 2013 25 27
Government National Mortgage Assn.:
5.00% 2025-2026 /3/ 6,726 6,516
6.50% 2023-2024 /3/ 78,499 78,843
7.00% 2007-2024 /3/ 16,071 16,122
7.125% 2023 /3/ 5,337 5,397
8.00% 2023 1,272 1,280
8.50% 2007-2026 41,563 42,737
9.00% 2008-2025 18,176 19,075
9.50% 2009-2021 21,478 23,117 14.65
9.75% 1999 137 143
10.00% 2026 11,784 12,892
10.25% 2012 329 344
10.50% 2019 137 152
11.00% 2010-2019 458 514
11.50% 2010-2013 255 290
12.50% 2010-2014 472 549
------------ --------
365,470 25.73
------------ --------
Federal Agency Collateralized Mortgage Obligations /2/- 4.29%
Federal Home Loan Mortgage Corp., Class B-3, 12.50% 2013 161 177 .01
Federal National Mortgage Assn.:
Series 91-50, Class H, 7.75% 2006 8,036 8,116
Series 91-146, Class Z, 8.00% 2006 3,675 3,656
Series 88-16, Class B, 9.50% 2018 792 849
Series 90-93, Class G, 5.50% 2020 3,850 3,479
Series 91-78, Class PK, 8.50% 2020 10,000 10,216 4.28
Series 90-21, Class Z, 9.00% 2020 25,777 26,389
Series 76, Class F, 9.125% 2020 3,422 3,494
Trust D2, 11.00% 2009 4,350 4,873
------------ --------
61,249 4.29
------------ --------
Federal Agency Obligations--Non-Mortgage- 7.43%
Federal Home Loan Bank Notes:
6.38% 2003 4,000 3,814
6.16% 2004 15,000 14,053 1.45
6.27% 2004 3,000 2,819
Federal Home Loan Mortgage Notes:
5.78% 2003 2,000 1,838
6.30% 2003 9,300 8,835
6.39% 2003 2,000 1,903
6.50% 2003 2,000 1,898
6.61% 2003 16,650 16,050 3.13
6.19% 2004 10,000 9,334
8.36% 2009 5,000 5,064
Federal National Mortgage Assn. Medium-Term Note:
6.14% 2004 3,000 2,794
7.37% 2004 8,800 8,653 1.17
6.53% 2006 5,625 5,227
FNSM Callable Principal STRIPS,1991-B8,
0%/7.89% 2002 /4/ 25,000 23,949 1.68
------------ --------
106,231 7.43
------------ --------
U.S. Treasury Obligations- 35.40%
6.75% February 1997 50,000 50,289 3.52
8.125% February 1998 37,000 37,971 2.66
9.25% August 1998 24,250 25,527 1.79
5.125% November 1998 55,000 53,565 3.75
9.125% May 1999 30,000 31,917 2.23
6.75% June 1999 59,000 59,369 4.15
7.75% November 1999 5,500 5,683 .40
7.125% February 2000 8,000 8,124 .57
8.00% May 2001 15,250 16,034 1.12
13.375% August 2001 15,000 19,158 1.34
7.50% November 2001 10,000 10,320 .72
10.75% February 2003 5,000 6,003 .42
10.75% May 2003 21,750 26,226 1.84
11.125% August 2003 12,500 15,397 1.08
7.25% May 2004 47,750 48,750 3.41
7.25% August 2004 5,500 5,614 .39
11.625% November 2004 46,750 60,329 4.22
6.50% May 2005 15,000 14,580 1.02
8.75% November 2008 (2003) /1/ 10,000 10,955 .77
------------ --------
505,811 35.40
------------ --------
Total Bonds & Notes (cost: $1,410,300,000) 1,382,055 97.31
------------ --------
Short-Term Securities
Commercial Paper- 1.83%
General Electric Capital Corp. 5.28% due 9/3/96 26,190 26,179 1.83
------------- --------
Total Short-Term Securities (cost: $26,178,000) 26,179 1.83
------------- --------
Total Investment Securities (cost: $1,436,478,000) 1,408,234 99.14
Excess of cash and receivables over payables 12,224 .86
------------- --------
Net Assets $1,420,458 100.00%
============= ========
/1/ Valued in the market on the basis of its effective maturity -- that is, the date at which the
security is expected to be called or refunded by the issuer or the date at which the investor can put the security to
the issuer for redemption. Effective maturity date is shown in parentheses.
/2/ Pass-through security backed by a pool of mortgages or other loans on which principal payments are periodically made.
Therefore, the effective maturity of this security is shorter than the stated maturity.
/3/ Coupon rate may change periodically. The maturity of variable or floating rate instruments is deemed to be the time remaining
until the next interest rate adjustment date.
/4/ Zero-coupon bond which will convert to a coupon-bearing security at a later date.
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C>
Intermediate Bond Fund of America
Financial Statements
- ---------------------------------------- ------------ ------------
Statement of Assets and Liabilities
at August 31, 1996 (dollars in thousands)
- ---------------------------------------- ------------ ------------
Assets:
Investment securities at market
(cost: $1,436,478) $1,416,734
Cash 28
Receivables for-
Sales of investments $ 513
Sales of fund's shares 3,017
Accrued interest 18,711 22,241
------------ ------------
1,439,003
Liabilities:
Payables for-
Purchases of investments 1,447
Repurchases of fund's shares 6,837
Dividends payable 521
Management services 488
Accrued expenses 752 10,045
------------ ------------
Net Assets at August 31, 1996
Equivalent to $13.26 per share on
107,795,430 shares of beneficial
interest issued and outstanding;
unlimited shares authorized $1,428,958
=============
Statement of Operations
for the year ended August 31, 1996 (dollars in thousands)
------------ ------------
Investment Income:
Income:
Interest $ 110,398
Expenses:
Management services fee 5,990
Distribution expenses 4,456
Transfer agent fee 1,138
Reports to shareholders 96
Registration statement and prospectus 84
Postage, stationery and supplies 158
Trustees' fees 30
Auditing and legal fees 45
Custodian fee 63
Taxes other than federal income tax 19 12,079
------------ ------------
Net investment income 98,319
------------
Realized Loss and Change in Unrealized
Appreciation (Depreciation) on Investments:
Net realized loss (2,986)
Net unrealized appreciation (depreciation)
on investments:
Beginning of year 8,386
End of year (19,744)
------------
Net change in unrealized appreciation
(depreciation) on investments (28,130)
------------
Net realized loss and change in unrealized
appreciation (depreciation) on investments (31,116)
------------
Net Increase in Net Assets Resulting
from Operations $67,203
============
Statement of Changes in Net
Assets (dollars in thousands)
- ---------------------------------------- --------------------------
Year ended August 31,
1996 1995
Operations: --------------------------
Net investment income $ 98,319 $ 104,689
Net realized loss on investments (2,986) (47,764)
Net change in unrealized (depreciation)
(28,130) 59,259
--------------------------
Net increase in net assets
resulting from operations 67,203 116,184
--------------------------
Dividends paid from net investment income (97,453) (103,958)
--------------------------
Capital Share Transactions:
Proceeds from shares sold:
54,126,644 and 38,884,119
shares, respectively 732,449 515,751
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
5,424,112 and 5,917,803 shares,
respectively 73,190 78,348
Cost of shares repurchased:
62,787,538 and 55,272,862
shares, respectively (847,614) (730,831)
--------------------------
Net decrease in net assets resulting
from capital share transactions (41,975) (136,732)
--------------------------
Total Decrease in Net Assets (72,225) (124,506)
Net Assets:
Beginning of year 1,501,183 1,625,689
--------------------------
End of year (including undistributed
net investment income of $3,359 and
$2,493, respectively) $1,428,958 $1,501,183
==========================
See Notes to Financial Statements
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Intermediate Bond Fund of America (the "fund") is registered under the
Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks current income, consistent with preservation
of capital, within certain guidelines for quality and maturity. The following
paragraphs summarize the significant accounting policies consistently followed
by the fund in the preparation of its financial statements:
Long-term fixed-income obligations are valued at prices obtained for the
day of valuation from a bond-pricing service; however, where prices are not
available from a pricing service and in circumstances where the investment
adviser deems it appropriate to do so, such securities are valued at the mean
of representative quoted bid and asked prices for such securities or, if such
prices are not available, at prices for securities of comparable maturity,
quality and type. Where pricing service or market quotations are not readily
available, securities will be valued at fair value by the Board of Trustees or
a committee thereof. Short-term securities with more than 60 days remaining to
maturity are valued at the mean of their representative quoted bid and asked
prices. Short-term securities with 60 days or less remaining to maturity are
valued at amortized cost, which approximates market value.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. In the event
the fund purchases securities on a delayed-delivery or "when-issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in these transactions. Realized gains and losses from
securities transactions are reported on an identified cost basis. Interest
income is reported on the accrual basis. Discounts and premiums on securities
purchased are amortized over the life of the respective securities. Dividends
to shareholders are declared daily after determination of the fund's net asset
value and paid to shareholders monthly.
Pursuant to the custodian agreement, the fund receives credit against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $63,000 includes $31,000 that was paid by credits rather
than in cash.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net investment income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of August 31, 1996, net unrealized depreciation on investments for
book and federal income tax purposes aggregated $19,744,000, of which
$10,036,000 related to appreciated securities and $29,780,000 related to
depreciated securities. During the year ended August 31, 1996, the fund
realized, on a tax basis, a net capital loss of $2,968,000 on security
transactions. The fund has available at August 31, 1996, a net capital loss
carryforward of $78,879,000 which may be used to offset capital gains realized
during subsequent years through 2004 and thereby relieve the fund and its
shareholders of any federal income tax liability with respect to the capital
gains that are so offset. It is the intention of the fund not to make
distributions from capital gains while there is a capital loss carryforward.
The cost of portfolio securities for book and federal income tax purposes was
$1,436,478,000 at August 31, 1996.
3. The fee of $5,990,000 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Trustees of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.30% of the first $60 million of average net assets;
0.21% of such assets in excess of $60 million but not exceeding $1 billion;
0.18% of such assets in excess of $1 billion but not exceeding $3 billion; and
0.16% of such assets in excess of $3 billion; plus 3.00% on the first
$3,333,333 of the fund's monthly gross investment income; 2.50% of such income
in excess of $3,333,333 but not exceeding $8,333,333; and 2.00% of such income
in excess of $8,333,333.
Pursuant to a Plan of Distribution, the fund may expend up to 0.30% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Trustees. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the year ended August 31, 1996,
distribution expenses under the Plan were $4,456,000. As of August 31, 1996,
accrued and unpaid distribution expenses were $674,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $1,138,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $1,962,000 (after
allowances to dealers) as its portion of the sales charges paid by purchasers
of the fund's shares. Such sales charges are not an expense of the fund and,
hence, are not reflected in the accompanying statement of operations.
Trustees who are unaffiliated with CRMC may elect to defer part or all of
the fees earned for services as members of the Board. Amounts deferred are not
funded and are general unsecured liabilities of the fund. As of August 31,
1996, aggregate amounts deferred and earnings thereon were $38,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain of the Trustees and officers of the
fund are or may be considered to be affiliated with CRMC, AFS and AFD. No such
persons received any remuneration directly from the fund.
4. As of August 31, 1996, accumulated net realized loss on investments was
$82,813,000 and paid-in capital was $1,528,156,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $695,501,000 and $700,159,000, respectively, during
the year ended August 31, 1996.
<TABLE>
PER-SHARE DATA AND RATIOS
- ------------------------------ ----------- ----------- -------- -------- --------
Year Ended August 31
----------- ----------- -------- -------- --------
1996 1995 1994 1993 1992
----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year...................... $13.52 $13.38 $14.64 $14.28 $13.69
----------- ----------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 0.88 0.93 0.95 1.00 1.09
Net realized and unrealized
gain (loss) on investments. (0.27) 0.13 (1.20) 0.37 0.59
Total from investment ----------- ----------- -------- -------- --------
operations................ 0.61 1.06 (0.25) 1.37 1.68
----------- ----------- -------- -------- --------
Less Distributions:
Dividends from net investment
income...................... (0.87) (0.92) (0.94) (1.01) (1.09)
Distributions from capital gains - - (.07) - -
----------- ----------- -------- -------- --------
Total distributions........ (.87) (.92) (1.01) (1.01) (1.09)
----------- ----------- -------- -------- --------
Net Asset Value, End of Year.. $13.26 $13.52 $13.38 $14.64 $14.28
=========== =========== ======== ======== ========
Total Return*................. 4.63% 8.33% (1.80%) 9.95% 12.79%
Ratios/Supplemental Data:
Net assets, end of year (in
millions)................... $1,429 $1,501 $1,626 $1,686 $1,215
Ratio of expenses to average
net assets.................. .80% .78% .83% .82% .90%
Ratio of net income to
average net assets.......... 6.53% 6.96% 6.79% 7.00% 7.66%
Portfolio turnover rate...... 48.25 % 71.91 % 52.94 % 42.59 % 45.01 %
* This was calculated without deducting a sales charge.
The maximum sales charge is 4.75% of the fund's
offering price.
</TABLE>
Independent Auditors' Report
To the Board of Trustees and Shareholders
of Intermediate Bond Fund of America:
We have audited the accompanying statement of assets and liabilities of
Intermediate Bond Fund of America, including the schedule of portfolio
investments as of August 31, 1996, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the per-share data and ratios for each of
the five years in the period then ended. These financial statements and the
per-share data and ratios are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
per-share data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
per-share data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at August 31, 1996, by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of Intermediate Bond Fund of America as of August 31, 1996, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the per-share
data and ratios for each of the five years in the period then ended, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Los Angeles, California
September 22, 1996
Tax Information (Unaudited)
Certain states may exempt from income taxation a portion of the dividends paid
from net investment income if derived from direct U.S. Treasury obligations.
For purposes of computing this exclusion, 45% of the dividends paid by the fund
from net investment income was derived from interest on direct U.S. Treasury
obligations.
Dividends received by retirement plans such as IRAs, Keogh-type plans, and
403(b) plans need not be reported as taxable income. However, many retirement
trusts may need this information for their annual information reporting.
Since the amounts above are report for the fiscal year and not a calendar year,
shareholders should refer to their Form 1099-DIV or other tax information which
will be mailed in January 1996 to determine the CALENDAR YEAR amounts to be
included on their respective 1995 tax returns. Shareholders should consult
their tax advisers.
