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[LOGO OF THE AMERICAN FUNDS GROUP(R)]
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Intermediate Bond Fund
of America(R)
Prospectus
NOVEMBER 1, 1997
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INTERMEDIATE BOND FUND OF AMERICA
333 South Hope Street
Los Angeles, CA 90071
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Expenses 3 Investment Results 10
................................ .............................................
Financial Highlights 4 Dividends, Distributions and Taxes 11
................................ .............................................
Investment Policies and Fund Organization and Management 12
Risks 5
................................ .............................................
Securities and Investment
Techniques 6 Shareholder Services 15
................................
Multiple Portfolio
Counselor System 9
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</TABLE>
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.
23-010-1197
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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 and return.
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Fund operating expenses are paid out of the fund's assets
and are factored into its share price.
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)
<TABLE>
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<S> <C>
Management fees .40%
................................................................................
12b-1 expenses .30%/1/
................................................................................
Other expenses .12%
................................................................................
Total fund operating expenses .82%
</TABLE>
/1/ 12b-1 expenses may not exceed 0.30% of the fund's average net assets
annually.
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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<TABLE>
<S> <C>
One year $ 55
................................................................................
Three years $ 72
................................................................................
Five years $ 91
................................................................................
Ten years $144
</TABLE>
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY. YOUR EXPENSES WILL BE LESS IF YOU QUALIFY TO PURCHASE
SHARES AT A REDUCED OR NO SALES CHARGE.
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>
YEAR ENDED AUGUST 31
....................
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988/1/
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $13.26 $13.52 $13.38 $ 14.64 $14.28 $13.69 $13.37 $13.78 $13.81 $ 14.29
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INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income .86 .88 .93 .95 1.00 1.09 1.21 1.20 1.25 .61
............................................................................................................
Net realized and
unrealized gain (loss)
on investments .15 (.27) .13 (1.20) .37 .59 .30 (.35) (.07) (.48)
............................................................................................................
Total income (loss) from
investment operations 1.01 .61 1.06 (.25) 1.37 1.68 1.51 .85 1.18 .13
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LESS DISTRIBUTIONS:
Dividends from net
investment income (.85) (.87) (.92) (.94) (1.01) (1.09) (1.19) (1.26) (1.21) (.61)
............................................................................................................
Distributions from
capital gains -- -- -- (.07) -- -- -- -- -- --
............................................................................................................
Total distributions (.85) (.87) (.92) (1.01) (1.01) (1.09) (1.19) (1.26) (1.21) (.61)
............................................................................................................
Net asset value,
end of year $13.42 $13.26 $13.52 $13.38 $14.64 $14.28 $13.69 $13.37 $13.78 $13.81
............................................................................................................
Total return/2/ 7.83% 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) $1,338 $1,429 $1,501 $ 1,626 $1,686 $1,215 $ 407 $ 162 $ 100 $ 67
............................................................................................................
Ratio of expenses
to average net assets .82% .80% .78% .83% .82% .90% 1.00% 1.00% .88% .41%/3/
............................................................................................................
Ratio of net income
to average net assets 6.40% 6.53% 6.96% 6.79% 7.00% 7.66% 8.67% 8.75% 9.12% 4.79%/3/
...........................................................................................................
Portfolio
turnover rate 41.55% 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 in 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 invest in notes and bonds issued
by governments, their agencies or instrumentalities or corporations in which
the principal value and interest payments vary with the rate of inflation. 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 assets will be invested in
bonds. Limits on the fund's investment policies are determined at the time of
purchase and are based on the fund's net assets unless otherwise stated. The
fund's fundamental investment restrictions (described in the statement of
additional information) and objective may not be changed without shareholder
approval. MORE INFORMATION ON THE FUND'S INVESTMENT POLICIES IS CONTAINED IN
ITS STATEMENT OF ADDITIONAL INFORMATION.
THE FUND MAY NOT ACHIEVE ITS INVESTMENT OBJECTIVE DUE TO MARKET CONDITIONS AND
OTHER FACTORS. IN ADDITION, THE FUND MAY EXPERIENCE DIFFICULTY LIQUIDATING
CERTAIN PORTFOLIO SECURITIES DURING SIGNIFICANT MARKET DECLINES OR PERIODS OF
HEAVY REDEMPTIONS.
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.
PASS-THROUGH SECURITIES
The fund may invest in various debt obligations backed by pools of mortgages or
other assets including loans on single family residences, home equity loans,
mortgages on commercial buildings, credit card receivables, and leases on
airplanes or other equipment. Principal and interest payments made on the
underlying asset pools backing these obligations are typically passed through
to investors. Pass-through securities may have either fixed or adjustable
coupons. These securities include those discussed below.
"Mortgage-backed securities" may be issued both by U.S. government agencies,
including the Government National Mortgage Association (GNMA), the Federal
National Mortgage Association (FNMA), and the Federal Home Loan Mortgage
Corporation (FHLMC), and by private entities. The payment of interest and
principal on securities issued by U.S. government agencies is guaranteed by the
full faith and credit of the U.S. government (in the case of GNMA securities)
or the issuer (in the case of FNMA and FHLMC securities). However, the
guarantees do not apply to the market prices and yields of these securities,
which vary with changes in interest rates.
Mortgage-backed securities issued by private entities are structured similarly
to mortgage-backed securities issued by GNMA, FNMA, and FHLMC. These securities
and the underlying mortgages are not guaranteed by government agencies. In
addition, these securities generally are structured with one or more types of
credit enhancement. Mortgage-backed securities permit borrowers to prepay their
underlying mortgages. Prepayments can alter the effective maturity of these
instruments.
6
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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"Collateralized mortgage obligations" (CMOs) are also backed by pools of
mortgages or mortgage loans, which are divided into two or more separate bond
issues. CMOs issued by U.S. government agencies are backed by agency mortgages,
while privately issued CMOs may be backed by either government agency mortgages
or private mortgages. Payments of principal and interest are passed-through to
each bond at varying schedules resulting in bonds with different coupons,
effective maturities, and sensitivities to interest rates. In fact, some CMOs
may be structured so that when interest rates change the impact of changing
prepayment rates on these securities' effective maturities is magnified.
"Commercial mortgage-backed securities" are backed by mortgages of commercial
property, such as hotels, office buildings, retail stores, hospitals, and other
commercial buildings. These securities may have a lower prepayment risk than
other mortgage-related securities because commercial mortgage loans generally
prohibit or impose penalties on prepayments of principal. In addition,
commercial mortgage-related securities often are structured with some form of
credit enhancement to protect against potential losses on the underlying
mortgage loans. Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate securing the
underlying mortgage loans, including the effects of local and other economic
conditions on real estate markets, the ability of tenants to make loan
payments, and the ability of a property to attract and retain tenants.
"Asset-backed securities" are backed by other assets such as credit card,
automobile or consumer loan receivables, retail installment loans, or
participations in pools of leases. Credit support for these securities may be
based on the underlying assets and/or provided through credit enhancements by a
third party. The values of these securities are sensitive to changes in the
credit quality of the underlying collateral, the credit strength of the credit
enhancement, changes in interest rates, and at times the financial condition of
the issuer. Some asset-backed securities also may receive prepayments which can
change the bonds' effective maturities.
FORWARD COMMITMENTS
The fund may enter into commitments to purchase or sell securities at a future
date. When the fund agrees to purchase such securities, it assumes the risk of
any decline in value of the securities beginning on the date of the agreement.
When the fund agrees to sell such securities, it does not participate in
further gains or losses with respect to the securities. 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.
7
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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In addition, the fund may 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 are the sale of GNMA certificates or other
securities together with a commitment to purchase similar, but not identical,
securities 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.
8
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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 a fund is divided into segments which are managed by individual
counselors. Counselors decide how their respective segments will be invested
(within the limits provided by a fund's objective(s) and policies and by
Capital Research and Management Company's investment committee). In addition,
Capital Research and Management Company's research professionals make
investment decisions with respect to a portion of a fund's portfolio. The
primary individual portfolio counselors for the fund are listed below.
<TABLE>
<CAPTION>
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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
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<S> <C> <C> <C> <C>
ABNER D. President and Trustee 9 years (since 30 years 45 years
GOLDSTINE of the fund. Senior Vice the fund began
President and Director, operations)
Capital Research and
Management Company
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JOHN H. SMET Vice President of the 6 years 14 years 15 years
fund. Vice President,
Capital Research and
Management Company
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THOMAS H. Vice President-- Less than 1 year 8 years 11 years
HOGH Investment
Management Group,
Capital Research and
Management Company
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JOHN W. Vice President-- 6 years 9 years 9 years
RESSNER Investment
Management Group,
Capital Research and
Management Company
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The fund began operations on February 19, 1988.
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</TABLE>
9
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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INVESTMENT RESULTS
The fund may compare investment results to various indices or other mutual
funds. Fund results may be calculated on a total return, yield, and/or
distribution rate basis. Results calculated without a sales charge will be
higher.
[X] TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gain
distributions.
[X] YIELD is computed by dividing the net investment income per share earned by
the fund over a given period of time by the maximum offering price per share
on the last day of the period, according to a formula mandated by the
Securities and Exchange Commission. A yield calculated using this formula
may be different than the income actually paid to shareholders.
[X] DISTRIBUTION RATE reflects dividends that were paid by the fund. The
distribution rate is calculated by annualizing the current month's dividend
and dividing by the average price for the month.
INVESTMENT RESULTS
(FOR PERIODS ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
AVERAGE
ANNUAL THE FUND AT
TOTAL NET THE FUND AT MAXIMUM SALOMON
RETURNS: ASSET VALUE/1/ SALES CHARGE/1/,/2/ BROTHERS/3/ CPI/4/
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<S> <C> <C> <C> <C>
One year 7.57% 2.43% 8.83% 2.15%
................................................................................
Five years 5.60% 4.57% 6.44% 2.67%
................................................................................
Lifetime/5/ 7.28% 6.73% 8.37% 3.48%
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</TABLE>
Yield1,2: 5.55%
Distribution Rate/2/:
5.95%
/1/ These fund results were calculated according to a standard formula that is
required for all stock and bond funds.
/2/ The maximum sales charge has been deducted.
/3/ 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.
/4/ Consumer Price Index
/5/ The fund began investment operations on February 19, 1988.
10
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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Here are the fund's annual total returns calculated without a sales charge.
This information is being supplied on a calendar year basis.
[BAR GRAPH]
Here are the fund's annual total returns calculated without a sales charge.
This information is being supplied on a calendar year basis.
1988 3.21%
1989 10.02%
1990 7.92%
1991 14.30%
1992 6.35%
1993 9.13%
1994 -2.99%
1995 13.86%
1996 4.15%
[END BAR GRAPH]
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.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, or the shareholder does
not respond to mailings from American Funds Service Company with regard to
uncashed distribution checks, the shareholder's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares.
11
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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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 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 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.
12
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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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 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
discussed 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. The 12b-1 fee paid by the fund,
as a percentage of average net assets, for the previous fiscal year is
discussed 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.
13
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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Subject to the above policy, when two or more brokers (either directly or
through their correspondent clearing agents) are in a position to offer
comparable prices and executions, preference may be given to brokers who have
sold shares of the fund or have provided investment research, statistical, and
other related services for the benefit of the fund and/or other funds served by
Capital Research and Management Company.
PRINCIPAL UNDERWRITER AND TRANSFER AGENT
American Funds Distributors, Inc. and American Funds Service Company serve as
the principal underwriter and transfer agent for the fund, respectively. They
are headquartered at 333 South Hope Street, Los Angeles, CA 90071 and 135 South
State College Boulevard, Brea, CA 92821, respectively.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
[MAP OF THE UNITED STATES APPEARS HERE]
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: 804/67-4773
14
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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 OR
ACCOUNTS HELD BY INVESTMENT DEALERS. IF YOU ARE INVESTING IN SUCH A MANNER, YOU
SHOULD CONTACT YOUR PLAN ADMINISTRATOR/TRUSTEE OR DEALER 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, computer,
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 for any reason. This includes exchange purchase orders that may
place an unfair burden on other shareholders due to their frequency.
Various purchase options are available as described below subject to certain
investment minimums and limitations described in the statement of additional
information and "Welcome to the Family."
[X] Automatic Investment Plan
You may invest monthly or quarterly through automatic withdrawals from your
bank account.
[X] Automatic Reinvestment
You may reinvest your dividends and capital gain distributions into the fund
(with no sales charge). This will be done automatically unless you elect to
have the dividends and/or capital gain distributions paid to you in cash.
15
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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[X] Cross-Reinvestment
You may invest your dividends and capital gain distributions into any other
fund in The American Funds Group.
[X] Exchange Privilege
You may exchange your shares into other funds in The American Funds Group
generally with no sales charge. Exchanges of shares from the money market
funds that were initially purchased with no sales charge will generally be
subject to the appropriate sales charge. You may also elect to automatically
exchange shares among any of the funds in The American Funds Group. Exchange
requests may be made in writing, by telephone, including American
FundsLine(R), by computer using American FundsLine OnLineSM (see below), or
by fax. EXCHANGES HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND
PURCHASES.
[X] Retirement Plans
You may invest in the fund through various retirement plans. For further
information contact your investment dealer or American Funds Distributors.
SHARE PRICE
The fund's share price, also called net asset value, is determined as of the
close of trading (normally 4:00 p.m., Eastern time) every day the New York
Stock Exchange is open. The fund calculates its net asset value per share,
generally using market prices, by dividing the total value of its assets after
subtracting liabilities by the number of its shares outstanding. Shares are
purchased at the offering price next determined after your investment is
received and accepted by American Funds Service Company. The offering price is
the net asset value plus a sales charge, if applicable.
SHARE CERTIFICATES
Shares are credited to your account and certificates are not issued unless you
request them by writing to American Funds Service Company.
INVESTMENT MINIMUMS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
To establish an account $1,000
For a retirement plan account $ 250
For a retirement plan account through payroll deduction $ 25
To add to an account $ 50
For a retirement plan account $ 25
</TABLE>
16
<PAGE>
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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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 100 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. Investments by retirement plans, foundations or endowments with $50
million or more in assets may be made with no sales charge and are not subject
to a contingent deferred sales charge. A dealer concession of up to 1% may be
paid by the fund from its Plan of Distribution and/or by American Funds
Distributors on all investments described above. 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.
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 the current fiscal year, 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.
17
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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REDUCING YOUR SALES CHARGE
You and your immediate family may combine investments to reduce your costs. You
must let your investment dealer or American Funds Service Company know if you
qualify for a reduction in your sales charge using one or any combination of
the methods described below.
[X] Aggregation
Investments that may be aggregated include those made by you, your spouse
and your children under the age of 21, if all parties are purchasing shares
for their own account(s), including any business account solely "controlled
by", as well as any retirement plan or trust account solely for the benefit
of, these individuals. Investments made for multiple employee benefit plans
of a single employer or "affiliated" employers may be aggregated provided
they are not also aggregated with individual accounts. Finally, investments
made by a common trust fund or other diversified pooled account not
specifically formed for the purpose of accumulating fund shares may be
aggregated.
Purchases made for nominee or street name accounts will generally not be
aggregated with those made for other accounts unless qualified as described
above.
[X] Concurrent Purchases
You may combine concurrent purchases of two or more funds in The American
Funds Group, except direct purchases of the money market funds. Shares of
the money market funds purchased through an exchange, reinvestment or cross-
reinvestment from a fund having a sales charge do qualify.
[X] Right of Accumulation
You may take into account the current value of your existing holdings in The
American Funds Group to determine your sales charge. Direct purchases of the
money market funds are excluded.
[X] Statement of Intention
You may enter into a non-binding commitment to invest a certain amount
(which at your request, may include purchases made during the previous
90 days) in non-money market fund shares over a 13-month period. A portion
of your account may be held in escrow to cover additional sales charges
which may be due if your total investments over the statement period are
insufficient to qualify for the applicable sales charge reduction.
18
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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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) or American FundsLine OnLineSM (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), by computer
using American FundsLine OnLineSM, or by fax. Sales by telephone, computer or
fax are limited to $50,000 in accounts registered to individual(s) (including
non-retirement trust accounts). In addition, checks must be made payable to the
registered shareholder(s) and mailed to an address of record that has been used
with the account for at least 10 days.
Proceeds will not be mailed until sufficient time has passed to provide
reasonable assurance that checks or drafts (including certified or cashier's
checks) for shares purchased have cleared (which may take up to 15 calendar
days from the purchase date). Except for delays relating to clearance of checks
for share purchases or in extraordinary circumstances (and as permissible under
the Investment Company Act of 1940), sale proceeds will be paid on or before
the seventh day following receipt and acceptance of an order. Interest will not
accrue or be paid on amounts that represent uncashed distribution or redemption
checks.
The fund may, with 60 days' written notice, close your account if due to a sale
of shares the account has a value of less than the minimum required initial
investment.
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 member firm of a domestic stock exchange or
the National Association of Securities Dealers, Inc. that is an eligible
guarantor institution, bank, savings association, or credit union. A signature
guarantee is not currently required for any sale of $50,000 or less provided
the check is made payable to the registered shareholder(s) and is mailed to the
address of record on the account, and provided the address has been used with
the account for at least 10 days. Additional documentation may be required for
sale of shares held in corporate, partnership or fiduciary accounts.
19
<PAGE>
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Redemption
proceeds of shares representing direct purchases in the money market funds are
excluded. 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) AND AMERICAN FUNDSLINE ONLINESM
You may check your share balance, the price of your shares, or your most recent
account transactions, sell shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(R) or American
FundsLine OnLineSM. To use these services, call 800/325-3590 from a
TouchTone(TM) telephone or access The American Funds Web site on the Internet
at www.americanfunds.com.
TELEPHONE AND COMPUTER PURCHASES, SALES AND EXCHANGES
Unless you opt out of the telephone or computer (including American
FundsLine(R) or American FundsLine OnLineSM) 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 liabilities
(including attorney fees) which may be incurred in connection with the exercise
of these privileges provided American Funds Service Company employs reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine. If reasonable procedures are not
employed, the fund may be liable for losses due to unauthorized or fraudulent
instructions.
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. Dividend and capital gain reinvestments and purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
20
<PAGE>
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
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NOTES
21
<PAGE>
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
NOTES
22
<PAGE>
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
NOTES
23
<PAGE>
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INTERMEDIATE BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR SHAREHOLDER SERVICES FOR DEALER SERVICES
<C> <S>
American Funds American Funds
Service Company Distributors
800/421-0180 ext. 1 800/421-9900 ext. 11
FOR 24-HOUR INFORMATION
American American Funds
FundsLine(R) Internet Web site
800/325-3590 http://www.americanfunds.com
</TABLE>
Telephone conversations may be recorded or monitored for
verification, recordkeeping and quality assurance purposes.
------------------------------------------------------------
MULTIPLE TRANSLATIONS
This prospectus may be translated into other languages. In
the event of any inconsistency or ambiguity as to the
meaning of any word or phrase contained in a translation,
the English text shall prevail.
------------------------------------------------------------
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance
information, portfolio holdings, a statement from portfolio
management and the independent accountants' report (in the
annual report).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more detailed information on all aspects of the
fund, including the fund's financial statements.
A current SAI has been filed with the Securities and
Exchange Commission ("SEC"). It is incorporated by
reference into this prospectus and is available along with
other related materials on the SEC's Internet Web site at
http://www.sec.gov.
CODE OF ETHICS
Includes a description of the fund's personal investing
policy.
To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary
Service Company of the fund
800/421-0180 ext. 1 333 South Hope Street
Los Angeles, CA 90071
This prospectus has been printed on recycled paper.
[RECYCLED PAPER LOGO]
24
INTERMEDIATE BOND FUND OF AMERICA
Part B
Statement of Additional Information
NOVEMBER 1, 1997
This document is not a prospectus but should be read in conjunction with the
current prospectus dated November 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 1
Description of Securities and Investment Techniques 2
Investment Restrictions 7
Fund Officers and Trustees 9
Management 12
Dividends, Distributions and Federal Taxes 14
Purchase of Shares 17
Redeeming Shares 23
Shareholder Account Services and Privileges 24
Execution of Portfolio Transactions 26
General Information 26
Investment Results 28
Appendix 31
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 - The Federal National Mortgage
Association (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.
The Federal Home Loan Mortgage Corporation (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.
INFLATION-INDEXED BONDS -- The fund may invest in inflation-indexed bonds
issued by governments, their agencies or instrumentalities or corporations.
The principal value of this type of bond is periodically adjusted according to
changes in the rate of inflation. The interest rate is generally fixed at
issuance; however, interest payments are based on an inflation adjusted
principal value. For example, in a period of falling inflation, principal
value will be adjusted downward, reducing the interest payable.
Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation indexed bonds,
even during a period of deflation. However, the current market value of the
bonds is not guaranteed, and will fluctuate. The fund may also invest in other
bonds which may or may not provide a similar guarantee. If a guarantee of
principal is not provided, the adjusted principal value of the bond repaid at
maturity may be less than the original principal.
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 at a future date. When the fund agrees to purchase such securities
it assumes the risk of any decline in the value of the security beginning on
the date of the agreement . When the fund agrees to sell such securities, it
does not participate in further gains or losses with respect to the securities
beginning on the date of the agreement. If the other party to such
transaction fails to deliver or pay for the securities, the fund could miss a
favorable price or yield opportunity, or could experience a loss.
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly may increase. The fund will not use these
transactions for the purpose of leveraging and will segregate liquid assets
which will be marked to market daily in an amount sufficient to meet its
payment obligations in these transactions. Although these transactions will
not be entered into for leveraging purposes, to the extent the fund's aggregate
commitments under these transactions exceed its segregated assets , the fund
temporarily could be in a leveraged position (because it 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 are the sale of GNMA
certificates or other 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.
INVESTING IN VARIOUS COUNTRIES - The fund has the ability to invest outside the
U.S. Investing outside the U.S. involves special risks caused by, among other
things: fluctuating currency values; different accounting, auditing, and
financial reporting regulations and practices in some countries; changing local
and regional economic, political, and social conditions; greater market
volatility; differing securities market structures; and various administrative
difficulties such as delays in clearing and settling portfolio transactions or
in receiving payment of dividends. However, in the opinion of Capital Research
and Management Company, investing outside the U.S. also can reduce certain
portfolio risks due to greater diversification opportunities.
Additional costs could be incurred in connection with the fund's activities
outside the U.S. Furthermore, increased custodian costs may be associated with
the maintenance of assets in certain jurisdictions.
OTHER SECURITIES - While the fund may not make direct purchases of common
stocks, the fund may purchase convertible securities and debt securities that
are issued as a unit together with comon stock, or other equity interests,
provided that these securities meet the fund's maturity and quality standards
at the time of purchase.
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); (3) savings association obligations
(certificates of deposit issued by mutual savings banks or savings and loan
associations); and (4) securities of the U.S. Government, its agencies or
instrumentalities that mature, or 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 ten 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. None of the following investment restrictions involving a maximum
percentage of assets will be considered violated unless the excess occurs
immediately after, and is caused by, an acquisition [or encumbrance of
securities or assets of, or borrowings] by the fund. 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
<TABLE>
<CAPTION>
NAME, POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
ADDRESS AND WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER
AGE REGISTRANT DURING (INCLUDING (INCLUDING OF FUND
PAST 5 YEARS VOLUNTARILY VOLUNTARILY BOARDS ON
(POSITIONS DEFERRED DEFERRED WHICH
WITHIN THE COMPENSATION/1/) COMPENSATION/1/) TRUSTEE
ORGANIZATIONS FROM FROM ALL FUNDS SERVES/2/
LISTED MAY THE FUND DURING MANAGED BY
HAVE FISCAL YEAR CAPITAL
CHANGED DURING ENDED AUGUST 31, RESEARCH AND
THIS PERIOD) 1997 MANAGEMENT
COMPANY/2/ FOR
THE
YEAR ENDED
AUGUST 31,1997
<S> <C> <C> <C> <C> <C>
H. Frederick Trustee Private $3,900 /3/ $163,500 18
Christie Investor.
Age: 64 Former
P.O. Box 144 President and
Palos Verdes Chief
Estates, CA Executive
90274 Officer, The
Mission Group
(non-utility
holding
company,
subsidiary of
Southern
California
Edison
Company)
+Don R. Trustee President none/4/ none/4/ 12
Conlan (retired), The
Age: 61 Capital Group
1630 Milan Companies,
Avenue Inc.
South
Pasadena, CA
91030
Diane C. Trustee CEO and $3,900 $43,000 12
Creel President,
Age: 48100 The Earth
W. Broadway Technology
Suite 5000 Corporation
Long Beach, (international
CA 90802 consulting
engineering)
Martin Trustee Chairman, $4,300/3/ $132,600 16
Fenton, Jr. Senior
Age: 624350 Resource Group
Executive (management of
Drive senior living
Suite 101 centers)
San Diego,
CA 92121-2116
Leonard R. Trustee President, $3,900/3/ $46,200 12
Fuller Fuller &
Age: 51 Company, Inc.
4337 Marina (financial
City Drive management
Suite 841 consulting
ETN firm)
Marina del
Rey, CA
90292
+*Abner D. President, Senior Vice none/4/ none/4/ 12
Goldstine PEO and President and
Age: 67 Trustee Director,
Capital
Research and
Management
Company
+**Paul G. Chairman Executive Vice none/4/ none/4/ 14
Haaga, Jr. of President and
Age: 48 the Board Director,
Capital
Research and
Management
Company
Herbert Trustee Private $3,700 $68,000 14
Hoover III Investor
Age: 69
1520 Circle
Drive
San Marino,
CA 91108
Richard G. Trustee Chairman, $4,300/3/ $98,000 13
Newman President and
Age: 62 CEO,
3250 AECOM
Wilshire Technology
Boulevard Corporation
Los Angeles, (architectural
CA 90010-1599 engineering)
Peter C. Trustee Retired. $4,300 /3/ $46,200 12
Valli Former
Age: 70 Chairman and
45 Sea Isle CEO, BW/IP
Drive International
Long Beach, Inc.
CA 90803 (industrial
manufacturing)
</TABLE>
+ Trustees who are considered "interested persons of the fund 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.
* 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 ($7,739), Martin Fenton, Jr. ($9,811), Leonard
R. Fuller ($3,003), Richard G. Newman ($20,700), and Peter C. Valli ($18,769).
Amounts deferred and accumulated earnings thereon are not funded and are
general unsecured liabilities of the fund until paid to the Trustee.
/4/ Don R. Conlan, Abner D. Goldstine and Paul G. Haaga, Jr. are affiliated
with the Investment Adviser and, accordingly, receive no compensation from the
fund.
OFFICERS
(with their principal occupations during the past five years)#
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) HELD PRINCIPAL OCCUPATION(S) DURING
WITH THE FUND PAST 5 YEARS
<S> <C> <C> <C>
Michael J. Downer 43 Vice President Senior Vice President - Fund
333 South Hope Street Business Management Group,
Los Angeles, CA 90071 Capital Research and
Management Company
Mary C. Hall 39 Vice President Senior Vice President - Fund
135 South State College Blvd. Business Management Group,
Brea, CA 92821 Capital Research and
Management Company
John Smet 41 Vice President Vice President, Capital
11100 Santa Monica Blvd. Research and Management
Los Angeles, CA 90025 Company
Julie F. Williams 49 Secretary Vice President - Fund Business
333 South Hope Street Management Group, Capital
Los Angeles, CA 90071 Research and Management
Company
Anthony W. Hynes, Jr. 34 Treasurer Vice President - Fund Business
135 South State College Blvd. Management Group, Capital
Brea, CA 92821 Research and Management
Company
Kimberly S. Verdick 32 Assistant Assistant Vice President -
333 South Hope Street Secretary Fund Business Management
Los Angeles, CA 90071 Group, Capital Research and
Management Company
Todd L. Miller 38 Assistant Assistant Vice President -
135 South State College Blvd. Treasurer Fund Business Management
Brea, CA 92821 Group, Capital Research and
Management Company
</TABLE>
# Positions within the organizations listed may have changed during this period
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 October 1, 1997, 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, 1998, 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 designing, printing and
mailing of reports, prospectuses, proxy statements, and notices to its
shareholders; taxes; expenses of 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 0.37%, 0.39%, 0.42%, 0.44% and 0.46%,
respectively.
During the fiscal years ended August 31, 1997, 1996, and 1995, the Investment
Adviser's total fees amounted to $5,535,000, $5,990,000, and $6,106,000,
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, 1997 amounted to
$5,507,000 after allowance of $1,333,000 to dealers. During the fiscal year
ended August 31, 1996 and 1995 and 1994, the Principal Underwriter retained
$1,785,683 and $1,581,362, 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.
Plan expenditures are 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 100
or more eligible employees). Since these fees are paid out of the fund's
assets on an ongoing basis, over time these fees will increase the cost of an
investment and may cost the investor more than paying other types of sales
loads. During the fund's fiscal year ended August 31, 1997, such expenses were
$4,146,000 under the Plan as compensation to dealers. As of August 31, 1997
accrued and unpaid distribution expenses were $667,000.
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, certain payments with respect to securities loans, and
gains from the sale or other disposition of stock, securities, currencies or
other income derived with respect to its business of investing in such stock,
securities, or currencies; and (b) diversify its holdings so that, at the end
of each fiscal quarter, (i) at least 50% of the market value of the fund's
assets is represented by cash, cash items, U.S. Government securities,
securities of other regulated investment companies and other securities 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 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 be, in effect, 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 declared in October, November and December
and made payable to shareholders of record in such a month are treated as paid
and are thereby taxable as of December 31, provided that the fund pays the
dividend no later than the end of January of the following year.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred in acquiring the fund's shares will not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of the 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 on assets held more than 18 months is 20%, and on assets held more
than one year and not more than 18 months is 28%; and the maximum corporate tax
applicable to ordinary income and net capital gains is 35%. However, to
eliminate the benefit of lower marginal corporate income tax rates,
corporations which have taxable income in excess of $100,000 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
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
<S> <C> <C>
See "Investment Minimums and Fund $50 minimum (except where a
Numbers" for initial investment lower minimum is noted under
minimums. "Investment Minimums and Fund
Numbers").
By contacting Visit any investment dealer who is Mail directly to your investment
your registered in the state where the dealer's address printed on your
investment purchase is made and who has a sales account statement.
dealer agreement with American Funds
Distributors.
By mail Make your check payable to the fund and Fill out the account additions
mail to the address indicated on the form at the bottom of a recent
account application. Please indicate account statement, make your
an investment dealer on the account check payable to the fund, write
application. your account number on your
check, and mail the check and
form in the envelope provided
with your account statement.
By telephone Please contact your investment dealer Complete the "Investments by
to open account, then follow the Phone" section on the account
procedures for additional investments. application or American FundsLink
Authorization Form. Once you
establish the privilege, you,
your financial advisor or any
person with your account
information can call American
FundsLine(r) and make investments
by telephone (subject to
conditions noted in "Telephone
and Computer Purchases,
Redemptons and Exchanges" below).
By computer Please contact your investment dealer Complete the American FundsLink
to open account, then follow the Authorization Form. Once you
procedures for additional investments. establish the privilege, you,
your financial advisor or any
person with your account
information may access American
FundsLine(r) on the Internet and
make investments by computer
(subject to conditions noted in
"Telephone and Computer
Purchases, Redemptions and
Exchanges" below).
By wire Call 800/421-0180 to obtain your Your bank should wire your
account number(s), if necessary. additional investments in the
Please indicate an investment dealer on same manner as described under
the account. Instruct your bank to "Initial Investment."
wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the account of:
American Funds Service Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER.
</TABLE>
INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial
investments required by the funds in The American Funds Group along with fund
numbers for use with our automated phone line, American FundsLine(r) (see
description below):
<TABLE>
<CAPTION>
FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
<S> <C> <C>
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(r) 02
$1,000
American Balanced Fund(r) 11
500
American Mutual Fund(r) 03
250
Capital Income Builder(r) 12
1,000
Capital World Growth and Income Fund(sm) 33
1,000
EuroPacific Growth Fund(r) 16
250
Fundamental Investors(sm) 10
250
The Growth Fund of America(r) 05
1,000
The Income Fund of America(r) 06
1,000
The Investment Company of America(r) 04
250
The New Economy Fund(r) 14
1,000
New Perspective Fund(r) 07
250
SMALLCAP World Fund(r) 35
1,000
Washington Mutual Investors Fund(sm) 01
250
BOND FUNDS
American High-Income Municipal Bond Fund(r) 40
1,000
American High-Income Trust(sm) 21
1,000
The Bond Fund of America(sm) 08
1,000
Capital World Bond Fund(r) 31
1,000
Intermediate Bond Fund of America(sm) 23
1,000
Limited Term Tax-Exempt Bond Fund of America(sm) 43
1,000
The Tax-Exempt Bond Fund of America(r) 19
1,000
The Tax-Exempt Fund of California(r)* 20
1,000
The Tax-Exempt Fund of Maryland(r)* 24
1,000
The Tax-Exempt Fund of Virginia(r)* 25
1,000
U.S. Government Securities Fund(sm) 22
1,000
MONEY MARKET FUNDS
The Cash Management Trust of America(r) 09
2,500
The Tax-Exempt Money Fund of America(sm) 39
2,500
The U.S. Treasury Money Fund of America(sm) 49
2,500
___________
*Available only in certain states.
</TABLE>
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
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>
AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
<S> <C> <C> <C>
STOCK AND STOCK/BOND FUNDS
Less than $50,000 6.10%
5.75% 5.00%
$50,000 but less than $100,000 4.71
4.50 3.75
BOND FUNDS
Less than $25,000 4.99
4.75 4.00
$25,000 but less than $50,000 4.71
4.50 3.75
$50,000 but less than $100,000 4.17
4.00 3.25
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000 3.63
3.50 2.75
$250,000 but less than $500,000 2.56
2.50 2.00
$500,000 but less than $1,000,000 2.04
2.00 1.60
$1,000,000 or more none (see below)
none
</TABLE>
Commissions of up to 1% will be paid to dealers who initiate and are
responsible for purchases of $1 million or more, for purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $100 million or more: 1.00% on amounts of $1 million
to $2 million, 0.80% on amounts over $2 million to $3 million, 0.50% on amounts
over $3 million to $50 million, 0.25% on amounts over $50 million to $100
million, and 0.15% on amounts over $100 million. The level of dealer
commissions will be determined based on sales made over a 12-month period
commencing from the date of the first sale at net asset value.
American Funds Distributors, at its expense (from a designated percentage of
its income), will, during the current fiscal year, 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 100 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.") Investments by
retirement plans, foundations or endowments with $50 million or more in assets
may be made with no sales charge and are not subject to a contingent deferred
sales charge.
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 $50
million or more; (5) insurance company separate accounts; (6) accounts managed
by subsidiaries of The Capital Group Companies, Inc.; and (7) The Capital Group
Companies, Inc., its affiliated companies and Washington Management
Corporation. Shares are offered at net asset value to these persons and
organizations due to anticipated economies in sales effort and expense.
STATEMENT OF INTENTION - The reduced sales charges and public offering
prices set forth in the Prospectus apply to purchases of $50,000 or more made
within a 13-month period subject to the following statement of intention (the
"Statement") terms: The Statement is not a binding obligation to purchase the
indicated amount. When a shareholder elects to utilize 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 directors 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 1940 Act, again excluding employee benefit plans described
above, or (3) for a diversified common trust fund or other diversified pooled
account not specifically formed for the purpose of accumulating fund shares.
Purchases made for nominee or street name accounts (securities held in the name
of an investment dealer or another nominee such as a bank trust department
instead of the customer) may not be aggregated with those made for other
accounts and may not be aggregated with other nominee or street name accounts
unless otherwise qualified as described above.
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 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, Martin Luther King,
Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas Day.
All portfolio securities of funds managed by Capital Research and Management
Company are valued, and the net asset value per share of the fund is determined
as follows:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
Securities with original maturities of one year or less having 60 days or
less to maturity are amortized to maturity based on their cost if acquired
within 60 days of maturity or, if already held on the 60th day, based on the
value determined on the 61st day. Forward currency contracts are valued at the
mean of representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board. The fair value of all other assets is
added to the value of securities to arrive at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share.
Any purchase order may be rejected by the Principal Underwriter or 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 American Funds Service Company Send a letter of instruction specifying
(at the appropriate address indicated under the name of the fund, the number of shares
"Principal Underwriter and Transfer or dollar amount to be sold, your name and
Agent" in the Prospectus) account number. You should also enclose
any share certificates you wish to redeem.
For redemptions over $50,000 and for
certain redemptions of $50,000 or less
(see below), your signature must be
guaranteed by a bank, savings association,
credit union, or member firm of a domestic
stock exchange or the National Association
of Securities Dealers, Inc. that is an
eligible guarantor institution. You
should verify with the institution that it
is an eligible guarantor prior to signing.
Additional documentation may be required
for redemption of shares held in
corporate, partnership or fiduciary
accounts. Notarization by a Notary Public
is not an acceptable signature guarantee.
By contacting your investment If you redeem shares through your
dealer investment dealer, you may be charged for
this service. SHARES HELD FOR YOU IN YOUR
INVESTMENT DEALER'S STREET NAME MUST BE
REDEEMED THROUGH THE DEALER.
You may have a redemption check sent to you by You may use this option, provided the
using American FundsLine(r) or American FundsLine account is registered in the name of an
Online(sm) or by telephoning, faxing, or individual(s), a UGMA/UTMA custodian, or a
telegraphing American Funds Service Company non-retirement plan trust. These
(subject to the conditions noted in this section redemptions may not exceed 50,000 per
and in "Telephone and Computer Purchases, shareholder, per day, per fund account and
Redemptions and Exchanges" below) the check must be made payable to the
shareholder(s) of record and be sent to the
address of record provided the address has
been used with the account for at least 10
days. See "Fund Organization and Management
- Principal Underwriter and Transfer Agent"
in the prospectus and "Exchange Privilege"
below for the appropriate telephone or
fax number.
In the case of the money market funds, you may Upon request (use the account application
have redemptions wired to your bank by for the money market funds) you may
telephoning American Funds Service Company establish telephone redemption privileges
($1,000 or more) or by writing a check ($250 or (which will enable you to have a
more) redemption sent to your bank account)
and/or check writing privileges. If you
request check writing privileges, you will
be provided with checks that you may use
to draw against your account. These
checks may be made payable to anyone you
designate and must be signed by the
authorized number 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 10 DAYS.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares. Shares held
for the longest period are assumed to be redeemed first for purposes of
calculating this charge. The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer-sponsored
retirement plan; for distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 591/2; for tax-free returns of excess
contributions to IRAs; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables you to make
regular monthly or quarterly investments in shares through automatic charges to
your bank accounts. With shareholder authorization and bank approval, the
Transfer Agent will automatically charge the bank account for the amount
specified ($50 minimum), which will be automatically invested in shares at the
offering price on or about the dates you select. . Bank accounts will be
charged on the day or a few days before investments are credited, depending on
the bank's capabilities, and you will receive a confirmation statement at least
quarterly. Participation in the plan will begin within 30 days after receipt
of the account application. If your bank account cannot be charged due to
insufficient funds, a stop-payment order or closing of the account, the plan
may be terminated and the related investment reversed. You may change the
amount of the investment or discontinue the plan at any time by writing the
Transfer Agent.
AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS -You may elect to
cross-reinvest dividends or dividends and capital gain distributions paid by
that fund (the "paying fund") into any other fund in The American Funds Group
(the "receiving fund") subject to the following conditions: (i) the aggregate
value of your account(s) in the paying fund(s) must equal or exceed $5,000
(this condition is waived if the value of the account in the receiving fund
equals or exceeds that fund's minimum initial investment requirement), (ii) as
long as the value of the account in the receiving fund is below that fund's
minimum initial investment requirement, dividends and capital gain
distributions paid by the receiving fund must be automatically reinvested in
the receiving fund, and (iii) if this privilege is discontinued with respect to
a particular receiving fund, the value of the account in that fund must equal
or exceed the fund's minimum initial investment requirement or the fund will
have the right, if you fail to increase the value of the account to such
minimum within 90 days after being notified of the deficiency, automatically to
redeem the account and send the proceeds toyou. These cross-reinvestments of
dividends and capital gain distributions will be at net asset value (without
sales charge).
EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLine(r) or American FundsLine OnLine(sm)(see "American FundsLine(r) and
American FundsLine OnLine(sm)" below), or by telephoning 800/421-0180
toll-free, faxing (see "Principal Underwriter and Transfer Agent" in the
Prospectus for the appropriate fax numbers) or telegraphing American Funds
Service Company. (See "Telephone and Computer Purchases, Redemptions and
Exchanges" below.) Shares held in corporate-type retirement plans for which
Capital Guardian Trust Company serves as trustee may not be exchanged by
telephone, fax or telegraph. Exchange redemptions and purchases are processed
simultaneously at the share prices next determined after the exchange order is
received. (See "Purchase of Shares--Price of Shares.") THESE TRANSACTIONS HAVE
THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES - You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS - Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments , will be reflected on regular confirmation statements from
American Funds Service Company. Dividend and capital gain reinvestments and
purchases through automatic investment plans and certain retirement plans will
be confirmed at least quarterly.
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINE(SM) - You may check your
share balance, the price of your shares, or your most recent account
transaction, redeem shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(r) and American
FundsLine OnLine(sm). To use this service, call 800/325-3590 from a
TouchTone(tm) telephone or access the American FundsWebsite on the Internet at
www.americanfunds.com. Redemptions and exchanges through American FundsLine(r)
and American FundsLine OnLine(sm) are subject to the conditions noted above and
in "Redeeming Shares--Telephone and Computer Purchases, Redemptions and
Exchanges" below. You will need your fund number (see the list of funds in The
American Funds Group under "Purchase of Shares--Investment Minimums and Fund
Numbers"), personal identification number (the last four digits of your Social
Security number or other tax identification number associated with your
account) and account number.
TELEPHONE AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES - By using the
telephone (including American FundsLine(r) and American FundsLine OnLine(sm)),
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
Orders for the fund's portfolio securities transactions are placed by the
Investment Adviser. The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through their
correspondent clearing agents) is in a position to obtain the best price and
execution, the order is placed with that broker. This may or may not be a
broker who has provided investment research statistical, or other related
services to the Investment Adviser or has sold shares of the fund or other
funds served by the Investment Adviser. The fund does not consider that it has
an obligation to obtain the lowest available commission rate to the exclusion
of price, service and qualitative considerations.
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the Fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the Fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner.
Brokerage commissions paid on portfolio transactions, including dealer
concessions on underwritings, for the fiscal years ended August 31, 1997, 1996,
and 1995, amounted to $827,000, $333,703, and $124,750, 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 $975,000 for the fiscal year ended August 31, 1997.
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 - The Investment Adviser and its affiliated companies
have adopted a personal investing policy consistent with Investment Company
Institute guidelines. This policy includes: a ban on acquisitions of
securities pursuant to an initial public offering; restrictions on acquisitions
of private placement securities; pre-clearance and reporting requirements;
review of duplicate confirmation statements; annual recertification of
compliance with codes of ethics; ; blackout periods on personal investing for
certain investment personnel; 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, 1997
<TABLE>
<CAPTION>
<S> <C>
Net asset value and redemption price per share
(Net assets divided by $ 13.42
shares outstanding)
Offering price per share (100/95.25 of per share $ 14.09
net asset value, which
takes into account the
Fund's current
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 will
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 will 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 5.52% based on the 30-day (or one month) period ended
August 31, 1997, 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, 1997, the fund's total return over the past 12 months and
average annual total returns over the past five-year and lifetime periods
were2.71%, 4.68% and 6.69%. 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, 1967 (127 in all), those funds have had
better total returns that the Standard and Poor's 500 Composite Stock Index in
91 of the 127 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
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
(9/1/95-8/31/97) (9/1/93-8/31/97) (2/19/88-8/31/97)
$4,204 $8,818 $27,338
</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, 1997
Value**
<S> <C> <C>
1 1996 - 1997 $10,271
2 1995 - 1997 10,749
3 1994 - 1997 11,639
4 1993 - 1997 11,431
5 1992 - 1997 12,570
6 1991 - 1997 14,179
7 1990 - 1997 15,836
8 1989 - 1997 16,855
9 1988 - 1997 18,373
Lifetime 1988* - 1997 18,545
</TABLE>
* From inception, 2/19/88 through 8/31/97.
** 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, 1997)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES**
Fiscal Annual Dividends Total From From From
Capital
Year End Dividends (cumulative) Investment Initial Gains Dividends Total
August 31 Cost Investment Reinvested Reinvested Value
<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
1997 1,135 9,715 19,715 8,947 70 9,528 18,545
</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, 1997
<S> <C> <C> <C> <C>
Federal Agency Obligations--Non-Mortgage 4.87%
Corporate Bonds 6.18%
Non-U.S. Government Bonds 2.15%
Cash & Equivalents 3.78%
Privately Originated Mortgage Obligations 11.45%
Asset-Backed Obligations 15.16%
Federal Agency Mortgage Obligations 34.41%
U.S. Treasury Securities 22.00%
Bonds & Notes Principal Market Percent
Amount Value of Net
Industrial & Service - 0.78%
BP America Inc. 10.00% 2018(1998)(1) $2,600 $2,788 .21 %
Taiwan Semiconductor Manufacturing Company Ltd., 0% 2002(2) 7,140 7,604 .57
------------------------
10,392 .78
------------------------
Transportation - 0.75%
Airplanes Pass Through Trust, pass-through certificates,Series 1,
Class A-3, 6.12% 2015 (2001)(1),(3),(4) 10,000 10,009 .75
------------------------
Utilities - 0.79%
Big Rivers Electric Corp. 9.50% 2017 (1998)(1) 10,000 10,621 .79
------------------------
Financial Services - 3.86%
AB Svensk Exportkredit (Swedish Export Credit
Corp.) Debentures 9.875% 2038 (1998)(1) 4,000 4,265 .32
Barclays North American Capital Corp. 9.75% 2021 (2001)(1) 7,230 8,088 .60
Beverly Finance Corp. 8.36% 2004(2) 10,000 10,502 .79
Corporate Property Investors:
9.00% 2002(2) 9,500 10,199
7.75% 2004(2) 2,000 2,076 .92
General Electric Capital Corp. 8.375% 2001 1,500 1,587 .12
Town & Country Funding Corp. 5.85% 2000 (1998)(1) 15,000 14,891 1.11
------------------------
51,608 3.86
------------------------
Collateralized Mortgage Obligations
(Privately Originated)(4) - 11.45%
Chase Commercial Mortgage Securities Corp.:
Series 1997-1, Class A1, 7.27% 2004 4,949 5,062
Series 1996-1, Class A1, 7.60% 2005 1,944 2,018 .53
Chase Manhattan Bank, NA,
Series 1993-I, Class 2A-5, 7.25% 2024 7,500 7,505 .56
CS First Boston Mortgage Securities Corp., Series 1995-AEW1:
Class A-1, 6.665% 2027 660 658
Class B, 7.182% 2027(3) 7,200 7,260 .59
DLJ Mortgage Acceptance Corp.,
Series 1997-CF1, Class A-1A, 7.40% 2006 6,901 7,116 .53
GMAC Commercial Mortgage Securities Inc.,
Series 1996-C1,Class A2A, 6.79% 2028 17,204 17,297 1.29
J.P. Morgan Commercial Mortgage Finance Corp., pass-through
certificates:
Series 1995-C1, Class A-2, 7.403% 2010(3) 18,155 18,618
Series 1997-C4, Class A-1, 6.939% 2028 1,872 1,887 1.53
Merrill Lynch Mortgage Investors Inc.:
Series 1992B, Class A-3, 8.30% 2012 9,664 9,797
Series 1995-C2, Class A-1, 7.434% 2021(3) 7,148 7,263
Series 1995-C3, Class A-2, 6.848% 2025(3) 5,000 4,992
Series 1997-C1, Class A-1, 6.95% 2029 13,916 14,128 2.71
Morgan Stanley Capital I Inc.:
Series 1995-GA1, Class A1, 7.00% 2002(2) 5,734 5,786
Series 1997-HF1, Class A2, 7.27% 2007(2) 8,000 8,186
Series 1997-WF1, Class A1, 6.83% 2029 (2006)(1,2) 8,968 9,039 1.72
Paine Webber CMO, Series O, Class 5, 9.50% 2019 5,000 5,395 .40
Prudential Home Mortgage Securities Co., Inc.:
Series 1992-37, Class A-6, 7.00% 2022 3,913 3,905
Series 1992-33, Class A-12, 7.50% 2022 750 749 .35
Structured Asset Securities Corp.,
Series 1996-CFL, Class A1-C, 5.944% 2028 4,900 4,872 .37
Westam Mortgage, Class 4-H, 8.95% 2018 11,000 11,622 .87
------------------------
153,155 11.45
------------------------
Asset-Backed Obligations(4) - 15.16%
AAMES Mortgage Trust, Series 1996-D, Class A1C, 6.52% 2020 4,500 4,489 .34
Asset Backed Securities Investment Trust,
Series 1997-D, 6.79% 2003(2) 20,000 20,018 1.50
Bear Asset Trust,
Series 1997-2, Class A, 6.686% 2006(2) 10,000 10,003 .75
Blackrock Capital Finance LP,
Series 1996-C2, Class A, 7.584% 2026(2) 569 571 .04
Case Equipment Loan Trust 1995-A, 7.30% 2002 2,906 2,936 .22
Chemical Financial Acceptance Corp., Series 1989-A, Class A,
9.25% 1998 7,353 7,456 .56
ContiMortgage Home Equity Loan Trust, Series 1996-4,
Class A-4, 6.37% 2011 2,000 1,994 .15
Equicredit Funding Trust, Series 1996-A, Class A2, 6.95% 2012 5,500 5,553 .41
First Plus Home Loan Owner Trust:
Series 1997-1, Class A-1, 6.05% 2004 768 767
Series 1997-1, Class A-2, 6.28% 2006 1,450 1,447
Series 1996-4, Class A-3, 6.28% 2009 5,000 4,975
Series 1997-1, Class A-3, 6.45% 2009 4,900 4,887
Series 1996-3, Class A-6, 7.60% 2014 13,000 13,291
Series 1997-1, Class A-6, 6.95% 2015 9,000 8,972 2.57
Ford Motor Credit Co. 1994-A, 6.35% 1999 319 319 .02
GCC Home Equity Trust, asset-backed certificates,
Series 1990-1, Class A, 10.00% 2005 2,203 2,251 .17
Green Tree Financial Corp., pass-through certificates:
Series 1993-3, Class A5, 5.75% 2018 10,000 9,803
Series 1997-A, Class A1, 6.30% 2023 1,779 1,782
Series 1995-1, Class A3, 7.95% 2025 3,356 3,376
Series 1995-9, Class A4, 6.45% 2027 4,250 4,247
Series 1997-D, Class A3, 6.77% 2027 5,000 5,009
Series 1996-8, Class A4, 7.00% 2027 5,000 5,081
Series 1996-10, Class A4, 6.42% 2028 3,500 3,475
Series 1996-10, Class A5, 6.83% 2028 14,000 13,947 3.49
Green Tree Home Improvement Loan Trust:
Series 1996-C, Class HIA1, 6.45% 2021 967 969
Series 1997-D, Class HIL, 6.14% 2023 5,000 4,997
Series 1997-C, Class HIA-2, 6.46% 2028 1,750 1,749 .58
IMC Home Equity Loan Trust, Series 1996-4, Class A1, 6.59% 2011 2,115 2,112 .16
Iroquois Trust, Series 1997-2, Class A, 6.752% 2007 5,000 4,982 .37
The Money Store Home Equity Trust:
Series 1996-B, Class A14, 7.35% 2012 5,000 5,093
Series 1996-B, Class A5, 7.18% 2014 5,000 5,056
Series 1996-C, Class A3, 7.07% 2016 6,705 6,778 1.26
Standard Credit Card Master Trust I, credit card
participation certificates:
Series 1991-3, Class A, 8.875% 1999 (1998)(1) 9,050 9,262
Series 1991-6, Class A, 7.875% 2000 (1998)(1) 21,250 21,682 2.31
Structured Assets Notes Transactions, LTD,
Series 1996-A, Class A1, 7.156% 2003(2) 3,510 3,499 .26
------------------------
202,828 15.16
------------------------
Governments (Excluding U.S. Government) &
Government Authorities - 2.15%
British Columbia Hydro & Power Authority 12.50% 2013 (1998)(1) 2,000 2,197 .16
Finland (Republic of) Debentures 9.625% 2028 (1998)(1) 10,639 11,276 .84
Ontario (Province of):
7.75% 2002 8,000 8,400
11.50% 2013 (1998)(1) 3,000 3,207 .87
Victoria (Territory of) Public Authorities Finance Agency
8.45% 2001 3,500 3,744 .28
------------------------
28,824 2.15
------------------------
Federal Agency Mortgage Pass-Through Obligations(4) - 28.77%
Federal Home Loan Mortgage Corp.:
8.00% 2003-2017 5,761 5,982
8.50% 2008-2021 7,132 7,451
8.75% 2008-2009 1,040 1,081
9.50% 2010-2013 2,070 2,195
10.00% 2004-2019 18,683 20,440
11.00% 2018 48 54
12.00% 2013 190 215
12.50% 2013-2015 1,553 1,813
12.75% 2019 63 73 2.94
Federal National Mortgage Assn.:
6.720% 2033(3) 15,543 15,383
7.00% 2008-2027 22,418 22,345
7.50% 2009-2027 32,615 33,131
8.00% 2002-2005 1,741 1,771
8.307% 2002(3) 8,987 9,289
8.50% 2008-2023 11,458 12,039
9.00% 2001-2022 12,940 13,810
9.50% 2009-2022 10,338 11,056
10.00% 2017-2025 22,050 24,404
10.50% 2004-2020 1,776 1,963
11.00% 2000-2020 3,209 3,587
12.25% 2013 19 20 11.12
Government National Mortgage Assn.:
5.00% 2026-2027(3) 12,902 12,888
6.00% 2025-2026(3) 4,900 4,924
6.50% 2024(3) 1,011 982
6.875% 2021-2023(3) 13,426 13,772
7.00% 2007-2024(3) 21,356 21,763
7.125% 2021-2024(3) 40,095 41,286
7.375% 2016-2024(3) 18,415 18,941
8.00% 2023 1,113 1,160
8.50% 2007-2023 19,866 21,027
9.00% 2008-2026 21,769 23,226
9.50% 2009-2021 22,829 24,772
9.75% 1999 53 54
10.00% 2019 9,393 10,479
10.25% 2012 262 284
10.50% 2019 125 141
11.00% 2010-2019 360 413
11.50% 2010-2013 166 192
12.50% 2010-2014 427 506 14.71
------------------------
384,912 28.77
------------------------
Federal Agency Collateralized Mortgage Obligations(4) - 5.64%
Federal Home Loan Mortgage Corp.:
Series 1539, Class PL, 6.50% 2008 2,000 1,972
Class B-3, 12.50% 2013 131 144
Series 76, Class F, 9.125% 2020 2,279 2,358
Series 1567, Class A, 6.0875% 2023(3) 2,279 2,115 .49
Federal National Mortgage Assn.:
Series 91-50, Class H, 7.75% 2006 15,131 15,542
Series 91-146, Class Z, 8.00% 2006 3,981 4,069
Trust D2, 11.00% 2009 3,546 3,954
Series 97-41, Class B, 7.25% 2014 7,967 8,032
Series 88-16, Class B, 9.50% 2018 655 708
Series 90-93, Class G, 5.50% 2020 3,658 3,433
Series 91-78, Class PK, 8.50% 2020 10,000 10,338
Series 90-21, Class Z, 9.00% 2020 21,667 22,852 5.15
------------------------
75,517 5.64
------------------------
Federal Agency Obligations--Non-Mortgage - 4.87%
Federal Home Loan Bank Notes:
6.38% 2003 4,000 3,910
6.16% 2004 15,000 14,475
6.27% 2004 3,000 2,914 1.59
Federal Home Loan Mortgage Notes:
5.78% 2003 2,000 1,913
6.30% 2003 9,300 9,071
6.39% 2003 2,000 1,958
6.50% 2003 2,000 1,966
6.61% 2003 16,650 16,431
6.19% 2004 10,000 9,645 3.06
Federal National Mortgage Assn. Medium-Term Notes,
6.14% 2004 3,000 2,888 .22
------------------------
65,171 4.87
------------------------
U.S. Treasury Obligations - 22.00%
9.25% August 1998 22,250 22,952 1.72
5.125% November 1998 17,500 17,350 1.30
9.125% May 1999 13,250 13,919 1.04
6.75% June 1999 34,500 34,958 2.61
6.875% July 1999 5,750 5,843 .44
5.875% November 1999 17,000 16,950 1.27
7.75% November 1999 2,250 2,330 .17
7.125% February 2000 6,750 6,912 .52
8.00% May 2001 8,000 8,476 .63
13.375% August 2001 16,750 20,888 1.56
10.75% February 2003 5,000 6,018 .45
10.75% May 2003 21,750 26,334 1.97
11.125% August 2003 12,500 15,451 1.15
7.25% May 2004 42,073 44,183 3.30
7.25% August 2004 5,750 6,041 .45
11.625% November 2004 23,250 30,207 2.26
6.50% May 2005 1,500 1,512 .11
6.125% August 2007 8,040 7,913 .59
10.375% November 2009 5,000 6,107 .46
------------------------
294,344 22.00
------------------------
TOTAL BONDS & NOTES (cost: $1,281,297,000) 1,287,381 96.22
------------------------
Short-Term Securities
Commercial Paper - 5.84%
E. I. du Pont de Nemours and Co. 5.49% due 09/18/97 15,000 14,959 1.12
General Electric Capital Corp. 5.62% due 09/02/97 25,000 24,992 1.87
H.J. Heinz Co. 5.51% due 10/03/97 13,400 13,332 1.00
Pepsico Inc. 5.50% due 10/01/97 15,000 14,929 1.11
Procter & Gamble Co. 5.46% due 09/10/97 10,000 9,985 .74
------------------------
TOTAL SHORT-TERM SECURITIES (cost: $78,197,000) 78,197 5.84
------------------------
TOTAL INVESTMENT SECURITIES (cost: $1,359,494,000) 1,365,578 102.06
Excess of payables over cash and receivables 27,543 2.06
------------------------
Net Assets $1,338,035 100.00 %
========= ======
(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) Purchased in a private placement transaction;
resale may be limited to qualified institutional buyers;
resale to the public may require registration.
(3) Coupon rate may change periodically.
(4) Pass-through securities backed by a pool of mortgages or
other loans on which principal payments are periodically made.
Therefore, the effective maturity is shorter
than the stated maturity.
See Notes to Financial Statements
</TABLE>
<TABLE>
Intermediate Bond Fund of America
Financial Statements
- ---------------------------------------- ------------ -----------
<S> <C> <C>
Statement of Assets and Liabilities
at August 31, 1997 (dollars in thousands)
- ---------------------------------------- ------------ -----------
Assets:
Investment securities at market
(cost: $1,359,494) $1,365,578
Cash 314
Receivables for-
Sales of investments $ 5,880
Sales of fund's shares 3,678
Accrued interest 13,801 23,359
------------ -----------
1,389,251
Liabilities:
Payables for-
Purchases of investments 44,366
Repurchases of fund's shares 3,323
Dividends payable 2,316
Management services 449
Accrued expenses 762 51,216
------------ -----------
Net Assets at August 31, 1997 -
Equivalent to $13.42 per share on 99,728,961 shares
of beneficial interest issued and outstanding;
unlimited shares authorized $1,338,035
=========
Statement of Operations
for the year ended August 31, 1997 (dollars in thousands)
------------ -----------
Investment Income:
Income:
Interest $ 99,967
Expenses:
Management services fee 5,535
Distribution expenses 4,146
Transfer agent fee 975
Reports to shareholders 132
Registration statement and prospectus 124
Postage, stationery and supplies 237
Trustees' fees 29
Auditing and legal fees 42
Custodian fee 57
Taxes other than federal income tax 22
Other expenses 24 11,323
------------ -----------
Net investment income 88,644
-----------
Realized Loss and Unrealized
Appreciation on Investments:
Net realized loss (9,914)
Net unrealized (depreciation) appreciation on investments:
Beginning of year (19,744)
End of year 6,084
------------
Net unrealized appreciation on investments 25,828
-----------
Net realized loss and unrealized appreciation
on investments 15,914
------------
Net Increase in Net Assets Resulting
from Operations $104,558
=========
Statement of Changes in Net
Assets (dollars in thousands)
- ---------------------------------------- ----------------------------
Year ended August 31
August 31,
1997 1996
Operations: ----------------- ----------
Net investment income $ 88,644 $ 98,319
Net realized loss on investments (9,914) (2,986)
Net change in unrealized appreciation (depreciation)
on investments 25,828 (28,130)
----------------------------
Net increase in net assets
resulting from operations 104,558 67,203
----------------------------
Dividends Paid From Net Investment Income (87,766) (97,453)
----------------------------
Capital Share Transactions:
Proceeds from shares sold:
45,770,888 and 54,126,644 shares, respectively 612,621 732,449
Proceeds from shares issued in
reinvestment of net investment income
dividends:
4,954,744 and 5,424,112 shares, respectively 66,280 73,190
Cost of shares repurchased:
58,792,101 and 62,787,538
shares, respectively (786,616) (847,614)
----------------------------
Net decrease in net assets resulting
from capital share transactions (107,715) (41,975)
----------------------------
Total Decrease in Net Assets (90,923) (72,225)
Net Assets:
Beginning of year 1,428,958 1,501,183
----------------------------
End of year (including undistributed
net investment income of $4,237 and
$3,359, respectively) $1,338,035 $1,428,958
============= ============
See Notes to Financial Statements
</TABLE>
INTERMEDIATE BOND FUND OF AMERICA
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:
Bonds and notes are valued at prices obtained from a bond-pricing service
provided by a major dealer in bonds, when such prices are available. However,
in circumstances where the investment adviser deems it appropriate to do so,
such securities will be valued at the mean of their representative quoted bid
and asked prices or, if such prices are not available, at prices for securities
of comparable maturity, quality and type. Short-term securities with more than
60 days remaining to maturity are valued at the mean of their representative
quoted bid and asked prices. Where pricing service or market quotations are
not readily available, securities will be valued at fair value by the Board of
Trustees or a committee thereof. 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. Dividends to shareholders are declared daily after the
determination of the fund's net investment income and are paid to shareholders
monthly.
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 taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of August 31, 1997, net unrealized appreciation on investments for
book and federal income tax purposes aggregated $6,084,000, of which
$15,133,000 related to appreciated securities and $9,049,000 related to
depreciated securities. During the year ended August 31, 1997, the fund
realized, on a tax basis, a net capital loss of $9,914,000 on security
transactions. The fund had available at August 31, 1997 a net capital loss
carryforward of $85,565,000 which may be used to offset capital gains realized
during subsequent years through 2005 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
$1,359,494,000 at August 31, 1997.
3. The fee of $5,535,000 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, 1997,
distribution expenses under the Plan were $4,146,000. As of August 31, 1997,
accrued and unpaid distribution expenses were $667,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $975,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $1,333,000 (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,
1997, aggregate amounts deferred and earnings thereon were $60,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain 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, 1997, accumulated net realized loss on investments was
$92,727,000 and paid-in capital was $1,420,441,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $550,661,000 and $676,185,000, respectively, during
the year ended August 31, 1997.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $57,000 includes $44,000 that was paid by these credits
rather than in cash.
<TABLE>
PER-SHARE DATA AND RATIOS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended August 31
-------------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------------
Net Asset Value, Beginning
of Year $ 13. $ 13.52 $ 13.38 $14.64 $14.28
-------------------------------------------------
Income from Investment
Operations:
Net investment income .86 .88 .93 .95 1.00
Net realized and unrealized
gain (loss) on investments .15 (.27) .13 (1.20) .37
Total from investment -------------------------------------------------
operations .61 1.06 (.25) 1.37
-------------------------------------------------
Less Distributions:
Dividends from net investment
income (.85) (.87) (.92) (.94) (1.01)
Distributions from net realized
gains (.07)
-------------------------------------------------
Total distributions (.85) (.87) (.92) (1.01) (1.01)
-------------------------------------------------
Net Asset Value, End of Year $ 13. $ 13.26 $ 13.52 $13.38 $14.64
=================================================
Total Return/1/ 7.83% 4.63% 8.33% (1.80%) 9.95%
Ratios/Supplemental Data:
Net assets, end of year (in
millions) $1,338 $1,429 $1,501 $1,626 $1,686
Ratio of expenses to average
net assets .82% .80% .78% .83% .82%
Ratio of net income to
average net assets 6.40% 6.53% 6.96% 6.79% 7.00%
Portfolio turnover rate 41.55% 48.25 % 71.91 % 52.94 % 42.59 %
/1/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 (the "fund"), including the schedule of
portfolio investments as of August 31, 1997, 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 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 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, 1997, 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, 1997, 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.
/s/Deloitte & Touche LLP
Los Angeles, California
September 25, 1997
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, 34% 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 reported 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 1998 to determine the CALENDAR YEAR amounts to
be included on their respective 1997 tax returns. Shareholders should consult
their tax advisers.
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, 34% 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 reported 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 1998 to determine the CALENDAR YEAR amounts to
be included on their respective 1997 tax returns. Shareholders should consult
their tax advisers.
