INTERMEDIATE BOND FUND OF AMERICA
Part B
Statement of Additional Information
NOVEMBER 1, 1998
as amended August 1, 1999
This document is not a prospectus but should be read in conjunction with the
current prospectus dated November 1, 1998 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>
Certain Investment Limitations 2
Description of Securities and Investment Techniques 2
Investment Restrictions 7
Fund Organization 9
Fund Officers and Trustees 10
Management 13
Dividends, Distributions and Federal Taxes 16
Purchase of Shares 19
Selling Shares 25
Shareholder Account Services and Privileges 27
Execution of Portfolio Transactions 29
General Information 29
Investment Results and Related Statistics 31
Appendix 35
Financial Statements Attached
</TABLE>
CERTAIN INVESTMENT LIMITATIONS
The following limitations and guidelines are considered at the time of
purchase, under normal market conditions, and are based on a percentage of the
fund's net assets unless otherwise noted. This summary is not intended to
reflect all of the fund's investment limitations.
DEBT SECURITIES
- - The fund will invest at least 65% of its assets in bonds.
- - All of the fund's assets will be invested in securities rated A or better or
unrated but determined to be of equivalent quality.
MATURITY
- - The fund's average effective maturity will be no longer than five years.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
The descriptions below are intended to supplement the material in the
Prospectus under the "Risk/Return Summary" and "Investment Objective,
Strategies 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.
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 common stock, or other equity interests,
provided that these securities meet the fund's maturity and quality standards
at the time of purchase.
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
mortgage-backed 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.
RESTRICTED SECURITIES AND LIQUIDITY -- The fund may purchase securities subject
to restrictions on resale. All such securities whose principal trading market
is in the U.S. will be considered illiquid unless they have been specifically
determined to be liquid under procedures adopted by the fund's board of
trustees, taking into account factors such as the frequency and volume of
trading, the commitment of dealers to make markets and the availability of
qualified investors, all of which can change from time to time. The fund may
incur certain additional costs in disposing of illiquid securities.
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.
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 effective maturity no longer than 5 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 five 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. For purposes of Investment Restriction #6, the fund will not
invest more than 15% of its net assets in illiquid securities.
FUND ORGANIZATION
The fund is an open-end, diversified management investment company. It was
organized as a Massachusetts business trust on December 7, 1987.
All fund operations are supervised by the fund's board of trustees. The board
meets periodically and performs duties required by applicable state and federal
laws. Members of the board who are not employed by Capital Research and
Management Company or its affiliates are paid certain fees for services
rendered to the fund as described in "Trustees and Trustee Compensation"
below. They may elect to defer all or a portion of these fees through a
deferred compensation plan in effect for the fund.
FUND OFFICERS AND TRUSTEES
Trustees and Trustee Compensation
<TABLE>
<CAPTION>
NAME, POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
ADDRESS WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER
AND AGE REGISTRANT DURING PAST 5 YEARS (INCLUDING (INCLUDING OF FUND
VOLUNTARILY VOLUNTARILY BOARDS ON
DEFERRED DEFERRED WHICH
COMPENSATION COMPENSATION TRUSTEE
/1/) FROM THE /1/) FROM ALL SERVES
FUND DURING FUNDS MANAGED /2/
FISCAL YEAR BY CAPITAL
ENDED AUGUST RESEARCH AND
31, 1998 MANAGEMENT
COMPANY OR ITS
AFFILIATES /2/
FOR THE YEAR
ENDED AUGUST
31, 1998
<S> <C> <C> <C> <C> <C>
H. Frederick Christie Private Investor. $4,211/3/ $171,100
Age: 65 Trustee Former President 19
P.O. Box 144 and Chief Executive
Palos Verdes Estates, CA Officer, The
90274 Mission Group (non-
utility holding
company, subsidiary
of Southern
California Edison
Company)
+ Don R. Conlan Trustee President none/4/ none/4/ 12
Age: 62 (retired), The
1630 Milan Avenue Capital Group
South Pasadena, CA 91030 Companies, Inc.
Diane C. Creel CEO and President, $3,900/3/ $44,650
Age: 49 Trustee The Earth 12
100 W. Broadway Technology
Suite 5000 Corporation
Long Beach, CA 90802 (international
consulting
engineering)
Martin Fenton, Jr. Trustee Chairman, Senior $4,625/3/ $121,084
Age: 63 Resource Group 15
4660 La Jolla Village (management of
Drive senior living
Suite 725 centers)
San Diego, CA 92122
Leonard R. Fuller Trustee President, Fuller $4,26 $51,850
Age: 52 Consulting 7/3/ 12
4337 Marina City Drive (financial
Suite 841 ETN management
Marina del Rey, CA 90292 consulting firm)
+* Abner D. Goldstine Senior Vice none/ none/4/
Age: 68 President, President and 4/ 12
PEO and Trustee, Capital
Trustee Research and
Management Company
+** Paul G. Haaga, Jr. Executive Vice none/ none/4/
Age: 49 Chairman of President and 4/ 14
the Board Trustee, Capital
Research and
Management Company
Herbert Hoover III Trustee Private Investor $4,043 $65,084
Age: 70 13
1520 Circle Drive
San Marino, CA 91108
Richard G. Newman Trustee Chairman, President $4,654 /3/ $102,650
Age: 63 and CEO, AECOM 13
3250 Wilshire Boulevard Technology
Los Angeles, CA 90010- Corporation
1599 (architectural
engineering)
</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 29 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., New World Fund, Inc., SMALLCAP World Fund, Inc., The
Tax-Exempt Bond Fund of America, Inc., The Tax-Exempt Fund of California, The
Tax-Exempt Fund of Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt
Money Fund of America, The U. S. Treasury Money Fund of America, U.S.
Government Securities Fund and Washington Mutual Investors Fund, Inc. Capital
Research and Management Company also manages American Variable Insurance Series
and Anchor Pathway Fund which serve as the underlying investment vehicle for
certain variable insurance contracts; and Endowments, whose shareholders are
limited to (i) any entity exempt from taxation under Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended ("501(c)(3) organization"); (ii) any
trust, the present or future beneficiary of which is a 501(c)(3) organization,
and (iii) any other entity formed for the primary purpose of benefiting a
501(c)(3) organization. An affiliate of Capital Research and Management
Company, Capital International, Inc., manages Emerging Markets Growth Fund,
Inc.
/3/ Since the 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 ($8,436), Diane C. Creel ($1,104), Martin
Fenton, Jr. ($10,874), Leonard R. Fuller ($5,591) and Richard G. Newman
($24,605). 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) PRINCIPAL
HELD WITH OCCUPATION(S) DURING
THE FUND PAST 5 YEARS
<S> <C> <C> <C>
John Smet 42 Executive Vice President,
11100 Santa Monica Vice Capital Research and
Blvd. President Management Company
Los Angeles, CA 90025
Michael J. Downer 43 Vice Senior Vice President
333 South Hope Street President - Fund Business
Los Angeles, CA 90071 Management Group,
Capital Research and
Management Company
Julie F. Williams 50 Secretary Vice President - Fund
333 South Hope Street Business Management
Los Angeles, CA 90071 Group, Capital
Research and
Management Company
Anthony W. Hynes, Jr. 35 Treasurer Vice President - Fund
135 South State Business Management
College Blvd. Group, Capital
Brea, CA 92821 Research and
Management Company
Kimberly S. Verdick 33 Assistant Assistant Vice
333 South Hope Street Secretary President - Fund
Los Angeles, CA 90071 Business Management
Group, Capital
Research and
Management Company
Todd L. Miller 39 Assistant Assistant Vice
135 South State Treasurer President - Fund
College Blvd. Business Management
Brea, CA 92821 Group, Capital
Research and
Management Company
</TABLE>
# 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 trustee
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, 1998, 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 $175 billion of stocks,
bonds and money market instruments and serves over eight million investors of
all types throughout the world. These investors include privately owned
businesses and large corporations as well as schools, colleges, foundations and
other non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service
Agreement (the "Agreement") between the fund and the Investment Adviser will
continue in effect until October 24, 1999, unless sooner terminated, and may be
renewed from year to year thereafter provided that any such renewal has been
specifically approved at least annually by (i) the Board of 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 trustees
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, 1998, 1997, and 1996, the Investment
Adviser's total fees amounted to $5,328,000, $5,535,000, and $5,990,000,
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, 3500 Wiseman Boulevard, San
Antonio, TX 78251, 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, 1998 amounted to
$1,328,000 after allowance of $5,443,000 to dealers. During the fiscal year
ended August 31, 1997 and 1996, the Principal Underwriter retained $5,507,000
and $1,785,683, 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, by any defined contribution plan qualified under Section 401(a)
of the Internal Revenue Code including a "401(k) plan with 100 or more eligible
employees, or a community foundation).
Commissions on sales of shares exceeding $1 million (including purchases by
any employer-sponsored 403(b) plan or purchases by any defined contribution
plan qualified under Section 401(a) of the Internal Revenue Code, including any
"401(k)" plan with 100 or more eligible employees) in excess of the Plan
limitation not reimbursed during the most recent fiscal quarter are recoverable
for five quarters, provided that such commissions do not exceed the annual
expense limit. After five quarters, commissions are not recoverable. During
the fund's fiscal year ended August 31, 1998, such expenses were $4,067,000
under the Plan as compensation to dealers. As of August 31, 1998 accrued and
unpaid distribution expenses were $731,000.
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, as amended (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 generally
applicable to net capital gain on assets held more than one year is 20%, 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>
<S> <C> <C>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums and Fund $50 minimum (except where a lower
Numbers" for initial investment minimum is noted under "Investment
minimums. Minimums and Fund Numbers").
By contacting your Visit any investment dealer who Mail directly to your investment
investment dealer is registered in the state where dealer's address printed on your
the purchase is made and who has account statement.
a sales agreement with American
Funds Distributors.
By mail Make your check payable to the Fill out the account additions form
fund and mail to the address at the bottom of a recent account
indicated on the account statement, make your check payable
application. Please indicate an to the fund, write your account
investment dealer on the account number on your check, and mail the
application. check and form in the envelope
provided with your account
statement.
By telephone Please contact your investment Complete the "Investments by Phone"
dealer to open account, then section on the account application
follow the procedures for or American FundsLink Authorization
additional investments. Form. Once you establish the
privilege, you, your financial
advisor or any person with your
account information can call
American FundsLine(R) and make
investments by telephone (subject
to conditions noted in "Telephone
and Computer Purchases, Redemptons
and Exchanges" below).
By computer Please contact your investment Complete the American FundsLink
dealer to open account, then Authorization Form. Once you
follow the procedures for establish the privilege, you,
additional investments. 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 same
Please indicate an investment manner as described under "Initial
dealer on the account. Instruct Investment."
your bank to
wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the account of:
American Funds Service Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE
ORDER.
</TABLE>
INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial
investments required by the funds in The American Funds Group along with fund
numbers for use with our automated phone line, American FundsLine(R) (see
description below):
<TABLE>
<CAPTION>
<S> <C> <C>
FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R) $1,000 02
American Balanced Fund(R) 500 11
American Mutual Fund(R) 250 03
Capital Income Builder(R) 1,000 12
Capital World Growth and Income Fund(SM) 1,000 33
EuroPacific Growth Fund(R) 250 16
Fundamental Investors(SM) 250 10
The Growth Fund of America(R) 1,000 05
The Income Fund of America(R) 1,000 06
The Investment Company of America(R) 250 04
The New Economy Fund(R) 1,000 14
New Perspective Fund(R) 250 07
New World Fund(SM) 1,000+ 36
SMALLCAP World Fund(R) 1,000 35
Washington Mutual Investors Fund(SM) 250 01
BOND FUNDS
American High-Income Municipal Bond Fund(R) 1,000 40
American High-Income Trust(SM) 1,000 21
The Bond Fund of America(SM) 1,000 08
Capital World Bond Fund(R) 1,000 31
Intermediate Bond Fund of America(SM) 1,000 23
Limited Term Tax-Exempt Bond Fund of 1,000 43
America(SM)
The Tax-Exempt Bond Fund of America(R) 1,000 19
The Tax-Exempt Fund of California(R)* 1,000 20
The Tax-Exempt Fund of Maryland(R)* 1,000 24
The Tax-Exempt Fund of Virginia(R)* 1,000 25
U.S. Government Securities Fund(SM) 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of America(R) 2,500 09
The Tax-Exempt Money Fund of America(SM) 2,500 39
The U.S. Treasury Money Fund of America(SM) 2,500 49
___________
*Available only in certain states.
+Effective September 15, 1999.
</TABLE>
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
SALES CHARGES -- The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND
FUNDS
Less than $50,000 6.10% 5.75% 5.00%
$50,000 but less than 4.71 4.50 3.75
$100,000
BOND FUNDS
Less than $25,000 4.99 4.75 4.00
$25,000 but less than 4.71 4.50 3.75
$50,000
$50,000 but less than 4.17 4.00 3.25
$100,000
STOCK, STOCK/BOND, AND
BOND FUNDS
$100,000 but less than 3.63 3.50 2.75
$250,000
$250,000 but less than 2.56 2.50 2.00
$500,000
$500,000 but less than 2.04 2.00 1.60
$1,000,000
$1,000,000 or more none none (see below)
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES -- Investments of $1 million or more and
investments made by employer-sponsored defined contribution-type plans with 100
or more eligible employees are sold with no initial sales charge. A contingent
deferred sales charge may be imposed on certain redemptions by these accounts
made within one year of purchase. Investments by retirement plans, foundations
or endowments with $50 million or more in assets may be made with no sales
charge and are not subject to a contingent deferred sales charge.
In addition, the stock, stock/bond and bond funds may sell shares at net asset
value to:
(1) current or retired directors, trustees, officers and advisory board
members of the funds managed by Capital Research and Management Company,
employees of Washington Management Corporation, employees and partners of The
Capital Group Companies, Inc. and its affiliated companies, certain family
members of the above persons, and trusts or plans primarily for such persons;
(2) current registered representatives, retired registered representatives
with respect to accounts established while active, or full-time employees (and
their spouses, parents, and children) of dealers who have sales agreements with
American Funds Distributors (or who clear transactions through such dealers)
and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger,
acquisition or exchange offer;
(4) trustees or other fiduciaries purchasing shares for certain retirement
plans of organizations with retirement plan assets of $100 million or more;
(5) insurance company separate accounts;
(6) accounts managed by subsidiaries of The Capital Group Companies, Inc.; and
(7) The Capital Group Companies, Inc., its affiliated companies and Washington
Management Corporation. Shares are offered at net asset value to these persons
and organizations due to anticipated economies in sales effort and expense.
DEALER COMMISSIONS -- Commissions of up to 1% will be paid to dealers who
initiate and are responsible for purchases of $1 million or more, for purchases
by any employer-sponsored 403(b) plan or purchases by any defined contribution
plan qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $50 million or more: 1.00% on amounts of $1 million
to $4 million, 0.50% on amounts over $4 million to $10 million, and 0.25% on
amounts over $10 million.
OTHER COMPENSATION TO DEALERS -- American Funds Distributors, at its expense
(from a designated percentage of its income), currently provides additional
compensation to dealers. Currently these payments are limited to the top one
hundred dealers who have sold shares of the fund or other funds in The American
Funds Group. These payments will be based on a pro rata share of a qualifying
dealer's sales. American Funds Distributors will, on an annual basis, determine
the advisability of continuing these payments.
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
REDUCING YOUR SALES CHARGE -- You and your immediate family may combine
investments to reduce your costs. You must let your investment dealer or
American Funds Service Company know if you qualify for a reduction in your
sales charge using one or any combination of the methods described below.
STATEMENT OF INTENTION - You may enter into a non-binding commitment to
purchase shares of a fund(s) over a 13-month period and receive the same sales
charge as if all shares had been purchased at once. This includes purchases
made during the previous 90 days, but does not include appreciation of your
investment or reinvested distributions. The reduced sales charges and 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 use the Statement
in order to qualify for a reduced sales charge, shares equal to 5% of the
dollar amount specified in the Statement will be held in escrow in the
shareholder's account out of the initial purchase (or subsequent purchases, if
necessary) by the Transfer Agent. All dividends and any capital gain
distributions on shares held in escrow will be credited to the shareholder's
account in shares (or paid in cash, if requested). If the intended investment
is not completed within the specified 13-month period, the purchaser will pay
to the Principal Underwriter the difference between the sales charge actually
paid and the sales charge which would have been paid if the total purchases had
been made at a single time. If the difference is not paid by the close of the
period, 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) and any individual investments in
American Legacy products (American Legacy, American Legacy II and American
Legacy III variable annuities, American Legacy Life, American Legacy Variable
Life, and American Legacy Estate Builder) may be credited toward satisfying the
Statement. During the Statement period reinvested dividends and capital gain
distributions, investments in money market funds, and investments made under a
right of reinstatement will not be credited toward satisfying the
Statement.
When the trustees of certain retirement plans purchase shares by payroll
deduction, the sales charge for the investments made during the 13-month period
will be handled as follows: the regular monthly payroll deduction investment
will be multiplied by 13 and then multiplied by 1.5. The current value of
existing American Funds investments (other than money market fund investments),
any rollovers or transfers reasonably anticipated to be invested in non-money
market American Funds during the 13-month period, and any individual
investments in American Legacy products are added to the figure determined
above. The sum is the Statement amount and applicable breakpoint level. On the
first investment and all other investments made pursuant to the statement of
intention, a sales charge will be assessed according to the sales charge
breakpoint thus determined. There will be no retroactive adjustments in sales
charges on investments previously made during the 13-month period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the 1940 Act, again excluding employee benefit plans described
above, or (3) for a diversified common trust fund or other diversified pooled
account not specifically formed for the purpose of accumulating fund shares.
Purchases made for nominee or street name accounts (securities held in the name
of an investment dealer or another nominee such as a bank trust department
instead of the customer) may not be aggregated with those made for other
accounts and may not be aggregated with other nominee or street name accounts
unless otherwise qualified as described above.
CONCURRENT PURCHASES -- You may combine purchases of two or more funds in The
American Funds Group, except direct purchases of the money market funds.
Shares of money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
RIGHT OF ACCUMULATION -- You may take into account the current value of your
existing holdings in The American Funds Group, as well as your holdings in
Endowments (shares of which may be owned only by tax-exempt organizations), to
determine your sales charge on investments in accounts eligible to be
aggregated, or when making a gift to an individual or charity. When
determining your sales charge, you may also take into account the value of your
individual holdings, as of the end of the week prior to your investment, in
various American Legacy products (American Legacy, American Legacy II and
American Legacy III variable annuities, American Legacy Life, American Legacy
Variable Life, and American Legacy Estate Builder). Direct purchases of the
money market funds are excluded.
PRICE OF SHARES -- Shares are purchased at the offering price next determined
after the purchase order is received and accepted by the fund or American Funds
Service Company. This offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. In case of orders sent directly to the fund or American Funds
Service Company, an investment dealer MUST be indicated. The dealer is
responsible for promptly transmitting purchase orders to the Principal
Underwriter. Orders received by the investment dealer, the Transfer Agent, or
the fund after the time of the determination of the net asset value will be
entered at the next calculated offering price. Prices which appear in the
newspaper do not always indicate the prices at which you will be purchasing and
redeeming shares of the fund, since such prices generally reflect the previous
day's closing price whereas purchases and redemptions are made at the next
calculated 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 normal close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. For example, if the Exchange closes at 1:00 p.m. on one day
and at 4:00 p.m. on the next, the fund's share price would be determined as of
4:00 p.m. New York time on both days. The New York Stock Exchange is currently
closed on weekends and on the following holidays: New Year's Day, Martin Luther
King, Jr.'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, indirectly
or through a unit investment trust to any 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.
SELLING SHARES
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. You may sell
(redeem) shares in your account in any of the following ways:
THROUGH YOUR DEALER (certain charges may apply)
- - Shares held for you in your dealer's street name must be sold through the
dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- - Requests must be signed by the registered shareholder(s)
- - A signature guarantee is required if the redemption is:
-- Over $50,000;
-- Made payable to someone other than the registered shareholder(s); or
-- Sent to an address that has not been used with the account for at least 10
days.
Your signature may be guaranteed by a domestic stock exchange or the National
Association of Securities Dealers, Inc., bank, savings association or credit
union that are eligible guarantor institutions.
- - Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
- - You must include any shares you wish to sell that are in certificate form.
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE(R) OR AMERICAN FUNDSLINE ONLINE(SM)
- - Redemptions by telephone or fax (including American FundsLine(R) and American
FundsLine OnLine(SM)) are limited to $50,000 per shareholder each day.
- - Checks must be made payable to the registered shareholder(s).
- - Checks must be mailed to an address of record that has been used with the
account for at least 10 days.
MONEY MARKET FUNDS
- - You may have redemptions of $1,000 or more wired to your bank by writing
American Funds Service Company.
- - You may establish check writing privileges (use the money market funds
application).
-- If you request check writing privileges, you will be provided with checks
that you may use to draw against your account. These checks may be made
payable to anyone you designate and must be signed by the authorized number or
registered shareholders exactly as indicated on your checking account signature
card.
Redemption proceeds will not be mailed until sufficient time has passed to
provide reasonable assurance that checks or drafts (including certified or
cashier's checks) for shares purchased have cleared (which may take up to 15
calendar days from the purchase date). Except for delays relating to clearance
of checks for share purchases or in extraordinary circumstances (and as
permissible under the Investment Company Act of 1940), sale proceeds will be
paid on or before the seventh day following receipt and acceptance of an order.
Interest will not accrue or be paid on amounts that represent uncashed
distribution or redemption checks.
The fund may, with 60 days' written notice, close your account if due to a
sale of shares the account has a value of less than the minimum required
initial investment.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Redemption
proceeds of shares representing direct purchases in the money market funds are
excluded. Proceeds will be reinvested at the next calculated net asset value
after your request is received and accepted by American Funds Service Company.
CONTINGENT DEFERRED SALES CHARGE -- A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares. Shares held
for the longest period are assumed to be redeemed first for purposes of
calculating this charge. The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer-sponsored
retirement plan; for distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 591/2; for tax-free returns of excess
contributions to IRAs; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
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 to you. These cross-reinvestments of
dividends and capital gain distributions will be at net asset value (without
sales charge).
EXCHANGE PRIVILEGE -- You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to 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 TouchTonet
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.
SHARE CERTIFICATES -- Shares are credited to your account and certificates are
not issued unless you request them by writing to American Funds Service
Company.
REDEMPTION OF SHARES -- The fund's Declaration of Trust permits the fund to
direct the Transfer Agent to redeem your shares if, through redemptions or
otherwise, they have a value of less than the minimum initial investment amount
required of new shareholders (determined, for this purpose only, as the greater
of the shareholder's cost or the current net asset value of the shares,
including any shares acquired through reinvestment of income dividends and
capital gain distributions). We will give you prior notice of at least 60 days
before the involuntary redemption provision is made effective with respect to
your account. You will have not less than 30 days from the date of such notice
within which to bring the account up to the minimum determined as set forth
above.
EXECUTION OF PORTFOLIO TRANSACTIONS
The Investment Adviser places orders for the fund's portfolio securities
transactions. The Investment Adviser strives to obtain the best available
prices in its portfolio transactions taking into account the costs and
promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through their
correspondent clearing agents) is in a position to obtain the best price and
execution, the order is placed with that broker. This may or may not be a
broker who has provided investment research statistical, or other related
services to the Investment Adviser or has sold shares of the fund or other
funds served by the Investment Adviser. The fund does not have an obligation
to obtain the lowest available commission rate to the exclusion of price,
service and qualitative considerations.
Portfolio transactions for the fund may be executed as part of concurrent
authorizations to purchase or sell the same security for other funds served by
the Investment Adviser, or for trusts or other accounts served by affiliated
companies of the Investment Adviser. Although such concurrent authorizations
potentially could be either advantageous or disadvantageous to the Fund, they
are effected only when the Investment Adviser believes that to do so is in the
interest of the Fund. When such concurrent authorizations occur, the objective
is to allocate the executions in an equitable manner.
Brokerage commissions paid on portfolio transactions, including dealer
concessions on underwritings, for the fiscal years ended August 31, 1998, 1997,
and 1996, amounted to $1,197,000, $827,000, and $333,703, 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 $899,000 for the fiscal year ended August 31, 1998.
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. It
provides shareholders 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. In an effort to reduce the volume of mail shareholders receive from
the fund when a household owns more than one account, the Transfer Agent has
taken steps to eliminate duplicate mailings of shareholder reports. To receive
additional copies of a report shareholders should contact the Transfer Agent.
YEAR 2000 - The fund and its shareholders depend on the proper functioning of
computer systems maintained by the Investment Adviser and its affiliates and
other key service providers. Many computer systems in use today will require
reprogramming or replacement prior to the year 2000 because of the way they
store dates and make date-related calculations. The fund understands that
these service providers are taking steps to address the "Year 2000 problem".
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the fund. In addition, the fund's investments could be
adversely affected by the Year 2000 problem. For example, the markets for
securities in which the fund invests could experience settlement problems and
liquidity issues. Corporate and governmental data processing errors may cause
losses for individual companies and overall economic uncertainties. Earnings of
individual issuers are likely to be affected by the costs of addressing the
problem, which may be substantial and may be reported inconsistently.
PERSONAL INVESTING POLICY -- The Investment Adviser and its affiliated
companies have adopted a personal investing policy consistent with Investment
Company Institute guidelines. This policy includes: a ban on acquisitions of
securities pursuant to an initial public offering; restrictions on acquisitions
of private placement securities; pre-clearance and reporting requirements;
review of duplicate confirmation statements; annual recertification of
compliance with codes of ethics; ; blackout periods on personal investing for
certain investment personnel; ban on short-term trading profits for investment
personnel; limitations on service as a trustee 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, 1998
<TABLE>
<CAPTION>
<S> <C>
Net asset value and redemption price per share
(Net assets divided by $13.56
shares outstanding)
Offering price per share (100/95.25 of per share $14.24
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 AND RELATED STATISTICS
The fund's yield is 5.38% based on the 30-day (or one month) period ended
August 31, 1998, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[( a-b/cd + 1)/6/ - 1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The fund may also calculate a distribution rate on a taxable and tax
equivalent basis. The distribution rate is computed by annualizing the current
month's dividend and dividing by 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, 1998, the fund's total return over the past 12 months and
average annual total returns over the past five-year and lifetime periods were
2.56%, 4.24% and 7.06%. 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 fund's total return at net asset value over the past 12
months and average annual total return over the past five-year and lifetime
periods at August 31, 1998 was 7.68%, 5.26% and 7.58%, respectively.
In calculating average annual total return, the fund assumes: (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 growth and growth-income funds that are at least 10 years old. In
the rolling 10-year periods since January 1, 1968 (133 in all), those funds
have had better total returns that the Standard and Poor's 500 Composite Stock
Index in 124 of the 133 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
The fund may include information on its investment results and/or comparisons
of its investment results to various unmanaged indices or results of other
mutual funds or investment or savings vehicles in advertisements or in reports
furnished to present or prospective shareholders. The fund may also combine
its results with those of other funds in The American Funds Group for purposes
of illustrating investment strategies involving multiple funds.
The fund may also refer to results and surveys compiled by organizations such
as CDA Investment Technologies, Ibbotson Associates, Lipper Analytical Services
("Lipper"), Morningstar, Inc., Wiesenberger Investment Companies Services and
the U.S. Department of Commerce. Additionally, the fund may refer to results
published in various 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
(9/1/96-8/31/98) (9/1/94-8/31/98) (2/19/88-8/31/98)
$4,263 $9,085 $31,419
</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, 1998
Value**
<S> <C> <C>
1 1997 - 1998 $10,256
2 1996 - 1998 11,060
3 1995 - 1998 11,574
4 1994 - 1998 12,533
5 1993 - 1998 12,309
6 1992 - 1998 13,536
7 1991 - 1998 15,268
8 1990 - 1998 17,052
9 1989 - 1998 18,150
10 1988 - 1998 19,784
Lifetime 1988* - 1998 19,969
</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, 1998)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES**
Fiscal Annual Dividends Total From From From Total
Year End Dividends (cumulative) Investment Initial Capital Gains Dividends Value
August 31 Cost Investment Reinvested Reinvested
<S> <C> <C> <C> <C> <C> <C> <C>
1988* $ 411 $ 411 $10,411 $9,207 --- $ 406 $ 9,613
1989 885 1,296 11,296 9,187 --- 1,291 10,478
1990 1,000 2,296 12,296 8,913 --- 2,239 11,152
1991 1,029 3,325 13,325 9,127 --- 3,333 12,460
1992 1,033 4,358 14,358 9,520 --- 4,534 14,054
1993 1,022 5,380 15,380 9,760 --- 5,692 15,452
1994 1,020 6,400 16,400 8,920 70 6,184 15,174
1995 1,084 7,484 17,484 9,013 71 7,355 16,439
1996 1,096 8,580 18,580 8,840 70 8,289 17,199
1997 1,135 9,715 19,715 8,947 70 9,528 18,545
1998 1,224 10,939 20,939 9,040 71 10,858 19,969
</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, 1998
<S> <C> <C> <C>
Federal Agency Mortgage Obligations 29.99%
U.S. Treasury Securities 21.64%
Privately Originated Mortgage Obligations 21.33%
Asset-Backed Obligations 12.38%
Corporate Bonds 8.43%
Cash & Equivalents 4.02%
Governments (Excluding U.S. Government) 1.46%
Federal Agency Obligations--Non-Mortgage 0.75%
Bonds & Notes Principal Market Percent
Amount Value of Net
Industrial & Service - 1.87% (000) (000) Assets
Oil Enterprises 6.239% 2008 (1) $ 10,000 $ 10,026 .69%
PacifiCorp Australia, LLC 6.15% 2008 (1) 10,000 10,183 .70
Sony Corp. 6.125% 2003 3,000 3,024 .21
Wal-Mart Stores 5.65% 2000 4,000 4,014 .27
-----------------------
27,247 1.19
-----------------------
Transportation - 1.80%
Continental Airlines:
6.41% 2007 9,000 8,835
7.75% 2016 (2014) (2),(3) 1,282 1,434 .71
Jet Equipment Trust, Series 1995-B, Class A, 7.63% 2015 (2012) (1 9,242 10,163 .70
USAir, Inc. 6.76% 2009 (2008) (2),(3) 5,638 5,807 .39
-----------------------
26,239 1.80
-----------------------
Utilities - 0.41%
Texas Utilities Co., Series A, 6.20% 2002 6,000 6,027 .41
-----------------------
Financial Services - 4.35%
ABN AMRO Bank NV 7.55% 2006 4,000 4,275 .29
Barclays North American Capital Corp. 9.75% 2021 (2001)(2) 7,230 8,158 .56
BBV International Finance (Cayman) 6.875% 2005 7,200 7,369 .51
Beverly Finance Corp. 8.36% 2004(1) 10,000 11,080 .76
Deutsche Bank Financial 6.70% 2006 4,000 4,054 .28
Dresdner Bank New York 6.625% 2005 4,000 4,041 .28
General Electric Capital Corp. 8.375% 2001 1,500 1,591 .11
Ikon Capital Inc. 6.33% 2000 2,500 2,542 .17
Lend Lease (US) Finance Inc. 6.75% 2005 5,000 5,115 .35
Margaretten Financial 6.75% 2000 7,450 7,619 .52
NationsBank Corp. 6.125% 2004 3,000 2,982 .20
Toyota Motor Credit Corp. 6.125% 2000 2,495 2,527 .17
Union Bank of Switzerland 7.25% 2006 2,000 2,118 .15
-----------------------
63,471 4.35
-----------------------
Collateralized Mortgage Obligations
(Privately Originated)(3) - 21.33%
Asset Backed Securities Investment Trust,
Series 1997-D, 6.79% 2003 (1) 14,590 14,613 1.00
Asset Securitization Corp.,
Series 1997-D5, Class A-PS1, interest only, 1.57% 2043 (4) 173,930 18,367 1.26
Bear Asset Trust Securities, Series 1997-1,
Class A, 6.686% 2006(1) 9,802 9,824 .67
Blackrock Capital Finance LP, Series 1996-C2,
Class A, 7.632% 2026 (1),(4) 16 16 .00
Chase Commercial Mortgage Securities Corp.:
Series 1996-1, Class A1, 7.60% 2005 1,887 2,026
Series 1997-1, Class A1, 7.27% 2029 3,781 3,952
Series 1998-1, Class A1, 6.34% 2030 6,893 7,044 .89
Chase Manhattan Bank, NA, Series 1993-I,
Class 2A-5, 7.25% 2024 6,511 6,537 .45
CS First Boston Mortgage Securities Corp.,:
Series 1995-AEW1, Class B, 7.182% 2027(4) 7,200 7,200
Series 1998-C1, Class A-1A, 6.26% 2040 6,430 6,540 .94
Deutsche Mortgage & Asset Receiving Corp.,
Series 1998-C1, Class A-1, 6.22% 2031 13,705 13,888 .95
DLJ Mortgage Acceptance Corp.:
Series 1997-CF1, Class A1A, 7.40% 2006 (1) 6,481 6,859
Series 1995-CF2, Class A1B, 6.85% 2027 (1) 5,000 5,215
Series 1996-CF1, Class A1A, 7.28% 2028 2,536 2,648 1.01
GMAC Commercial Mortgage Securities Inc.,
Series 1996-C1, Class A2A, 6.79% 2028 16,417 16,786 1.15
Iroquois Trust, Series 1997-2, Class A, 6.752% 2007 (1) 5,000 5,071 .35
J.P. Morgan Commercial Mortgage Finance Corp., pass-through
certificates:
Series 1995-C1, Class A-2, 7.463% 2010(4) 18,155 18,407
Series 1997-C4, Class A-1, 6.939% 2028 1,609 1,646 1.37
Merrill Lynch Mortgage Investors Inc.:
Series 1995-C2, Class A-1, 7.384% 2021(4) 4,910 5,019
Series 1995-C3, Class A-2, 6.822% 2025(4) 5,180 5,356
Series 1997-C1, Class A-1, 6.95% 2029 (4) 13,218 13,676 1.66
Morgan Stanley Capital I Inc.:
Series 1995-GA1, Class A-1, 7.00% 2002(1) 3,355 3,381
Series 1998-WF1, Class A-1, 6.25% 2007 (4) 35,150 35,744
Series 1998-WF2, Class A-1, 6.34% 2030 (4) 6,931 7,081 3.17
Mortgage Capital Funding Inc.,
Series 1998-MC1, Class A-1, 6.417% 2030 12,742 13,022 .89
Nomura Asset Securities Corp.,
Series 1998-D6, Class A-A1, 6.28% 2030 (4) 9,730 9,721 .67
Paine Webber CMO, Series O, Class 5, 9.50% 2019 3,889 4,258 .29
SMA Finance Co., Inc.,
Series 1998-C1, Class A-1, 6.27% 2005 (1) 4,922 4,988 .34
Structured Asset Securities Corp.:
Series 1998-RF2, Class A, 8.582% 2022 (1),(4) 18,584 20,314
Series 1998-RF1, Class A, 8.709% 2027 (1),(4) 20,104 22,062
Series 1996-CFL, Class A1-C, 5.944% 2028 (4) 2,086 2,079 3.05
Structured Assets Notes Transactions,
Series 1996-A, Class A1, 7.156% 2003(1) 6,169 6,263 .43
Westam Mortgage, Class 4-H, 8.95% 2018 11,000 11,509 .79
-----------------------
311,112 21.33
-----------------------
Asset-Backed Obligations(3) - 12.38%
Case Equipment Loan Trust, Series 1995-A, 7.30% 2002 1,070 1,076 .07
Chase Manhattan Credit Card Master Trust:
Series 1996-4, Class A, 6.73% 2003 6,000 6,045
Series 1997-5, Class A, 6.194% 2005 5,500 5,613 .79
Equicredit Funding Trust, Series 1996-A,
Class A2, 6.95% 2012 5,500 5,540 .38
FIRSTPLUS Home Loan Owner Trust:
Series 1997-1, Class A-1, 6.28% 2004 1,350 1,348
Series 1997-1, Class A-3, 6.45% 2009 3,900 3,914
Series 1997-4, Class A-5, 6.62% 2015 6,200 6,307
Series 1997-3, Class M-1, 7.32% 2023 4,000 4,219 1.08
FMAC Loan Receivables Trust, Series 1998-A, Class A, 6.69% 2020 ( 22,000 22,268 1.53
GCC Home Equity Trust, asset-backed certificates,
Series 1990-1, Class A, 10.00% 2005 1,288 1,286 .09
Green Tree Financial Corp., pass-through certificates:
Series 1998-2, Class A5, 6.24% 2016 3,500 3,539
Series 1993-3, Class A5, 5.75% 2018 9,420 9,391
Series 1995-9, Class A4, 6.45% 2027 4,250 4,269
Series 1996-8, Class A4, 7.00% 2027 5,000 5,064
Series 1996-10, Class A4, 6.42% 2028 3,500 3,531
Series 1996-10, Class A5, 6.83% 2028 14,000 14,319
Series 1997-6, Class A5, 6.68% 2029 5,000 5,105
Series 1997-6, Class A6, 6.90% 2029 3,000 3,088 3.31
Green Tree Home Improvement Loan Trust:
Series 1997-D, Class HIA1, 6.14% 2023 1,392 1,392
Series 1997-D, Class HIA3, 6.77% 2023 5,000 5,074
Series 1997-C, Class HIA2, 6.46% 2028 1,750 1,759 .56
Merrill Lynch Mortgage Investors Inc.,
Series 1992-B, Class A3, 8.30% 2012 3,510 3,525 .24
The Money Store Home Equity Trust:
Series 1996-B, Class A14, 7.35% 2012 5,000 5,067
Series 1994-D, Class A5, 8.925% 2022 9,621 10,187 1.07
Nebhelp Trust, Student Loan Interest Margin Securities,
Series 1998-1, Class A, 6.68% 2016 (1) 20,000 20,330 1.39
Norwest Asset Securities Corp., Series 1998-8, Class A1, 6.50% 20 5,998 6,005 .41
Standard Credit Card Master Trust I, credit card
participation certificates,
Series 1991-6, Class A, 7.875% 2000 21,250 21,323 1.46
-----------------------
180,584 12.38
-----------------------
Governments (Excluding U.S. Government) &
Government Authorities - 1.46%
British Columbia Hydro & Power Authority 12.50% 2013 (1998)(2) 2,000 2,080 .14
Canadian Government 6.125% 2002 7,000 7,154 .49
Ontario (Province of) 7.75% 2002 8,000 8,540 .59
Victoria (Territory of) Public Authorities Finance Agency
8.45% 2001 3,500 3,794 .24
-----------------------
21,568 1.46
-----------------------
Federal Agency Mortgage Pass-Through Obligations(3) - 26.10%
Fannie Mae:
6.00% 2013-2028 22,447 22,320
6.167% 2033(4) 13,481 13,557
6.50% 2013-2028 20,442 20,592
7.00% 2008-2028 24,735 25,204
7.50% 2009-2028 18,867 19,372
8.00% 2002-2005 1,171 1,189
8.281% 2002(4) 8,851 9,220
8.50% 2008-2027 9,985 10,444
9.00% 2001-2022 9,866 10,490
9.50% 2009-2026 7,047 7,524
10.00% 2017-2025 15,779 17,271
10.50% 2004-2020 1,172 1,293
11.00% 2000-2020 2,464 2,761
12.00% 2015-2028 6,466 7,615
12.25% 2012-2013 1,965 2,284
12.50% 2028 3,830 4,540
13.00% 2015 1,875 2,264
15.00% 2028 1,283 1,617 12.31
Freddie Mac:
6.00% 2013 5,152 5,147
6.50% 2013 1,939 1,964
7.00% 2008 2,860 2,931
8.00% 2003-2017 4,367 4,565
8.50% 2008-2021 5,827 6,093
8.75% 2008-2009 819 856
9.50% 2010-2013 1,345 1,415
10.00% 2005-2019 13,721 14,898
11.00% 2018 47 53
12.00% 2016 153 175
12.50% 2015-2019 1,105 1,297
12.75% 2019 36 42 2.70
Government National Mortgage Assn.:
5.50% 2013 2,723 2,679
6.00% 2013-2028 10,280 10,230
6.875% 2016-2024(4) 18,217 18,568
7.00% 2007-2028(4) 44,244 45,014
7.50% 2028 15,942 16,415
8.00% 2023-2026 15,067 15,630
8.50% 2007-2023 14,509 15,399
9.00% 2008-2025 10,657 11,418
9.50% 2009-2021 16,282 17,625
9.75% 1999 3 3
10.00% 2019 6,839 7,536
10.25% 2012 251 273
10.50% 2019 95 106
11.00% 2010-2019 260 296
11.50% 2010-2013 115 131
12.50% 2010-2014 351 409 11.09
-----------------------
380,725 26.10
-----------------------
Federal Agency Collateralized Mortgage Obligations(3) - 3.89%
Fannie Mae:
Series 91-50, Class H, 7.75% 2006 10,490 10,975
Series 91-146, Class Z, 8.00% 2006 3,019 3,169
Trust D2, 11.00% 2009 2,880 3,353
Series 97-41, Class B, 7.25% 2014 7,967 7,984 3.43
Series 88-16, Class B, 9.50% 2018 460 495
Series 90-93, Class G, 5.50% 2020 2,420 2,414
Series 91-78, Class PK, 8.50% 2020 5,113 5,209
Series 90-21, Class Z, 9.00% 2020 15,322 16,414
Freddie Mac:
Series 1539, Class PL, 6.50% 2008 2,000 2,070
Series 83-B, Class 3, 12.50% 2013 99 112
Series 1567, Class A, 6.088% 2023(4) 1,996 1,926
Series 2030, Class F, 6.141% 2028 (4) 2,540 2,554 .46
-----------------------
56,675 3.89
-----------------------
Federal Agency Obligations--Non-Mortgage - 0.75%
Freddie Mac Notes:
5.75% 2008 10,750 10,871 .75
-----------------------
U.S. Treasury Obligations - 21.64%
9.125% May 1999 8,250 8,473 .58
8.00% May 2001 8,000 8,598 .59
13.375% August 2001 16,750 20,542 1.41
5.875% September 2002 7,500 7,727 .53
10.75% February 2003 5,000 6,127 .42
10.75% May 2003 21,750 26,888 1.84
11.125% August 2003 12,500 15,801 1.08
7.25% May 2004 62,706 69,486 4.76
7.25% August 2004 19,750 21,975 1.51
7.875% November 2004 16,165 18,554 1.27
11.625% November 2004 40,900 54,991 3.77
7.50% February 2005 4,250 4,813 .33
6.50% May 2005 6,750 7,304 .50
5.625% February 2006 9,000 9,298 .64
3.375% January 2007 (5) 10,802 10,465 .72
6.25% February 2007 10,500 11,299 .77
6.125% August 2007 6,480 6,939 .48
10.375% November 2009 5,000 6,355 .44
-----------------------
315,635 21.64
-----------------------
TOTAL BONDS & NOTES (cost: $1,379,275,000) 1,400,154 95.98
-----------------------
Short-Term Securities
Commercial Paper - 3.05%
AIG Funding Inc. 5.50% due 9/15/98 18,100 18,059 1.24
General Electric Capital Corp. 5.85% due 9/1/98 16,500 16,497 1.13
SBC Communications Inc. 5.51% due 9/1/98 (1) 10,000 9,999 .68
-----------------------
TOTAL SHORT-TERM SECURITIES (cost: $44,555,000) 44,555 3.05
-----------------------
TOTAL INVESTMENT SECURITIES (cost: $1,423,830,000) 1,444,709 99.03
Excess of cash and receivables over payables 14,074 .97
-----------------------
Net Assets $1,458,783 100.00
=======================
(1) Purchased in a private placement transaction;
resale may be limited to qualified institutional buyers;
resale to the public may require registration.
(2) 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.
(3) Pass-through securities backed by a pool of mortgages or
other loans on which principal payments are periodically made.
Therefore, the effective maturities are shorter
than the stated maturities.
(4) Coupon rate may change periodically.
(5) Index-linked bond whose principal amount moves with a
government retail price index.
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, 1998 (dollars inthousands)
- ---------------------------------------- ----------------------
Assets:
Investment securities at market
(cost: $1,423,830) $1,444,709
Cash 199
Receivables for-
Sales of investments $ 9,404
Sales of fund's shares 17,799
Accrued interest 13,535 40,738
----------------------
1,485,646
Liabilities:
Payables for-
Purchases of investments 19,390
Repurchases of fund's shares 4,040
Dividends payable 2,257
Management services 380
Accrued expenses 796 26,863
----------------------
Net Assets at August 31, 1998 -
Equivalent to $13.56 per share on 107,598,289 shares
of beneficial interest issued and outstanding;
unlimited shares authorized $1,458,783
=========
Statement of Operations
for the year ended August 31, 1998 (dollars inthousands)
----------------------
Investment Income:
Income:
Interest $ 93,277
Expenses:
Management services fee $ 5,328
Distribution expenses 4,067
Transfer agent fee 899
Reports to shareholders 101
Registration statement and prospectus 104
Postage, stationery and supplies 188
Trustees' fees 24
Auditing and legal fees 43
Custodian fee 6
Taxes other than federal income tax 20
------------
Total expenses before reimbursement 10,780
Reimbursement of expenses 471 10,309
Net investment income ----------------------
82,968
Realized Gain and Unrealized -----------
Appreciation on Investments:
Net realized gain 2,961
Net unrealized appreciation on investments:
Beginning of year 6,084
End of year 20,879
------------
Net unrealized appreciation on investments 14,795
-----------
Net realized gain and unrealized appreciation
on investments 17,756
-----------
Net Increase in Net Assets Resulting
from Operations $100,724
===========
Statement of Changes in Net Assets (dollars inthousands)
- ---------------------------------------- ----------------------
Year ended August 31
August 31,
1998 1997
Operations: ---------------------
Net investment income $ 82,968 $ 88,644
Net realized gain (loss) on investments 2,961 (9,914)
Net unrealized appreciation on investments 14,795 25,828
----------------------
Net increase in net assets
resulting from operations 100,724 104,558
----------------------
Dividends Paid From Net Investment Income (86,313) (87,766)
----------------------
Capital Share Transactions:
Proceeds from shares sold:
49,876,745 and 45,770,888 shares, respectivel 672,768 612,621
Proceeds from shares issued in
reinvestment of net investment income
dividends: 4,954,203 and 4,954,744 shares,
respectively 66,762 66,280
Cost of shares repurchased: 46,961,620 and
58,792,101 shares, respectively (633,193) (786,616)
----------------------
Net increase (decrease) in net assets resulting
from capital share transactions 106,337 (107,715)
----------------------
Total Increase (Decrease) in Net Assets 120,748 (90,923)
Net Assets:
Beginning of year 1,338,035 1,428,958
----------------------
End of year (including undistributed
net investment income of $527 and
$4,237, respectively) $1,458,783 $1,338,035
====================
See Notes to Financial Statements
</TABLE>
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:
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. Securities and assets
for which representative market quotations are not readily available are valued
at fair value as determined in good faith by a committee appointed by the Board
of Trustees.
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, 1998, net unrealized appreciation on investments for book and
federal income tax purposes aggregated $20,879,000, of which $25,531,000
related to appreciated securities and $4,652,000 related to depreciated
securities. During the year ended August 31, 1998, the fund realized, on a tax
basis, a net capital loss of $3,836,000 on security transactions. The fund had
available at August 31, 1998, a net capital loss carryforward of $89,401,000
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 the portfolio securities for
book and federal income tax purposes was $1,423,830,000 at August 31, 1998.
3. The fee of $5,328,000 for management services was incurred 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. During the year, CRMC reduced the management fees by
$471,000 to reimburse the fund for certain distribution expenses.
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, 1998,
distribution expenses under the Plan were limited to $4,067,000. Had no
limitation been in effect, the fund would have paid $4,681,000 in distribution
expenses under the Plan. As of August 31, 1998, accrued and unpaid
distribution expenses were $731,000.
American Funds Service Company (AFS), the transfer agent for the fund, was paid
a fee of $899,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $1,328,000 (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,
1998, aggregate amounts deferred and earnings thereon were $51,000.
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, 1998, accumulated net realized loss on investments was
$89,401,000 and paid-in capital was $1,526,778,000. The fund reclassified
$365,000 from undistributed net investment income to undistributed net realized
gains for the year ended August 31, 1998.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $1,270,954,000 and $1,170,477,000, respectively,
during the year ended August 31, 1998.
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 $6,000 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
--------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------
Net Asset Value, Beginning
of Year $13.42 $13.26 $13.52 $13.38 $14.64
--------------------------------------------
Income from Investment
Operations:
Net investment income .83 .86 .88 .93 .95
Net realized and unrealized
gain (loss) on investments .17 .15 (.27) .13 (1.20)
Total from investment --------------------------------------------
operations 1.00 1.01 0.61 1.06 (0.25)
--------------------------------------------
Less Distributions:
Dividends from net investment
income (.86) (.85) (.87) (.92) (.94)
Distributions from net realized
gains (.07)
--------------------------------------------
Total distributions (.86) (.85) (.87) (.92) (1.01)
--------------------------------------------
Net Asset Value, End of Year $13.56 $13.42 $13.26 $13.52 $13.38
============================================
Total Return (1) 7.68% 7.83% 4.63% 8.33%(1.80%)
Ratios/Supplemental Data:
Net assets, end of year (in
millions) $1,459 $1,338 $1,429 $1,501 $1,626
Ratio of expenses to average
net assets .76% (2) .82% .80% .78% .83%
Ratio of net income to
average net assets 6.12% 6.40% 6.53% 6.96% 6.79%
Portfolio turnover rate 79.19% 41.55% 48.25 % 71.91 %52.94 %
(1)Excludes maximum sales charge of 4.75%.
(2)Had CRMC not waived management services fees,
the fund's expense ratio would have been 0.79%
for the fiscal year ended August 31, 1998.
</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 investment portfolio,
as of August 31, 1998, 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, 1998, 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 at August 31, 1998, 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
Deloitte & Touche LLP
Los Angeles, California
September xx, 1998
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, 21% 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 1999 to determine the CALENDAR YEAR amounts to
be included on their respective 1998 tax returns. Shareholders should consult
their tax advisers.
