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American Funds Insurance Series – ‘N-CSRS/A’ for 6/30/14

On:  Friday, 1/30/15, at 2:59pm ET   ·   Effective:  1/30/15   ·   For:  6/30/14   ·   Accession #:  51931-15-100   ·   File #:  811-03857

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 1/30/15  American Funds Insurance Series   N-CSRS/A    6/30/14    3:11M                                    Investment Co of America
          → American Funds Global Balanced Fund ⇒ Class 1 — Class 2 — Class 4
          → American Funds Mortgage Fund ⇒ Class 1 — Class 2 — Class 4
          → American High-Income Trust ⇒ Class 1 — Class 2 — Class 3 — Class 4
          → Asset Allocation Fund ⇒ Class 1 — Class 2 — Class 3 — Class 4
          → Capital Income Builder ⇒ Class 1 — Class 2 — Class 4
          → Capital World Bond Fund ⇒ Class 1 — Class 2 — Class 4
          → Capital World Growth & Income Fund ⇒ Class 1 — Class 2 — Class 4
          → Corporate Bond Fund ⇒ Class 1 — Class 2 — Class 4
          → Global Growth Fund ⇒ Class 1 — Class 2 — Class 4
          → Global Small Capitalization Fund ⇒ Class 1 — Class 2 — Class 4
          → Growth Fund ⇒ Class 1 — Class 2 — Class 3 — Class 4
          → Growth-Income Fund ⇒ Class 1 — Class 2 — Class 3 — Class 4
          → International Fund ⇒ Class 1 — Class 2 — Class 3 — Class 4
          → International Growth & Income Fund ⇒ Class 1 — Class 2 — Class 4
          → Managed Risk Asset Allocation Fund ⇒ Class P1 — Class P2
          → Managed Risk Growth Fund ⇒ Class P1 — Class P2
          → Managed Risk Growth-Income Fund ⇒ Class P1 — Class P2
          → Managed Risk International Fund ⇒ Class P1 — Class P2
          → Managed Risk Washington Mutual Investors Fund ⇒ Class P1 — Class P2
          → New World Fund ⇒ Class 1 — Class 2 — Class 4
          → Portfolio Series – American Funds Global Growth Portfolio ⇒ Class 1 — Class 2 — Class 4
          → Portfolio Series – American Funds Growth & Income Portfolio ⇒ Class 1 — Class 2 — Class 4
          → Portfolio Series – American Funds Managed Risk Global Allocation Portfolio ⇒ Class P1 — Class P2
          → Portfolio Series – American Funds Managed Risk Growth & Income Portfolio ⇒ Class P1 — Class P2
          → Portfolio Series – American Funds Managed Risk Growth Portfolio ⇒ Class P1 — Class P2
          → The Bond Fund of America ⇒ Class 1 — Class 2 — Class 4
          → U.S. Government Securities Fund ⇒ Class 1 — Class 2 — Class 3 — Class 4
          → Ultra-Short Bond Fund ⇒ Class 1 — Class 2 — Class 3 — Class 4
          → Washington Mutual Investors Fund ⇒ Class 1 — Class 2 — Class 4

Document/Exhibit                   Description                      Pages   Size 

 1: N-CSRS/A    Amendment to Certified Semi-Annual Shareholder      HTML   4.30M 
                          Report of a Management Investment                      
                          Company                                                
 3: EX-99.906 CERT  Cert906                                         HTML      8K 
 2: EX-99.CERT  Cert302                                             HTML     16K 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

Certified Shareholder Report of

Registered Management Investment Companies

Investment Company Act File Number: 811-03857

American Funds Insurance Series

(Exact Name of Registrant as Specified in Charter)

333 South Hope Street

Los Angeles, California 90071

(Address of Principal Executive Offices)

Registrant's telephone number, including area code: (213) 486-9200

Date of fiscal year end: December 31

Date of reporting period: June 30, 2014

Steven I. Koszalka

American Funds Insurance Series

333 South Hope Street

Los Angeles, California 90071

(Name and Address of Agent for Service)

Copies to:

Michael Glazer

Bingham McCutchen LLP

355 South Grand Avenue, Suite 4400

Los Angeles, California 90071

(Counsel for the Registrant)

ITEM 1 – Reports to Stockholders

 

American Funds   Insurance Series®   Semi-annual report for the six months ended June 30, 2014

American Funds Insurance Series, from Capital Group, is the underlying investment vehicle for many variable annuities and insurance products. For more than 80 years, Capital has invested with a long-term focus based on thorough research and attention to risk.

Investing for short periods makes losses more likely. Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value. For current information and month-end results, visit americanfunds.com/afis. For information about your insurance contract and month-end results, go to the website of the company that issued your contract.

Investing outside the United States may be subject to risks, such as currency fluctuations, periods of illiquidity and price volatility. These risks may be heightened in connection with investments in developing countries. Investing in small-capitalization stocks can involve greater risk than is customarily associated with investing in stocks of larger, more established companies. The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings. High-yield bonds are subject to greater fluctuations in value and risk of loss of income and principal than investment-grade bonds. Bond ratings, which typically range from AAA/Aaa (highest) to D (lowest), are assigned by credit rating agencies such as Standard & Poor’s, Moody’s and/or Fitch as an indication of an issuer’s creditworthiness. Futures contracts may not provide an effective hedge of the underlying securities because changes in the prices of futures contracts may not track those of the securities they are intended to hedge. In addition, the managed risk strategy may not effectively protect the funds from market declines and will limit the funds’ participation in market gains. The use of the managed risk strategy could cause the funds’ returns to lag those of the applicable underlying funds in certain rising market conditions. Refer to the funds’ prospectuses and the Risk Factors section of this report for more information on these and other risks associated with investing in the funds.

Contents

Fellow investors:

Globally, stocks made moderate gains in the first half of 2014, supported by accommodative central bank policy, particularly in the U.S., Japan and Europe, which kept interest rates low. Investors shrugged off turmoil in Ukraine, Thailand and the Middle East, and a mid-period market correction, to lift U.S. stocks to new record highs.

The MSCI ACWI (All Country World Index), which measures global stocks, rose 6.18% for the six months through June 30. All but five of the 46 markets in the index had gains, with the two best and worst results coming from developing market countries: India (+21.86%) and Indonesia (+21.67%) at the top and Russia (–5.30%) and Hungary (–4.53%) at the bottom. In developed markets, Israel had the best return (+21.09%), followed by Denmark (+19.72%), New Zealand (+14.98%) and Italy (+14.45%). Japan was the weakest of the major markets, barely breaking even (+0.68%). The U.S. gained 7.15%. Country returns are based on MSCI indexes, which reflect reinvestment of distributions and dividends net of withholding taxes, except the MSCI USA Index, which reflects dividends gross of withholding taxes. All market indexes referenced in this report are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index.

After losing ground in 2013, bond markets rallied as investors sought safe havens in response to weaker-than-expected economic growth data in the U.S. and growing tensions in Ukraine and the Middle East. The Barclays U.S. Aggregate Index, which measures investment-grade bonds, gained 3.93%, while the Barclays Global Aggregate Index rose 4.93%. The Barclays U.S. Corporate High-Yield 2% Issuer Capped Index gained 5.46%. Developing market bonds recovered from losses in 2013, with a 9.10% gain for the J.P. Morgan Emerging Markets Bond Index Global. The yield on the 10-year U.S. Treasury was 2.53% at June 30, down from 3.04% at December 31, 2013.

In currency markets, the Japanese yen (+3.75%) and British pound (+3.24%) gained against the U.S. dollar, while the euro declined slightly (–0.64%). In developing market currencies, there was notable weakness in the Argentine peso (–19.84%) and Chilean peso (–5.10%) and strength in the Brazilian real (+7.04%) and South Korean won (+4.30%).

Against this backdrop, all the funds in American Funds Insurance Series had gains for the six months ended June 30, 2014, with the exception of Cash Management Fund, which continues to be hampered by exceptionally low short-term interest rates.

Looking ahead

The U.S. economy continues to grow modestly and growth is picking up slowly in Europe. In China, questions remain about the pace of growth, but the economy does appear to be headed up. With this backdrop, the outlook for corporate earnings growth is strong. In addition, the existence of central bank stimulus packages around the world should help head off any further financial crises. The biggest wild card today seems to be potential escalation in geopolitical tensions, whether in Ukraine, the Middle East or somewhere new. With valuation levels slightly above average, future stock returns may not be as high as we’ve enjoyed recently, but they are likely to be reasonably positive unless conditions change.

The outlook for bonds remains muted. This is no surprise, because interest rates are quite low relative to history, offering investors low rates of return. Long-term interest rates may begin rising in the next year, which would keep a lid on bond returns.

We believe our time-tested approach to investing should continue to be beneficial to our shareholders. We conduct extensive global research, pay strict attention to valuation, and retain a long-term horizon as we select securities.

Capital Income Builder

We are pleased to announce the addition of Capital Income Builder to American Funds Insurance Series. Capital Income Builder, which began operations on May 1, has the same investment objectives as Capital Income Builder^® in the American Funds mutual fund lineup.

The fund’s focus on providing current income and rising income over time while growing principal may appeal to retirement investors who have a long time horizon and need lower volatility. Results for the new fund and a summary of its first two months in operation, as well as portfolio holdings, appear later in this report.

We thank all our investors for the continued support and we look forward to reporting to you again in six months.

Sincerely,

Donald D. O’Neal

Vice Chairman of the Board

Alan N. Berro

President

August 7, 2014

Summary investment portfolios

Summary investment portfolios are designed to streamline this report and help investors better focus on the funds’ principal holdings. Cash Management Fund, Managed Risk Growth Fund, Managed Risk International Fund, Managed Risk Blue Chip Income and Growth Fund, Managed Risk Growth-Income Fund and Managed Risk Asset Allocation Fund show a complete listing of portfolio holdings. See the inside back cover for details on how to obtain a complete schedule of portfolio holdings for each fund in the series.

Unless otherwise indicated, American Funds Insurance Series investment results are for Class 2 shares (Class P2 shares for managed risk funds). Class 2 shares began operations on April 30, 1997. Class 3 shares began operations on January 16, 2004. Class 4 shares began operations on December 14, 2012. Results encompassing periods prior to those dates assume a hypothetical investment in Class 1 shares and include the deduction of additional annual expenses (0.25% for Class 2 shares, 0.18% for Class 3 shares and 0.50% for Class 4 shares).

The variable annuities and life insurance contracts that use the series’ funds contain certain fees and expenses not reflected in this report. Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The series’ investment adviser waived a portion of its management fees for all existing funds from September 1, 2004, through December 31, 2008, and for U.S. Government/AAA-Rated Securities Fund from July 1, 2010, through December 31, 2010. For the managed risk funds, the investment adviser is currently waiving a portion of its management fee equal to 0.05% of the funds’ net assets and is currently reimbursing a portion of other expenses so that they will not exceed 0.28%. The waivers and reimbursements will be in effect through at least May 1, 2015, unless modified or terminated by the series’ board. After that time, the investment adviser may elect to extend, modify or terminate the reimbursements. Applicable fund results shown reflect the waivers and reimbursements, without which results would have been lower. See the Financial Highlights table in this report for details.

Although Global Balanced Fund, Mortgage Fund and Cash Management Fund have plans of distribution and insurance administrative services plans for Class 4 shares, fees for distribution and/or insurance administrative services are not paid on amounts invested in the funds by the investment adviser and/or its affiliates. If fees for these services were charged on these assets, fund results would have been lower and expenses would have been higher. See the “Plans of distribution” and the “Fund expenses” sections of the prospectus for information on the fees for distribution and/or insurance administrative services, respectively, permitted to be charged by the funds.

Individual funds are listed in this report according to their risk potential, with managed risk funds listed last.

Global Growth Fund

Fund results shown are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Unit prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com/afis. For information about your insurance contract and month-end results, go to the website of the company that issued your contract.

Global Growth Fund gained 2.52% for the six months ended June 30, 2014, compared with a 6.18%* increase for the MSCI ACWI (All Country World Index).

Developed markets continued to benefit from central bank stimulus and improving economic activity during the first half of 2014. Emerging market stocks rallied as political uncertainty receded in some countries.

On a relative basis, the health care sector was the primary contributor to the fund’s gain. Danish pharmaceutical company Novo Nordisk, a global leader in the treatment of diabetes and the fund’s largest holding at June 30, had the most positive impact on the return, followed by third-largest holding Vertex Pharmaceuticals, a U.S. biotechnology company that develops drugs to treat serious diseases, including hepatitis C and cystic fibrosis.

The fund trailed the index in several industry sectors, notably utilities and telecommunication services. However, the consumer discretionary sector, the fund’s largest at June 30, detracted the most from relative returns after weak results from several companies, particularly online retailers Amazon and U.K.-based ASOS.

On a country basis, holdings in Denmark (represented by Novo Nordisk), Australia and Taiwan were the primary contributors to relative results. The fund’s larger areas of focus, such as the U.S., Japan and France, were the main detractors.

The fund’s portfolio managers continue to expect challenges from the reduction in monetary stimulus but remain optimistic about the long-term prospects for most developed markets.

Global Growth Fund

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from September 1, 2004, through December 31, 2008. Applicable fund results shown reflect the waiver, without which they would have been lower. Expense ratios are as of the fund’s prospectus dated May 1, 2014. See the Financial Highlights table in this report for details.

Any market index shown is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.

Global Small Capitalization Fund

Fund results shown are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Unit prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com/afis. For information about your insurance contract and month-end results, go to the website of the company that issued your contract.

Global Small Capitalization Fund gained 7.09% for the six months ended June 30, 2014, beating its benchmark, the MSCI All Country World Small Cap Index, which was up 6.50%.*

The global financial system continues to heal, and businesses are better positioned as balance sheets improve. Structurally, the U.S. has fewer issues than Europe as indicated by raw economic indicators such as lower unemployment. There is weakness, however, in consumer confidence and consumer credit. China continues to struggle with some structural economic and banking issues.

Strong stock selection in health care boosted fund results for the period, highlighted by double-digit returns of Synageva BioPharma, Illumina and bluebird bio. Information technology stocks also aided fund results, led by AAC Technologies. Holdings of financials and materials stocks lagged. U.S.-based holdings benefited the fund, while stocks of companies domiciled in the U.K. detracted.

At this point of the market cycle, we wouldn’t be surprised to see a pullback in equity markets. The fund’s portfolio managers remain focused on investing in strong and dynamic companies, particularly in industries in transition such as health care. The fund continues to have substantial investments in emerging markets as the portfolio managers identify interesting companies with favorable valuations.

Global Small Capitalization Fund

Average annual total returns based on a $1,000 investment

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from September 1, 2004, through December 31, 2008. Applicable fund results shown reflect the waiver, without which they would have been lower. Expense ratios are as of the fund’s prospectus dated May 1, 2014. See the Financial Highlights table in this report for details.

Any market index shown is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.

Growth Fund

Fund results shown are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Unit prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com/afis. For information about your insurance contract and month-end results, go to the website of the company that issued your contract.

Growth Fund gained 5.52% for the six months ended June 30, 2014. The S&P 500 rose 7.12%.

U.S. stocks recorded multiple new highs during the first half of 2014, with the S&P 500 notching its fifth and sixth consecutive quarterly increases — its longest streak of advances since 1998. The second half of the period accounted for most of the gain.

While all 10 industry sectors gained in the index, the fund’s best relative results were concentrated in three sectors: health care, financials and energy. Several of the fund’s holdings in the health care sector had strong results, including U.S. biotechnology company Vertex Pharmaceuticals, which focuses on the treatment of hepatitis C and cystic fibrosis, and Edwards Lifesciences, a global leader in heart valve technology. Both were among the top three contributors to relative returns.

The fund trailed the index in several sectors, including consumer discretionary and information technology, its two largest at June 30, which detracted most from relative results. Among consumer discretionary investments, U.S. online retailer Amazon, which has been the fund’s largest holding for some time and had strong results in 2013, slumped to a 19% loss in the first half of 2014, resulting in it being the top detractor to relative results for the period.

Looking ahead, the fund’s portfolio managers remain optimistic that domestic companies in the energy sector will benefit as the U.S. becomes more energy-independent, particularly since geopolitical turmoil in the Middle East threatens oil supplies.

Growth Fund

Average annual total returns based on a $1,000 investment

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from September 1, 2004, through December 31, 2008. Applicable fund results shown reflect the waiver, without which they would have been lower. Expense ratios are as of the fund’s prospectus dated May 1, 2014. See the Financial Highlights table in this report for details.

Any market index shown is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.

International Fund

Fund results shown are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Unit prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com/afis. For information about your insurance contract and month-end results, go to the website of the company that issued your contract.

International Fund increased 3.78% for the six months ended June 30, 2014. The fund’s benchmark, the MSCI ACWI (All Country World Index) ex USA, gained 5.56%.*

Major economies around the world are sluggishly improving with encouraging signs such as decreasing unemployment, easing credit conditions and rising business and consumer confidence. The pace of economic recovery has continued to exceed market expectations this year, though underlying economies have not quite healed. Companies are generally healthy with improving balance sheets, and many are continuing to refinance at lower rates and with extended maturities.

Investors are optimistic about Europe as the European Central Bank remains accommodative. India’s market has had a big recovery with the election of Narendra Modi as Prime Minister, Japan is continuing to make good progress on structural reforms and, increasingly, people are confident that China can get through its banking and economic troubles. Oil prices are high, which hurts countries in emerging markets.

In a period of strong markets with low volatility, the fund’s greatest concentration was in financials, where Axis Bank was the main contributor to the sector’s gains. Novartis and Novo Nordisk led health care holdings higher. Holdings in information technology, energy, telecommunication services and cash detracted from relative results. Companies headquartered in India helped fund results, while stocks of companies based in the U.K. and Germany dragged.

The fund’s portfolio managers are generally positive about the world economy, and don’t see many catalysts for a deceleration, particularly in growth stocks. However, geopolitical events or China’s economy can change the outlook.

International Fund

Average annual total returns based on a $1,000 investment

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from September 1, 2004, through December 31, 2008. Applicable fund results shown reflect the waiver, without which they would have been lower. Expense ratios are as of the fund’s prospectus dated May 1, 2014. See the Financial Highlights table in this report for details.

Any market index shown is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.

New World Fund

Fund results shown are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Unit prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com/afis. For information about your insurance contract and month-end results, go to the website of the company that issued your contract.

New World Fund increased 4.88% for the six months ended June 30, 2014. Its benchmark indexes, the MSCI ACWI (All Country World Index) and the MSCI Emerging Markets Index, gained 6.18% and 6.14%,* respectively.

Recovery in emerging market equities and moderate economic growth punctuated the six months. There has been unprecedented liquidity injected into the financial system, and tapering will continue to occur, which has to be a concern since no one knows precisely what the outcome will be.

Strong stock selection in health care stocks — highlighted by Novo Nordisk — aided fund results. French information technology firm Alcatel-Lucent — a contributor in recent periods — gave back some of its recent strong results and detracted. On a country basis, stocks of companies domiciled in India and the U.K. aided results, while French and Russian companies lagged. In fixed income, exposure to bonds originating from Greece helped, while U.S. bonds lagged.

As global economies continue to get stronger, it is likely that interest rates will move up to more sustainable long-term levels. The fund’s portfolio managers remain focused on individual companies and evaluate metrics such as the trajectory of earnings in their review of stocks to hold for the long term.

New World Fund

Average annual total returns based on a $1,000 investment

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from September 1, 2004, through December 31, 2008. Applicable fund results shown reflect the waiver, without which they would have been lower. Expense ratios are as of the fund’s prospectus dated May 1, 2014. See the Financial Highlights table in this report for details.

Any market index shown is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.

Blue Chip Income and Growth Fund

Fund results shown are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Unit prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com/afis. For information about your insurance contract and month-end results, go to the website of the company that issued your contract.

Blue Chip Income and Growth Fund was up 8.02% for the six months ended June 30, 2014, outpacing its benchmark index, the S&P 500, which gained 7.12%.

The U.S. economy is gradually improving, but at a slower rate than most observers expected — particularly in areas sensitive to rising interest rates such as housing and autos. The Federal Reserve has injected a huge amount of liquidity into the system, which has helped financial assets recover, but the real economy has lagged.

Information technology holdings aided fund results, highlighted by the rise in stock price of Hewlett-Packard. Utilities stocks, led by Exelon, also were strong positive contributors to fund results. Financial holdings detracted, but the fund had lower exposure than the benchmark. Cash was a slight drag on returns.

Equity markets have continued to be strong in 2014 and have tripled since the low in 2009. As a result, market valuations have moved above long-term averages and overall market risk has increased. This warrants a more cautious stance than would have been appropriate a year or two ago, and the fund has shifted toward more defensive investments. Despite greater caution, we do continue to look for and find select companies that offer attractive risk-adjusted returns.

Blue Chip Income and Growth Fund

Average annual total returns based on a $1,000 investment

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from September 1, 2004, through December 31, 2008. Applicable fund results shown reflect the waiver, without which they would have been lower. Expense ratios are as of the fund’s prospectus dated May 1, 2014. See the Financial Highlights table in this report for details.

Any market index shown is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.

Global Growth and Income Fund

Fund results shown are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Unit prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com/afis. For information about your insurance contract and month-end results, go to the website of the company that issued your contract.

Global Growth and Income Fund gained 6.41% for the six months ended June 30, 2014, slightly ahead of the MSCI ACWI (All Country World Index), which rose 6.18%.*

Developed markets continued to benefit from central bank stimulus and improving economic activity during the first half of 2014. Emerging market stocks rallied as political uncertainty receded in some countries.

Stock selection in a range of industries was the key to the fund outpacing the index. The fund’s two largest holdings at June 30, U.S. pharmaceutical giant Merck and information technology company Taiwan Semiconductor Manufacturing, were the top contributors to the fund’s relative result. Three other semiconductor industry holdings also helped the result, along with some companies in the industrials, utilities and consumer staples sectors.

The financials sector, the fund’s largest at June 30 by a significant margin, was one of the weakest during the period on both an absolute and relative basis. It included two of the top five detractors to relative returns in French company AXA and the U.S.-based CME Group. Weakness in the consumer discretionary and materials sectors also hurt results.

On a country basis, holdings in the United Kingdom, Taiwan and Portugal were the main contributors to the fund’s relative return, while France and Japan were the primary detractors.

As always, the portfolio managers remain confident that they can uncover promising long-term investment opportunities.

Global Growth and Income Fund

Average annual total returns based on a $1,000 investment

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from May 1, 2006, through December 31, 2008. Applicable fund results shown reflect the waiver, without which they would have been lower. Expense ratios are as of the fund’s prospectus dated May 1, 2014. See the Financial Highlights table in this report for details.

Any market index shown is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.

Growth-Income Fund

Fund results shown are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Unit prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com/afis. For information about your insurance contract and month-end results, go to the website of the company that issued your contract.

Growth-Income Fund gained 6.94% for the six months ended June 30, 2014, slightly trailing the S&P 500, which rose 7.12%.

U.S. stocks recorded multiple new highs during the first half of 2014, with the S&P 500 notching its fifth and sixth consecutive quarterly increases — its longest streak of advances since 1998. The second half of the period accounted for most of the gain.

Stock selection was a key factor in the fund’s results, with select holdings in the energy and health care sectors the primary drivers of relative returns. Standout health care holdings were U.S. biotechnology leaders Illumina, the top contributor to relative returns, and Gilead Sciences, the fund’s largest holding at June 30. U.S. oil and gas company EOG Resources, the fund’s eighth-largest holding at the end of the period, topped the energy sector. Holdings in the industrials sector also made a significant contribution to relative returns.

The biggest drag on results came from holdings in the consumer discretionary sector, the fund’s third-largest at June 30, notably third-largest holding Amazon (which gave up some of its gains from 2013), General Motors and Mattel. Holdings in cash also held back results.

Looking ahead, the portfolio managers expect stock market returns to be reasonably positive as long as central bank stimulus packages remain in place and economic growth continues.

Growth-Income Fund

Average annual total returns based on a $1,000 investment

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from September 1, 2004, through December 31, 2008. Applicable fund results shown reflect the waiver, without which they would have been lower. Expense ratios are as of the fund’s prospectus dated May 1, 2014. See the Financial Highlights table in this report for details.

Any market index shown is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.

International Growth and Income Fund

Fund results shown are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Unit prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com/afis. For information about your insurance contract and month-end results, go to the website of the company that issued your contract.

International Growth and Income Fund gained 5.45% for the six months ended June 30, 2014, slightly trailing the MSCI ACWI (All Country World Index) ex USA, which rose 5.56%.*

Developed markets continued to benefit from central bank stimulus and improving economic activity during the first half of 2014. Emerging market stocks rallied as political uncertainty receded in some countries.

Strong returns from several holdings in the utilities sector powered the fund’s result. Two electricity providers were among the top five contributors to relative returns: EDP, of Portugal, the fund’s largest holding at June 30, and Finnish utility Fortum. Another defensive sector, health care, also helped the fund, with strong results from several pharmaceutical companies, particularly Finnish company Orion, the 10th-largest holding, and second-largest holding Novartis, of Switzerland.

The fund’s relative results were hurt by weak returns from holdings in the consumer discretionary sector, the second-largest at June 30, and a low weighting in the strong energy sector. Investments in the financials sector, the fund’s largest by a significant margin, made a modest absolute and relative contribution despite disappointing results from some European banks.

On a country basis, holdings in Portugal, Finland and Japan were the main relative contributors, while holdings in the U.S., Canada and the U.K. were weakest.

As always, the fund’s portfolio managers are maintaining a relatively balanced approach by sector and geography while keeping a wary eye on issues that could derail global economic growth.

International Growth and Income Fund

Average annual total returns based on a $1,000 investment

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from November 18, 2008, through December 31, 2008. Applicable fund results shown reflect the waiver, without which they would have been lower. Expense ratios are as of the fund’s prospectus dated May 1, 2014. See the Financial Highlights table in this report for details.

Any market index shown is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.

Capital Income Builder

Fund results shown are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Unit prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com/afis. For information about your insurance contract and month-end results, go to the website of the company that issued your contract.

Capital Income Builder, the newest fund in the American Funds Insurance Series lineup, was introduced on May 1, 2014. The fund has two primary investment objectives. It seeks (1) to provide a level of current income that exceeds the average yield on U.S. stocks generally and (2) to provide a growing stream of income over the years. The fund’s secondary objective is to provide growth of capital.

From its inception through June 30, Capital Income Builder gained 2.51%, which included reinvestment of a 6-cents-a-share dividend. The fund’s primary benchmark, the S&P 500, rose 4.47% over the same period, while the Lipper Income Funds Average, a measure of similar funds, gained 2.26%.

During the fund’s first two months of operations, the four portfolio managers invested 29.9% of assets in U.S. stocks, 44.9% in stocks from outside the U.S. and 18.5% in investment-grade U.S. bonds. The relatively stable consumer staples and health care sectors were the two largest sectors at June 30 at 11.6% and 10.0%, respectively.

Outside the U.S., the portfolio managers have found attractive opportunities in dividend-paying companies in 18 countries, led by the United Kingdom at 14.2% of assets and Switzerland at 5.0%.

The fund began amid continuing growth in major developed economies, supported by accommodative central bank policies in the U.S., Japan and Europe. While the fund’s portfolio managers see no particular reason to believe that the growth will not continue, they are keeping a watchful eye on geopolitical issues that could threaten economic stability, particularly the turmoil in the Middle East and Ukraine.

Capital Income Builder

Cumulative returns based on a $1,000 investment

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. Expense ratios are as of the fund’s prospectus dated May 1, 2014. See the Financial Highlights table in this report for details.

Any market index shown is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.

Asset Allocation Fund

Fund results shown are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Unit prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com/afis. For information about your insurance contract and month-end results, go to the website of the company that issued your contract.

Asset Allocation Fund, which is a mix of stocks and bonds, rose 4.00% for the six months ended June 30, 2014. The S&P 500, the benchmark for the fund’s equity holdings, gained 7.12% over the same period, while the Barclays U.S. Aggregate Index, which measures U.S. investment-grade bonds (rated BBB/Baa and above), rose 3.93%. A blend of the two indexes, the 60/40 S&P/Barclays Index, gained 5.89%.*

U.S. stocks recorded multiple new highs during the first half of 2014, with the S&P 500 notching its fifth and sixth consecutive quarterly increases – its longest streak of advances since 1998. The second half of the period accounted for most of the gain. Bonds rallied amid rising geopolitical risks, which bolstered demand for safe-haven assets.

All but one of the fund’s industry sectors finished the period ahead, with holdings in information technology having the most positive impact on the fund’s relative return. Leading the sector were AAC Technologies Holdings, a Chinese company that makes miniature technology components, and Microsoft, the fund’s largest holding at June 30.

The fund trailed the index in several sectors, with the biggest drag on relative returns coming from holdings in the financials, energy and consumer discretionary sectors. Holdings outside the U.S. generally added relative value, with the strongest returns coming from China and Taiwan. Japan and Switzerland were weakest.

In the fund’s fixed-income portfolio, sector allocation and bond selection had a positive impact on fund returns. Corporate bonds were the main contributors, led by Microsoft, Merck and Broadcom, while Amazon, Canadian Pacific Railway and Oil States International were primary detractors.

The fund’s holdings in cash, which reflect the portfolio managers’ cautious approach, again held back results.

Asset Allocation Fund

Average annual total returns based on a $1,000 investment

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from September 1, 2004, through December 31, 2008. Applicable fund results shown reflect the waiver, without which they would have been lower. Expense ratios are as of the fund’s prospectus dated May 1, 2014. See the Financial Highlights table in this report for details.

Any market index shown is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.

Global Balanced Fund

Fund results shown are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Unit prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com/afis. For information about your insurance contract and month-end results, go to the website of the company that issued your contract.

Global Balanced Fund rose 4.77% for the six months ended June 30, 2014. The MSCI ACWI (All Country World Index), which measures global stocks, gained 6.18%,* while the Barclays Global Aggregate Index, a measure of investment-grade bonds, was up 4.93%. The 60/40 MSCI/Barclays Index increased 5.73%.*

The fund’s portfolio managers continue to see value in Europe although the fund was not aggressively positioned in related stocks due to the halting nature of its economic recovery. Emerging markets remain at a low concentration as the structural issues there persist; a potential increase in rates by the Federal Reserve would be a problem for most countries in emerging markets.

Stock selection in consumer staples led by Lorillard, which has been the subject of takeover speculation, benefited fund results on a relative basis, while financials holdings detracted as Deutsche Bank had a disappointing period. Companies headquartered in the U.K. aided relative results, while stocks of companies based in Japan, particularly financials, detracted.

The fixed-income portion of the fund was beneficial as exposure to Japan and Mexico helped relative fund results. Gains were offset by bonds originating from the euro zone. Cash has been a detractor year to date, but at such low interest rates, was seen as a better defensive holding than a higher concentration of bonds.

Global Balanced Fund

Average annual total returns based on a $1,000 investment

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. Expense ratios are as of the fund’s prospectus dated May 1, 2014. See the Financial Highlights table in this report for details.

Although the fund has a plan of distribution and an insurance administrative services plan for Class 4 shares, fees for distribution and/or insurance administrative services are not paid on amounts invested in the fund by the investment adviser and/or its affiliates. If fees for these services were charged on these assets, fund results would have been lower and expenses would have been higher. See the “Plans of distribution” and the “Fund expenses” sections of the prospectus for information on the fees for distribution and/or insurance administrative services, respectively, permitted to be charged by the fund.

Any market index shown is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.

Bond Fund

Fund results shown are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Unit prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com/afis. For information about your insurance contract and month-end results, go to the website of the company that issued your contract.

Bond Fund increased 4.05% for the six months ended June 30, 2014, edging its benchmark, the Barclays U.S. Aggregate Index, which gained 3.93%.

The U.S. economy is further along in its expansion but with mixed indicators. Major central banks are still applying more liquidity into the system, although the U.S. Federal Reserve has signaled it will continue to decelerate gently. Questions linger whether the economy has the momentum to accelerate on its own. Debt servicing costs are coming down so companies can refinance their debt more cheaply, and there are early signs of mergers and acquisitions.

The fund’s exposure to corporate bonds was historically low because valuations are rich given investors’ stretch for yield. The fund has more recently rotated back into mortgage-backed securities. The fund has also avoided 10-year Treasuries in favor of 30-year Treasuries as corporations with future pension obligations are acquiring those long duration assets.

The view of the portfolio managers is that there will be a gentle rise in interest rates; however, they likely will not reach as high as many expect. There are still weak points in major economies, such as negative first quarter U.S. gross domestic product growth, that need to be closely monitored before stimulus can be entirely removed.

Bond Fund

Average annual total returns based on a $1,000 investment

For periods ended June 30, 2014

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from September 1, 2004, through December 31, 2008. Applicable fund results shown reflect the waiver, without which they would have been lower. Expense ratios are as of the fund’s prospectus dated May 1, 2014. See the Financial Highlights table in this report for details.

Any market index shown is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.

Global Bond Fund

Fund results shown are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Unit prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com/afis. For information about your insurance contract and month-end results, go to the website of the company that issued your contract.

Global Bond Fund gained 5.62% for the six months ended June 30, 2014, ahead of the Barclays Global Aggregate Index, which rose 4.93%.

The first half of the year saw continuing optimism around the euro area economy, with peripheral bond spreads gradually tightening, which helped the fund’s return.

Growth started to pick up, particularly in the United Kingdom, which led to speculation that the Bank of England might start to raise rates at the end of the year. The pound strengthened as a result.

Bond yields came down in many bond markets around the world, supporting fund returns. The yield on the 10-year German bund ended the period close to levels last seen during the euro zone financial crisis of 2012, while corporate bond spreads tightened to levels not seen since before the financial crisis.

The major currencies — euro, Japanese yen and U.S. dollar — were relatively stable during the period. Many emerging market bonds and currencies strengthened in the second quarter, lifting the fund’s investments in those areas, notably Eastern Europe, Brazil, Mexico and South Korea.

Looking ahead, the fund’s portfolio managers remain optimistic that global growth will continue to strengthen in the coming months.

Global Bond Fund

Average annual total returns based on a $1,000 investment

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from October 4, 2006, through December 31, 2008. Applicable fund results shown reflect the waiver, without which they would have been lower. Expense ratios are as of the fund’s prospectus dated May 1, 2014. See the Financial Highlights table in this report for details.

Any market index shown is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.

High-Income Bond Fund

Fund results shown are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Unit prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com/afis. For information about your insurance contract and month-end results, go to the website of the company that issued your contract.

High-Income Bond Fund gained 4.17% for the six months ended June 30, 2014. The fund’s benchmark, the Barclays U.S. Corporate High Yield 2% Issuer Capped Index, increased 5.46%.

The six-month period saw a continuation of recent themes: modest growth, continued low interest rates and strong returns in high yield bonds. The yield of 10-year U.S. Treasuries declined from 3.04% to 2.53%, reflecting continuing concerns about economic growth.

The fund increased its exposure to health care securities as attractive opportunities arise in this sector. Corporate bonds in life sciences, tools & services and European government bonds helped results. Corporate bonds within independent power & renewables hurt fund results. Cash was a relative detractor.

Modest growth combined with ample liquidity to facilitate refinancing of balance sheets and financing of capital plans means defaults and incidents of financial distress are likely to stay low. While we expect economic growth to strengthen and interest rates to be a headwind going forward, our expectations are for a continuation of the relatively weak recovery. In this environment, we think we can continue to find attractive credits but the total return opportunity is not as great as it has been and we have been adopting a slightly more conservative investment posture.

High-Income Bond Fund

Average annual total returns based on a $1,000 investment

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from September 1, 2004, through December 31, 2008. Applicable fund results shown reflect the waiver, without which they would have been lower. Expense ratios are as of the fund’s prospectus dated May 1, 2014. See the Financial Highlights table in this report for details.

Any market index shown is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.

Mortgage Fund

Fund results shown are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Unit prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com/afis. For information about your insurance contract and month-end results, go to the website of the company that issued your contract.

Mortgage Fund gained 4.02% for the six months ended June 30, 2014, essentially matching the 4.03% return of the Barclays U.S. Mortgage-Backed Securities Index.

The first six months of 2014 was a strong period for agency mortgage-backed securities, with the Barclays index beating a duration-equivalent U.S. Treasury portfolio by 68 basis points.

The U.S. Treasury yield curve flattened during the period with five-year yields falling 13 basis points and 10- and 30-year yields decreasing by about 50 and 60 basis points, respectively. Two investment drivers that are flattening the yield curve are the market pricing in Federal Reserve rate increases expected to start in the middle of 2015 and a lower long run terminal federal funds rate.

Yields on agency mortgage-backed securities fell by about 45 basis points in the first half of 2014, largely driven by the nearly 50 basis point drop in 10-year Treasury yields.

Portfolio managers increased the fund’s weighting in U.S. Treasuries from 10% to 23% during the period. At June 30, the fund had a low weighting in agency mortgage-backed securities while managers wait for better opportunities as the Fed continues to taper its purchases.

Mortgage Fund

Average annual total returns based on a $1,000 investment

For periods ended June 30, 2014

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. Expense ratios are as of the fund’s prospectus dated May 1, 2014. See the Financial Highlights table in this report for details.

Although the fund has a plan of distribution and an insurance administrative services plan for Class 4 shares, fees for distribution and/or insurance administrative services are not paid on amounts invested in the fund by the investment adviser and/or its affiliates. If fees for these services were charged on these assets, fund results would have been lower and expenses would have been higher. See the “Plans of distribution” and the “Fund expenses” sections of the prospectus for information on the fees for distribution and/or insurance administrative services, respectively, permitted to be charged by the fund.

Any market index shown is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.

U.S. Government/AAA-Rated Securities Fund

Fund results shown are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Unit prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com/afis. For information about your insurance contract and month-end results, go to the website of the company that issued your contract.

U.S. Government/AAA-Rated Securities Fund gained 3.83% for the six months ended June 30, 2014, ahead of the Barclays U.S. Government/Mortgage-Backed Securities Index, which rose 3.24%.

The first half of the year was characterized by weak first-quarter economic performance related to weather disruption and health care-related uncertainty for business. A stronger second quarter failed to make up for the lost output in the first quarter. The 10-year U.S. Treasury yield fell from 3.04% at the beginning of the year to 2.53% at June 30.

The fund benefited from its overweight positions in 30-year bonds, which fared better than shorter term bonds. Holdings in mortgage-backed securities did well as mortgage spreads tightened and prepayments on premium mortgage-backed securities were surprisingly low.

A substantial position in multifamily housing asset-backed bonds issued by Freddie Mac contributed to the fund’s results as these securities tightened to historically low levels. Inflation index-linked bonds also did well, supported by fears of rising inflation.