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American Funds Insurance Series · 497 · On 5/22/02

Filed On 5/22/02 · SEC File 2-86838 · Accession Number 729528-2-6

  As Of               Filer                 Filing     As/For/On Docs:Pgs

 5/22/02  American Funds Insurance Series   497                    1:178

Definitive Material · Rule 497
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 497         Definitive Material                                  178±   782K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (RTF, XML, et al.) Board of Trustees and Officers Certain Investment Limitations and Guidelines Debt Securities Description of Certain Securities and Investment Techniques Description of Commercial Paper Ratings Equity Securities Execution of Portfolio Transactions Fundamental Policies and Investment Restrictions General General Information Management Maturity Non-U.S. Securities Price of Shares Series Organization and Voting Rights Taxes and Distributions
1	1st Page
2	Certain Investment Limitations and Guidelines
"	General
"	Non-U.S. Securities
"	Debt Securities
"	Equity Securities
5	Maturity
6	Description of Certain Securities and Investment Techniques
18	Fundamental Policies and Investment Restrictions
22	Series Organization and Voting Rights
23	Board of Trustees and Officers
28	Management
31	Price of Shares
32	Taxes and Distributions
35	Execution of Portfolio Transactions
37	General Information
38	Description of Commercial Paper Ratings

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AMERICAN FUNDS INSURANCE SERIES
PROSPECTUS SUPPLEMENT

MAY 20, 2002
FOR PROSPECTUS DATED MAY 1, 2002

The first paragraph on page 22 is amended as follows:

The fund seeks to provide you with a high level of current income, as well as
preserve your investment. Normally, the fund will invest at least 80% of its
assets in securities that are guaranteed by the "full faith and credit" pledge
of the U.S. government or debt securities that are rated Aaa or AAA by Moody's
Investors Service, Inc. or Standard & Poor's Corporation or unrated but
determined to be of equivalent quality. The fund may also invest a significant
portion of its assets in securities backed by pools of mortgages (also called
"mortgage-backed securities"). The fund is designed for investors seeking
income and more price stability than stocks and lower quality debt securities,
and capital preservation over the long term.

Please keep this Supplement with your copy of the Prospectus.

AMERICAN FUNDS INSURANCE SERIES

Part B
Statement of Additional Information

May 1, 2002
(as amended May 20, 2002)

This document is not a prospectus but should be read in conjunction with the
current prospectus of American Funds Insurance Series (the "Series") dated May
1, 2002. The prospectus may be obtained from your investment dealer or financial
planner or by writing to the fund at the following address:

American Funds Insurance Series
Attention: Secretary
333 South Hope Street
Los Angeles, California 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. They should contact their employer for details.

TABLE OF CONTENTS

[Download Table]

Item Page No.
---- --------

Certain Investment Limitations and Guidelines . . . . . . . . . . . 2
Description of Certain Securities and Investment Techniques . . . . 6
Fundamental Policies and Investment Restrictions. . . . . . . . . . 18
Series Organization and Voting Rights . . . . . . . . . . . . . . . 22
Board of Trustees and Officers. . . . . . . . . . . . . . . . . . . 23
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Price of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Taxes and Distributions . . . . . . . . . . . . . . . . . . . . . . 32
Execution of Portfolio Transactions . . . . . . . . . . . . . . . . 36
General Information . . . . . . . . . . . . . . . . . . . . . . . . 37
Description of Commercial Paper Ratings . . . . . . . . . . . . . . 39
Financial Statements

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CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES

The following limitations and guidelines are considered at the time of purchase,
under normal circumstances, and are based on a percentage of the funds' net
assets unless otherwise noted. This summary is not intended to reflect all of
the funds' investment limitations.

GLOBAL DISCOVERY FUND

General

. The fund may invest up to 25% of its assets in companies outside the
services and information area of the global economy. Under normal
market conditions, the fund will invest in equity securities,
including common and preferred stocks or other securities convertible
into stocks.

. The fund may hold cash or cash equivalents, government or other debt
securities of companies outside the services and information area.

Non-U.S. Securities

. Although the fund currently expects to invest a majority of its assets
in the U.S., it may invest its assets on a global basis. The fund may
invest in securities of issuers domiciled outside the U.S., including
securities denominated in currencies other than the U.S. dollar.

Debt Securities

. The fund may not invest in debt securities rated below Ca by Moody's
Investors Service, Inc. ("Moody's") or CC by Standard & Poor's
Corporation ("S&P") or in unrated securities determined to be of
equivalent quality.

GLOBAL GROWTH FUND

Debt Securities

. The fund may invest up to 10% of its assets in straight debt
securities rated Baa and BBB or below by Moody's or S&P or in unrated
securities that are determined to be of equivalent quality.

GLOBAL SMALL CAPITALIZATION FUND

Equity Securities

. The fund will invest at least 80% of its assets in equity securities
of small capitalization issuers (market capitalizations of $50 million
to $1.5 billion based on U.S. share prices).

Debt Securities

. The fund may invest in debt securities generally rated in the top
three categories by S&P or Moody's or in unrated securities that are
determined to be of equivalent quality.

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GROWTH FUND

Non-U.S. Securities

. The fund may invest up to 15% of its assets in securities of issuers
domiciled outside the U.S. and Canada and not included in the S&P 500.

Debt Securities

. The fund may invest up to 10% of its assets in straight debt
securities rated Ba and BB or below by Moody's or S&P or in unrated
securities that are determined to be of equivalent quality.

INTERNATIONAL FUND

Debt Securities

. The fund may invest up to 5% of its assets in straight debt securities
rated BBB and Baa or below by S&P or Moody's or in unrated securities
that are determined to be of equivalent quality.

NEW WORLD FUND

General

. The fund will invest at least 35% of its assets in equity and debt
securities of companies primarily based in qualified countries which
have developing economies and/or markets.

Equity Securities

. The fund may invest the balance of its assets in equity securities of
any company regardless of where it is based, provided the adviser has
determined that a significant portion of its assets or revenues
(generally 20% or more) are attributable to developing countries.

Debt Securities

. The fund may invest up to 25% of its assets in straight debt
securities of issuers primarily based in qualified countries which
have developing economies and/or markets, or issuers that the fund's
investment adviser determines have a significant portion of their
assets or revenues (generally 20% or more) attributable to developing
countries.

. The fund may invest up to 25% of its assets in straight debt
securities rated Ba and BB or below by Moody's or S&P or in unrated
securities that are determined to be of equivalent quality.

BLUE CHIP INCOME AND GROWTH FUND

Equity Securities

. The fund ordinarily will invest at least 90% of its equity assets in
the stock of companies in business for five or more years (including
predecessor companies);

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that pay regular dividends; and whose debt securities are rated Baa or
BBB or above by Moody's or S&P or unrated but determined to be of
equivalent quality. The fund will not invest in private companies.

Non-U.S. Securities

. The fund may invest up to 10% of its assets in equity securities of
larger non-U.S. companies (with market capitalizations of $4 billion
and above) that are listed or traded in the U.S.

GROWTH-INCOME FUND

Non-U.S. Securities

. The fund may invest up to 10% of its assets in equity securities of
issuers domiciled outside the U.S. and not in the S&P 500.

Debt Securities

. The fund may invest up to 5% of its assets in straight debt securities
rated Ba and BB or below by Moody's or S&P or in unrated securities
that are determined to be of equivalent quality.

ASSET ALLOCATION FUND

General

. The fund will generally invest 40% to 80% of its assets in equity
securities; 20% to 50% in debt securities; and 0% to 40% in money
market instruments (including cash).

Debt Securities

. Up to 25% of the fund's debt assets may be invested in straight debt
securities rated Ba and BB or below by Moody's or S&P or in unrated
securities that are determined to be of equivalent quality.

Non-U.S. Securities

. The fund may invest up to 10% of its assets in equity-type securities
of issuers domiciled outside the U.S. and not in the S&P 500.

. The fund may invest up to 5% of its assets in debt securities of
issuers domiciled outside the U.S.

BOND FUND

Equity Securities

. The fund may not purchase equity securities directly, but may retain
up to 5% of its assets in common stock, warrants and rights after the
sale of the corresponding debt securities.

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Debt Securities

. The fund will invest at least 80% of its assets in bonds. For purposes
of this limit, bonds include any debt instrument and cash equivalents,
and may include certain preferred securities.

. The fund will invest at least 35% of its assets in debt securities
(including cash and cash equivalents) rated A or better by Moody's or
S&P or in unrated securities that are determined to be of equivalent
quality.

. The fund will invest at least 65% of its assets in debt securities
(including cash and cash equivalents) that are rated Baa or BBB or
better by Moody's or S&P or in unrated securities that are determined
to be of equivalent quality.

. The fund may invest up to 35% of its assets in straight debt
securities rated Ba and BB or below by Moody's or S&P or in unrated
securities that are determined to be of equivalent quality.

Non-U.S. Securities

. The fund may invest up to 20% of its assets in non-U.S. dollar
denominated securities.

HIGH-INCOME BOND FUND

Debt Securities

. The fund will invest at least 80% of its assets in bonds. For purposes
of this limit, bonds include any debt instrument and cash equivalents,
and may include certain preferred securities.

.The fund will invest at least 65% of its assets in debt securities
rated Ba or BB or below by Moody's or S&P or in unrated securities
that are determined to be of equivalent quality.

Equity and Other Securities

. The fund may invest up to 20% of its assets in common and preferred
stocks and convertible securities.

Maturity

. The fund generally will invest in securities with maturities in excess
of 3 years.

Non-U.S. Securities

. The fund may invest up to 25% of its assets in securities of issuers
domiciled outside the U.S.

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U.S. GOVERNMENT/AAA-RATED SECURITIES FUND

General

. The fund will invest at least 80% of its assets in securities
guaranteed by the "full faith and credit" pledge of the U.S.
government or debt securities that are rated Aaa or AAA by Moody's
or S&P or unrated but determined to be of equivalent quality.

CASH MANAGEMENT FUND

General

. The fund will invest in high quality money market instruments rated in
the two highest quality categories by either Moody's or S&P, provided
the issuer has commercial paper rated in the highest rating category
by Moody's or S&P.

Maturity

. The fund may purchase securities that mature or may be redeemed in 13
months or less (25 months or less if U.S. government securities), even
if original maturity is greater than 1 year.

DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES

With respect to all funds, portfolio changes will be made without regard to the
length of time a particular investment may have been held.

EQUITY SECURITIES - Equity securities represent an ownership position in a
company. These securities may include common stocks and securities with equity
conversion or purchase rights. The prices of equity securities fluctuate based
on changes in the financial condition of their issuers and on market and
economic conditions. The growth-oriented, equity-type securities generally
purchased by certain of the funds may involve large price swings and potential
for loss.

DEBT SECURITIES - Bonds and other debt securities are used by issuers to borrow
money. Issuers pay investors interest and generally must repay the amount
borrowed at maturity. Some debt securities, such as zero coupon bonds, do not
pay current interest, but are purchased at a discount from their face values.
The prices of debt securities fluctuate depending on such factors as interest
rates, credit quality, and maturity. In general, their prices decline when
interest rates rise and increase when interest rates fall.

Lower rated bonds, rated Ba or below by Moody's and BB or below by S&P or
unrated but considered to be of equivalent quality, are described by the rating
agencies as speculative and involve greater risk of default or price changes due
to changes in the issuer's creditworthiness than higher rated bonds, or they may
already be in default. The market prices of these securities may fluctuate more
than higher quality securities and may decline significantly in periods of
general economic difficulty. It may be more difficult to dispose of, or to
determine the value of, lower rated bonds.

Certain risk factors relating to lower rated bonds are discussed below:

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SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - Lower rated bonds, like
other bonds, may be sensitive to adverse economic changes and political and
corporate developments and may be sensitive to interest rate changes.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience increased financial stress that
would adversely affect their ability to service their principal and
interest payment obligations, to meet projected business goals, and to
obtain additional financing. In addition, periods of economic uncertainty
and changes can be expected to result in increased volatility of market
prices and yields of lower rated bonds.

PAYMENT EXPECTATIONS - Lower rated bonds, like other bonds, may contain
redemption or call provisions. If an issuer exercises these provisions in a
declining interest rate market, the fund would have to replace the security
with a lower yielding security, resulting in a decreased return to
investors. If the issuer of a bond defaults on its obligations to pay
interest or principal or enters into bankruptcy proceedings, the fund may
incur losses or expenses in seeking recovery of amounts owed to it.

LIQUIDITY AND VALUATION - There may be little trading in the secondary
market for particular bonds, which may affect adversely the fund's ability
to value accurately or dispose of such bonds. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may
decrease the value and liquidity of lower rated bonds.

The Investment Adviser attempts to reduce the risks described above through
diversification of the portfolios and by credit analysis of each issuer, as well
as by monitoring broad economic trends and corporate and legislative
developments, but there can be no assurance that it will be successful in doing
so.

SECURITIES WITH EQUITY AND DEBT CHARACTERISTICS - The funds may invest in
securities that have a combination of equity and debt characteristics. These
securities may at times behave more like equity than debt and vice versa. Some
types of convertible bonds or preferred stock automatically convert into common
stock. The prices and yields of non-convertible preferred stock generally move
with changes in interest rates and the issuer's credit quality, similar to the
factors affecting debt securities.

Convertible bonds, convertible preferred stock, and other securities may
sometimes be converted into common stock or other securities at a stated
conversion ratio. These securities, prior to conversion, pay a fixed rate of
interest or a dividend. Because convertible securities have both debt and equity
characteristics, their value varies in response to many factors, including the
value of the underlying equity, general market and economic conditions, and
convertible market valuations, as well as changes in interest rates, credit
spreads, and the credit quality of the issuer.

INVESTING IN SMALLER CAPITALIZATION STOCKS - Certain funds may invest in the
stocks of smaller capitalization companies (typically companies with market
capitalizations of less than $1.5 billion at the time of purchase). The
Investment Adviser believes that the issuers of smaller capitalization stocks
often provide attractive investment opportunities. However, investing in smaller
capitalization stocks can involve greater risk than is customarily associated
with investing in stocks of larger, more established companies. For example,
smaller companies often have limited product lines, markets, or financial
resources, may be dependent for management on one or a few key persons, and can
be more susceptible to losses. Also, their securities may be thinly traded (and
therefore have to be sold at a discount from current prices or sold in small
lots over

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an extended period of time), may be followed by fewer investment research
analysts, and may be subject to wider price swings, thus creating a greater
chance of loss than securities of larger capitalization companies. Because the
Global Small Capitalization Fund in particular emphasizes the stocks of issuers
with smaller market capitalizations (by U.S. standards), it can be expected to
have more difficulty obtaining information about the issuers or valuing or
disposing of its securities than if it were to concentrate on more larger
capitalization stocks. The funds determine relative market capitalizations using
U.S. standards. Accordingly, the funds' non-U.S. investments may have large
capitalizations relative to market capitalizations of companies based outside
the U.S.

INVESTING IN PRIVATE COMPANIES - The Global Discovery Fund, Global Growth Fund,
Global Small Capitalization Fund, Growth Fund, International Fund, New World
Fund, Growth-Income Fund, Asset Allocation Fund, Bond Fund and High-Income Bond
Fund may invest in companies prior to the public offering of their securities.
Investing in private companies can involve greater risks than those associated
with investing in publicly traded companies. For example, the securities of
private companies may be subject to the risk that market conditions, investor
perception, or regulatory decisions may delay or prevent a company from
ultimately offering its securities to the public. Furthermore, these investments
are generally considered to be illiquid until a company's public offering and
are often subject to additional contractual restrictions on resale that would
prevent the funds from being able to sell their shares of the company for a
period of time following the public offering.

Investments in private companies can offer the funds significant growth
opportunities at very attractive prices. For example, extremely positive market
conditions during the recent past, especially in the technology market, have
allowed these investments to contribute materially to the funds' investment
results. These markets have been extremely volatile, and, consequently, there is
no guarantee that similar positive results can be achieved in the future.

INVESTING IN VARIOUS COUNTRIES - The Global Discovery Fund, Global Growth Fund,
Global Small Capitalizaiton Fund, Growth Fund, International Fund, New World
Fund, Blue Chip Income and Growth Fund, Growth-Income Fund, Asset Allocation
Fund, Bond Fund and the High-Income Bond Fund may invest in securities of
issuers domiciled outside the U.S. and which may be denominated in currencies
other than the U.S. dollar. Investing outside the U.S. involves special risks,
caused by, among other things: currency controls and fluctuating currency
values; different accounting, auditing, and financial reporting regulations and
practices in some countries; changing local and regional economic, political,
and social conditions; expropriation or confiscatory taxation; 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.

The risks described above are potentially heightened in connection with
investments in developing countries. Although there is no universally accepted
definition, a developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a low per capita
gross national product. For example, political and/or economic structures in
these countries may be in their infancy and developing rapidly. Historically,
the markets of developing countries have been more volatile than the markets of
developed countries. With the exception of the New World Fund, the funds may
invest in securities of issuers in developing countries only to a limited
extent.

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Additional costs could be incurred in connection with the funds' investment
activities outside the U.S. Brokerage commissions may be higher outside the
U.S., and the funds will bear certain expenses in connection with their currency
transactions. Furthermore, increased custodian costs may be associated with the
maintenance of assets in certain jurisdictions.

The U.S. Government/AAA-Rated Securities Fund may purchase obligations of
non-U.S. corporations or governmental entities, provided they are U.S. dollar
denominated and highly liquid. Accordingly, while the risks mentioned above are
still present, they are present to a lesser extent.

Certain risk factors related to developing countries are discussed below:

CURRENCY FLUCTUATIONS - Certain funds may invest in securities valued in
currencies other than the U.S. dollar. Certain developing countries'
currencies have experienced and may in the future experience significant
declines against the U.S. dollar. For example, if the U.S. dollar
appreciates against foreign currencies, the value of the funds' securities
holdings would generally depreciate and vice versa. Consistent with their
investment objective, the funds can engage in certain currency transactions
to hedge against currency fluctuations. See "Currency Transactions" below.

GOVERNMENT REGULATION - The political, economic, and social structures of
certain developing countries may be more volatile and less developed than
those in the U.S. Certain developing countries lack uniform accounting,
auditing, and financial reporting standards, have less governmental
supervision of financial markets than in the U.S., and do not honor legal
rights enjoyed in the U.S. Certain governments may be more unstable and
present greater risks of nationalization or restrictions on foreign
ownership of local companies.

Repatriation of investment income, capital, and the proceeds of sales by
foreign investors may require governmental registration and/or approval in
some developing market countries. While the funds will only invest in
markets where these restrictions are considered acceptable, a country could
impose new or additional repatriation restrictions after the funds'
investment. If this happened, the funds' response might include, among
other things, applying to the appropriate authorities for a waiver of the
restrictions or engaging in transactions in other markets designed to
offset the risks of decline in that country. Such restrictions will be
considered in relation to the funds' liquidity needs and all other positive
and negative factors. Further, some attractive equity securities may not
be available to the funds because foreign shareholders hold the maximum
amount legally permissible.

While government involvement in the private sector varies in degree among
developing countries, such involvement may in some cases, include
government ownership of companies in certain sectors, wage and price
controls or imposition of trade barriers and other protectionist measures.
With respect to any developing country, there is no guarantee that some
future economic or political crisis will not lead to price controls, forced
mergers of companies, expropriation, or creation of government monopolies
to the possible detriment of the funds' investments.

LESS DEVELOPED SECURITIES MARKETS - Developing countries may have less
well-developed securities markets and exchanges. They have lower trading
volumes than the

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securities markets of more developed countries. These markets may be
unable to respond effectively to increases in trading volume. Consequently,
these markets may be substantially less liquid than those of more developed
countries and the securities of issuers located in these markets may have
limited marketability. These factors may make prompt liquidation of
substantial portfolio holdings difficult or impossible at times.

SETTLEMENT RISKS - Settlement systems in developing countries are generally
less well organized than in developed markets. Supervisory authorities may
also be unable to apply standards comparable with those in developed
markets. Thus, there may be risks that settlement may be delayed and that
cash or securities belonging to the funds may be in jeopardy because of
failures of or defects in the systems. In particular, market practice may
require that payment be made before receipt of the security being purchased
or that delivery of a security be made before payment is received. In such
cases, default by a broker or bank (the "counterparty") through whom the
transaction is effected might cause the funds to suffer a loss. The funds
will seek, where possible, to use counterparties whose financial status is
such that this risk is reduced. However, there can be no certainty that
the funds will be successful in eliminating this risk, particularly as
counterparties operating in developing countries frequently lack the
substance or financial resources of those in developed countries. There
may also be a danger that, because of uncertainties in the operation of
settlement systems in individual markets, competing claims may arise with
respect to securities held by or to be transferred to the funds.

INVESTOR INFORMATION - The funds may encounter problems assessing
investment opportunities in certain developing securities markets in light
of limitations on available information and different accounting, auditing
and financial reporting standards. In such circumstances, the funds'
Investment Adviser will seek alternative sources of information, and to the
extent the Investment Adviser may not be satisfied with the sufficiency of
the information obtained with respect to a particular market or security,
the funds will not invest in such market or security.

TAXATION - Taxation of dividends and capital gains received by
non-residents varies among developing countries and, in some cases, is
comparatively high. In addition, developing countries typically have less
well-defined tax laws and procedures and such laws may permit retroactive
taxation so that the funds could in the future become subject to local tax
liability that they had not reasonably anticipated in conducting their
investment activities or valuing their assets.

LITIGATION - The funds and their shareholders may encounter substantial
difficulties in obtaining and enforcing judgments against non-U.S. resident
individuals and companies.

FRAUDULENT SECURITIES - Securities purchased by the funds may subsequently
be found to be fraudulent or counterfeit, resulting in a loss to the funds.

LOAN PARTICIPATIONS - New World Fund may invest, subject to its overall
limitation on debt securities, in loan participations, typically made by a
syndicate of banks to governmental or corporate borrowers for a variety of
purposes. The underlying loans to developing market governmental borrowers
may be in default and may be subject to restructuring under the Brady Plan.
The underlying loans may be secured or unsecured, and will vary in term and
legal structure. When purchasing such instruments, the fund may assume the
credit risks associated with the original bank lender as well as the credit

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risks associated with the borrower. Investment in loan participations
present the possibility that in the U.S., the fund could be held liable as
a co-lender under emerging legal theories of lender liability. In
addition, if the loan is foreclosed, the fund could be part owner of any
collateral, and could bear the costs and liabilities of owning and
disposing of the collateral. Loan participations are generally not rated
by major rating agencies, may not be protected by securities laws, and are
often considered to be illiquid.

CURRENCY TRANSACTIONS - The Global Discovery Fund, Global Growth Fund, Global
Small Capitalization Fund, Growth Fund, International Fund, New World Fund,
Asset Allocation Fund, Bond Fund and High-Income Bond Fund can purchase and sell
currencies to facilitate securities transactions and enter into forward currency
contracts to protect against changes in currency exchange rates. The
Growth-Income Fund does not currently intend to engage in any transactions other
than purchasing and selling currencies and foreign exchange contracts which will
be used to facilitate settlement of trades. A forward currency contract is an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. Forward currency contracts
entered into by the funds will involve the purchase or sale of one currency
against the U.S. dollar. While entering into forward currency transactions could
minimize the risk of loss due to a decline in the value of the hedged currency,
it could also limit any potential gain which might result from an increase in
the value of the currency. The funds will not generally attempt to protect
against all potential changes in exchange rates. The funds will segregate liquid
assets which will be marked to market daily to meet their forward contract
commitments to the extent required by the Securities and Exchange Commission.

The Bond Fund and High-Income Bond Fund may enter into the transactions
described above and may also enter into exchange-traded futures contracts
relating to foreign currencies ("currency contracts") in connection with
investments in securities of foreign issuers in anticipation of, or to protect
against, fluctuations in exchange rates. In addition, forward currency
contracts may be used by these funds to purchase or sell a currency against
another currency at a future date and price as agreed upon by the parties. An
exchange-traded futures contract relating to foreign currency is similar to a
forward foreign currency contract but has a standardized size and exchange date.
Although currency contracts typically will involve the purchase and sale of a
currency against the U.S. dollar, these funds also may enter into currency
contracts not involving the U.S. dollar. In connection with these futures
transactions, the Series has filed a notice of eligibility with the Commodity
Futures Trading Commission ("CFTC") that exempts the Series from CFTC
registration as a "commodity pool operator" as defined under the Commodity
Exchange Act. Pursuant to this notice, these funds will observe certain CFTC
guidelines with respect to its futures transactions that, among other things,
limit initial margin deposits in connection with the use of futures contracts
and related options for purposes other than "hedging" (as defined by CFTC rules)
up to 5% of a fund's net assets.

The Bond Fund and High-Income Bond Fund may attempt to accomplish objectives
similar to those involved in their use of currency contracts by purchasing put
or call options on currencies. A put option gives a fund, as purchaser, the
right (but not the obligation) to sell a specified amount of currency at the
exercise price until the expiration of the option. A call option gives a fund,
as purchaser, the right (but not the obligation) to purchase a specified amount
of currency at the exercise price until its expiration. The funds might
purchase a currency put option, for example, to protect themselves during the
contract period against a decline in the U.S. dollar value of a currency in
which they hold or anticipate holding securities. If the currency's value
should decline against the U.S. dollar, the loss in currency value should be
offset, in whole or in

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part, by an increase in the value of the put. If the value of the currency
instead should rise against the U.S. dollar, any gain to the funds would be
reduced by the premium they had paid for the put option. A currency call option
might be purchased, for example, in anticipation of, or to protect against, a
rise in the value against the U.S. dollar of a currency in which the funds
anticipate purchasing securities.

Currency options may be either listed on an exchange or traded over-the-counter
("OTC options"). Listed options are third-party contracts (i.e., performance of
the obligations of the purchaser and seller is guaranteed by the exchange or
clearing corporation) and have standardized strike (exercise) prices and
expiration dates. OTC options are two-party contracts with negotiated strike
prices and expiration dates. The High-Income Bond Fund and Bond Fund will not
purchase an OTC option unless the Investment Adviser believes that daily
valuations for such options are readily obtainable. OTC options differ from
exchange-traded options in that OTC options are transacted with dealers directly
and not through a clearing corporation which guarantees performance.
Consequently, there is a risk of non-performance by the dealer. Since no
exchange is involved, OTC options are valued on the basis of a quote provided by
the dealer. In the case of OTC options, there can be no assurance that a liquid
secondary market will exist for any particular option at any specific time.

Certain provisions of the Internal Revenue code may limit the extent to which
the fund may enter into forward contracts. Such transactions may also affect,
for U.S. federal tax purposes, the character and timing of income, gain or loss
recognized by the fund.

FORWARD COMMITMENTS - The funds may enter into commitments to purchase or sell
securities at a future date. When a fund agrees to purchase such securities, it
assumes the risk of any decline in value of the security beginning on the date
of the agreement. When a 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 a transaction fails to
deliver or pay for the securities, the fund could miss a favorable price or
yield opportunity, or could experience a loss.

The funds 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 their payment obligations in these transactions. Although
these transactions will not be entered into for leveraging purposes, to the
extent the funds' aggregate commitments under these transactions exceed their
segregated assets, the funds temporarily could be in a leveraged position
(because they may have an amount greater than their net assets subject to market
risk). Should market values of the funds' portfolio securities decline while the
funds are in a leveraged position, greater depreciation of their net assets
would likely occur than were they not in such a position. The funds 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 Asset Allocation Fund, Bond Fund, High-Income Bond Fund and U.S.
Government/AAA-Rated Securities Fund may also enter into "roll" transactions
which are the sale of mortgage-backed or other securities together with a
commitment to purchase similar, but not identical, securities at a later date.
The funds assume the rights and risks of ownership, including the risk of price
and yield fluctuations as of the time of the agreement. The funds intend 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 funds do not intend to enter into

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roll transactions for financing purposes, they 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 (the "1940 Act"). The funds will segregate
liquid assets which will be marked to market daily in an amount sufficient to
meet their payment obligations in these transactions.

REPURCHASE AGREEMENTS - The funds may enter into repurchase agreements, under
which the funds buy a security and obtain a simultaneous commitment from the
seller to repurchase the security at a specified time and price. Repurchase
agreements permit the funds to maintain liquidity and earn income over periods
of time as short as overnight. The seller must maintain with the Series'
custodian collateral equal to at least 100% of the repurchase price, including
accrued interest, as monitored daily by the Investment Adviser. The funds will
only enter into repurchase agreements involving securities in which they could
otherwise invest and with selected banks and securities dealers whose financial
condition is monitored by the Investment Adviser. If the seller under the
repurchase agreement defaults, the funds 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, realization of the
collateral by the funds may be delayed or limited.

U.S. TREASURY AND AGENCY SECURITIES - U.S. Treasury securities include direct
obligations of the U.S. Treasury, such as Treasury bills, notes and bonds. For
these securities, the payment of principal and interest is unconditionally
guaranteed by the U.S. government, and thus they are of the highest possible
credit quality. Such securities are subject to variations in market value due to
fluctuations in interest rates, but, if held to maturity, will be paid in full.

U.S. agency securities include those issued by certain U.S. government
instrumentalities and certain federal agencies. These securities are neither
direct obligations of, nor guaranteed by, the Treasury. However, they generally
involve federal sponsorship in one way or another; some are backed by specific
types of collateral; some are supported by the issuer's right to borrow from the
Treasury; some are supported by the discretionary authority of the Treasury to
purchase certain obligations of the issuer; and others are supported only by the
credit of the issuing government agency or instrumentality. These agencies and
instrumentalities include, but are not limited to: Federal Home Loan Bank,
Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage
Association (FNMA), Tennessee Valley Authority, and Federal Farm Credit Bank
System.

PASS-THROUGH SECURITIES - The funds may invest in various debt obligations
backed by a pool of mortgages or other assets including, but not limited to,
loans on single family residences, home equity loans, mortgages on commercial
buildings, credit card receivables, and leases on airplanes or other equipment.
Principal and interest payments made on the underlying asset pools backing these
obligations are typically passed through to investors. Pass-through securities
may have either fixed or adjustable coupons. These securities include those
discussed below.

"Mortgage-backed securities" are issued both by U.S. government agencies,
including the Government National Mortgage Association (GNMA), FNMA, FHLMC , and
by private entities. The payment of interest and principal on securities issued
by U.S. government agencies is guaranteed by the full faith and credit of the
U.S. government (in the case of GNMA securities) or the issuer (in the case of
FNMA and FHLMC securities). However, the guarantees do not apply to the market
prices and yields of these securities, which vary with changes in interest
rates.

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Mortgage-backed securities issued by private entities are structured similarly
to mortgage-backed securities issued by GNMA, FNMA, and FHLMC. These securities
and the underlying mortgages are not guaranteed by government agencies. In
addition, these securities generally are structured with one or more types of
credit enhancement. Mortgage-backed securities generally permit borrowers to
prepay their underlying mortgages. Prepayments can alter the effective maturity
of these instruments.

"Collateralized mortgage obligations" (CMOs) are also backed by a pool of
mortgages or mortgage loans, which are divided into two or more separate bond
issues. CMOs issued by U.S. government agencies are backed by agency mortgages.
Payments of principal and interest are passed through to each bond at varying
schedules resulting in bonds with different coupons, effective maturities, and
sensitivities to interest rates. In fact, some CMOs may be structured in a way
that when interest rates change the impact of changing prepayment rates on these
securities' effective maturities is magnified.

"Commercial mortgage-backed securities" are backed by mortgages of commercial
property, such as hotels, office buildings, retail stores, hospitals, and other
commercial buildings. These securities may have a lower prepayment uncertainty
than other mortgage-related securities because commercial mortgage loans
generally prohibit or impose penalties on prepayments of principal. In addition,
commercial mortgage-related securities often are structured with some form of
credit enhancement to protect against potential losses on the underlying
mortgage loans. Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate securing the
underlying mortgage loans, including the effects of local and other economic
conditions on real estate markets, the ability of tenants to make loan payments,
and the ability of a property to attract and retain tenants.

"Asset-backed securities" are backed by other assets such as credit card,
automobile or consumer loan receivables, retail installment loans, or
participations in pools of leases. Credit support for these securities may be
based on the underlying assets and/or provided through credit enhancements by a
third party. The values of these securities are sensitive to changes in the
credit quality of the underlying collateral, the credit strength of the credit
enhancement, changes in interest rates, and at times the financial condition of
the issuer. Some asset-backed securities also may receive prepayments which can
change the securities' effective maturities.

"IOs and POs" are issued in portions or tranches with varying maturities and
characteristics; some tranches may only receive the interest paid on the
underlying mortgages (IOs) and others may only receive the principal payments
(POs); the values of IOs and POs are extremely sensitive to interest rate
fluctuations and prepayment rates, and IOs are also subject to the risk of early
repayment of the underlying mortgages which will substantially reduce or
eliminate interest payments.

INFLATION-INDEXED BONDS - The funds may invest in inflation-indexed bonds issued
by governments, their agencies or instrumentalities, and 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 deflation, 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,

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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.

REAL ESTATE INVESTMENT TRUSTS - The funds may invest in securities issued by
real estate investment trusts (REITs), which are pooled investment vehicles that
primarily invest in real estate or real estate related loans. REITs are not
taxed on income distributed to shareholders provided they meet requirements
imposed by the Internal Revenue Code. The risks associated with REIT debt
investments are similar to the risks of investing in corporate-issued debt. In
addition, the return on REITs is dependent on such factors as the skill of
management and the real estate environment in general. Debt that is issued by
REITs is typically rated by the credit rating agencies as investment grade or
above.

CASH AND CASH EQUIVALENTS - These securities include: (i) commercial paper
(e.g., short-term notes up to 9 months in maturity issued by corporations,
governmental bodies or bank/ corporation sponsored conduits (asset-backed
commercial paper)), (ii) commercial bank obligations (e.g., certificates of
deposit, bankers' acceptances (time drafts on a commercial bank where the bank
accepts an irrevocable obligation to pay at maturity)), (iii) savings
association and savings bank obligations (e.g., bank notes and certificates of
deposit issued by savings banks or savings associations), (iv) securities of the
U.S. government, its agencies or instrumentalities that mature, or may be
redeemed, in one year or less, and (v) corporate bonds and notes that mature, or
that may be redeemed, in one year or less.

The Cash Management Fund may only purchase commercial paper judged by the
Investment Adviser to be of suitable investment quality. This includes (a)
commercial paper that is rated in the two highest categories by S&P and by
Moody's or (b) other commercial paper deemed on the basis of the issuer's
creditworthiness to be of a quality appropriate for the Cash Management Fund.
(No more than 5% of the Cash Management Fund's assets may be invested in
commercial paper rated in the second highest rating category by either Moody's
or Standard & Poor's; no more than the greater of 1% of the Cash Management
Fund's assets or $1 million may be invested in such securities of any one
issuer.) See the "Description of Commercial Paper Ratings" for a description of
the ratings.

The commercial paper in which the Cash Management Fund may invest includes
variable amount master demand notes. Variable amount master demand notes permit
the Cash Management Fund to invest varying amounts at fluctuating rates of
interest pursuant to the agreement in the master note. These are direct lending
obligations between the lender and borrower, they are generally not traded, and
there is no secondary market. Such instruments are payable with accrued
interest in whole or in part on demand. The amounts of the instruments are
subject to daily fluctuations as the participants increase or decrease the
extent of their participations. Investments in these instruments are limited to
those that have a demand feature enabling the Cash Management Fund
unconditionally to receive the amount invested from the issuer upon seven or
fewer days' notice. (Generally, the Cash Management Fund attempts to invest in
instruments having a one-day notice provision). In connection with master
demand note arrangements, the Investment Adviser, subject to the direction of
the Trustees, monitors on an ongoing basis the earning power, cash flow, and
other liquidity ratios of the borrower and its ability to pay principal and
interest on demand. The Investment Adviser also considers the extent to which
the variable amount master demand notes are backed by bank letters of credit.
These notes generally are not rated by Moody's or S&P. The Cash Management Fund
may

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invest in them only if it is deemed that at the time of investment the notes are
of comparable quality to the other commercial paper in which the Cash Management
Fund may invest. Master demand notes are considered to have a maturity equal to
the repayment notice period unless the Investment Adviser has reason to believe
that the borrower could not make timely repayment upon demand.

"Commercial bank obligations" are certificates of deposit (interest-bearing time
deposits), bankers acceptances (time drafts drawn on a commercial bank where the
bank accepts an irrevocable obligation to pay at maturity) representing direct
or contingent obligations of commercial banks with assets in excess of $1
billion, based on latest published reports, or other obligations issued by
commercial banks with assets of less than $1 billion if the principal amount of
such obligation is fully insured by the U.S. government.

The Cash Management Fund may purchase corporate obligations that mature or that
may be redeemed in one year or less. These obligations originally may have been
issued with maturities in excess of one year. The Cash Management Fund may
invest only in corporate bonds or notes of issuers having outstanding short-term
securities rated as described above in "Commercial Paper."

"Savings association obligations" include certificates of deposit
(interest-bearing time deposits) issued by savings banks or savings and loan
associations that have assets in excess of $1 billion, based on latest published
reports, or obligations issued by institutions with assets of less than $1
billion if the principal amount of such obligation is fully insured by the U.S.
government.

"Floating rate obligations" have a coupon rate that changes at least annually
and generally more frequently. The coupon rate is set in relation to money
market rates. The obligations, issued primarily by banks, other corporations,
governments and semi-governmental bodies, may have a maturity in excess of one
year. In some cases, the coupon rate may vary with changes in the yield on
Treasury bills or notes or with changes in LIBOR (London Interbank Offering
Rate). The Investment Adviser considers floating rate obligations to be liquid
investments because a number of U.S. and non-U.S. securities dealers make active
markets in these securities.

RESTRICTED SECURITIES AND LIQUIDITY - The funds may purchase securities subject
to restrictions on resale. Securities not actively traded will be considered
illiquid unless they have been specifically determined to be liquid under
procedures adopted by the Series' 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 funds may incur certain additional costs in disposing of
illiquid securities.

LOAN PARTICIPATIONS AND ASSIGNMENTS - The Bond Fund and High-Income Bond Fund
may invest in loan participations or assignments. Loan participations are loans
or other direct debt instruments which are interests in amounts owed by a
corporate, governmental or other borrower to another party. They may represent
amounts owed to lenders or lending syndicates to suppliers of goods or services,
or to other parties. A fund will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the lender
selling the participation and only upon receipt by the lender of the payments
from the borrower. In connection with purchasing participations, a fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to loan, nor any rights of set-off against
the borrower, and a fund may not directly benefit from any collateral supporting
the loan in which it has purchased the participation. As a result, a fund will
assume the credit risk of both the

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borrower and the lender that is selling the participation. In the event of the
insolvency of the lender selling a participation, a fund may be treated as a
general creditor of the lender and may not benefit from any set-off between the
lender and the borrower.

When a fund purchases assignments from lenders it will acquire direct rights
against the borrower on the loan. However, because assignments are arranged
through private negotiations between potential assignees and potential
assignors, the rights and obligations acquired by a fund as the purchaser of an
assignment may differ from, and be more limited than, those held by the
assigning lender. Investments in loan participations and assignments present the
possibility that a fund could be held liable as a co-lender under emerging legal
theories of lender liability. In addition, if the loan is foreclosed, a fund
could be part owner of any collateral and could bear the costs and liabilities
of owning and disposing of the collateral. The funds anticipate that such
securities could be sold only to a limited number of institutional investors. In
addition, some loan participations and assignments may not be rated by major
rating agencies and may not be protected by the securities laws.

REINSURANCE RELATED NOTES AND BONDS - The High-Income Bond Fund may invest in
reinsurance related notes and bonds. These instruments, which are typically
issued by special purpose reinsurance companies, transfer an element of
insurance risk to the note or bond holders. For example, the reinsurance company
would not be required to repay all or a portion of the principal value of the
notes or bonds if losses due to a catastrophic event under the policy (such as a
major hurricane) exceed certain dollar thresholds. Consequently, the fund may
lose the entire amount of its investment in such bonds or notes if such an event
occurs and losses exceed certain dollar thresholds. In this instance, investors
would have no recourse against the insurance company. These instruments may be
issued with fixed or variable interest rates and rated in a variety of credit
quality categories by the rating agencies.

REVERSE REPURCHASE AGREEMENTS - The Bond Fund and U.S. Government/AAA-Rated
Securities Fund are authorized to 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. Each fund
will segregate liquid assets which will be marked to market daily 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 1940 Act, reverse repurchase agreements may be
considered borrowing by a fund. The use of reverse repurchase agreements by a
fund creates leverage which increases the fund's investment risk. As a fund's
aggregate commitments under these reverse repurchase agreements increase, 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, a 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, a fund's earnings or net asset value would decline
faster than otherwise would be the case. There is no current intent to engage in
this investment practice over the next 12 months.

LOANS OF PORTFOLIO SECURITIES - The Asset Allocation Fund, Bond Fund,
High-Income Bond Fund and U.S. Government/AAA-Rated Securities Fund is
authorized to lend portfolio securities to selected securities dealers or other
institutional investors whose financial condition is monitored by the Investment
Adviser. The borrower must maintain with the Series' 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

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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 10% of the value of its total assets,
measured at the time any such loan is made.

There is no current intent to engage in this investment practice over the next
12 months.

PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the length
of time particular investments may have been held. Short-term trading profits
are not the funds' objective, and changes in its investments are generally
accomplished gradually, though short-term transactions may occasionally be made.
High portfolio turnover (100% or more) involves correspondingly greater
transaction costs in the form of dealer spreads or brokerage commissions, and
may result in the realization of net capital gains, which are taxable when
distributed to shareholders.

Under certain market conditions, the investment policies of the Asset Allocation
Fund, the Bond Fund, the High-Income Bond Fund, and the U.S.
Government/AAA-Rated Securities Fund may result in higher portfolio turnover
than those of the other funds, although no fund's annual portfolio turnover rate
is expected to exceed 100%. A fund's portfolio turnover rate would equal 100% if
each security in the fund's portfolio was replaced once per year.

FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS

FUNDAMENTAL POLICIES - The Series has adopted the following fundamental policies
and investment restrictions which may not be changed without approval by holders
of a majority of its outstanding shares. Such majority is defined in the
Investment Company Act of 1940 ("1940 Act") as the vote of the lesser of (i) 67%
or more of the outstanding voting securities 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.
All percentage limitations are considered at the time securities are purchased
and are based on a fund's net assets unless otherwise indicated. 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 by a fund.

INVESTMENT RESTRICTIONS OF THE GLOBAL DISCOVERY FUND, GLOBAL GROWTH FUND, GLOBAL
SMALL CAPITALIZATION FUND, GROWTH FUND, INTERNATIONAL FUND, NEW WORLD FUND, BLUE
CHIP INCOME AND GROWTH FUND, GROWTH-INCOME FUND, ASSET ALLOCATION FUND, BOND
FUND AND HIGH-INCOME BOND FUND

The Global Discovery Fund, Global Growth Fund, Global Small Capitalization Fund,
Growth Fund, International Fund, New World Fund, Blue Chip Income and Growth
Fund, Growth-Income Fund, Asset Allocation Fund, Bond Fund and High-Income Bond
Fund may not:

1. Invest more than 5% of the value of the total assets of the fund in the
securities of any one issuer, provided that this limitation shall apply only to
75% of the value of the fund's total assets and, provided further, that the
limitation shall not apply to obligations of the government of the U.S. under a
general Act of Congress. The short-term obligations of commercial banks are
excluded from this 5% limitation with respect to 25% of the fund's total assets.

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2. As to 75% of its total assets, purchase more than 10% of the outstanding
voting securities of an issuer.

3. Invest more than 25% of the fund's total assets in the securities of
issuers in the same industry. Obligations of the U.S. government, its agencies
and instrumentalities, are not subject to this 25% limitation on industry
concentration. In addition, the fund may, if deemed advisable, invest more than
25% of its assets in the obligations of domestic commercial banks.

4. Invest in real estate (including limited partnership interests, but
excluding securities of companies, such as real estate investment trusts, which
deal in real estate or interests therein).

5. Purchase commodities or commodity contracts; except that the Global
Discovery Fund, Global Small Capitalization Fund, International Fund, Asset
Allocation Fund, High-Income Bond Fund and Bond Fund may engage in transactions
involving currencies (including forward or futures contracts and put and call
options).

6. Invest in companies for the purpose of exercising control or management.

7. Make loans to others except for (a) the purchase of debt securities; (b)
entering into repurchase agreements; (c) the loaning of its portfolio
securities; and (d) entering into loan participations.

8. Borrow money, except from banks for temporary purposes, and then in an
amount not in excess of 5% of the value of the fund's total assets. Moreover,
in the event that the asset coverage for such borrowings falls below 300%, the
fund will reduce, within three days, the amount of its borrowings in order to
provide for 300% asset coverage.

9. Purchase securities on margin.

10. 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.

11. Invest in puts, calls, straddles, spreads or any combination thereof;
except as described above in Investment Restriction number 5.

12. Invest in securities of other investment companies, except as permitted by
the 1940 Act.

13. Engage in underwriting of securities issued by others, except to the extent
it may be deemed to be acting as an underwriter in the purchase or resale of
portfolio securities.

Notwithstanding investment restriction number 12, the funds may invest in
securities of other managed investment companies if deemed advisable by their
officers in connection with the administration of a deferred compensation plan
adopted by Trustees pursuant to an exemptive order granted by the Securities and
Exchange Commission.

Notwithstanding investment restriction number 13, the funds may not engage in
the business of underwriting securities of other issuers, except to the extent
that the disposal of an investment position may technically constitute the fund
an underwriter as that term is defined under the Securities Act of 1933.

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NON-FUNDAMENTAL POLICIES - The following non-fundamental policies may be changed
without shareholder approval:

1. The funds may not invest more than 15% of their net assets in illiquid
securities.

2. The funds will not issue senior securities, except as permitted by the 1940
Act.

INVESTMENT RESTRICTIONS OF THE U.S. GOVERNMENT/AAA-RATED SECURITIES FUND

The U.S. Government/AAA-Rated Securities 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 or
other securities to the extent they are backed by or represent interests in U.S.
government securities or U.S. government-guaranteed mortgages.

3. Invest in companies for the purpose of exercising control or management.

4. Invest in securities of other investment companies, except as permitted by
the 1940 Act.

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. 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.

7. Make loans, except that the fund may: (a) purchase readily marketable debt
securities; (b) invest in repurchase agreements; (c) make loans of portfolio
securities; and (d) enter into loan participations. The fund will not invest in
repurchase agreements maturing in more than seven days if any such investment,
together with any illiquid securities (including securities which are subject to
legal or contractual restrictions on resale) held by the fund, exceeds 10% of
the value of its total assets.

8. 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.

9. 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.

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10. 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.

11. Write, purchase or sell puts, calls or combinations thereof.

Notwithstanding investment restriction number 4, the fund may invest in
securities of other managed investment companies if deemed advisable by its
officers in connection with the administration of a deferred compensation plan
adopted by Trustees pursuant to an exemptive order granted by the Securities and
Exchange Commission.

NON-FUNDAMENTAL POLICIES - The following non-fundamental policies may be changed
without shareholder approval:

1. The fund may not invest more than 15% of its net assets in illiquid
securities.

2. The fund will not issue senior securities, except as permitted by the 1940
Act.

INVESTMENT RESTRICTIONS OF THE CASH MANAGEMENT FUND

The Cash Management Fund may not:

2. As to 75% of its total assets, purchase more than 10% of the outstanding
voting class of securities of an issuer.

4. Enter into any repurchase agreement maturing in more than seven days or
invest in any other illiquid security if, as a result, more than 10% of the
fund's total assets would be so invested.

5. Make loans to others except for the purchase of the debt securities listed
above. The fund may enter into repurchase agreements as described above.

6. Borrow money, except from banks for temporary purposes, and then in an
amount not in excess of 5% of the value of the fund's total assets. Moreover,
in the event that the asset coverage for such borrowings falls below 300%, the
fund will reduce, within three days, the amount of its borrowings in order to
provide for 300% asset coverage.

7. 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.

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8. Invest in puts, calls, straddles, spreads or any combination thereof.

9. Purchase or sell securities of other investment companies (except in
connection with a merger, consolidation, acquisition or reorganization), real
estate or commodities.

10. Act as underwriter of securities issued by others, engage in distribution
of securities for others, or make investments in other companies for the purpose
of exercising control or management.

Notwithstanding investment restriction number 9, the fund may invest in
securities of other managed investment companies if deemed advisable by its
officers in connection with the administration of a deferred compensation plan
adopted by Trustees pursuant to an exemptive order granted by the Securities and
Exchange Commission.

Notwithstanding investment restriction number 1 above, in order to comply with
Rule 2a-7 under the 1940 Act, the Cash Management Fund has adopted a
non-fundamental policy (that may be changed by the Board of Trustees without
shareholder approval) of investing no more than 5% of its assets (measured at
the time of purchase) in the securities of any one issuer (other than the U.S.
government); provided however, that the Cash Management Fund may invest, as to
25% of its assets, more than 5% of its assets in certain high-quality securities
(as defined in the Rule) of a single issuer for a period of up to three business
days. Investment restriction number 9 above does not prevent the purchase by
the Cash Management Fund of securities that have "put" or "stand-by" commitment
features.

SERIES ORGANIZATION AND VOTING RIGHTS

The Series, an open-end investment company, was organized as a Massachusetts
business trust on September 13, 1983.

All Series operations are supervised by its Board of Trustees, which 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
Series as described below. They may elect to defer all or a portion of these
fees through a deferred compensation plan in effect for the Series.

The Series has two classes of shares - Class 1 and Class 2. The shares of each
class represent an interest in the same investment portfolio. Each class has
equal rights as to voting, redemption, dividends and liquidation, except that
each class bears different distribution expenses and other expenses properly
attributable to the particular class as approved by the Board of Trustees and
set forth in the Series' rule 18f-3 Plan. Class 2 shareholders have exclusive
voting rights with respect to its rule 12b-1 Plan adopted in connection with the
distribution of Class 2 shares. Each class has exclusive voting rights on other
matters in which the interests of one class are different from interests in
another class. Shares of both classes of the Series vote together on matters
that affect all classes in substantially the same manner. Each class votes as a
class on matters that affect that class alone.

The Series does not hold annual meetings of shareholders. However, significant
matters which require shareholder approval, such as certain elections of board
members or a change in a fundamental investment policy, will be presented to
shareholders at a meeting called for such purpose. Shareholders have one vote
per share owned. At the request of the holders of at least 10% of the shares,
the Series will hold a meeting at which any member of the board could be removed
by a majority vote.

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MANAGEMENT OF THE SERIES

BOARD OF TRUSTEES AND OFFICERS

[Enlarge/Download Table]

YEAR FIRST NUMBER OF BOARDS
POSITION ELECTED WITHIN THE FUND
WITH A TRUSTEE PRINCIPAL OCCUPATION(S) DURING COMPLEX/2/ ON WHICH
NAME AND AGE REGISTRANT OF THE SERIES/1/ PAST 5 YEARS TRUSTEE SERVES
---------------------------------------------------------------------------------------------------------------------

"NON-INTERESTED" TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Lee A. Ault III Trustee 1999 Chairman of the Board, In-Q-Tel, Inc. 1
Age: 65 (information technology); former
Chairman, President and CEO,
Telecredit, Inc.
---------------------------------------------------------------------------------------------------------------------
H. Frederick Trustee 1994 Private Investor; former President 19
Christie and Chief Executive Officer, The
Age: 68 Mission Group (non-utility holding
company subsidiary of Southern
California Edison Company)
---------------------------------------------------------------------------------------------------------------------
Joe E. Davis Trustee 1991 Private Investor; former Chariman, 1
Age: 67 Linear Corporation; former President
and Chief Executive Officer, National
Health Enterprises, Inc.
---------------------
------------------------------------------------------------------------------------------------
Martin Fenton Trustee 1995 Managing Director, Senior Resource 16
Age: 66 Group LLC (development and management
of senior living communities)
---------------------
------------------------------------------------------------------------------------------------
Leonard R. Fuller Trustee 1999 President, Fuller Consulting 13
Age: 55 (financial management consulting
firm)
---------------------------------------------------------------------------------------------------------------------
Mary Myers Kauppila Trustee 1994 Private Investor; Chairman and CEO, 5
Age: 48 Ladera Management Company (venture
capital and agriculture); former
owner and President, Energy
Investment, Inc.
---------------------------------------------------------------------------------------------------------------------
Kirk P. Pendleton Trustee 1996 Chairman/Chief Executive Officer, 6
Age: 62 Cairnwood, Inc. (venture capital
investment)
---------------------------------------------------------------------------------------------------------------------

OTHER DIRECTORSHIPS/3/ HELD
NAME AND AGE BY TRUSTEE
------------------------------------------------------------

"NON-INTERESTED" TRUSTEES
------------------------------------------------------------
Lee A. Ault III Equifax, Inc.; Office Depot, Inc.
Age: 65
------------------------------------------------------------
H. Frederick Ducommun Incorporated;IHOP
Christie Corporation;Southwest Water
Age: 68 Company;Valero L.P.

------------------------------------------------------------
Joe E. Davis BMC Industries, Inc.; Wilshire
Age: 67 Technologies, Inc.; Anworth
Mortgage Asset Corp.; Natural
Alternatives Inc.
------------------------------------------------------------
Martin Fenton None
Age: 66
------------------------------------------------------------
Leonard R. Fuller None
Age: 55
------------------------------------------------------------
Mary Myers Kauppila None
Age: 48
------------------------------------------------------------
Kirk P. Pendleton York Group, Inc.
Age: 62
------------------------------------------------------------

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[Enlarge/Download Table]

PRINCIPAL OCCUPATION(S) DURING
YEAR FIRST PAST 5 YEARS AND NUMBER OF BOARDS
ELECTED POSITIONS HELD WITHIN THE FUND
POSITION A TRUSTEE WITH AFFILIATED ENTITIES COMPLEX/2/ ON WHICH
WITH THE AND/OR OFFICER OR THE PRINCIPAL UNDERWRITER TRUSTEE
NAME AND AGE SERIES OF THE SERIES/1/ OF THE SERIES OR OFFICER SERVES
------------------------------------------------------------------------------------------------------------------

"INTERESTED" TRUSTEES/4,5/
------------------------------------------------------------------------------------------------------------------------------------
James K. Dunton Chairman 1993 Senior Vice President and Director, 2
Age: 64 of the Capital Research and Management
Board Company
------------------------------------------------------------------------------------------------------------------
Donald D. O'Neal President 1998 Senior Vice President, Capital 2
Age: 41 and Research and Management Company
Trustee
------------------------------------------------------------------------------------------------------------------
James F. Trustee 1995 President and Director, Capital 4
Rothenberg Research and Management Company
Age: 55
------------------------------------------------------------------------------------------------------------------

OTHER DIRECTORSHIPS/3/ HELD
NAME AND AGE BY TRUSTEE OR OFFICER
---------------------------------------------------

"INTERESTED" TRUSTEES/4,5/
---------------------------------------------------
James K. Dunton None
Age: 64
---------------------------------------------------
Donald D. O'Neal None
Age: 41
---------------------------------------------------
James F. None
Rothenberg
Age: 55
---------------------------------------------------

American Funds Insurance Series - Page 24

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American Funds Insurance Series · 497 · On 5/22/02

Filed On 5/22/02 · SEC File 2-86838 · Accession Number 729528-2-6

Definitive Material · Rule 497Filing Table of Contents

Document Table of Contents

Definitive Material · Rule 497
Filing Table of Contents