Filed On 4/30/02 · SEC Files 2-86838, 811-03857 · Accession Number 729528-2-5
As Of Filer Filing As/For/On Docs:Pgs
4/30/02 American Funds Insurance Series 485BPOS 5/01/02 5:322
American Fund Insurance Series
Document/Exhibit Description Pages Size
1: 485BPOS Post-Effective Amendment 264± 1,135K
2: EX-99.A CHARTER Miscellaneous Exhibit 2± 9K
3: EX-99.D ADVSR CONTR Miscellaneous Exhibit 4± 22K
4: EX-99.G CUST AGREEMT Miscellaneous Exhibit 51± 204K
5: EX-99.J OTHER OPININ Miscellaneous Exhibit 1 5K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement
Under
the Securities Act of 1933
Post-Effective Amendment No. 33
and
Registration Statement
Under
The Investment Company Act of 1940
Amendment No. 33
AMERICAN FUNDS INSURANCE SERIES
(Exact Name of Registrant as specified in charter)
333 South Hope Street
Los Angeles, CA 90071
(Address of principal executive offices)
Registrant's telephone number, including area code:
(213) 486-9200
CHAD L. NORTON
CAPITAL RESEARCH AND MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, CA 90071
(name and address of agent for service)
Copies to:
ROBERT E. CARLSON, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 S. Flower Street
Los Angeles, California 90071
(Counsel for the Registrant)
Approximate date of proposed public offering:
It is proposed that this filing become effective on May 1, 2002, pursuant to
paragraph (b) of rule 485.
The right choice for the long term/SM/
[LOGO OF AMERICAN FUNDS]
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American Funds
Insurance Series/SM/
Class 1 Shares
Prospectus
MAY 1, 2002
The Securities and Exchange Commission has not approved or
disapproved of these securities. Further, it has not determined
that this prospectus is accurate or complete. Any representation
to the contrary is a criminal offense.
The Series consists of 13 funds, each representing a separate fully managed di-
versified portfolio of securities. The 13 funds are:
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
High-Income Bond Fund (formerly High-Yield Bond Fund)
U.S. Government /AAA-Rated Securities Fund
Cash Management Fund
The Series offers two classes of fund shares: Class 1 shares and Class 2
shares. This prospectus offers only Class 1 shares and is for use with Con-
tracts that make Class 1 shares available. The Board of Trustees may establish
additional funds and classes in the future. The investment objective(s) and
policies of each fund are discussed below. More information on the funds is
contained in the Series' statement of additional information.
Shares of the Series are currently offered only to separate accounts of various
insurance companies to serve as the underlying investment for both variable an-
nuity and variable life insurance contracts ("Contracts"). All such shares may
be purchased or redeemed by the separate accounts without any sales or redemp-
tion charges at net asset value.
American Funds Insurance Series / Prospectus 1
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Global Discovery Fund
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
stocks of companies in the services and information area of the global economy.
Companies in the services and information area include, for example, those in-
volved in the fields of telecommunications, computer systems and software, the
Internet, broadcasting and publishing, health care, advertising, leisure, tour-
ism, financial services, distribution and transportation. Providing you with
current income is a secondary consideration. The fund is designed for investors
seeking greater capital appreciation through investments in stocks of issuers
based around the world. Investors in the fund should have a long-term perspec-
tive and be able to tolerate potentially wide price fluctuations. The fund's
investment adviser focuses primarily on companies with attributes that are as-
sociated with long-term growth, such as strong management, participation in a
growing market, and above average growth in earnings, revenues and/or cash
flow.
The prices of securities held by the fund may decline in response to certain
events, including: those involving the companies whose securities are owned in
the fund; conditions affecting the general economy; overall market changes;
global political, social, or economic instability; and currency and interest
rate fluctuations. The growth-oriented, equity-type securities generally pur-
chased by the fund may involve large price swings and potential for loss, par-
ticularly in the case of smaller capitalization stocks.
Investments in securities issued by entities based outside the U.S. may be sub-
ject to the risks described above to a greater extent and may also be affected
by differing securities regulations, higher transaction costs, and administra-
tive difficulties such as delays in clearing and settling portfolio transac-
tions.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
Investment Results
The fund began operations on July 5, 2001. Accordingly, results for a full cal-
endar year are not available. The fund's return for the three months ended
March 31, 2002 and the period from inception through March 31, 2002 was 1.18%
and -5.55%, respectively.
2 American Funds Insurance Series / Prospectus
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Global Growth Fund
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
common stocks of companies located around the world. The fund is designed for
investors seeking capital appreciation through stocks. Investors in the fund
should have a long-term perspective and be able to tolerate potentially wide
price fluctuations.
The prices of securities held by the fund may decline in response to certain
events, including: those directly involving companies whose securities are
owned in the fund; conditions affecting the general economy; overall market
changes; global political, social or economic instability; and currency and in-
terest rate fluctuations.
Investments in securities issued by entities based outside the U.S. may be sub-
ject to the risks described above to a greater extent and may also be affected
by differing securities regulations, higher transaction costs, and administra-
tive difficulties such as delays in clearing and settling portfolio transac-
tions.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
American Funds Insurance Series / Prospectus 3
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'98 29.03
'99 70.01
'00 -18.71
'01 -13.99
The fund's year-to-date return for the three months ended March 31, 2002
was 1.49%.
The fund's highest/lowest quarterly results during this time period were:
Highest 41.07% (quarter ended December 31, 1999)
Lowest -20.39% (quarter ended September 30, 2001)
For periods ended December 31, 2001:
[Download Table]
Average
Annual MSCI Lipper
Total World Global Fund
Return Fund Index/1/ Index/2/ CPI/3/
--------------------------------------------------------------------------------
One Year -13.99% -16.52% -15.76% 1.55%
................................................................................
Lifetime/4/ 11.54% 5.33% 5.92% 2.12%
/1/ The Morgan Stanley Capital International World Index measures 23 major
stock markets throughout the world, including the U.S. This index is
unmanaged and does not reflect sales charges, commissions or expenses.
/2/ The Lipper Global Fund Index represents funds that invest at least 25% of
their portfolios in securities traded outside the U.S. The results of the
un-derlying funds in the index include the reinvestment of dividend and
capital gain distributions and brokerage commissions paid by the funds for
portfolio transactions, but do not reflect sales charges.
/3/ The Consumer Price Index is a measure of inflation and is computed from
data supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/4/ Lifetime results are as of April 30, 1997, the date the fund began invest-
ment operations.
4 American Funds Insurance Series / Prospectus
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Global Small Capitalization Fund
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
stocks of smaller companies located around the world that typically have market
capitalizations of $50 million to $1.5 billion. The fund is designed for in-
vestors seeking capital appreciation through stocks. Investors in the fund
should have a long-term perspective and be able to tolerate potentially wide
price fluctuations.
The prices of securities held by the fund may decline in response to certain
events, including: those directly involving companies whose securities are
owned in the fund; conditions affecting the general economy; overall market
changes; global political, social or economic instability; and currency and in-
terest rate fluctuations. The growth oriented, equity-type securities generally
purchased by the fund may involve large price swings and potential for loss,
particularly in the case of smaller capitalization stocks. In addition, smaller
capitalization stocks are often more difficult to value or dispose of, more
difficult to obtain information about, and more volatile than stocks of larger,
more established companies.
Investments in securities issued by entities based outside the U.S. may be sub-
ject to the risks described above to a greater extent and may also be affected
by differing securities regulations, higher transaction costs, and administra-
tive difficulties such as delays in clearing and settling portfolio transac-
tions.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
American Funds Insurance Series / Prospectus 5
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'99 91.78
'00 -16.33
'01 -12.63
The fund's year-to-date return for the three months ended March 31, 2002
was 6.60%.
The fund's highest/lowest quarterly results during this time period were:
Highest 28.97% (quarter ended December 31, 1999)
Lowest -28.17% (quarter ended September 30, 2001)
For periods ended December 31, 2001:
[Download Table]
Salomon
Smith
Average Barney
Annual World
Total Smallcap
Return Fund Index/1/ CPI/2/
--------------------------------------------------------------------------------
One Year -12.63% -4.14% 1.55%
................................................................................
Lifetime/3/ 10.41% -0.15% 2.31%
/1/ The Salomon Smith Barney World Smallcap Index tracks approximately 5,100
small-company stocks traded around the world with market capitalizations be-
tween $100 million and $1.5 billion. This index is unmanaged and does not
re-flect sales charges, commissions or expenses.
/2/ The Consumer Price Index is a measure of inflation and is computed from
data supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/3/ Lifetime results are as of April 30, 1998, the date the fund began invest-
ment operations.
6 American Funds Insurance Series / Prospectus
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Growth Fund
RISK/RETURN SUMMARY
The fund seeks to make your investment grow by investing primarily in common
stocks of companies that appear to offer superior opportunities for growth of
capital. The fund may also invest up to 15% of its assets in equity securities
of issuers domiciled outside the U.S. and Canada and not included in the Stan-
dard & Poor's 500 Composite Index. The fund is designed for investors seeking
capital appreciation through stocks. Investors in the fund should have a long-
term perspective and be able to tolerate potentially wide price fluctuations.
The prices of securities held by the fund may decline in response to certain
events, including: those directly involving companies whose securities are
owned in the fund; conditions affecting the general economy; overall market
changes; global political, social or economic instability; and currency and in-
terest rate fluctuations.
Investments in securities issued by entities based outside the U.S. may be sub-
ject to the risks described above to a greater extent and may also be affected
by differing securities regulations, higher transaction costs, and administra-
tive difficulties such as delays in clearing and settling portfolio transac-
tions.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
American Funds Insurance Series / Prospectus 7
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'92 10.78
'93 16.33
'94 0.50
'95 33.27
'96 13.36
'97 30.10
'98 35.56
'99 57.61
'00 4.72
'01 -17.93
The fund's year-to-date return for the three months ended March 31, 2002
was 0.04%.
The fund's highest/lowest quarterly results during this time period were:
Highest 30.77% (quarter ended December 31, 1999)
Lowest -27.12% (quarter ended September 30, 2001)
For periods ended December 31, 2001:
[Download Table]
Average
Annual Lipper Capital
Total S&P 500 Appreciation Lipper Growth
Return Fund Index/1/ Fund Index/2/ Fund Index/3/ CPI/4/
--------------------------------------------------------------------------------
One Year -17.93% -11.83% -15.92% -17.98% 1.55%
................................................................................
Five Years 19.03% 10.69% 7.96% 8.52% 2.18%
................................................................................
Ten Years 16.67% 12.91% 10.42% 10.78% 2.51%
................................................................................
Lifetime/5/ 16.56% 14.92% 11.85% 12.43% 3.12%
/1/ The Standard & Poor's 500 Composite Index is a market capitalization-
weighted measurement of changes in stock market conditions based on the
average weighted performance of 500 widely held common stocks. This index
is unmanaged and does not reflect sales charges, commissions or expenses.
/2/ The Lipper Capital Appreciation Fund Index represents funds that seek
growth of capital but do not necessarily emphasize investments in rapidly
growing, high P/E companies. The results of the underlying funds in the
index include the reinvestment of dividend and capital gain distributions
and brokerage commissions paid by the funds for portfolio transactions, but
do not reflect sales charges.
/3/ The Lipper Growth Fund Index is an equally weighted performance index with
30 of the largest growth funds (representing about 50% of all growth fund
as-sets). These funds normally invest in companies with long-term earnings
that are expected to grow significantly faster than the earnings of the
stocks represented in the major unmanaged indexes. The results of the
underlying funds in the index include the reinvestment of dividend and
capital gain dis-tributions and brokerage commissions paid by the funds for
portfolio transac-tions, but do not reflect sales charges or taxes.
/4/ The Consumer Price Index is a measure of inflation and is computed from
data supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/5/ Lifetime results are as of February 8, 1984, the date the fund began invest-
ment operations.
8 American Funds Insurance Series / Prospectus
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International Fund
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
common stocks of companies located outside the United States. The fund is de-
signed for investors seeking capital appreciation through stocks. Investors in
the fund should have a long-term perspective and be able to tolerate poten-
tially wide price fluctuations.
The prices of securities held by the fund may decline in response to certain
events, including: those directly involving companies whose securities are
owned in the fund; conditions affecting the general economy; overall market
changes; global political, social or economic instability; and currency and in-
terest rate fluctuations.
Investments in securities issued by entities based outside the U.S. may be sub-
ject to the risks described above to a greater extent and may also be affected
by differing securities regulations, higher transaction costs, and administra-
tive difficulties such as delays in clearing and settling portfolio transac-
tions. The growth oriented, equity-type securities generally purchased by the
fund may involve large price swings and potential for loss, particularly in the
case of smaller capitalization stocks.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
American Funds Insurance Series / Prospectus 9
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'92 -0.84
'93 34.34
'94 1.93
'95 12.68
'96 17.53
'97 9.06
'98 21.22
'99 76.42
'00 -21.85
'01 -19.73
The fund's year-to-date return for the three months ended March 31, 2002
was 4.41%.
The fund's highest/lowest quarterly results during this time period were:
Highest 42.45% (quarter ended December 31, 1999)
Lowest -17.62% (quarter ended September 30, 2001)
For periods ended December 31, 2001:
[Download Table]
Average
Annual MSCI Lipper
Total EAFE International
Return Fund Index/1/ Fund Index/2/ CPI/3/
--------------------------------------------------------------------------------
One Year -19.73% -21.21% -19.33% 1.55%
................................................................................
Five Years 7.91% 1.17% 2.76% 2.18%
................................................................................
Ten Years 10.16% 4.76% 6.67% 2.51%
................................................................................
Lifetime/4/ 9.25% 4.79% 6.26% 2.74%
/1/ The Morgan Stanley Capital International EAFE (Europe, Australasia, Far
East) Index measures all major stock markets outside North America. This in-
dex is unmanaged and does not reflect sales charges, commissions or
expenses.
/2/ The Lipper International Fund Index represents funds that invest in securi-
ties with primary trading markets outside the U.S. The results of the under-
lying funds in the index include the reinvestment of dividend and capital
gain distributions and brokerage commissions paid by the funds for
portfolio transactions, but do not reflect sales charges.
/3/ The Consumer Price Index is a measure of inflation and is computed from data
supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/4/ Lifetime results are as of May 1, 1990, the date the fund began investment
operations.
10 American Funds Insurance Series / Prospectus
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New World Fund
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
stocks of companies with significant exposure to countries with developing
economies and/or markets. The fund is designed for investors seeking capital
appreciation. Investors in the fund should have a long-term perspective and be
able to tolerate potentially wide price fluctuations.
The fund may invest in equity securities of any company, regardless of where it
is based, if the fund's investment adviser determines that a significant por-
tion of a company's assets or revenues (generally 20% or more) is attributable
to developing countries. Under normal market conditions, the fund will invest
at least 35% of its assets in equity and debt securities of issuers primarily
based in "qualified" countries that have developing economies and/or markets.
In addition, the fund may invest up to 25% of its assets in debt securities of
issuers, including issuers of lower rated bonds and government securities that
are primarily based in qualified countries or that have a significant portion
of their assets or revenues attributable to developing countries.
In determining whether a country is qualified, the fund will consider such fac-
tors as the country's per capita gross domestic product, the percentage of the
country's economy that is industrialized, market capital as a percentage of
gross domestic product, the overall regulatory environment, the presence of
government regulation limiting or banning foreign ownership, and restrictions
on repatriation of initial capital, dividends, interest, and/or capital gains.
The fund's investment adviser will maintain an eligible list of qualified coun-
tries and securities in which the fund may invest. Qualified developing coun-
tries in which the fund may invest currently include, but are not limited to,
Argentina, Brazil, Chile, China, Colombia, Croatia, Czech Republic, Egypt, Hun-
gary, India, Israel, Jordan, Malaysia, Mexico, Morocco, Panama, Peru, Philip-
pines, Poland, Russia, South Africa, South Korea, Thailand, Turkey, and Venezu-
ela.
The prices of securities held by the fund may decline in response to certain
events, including: those directly involving the companies whose securities are
owned in the fund; conditions affecting the general economy; overall market
changes; global political, social or economic instability; and currency and in-
terest rate fluctuations. The growth-oriented, equity-type securities generally
purchased by the fund may involve large price swings and potential for loss,
particularly in the case of smaller capitalization stocks. Smaller capitaliza-
tion stocks are often more difficult to value or dispose of, more difficult to
obtain information about, and more volatile than stocks of larger, more estab-
lished companies.
Investing in countries with developing economies and/or markets generally in-
volves risks in addition to and greater than those generally associated with
investing in developed countries. For instance, developing countries may have
less developed legal and accounting systems. The governments of these countries
may be more unstable and likely to impose capital controls, nationalize a com-
pany or industry, place restrictions on foreign ownership and on withdrawing
sale proceeds of securities from the country, and/or impose punitive taxes that
could adversely affect security prices. In addition, the economies of these
countries may be dependent on relatively few industries that are more suscepti-
ble to local and global changes. Securities markets in these countries are also
relatively small and have substantially lower trading volumes. As a result, se-
curities issued in these countries may be more volatile and potentially less
liquid than securities issued in countries with more developed economies or
markets.
The values of most debt securities held by the fund may be affected by changing
interest rates and by changes in effective maturities and credit ratings of
these securities. For example, the values of debt securities in the fund's
portfolio generally will decline when interest rates rise and increase when in-
terest rates fall. In addition, falling interest rates may cause an issuer to
redeem or "call" a security before its stated maturity, which may result in the
fund having to reinvest the proceeds in lower yielding securities. Debt securi-
ties are also subject to credit risk, which is the possibility that the credit
strength of an issuer will weaken and/or an issuer of a debt security will fail
to make timely payments of principal or interest and the security will go into
default. Lower quality or longer maturity securities generally have higher
rates of interest and may be subject to greater price fluctuations than higher
quality or shorter maturity securities. The fund's investment adviser attempts
to reduce these risks through diversification of the portfolio and with ongoing
credit analysis of each issuer, as well as by monitoring economic and legisla-
tive developments.
American Funds Insurance Series / Prospectus 11
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'00 -12.43
'01 -3.99
The fund's year-to-date return for the three months ended March 31, 2002
was 7.94%.
The fund's highest/lowest quarterly results during this time period were:
Highest 14.15% (quarter ended December 31, 2001)
Lowest -15.96% (quarter ended September 30, 2001)
For periods ended December 31, 2001:
[Download Table]
MSCI
Average All
Annual Country
Total World Free
Return Fund Index/1/ CPI/2/
--------------------------------------------------------------------------------
One Year -3.99% -15.91% 1.55%
................................................................................
Lifetime/3/ -0.16% -6.82% 2.44%
/1/ The Morgan Stanley Capital International All Country World Free Index is a
blend of the MSCI World and Emerging Markets Free indexes weighted by
market capitalization. The MSCI World Index measures 23 developed country
stock mar-kets, while the MSCI Emerging Markets Free Index measures 26
developing coun-try stock markets. This index is unmanaged and does not
reflect sales charges, commissions or expenses.
/2/ The Consumer Price Index is a measure of inflation and is computed from
data supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/3/ Lifetime results are as of June 17, 1999, the date the fund began invest-
ment operations.
12 American Funds Insurance Series / Prospectus
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Blue Chip Income and Growth Fund
RISK/RETURN SUMMARY
The fund seeks to produce income exceeding the average yield on U.S. stocks
generally (as represented by the average yield on the Standard & Poor's 500
Composite Index) and to provide an opportunity for growth of principal consis-
tent with sound common stock investing. The fund invests primarily in common
stocks of larger, more established companies based in the U.S., with market
capitalizations of $4 billion and above. The fund may also invest up to 10% of
its assets in common stocks of larger, non-U.S. companies, so long as they are
listed or traded in the U.S. The fund will invest, under normal market condi-
tions, at least 90% of its assets in equity securities.
The fund is designed for investors seeking both income and capital apprecia-
tion. The prices of securities held by the fund may decline in response to cer-
tain events, including: those directly involving the companies whose securities
are owned in the fund; conditions affecting the general economy; overall market
changes; global political, social or economic instability; and currency and in-
terest rate fluctuations.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
Investment Results
The fund began operations on July 5, 2001. Accordingly, results for a full cal-
endar year are not available. The fund's return for the three months ended
March 31, 2002 and the period from inception through March 31, 2002 was 2.23%
and -3.12% respectively.
American Funds Insurance Series / Prospectus 13
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Growth-Income Fund
RISK/RETURN SUMMARY
The fund seeks to make your investment grow and provide you with income over
time by investing primarily in common stocks or other securities which demon-
strate the potential for appreciation and/or dividends. The fund may invest a
portion of its assets in securities of issuers domiciled outside the U.S. and
not included in the Standard & Poor's 500 Composite Index. The fund is designed
for investors seeking both capital appreciation and income.
The prices of securities may decline in response to certain events, including:
those directly involving companies whose securities are owned in the fund; con-
ditions affecting the general economy; overall market changes; global politi-
cal, social or economic instability; and currency and interest rate fluctua-
tions.
Investments in securities issued by entities based outside the U.S. may be sub-
ject to the risks described above to a greater extent and may also be affected
by differing securities regulations, higher transaction costs, and administra-
tive difficulties such as delays in clearing and settling portfolio transac-
tions.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
14 American Funds Insurance Series / Prospectus
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'92 7.93
'93 12.30
'94 2.08
'95 32.99
'96 18.72
'97 25.83
'98 18.37
'99 11.48
'00 8.24
'01 2.78
The fund's year-to-date return for the three months ended March 31, 2002
was 2.43%.
The fund's highest/lowest quarterly results during this time period were:
Highest 18.92% (quarter ended December 31, 1998)
Lowest -12.36% (quarter ended September 30, 2001)
For periods ended December 31, 2001:
[Download Table]
Average
Annual Lipper Growth
Total S&P 500 and Income
Return Fund Index/1/ Fund Index/2/ CPI/3/
--------------------------------------------------------------------------------
One Year 2.78% -11.83% -7.42% 1.55%
................................................................................
Five Years 13.06% 10.69% 8.42% 2.18%
................................................................................
Ten Years 13.69% 12.91% 11.49% 2.51%
................................................................................
Lifetime/4/ 14.66% 14.92% 12.74% 3.12%
/1/ The Standard & Poor's 500 Composite Index is a market capitalization-
weighted measurement of changes in stock market conditions based on the
average weighted performance of 500 widely held common stocks. This index
is unmanaged and does not reflect sales charges, commissions or expenses.
/2/ The Lipper Growth and Income Fund Index represents funds that combine a
growth-of-earnings orientation and an income requirement for level and/or
rising dividends. The results of the underlying funds in the index include
the reinvestment of dividend and capital gain distributions and brokerage
commissions paid by the funds for portfolio transactions, but do not
reflect sales charges.
/3/ The Consumer Price Index is a measure of inflation and is computed from
data supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/4/ Lifetime results are as of February 8, 1984, the date the fund began invest-
ment operations.
American Funds Insurance Series / Prospectus 15
--------------------------------------------------------------------------------
Asset Allocation Fund
RISK/RETURN SUMMARY
The fund seeks to provide you with high total return (including income and cap-
ital gains) consistent with preservation of capital over the long term by in-
vesting in a diversified portfolio of common stocks and other equity securi-
ties, bonds and other intermediate and long-term debt securities, and money
market instruments (debt securities maturing in one year or less). The fund may
also invest up to 10% of its assets in equity securities of issuers domiciled
outside the U.S. and not included in the Standard & Poor's 500 Composite Index,
and up to 5% of its assets in debt securities of non-U.S. issuers. In addition,
the fund may invest up to 25% of its assets in lower quality debt securities
(rated Ba and BB or below by Moody's Investors Services, Inc. or Standard &
Poor's Corporation or unrated but determined to be of equivalent quality). Un-
der normal market conditions, the fund's investment adviser expects (but is not
required) to maintain an investment mix falling within the following ranges:
40-80% in equity securities; 20-50% in debt securities; and 0-40% in money mar-
ket instruments. The fund is designed for investors seeking above average total
return.
The prices of securities may decline in response to certain events, including:
those directly involving companies whose securities are owned in the fund; con-
ditions affecting the general economy; overall market changes; global politi-
cal, social or economic instability; and currency and interest rate fluctua-
tions.
Investments in securities issued by entities based outside the U.S. may be sub-
ject to the risks described above to a greater extent and may also be affected
by differing securities regulations, higher transaction costs, and administra-
tive difficulties such as delays in clearing and settling portfolio transac-
tions.
The values of most debt securities held by the fund may be affected by changing
interest rates and by changes in effective maturities and credit ratings of
these securities. For example, the values of debt securities in the fund's
portfolio generally will decline when interest rates rise and increase when in-
terest rates fall. In addition, falling interest rates may cause an issuer to
redeem or "call" a security before its stated maturity, which may result in the
fund having to reinvest the proceeds in lower yielding securities. Debt securi-
ties are also subject to credit risk, which is the possibility that the credit
strength of an issuer will weaken and/or an issuer of a debt security will fail
to make timely payments of principal or interest and the security will go into
default. Lower quality or longer maturity securities generally have higher
rates of interest and may be subject to greater price fluctuations than higher
quality or shorter maturity securities. The fund's investment adviser attempts
to reduce these risks through diversification of the portfolio and with ongoing
credit analysis of each issuer, as well as by monitoring economic and legisla-
tive developments. Money market instruments held by the fund may be affected by
unfavorable political, economic, or governmental developments that could affect
the repayment of principal or the payment of interest.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
16 American Funds Insurance Series / Prospectus
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'92 8.50
'93 10.42
'94 -0.28
'95 29.56
'96 15.78
'97 20.49
'98 13.13
'99 7.25
'00 4.62
'01 0.77
The fund's year-to-date return for the three months ended March 31, 2002
was 3.01%.
The fund's highest/lowest quarterly results during this time period were:
Highest 11.56% (quarter ended December 31, 1998)
Lowest -9.15% (quarter ended September 30, 1998)
For periods ended December 31, 2001:
[Download Table]
Average Salomon
Annual Smith
Total S&P 500 Barney BIG
Return Fund Index/1/ Index/2/ CPI/3/
--------------------------------------------------------------------------------
One Year 0.77% -11.83% 8.52% 1.55%
................................................................................
Five Years 9.04% 10.69% 7.44% 2.18%
................................................................................
Ten Years 10.69% 12.91% 7.28% 2.51%
................................................................................
Lifetime/4/ 10.42% 12.76% 8.07% 2.87%
/1/ The Standard & Poor's 500 Composite Index is a market capitalization-
weighted measurement of changes in stock market conditions based on the
average weighted performance of 500 widely held common stocks. This index is
un-managed and does not reflect sales charges, commissions or expenses .
/2/ The Salomon Smith Barney Broad Investment-Grade (BIG) Bond Index represents
a market capitalization-weighted index that includes Treasury, government-
sponsored, mortgage, and investment grade fixed-rate corporate bonds (BBB-
/Baa3) with a maturity of one year or longer. This index is unmanaged and
does not reflect sales charges, commissions or expenses. This index is in-
cluded as a comparison because the fund generally invests at least 20% of
its assets in bonds, including intermediate and long-term debt securities.
It may increase its exposure to debt securities to as much as 50% of assets.
/3/ The Consumer Price Index is a measure of inflation and is computed from data
supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/4/ Lifetime results are as of August 1, 1989, the date the fund began invest-
ment operations.
American Funds Insurance Series / Prospectus 17
--------------------------------------------------------------------------------
Bond Fund
RISK/RETURN SUMMARY
The fund seeks to maximize your level of current income and preserve your capi-
tal. Normally, the fund invests at least 80% of its assets in bonds. The fund
may invest up to 35% of its assets in bonds rated Ba and BB or below by Moody's
Investors Service, Inc. or Standard & Poor's Corporation or unrated but deter-
mined to be of equivalent quality. The fund may invest in bonds of issuers dom-
iciled outside the U.S. The fund may also invest up to 20% of its assets in
preferred stocks, including convertible and non-convertible preferred stocks.
The fund is designed for investors seeking income and more price stability than
stocks, and capital preservation over the long term.
The values of and the income generated by most debt securities held by the fund
may be affected by changing interest rates and by changes in effective maturi-
ties and credit ratings of these securities. For example, the values of debt
securities in the fund's portfolio generally will decline when interest rates
rise and increase when interest rates fall. In addition, falling interest rates
may cause an issuer to redeem or "call" a security before its stated maturity,
which may result in the fund having to reinvest the proceeds in lower yielding
securities. Debt securities are also subject to credit risk, which is the pos-
sibility that the credit strength of an issuer will weaken and/or an issuer of
a debt security will fail to make timely payments of principal or interest and
the security will go into default. Lower quality or longer maturity securities
generally have higher rates of interest and may be subject to greater price
fluctuations than higher quality or shorter maturity securities. The fund's in-
vestment adviser attempts to reduce these risks through diversification of the
portfolio and with ongoing credit analysis of each issuer, as well as by moni-
toring economic and legislative developments.
Investments in securities issued by entities based outside the U.S. may be sub-
ject to the risks described above to a greater extent and may also be affected
by differing securities regulations, higher transaction costs, and administra-
tive difficulties such as delays in clearing and settling portfolio transac-
tions. In addition, although all securities in the fund's portfolio may be ad-
versely affected by currency fluctuations or global political, social or eco-
nomic instability, investments outside the U.S. may be affected to a greater
extent.
The prices and yields of non-convertible preferred stocks generally move with
changes in interest rates and the issuer's credit quality, similar to debt se-
curities. The value of convertible preferred stocks varies in response to many
factors, including the value of the underlying equity, general market and eco-
nomic conditions, and convertible market valuations, as well as changes in in-
terest rates, credit spreads, and the credit quality of the issuer.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
18 American Funds Insurance Series / Prospectus
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'96 5.84
'97 10.13
'98 4.37
'99 2.81
'00 5.22
'01 8.48
The fund's year-to-date return for the three months ended March 31, 2002
was 0.10%.
The fund's highest/lowest quarterly results during this time period were:
Highest 4.51% (quarter ended June 30, 1997)
Lowest -2.10% (quarter ended March 31, 1996)
For periods ended December 31, 2001:
[Download Table]
Average Salomon
Annual Smith
Total Barney BIG
Return Fund Index/1/ CPI/2/
--------------------------------------------------------------------------------
One year 8.48% 8.52% 1.55%
................................................................................
Five years 6.17% 7.44% 2.18%
................................................................................
Lifetime/3/ 6.12% 6.80% 2.38%
/1/ The Salomon Smith Barney Broad Investment-Grade (BIG) Bond Index represents
a market capitalization-weighted index that includes Treasury, government-
sponsored, mortgage, and investment grade fixed-rate corporate bonds (BBB-
/Baa3) with a maturity of one year or longer. This index is unmanaged and
does not reflect sales charges, commissions or expenses.
/2/ The Consumer Price Index is a measure of inflation and is computed from
data supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/3/ Lifetime results are as of January 2, 1996, the date the fund began invest-
ment operations.
American Funds Insurance Series / Prospectus 19
--------------------------------------------------------------------------------
High-Income Bond Fund*
RISK/RETURN SUMMARY
The fund seeks to provide you with a high level of current income and second-
arily capital appreciation by investing primarily in lower quality debt securi-
ties (rated Ba and BB or below by Moody's Investors Service, Inc. or Standard &
Poor's Corporation or unrated but determined to be of equivalent quality), in-
cluding those of non-U.S. issuers. The fund may also invest in equity securi-
ties and securities that have both equity and debt characteristics that provide
an opportunity for capital appreciation. The fund is designed for investors
seeking a high level of current income and who are able to tolerate greater
credit risk and price fluctuations than funds investing in higher quality
bonds.
The values of and the income generated by most debt securities held by the fund
may be affected by changing interest rates and by changes in effective maturi-
ties and credit ratings of these securities. For example, the values of debt
securities in the fund's portfolio generally will decline when interest rates
rise and increase when interest rates fall. In addition, falling interest rates
may cause an issuer to redeem or "call" a security before its stated maturity,
which may result in the fund having to reinvest the proceeds in lower yielding
securities. Debt securities are also subject to credit risk, which is the pos-
sibility that the credit strength of an issuer will weaken and/or an issuer of
a debt security will fail to make timely payments of principal or interest and
the security will go into default. Lower quality or longer maturity securities
generally have higher rates of interest and may be subject to greater price
fluctuations than higher quality or shorter maturity securities.
The prices of and the income generated by securities held by the fund may de-
cline in response to certain events, including: those directly involving the
companies whose securities are owned in the fund; conditions affecting the gen-
eral economy; overall market changes; global political, social or economic in-
stability; and currency and interest rate fluctuations. Investments in securi-
ties issued by entities based outside the U.S. may be subject to the risks de-
scribed above to a greater extent and may be affected by differing securities
regulations, higher transaction costs, and administrative difficulties such as
delays in clearing and settling portfolio transactions. The fund's investment
adviser attempts to reduce these risks through diversification of the portfolio
and with ongoing credit analysis of each issuer, as well as by monitoring eco-
nomic and legislative developments.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
-----
*Formerly known as High-Yield Bond Fund.
20 American Funds Insurance Series / Prospectus
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'92 12.47
'93 16.43
'94 -6.54
'95 21.77
'96 13.21
'97 12.41
'98 0.45
'99 5.80
'00 -3.06
'01 8.02
The fund's year-to-date return for the three months ended March 31, 2002
was -0.34%.
The fund's highest/lowest quarterly results during this time period were:
Highest 7.57% (quarter ended June 30, 1995)
Lowest -8.42% (quarter ended September 30, 1998)
For periods ended December 31, 2001:
[Download Table]
Average Salomon
Annual Salomon Smith Smith
Total Barney Barney BIG
Return Fund High Yield Index/1/ Index/2/ CPI/3/
--------------------------------------------------------------------------------
One Year 8.02% 19.33% 8.52% 1.55%
................................................................................
Five Years 4.58% 9.62% 7.44% 2.18%
................................................................................
Ten Years 7.75% 11.75% 7.28% 2.51%
................................................................................
Lifetime/4/ 10.63% 11.60% 9.60% 3.12%
/1/ The Salomon Smith Barney Long-Term High-Yield Bond Index represents bonds
that have a remaining maturity of at least ten years, a minimum amount out-
standing of $100 million and a speculative-grade rating by both Moody's In-
vestors Service, Inc. and Standard & Poor's Corporation. This index is
unmanaged and does not reflect sales charges, commissions or expenses.
/2/ The Salomon Smith Barney Broad Investment-Grade Bond (BIG) Index represents
a market capitalization-weighted index that includes Treasury, government-
sponsored, mortgage, and investment grade fixed-rate corporate bonds (BBB-
/Baa3) with a maturity of one year or longer. This index is unmanaged and
does not reflect sales charges, commissions or expenses.
/3/ The Consumer Price Index is a measure of inflation and is computed from data
supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/4/ Lifetime results are as of February 8, 1984, the date the fund began invest-
ment operations.
American Funds Insurance Series / Prospectus 21
--------------------------------------------------------------------------------
U.S. Government/AAA-Rated Securities Fund
RISK/RETURN SUMMARY
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 or sponsored by the U.S. government
and securities that are rated Aaa or AAA by Moodys Investors Service, Inc. or
Standard & Poor's Corporation or unrated but determined to be of equivalent
quality. The fund will invest at least 65% of its assets in securities that are
guaranteed by the "full faith and credit" pledge of the U.S. government. 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.
The values of most debt securities held by the fund may be affected by changing
interest rates and prepayment risks. For example, as with other debt securi-
ties, the value of U.S. government securities generally will decline when in-
terest rates rise and increase when interest rates fall. In addition, falling
interest rates may cause an issuer to redeem or "call" a security before its
stated maturity, which may result in the fund having to reinvest the proceeds
in lower yielding securities. Longer maturity securities generally have higher
rates of interest but may be subject to greater price fluctuations than higher
quality or shorter maturity securities.
A security backed by the U.S. Treasury or the full faith and credit of the
United States is guaranteed only as to the timely payment of interest and
principal when held to maturity. Accordingly, the current market prices for
such securities will fluctuate with changes in interest rates. Many types of
debt securities, including mortgage-related securities, are subject to
prepayment risk. For example, when interest rates fall, homeowners are more
likely to refinance their home mortgages and "prepay" their principal earlier
than expected. The fund must then reinvest the prepaid principal in new
securities when interest rates on new mortgage investments are falling, thus
reducing the fund's income.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
22 American Funds Insurance Series / Prospectus
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'92 7.60
'93 11.18
'94 -4.34
'95 15.38
'96 3.11
'97 8.45
'98 8.19
'99 -0.53
'00 11.69
'01 7.24
The fund's year-to-date return for the three months ended March 31, 2002
was 0.25%.
The fund's highest/lowest quarterly results during this time period were:
Highest 5.59% (quarter ended September 30, 1992)
Lowest -3.76% (quarter ended March 31, 1994)
For periods ended December 31, 2001:
[Download Table]
Salomon
Treasury/
Average Government-
Annual Sponsored
Total Mortgage
Return Fund Index/1/ CPI/2/
--------------------------------------------------------------------------------
One Year 7.24% 7.69% 1.55%
................................................................................
Five Years 6.93% 7.45% 2.18%
................................................................................
Ten Years 6.65% 7.17% 2.51%
................................................................................
Lifetime/3/ 7.85% 8.64% 3.05%
/1/ The Salomon Smith Barney Treasury/Government-Sponsored Mortgage Index repre-
sents fixed-rate Treasury, government-sponsored, and mortgage issues with a
maturity of one year or longer. This index is unmanaged and does not
reflect sales charges, commissions or expenses.
/2/ The Consumer Price Index is a measure of inflation and is computed from data
supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/3/ Lifetime results are as of December 2, 1985, the date the fund began invest-
ment operations.
23 American Funds Insurance Series / Prospectus
--------------------------------------------------------------------------------
Cash Management Fund
RISK/RETURN SUMMARY
The fund seeks to provide you an opportunity to earn income on your cash re-
serves while preserving the value of your investment and maintaining liquidity
by investing in a diversified selection of high quality money market instru-
ments. The prices of money market instruments may be affected by unfavorable
political, economic, or governmental developments that could affect the repay-
ment of principal or the payment of interest.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person. It is not
guaranteed to maintain a stable value of $1 per share.
24 American Funds Insurance Series / Prospectus
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'92 3.22
'93 2.67
'94 3.87
'95 5.55
'96 5.09
'97 5.16
'98 5.15
'99 4.83
'00 6.04
'01 3.66
The fund's year-to-date return for the three months ended March 31, 2002
was 0.26%.
The fund's highest/lowest quarterly results during this time period were:
Highest 1.57% (quarter ended December 31, 2000)
Lowest 0.53% (quarter ended December 31, 2001)
For periods ended December 31, 2001:
[Download Table]
Average
Annual
Total
Return Fund
--------------------------------------------------------------------------------
One Year 3.66%
................................................................................
Five Years 4.96%
................................................................................
Ten Years 4.52%
................................................................................
Lifetime/1/ 5.72%
/1/ Lifetime results are as of February 8, 1984, the date the fund began invest-
ment operations.
American Funds Insurance Series / Prospectus 25
Cash Position
The funds may also hold cash or money market instruments. The sizes of the
funds' cash position will vary and will depend on various factors, including
market conditions and purchases and redemptions of fund shares. A larger cash
position could detract from the achievement of a fund's objective in a period
of rising market prices; conversely, it would reduce a fund's magnitude of loss
in the event of a general market downturn and provide liquidity to make addi-
tional investments or to meet redemptions.
Portfolio Turnover
Portfolio changes will be made without regard to the length of time particular
investments may have been held. The funds do not anticipate their portfolio
turnover to exceed 100% annually. A fund's portfolio turnover rate would equal
100% if each security in the fund's portfolio was replaced once per year. High
portfolio turnover involves correspondingly greater transaction costs in the
form of dealer spreads or brokerage commissions, and may result in the realiza-
tion of net capital gains, which are taxable when distributed to shareholders.
Debt securities are generally traded on a net basis and usually neither broker-
age commissions nor transfer taxes are involved, although the dealer may re-
ceive a markup. See the "Financial Highlights" for the funds' portfolio turn-
over for each of the last five years.
MANAGEMENT AND ORGANIZATION
Investment Adviser
Capital Research and Management Company, an experienced investment management
organization founded in 1931, serves as investment adviser to the Series and
other mutual funds, including those in The American Funds Group. Capital Re-
search Management Company, a wholly owned subsidiary of The Capital Group Com-
panies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071.
Capital Research Management Company manages the investment portfolios and busi-
ness affairs of the Series.
The total management fee paid by each fund, as a percentage of average net
assets, for the fiscal year ended December 31, 2001 amounted to the following:
Global Discovery Fund* -- .28%; Global Growth Fund -- .66%; Global
Small Capitalization Fund -- .80%; Growth Fund -- .37%; International Fund --
.55%; New World Fund -- .85%; Blue Chip Income and Growth Fund* -- .25%;
Growth-Income Fund -- .33%; Asset Allocation Fund -- .43%; Bond Fund --.48%;
High-Income Bond Fund -- .50%; U.S. Government/AAA-Rated Securities Fund --
.46%; and Cash Management Fund -- .45%.
*The management fees for these funds are for the period July 5, 2001 through
December 31, 2001 and not representative of a full year of operations.
Portfolio Management
The Series relies on the professional judgment of its investment adviser, Capi-
tal Research and Management Company, to make decisions about the funds' portfo-
lio investments. The basic investment philosophy of the investment adviser is
to seek reasonably priced securities that represent above average long-term in-
vestment opportunities. This is accomplished not only through fundamental anal-
ysis, but also by meeting with company executives and employees, suppliers,
customers and competitors in order to gain in-depth knowledge of a company's
true value. Securities may be sold when the investment adviser believes they no
longer represent good long-term value.
Multiple Portfolio Counselor System
Capital Research and Management Company uses a system of multiple portfolio
counselors in managing mutual fund assets. Under this system, the portfolio of
a fund is divided into segments which are managed by individual counselors.
Counselors decide how their respective segments will be invested, within the
limits provided by a fund's objective(s) and policies and by Capital Research
and Management Company's investment committee. In addition, Capital Research
and Management Company's research professionals may make investment decisions
with respect to a portion of a fund's portfolio. The primary portfolio counsel-
ors for each of the funds are listed on the next two pages.
26 American Funds Insurance Series / Prospectus
--------------------------------------------------------------------------------
[Enlarge/Download Table]
Approximate Years
of Experience as
an Investment
Professional
..................
Years of Experience With Capital
as Portfolio Counselor Research and
Portfolio Counselors Primary Title with (and Research Professional, Management
for the Series/Title Investment Adviser if applicable) Company or Total
(if applicable) (or affiliate) (approximate) Affiliates Years
----------------------------------------------------------------------------------------------------
James K. Dunton Senior Vice President and Growth-Income Fund -- 18 40 40
Chairman of the Board Director, Capital Research years (since the fund began
and Principal and Management Company operations)
Executive Officer Blue Chip Income and Growth
Fund -- 1 year (since the
fund began operations)
----------------------------------------------------------------------------------------------------
Donald D. O'Neal Senior Vice President, Global Growth Fund -- 5 17 17
President and Trustee Capital Research and years (since the fund began
Management Company operations) Growth Fund --
11 years (plus 4 years
prior experience as a
research professional for
the fund)
----------------------------------------------------------------------------------------------------
Abner D. Goldstine Senior Vice President and Bond Fund -- 6 years (since 35 50
Senior Vice President Director, Capital Research the fund began operations)
and Management Company High-Income Bond Fund -- 4
years
----------------------------------------------------------------------------------------------------
Alan N. Berro Senior Vice President, Growth-Income Fund -- 6 11 16
Vice President Capital Research Company years (plus 4 years prior
experience as a research
professional for the fund)
Asset Allocation Fund -- 2
years
Blue Chip Income and Growth
Fund --
1 year (since the fund
began operations)
----------------------------------------------------------------------------------------------------
Claudia P. Huntington Senior Vice President, Growth-Income Fund -- 8 27 29
Vice President Capital Research and years (plus 5 years prior
Management Company experience as a research
professional for the fund)
Global Discovery Fund -- 1
year (since the fund began
operations)
----------------------------------------------------------------------------------------------------
Robert W. Lovelace President and Director, Global Growth Fund -- 5 17 17
Vice President Capital Research Company years (since the fund began
operations)
International Fund -- 8
years
New World Fund -- 3 years
(since the fund began
operations)
----------------------------------------------------------------------------------------------------
John H. Smet Senior Vice President, Bond Fund -- 6 years (since 19 20
Vice President Capital Research and the fund began operations)
Management Company U.S. Government Fund -- 10
years
----------------------------------------------------------------------------------------------------
Susan M. Tolson Senior Vice President, High-Income Bond Fund -- 7 12 14
Vice President Capital Research Company years (plus 2 years prior
experience as a research
professional for the fund)
Asset Allocation Fund -- 2
years
----------------------------------------------------------------------------------------------------
Timothy D. Armour Chairman and Principal Asset Allocation Fund -- 6 19 19
Executive Officer, Capital years
Research Company Global Discovery Fund --
1 year (since the fund
began operations)
----------------------------------------------------------------------------------------------------
David C. Barclay Senior Vice President and High-Income Bond Fund -- 9 14 21
Director, Capital Research years
and Management Company New World Fund -- 3 years
(since the fund began
operations)
Bond Fund -- 4 years
----------------------------------------------------------------------------------------------------
Martial Chaillet Senior Vice President, Global Growth Fund -- 5 30 30
Capital Research Company years (since the fund began
operations)
International Fund -- 9
years
----------------------------------------------------------------------------------------------------
Gordon Crawford Senior Vice President and Global Small Capitalization 31 31
Director, Capital Research Fund -- 4 years (since the
and Management Company fund began operations)
Growth Fund -- 8 years
(plus 5 years prior
experience as a research
professional for the fund)
----------------------------------------------------------------------------------------------------
Mark E. Denning Director, Capital Research Global Small Capitalization 20 20
and Management Company Fund -- 4 years (since the
fund began operations)
----------------------------------------------------------------------------------------------------
James E. Drasdo Senior Vice President, Growth Fund -- 15 years 25 30
Capital Research and
Management Company
----------------------------------------------------------------------------------------------------
J. Blair Frank Vice President, Capital Growth Fund -- 2 years 8 9
Research Company (plus 3 years prior
experience as a research
professional for the fund)
----------------------------------------------------------------------------------------------------
Alwyn Heong Senior Vice President, International Fund -- 6 10 14
Capital Research Company years
Global Discovery Fund -- 1
year (since the fund began
operations)
----------------------------------------------------------------------------------------------------
Thomas H. Hogh Vice President, Capital U.S. Government Fund -- 5 12 15
International Research, years
Inc.
American Funds Insurance Series / Prospectus 27
[Enlarge/Download Table]
Approximate Years
of Experience as
an Investment
Professional
.................
Years of Experience With Capital
Portfolio as Portfolio Counselor Research and
Counselors for the Primary Title with (and Research Professional, Management
Series/Title Investment Adviser if applicable) Company or Total
(if applicable) (or affiliate) (approximate) Affiliates Years
--------------------------------------------------------------------------------------------------
Carl M. Kawaja Senior Vice President and New World Fund -- 3 years 11 14
Director, Capital Research (since the fund began
Company operations)
--------------------------------------------------------------------------------------------------
Darcy B. Kopcho Director, Capital Research International Fund -- less 16 16
and Management Company than one year
(plus 5 years prior
experience as a research
professional for the fund)
--------------------------------------------------------------------------------------------------
Mark R. Macdonald Vice President -- Asset Allocation Fund -- 2 8 17
Investment Management years
Group, Capital Research and
Management Company
--------------------------------------------------------------------------------------------------
Robert G. O'Donnell Senior Vice President and Growth-Income Fund -- 12 27 30
Director, Capital Research years (plus 1 year prior
and Management Company experience as a research
professional for the fund)
--------------------------------------------------------------------------------------------------
John W. Ressner Executive Vice President U.S. Government Fund -- 5 14 14
and Research Director, years
Capital Research Company
--------------------------------------------------------------------------------------------------
C. Ross Sappenfield Vice President and Growth-Income Fund -- 3 10 10
Director, Capital Research years
Company Blue Chip Income and Growth
Fund -- 1 year (since the
fund began operations)
--------------------------------------------------------------------------------------------------
Gregory W. Wendt Senior Vice President, Global Small Capitalization 15 15
Capital Research Company Fund -- 4 years (since the
fund began operations)
PURCHASES AND REDEMPTIONS OF SHARES
Shares of the Series are currently offered only to insurance company separate
accounts which fund the Contracts. All such shares may be purchased or redeemed
by the separate accounts at net asset values, without any sales or redemption
charges. Such purchases and redemptions are made, without delay, after corre-
sponding purchases and redemptions of units of the separate accounts.
Valuing Shares
Each fund calculates its share price, also called net asset value, as of ap-
proximately 4:00 p.m. New York time, which is the normal close of regular trad-
ing on the New York Stock Exchange, every day the Exchange is open. Assets are
valued primarily on the basis of market quotations. However, the funds have
adopted procedures for making "fair value" determinations if market quotations
are not readily available. For example, if events occur that materially affect
the value of the International Fund's securities that principally trade in mar-
kets outside the U.S. between the close of those markets and the close of regu-
lar trading on the New York Stock Exchange, the securities will be valued at
fair value. Shares of the funds will be purchased or sold at the net asset val-
ue, next determined after receipt of requests from the appropriate insurance
company. Certain of the funds invest in securities listed on foreign exchanges
which trade on Saturdays or other U.S. business holidays. Since the funds typi-
cally do not calculate their net asset values on Saturdays or other U.S. busi-
ness holidays, the value of the funds' redeemable securities may be affected on
days when shareholders do not have access to the funds.
28 American Funds Insurance Series / Prospectus
DISTRIBUTION ARRANGEMENTS
Dividends and Distributions
It is the Series' policy to distribute to the shareholders (the insurance com-
pany separate accounts) all of its net investment income and capital gains re-
alized during each fiscal year.
Each fund of the Series intends to qualify as a "regulated investment company"
under the Internal Revenue Code. In any fiscal year in which a fund so quali-
fies and distributes to shareholders its net investment income and realized
capital gains, the fund itself is relieved of federal income tax.
See the applicable Contract prospectus for information regarding the federal
income tax treatment of the Contracts and distributions to the separate ac-
counts.
American Funds Insurance Series / Prospectus 29
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the funds'
results for the past five years. The total returns in the table represent the
rate that an investor would have earned or lost on an investment in a fund (as-
suming reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP, whose report, along with the funds'
financial statements, are included in the statement of additional information,
which is available upon request.
[Enlarge/Download Table]
Net gains
Net asset Net (losses) on Dividends Net asset Net assets,
value, investment securities (both Total from (from net Distributions value, end of
Period beginning income realized and investment investment (from capital Total end of Total period (in
ended/1/ of period (loss) unrealized) operations income) gains) distributions period return millions)
Ratio of Ratio of
expenses net income Portfolio
Period to average to average turnover
ended/1/ net assets net assets rate/2/
Global Discovery Fund/3/
----------------------------------------------------------------------------------------------------------------------------------
Class 1
12/31/2001 $10.00 $.04/4/ $ (.70)/4/ $ (.66) $(.04) -- $ (.04) $ 9.30 (6.65)% $ 12
Global Discovery Fund/3/
----------------------------------------------------------------------------------------------------------------------------------
Class 1
12/31/2001 .31% .42% 4%
................................................................................
Class 2
12/31/2001 10.00 .02/4/ (.69)/4/ (.67) (.03) -- (.03) 9.30 (6.71) 4
Class 2
12/31/2001 .42 .21 4
Global Growth Fund/5/
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $10.00 $.06 $ .59 $ .65 $(.03) -- $ (.03) $10.62 6.45% $ 80
11/30/1998 10.62 .13 2.43 2.56 (.14) $ (.02) (.16) 13.02 24.26 132
11/30/1999 13.02 .14 6.39 6.53 (.12) (.44) (.56) 18.99 51.90 272
12/31/1999 18.99 .01 3.43 3.44 (.11) (.90) (1.01) 21.42 18.53 327
12/31/2000 21.42 .20/4/ (4.15)/4/ (3.95) (.02) (.20) (.22) 17.25 (18.71) 317
12/31/2001 17.25 .18/4/ (2.50)/4/ (2.32) (.15) (1.36) (1.51) 13.42 (13.99) 215
Global Growth Fund/5/
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 .44% .80% 13%
11/30/1998 .75 1.14 26
11/30/1999 .72 1.01 26
12/31/1999 .06 .06 3
12/31/2000 .70 .97 41
12/31/2001 .70 1.24 38
................................................................................
Class 2
11/30/1997 10.00 .03 .60 .63 (.02) -- (.02) 10.61 6.28 46
11/30/1998 10.61 .10 2.44 2.54 (.11) (.02) (.13) 13.02 24.06 124
11/30/1999 13.02 .11 6.37 6.48 (.08) (.44) (.52) 18.98 51.45 316
12/31/1999 18.98 .01 3.42 3.43 (.10) (.90) (1.00) 21.41 18.47 399
12/31/2000 21.41 .15/4/ (4.13)/4/ (3.98) (.02) (.20) (.22) 17.21 (18.87) 562
12/31/2001 17.21 .13/4/ (2.49)/4/ (2.36) (.11) (1.36) (1.47) 13.38 (14.22) 600
Class 2
11/30/1997 .57 .56 13
11/30/1998 1.00 .87 26
11/30/1999 .96 .77 26
12/31/1999 .08 .04 3
12/31/2000 .95 .73 41
12/31/2001 .95 .88 38
Global Small Capitalization Fund/6/
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1998 $10.00 $.07 $ (.92) $ (.85) $(.04) -- $ (.04) $ 9.11 (8.31)% $ 55
11/30/1999 9.11 .06 8.20 8.26 (.08) $ (.13) (.21) 17.16 92.15 150
12/31/1999 17.16 -- 1.92 1.92 (.01) (1.70) (1.71) 17.37 11.70 178
12/31/2000 17.37 .09/4/ (2.81)/4/ (2.72) (.05) (.32) (.37) 14.28 (16.33) 213
12/31/2001 14.28 .03/4/ (1.81)/4/ (1.78) (.13) (.85) (.98) 11.52 (12.63) 149
Global Small Capitalization Fund/6/
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1998 .51% .86% 28%
11/30/1999 .82 .53 81
12/31/1999 .07 -- 7
12/31/2000 .86 .52 62
12/31/2001 .83 .21 65
................................................................................
Class 2
11/30/1998 10.00 .04 (.91) (.87) (.03) -- (.03) 9.10 (8.49) 17
11/30/1999 9.10 .04 8.19 8.23 (.06) (.13) (.19) 17.14 91.86 88
12/31/1999 17.14 -- 1.92 1.92 -- (1.70) (1.70) 17.36 11.69 111
12/31/2000 17.36 .04/4/ (2.80)/4/ (2.76) (.04) (.32) (.36) 14.24 (16.53) 234
12/31/2001 14.24 -- (1.80)/4/ (1.80) (.11) (.85) (.96) 11.48 (12.85) 274
Class 2
11/30/1998 .64 .63 28
11/30/1999 1.06 .25 81
12/31/1999 .09 (.02) 7
12/31/2000 1.11 .25 62
12/31/2001 1.08 (.05) 65
Growth Fund
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $43.53 $.27 $ 9.61 $ 9.88 $(.27) $ (3.02) $ (3.29) $50.12 24.58% $4,671
11/30/1998 50.12 .19 10.91 11.10 (.17) (6.14) (6.31) 54.91 25.27 5,313
11/30/1999 54.91 .11 25.35 25.46 (.14) (8.11) (8.25) 72.12 52.56 7,270
12/31/1999 72.12 .01 9.64 9.65 (.05) (11.10) (11.15) 70.62 14.45 8,224
12/31/2000 70.62 .41/4/ 2.97/4/ 3.38 -- (.49) (.49) 73.51 4.72 7,677
12/31/2001 73.51 .18/4/ (11.99)/4/ (11.81) (.41) (16.99) (17.40) 44.30 (17.93) 5,207
Growth Fund
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 .42% .59% 45%
11/30/1998 .41 .38 50
11/30/1999 .39 .19 37
12/31/1999 .03 .01 3
12/31/2000 .38 .53 48
12/31/2001 .38 .34 31
................................................................................
Class 2
11/30/1997 40.59 .11 9.51 9.62 (.12) -- (.12) 50.09 23.73 75
11/30/1998 50.09 .08 10.90 10.98 (.05) (6.14) (6.19) 54.88 24.97 310
11/30/1999 54.88 (.02) 25.33 25.31 (.04) (8.11) (8.15) 72.04 52.22 937
12/31/1999 72.04 -- 9.63 9.63 -- (11.10) (11.10) 70.57 14.44 1,149
12/31/2000 70.57 .25/4/ 2.95/4/ 3.20 -- (.49) (.49) 73.28 4.47 2,356
12/31/2001 73.28 .04/4/ (11.94)/4/ (11.90) (.30) (16.99) (17.29) 44.09 (18.15) 2,937
Class 2
11/30/1997 .37 .08 45
11/30/1998 .66 .15 50
11/30/1999 .64 (.06) 37
12/31/1999 .05 (.01) 3
12/31/2000 .63 .33 48
12/31/2001 .63 .07 31
30 American Funds Insurance Series / Prospectus
[Enlarge/Download Table]
Net gains
Net asset Net (losses) on Dividends Net asset
value, investment securities (both Total from (from net Distributions value,
Period beginning income realized and investment investment (from capital Total end of Total
ended/1/ of period (loss) unrealized) operations income) gains) distributions period return
Net assets, Ratio of Ratio of
end of expenses net income Portfolio
Period period (in to average to average turnover
ended/1/ millions) net assets net assets rate/2/
International Fund
----------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $15.53 $.25 $1.18 $1.43 $(.27) $ (.62) $ (.89) $16.07 9.52%
11/30/1998 16.07 .22 2.21 2.43 (.28) (1.65) (1.93) 16.57 16.93
11/30/1999 16.57 .25 8.87 9.12 (.30) (.31) (.61) 25.08 56.48
12/31/1999 25.08 .01 4.34 4.35 (.10) (2.59) (2.69) 26.74 18.18
12/31/2000 26.74 .18/4/ (5.90)/4/ (5.72) (.01) (.42) (.43) 20.59 (21.85)
12/31/2001 20.59 .22/4/ (3.79)/4/ (3.57) (.20) (4.80) (5.00) 12.02 (19.73)
International Fund
----------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $2,612 .67% 1.56% 50%
11/30/1998 2,593 .66 1.36 34
11/30/1999 3,526 .61 1.18 42
12/31/1999 4,113 .05 .03 1
12/31/2000 2,750 .59 .72 42
12/31/2001 1,772 .61 1.41 40
................................................................................
Class 2
11/30/1997 15.86 .13 .23 .36 (.16) -- (.16) 16.06 2.20
11/30/1998 16.06 .20 2.19 2.39 (.24) (1.65) (1.89) 16.56 16.63
11/30/1999 16.56 .10 8.98 9.08 (.26) (.31) (.57) 25.07 56.16
12/31/1999 25.07 .01 4.33 4.34 (.09) (2.59) (2.68) 26.73 18.16
12/31/2000 26.73 .13/4/ (5.89)/4/ (5.76) (.01) (.42) (.43) 20.54 (22.06)
12/31/2001 20.54 .15/4/ (3.76)/4/ (3.61) (.16) (4.80) (4.96) 11.97 (19.89)
Class 2
11/30/1997 48 .53 .34 50
11/30/1998 126 .91 1.03 34
11/30/1999 311 .85 .84 42
12/31/1999 391 .07 .01 1
12/31/2000 581 .84 .50 42
12/31/2001 628 .86 1.04 40
New World Fund/7/
----------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1999 $10.00 $.07 $ .51 $ .58 $(.02) -- $ (.02) $10.56 5.87%
12/31/1999 10.56 .01 1.25 1.26 (.04) $ (.01) (.05) 11.77 11.88
12/31/2000 11.77 .24/4/ (1.70)/4/ (1.46) (.20) (.26) (.46) 9.85 (12.43)
12/31/2001 9.85 .24/4/ (.63)/4/ (.39) (.02) -- (.02) 9.44 (3.99)
New World Fund/7/
----------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1999 $37 .43% 1.02% 1%
12/31/1999 45 .08 .18 3
12/31/2000 45 .92 2.14 43
12/31/2001 37 .91 2.54 31
................................................................................
Class 2
11/30/1999 10.00 .06 .51 .57 (.02) -- (.02) 10.55 5.71
12/31/1999 10.55 .02 1.25 1.27 (.04) (.01) (.05) 11.77 11.87
12/31/2000 11.77 .20/4/ (1.69)/4/ (1.49) (.18) (.26) (.44) 9.84 (12.70)
12/31/2001 9.84 .21/4/ (.62)/4/ (.41) (.02) -- (.02) 9.41 (4.19)
Class 2
11/30/1999 28 .57 .95 1
12/31/1999 38 .10 .16 3
12/31/2000 102 1.17 1.83 43
12/31/2001 116 1.16 2.25 31
Blue Chip Income and Growth Fund/3/
----------------------------------------------------------------------------------------------------------------------
Class 1
12/31/2001 $10.00 $.09/4/ $(.61)/4/ $(.52) $(.05) -- $(.05) $9.43 (5.23)%
Blue Chip Income and Growth Fund/3/
----------------------------------------------------------------------------------------------------------------------
Class 1
12/31/2001 $49 .25% .93% 12%
................................................................................
Class 2
12/31/2001 10.00 .08/4/ (.63)/4/ (.55) (.04) -- (.04) 9.41 (5.38)
Class 2
12/31/2001 111 .37 .82 12
Growth-Income Fund
----------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $35.73 $.73 $6.78 $7.51 $(.72) $(2.55) $(3.27) $39.97 22.93%
11/30/1998 39.97 .67 4.60 5.27 (.68) (3.83) (4.51) 40.73 14.77
11/30/1999 40.73 .69 3.94 4.63 (.66) (6.00) (6.66) 38.70 12.86
12/31/1999 38.70 .06 .88 .94 (.18) (6.38) (6.56) 33.08 3.21
12/31/2000 33.08 .72/4/ 1.98/4/ 2.70 (.06) (.49) (.55) 35.23 8.24
12/31/2001 35.23 .51/4/ .49/4/ 1.00 (.73) (3.80) (4.53) 31.70 2.78
Growth-Income Fund
----------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $6,430 .38% 2.01% 38%
11/30/1998 6,704 .36 1.74 43
11/30/1999 6,537 .35 1.75 41
12/31/1999 6,632 .03 .18 3
12/31/2000 6,022 .35 2.16 47
12/31/2001 5,428 .35 1.53 34
................................................................................
Class 2
11/30/1997 34.10 .37 5.82 6.19 (.35) -- (.35) 39.94 18.18
11/30/1998 39.94 .58 4.60 5.18 (.59) (3.83) (4.42) 40.70 14.49
11/30/1999 40.70 .59 3.94 4.53 (.56) (6.00) (6.56) 38.67 12.59
12/31/1999 38.67 .07 .87 .94 (.16) (6.38) (6.54) 33.07 3.19
12/31/2000 33.07 .65/4/ 1.96/4/ 2.61 (.06) (.49) (.55) 35.13 7.95
12/31/2001 35.13 .41/4/ .52/4/ .93 (.68) (3.80) (4.48) 31.58 2.56
Class 2
11/30/1997 157 .35 .93 38
11/30/1998 564 .61 1.02 43
11/30/1999 1,109 .60 1.50 41
12/31/1999 1,203 .05 .16 3
12/31/2000 1,972 .60 1.92 47
12/31/2001 3,187 .60 1.25 34
Asset Allocation Fund
----------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $15.18 $.55 $1.94 $2.49 $(.54) $ (.97) $(1.51) $16.16 17.90%
11/30/1998 16.16 .58 1.27 1.85 (.57) (.87) (1.44) 16.57 12.32
11/30/1999 16.57 .58 .60 1.18 (.57) (1.15) (1.72) 16.03 7.65
12/31/1999 16.03 .05 .15 .20 (.14) (1.02) (1.16) 15.07 1.45
12/31/2000 15.07 .56/4/ .13/4/ .69 (.05) -- (.05) 15.71 4.62
12/31/2001 15.71 .49/4/ (.37)/4/ .12 (.59) (.94) (1.53) 14.30 .77
Asset Allocation Fund
----------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $1,393 .47% 3.63% 34%
11/30/1998 1,497 .45 3.63 28
11/30/1999 1,394 .44 3.50 36
12/31/1999 1,387 .04 .31 1
12/31/2000 1,136 .45 3.77 32
12/31/2001 1,012 .45 3.30 32
................................................................................
Class 2
11/30/1997 14.43 .29 1.69 1.98 (.26) -- (.26) 16.15 13.80
11/30/1998 16.15 .53 1.28 1.81 (.53) (.87) (1.40) 16.56 12.05
11/30/1999 16.56 .53 .61 1.14 (.53) (1.15) (1.68) 16.02 7.39
12/31/1999 16.02 .05 .14 .19 (.13) (1.02) (1.15) 15.06 1.42
12/31/2000 15.06 .53/4/ .13/4/ .66 (.05) -- (.05) 15.67 4.40
12/31/2001 15.67 .45/4/ (.36)/4/ .09 (.57) (.94) (1.51) 14.25 .52
Class 2
11/30/1997 42 .40 1.81 34
11/30/1998 173 .70 3.39 28
11/30/1999 321 .69 3.24 36
12/31/1999 341 .06 .29 1
12/31/2000 453 .70 3.53 32
12/31/2001 730 .70 3.03 32
American Funds Insurance Series / Prospectus 31
[Enlarge/Download Table]
Net gains
Net asset Net (losses) on Dividends Net asset Net assets,
value, investment securities (both Total from (from net Distributions value, end of
Period beginning income realized and investment investment (from capital Total end of Total period (in
ended/1/ of period (loss) unrealized) operations income) gains) distributions period return millions)
Ratio of Ratio of
expenses net income Portfolio
Period to average to average turnover
ended/1/ net assets net assets rate/2/
Bond Fund
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $10.31 $ .63 $ .30 $ .93 $ (.62) -- $ (.62) $10.62 9.36% $132
11/30/1998 10.62 .67 (.15) .52 (.65) $(.12) (.77) 10.37 5.12 186
11/30/1999 10.37 .73 (.50) .23 (.69) (.05) (.74) 9.86 2.33 173
12/31/1999 9.86 .07 (.01) .06 (.18) -- (.18) 9.74 .61 169
12/31/2000 9.74 .80/4/ (.29)/4/ .51 (.07) -- (.07) 10.18 5.22 151
12/31/2001 10.18 .77/4/ .08/4/ .85 (.59) -- (.59) 10.44 8.48 194
Bond Fund
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 .55% 6.63% 53%
11/30/1998 .54 6.89 62
11/30/1999 .53 7.17 38
12/31/1999 .05 .65 5
12/31/2000 .51 8.03 55
12/31/2001 .49 7.38 59
................................................................................
Class 2
11/30/1997 10.11 .35 .46 .81 (.31) -- (.31) 10.61 8.09 12
11/30/1998 10.61 .65 (.15) .50 (.63) (.12) (.75) 10.36 4.85 45
11/30/1999 10.36 .67 (.47) .20 (.66) (.05) (.71) 9.85 2.07 80
12/31/1999 9.85 .06 -- .06 (.17) -- (.17) 9.74 .59 85
12/31/2000 9.74 .78/4/ (.30)/4/ .48 (.06) -- (.06) 10.16 4.99 144
12/31/2001 10.16 .73/4/ .08/4/ .81 (.57) -- (.57) 10.40 8.15 349
Class 2
11/30/1997 .44 3.50 53%
11/30/1998 .78 6.62 62
11/30/1999 .78 6.94 38
12/31/1999 .07 .63 5
12/31/2000 .76 7.87 55
12/31/2001 .74 7.06 59
High-Income Bond Fund
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $14.51 $1.29 $ .43 $1.72 $(1.27) -- $(1.27) $14.96 12.45% $765
11/30/1998 14.96 1.26 (1.04) .22 (1.25) $(.16) (1.41) 13.77 1.44 715
11/30/1999 13.77 1.26 (.72) .54 (1.31) (.19) (1.50) 12.81 4.22 589
12/31/1999 12.81 .11 .12 .23 (.29) -- (.29) 12.75 1.83 586
12/31/2000 12.75 1.24/4/ (1.63)/4/ (.39) (.11) -- (.11) 12.25 (3.06) 436
12/31/2001 12.25 1.17/4/ (.23)/4/ .94 (1.41) -- (1.41) 11.78 8.02 403
High-Income Bond Fund
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 .51% 8.92% 50%
11/30/1998 .51 8.66 66
11/30/1999 .51 9.13 31
12/31/1999 .04 .79 1
12/31/2000 .52 9.87 50
12/31/2001 .51 9.60 42
................................................................................
Class 2
11/30/1997 14.28 .69 .61 1.30 (.63) -- (.63) 14.95 9.20 21
11/30/1998 14.95 1.25 (1.06) .19 (1.22) (.16) (1.38) 13.76 1.18 68
11/30/1999 13.76 1.18 (.67) .51 (1.28) (.19) (1.47) 12.80 3.96 95
12/31/1999 12.80 .11 .12 .23 (.28) -- (.28) 12.75 1.81 99
12/31/2000 12.75 1.22/4/ (1.64)/4/ (.42) (.11) -- (.11) 12.22 (3.31) 117
12/31/2001 12.22 1.13/4/ (.23)/4/ .90 (1.38) -- (1.38) 11.74 7.73 156
Class 2
11/30/1997 .43 4.92 50
11/30/1998 .76 8.60 66
11/30/1999 .76 8.86 31
12/31/1999 .07 .77 1
12/31/2000 .77 9.76 50
12/31/2001 .76 9.37 42
U.S. Government/AAA-Rated Securities Fund
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $11.29 $ .76 $ (.07) $ .69 $ (.80) -- $ (.80) $11.18 6.49% $471
11/30/1998 11.18 .68 .26 .94 (.69) -- (.69) 11.43 8.72 537
11/30/1999 11.43 .69 (.67) .02 (.67) -- (.67) 10.78 .24 431
12/31/1999 10.78 .06 (.10) (.04) (.18) -- (.18) 10.56 (.41) 421
12/31/2000 10.56 .68/4/ .55/4/ 1.23 (.06) -- (.06) 11.73 11.69 362
12/31/2001 11.73 .66/4/ .17/4/ .83 (.69) -- (.69) 11.87 7.24 386
U.S. Government/AAA-Rated Securities Fund
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 .52% 6.73% 54%
11/30/1998 .51 6.11 89
11/30/1999 .52 6.06 58
12/31/1999 .05 .52 2
12/31/2000 .49 6.16 54
12/31/2001 .47 5.58 84
................................................................................
Class 2
11/30/1997 10.83 .38 .33 .71 (.37) -- (.37) 11.17 6.65 7
11/30/1998 11.17 .68 .24 .92 (.67) -- (.67) 11.42 8.46 32
11/30/1999 11.42 .65 (.64) .01 (.65) -- (.65) 10.78 .08 47
12/31/1999 10.78 .05 (.10) (.05) (.17) -- (.17) 10.56 (.43) 48
12/31/2000 10.56 .65/4/ .55/4/ 1.20 (.06) -- (.06) 11.70 11.39 70
12/31/2001 11.70 .62/4/ .18/4/ .80 (.67) -- (.67) 11.83 7.02 137
Class 2
11/30/1997 .44 3.45 54
11/30/1998 .75 5.68 89
11/30/1999 .77 5.83 58
12/31/1999 .07 .51 2
12/31/2000 .74 5.89 54
12/31/2001 .72 5.27 84
32 American Funds Insurance Series / Prospectus
[Enlarge/Download Table]
Net gains
Net asset Net (losses) on Dividends Net asset
value, investment securities (both Total from (from net Distributions value,
Period beginning income realized and investment investment (from capital Total end of Total
ended/1/ of period (loss) unrealized) operations income) gains) distributions period return
Net assets, Ratio of Ratio of
end of expenses net income Portfolio
Period period (in to average to average turnover
ended/1/ millions) net assets net assets rate/2/
Cash Management Fund
--------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $11.12 $.57 $(.01) $.56 $(.55) -- $(.55) $11.13 5.20%
11/30/1998 11.13 .57 (.01) .56 (.56) -- (.56) 11.13 5.17
11/30/1999 11.13 .49 .02 .51 (.51) -- (.51) 11.13 4.73
12/31/1999 11.13 .05 -- .05 (.13) -- (.13) 11.05 .46
12/31/2000 11.05 .65/4/ .01/4/ .66 (.06) -- (.06) 11.65 6.04
12/31/2001 11.65 .41/4/ .01/4/ .42 (.66) -- (.66) 11.41 3.66
Cash Management Fund
--------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $226 .47% 4.99% --
11/30/1998 250 .46 5.07 --
11/30/1999 306 .46 4.65 --
12/31/1999 317 .04 .45 --
12/31/2000 211 .46 5.80 --
12/31/2001 218 .46 3.52 --
................................................................................
Class 2
11/30/1997 11.07 .28 .03 .31 (.26) -- (.26) 11.12 2.87
11/30/1998 11.12 .55 (.02) .53 (.53) -- (.53) 11.12 4.92
11/30/1999 11.12 .48 -- .48 (.48) -- (.48) 11.12 4.47
12/31/1999 11.12 .05 -- .05 (.13) -- (.13) 11.04 .43
12/31/2000 11.04 .63/4/ .01/4/ .64 (.06) -- (.06) 11.62 5.83
12/31/2001 11.62 .34/4/ .05/4/ .39 (.64) -- (.64) 11.37 3.43
Class 2
11/30/1997 14 .41 2.80 --
11/30/1998 34 .70 4.75 --
11/30/1999 48 .71 4.40 --
12/31/1999 48 .06 .42 --
12/31/2000 49 .71 5.60 --
12/31/2001 127 .71 2.99 --
/1/ The periods ended 1997 through 1999 represent the fiscal years ended
November 30. The period ended December 31, 1999, represents the one month
ended December 31. The periods ended 2000 and 2001 represent the fiscal year
ended December 31. Class 2 shares were offered for sale commencing April 30,
1997. Results for periods not representative of a full year are based on
activity during the period. Total returns exclude all sales charges.
/2/ Represents portfolio turnover rate (equivalent for all share classes).
/3/ Commenced operations July 5, 2001.
/4/ Based on average shares outstanding.
/5/ Commenced operations April 30, 1997.
/6/ Commenced operations April 30, 1998.
/7/ Commenced operations June 17, 1999.
American Funds Insurance Series / Prospectus 33
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The right choise for the long term (sm)
OTHER FUND INFORMATION
Annual/Semi-Annual Reports to Shareholders
The shareholder reports contain additional information about the
series including financial statements, investment results, portfo-
lio holdings, a statement from portfolio management discussing
market conditions and the Series' investment strategies, and the
independent accountants' report (in the annual report).
Statement of Additional Information (SAI) and Codes of Ethics
The SAI contains more detailed information on all aspects of the
Series, including the funds' financial statements and is incorpo-
rated by reference into this prospectus. The Codes of Ethics de-
scribe the personal investing policies adopted by the Series and
the Series' investment adviser and its affiliated companies.
The Codes of Ethics and current SAI have been filed with the Secu-
rities and Exchange Commission ("SEC"). These and other related
materials about the fund are available for review or to be copied
at the SEC's Public Reference Room in Washington, D.C. (202/942-
8090) or on the EDGAR database on the SEC's Internet Web site at
http://www.sec.gov, or after payment of a duplication fee, via e-
mail request to publicinfo@sec.gov or by writing to the SEC's Pub-
lic Reference Section, Washington, D.C. 20549-0102.
To request a free copy of any of the documents listed above,
please call American Funds Distributors, Inc. at 800/421-9900, or
write to:
Secretary of the Series
333 South Hope Street
Los Angeles, CA 90071
Investment Company File No. 811-3857
VI-010-0502/RRD
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THE CAPITAL GROUP COMPANIES
American Funds
Capital Research and Management
Capital International
Capital Guardian
Capital Bank and Trust
The right choice for the long term(SM)
[LOGO OF AMERICAN FUNDS]
--------------------------------------------------------------------------------
American Funds
Insurance Series(SM)
Class 2 Shares
Prospectus
MAY 1, 2002
The Securities and Exchange Commission has not approved or
disapproved of these securities. Further, it has not determined
that this prospectus is accurate or complete. Any representation
to the contrary is a criminal offense.
The Series consists of 13 funds, each representing a separate fully managed di-
versified portfolio of securities. The 13 funds are:
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
High-Income Bond Fund (formerly High-Yield Bond Fund)
U.S. Government/AAA-Rated Securities Fund
Cash Management Fund
The Series offers two classes of fund shares: Class 1 shares and Class 2
shares. This prospectus offers only Class 2 shares and is for use with Con-
tracts that make Class 2 shares available. The Board of Trustees may establish
additional funds and classes in the future. The investment objective(s) and
policies of each fund are discussed below. More information on the funds is
contained in the Series' statement of additional information.
Shares of the Series are currently offered only to separate accounts of various
insurance companies to serve as the underlying investment for both variable an-
nuity and variable life insurance contracts ("Contracts"). All such shares may
be purchased or redeemed by the separate accounts without any sales or redemp-
tion charges at net asset value.
American Funds Insurance Series / Prospectus 1
--------------------------------------------------------------------------------
Global Discovery Fund
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
stocks of companies in the services and information area of the global economy.
Companies in the services and information area include, for example, those in-
volved in the fields of telecommunications, computer systems and software, the
Internet, broadcasting and publishing, health care, advertising, leisure, tour-
ism, financial services, distribution and transportation. Providing you with
current income is a secondary consideration. The fund is designed for investors
seeking greater capital appreciation through investments in stocks of issuers
based around the world. Investors in the fund should have a long-term perspec-
tive and be able to tolerate potentially wide price fluctuations. The fund's
investment adviser focuses primarily on companies with attributes that are as-
sociated with long-term growth, such as strong management, participation in a
growing market, and above average growth in earnings, revenues and/or cash
flow.
The prices of securities held by the fund may decline in response to certain
events, including: those involving the companies whose securities are owned in
the fund; conditions affecting the general economy; overall market changes;
global political, social, or economic instability; and currency and interest
rate fluctuations. The growth-oriented, equity-type securities generally pur-
chased by the fund may involve large price swings and potential for loss, par-
ticularly in the case of smaller capitalization stocks.
Investments in securities issued by entities based outside the U.S. may be sub-
ject to the risks described above to a greater extent and may also be affected
by differing securities regulations, higher transaction costs, and administra-
tive difficulties such as delays in clearing and settling portfolio transac-
tions.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
Investment Results
The fund began operations on July 5, 2001. Accordingly, results for a full cal-
endar year are not available. The fund's return for the three months ended
March 31, 2002 and the period from inception through March 31, 2002 was 1.08%
and -5.71%, respectively.
2 American Funds Insurance Series / Prospectus
--------------------------------------------------------------------------------
Global Growth Fund
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
common stocks of companies located around the world. The fund is designed for
investors seeking capital appreciation through stocks. Investors in the fund
should have a long-term perspective and be able to tolerate potentially wide
price fluctuations.
The prices of securities held by the fund may decline in response to certain
events, including: those directly involving companies whose securities are
owned in the fund; conditions affecting the general economy; overall market
changes; global political, social or economic instability; and currency and in-
terest rate fluctuations.
Investments in securities issued by entities based outside the U.S. may be sub-
ject to the risks described above to a greater extent and may also be affected
by differing securities regulations, higher transaction costs, and administra-
tive difficulties such as delays in clearing and settling portfolio transac-
tions.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
American Funds Insurance Series / Prospectus 3
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'98 28.75
'99 69.67
'00 -18.87
'01 -14.22
The fund's year-to-date return for the three months ended March 31, 2002
was 1.42%.
The fund's highest/lowest quarterly results during this time period were:
Highest 41.03% (quarter ended December 31, 1999)
Lowest -20.43% (quarter ended September 30, 2001)
For periods ended December 31, 2001:
[Download Table]
Average
Annual MSCI Lipper
Total World Global Fund
Return Fund Index/1/ Index/2/ CPI/3/
--------------------------------------------------------------------------------
One Year -14.22% -16.52% -15.76% 1.55%
................................................................................
Lifetime/4/ 11.27% 5.33% 5.92% 2.12%
/1/ The Morgan Stanley Capital International World Index measures 23 major stock
markets throughout the world, including the U.S. This index is unmanaged and
does not reflect sales charges, commissions or expenses.
/2/ The Lipper Global Fund Index represents funds that invest at least 25% of
their portfolios in securities traded outside the U.S. The results of the
underlying funds in the index include the reinvestment of dividend and
capital gain distributions and brokerage commissions paid by the funds for
portfolio transactions, but do not reflect sales charges.
/3/ The Consumer Price Index is a measure of inflation and is computed from data
supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/4/ Lifetime results are as of April 30, 1997, the date the fund began invest-
ment operations.
4 American Funds Insurance Series / Prospectus
--------------------------------------------------------------------------------
Global Small Capitalization Fund
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
stocks of smaller companies located around the world that typically have market
capitalizations of $50 million to $1.5 billion. The fund is designed for in-
vestors seeking capital appreciation through stocks. Investors in the fund
should have a long-term perspective and be able to tolerate potentially wide
price fluctuations.
The prices of securities held by the fund may decline in response to certain
events, including: those directly involving companies whose securities are
owned in the fund; conditions affecting the general economy; overall market
changes; global political, social or economic instability; and currency and in-
terest rate fluctuations. The growth oriented, equity-type securities generally
purchased by the fund may involve large price swings and potential for loss,
particularly in the case of smaller capitalization stocks. In addition, smaller
capitalization stocks are often more difficult to value or dispose of, more
difficult to obtain information about, and more volatile than stocks of larger,
more established companies.
Investments in securities issued by entities based outside the U.S. may be sub-
ject to the risks described above to a greater extent and may also be affected
by differing securities regulations, higher transaction costs, and administra-
tive difficulties such as delays in clearing and settling portfolio transac-
tions.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
American Funds Insurance Series / Prospectus 5
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'99 91.37
'00 -16.53
'01 -12.85
The fund's year-to-date return for the three months ended March 31, 2002
was 6.53%.
The fund's highest/lowest quarterly results during this time period were:
Highest 28.90% (quarter ended December 31, 1999)
Lowest -28.24% (quarter ended September 30, 2001)
For periods ended December 31, 2001:
[Download Table]
Salomon
Smith
Average Barney
Annual World
Total Smallcap
Return Fund Index/1/ CPI/2/
--------------------------------------------------------------------------------
One Year -12.85% -4.14% 1.55%
................................................................................
Lifetime/3/ 10.16% -0.15% 2.31%
/1/ The Salomon Smith Barney World Smallcap Index tracks approximately 5,100
small-company stocks traded around the world with market capitalizations
between $100 million and $1.5 billion. This index is unmanaged and does not
reflect sales charges, commissions or expenses.
/2/ The Consumer Price Index is a measure of inflation and is computed from data
supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/3/ Lifetime results are as of April 30, 1998, the date the fund began invest-
ment operations.
6 American Funds Insurance Series / Prospectus
--------------------------------------------------------------------------------
Growth Fund
RISK/RETURN SUMMARY
The fund seeks to make your investment grow by investing primarily in common
stocks of companies that appear to offer superior opportunities for growth of
capital. The fund may also invest up to 15% of its assets in equity securities
of issuers domiciled outside the U.S. and Canada and not included in the Stan-
dard & Poor's 500 Composite Index. The fund is designed for investors seeking
capital appreciation through stocks. Investors in the fund should have a long-
term perspective and be able to tolerate potentially wide price fluctuations.
The prices of securities held by the fund may decline in response to certain
events, including: those directly involving companies whose securities are
owned in the fund; conditions affecting the general economy; overall market
changes; global political, social or economic instability; and currency and in-
terest rate fluctuations.
Investments in securities issued by entities based outside the U.S. may be sub-
ject to the risks described above to a greater extent and may also be affected
by differing securities regulations, higher transaction costs, and administra-
tive difficulties such as delays in clearing and settling portfolio transac-
tions.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
American Funds Insurance Series / Prospectus 7
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'92 10.48
'93 15.99
'94 0.23
'95 32.90
'96 13.07
'97 29.79
'98 35.23
'99 57.27
'00 4.47
'01 -18.15
The fund's year-to-date return for the three months ended March 31, 2002
was 0.00%.
The fund's highest/lowest quarterly results during this time period were:
Highest 30.71% (quarter ended December 31, 1999)
Lowest -27.17% (quarter ended September 30, 2001)
For periods ended December 31, 2001:
[Download Table]
Average
Annual Lipper Capital
Total S&P 500 Appreciation Lipper Growth
Return Fund Index/1/ Fund Index/2/ Fund Index/3/ CPI/4/
--------------------------------------------------------------------------------
One Year -18.15% -11.83% -15.92% -17.98% 1.55%
................................................................................
Five Years 18.74% 10.69% 7.96% 8.52% 2.18%
................................................................................
Ten Years 16.38% 12.91% 10.42% 10.78% 2.51%
................................................................................
Lifetime/5/ 16.23% 14.92% 11.85% 12.43% 3.12%
/1/ The Standard & Poor's 500 Composite Index is a market capitalization-
weighted measurement of changes in stock market conditions based on the
average weighted performance of 500 widely held common stocks. This index
is unmanaged and does not reflect sales charges, commissions or expenses.
/2/ The Lipper Capital Appreciation Fund Index represents funds that seek growth
of capital but do not necessarily emphasize investments in rapidly growing,
high P/E companies. The results of the underlying funds in the index include
the reinvestment of dividend and capital gain distributions and brokerage
commissions paid by the funds for portfolio transactions, but do not reflect
sales charges.
/3/ The Lipper Growth Fund Index is an equally weighted performance index with
30 of the largest growth funds (representing about 50% of all growth fund
assets). These funds normally invest in companies with long-term earnings
that are expected to grow significantly faster than the earnings of the
stocks represented in the major unmanaged indexes. The results of the
underlying funds in the index include the reinvestment of dividend and
capital gain distributions and brokerage commissions paid by the funds for
portfolio transactions, but do not reflect sales charges or taxes.
/4/ The Consumer Price Index is a measure of inflation and is computed from data
supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/5/ Lifetime results are as of February 8, 1984, the date the fund began invest-
ment operations.
8 American Funds Insurance Series / Prospectus
--------------------------------------------------------------------------------
International Fund
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
common stocks of companies located outside the United States. The fund is de-
signed for investors seeking capital appreciation through stocks. Investors in
the fund should have a long-term perspective and be able to tolerate poten-
tially wide price fluctuations.
The prices of securities held by the fund may decline in response to certain
events, including: those directly involving companies whose securities are
owned in the fund; conditions affecting the general economy; overall market
changes; global political, social or economic instability; and currency and in-
terest rate fluctuations.
Investments in securities issued by entities based outside the U.S. may be sub-
ject to the risks described above to a greater extent and may also be affected
by differing securities regulations, higher transaction costs, and administra-
tive difficulties such as delays in clearing and settling portfolio transac-
tions. The growth oriented, equity-type securities generally purchased by the
fund may involve large price swings and potential for loss, particularly in the
case of smaller capitalization stocks.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
American Funds Insurance Series / Prospectus 9
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'92 -1.11
'93 33.97
'94 1.64
'95 12.38
'96 17.23
'97 8.82
'98 20.93
'99 75.97
'00 -22.06
'01 -19.89
The fund's year-to-date return for the three months ended March 31, 2002
was 4.34%.
The fund's highest/lowest quarterly results during this time period were:
Highest 42.33% (quarter ended December 31, 1999)
Lowest -17.74% (quarter ended September 30, 2001)
For periods ended December 31, 2001:
[Download Table]
Average
Annual MSCI Lipper
Total EAFE International
Return Fund Index/1/ Fund Index/2/ CPI/3/
--------------------------------------------------------------------------------
One Year -19.89% -21.21% -19.33% 1.55%
................................................................................
Five Years 7.65% 1.17% 2.76% 2.18%
................................................................................
Ten Years 9.88% 4.76% 6.67% 2.51%
................................................................................
Lifetime/4/ 8.97% 4.79% 6.26% 2.74%
/1/ The Morgan Stanley Capital International EAFE (Europe, Australasia, Far
East) Index measures all major stock markets outside North America. This in-
dex is unmanaged and does not reflect sales charges, commissions or
expenses.
/2/ The Lipper International Fund Index represents funds that invest in securi-
ties with primary trading markets outside the U.S. The results of the under-
lying funds in the index include the reinvestment of dividend and capital
gain distributions and brokerage commissions paid by the funds for portfolio
transactions, but do not reflect sales charges.
/3/ The Consumer Price Index is a measure of inflation and is computed from data
supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/4/ Lifetime results are as of May 1, 1990, the date the fund began investment
operations.
10 American Funds Insurance Series / Prospectus
--------------------------------------------------------------------------------
New World Fund
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
stocks of companies with significant exposure to countries with developing
economies and/or markets. The fund is designed for investors seeking capital
appreciation. Investors in the fund should have a long-term perspective and be
able to tolerate potentially wide price fluctuations.
The fund may invest in equity securities of any company, regardless of where it
is based, if the fund's investment adviser determines that a significant por-
tion of a company's assets or revenues (generally 20% or more) is attributable
to developing countries. Under normal market conditions, the fund will invest
at least 35% of its assets in equity and debt securities of issuers primarily
based in "qualified" countries that have developing economies and/or markets.
In addition, the fund may invest up to 25% of its assets in debt securities of
issuers, including issuers of lower rated bonds and government securities that
are primarily based in qualified countries or that have a significant portion
of their assets or revenues attributable to developing countries.
In determining whether a country is qualified, the fund will consider such fac-
tors as the country's per capita gross domestic product, the percentage of the
country's economy that is industrialized, market capital as a percentage of
gross domestic product, the overall regulatory environment, the presence of
government regulation limiting or banning foreign ownership, and restrictions
on repatriation of initial capital, dividends, interest, and/or capital gains.
The fund's investment adviser will maintain an eligible list of qualified coun-
tries and securities in which the fund may invest. Qualified developing coun-
tries in which the fund may invest currently include, but are not limited to,
Argentina, Brazil, Chile, China, Colombia, Croatia, Czech Republic, Egypt, Hun-
gary, India, Israel, Jordan, Malaysia, Mexico, Morocco, Panama, Peru, Philip-
pines, Poland, Russia, South Africa, South Korea, Thailand, Turkey, and Venezu-
ela.
The prices of securities held by the fund may decline in response to certain
events, including: those directly involving the companies whose securities are
owned in the fund; conditions affecting the general economy; overall market
changes; global political, social or economic instability; and currency and in-
terest rate fluctuations. The growth-oriented, equity-type securities generally
purchased by the fund may involve large price swings and potential for loss,
particularly in the case of smaller capitalization stocks. Smaller capitaliza-
tion stocks are often more difficult to value or dispose of, more difficult to
obtain information about, and more volatile than stocks of larger, more estab-
lished companies.
Investing in countries with developing economies and/or markets generally in-
volves risks in addition to and greater than those generally associated with
investing in developed countries. For instance, developing countries may have
less developed legal and accounting systems. The governments of these countries
may be more unstable and likely to impose capital controls, nationalize a com-
pany or industry, place restrictions on foreign ownership and on withdrawing
sale proceeds of securities from the country, and/or impose punitive taxes that
could adversely affect security prices. In addition, the economies of these
countries may be dependent on relatively few industries that are more suscepti-
ble to local and global changes. Securities markets in these countries are also
relatively small and have substantially lower trading volumes. As a result, se-
curities issued in these countries may be more volatile and potentially less
liquid than securities issued in countries with more developed economies or
markets.
The values of most debt securities held by the fund may be affected by changing
interest rates and by changes in effective maturities and credit ratings of
these securities. For example, the values of debt securities in the fund's
portfolio generally will decline when interest rates rise and increase when in-
terest rates fall. In addition, falling interest rates may cause an issuer to
redeem or "call" a security before its stated maturity, which may result in the
fund having to reinvest the proceeds in lower yielding securities. Debt securi-
ties are also subject to credit risk, which is the possibility that the credit
strength of an issuer will weaken and/or an issuer of a debt security will fail
to make timely payments of principal or interest and the security will go into
default. Lower quality or longer maturity securities generally have higher
rates of interest and may be subject to greater price fluctuations than higher
quality or shorter maturity securities. The fund's investment adviser attempts
to reduce these risks through diversification of the portfolio and with ongoing
credit analysis of each issuer, as well as by monitoring economic and legisla-
tive developments.
American Funds Insurance Series / Prospectus 11
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'00 -12.70
'01 -4.19
The fund's year-to-date return for the three months ended March 31, 2002
was 7.86%.
The fund's highest/lowest quarterly results during this time period were:
Highest 14.06% (quarter ended December 31, 2001)
Lowest -16.07% (quarter ended September 30, 2001)
For periods ended December 31, 2001:
[Download Table]
MSCI
Average All
Annual Country
Total World Free
Return Fund Index/1/ CPI/2/
--------------------------------------------------------------------------------
One Year -4.19% -15.91% 1.55%
................................................................................
Lifetime/3/ -0.40% -6.82% 2.44%
/1/ The Morgan Stanley Capital International All Country World Free Index is a
blend of the MSCI World and Emerging Markets Free indexes weighted by market
capitalization. The MSCI World Index measures 23 developed country stock
markets, while the MSCI Emerging Markets Free Index measures 26 developing
country stock markets. This index is unmanaged and does not reflect sales
charges, commissions or expenses.
/2/ The Consumer Price Index is a measure of inflation and is computed from
data supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/3/ Lifetime results are as of June 17, 1999, the date the fund began invest-
ment operations.
12 American Funds Insurance Series / Prospectus
--------------------------------------------------------------------------------
Blue Chip Income and Growth Fund
RISK/RETURN SUMMARY
The fund seeks to produce income exceeding the average yield on U.S. stocks
generally (as represented by the average yield on the Standard & Poor's 500
Composite Index) and to provide an opportunity for growth of principal consis-
tent with sound common stock investing. The fund invests primarily in common
stocks of larger, more established companies based in the U.S., with market
capitalizations of $4 billion and above. The fund may also invest up to 10% of
its assets in common stocks of larger, non-U.S. companies, so long as they are
listed or traded in the U.S. The fund will invest, under normal market condi-
tions, at least 90% of its assets in equity securities.
The fund is designed for investors seeking both income and capital apprecia-
tion. The prices of securities held by the fund may decline in response to cer-
tain events, including: those directly involving the companies whose securities
are owned in the fund; conditions affecting the general economy; overall market
changes; global political, social or economic instability; and currency and in-
terest rate fluctuations.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
Investment Results
The fund began operations on July 5, 2001. Accordingly, results for a full cal-
endar year are not available. The fund's return for the three months ended
March 31, 2002 and the period from inception through March 31, 2002 was 2.12%
and -3.37% respectively.
American Funds Insurance Series / Prospectus 13
--------------------------------------------------------------------------------
Growth-Income Fund
RISK/RETURN SUMMARY
The fund seeks to make your investment grow and provide you with income over
time by investing primarily in common stocks or other securities which demon-
strate the potential for appreciation and/or dividends. The fund may invest a
portion of its assets in securities of issuers domiciled outside the U.S. and
not included in the Standard & Poor's 500 Composite Index. The fund is designed
for investors seeking both capital appreciation and income.
The prices of securities may decline in response to certain events, including:
those directly involving companies whose securities are owned in the fund; con-
ditions affecting the general economy; overall market changes; global politi-
cal, social or economic instability; and currency and interest rate fluctua-
tions.
Investments in securities issued by entities based outside the U.S. may be sub-
ject to the risks described above to a greater extent and may also be affected
by differing securities regulations, higher transaction costs, and administra-
tive difficulties such as delays in clearing and settling portfolio transac-
tions.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
14 American Funds Insurance Series / Prospectus
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'92 7.61
'93 11.97
'94 1.78
'95 32.62
'96 18.41
'97 25.53
'98 18.09
'99 11.20
'00 7.95
'01 2.56
The fund's year-to-date return for the three months ended March 31, 2002
was 2.34%.
The fund's highest/lowest quarterly results during this time period were:
Highest 18.85% (quarter ended December 31, 1998)
Lowest -12.42% (quarter ended September 30, 2001)
For periods ended December 31, 2001:
[Download Table]
Average
Annual Lipper Growth
Total S&P 500 and Income
Return Fund Index/1/ Fund Index/2/ CPI/3/
--------------------------------------------------------------------------------
One Year 2.56% -11.83% -7.42% 1.55%
................................................................................
Five Years 12.79% 10.69% 8.42% 2.18%
................................................................................
Ten Years 13.40% 12.91% 11.49% 2.51%
................................................................................
Lifetime/4/ 14.32% 14.92% 12.74% 3.12%
/1/ The Standard & Poor's 500 Composite Index is a market capitalization-
weighted measurement of changes in stock market conditions based on the
average weighted performance of 500 widely held common stocks. This index
is unmanaged and does not reflect sales charges, commissions or expenses.
/2/ The Lipper Growth and Income Fund Index represents funds that combine a
growth-of-earnings orientation and an income requirement for level and/or
rising dividends. The results of the underlying funds in the index include
the reinvestment of dividend and capital gain distributions and brokerage
commissions paid by the funds for portfolio transactions, but do not reflect
sales charges.
/3/ The Consumer Price Index is a measure of inflation and is computed from data
supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/4/ Lifetime results are as of February 8, 1984, the date the fund began invest-
ment operations.
American Funds Insurance Series / Prospectus 15
--------------------------------------------------------------------------------
Asset Allocation Fund
RISK/RETURN SUMMARY
The fund seeks to provide you with high total return (including income and cap-
ital gains) consistent with preservation of capital over the long term by in-
vesting in a diversified portfolio of common stocks and other equity securi-
ties, bonds and other intermediate and long-term debt securities, and money
market instruments (debt securities maturing in one year or less). The fund may
also invest up to 10% of its assets in equity securities of issuers domiciled
outside the U.S. and not included in the Standard & Poor's 500 Composite Index,
and up to 5% of its assets in debt securities of non-U.S. issuers. In addition,
the fund may invest up to 25% of its assets in lower quality debt securities
(rated Ba and BB or below by Moody's Investors Services, Inc. or Standard &
Poor's Corporation or unrated but determined to be of equivalent quality). Un-
der normal market conditions, the fund's investment adviser expects (but is not
required) to maintain an investment mix falling within the following ranges:
40-80% in equity securities; 20-50% in debt securities; and 0-40% in money mar-
ket instruments. The fund is designed for investors seeking above average total
return.
The prices of securities may decline in response to certain events, including:
those directly involving companies whose securities are owned in the fund; con-
ditions affecting the general economy; overall market changes; global politi-
cal, social or economic instability; and currency and interest rate fluctua-
tions.
Investments in securities issued by entities based outside the U.S. may be sub-
ject to the risks described above to a greater extent and may also be affected
by differing securities regulations, higher transaction costs, and administra-
tive difficulties such as delays in clearing and settling portfolio transac-
tions.
The values of most debt securities held by the fund may be affected by changing
interest rates and by changes in effective maturities and credit ratings of
these securities. For example, the values of debt securities in the fund's
portfolio generally will decline when interest rates rise and increase when in-
terest rates fall. In addition, falling interest rates may cause an issuer to
redeem or "call" a security before its stated maturity, which may result in the
fund having to reinvest the proceeds in lower yielding securities. Debt securi-
ties are also subject to credit risk, which is the possibility that the credit
strength of an issuer will weaken and/or an issuer of a debt security will fail
to make timely payments of principal or interest and the security will go into
default. Lower quality or longer maturity securities generally have higher
rates of interest and may be subject to greater price fluctuations than higher
quality or shorter maturity securities. The fund's investment adviser attempts
to reduce these risks through diversification of the portfolio and with ongoing
credit analysis of each issuer, as well as by monitoring economic and legisla-
tive developments. Money market instruments held by the fund may be affected by
unfavorable political, economic, or governmental developments that could affect
the repayment of principal or the payment of interest.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
16 American Funds Insurance Series / Prospectus
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'92 8.17
'93 10.09
'94 -0.57
'95 29.20
'96 15.48
'97 20.15
'98 12.94
'99 6.92
'00 4.40
'01 0.52
The fund's year-to-date return for the three months ended March 31, 2002
was 2.95%.
The fund's highest/lowest quarterly results during this time period were:
Highest 11.50% (quarter ended December 31, 1998)
Lowest -9.20% (quarter ended September 30, 1998)
For periods ended December 31, 2001:
[Download Table]
Average Salomon
Annual Smith
Total S&P 500 Barney
Return Fund Index/1/ Index/2/ CPI/3/
--------------------------------------------------------------------------------
One Year 0.52% -11.83% 8.52% 1.55%
................................................................................
Five Years 8.77% 10.69% 7.44% 2.18%
................................................................................
Ten Years 10.40% 12.91% 7.28% 2.51%
................................................................................
Lifetime/4/ 10.11% 12.76% 8.07% 2.87%
/1/ The Standard & Poor's 500 Composite Index is a market capitalization-
weighted measurement of changes in stock market conditions based on the
average weighted performance of 500 widely held common stocks. This index
is unmanaged and does not reflect sales charges, commissions or expenses.
/2/ The Salomon Smith Barney Broad Investment-Grade (BIG) Bond Index represents
a market capitalization-weighted index that includes Treasury, government-
sponsored, mortgage, and investment grade fixed-rate corporate bonds (BBB-
/Baa3) with a maturity of one year or longer. This index is unmanaged and
does not reflect sales charges, commissions or expenses. This index is in-
cluded as a comparison because the fund generally invests at least 20% of
its assets in bonds, including intermediate and long-term debt securities.
It may increase its exposure to debt securities to as much as 50% of assets.
/3/ The Consumer Price Index is a measure of inflation and is computed from data
supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/4/ Lifetime results are as of August 1, 1989, the date the fund began invest-
ment operations.
American Funds Insurance Series / Prospectus 17
--------------------------------------------------------------------------------
Bond Fund
RISK/RETURN SUMMARY
The fund seeks to maximize your level of current income and preserve your capi-
tal. Normally, the fund invests at least 80% of its assets in bonds. The fund
may invest up to 35% of its assets in bonds rated Ba and BB or below by Moody's
Investors Service, Inc. or Standard & Poor's Corporation or unrated but deter-
mined to be of equivalent quality. The fund may invest in bonds of issuers dom-
iciled outside the U.S. The fund may also invest up to 20% of its assets in
preferred stocks, including convertible and non-convertible preferred stocks.
The fund is designed for investors seeking income and more price stability than
stocks, and capital preservation over the long term.
The values of and the income generated by most debt securities held by the fund
may be affected by changing interest rates and by changes in effective maturi-
ties and credit ratings of these securities. For example, the values of debt
securities in the fund's portfolio generally will decline when interest rates
rise and increase when interest rates fall. In addition, falling interest rates
may cause an issuer to redeem or "call" a security before its stated maturity,
which may result in the fund having to reinvest the proceeds in lower yielding
securities. Debt securities are also subject to credit risk, which is the pos-
sibility that the credit strength of an issuer will weaken and/or an issuer of
a debt security will fail to make timely payments of principal or interest and
the security will go into default. Lower quality or longer maturity securities
generally have higher rates of interest and may be subject to greater price
fluctuations than higher quality or shorter maturity securities. The fund's in-
vestment adviser attempts to reduce these risks through diversification of the
portfolio and with ongoing credit analysis of each issuer, as well as by moni-
t oring economic and legislative developments.
Investments in securities issued by entities based outside the U.S. may be sub-
ject to the risks described above to a greater extent and may also be affected
by differing securities regulations, higher transaction costs, and administra-
tive difficulties such as delays in clearing and settling portfolio transac-
tions. In addition, although all securities in the fund's portfolio may be ad-
versely affected by currency fluctuations or global political, social or eco-
nomic instability, investments outside the U.S. may be affected to a greater
extent.
The prices and yields of non-convertible preferred stocks generally move with
changes in interest rates and the issuer's credit quality, similar to debt se-
curities. The value of convertible preferred stocks varies in response to many
factors, including the value of the underlying equity, general market and eco-
nomic conditions, and convertible market valuations, as well as changes in in-
terest rates, credit spreads, and the credit quality of the issuer.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
18 American Funds Insurance Series / Prospectus
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'96 5.57
'97 9.88
'98 4.11
'99 2.55
'00 4.99
'01 8.15
The fund's year-to-date return for the three months ended March 31, 2002
was 0.10%.
The fund's highest/lowest quarterly results during this time period were:
Highest 4.47% (quarter ended June 30, 1997)
Lowest -2.16% (quarter ended March 31, 1996)
For periods ended December 31, 2001:
[Download Table]
Average Salomon
Annual Smith
Total Barney BIG
Return Fund Index/1/ CPI/2/
--------------------------------------------------------------------------------
One year 8.15% 8.52% 1.55%
................................................................................
Five years 5.90% 7.44% 2.18%
................................................................................
Lifetime/3/ 5.85% 6.80% 2.38%
/1/ The Salomon Smith Barney Broad Investment-Grade (BIG) Bond Index represents
a market capitalization-weighted index that includes Treasury, government-
sponsored, mortgage, and investment grade fixed-rate corporate bonds (BBB-
/Baa3) with a maturity of one year or longer. This index is unmanaged and
does not reflect sales charges, commissions or expenses.
/2/ The Consumer Price Index is a measure of inflation and is computed from data
supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/3/ Lifetime results are as of January 2, 1996, the date the fund began invest-
ment operations.
American Funds Insurance Series / Prospectus 19
--------------------------------------------------------------------------------
High-Income Bond Fund*
RISK/RETURN SUMMARY
The fund seeks to provide you with a high level of current income and second-
arily capital appreciation by investing primarily in lower quality debt securi-
ties (rated Ba and BB or below by Moody's Investors Service, Inc. or Standard &
Poor's Corporation or unrated but determined to be of equivalent quality), in-
cluding those of non-U.S. issuers. The fund may also invest in equity securi-
ties and securities that have both equity and debt characteristics that provide
an opportunity for capital appreciation. The fund is designed for investors
seeking a high level of current income and who are able to tolerate greater
credit risk and price fluctuations than funds investing in higher quality
bonds.
The values of and the income generated by most debt securities held by the fund
may be affected by changing interest rates and by changes in effective maturi-
ties and credit ratings of these securities. For example, the values of debt
securities in the fund's portfolio generally will decline when interest rates
rise and increase when interest rates fall. In addition, falling interest rates
may cause an issuer to redeem or "call" a security before its stated maturity,
which may result in the fund having to reinvest the proceeds in lower yielding
securities. Debt securities are also subject to credit risk, which is the pos-
sibility that the credit strength of an issuer will weaken and/or an issuer of
a debt security will fail to make timely payments of principal or interest and
the security will go into default. Lower quality or longer maturity securities
generally have higher rates of interest and may be subject to greater price
fluctuations than higher quality or shorter maturity securities.
The prices of and the income generated by securities held by the fund may de-
cline in response to certain events, including: those directly involving the
companies whose securities are owned in the fund; conditions affecting the gen-
eral economy; overall market changes; global political, social or economic in-
stability; and currency and interest rate fluctuations. Investments in securi-
ties issued by entities based outside the U.S. may be subject to the risks de-
scribed above to a greater extent and may be affected by differing securities
regulations, higher transaction costs, and administrative difficulties such as
delays in clearing and settling portfolio transactions. The fund's investment
adviser attempts to reduce these risks through diversification of the portfolio
and with ongoing credit analysis of each issuer, as well as by monitoring eco-
nomic and legislative developments.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
-----
*Formerly known as High-Yield Bond Fund.
20 American Funds Insurance Series / Prospectus
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'92 12.07
'93 16.04
'94 -6.83
'95 21.42
'96 12.91
'97 12.08
'98 0.27
'99 5.53
'00 -3.31
'01 7.73
The fund's year-to-date return for the three months ended March 31, 2002
was -0.43%.
The fund's highest/lowest quarterly results during this time period were:
Highest 7.49% (quarter ended June 30, 1995)
Lowest -8.42% (quarter ended September 30, 1998)
For periods ended December 31, 2001:
[Download Table]
Average Salomon
Annual Salomon Smith Smith
Total Barney Barney BIG
Return Fund High Yield Index/1/ Index/2/ CPI/3/
--------------------------------------------------------------------------------
One Year 7.73% 19.33% 8.52% 1.55%
................................................................................
Five Years 4.32% 9.62% 7.44% 2.18%
................................................................................
Ten Years 7.45% 11.75% 7.28% 2.51%
................................................................................
Lifetime/4/ 10.24% 11.60% 9.60% 3.12%
/1/ The Salomon Smith Barney Long-Term High-Yield Bond Index represents bonds
that have a remaining maturity of at least ten years, a minimum amount out-
standing of $100 million and a speculative-grade rating by both Moody's In-
vestors Service, Inc. and Standard & Poor's Corporation. This index is
unmanaged and does not reflect sales charges, commissions or expenses.
/2/ The Salomon Smith Barney Broad Investment-Grade Bond (BIG) Index represents
a market capitalization-weighted index that includes Treasury, government-
sponsored, mortgage, and investment grade fixed-rate corporate bonds (BBB-
/Baa3) with a maturity of one year or longer. This index is unmanaged and
does not reflect sales charges, commissions or expenses.
/3/ The Consumer Price Index is a measure of inflation and is computed from data
supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/4/ Lifetime results are as of February 8, 1984, the date the fund began invest-
ment operations.
American Funds Insurance Series / Prospectus 21
--------------------------------------------------------------------------------
U.S. Government/AAA-Rated Securities Fund
RISK/RETURN SUMMARY
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 or sponsored by the U.S. government
and securities that are rated Aaa or AAA by Moodys Investors Service, Inc. or
Standard & Poor's Corporation or unrated but determined to be of equivalent
quality. The fund will invest at least 65% of its assets in securities that are
guaranteed by the "full faith and credit" pledge of the U.S. government. 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.
The values of most debt securities held by the fund may be affected by changing
interest rates and prepayment risks. For example, as with other debt securi-
ties, the value of U.S. government securities generally will decline when in-
terest rates rise and increase when interest rates fall. In addition, falling
interest rates may cause an issuer to redeem or "call" a security before its
stated maturity, which may result in the fund having to reinvest the proceeds
in lower yielding securities. Longer maturity securities generally have higher
rates of interest but may be subject to greater price fluctuations than higher
quality or shorter maturity securities.
A security backed by the U.S. Treasury or the full faith and credit of the
United States is guaranteed only as to the timely payment of interest and
principal when held to maturity. Accordingly, the current market prices for
such securities will fluctuate with changes in interest rates. Many types of
debt securities, including mortgage-related securities, are subject to
prepayment risk. For example, when interest rates fall, homeowners are more
likely to refinance their home mortgages and "prepay" their principal earlier
than expected. The fund must then reinvest the prepaid principal in new
securities when interest rates on new mortgage investments are falling, thus
reducing the fund's income.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person.
22 American Funds Insurance Series / Prospectus
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'92 7.25
'93 10.83
'94 -4.62
'95 15.06
'96 2.84
'97 8.21
'98 7.93
'99 -0.78
'00 11.39
'01 7.02
The fund's year-to-date return for the three months ended March 31, 2002
was 0.17%.
The fund's highest/lowest quarterly results during this time period were:
Highest 5.51% (quarter ended September 30, 1992)
Lowest -3.83% (quarter ended March 31, 1994)
For periods ended December 31, 2001:
[Download Table]
Salomon
Treasury/
Average Government-
Annual Sponsored
Total Mortgage
Return Fund Index/1/ CPI/2/
--------------------------------------------------------------------------------
One Year 7.02% 7.69% 1.55%
................................................................................
Five Years 6.67% 7.45% 2.18%
................................................................................
Ten Years 6.36% 7.17% 2.51%
................................................................................
Lifetime/3/ 7.51% 8.64% 3.05%
/1/ The Salomon Smith Barney Treasury/Government-Sponsored Mortgage Index repre-
sents fixed-rate Treasury, government-sponsored, and mortgage issues with a
maturity of one year or longer. This index is unmanaged and does not reflect
sales charges, commissions or expenses.
/2/ The Consumer Price Index is a measure of inflation and is computed from data
supplied by the U.S. Department of Labor, Bureau of Labor Statistics.
/3/ Lifetime results are as of December 2, 1985, the date the fund began invest-
ment operations.
American Funds Insurance Series / Prospectus 23
--------------------------------------------------------------------------------
Cash Management Fund
RISK/RETURN SUMMARY
The fund seeks to provide you an opportunity to earn income on your cash re-
serves while preserving the value of your investment and maintaining liquidity
by investing in a diversified selection of high quality money market instru-
ments. The prices of money market instruments may be affected by unfavorable
political, economic, or governmental developments that could affect the repay-
ment of principal or the payment of interest.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit Insur-
ance Corporation or any other government agency, entity or person. It is not
guaranteed to maintain a stable value of $1 per share.
24 American Funds Insurance Series / Prospectus
Investment Results
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year and how the fund's average annual returns for various periods com-
pare with those of a broad measure of market performance. Past results are not
an indication of future results.
[GRAPH APPEARS HERE]
Here are the fund's results calculated on a calendar year basis. (If insurance
separate account fees were included, results would have been lower.)
'92 2.93
'93 2.39
'94 3.59
'95 5.27
'96 4.81
'97 4.92
'98 4.90
'99 4.47
'00 5.83
'01 3.43
The fund's year-to-date return for the three months ended March 31, 2002
was 0.26%.
The fund's highest/lowest quarterly results during this time period were:
Highest 1.51% (quarter ended September 30, 2000)
Lowest 0.44% (quarter ended December 31, 2001)
For periods ended December 31, 2001:
[Download Table]
Average
Annual
Total
Return Fund
--------------------------------------------------------------------------------
One Year 3.43%
................................................................................
Five Years 4.71%
................................................................................
Ten Years 4.25%
................................................................................
Lifetime/1/ 5.39%
/1/ Lifetime results are as of February 8, 1984, the date the fund began invest-
ment operations.
American Funds Insurance Series / Prospectus 25
Cash Position
The funds may also hold cash or money market instruments. The sizes of the
funds' cash position will vary and will depend on various factors, including
market conditions and purchases and redemptions of fund shares. A larger cash
position could detract from the achievement of a fund's objective in a period
of rising market prices; conversely, it would reduce a fund's magnitude of loss
in the event of a general market downturn and provide liquidity to make addi-
tional investments or to meet redemptions.
Portfolio Turnover
Portfolio changes will be made without regard to the length of time particular
investments may have been held. The funds do not anticipate their portfolio
turnover to exceed 100% annually. A fund's portfolio turnover rate would equal
100% if each security in the fund's portfolio was replaced once per year. High
portfolio turnover involves correspondingly greater transaction costs in the
form of dealer spreads or brokerage commissions, and may result in the realiza-
tion of net capital gains, which are taxable when distributed to shareholders.
Debt securities are generally traded on a net basis and usually neither broker-
age commissions nor transfer taxes are involved, although the dealer may re-
ceive a markup. See the "Financial Highlights" for the funds' portfolio turn-
over for each of the last five years.
MANAGEMENT AND ORGANIZATION
Investment Adviser
Capital Research and Management Company, an experienced investment management
organization founded in 1931, serves as investment adviser to the Series and
other mutual funds, including those in The American Funds Group. Capital Re-
search Management Company, a wholly owned subsidiary of The Capital Group Com-
panies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071.
Capital Research Management Company manages the investment portfolios and busi-
ness affairs of the Series.
The total management fee paid by each fund, as a percentage of average net
assets, for the fiscal year ended December 31, 2001 amounted to the following:
Global Discovery Fund* -- .28%; Global Growth Fund -- .66%; Global
Small Capitalization Fund -- .80%; Growth Fund -- .37%; International Fund --
.55%; New World Fund -- .85%; Blue Chip Income and Growth Fund* -- .25%;
Growth-Income Fund -- .33%; Asset Allocation Fund -- .43%; Bond Fund --.48%;
High-Income Bond Fund -- .50%; U.S. Government/AAA-Rated Securities Fund --
.46%; and Cash Management Fund -- .45%.
*The management fees for these funds are for the period July 5, 2001 through
December 31, 2001 and not representative of a full year of operations.
Portfolio Management
The Series relies on the professional judgment of its investment adviser, Capi-
tal Research and Management Company, to make decisions about the funds' portfo-
lio investments. The basic investment philosophy of the investment adviser is
to seek reasonably priced securities that represent above average long-term in-
vestment opportunities. This is accomplished not only through fundamental anal-
ysis, but also by meeting with company executives and employees, suppliers,
customers and competitors in order to gain in-depth knowledge of a company's
true value. Securities may be sold when the investment adviser believes they no
longer represent good long-term value.
Multiple Portfolio Counselor System
Capital Research and Management Company uses a system of multiple portfolio
counselors in managing mutual fund assets. Under this system, the portfolio of
a fund is divided into segments which are managed by individual counselors.
Counselors decide how their respective segments will be invested, within the
limits provided by a fund's objective(s) and policies and by Capital Research
and Management Company's investment committee. In addition, Capital Research
and Management Company's research professionals may make investment decisions
with respect to a portion of a fund's portfolio. The primary portfolio counsel-
ors for each of the funds are listed on the next two pages.
26 American Funds Insurance Series / Prospectus
[Enlarge/Download Table]
Approximate Years
of Experience as
an Investment
Professional
.................
Years of Experience With Capital
as Portfolio Counselor Research and
Portfolio Counselors Primary Title with (and Research Professional, Management
for the Series/Title Investment Adviser if applicable) Company or Total
(if applicable) (or affiliate) (approximate) Affiliates Years
----------------------------------------------------------------------------------------------------
James K. Dunton Senior Vice President and Growth-Income Fund -- 18 40 40
Chairman of the Board Director, Capital Research years (since the fund began
and Principal and Management Company operations)
Executive Officer Blue Chip Income and Growth
Fund -- 1 year (since the
fund began operations)
----------------------------------------------------------------------------------------------------
Donald D. O'Neal Senior Vice President, Global Growth Fund -- 5 17 17
President and Trustee Capital Research and years (since the fund began
Management Company operations) Growth Fund --
11 years (plus 4 years
prior experience as a
research professional for
the fund)
----------------------------------------------------------------------------------------------------
Abner D. Goldstine Senior Vice President and Bond Fund -- 6 years (since 35 50
Senior Vice President Director, Capital Research the fund began operations)
and Management Company High-Income Bond Fund -- 4
years
----------------------------------------------------------------------------------------------------
Alan N. Berro Senior Vice President, Growth-Income Fund -- 6 11 16
Vice President Capital Research Company years (plus 4 years prior
experience as a research
professional for the fund)
Asset Allocation Fund -- 2
years
Blue Chip Income and Growth
Fund -- 1 year (since the fund
began operations)
----------------------------------------------------------------------------------------------------
Claudia P. Huntington Senior Vice President, Growth-Income Fund -- 8 27 29
Vice President Capital Research and years (plus 5 years prior
Management Company experience as a research
professional for the fund)
Global Discovery Fund -- 1
year (since the fund began
operations)
----------------------------------------------------------------------------------------------------
Robert W. Lovelace President and Director, Global Growth Fund -- 5 17 17
Vice President Capital Research Company years (since the fund began
operations)
International Fund -- 8
years
New World Fund -- 3 years
(since the fund began
operations)
----------------------------------------------------------------------------------------------------
John H. Smet Senior Vice President, Bond Fund -- 6 years (since 19 20
Vice President Capital Research and the fund began operations)
Management Company U.S. Government Fund -- 10
years
----------------------------------------------------------------------------------------------------
Susan M. Tolson Senior Vice President, High-Income Bond Fund -- 7 12 14
Vice President Capital Research Company years (plus 2 years prior
experience as a research
professional for the fund)
Asset Allocation Fund -- 2
years
----------------------------------------------------------------------------------------------------
Timothy D. Armour Chairman and Principal Asset Allocation Fund -- 6 19 19
Executive Officer, Capital years
Research Company Global Discovery Fund --
1 year (since the fund
began operations)
----------------------------------------------------------------------------------------------------
David C. Barclay Senior Vice President and High-Income Bond Fund -- 9 14 21
Director, Capital Research years
and Management Company New World Fund -- 3 years
(since the fund began
operations)
Bond Fund -- 4 years
----------------------------------------------------------------------------------------------------
Martial Chaillet Senior Vice President, Global Growth Fund -- 5 30 30
Capital Research Company years (since the fund began
operations)
International Fund -- 9
years
----------------------------------------------------------------------------------------------------
Gordon Crawford Senior Vice President and Global Small Capitalization 31 31
Director, Capital Research Fund -- 4 years (since the
and Management Company fund began operations)
Growth Fund -- 8 years
(plus 5 years prior
experience as a research
professional for the fund)
----------------------------------------------------------------------------------------------------
Mark E. Denning Director, Capital Research Global Small Capitalization 20 20
and Management Company Fund -- 4 years (since the
fund began operations)
----------------------------------------------------------------------------------------------------
James E. Drasdo Senior Vice President, Growth Fund -- 15 years 25 30
Capital Research and
Management Company
----------------------------------------------------------------------------------------------------
J. Blair Frank Vice President, Capital Growth Fund -- 2 years 8 9
Research Company (plus 3 years prior
experience as a research
professional for the fund)
----------------------------------------------------------------------------------------------------
Alwyn Heong Senior Vice President, International Fund -- 6 10 14
Capital Research Company years
Global Discovery Fund -- 1
year (since the fund began
operations)
----------------------------------------------------------------------------------------------------
Thomas H. Hogh Vice President, Capital U.S. Government Fund -- 5 12 15
International Research, years
Inc.
----------------------------------------------------------------------------------------------------
American Funds Insurance Series / Prospectus 27
[Enlarge/Download Table]
Approximate Years
of Experience as
an Investment
Professional
.................
Years of Experience With Capital
Portfolio as Portfolio Counselor Research and
Counselors for the Primary Title with (and Research Professional, Management
Series/Title Investment Adviser if applicable) Company or Total
(if applicable) (or affiliate) (approximate) Affiliates Years
--------------------------------------------------------------------------------------------------
Carl M. Kawaja Senior Vice President and New World Fund -- 3 years 11 14
Director, Capital Research (since the fund began
Company operations)
--------------------------------------------------------------------------------------------------
Darcy B. Kopcho Director, Capital Research International Fund -- less 16 16
and Management Company than one year
(plus 5 years prior
experience as a research
professional for the fund)
--------------------------------------------------------------------------------------------------
Mark R. Macdonald Vice President -- Asset Allocation Fund -- 2 8 17
Investment Management years
Group, Capital Research and
Management Company
--------------------------------------------------------------------------------------------------
Robert G. O'Donnell Senior Vice President and Growth-Income Fund -- 12 27 30
Director, Capital Research years (plus 1 year prior
and Management Company experience as a research
professional for the fund)
--------------------------------------------------------------------------------------------------
John W. Ressner Executive Vice President U.S. Government Fund -- 5 14 14
and Research Director, years
Capital Research Company
--------------------------------------------------------------------------------------------------
C. Ross Sappenfield Vice President and Growth-Income Fund -- 3 10 10
Director, Capital Research years
Company Blue Chip Income and Growth
Fund -- 1 year (since the
fund began operations)
--------------------------------------------------------------------------------------------------
Gregory W. Wendt Senior Vice President, Global Small Capitalization 15 15
Capital Research Company Fund -- 4 years (since the
fund began operations)
--------------------------------------------------------------------------------------------------
PURCHASES AND REDEMPTIONS OF SHARES
Shares of the Series are currently offered only to insurance company separate
accounts which fund the Contracts. All such shares may be purchased or redeemed
by the separate accounts at net asset values, without any sales or redemption
charges. Such purchases and redemptions are made, without delay, after corre-
sponding purchases and redemptions of units of the separate accounts.
Valuing Shares
Each fund calculates its share price, also called net asset value, as of ap-
proximately 4:00 p.m. New York time, which is the normal close of regular trad-
ing on the New York Stock Exchange, every day the Exchange is open. Assets are
valued primarily on the basis of market quotations. However, the funds have
adopted procedures for making "fair value" determinations if market quotations
are not readily available. For example, if events occur that materially affect
the value of the International Fund's securities that principally trade in mar-
kets outside the U.S. between the close of those markets and the close of regu-
lar trading on the New York Stock Exchange, the securities will be valued at
fair value. Shares of the funds will be purchased or sold at the net asset val-
ue, next determined after receipt of requests from the appropriate insurance
company. Certain of the funds invest in securities listed on foreign exchanges
which trade on Saturdays or other U.S. business holidays. Since the funds typi-
cally do not calculate their net asset values on Saturdays or other U.S. busi-
ness holidays, the value of the funds' redeemable securities may be affected on
days when shareholders do not have access to the funds.
PLAN OF DISTRIBUTION
Class 2 shares pay .25% of average net assets annually pursuant to a Plan of
Distribution or "12b-1 plan." Class 2 shares are available through various
variable annuity and life insurance contracts. Amounts paid under the 12b-1
plan are used by insurance company contract issuers to cover the expense of
certain contract owner services. Class 2 shares pay only their proportionate
share of Series expenses plus 12b-1 plan expenses. Since these fees are paid
out of a fund's assets on an ongoing basis, over time they will increase the
cost of an investment.
28 American Funds Insurance Series / Prospectus
DISTRIBUTION ARRANGEMENTS
Dividends and Distributions
It is the Series' policy to distribute to the shareholders (the insurance com-
pany separate accounts) all of its net investment income and capital gains re-
alized during each fiscal year.
Each fund of the Series intends to qualify as a "regulated investment company"
under the Internal Revenue Code. In any fiscal year in which a fund so quali-
fies and distributes to shareholders its net investment income and realized
capital gains, the fund itself is relieved of federal income tax.
See the applicable Contract prospectus for information regarding the federal
income tax treatment of the Contracts and distributions to the separate ac-
counts.
American Funds Insurance Series / Prospectus 29
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the funds'
results for the past five years. The total returns in the table represent the
rate that an investor would have earned or lost on an investment in a fund (as-
suming reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP, whose report, along with the funds'
financial statements, are included in the statement of additional information,
which is available upon request.
[Enlarge/Download Table]
Net gains
Net asset Net (losses) on Dividends Net asset Net assets,
value, investment securities (both Total from (from net Distributions value, end of
Period beginning income realized and investment investment (from capital Total end of Total period (in
ended/1/ of period (loss) unrealized) operations income) gains) distributions period return millions)
Ratio of Ratio of
expenses net income Portfolio
Period to average to average turnover
ended/1/ net assets net assets rate/2/
Global Discovery Fund/3/
----------------------------------------------------------------------------------------------------------------------------------
Class 1
12/31/2001 $10.00 $.04/4/ $ (.70)/4/ $ (.66) $(.04) -- $ (.04) $ 9.30 (6.65)% $ 12
Global Discovery Fund/3/
----------------------------------------------------------------------------------------------------------------------------------
Class 1
12/31/2001 .31% .42% 4%
................................................................................
Class 2
12/31/2001 10.00 .02/4/ (.69)/4/ (.67) (.03) -- (.03) 9.30 (6.71) 4
Class 2
12/31/2001 .42 .21 4
Global Growth Fund/5/
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $10.00 $.06 $ .59 $ .65 $(.03) -- $ (.03) $10.62 6.45% $ 80
11/30/1998 10.62 .13 2.43 2.56 (.14) $ (.02) (.16) 13.02 24.26 132
11/30/1999 13.02 .14 6.39 6.53 (.12) (.44) (.56) 18.99 51.90 272
12/31/1999 18.99 .01 3.43 3.44 (.11) (.90) (1.01) 21.42 18.53 327
12/31/2000 21.42 .20/4/ (4.15)/4/ (3.95) (.02) (.20) (.22) 17.25 (18.71) 317
12/31/2001 17.25 .18/4/ (2.50)/4/ (2.32) (.15) (1.36) (1.51) 13.42 (13.99) 215
Global Growth Fund/5/
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 .44% .80% 13%
11/30/1998 .75 1.14 26
11/30/1999 .72 1.01 26
12/31/1999 .06 .06 3
12/31/2000 .70 .97 41
12/31/2001 .70 1.24 38
................................................................................
Class 2
11/30/1997 10.00 .03 .60 .63 (.02) -- (.02) 10.61 6.28 46
11/30/1998 10.61 .10 2.44 2.54 (.11) (.02) (.13) 13.02 24.06 124
11/30/1999 13.02 .11 6.37 6.48 (.08) (.44) (.52) 18.98 51.45 316
12/31/1999 18.98 .01 3.42 3.43 (.10) (.90) (1.00) 21.41 18.47 399
12/31/2000 21.41 .15/4/ (4.13)/4/ (3.98) (.02) (.20) (.22) 17.21 (18.87) 562
12/31/2001 17.21 .13/4/ (2.49)/4/ (2.36) (.11) (1.36) (1.47) 13.38 (14.22) 600
Class 2
11/30/1997 .57 .56 13
11/30/1998 1.00 .87 26
11/30/1999 .96 .77 26
12/31/1999 .08 .04 3
12/31/2000 .95 .73 41
12/31/2001 .95 .88 38
Global Small Capitalization Fund/6/
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1998 $10.00 $.07 $ (.92) $ (.85) $(.04) -- $ (.04) $ 9.11 (8.31)% $ 55
11/30/1999 9.11 .06 8.20 8.26 (.08) $ (.13) (.21) 17.16 92.15 150
12/31/1999 17.16 -- 1.92 1.92 (.01) (1.70) (1.71) 17.37 11.70 178
12/31/2000 17.37 .09/4/ (2.81)/4/ (2.72) (.05) (.32) (.37) 14.28 (16.33) 213
12/31/2001 14.28 .03/4/ (1.81)/4/ (1.78) (.13) (.85) (.98) 11.52 (12.63) 149
Global Small Capitalization Fund/6/
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1998 .51% .86% 28%
11/30/1999 .82 .53 81
12/31/1999 .07 -- 7
12/31/2000 .86 .52 62
12/31/2001 .83 .21 65
................................................................................
Class 2
11/30/1998 10.00 .04 (.91) (.87) (.03) -- (.03) 9.10 (8.49) 17
11/30/1999 9.10 .04 8.19 8.23 (.06) (.13) (.19) 17.14 91.86 88
12/31/1999 17.14 -- 1.92 1.92 -- (1.70) (1.70) 17.36 11.69 111
12/31/2000 17.36 .04/4/ (2.80)/4/ (2.76) (.04) (.32) (.36) 14.24 (16.53) 234
12/31/2001 14.24 -- (1.80)/4/ (1.80) (.11) (.85) (.96) 11.48 (12.85) 274
Class 2
11/30/1998 .64 .63 28
11/30/1999 1.06 .25 81
12/31/1999 .09 (.02) 7
12/31/2000 1.11 .25 62
12/31/2001 1.08 (.05) 65
Growth Fund
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $43.53 $.27 $ 9.61 $ 9.88 $(.27) $ (3.02) $ (3.29) $50.12 24.58% $4,671
11/30/1998 50.12 .19 10.91 11.10 (.17) (6.14) (6.31) 54.91 25.27 5,313
11/30/1999 54.91 .11 25.35 25.46 (.14) (8.11) (8.25) 72.12 52.56 7,270
12/31/1999 72.12 .01 9.64 9.65 (.05) (11.10) (11.15) 70.62 14.45 8,224
12/31/2000 70.62 .41/4/ 2.97/4/ 3.38 -- (.49) (.49) 73.51 4.72 7,677
12/31/2001 73.51 .18/4/ (11.99)/4/ (11.81) (.41) (16.99) (17.40) 44.30 (17.93) 5,207
Growth Fund
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 .42% .59% 45%
11/30/1998 .41 .38 50
11/30/1999 .39 .19 37
12/31/1999 .03 .01 3
12/31/2000 .38 .53 48
12/31/2001 .38 .34 31
................................................................................
Class 2
11/30/1997 40.59 .11 9.51 9.62 (.12) -- (.12) 50.09 23.73 75
11/30/1998 50.09 .08 10.90 10.98 (.05) (6.14) (6.19) 54.88 24.97 310
11/30/1999 54.88 (.02) 25.33 25.31 (.04) (8.11) (8.15) 72.04 52.22 937
12/31/1999 72.04 -- 9.63 9.63 -- (11.10) (11.10) 70.57 14.44 1,149
12/31/2000 70.57 .25/4/ 2.95/4/ 3.20 -- (.49) (.49) 73.28 4.47 2,356
12/31/2001 73.28 .04/4/ (11.94)/4/ (11.90) (.30) (16.99) (17.29) 44.09 (18.15) 2,937
Class 2
11/30/1997 .37 .08 45
11/30/1998 .66 .15 50
11/30/1999 .64 (.06) 37
12/31/1999 .05 (.01) 3
12/31/2000 .63 .33 48
12/31/2001 .63 .07 31
30 American Funds Insurance Series / Prospectus
[Enlarge/Download Table]
Net gains
Net asset Net (losses) on Dividends Net asset
value, investment securities (both Total from (from net Distributions value,
Period beginning income realized and investment investment (from capital Total end of Total
ended/1/ of period (loss) unrealized) operations income) gains) distributions period return
Net assets, Ratio of Ratio of
end of expenses net income Portfolio
Period period (in to average to average turnover
ended/1/ millions) net assets net assets rate/2/
International Fund
----------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $15.53 $.25 $1.18 $1.43 $(.27) $ (.62) $ (.89) $16.07 9.52%
11/30/1998 16.07 .22 2.21 2.43 (.28) (1.65) (1.93) 16.57 16.93
11/30/1999 16.57 .25 8.87 9.12 (.30) (.31) (.61) 25.08 56.48
12/31/1999 25.08 .01 4.34 4.35 (.10) (2.59) (2.69) 26.74 18.18
12/31/2000 26.74 .18/4/ (5.90)/4/ (5.72) (.01) (.42) (.43) 20.59 (21.85)
12/31/2001 20.59 .22/4/ (3.79)/4/ (3.57) (.20) (4.80) (5.00) 12.02 (19.73)
International Fund
----------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $2,612 .67% 1.56% 50%
11/30/1998 2,593 .66 1.36 34
11/30/1999 3,526 .61 1.18 42
12/31/1999 4,113 .05 .03 1
12/31/2000 2,750 .59 .72 42
12/31/2001 1,772 .61 1.41 40
................................................................................
Class 2
11/30/1997 15.86 .13 .23 .36 (.16) -- (.16) 16.06 2.20
11/30/1998 16.06 .20 2.19 2.39 (.24) (1.65) (1.89) 16.56 16.63
11/30/1999 16.56 .10 8.98 9.08 (.26) (.31) (.57) 25.07 56.16
12/31/1999 25.07 .01 4.33 4.34 (.09) (2.59) (2.68) 26.73 18.16
12/31/2000 26.73 .13/4/ (5.89)/4/ (5.76) (.01) (.42) (.43) 20.54 (22.06)
12/31/2001 20.54 .15/4/ (3.76)/4/ (3.61) (.16) (4.80) (4.96) 11.97 (19.89)
Class 2
11/30/1997 48 .53 .34 50
11/30/1998 126 .91 1.03 34
11/30/1999 311 .85 .84 42
12/31/1999 391 .07 .01 1
12/31/2000 581 .84 .50 42
12/31/2001 628 .86 1.04 40
New World Fund/7/
----------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1999 $10.00 $.07 $ .51 $ .58 $(.02) -- $ (.02) $10.56 5.87%
12/31/1999 10.56 .01 1.25 1.26 (.04) $ (.01) (.05) 11.77 11.88
12/31/2000 11.77 .24/4/ (1.70)/4/ (1.46) (.20) (.26) (.46) 9.85 (12.43)
12/31/2001 9.85 .24/4/ (.63)/4/ (.39) (.02) -- (.02) 9.44 (3.99)
New World Fund/7/
----------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1999 $37 .43% 1.02% 1%
12/31/1999 45 .08 .18 3
12/31/2000 45 .92 2.14 43
12/31/2001 37 .91 2.54 31
................................................................................
Class 2
11/30/1999 10.00 .06 .51 .57 (.02) -- (.02) 10.55 5.71
12/31/1999 10.55 .02 1.25 1.27 (.04) (.01) (.05) 11.77 11.87
12/31/2000 11.77 .20/4/ (1.69)/4/ (1.49) (.18) (.26) (.44) 9.84 (12.70)
12/31/2001 9.84 .21/4/ (.62)/4/ (.41) (.02) -- (.02) 9.41 (4.19)
Class 2
11/30/1999 28 .57 .95 1
12/31/1999 38 .10 .16 3
12/31/2000 102 1.17 1.83 43
12/31/2001 116 1.16 2.25 31
Blue Chip Income and Growth Fund/3/
----------------------------------------------------------------------------------------------------------------------
Class 1
12/31/2001 $10.00 $.09/4/ $(.61)/4/ $(.52) $(.05) -- $(.05) $9.43 (5.23)%
Blue Chip Income and Growth Fund/3/
----------------------------------------------------------------------------------------------------------------------
Class 1
12/31/2001 $49 .25% .93% 12%
................................................................................
Class 2
12/31/2001 10.00 .08/4/ (.63)/4/ (.55) (.04) -- (.04) 9.41 (5.38)
Class 2
12/31/2001 111 .37 .82 12
Growth-Income Fund
----------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $35.73 $.73 $6.78 $7.51 $(.72) $(2.55) $(3.27) $39.97 22.93%
11/30/1998 39.97 .67 4.60 5.27 (.68) (3.83) (4.51) 40.73 14.77
11/30/1999 40.73 .69 3.94 4.63 (.66) (6.00) (6.66) 38.70 12.86
12/31/1999 38.70 .06 .88 .94 (.18) (6.38) (6.56) 33.08 3.21
12/31/2000 33.08 .72/4/ 1.98/4/ 2.70 (.06) (.49) (.55) 35.23 8.24
12/31/2001 35.23 .51/4/ .49/4/ 1.00 (.73) (3.80) (4.53) 31.70 2.78
Growth-Income Fund
----------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $6,430 .38% 2.01% 38%
11/30/1998 6,704 .36 1.74 43
11/30/1999 6,537 .35 1.75 41
12/31/1999 6,632 .03 .18 3
12/31/2000 6,022 .35 2.16 47
12/31/2001 5,428 .35 1.53 34
................................................................................
Class 2
11/30/1997 34.10 .37 5.82 6.19 (.35) -- (.35) 39.94 18.18
11/30/1998 39.94 .58 4.60 5.18 (.59) (3.83) (4.42) 40.70 14.49
11/30/1999 40.70 .59 3.94 4.53 (.56) (6.00) (6.56) 38.67 12.59
12/31/1999 38.67 .07 .87 .94 (.16) (6.38) (6.54) 33.07 3.19
12/31/2000 33.07 .65/4/ 1.96/4/ 2.61 (.06) (.49) (.55) 35.13 7.95
12/31/2001 35.13 .41/4/ .52/4/ .93 (.68) (3.80) (4.48) 31.58 2.56
Class 2
11/30/1997 157 .35 .93 38
11/30/1998 564 .61 1.02 43
11/30/1999 1,109 .60 1.50 41
12/31/1999 1,203 .05 .16 3
12/31/2000 1,972 .60 1.92 47
12/31/2001 3,187 .60 1.25 34
Asset Allocation Fund
----------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $15.18 $.55 $1.94 $2.49 $(.54) $ (.97) $(1.51) $16.16 17.90%
11/30/1998 16.16 .58 1.27 1.85 (.57) (.87) (1.44) 16.57 12.32
11/30/1999 16.57 .58 .60 1.18 (.57) (1.15) (1.72) 16.03 7.65
12/31/1999 16.03 .05 .15 .20 (.14) (1.02) (1.16) 15.07 1.45
12/31/2000 15.07 .56/4/ .13/4/ .69 (.05) -- (.05) 15.71 4.62
12/31/2001 15.71 .49/4/ (.37)/4/ .12 (.59) (.94) (1.53) 14.30 .77
Asset Allocation Fund
----------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $1,393 .47% 3.63% 34%
11/30/1998 1,497 .45 3.63 28
11/30/1999 1,394 .44 3.50 36
12/31/1999 1,387 .04 .31 1
12/31/2000 1,136 .45 3.77 32
12/31/2001 1,012 .45 3.30 32
................................................................................
Class 2
11/30/1997 14.43 .29 1.69 1.98 (.26) -- (.26) 16.15 13.80
11/30/1998 16.15 .53 1.28 1.81 (.53) (.87) (1.40) 16.56 12.05
11/30/1999 16.56 .53 .61 1.14 (.53) (1.15) (1.68) 16.02 7.39
12/31/1999 16.02 .05 .14 .19 (.13) (1.02) (1.15) 15.06 1.42
12/31/2000 15.06 .53/4/ .13/4/ .66 (.05) -- (.05) 15.67 4.40
12/31/2001 15.67 .45/4/ (.36)/4/ .09 (.57) (.94) (1.51) 14.25 .52
Class 2
11/30/1997 42 .40 1.81 34
11/30/1998 173 .70 3.39 28
11/30/1999 321 .69 3.24 36
12/31/1999 341 .06 .29 1
12/31/2000 453 .70 3.53 32
12/31/2001 730 .70 3.03 32
American Funds Insurance Series / Prospectus 31
[Enlarge/Download Table]
Net gains
Net asset Net (losses) on Dividends Net asset Net assets,
value, investment securities (both Total from (from net Distributions value, end of
Period beginning income realized and investment investment (from capital Total end of Total period (in
ended/1/ of period (loss) unrealized) operations income) gains) distributions period return millions)
Ratio of Ratio of
expenses net income Portfolio
Period to average to average turnover
ended/1/ net assets net assets rate/2/
Bond Fund
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $10.31 $ .63 $ .30 $ .93 $ (.62) -- $ (.62) $10.62 9.36% $132
11/30/1998 10.62 .67 (.15) .52 (.65) $(.12) (.77) 10.37 5.12 186
11/30/1999 10.37 .73 (.50) .23 (.69) (.05) (.74) 9.86 2.33 173
12/31/1999 9.86 .07 (.01) .06 (.18) -- (.18) 9.74 .61 169
12/31/2000 9.74 .80/4/ (.29)/4/ .51 (.07) -- (.07) 10.18 5.22 151
12/31/2001 10.18 .77/4/ .08/4/ .85 (.59) -- (.59) 10.44 8.48 194
Bond Fund
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 .55% 6.63% 53%
11/30/1998 .54 6.89 62
11/30/1999 .53 7.17 38
12/31/1999 .05 .65 5
12/31/2000 .51 8.03 55
12/31/2001 .49 7.38 59
................................................................................
Class 2
11/30/1997 10.11 .35 .46 .81 (.31) -- (.31) 10.61 8.09 12
11/30/1998 10.61 .65 (.15) .50 (.63) (.12) (.75) 10.36 4.85 45
11/30/1999 10.36 .67 (.47) .20 (.66) (.05) (.71) 9.85 2.07 80
12/31/1999 9.85 .06 -- .06 (.17) -- (.17) 9.74 .59 85
12/31/2000 9.74 .78/4/ (.30)/4/ .48 (.06) -- (.06) 10.16 4.99 144
12/31/2001 10.16 .73/4/ .08/4/ .81 (.57) -- (.57) 10.40 8.15 349
Class 2
11/30/1997 .44 3.50 53%
11/30/1998 .78 6.62 62
11/30/1999 .78 6.94 38
12/31/1999 .07 .63 5
12/31/2000 .76 7.87 55
12/31/2001 .74 7.06 59
High-Income Bond Fund
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $14.51 $1.29 $ .43 $1.72 $(1.27) -- $(1.27) $14.96 12.45% $765
11/30/1998 14.96 1.26 (1.04) .22 (1.25) $(.16) (1.41) 13.77 1.44 715
11/30/1999 13.77 1.26 (.72) .54 (1.31) (.19) (1.50) 12.81 4.22 589
12/31/1999 12.81 .11 .12 .23 (.29) -- (.29) 12.75 1.83 586
12/31/2000 12.75 1.24/4/ (1.63)/4/ (.39) (.11) -- (.11) 12.25 (3.06) 436
12/31/2001 12.25 1.17/4/ (.23)/4/ .94 (1.41) -- (1.41) 11.78 8.02 403
High-Income Bond Fund
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 .51% 8.92% 50%
11/30/1998 .51 8.66 66
11/30/1999 .51 9.13 31
12/31/1999 .04 .79 1
12/31/2000 .52 9.87 50
12/31/2001 .51 9.60 42
................................................................................
Class 2
11/30/1997 14.28 .69 .61 1.30 (.63) -- (.63) 14.95 9.20 21
11/30/1998 14.95 1.25 (1.06) .19 (1.22) (.16) (1.38) 13.76 1.18 68
11/30/1999 13.76 1.18 (.67) .51 (1.28) (.19) (1.47) 12.80 3.96 95
12/31/1999 12.80 .11 .12 .23 (.28) -- (.28) 12.75 1.81 99
12/31/2000 12.75 1.22/4/ (1.64)/4/ (.42) (.11) -- (.11) 12.22 (3.31) 117
12/31/2001 12.22 1.13/4/ (.23)/4/ .90 (1.38) -- (1.38) 11.74 7.73 156
Class 2
11/30/1997 .43 4.92 50
11/30/1998 .76 8.60 66
11/30/1999 .76 8.86 31
12/31/1999 .07 .77 1
12/31/2000 .77 9.76 50
12/31/2001 .76 9.37 42
U.S. Government/AAA-Rated Securities Fund
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $11.29 $ .76 $ (.07) $ .69 $ (.80) -- $ (.80) $11.18 6.49% $471
11/30/1998 11.18 .68 .26 .94 (.69) -- (.69) 11.43 8.72 537
11/30/1999 11.43 .69 (.67) .02 (.67) -- (.67) 10.78 .24 431
12/31/1999 10.78 .06 (.10) (.04) (.18) -- (.18) 10.56 (.41) 421
12/31/2000 10.56 .68/4/ .55/4/ 1.23 (.06) -- (.06) 11.73 11.69 362
12/31/2001 11.73 .66/4/ .17/4/ .83 (.69) -- (.69) 11.87 7.24 386
U.S. Government/AAA-Rated Securities Fund
----------------------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 .52% 6.73% 54%
11/30/1998 .51 6.11 89
11/30/1999 .52 6.06 58
12/31/1999 .05 .52 2
12/31/2000 .49 6.16 54
12/31/2001 .47 5.58 84
................................................................................
Class 2
11/30/1997 10.83 .38 .33 .71 (.37) -- (.37) 11.17 6.65 7
11/30/1998 11.17 .68 .24 .92 (.67) -- (.67) 11.42 8.46 32
11/30/1999 11.42 .65 (.64) .01 (.65) -- (.65) 10.78 .08 47
12/31/1999 10.78 .05 (.10) (.05) (.17) -- (.17) 10.56 (.43) 48
12/31/2000 10.56 .65/4/ .55/4/ 1.20 (.06) -- (.06) 11.70 11.39 70
12/31/2001 11.70 .62/4/ .18/4/ .80 (.67) -- (.67) 11.83 7.02 137
Class 2
11/30/1997 .44 3.45 54
11/30/1998 .75 5.68 89
11/30/1999 .77 5.83 58
12/31/1999 .07 .51 2
12/31/2000 .74 5.89 54
12/31/2001 .72 5.27 84
32 American Funds Insurance Series / Prospectus
[Enlarge/Download Table]
Net gains
Net asset Net (losses) on Dividends Net asset
value, investment securities (both Total from (from net Distributions value,
Period beginning income realized and investment investment (from capital Total end of Total
ended/1/ of period (loss) unrealized) operations income) gains) distributions period return
Net assets, Ratio of Ratio of
end of expenses net income Portfolio
Period period (in to average to average turnover
ended/1/ millions) net assets net assets rate/2/
Cash Management Fund
--------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $11.12 $.57 $(.01) $.56 $(.55) -- $(.55) $11.13 5.20%
11/30/1998 11.13 .57 (.01) .56 (.56) -- (.56) 11.13 5.17
11/30/1999 11.13 .49 .02 .51 (.51) -- (.51) 11.13 4.73
12/31/1999 11.13 .05 -- .05 (.13) -- (.13) 11.05 .46
12/31/2000 11.05 .65/4/ .01/4/ .66 (.06) -- (.06) 11.65 6.04
12/31/2001 11.65 .41/4/ .01/4/ .42 (.66) -- (.66) 11.41 3.66
Cash Management Fund
--------------------------------------------------------------------------------------------------------------------
Class 1
11/30/1997 $226 .47% 4.99% --
11/30/1998 250 .46 5.07 --
11/30/1999 306 .46 4.65 --
12/31/1999 317 .04 .45 --
12/31/2000 211 .46 5.80 --
12/31/2001 218 .46 3.52 --
................................................................................
Class 2
11/30/1997 11.07 .28 .03 .31 (.26) -- (.26) 11.12 2.87
11/30/1998 11.12 .55 (.02) .53 (.53) -- (.53) 11.12 4.92
11/30/1999 11.12 .48 -- .48 (.48) -- (.48) 11.12 4.47
12/31/1999 11.12 .05 -- .05 (.13) -- (.13) 11.04 .43
12/31/2000 11.04 .63/4/ .01/4/ .64 (.06) -- (.06) 11.62 5.83
12/31/2001 11.62 .34/4/ .05/4/ .39 (.64) -- (.64) 11.37 3.43
Class 2
11/30/1997 14 .41 2.80 --
11/30/1998 34 .70 4.75 --
11/30/1999 48 .71 4.40 --
12/31/1999 48 .06 .42 --
12/31/2000 49 .71 5.60 --
12/31/2001 127 .71 2.99 --
/1/ The periods ended 1997 through 1999 represent the fiscal years ended
November 30. The period ended December 31, 1999, represents the one month
ended December 31. The periods ended 2000 and 2001 represent the fiscal year
ended December 31. Class 2 shares were offered for sale commencing April 30,
1997. Results for periods not representative of a full year are based on
activity during the period. Total returns exclude all sales charges.
/2/ Represents portfolio turnover rate (equivalent for all share classes).
/3/ Commenced operations July 5, 2001.
/4/ Based on average shares outstanding.
/5/ Commenced operations April 30, 1997.
/6/ Commenced operations April 30, 1998.
/7/ Commenced operations June 17, 1999.
American Funds Insurance Series / Prospectus 33
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The right choise for the long term (sm)
OTHER FUND INFORMATION
Annual/Semi-Annual Reports to Shareholders
The shareholder reports contain additional information about the
series including financial statements, investment results, portfo-
lio holdings, a statement from portfolio management discussing
market conditions and the Series' investment strategies, and the
independent accountants' report (in the annual report).
Statement of Additional Information (SAI) and Codes of Ethics
The SAI contains more detailed information on all aspects of the
Series, including the funds' financial statements and is incorpo-
rated by reference into this prospectus. The Codes of Ethics de-
scribe the personal investing policies adopted by the Series and
the Series' investment adviser and its affiliated companies.
The Codes of Ethics and current SAI have been filed with the Secu-
rities and Exchange Commission ("SEC"). These and other related
materials about the fund are available for review or to be copied
at the SEC's Public Reference Room in Washington, D.C. (202/942-
8090) or on the EDGAR database on the SEC's Internet Web site at
http://www.sec.gov, or after payment of a duplication fee, via e-
mail request to publicinfo@sec.gov or by writing to the SEC's Pub-
lic Reference Section, Washington, D.C. 20549-0102.
To request a free copy of any of the documents listed above,
please call American Funds Distributors, Inc. at 800/421-9900, or
write to:
Secretary of the Series
333 South Hope Street
Los Angeles, CA 90071
Investment Company File No. 811-3857
VI 2-010-0502/RRD
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THE CAPITAL GROUP COMPANIES
American Funds
Capital Research and Management
Capital International
Capital guardian
Capital Bank and Trust
AMERICAN FUNDS INSURANCE SERIES
Part B
Statement of Additional Information
May 1, 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
American Funds Insurance Series - Page 1
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.
American Funds Insurance Series - Page 2
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);
American Funds Insurance Series - Page 3
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.
American Funds Insurance Series - Page 4
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.
American Funds Insurance Series - Page 5
U.S. GOVERNMENT/AAA-RATED SECURITIES FUND
General
. The fund will invest at least 80% of its assets in securities
guaranteed or sponsored by the U.S. government or debt securities
rated AAA by S&P or Aaa by Moody's or in unrated securities that are
determined to be of equivalent quality.
. The fund will invest at least 65% of its assets in securities
guaranteed by the "full faith and credit" pledge of the U.S.
government.
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:
American Funds Insurance Series - Page 6
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
American Funds Insurance Series - Page 7
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.
American Funds Insurance Series - Page 8
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
American Funds Insurance Series - Page 9
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
American Funds Insurance Series - Page 10
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
American Funds Insurance Series - Page 11
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
American Funds Insurance Series - Page 12
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.
American Funds Insurance Series - Page 13
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,
American Funds Insurance Series - Page 14
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
American Funds Insurance Series - Page 15
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
American Funds Insurance Series - Page 16
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
American Funds Insurance Series - Page 17
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.
American Funds Insurance Series - Page 18
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.
American Funds Insurance Series - Page 19
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.
American Funds Insurance Series - Page 20
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:
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.
2. As to 75% of its total assets, purchase more than 10% of the outstanding
voting class of 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. 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.
American Funds Insurance Series - Page 21
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.
American Funds Insurance Series - Page 22
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
------------------------------------------------------------
American Funds Insurance Series - Page 23
[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
[Enlarge/Download Table]
PRINCIPAL OCCUPATION(S) DURING
PAST 5 YEARS AND POSITIONS HELD
YEAR FIRST ELECTED WITH AFFILIATED ENTITIES
POSITION AN OFFICER OR THE PRINCIPAL UNDERWRITER
NAME AND AGE WITH REGISTRANT OF THE SERIES OF THE SERIES
-----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
-----------------------------------------------------------------------------------------------------------------------------------
Michael J. Downer Senior Vice 1991 Vice President and Secretary, Capital Research and Management
Age: 46 President Company; Secretary, American Funds Distributors, Inc.*;
Director, Capital Bank and Trust Company*
-----------------------------------------------------------------------------------------------------------------------------------
Abner D. Goldstine Senior Vice 1993 Senior Vice President and Director, Capital Research and
Age: 72 President Management Company
-----------------------------------------------------------------------------------------------------------------------------------
Alan N. Berro Vice President 1998 Senior Vice President, Capital Research Company*
Age: 41
-----------------------------------------------------------------------------------------------------------------------------------
Claudia P. Vice President 1994 Senior Vice President, Capital Research and Management Company
Huntington
Age: 49
-----------------------------------------------------------------------------------------------------------------------------------
Robert W. Lovelace Vice President 1997 Senior Vice President and Director, Capital Research and
Age: 39 Management Company; Director, American Funds Distributors,
Inc.*; President and Director, Capital Research Company*
-----------------------------------------------------------------------------------------------------------------------------------
John H. Smet Vice President 1994 Senior Vice President, Capital Research and Management Company
Age: 44
-----------------------------------------------------------------------------------------------------------------------------------
Susan M. Tolson Vice President 1999 Senior Vice President, Capital Research Company*
Age: 37
-----------------------------------------------------------------------------------------------------------------------------------
Chad L. Norton Secretary 1994 Vice President - Fund Business Management Group, Capital
Age: 41 Research and Management Company
-----------------------------------------------------------------------------------------------------------------------------------
Robert P. Simmer Treasurer 1994 Vice President - Fund Business Management Group, Capital
Age: 41 Research and Management Company
-----------------------------------------------------------------------------------------------------------------------------------
Sheryl F. Johnson Assistant 1997 Vice President - Fund Business Management Group, Capital
Age: 33 Treasurer Research and Management Company
-----------------------------------------------------------------------------------------------------------------------------------
David A. Pritchett Assistant 1999 Vice President - Fund Business Management Group, Capital
Age: 35 Treasurer Research and Management Company
-----------------------------------------------------------------------------------------------------------------------------------
American Funds Insurance Series - Page 25
* Company affiliated with Capital Research and Management Company.
1 Trustees and officers of the funds serve until their resignation, removal or
retirement.
2 Capital Research and Management Company manages the American Funds consisting
of 29 funds. Capital Research and Management Company also manages American
Funds Insurance Series and Anchor Pathway Fund, which serve as the underlying
investment vehicles for certain variable insurance contracts, and Endowments,
whose shareholders are limited to certain non-profit organizations.
3 This includes all directorships (other than those in the American Funds Group)
that are held by each trustee as a director of a public company or a
registered investment company.
4 "Interested persons" within the meaning of the 1940 Act on the basis of their
affiliation with the Series' Investment Adviser, Capital Research and
Management Company, or the parent company of the Investment Adviser, The
Capital Group Companies, Inc.
5 All of the Trustees and officers listed are officers and/or directors/trustees
of one or more of the other funds for which Capital Research and Management
Company serves as Investment Adviser.
THE ADDRESS FOR ALL TRUSTEES AND OFFICERS OF THE FUNDS IS 333 SOUTH HOPE STREET
- 55TH FLOOR, LOS ANGELES, CALIFORNIA 90071, ATTENTION: FUND SECRETARY.
American Funds Insurance Series - Page 26
FUND SHARES OWNED BY TRUSTEES AS OF DECEMBER 31, 2001
[Download Table]
AGGREGATE DOLLAR RANGE/1/
OF SHARES
OWNED IN ALL FUNDS
IN THE AMERICAN FUNDS
DOLLAR RANGE/1/ OF FAMILY OVERSEEN
NAME FUND SHARES OWNED/2/ BY TRUSTEE
-------------------------------------------------------------------------------
"NON-INTERESTED" TRUSTEES
-------------------------------------------------------------------