Notes to financial statements
American High-Income Trust (the "fund") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company. The fund seeks a high level of current income and, secondarily, capital appreciation through a diversified, carefully supervised portfolio consisting primarily of lower rated, higher risk corporate bonds.
The fund has 16 share classes consisting of five retail share classes (Classes A, B and C, as well as two F share classes, F-1 and F-2), five 529 college savings plan share classes (Classes 529-A, 529-B, 529-C, 529-E and 529-F-1) and six retirement plan share classes (Classes R-1, R-2, R-3, R-4, R-5 and R-6). The 529 college savings plan share classes can be used to save for college education. The retirement plan share classes are generally offered only through eligible employer-sponsored retirement plans. The fund’s share classes are further described below:
Share class
|
Initial sales charge
|
Contingent deferred sales charge upon redemption
|
Conversion feature
|
Classes A and 529-A
|
Up to 3.75%
|
None (except 1% for certain redemptions within one year of purchase without an initial sales charge)
|
None
|
Classes B and 529-B*
|
None
|
Declines from 5% to 0% for redemptions within six years of purchase
|
Classes B and 529-B convert to Classes A and 529-A, respectively, after eight years
|
Class C
|
None
|
1% for redemptions within one year of purchase
|
Class C converts to Class F-1 after 10 years
|
Class 529-C
|
None
|
1% for redemptions within one year of purchase
|
None
|
Class 529-E
|
None
|
None
|
None
|
Classes F-1, F-2 and 529-F-1
|
None
|
None
|
None
|
Classes R-1, R-2, R-3, R-4, R-5 and R-6
|
None
|
None
|
None
|
*
Class B and 529-B shares of the fund are not available for purchase.
Holders of all share classes have equal pro rata rights to assets, dividends and liquidation proceeds.
Each share class has identical voting rights, except for the exclusive right to vote on matters affecting only its class. Share classes have different fees and expenses ("class-specific fees and expenses"), primarily due to different arrangements for distribution, administrative and shareholder services. Differences in class-specific fees and expenses will result in differences in net investment income and, therefore, the payment of different per-share dividends by each class.
2.
|
Significant accounting policies
|
The financial statements have been prepared to comply with accounting principles generally accepted in the United States of America. These principles require management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. The fund follows
the significant accounting policies described below, as well as the valuation policies described in the next section on valuation.
Security transactions and related investment income
– Security transactions are recorded by the fund
as of the date the trades are executed with brokers. Realized gains and losses from security transactions are determined based on the specific identified cost of the securities. In the event a security is purchased with a delayed payment date, the fund will segregate liquid assets sufficient to meet its payment obligations. Dividend income is recognized on the ex-dividend date and interest income is recognized
on an accrual basis. Market discounts, premiums and original issue discounts on fixed-income securities are amortized daily over the expected life of the security.
Class allocations
– Income, fees and expenses (other than class-specific fees and expenses) are allocated daily among the various share classes based on the relative value of their settled shares. Realized and
unrealized gains and losses are allocated daily among the various share classes based on their relative net assets. Class-specific fees and expenses, such as distribution, administrative and shareholder services, are charged directly to the respective share class.
Dividends and distributions to shareholders
–
Dividends paid to shareholders are declared daily after the determination of the fund’s
net investment income and are paid to shareholders monthly. Distributions paid to shareholders are recorded on the ex-dividend date.
Currency translation
– Assets and liabilities, including investment securities, denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates supplied by one or more pricing vendors on the valuation date. Purchases and sales of investment securities and income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions. On the accompanying financial statements, the effects of changes in exchange rates on investment securities are included with the net realized gain or loss and net unrealized appreciation or depreciation on investments. The realized gain or loss and unrealized appreciation or depreciation resulting from all other transactions denominated in currencies other than U.S. dollars are disclosed separately.
Capital Research and Management Company (“CRMC”), the fund’s investment adviser, values the fund’s investments at fair value as defined by accounting principles generally accepted in the United States of America. The net asset value of each share class of the fund is generally determined as of approximately 4:00 p.m. New York time each day the New York Stock Exchange is open.
Methods and inputs
– The fund’s
investment adviser uses the following methods and inputs to establish the fair value of the fund’s assets and liabilities. Use of particular methods and inputs may vary over time based on availability and relevance as market and economic conditions evolve.
Equity securities are generally valued at the official closing price of, or the last reported sale price on, the exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. Prices for each security are taken from the principal exchange or market on which the security trades.
Fixed-income securities, including short-term securities purchased with more than 60 days left to maturity, are generally valued at prices obtained from one or more pricing vendors. Vendors value such securities based on one or more of the inputs described in the following table. The table provides examples of inputs that are commonly relevant for valuing particular classes of fixed-income securities in which the fund is authorized to invest. However, these classifications are not exclusive, and any of the inputs may be used to value any other class of fixed-income security.
Fixed-income class
|
Examples of standard inputs
|
All
|
Benchmark yields, transactions, bids, offers, quotations from dealers and trading systems, new issues, spreads and other relationships observed in the markets among comparable securities; and proprietary pricing models such as yield measures calculated using factors such as cash flows, financial or collateral performance and other reference data (collectively referred to as “standard inputs”)
|
Corporate bonds & notes; convertible securities
|
Standard inputs and underlying equity of the issuer
|
Bonds & notes of governments & government agencies
|
Standard inputs and interest rate volatilities
|
Mortgage-backed; asset-backed obligations
|
Standard inputs and cash flows, prepayment information, default rates, delinquency and loss assumptions, collateral characteristics, credit enhancements and specific deal information
|
Municipal securities
|
Standard inputs and, for certain distressed securities, cash flows or liquidation values using a net present value calculation based on inputs that include, but are not limited to, financial statements and debt contracts
|
When the fund’s
investment adviser deems it appropriate to do so (such as when vendor prices are unavailable or not deemed to be representative), fixed-income securities will be valued in good faith at the mean quoted bid and ask prices that are reasonably and timely available (or bid prices, if ask prices are not available) or at prices for securities of comparable maturity, quality and type.
Securities with both fixed-income and equity characteristics, or equity securities traded principally among fixed-income dealers, are generally valued in the manner described above for either equity or fixed-income securities, depending on which method is deemed most appropriate by the fund’s
investment adviser. Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates fair value. The value of short-term securities originally purchased with maturities greater than 60 days is determined based on an amortized value to par when they reach 60 days.
Forward currency contracts are valued at the mean of representative quoted bid and ask prices, generally based on prices supplied by one or more pricing vendors.
Securities and other assets for which representative market quotations are not readily available or are considered unreliable by the fund’s
investment adviser are fair valued as determined in good faith under fair value guidelines adopted by authority of the fund’s
board of trustees as further described below. The investment adviser follows fair valuation guidelines, consistent with U.S. Securities and Exchange Commission rules and guidance, to consider relevant principles and factors when making fair value determinations. The investment adviser considers relevant indications of value that are reasonably and timely available to it in determining the fair value to be assigned to a particular security, such as the type and cost of the security; contractual or legal restrictions on resale of the security; relevant financial or business developments of the issuer; actively traded similar or related securities; conversion or exchange rights on the security; related corporate actions; significant events occurring after the close of trading in the security; and changes in overall market conditions. Fair valuations and valuations of investments that are not actively trading involve judgment and may differ materially from valuations that would have been used had greater market activity occurred.
Processes and structure
–
The fund’s
board of trustees has delegated authority to the fund’s
investment adviser to make fair value determinations, subject to board oversight. The investment adviser has established a Joint Fair Valuation Committee (the “Fair Valuation Committee”) to administer, implement and oversee the fair valuation process, and to make fair value decisions. The Fair Valuation Committee regularly reviews its own fair value decisions, as well as decisions made under its standing instructions to the investment adviser’s valuation teams. The Fair Valuation Committee reviews changes in fair value measurements from period to period and may, as deemed appropriate, update the fair valuation guidelines to better reflect the results of back testing and address new or evolving issues. The Fair Valuation Committee reports any changes to the fair valuation guidelines to the board of trustees with supplemental information to support the changes. The fund’s
board and audit committee also regularly review reports that describe fair value determinations and methods.
The fund’s
investment adviser has also established a Fixed-Income Pricing Review Group to administer and oversee the fixed-income valuation process, including the use of fixed-income pricing vendors. This group regularly reviews pricing vendor information and market data. Pricing decisions, processes and controls over security valuation are also subject to additional internal reviews, including an annual control self-evaluation program facilitated by the investment adviser’s compliance group.
Classifications –
The fund’s
investment adviser classifies the fund’s
assets and liabilities into three levels based on the inputs used to value the assets or liabilities. Level 1 values are based on quoted prices in active markets for identical securities. Level 2 values are based on significant observable market inputs, such as quoted prices for similar securities and quoted prices in inactive markets. Level 3 values are based on significant unobservable inputs that reflect the investment adviser’s determination of assumptions that market participants might reasonably use in valuing the securities. The valuation levels are not necessarily an indication of the risk or liquidity associated with the underlying investment. For example, U.S. government securities are reflected as Level 2 because the inputs used to determine fair value may not always be quoted prices in an active market.
The following tables present
the fund’s valuation levels as of September 30, 2012 (dollars in thousands):
|
|
Investment securities
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds ,notes & other debt instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds, notes, & loans
|
|
$
|
-
|
|
|
$
|
16,641,529
|
|
|
$
|
39,880
|
|
|
$
|
16,681,409
|
|
U.S. Treasury bonds & notes
|
|
|
-
|
|
|
|
103,028
|
|
|
|
-
|
|
|
|
103,028
|
|
Other
|
|
|
-
|
|
|
|
951,674
|
|
|
|
-
|
|
|
|
951,674
|
|
Convertible securities
|
|
|
28,652
|
|
|
|
107,268
|
|
|
|
-
|
|
|
|
135,920
|
|
Preferred securities
|
|
|
5,736
|
|
|
|
97,883
|
|
|
|
-
|
|
|
|
103,619
|
|
Common stocks
|
|
|
264,769
|
|
|
|
1
|
|
|
|
12,626
|
|
|
|
277,396
|
|
Warrants
|
|
|
2,899
|
|
|
|
2,960
|
|
|
|
153
|
|
|
|
6,012
|
|
Short-term securities
|
|
|
-
|
|
|
|
1,661,685
|
|
|
|
-
|
|
|
|
1,661,685
|
|
Total
|
|
$
|
302,056
|
|
|
$
|
19,566,028
|
|
|
$
|
52,659
|
|
|
$
|
19,920,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments(*)
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized appreciation on open forward currency contracts
|
|
$
|
-
|
|
|
$
|
647
|
|
|
$
|
-
|
|
|
$
|
647
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized depreciation on open forward currency contracts
|
|
|
-
|
|
|
|
(105
|
)
|
|
|
-
|
|
|
|
(105
|
)
|
Total
|
|
$
|
-
|
|
|
$
|
542
|
|
|
$
|
-
|
|
|
$
|
542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) Forward currency contracts are not included in the investment portfolio.
|
|
|
|
|
|
Investing in the fund may involve certain risks including, but not limited to, those described below.
Investing in lower rated bonds —
Lower rated bonds and other lower rated debt securities generally have higher rates of interest and involve greater risk of default or price declines due to changes in the issuer’s creditworthiness than those of higher quality debt securities. The market prices of these securities may fluctuate more than the prices of higher quality debt securities and may decline significantly in periods of general economic difficulty. These risks may be increased with respect to investments in junk bonds.
Thinly traded securities —
There may be little trading in the secondary market for
particular bonds or other debt securities, which may make them more difficult to value,
acquire or sell.
Investing in bonds —
Rising interest rates will generally cause the prices of bonds and
other debt securities to fall. Longer maturity debt securities may be subject to greater
price fluctuations than shorter maturity debt securities. In addition, falling interest rates
may cause an issuer to redeem, call or refinance a security before its stated maturity,
which may result in the fund having to reinvest the proceeds in lower yielding securities.
Bonds and other debt securities are 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.
Market conditions —
The prices of, and the income generated by, the securities held by
the fund may decline due to market conditions and other factors, including those directly
involving the issuers of securities held by the fund.
Investing outside the U.S. —
Securities of issuers domiciled outside the U.S., or with significant operations outside the U.S., may lose value because of political, social, economic or market developments or instability in the countries or regions in which the issuer operates. These securities may also lose value due to changes in foreign currency exchange rates against the U.S. dollar and/or currencies of other countries. Securities markets in certain countries may be more volatile and/or less liquid than those in the U.S. Investments outside the U.S. may also be subject to different settlement and accounting practices and different regulatory, legal and reporting standards, and may be more difficult to value, than those in the U.S.
Management —
The investment adviser to the fund actively manages the fund’s
investments. Consequently, the fund is subject to the risk that the methods and analyses
employed by the investment adviser in this process may not produce the desired results.
This could cause the fund to lose value or its investment results to lag relevant
benchmarks or other funds with similar objectives.
5.
|
Certain investment techniques
|
Loan transactions
– The fund has entered into loan transactions in which the fund acquires a loan either through an agent, by assignment from another holder, or as a participation interest in another holder's portion of a loan. The loan is often administered by a financial institution that acts as agent for the holders of the loan, and the fund may be required to receive approval from the agent and/or borrower prior to the sale of the investment. The loan's interest rate and maturity date may change based on the terms of the loan, including potential early payments of principal.
Unfunded commitments
– The fund has participated in transactions that involve unfunded commitments, which may obligate the fund to lend additional sums based upon the terms of the loan agreement. As of September 30, 2012, the fund’s maximum exposure of unfunded loan commitments was $14,859,000, which would represent 0.08% of the net assets of the fund should such commitments become due. Unrealized appreciation of $116,000 is included in other payables in the statement of assets and liabilities and net unrealized appreciation on investments in the statement of operations.
Forward currency contracts
- The fund has entered into forward currency contracts, which represent agreements to exchange currencies on specific future dates at predetermined rates. The fund’s investment adviser uses forward currency contracts to manage the fund’s exposure to changes in exchange rates. Upon entering into these contracts, risks may arise from the potential inability of counterparties to meet the terms of their contracts and from possible movements in exchange rates.
On a daily basis, the fund’s investment adviser values forward currency contracts based on the applicable exchange rates and records unrealized appreciation or depreciation for open forward currency contracts in the fund’s statement of assets and liabilities. Realized gains or losses are recorded at the time the forward currency contract is closed or offset by another contract with the same broker for the same settlement date and currency.
Closed forward currency contracts that have not reached their settlement date are included in the respective receivables or payables for closed forward currency contracts in the fund’s statement of assets and liabilities. Net realized gains or losses from closed forward currency contracts and net unrealized appreciation or depreciation from open forward currency contracts are recorded in the fund’s statement of operations.
Collateral
– To reduce the risk to counterparties of forward currency contracts, the fund has entered into a collateral program with certain counterparties. The program calls for the fund to either receive or pledge collateral based on the net unrealized gain or loss on unsettled forward currency contracts by counterparty. The purpose of the collateral is to cover potential losses that could occur in the event that either party can not meet its contractual obligations.
6.
|
Taxation and distributions
|
Federal income taxation
– The fund complies with the requirements under Subchapter M of the Internal Revenue Code applicable to mutual funds and intends to distribute substantially all of its net taxable income and net capital gains each year. The fund is not subject to income taxes to the extent such distributions are made. Therefore, no federal income tax provision is required.
As of and during the period ended September 30, 2012, the fund did not have a liability for any unrecognized tax benefits. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the period, the fund did not incur any interest or penalties.
The fund is not subject to examination by U.S. federal tax authorities for tax years before 2008 and by state tax authorities and tax authorities outside the U.S. for tax years before 2007.
Non-U.S. taxation
– Dividend and interest income are recorded net of non-U.S. taxes paid.
Distributions
– Distributions paid to shareholders are based on net investment income and net realized gains determined on a tax basis, which may differ from net investment income and net realized gains
for financial reporting purposes. These differences are due primarily to different treatment for items such as currency gains and losses; short-term capital gains and losses; capital losses related to sales of certain securities within 30 days of purchase; unrealized appreciation of certain investments in securities outside the U.S.; cost of investments sold; net capital losses; and income on certain investments.
The fiscal year in which amounts are distributed may differ from the year in which the net investment income and net realized gains are
recorded by the fund for financial reporting purposes.
During the year ended September 30, 2012, the fund reclassified $2,773,000 from distributions in excess of net investment income to accumulated net realized loss and $32,000 from distributions in excess of net investment income to capital paid in on shares of beneficial interest to align financial reporting with tax reporting.
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after September 30, 2011, may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
As of September 30, 2012, the tax basis components of distributable earnings, unrealized appreciation (depreciation) and cost of investment securities were as follows:
|
(dollars in thousands)
|
|
|
Undistributed ordinary income
|
|
$
|
30,332
|
|
|
Capital loss carryforward expiring 2018*
|
|
|
(840,948
|
)
|
|
Gross unrealized appreciation on investment securities
|
|
|
1,275,567
|
|
Gross unrealized depreciation on investment securities
|
|
|
(783,337
|
)
|
Net unrealized appreciation on investment securities
|
|
|
492,230
|
|
Cost of investment securities
|
|
|
19,428,513
|
|
|
|
|
|
|
*Reflects the utilization of capital loss carryforward of $157,075,000. The capital loss carryforward will be used to offset any capital gains realized by the fund in future years through the expiration date. The fund will not make distributions from capital gains while a capital loss carryforward remains.
|
Tax-basis distributions paid or accrued
to shareholders from ordinary income were as follows (dollars in thousands):
|
|
Year ended September 30
|
|
Share class
|
|
2012
|
|
|
2011
|
|
Class A
|
|
$
|
948,806
|
|
|
$
|
948,181
|
|
Class B
|
|
|
15,866
|
|
|
|
26,714
|
|
Class C
|
|
|
89,548
|
|
|
|
95,927
|
|
Class F-1
|
|
|
109,529
|
|
|
|
115,447
|
|
Class F-2
|
|
|
60,321
|
|
|
|
46,320
|
|
Class 529-A
|
|
|
22,659
|
|
|
|
20,211
|
|
Class 529-B
|
|
|
991
|
|
|
|
1,431
|
|
Class 529-C
|
|
|
7,725
|
|
|
|
7,106
|
|
Class 529-E
|
|
|
1,230
|
|
|
|
1,063
|
|
Class 529-F-1
|
|
|
1,304
|
|
|
|
1,045
|
|
Class R-1
|
|
|
1,527
|
|
|
|
1,552
|
|
Class R-2
|
|
|
14,463
|
|
|
|
15,146
|
|
Class R-3
|
|
|
23,467
|
|
|
|
24,160
|
|
Class R-4
|
|
|
16,653
|
|
|
|
17,338
|
|
Class R-5
|
|
|
20,422
|
|
|
|
19,644
|
|
Class R-6
|
|
|
11,252
|
|
|
|
8,747
|
|
Total
|
|
$
|
1,345,763
|
|
|
$
|
1,350,032
|
|
7.
|
Fees and transactions with related parties
|
CRMC, the fund’s investment adviser, is the parent company of American Funds Distributors,® Inc. ("AFD"), the principal underwriter of the fund’s shares, and American Funds Service Company® ("AFS"), the fund’s transfer agent.
Investment advisory services –
The fund has an investment advisory and service agreement with CRMC that provides
for monthly fees accrued daily. These fees are based on a series of decreasing annual rates beginning with 0.300% on the first $60 million of daily net assets and decreasing to 0.135% on such assets in excess of $15 billion. The agreement also provides for monthly fees, accrued daily, based on a series of decreasing rates beginning with 3.00% on the first $8,333,333 of the fund's monthly gross income and decreasing to 1.50% on such income in excess of $50 million. For the year ended September 30, 2012, the investment advisory services fee was $53,862,000, which was equivalent to an annualized rate of 0.299% of average daily
net assets.
Class-specific fees and expenses –
Expenses that are specific to individual share classes are accrued directly to the respective share class. The principal class-specific fees and expenses are described below:
Distribution services
– The fund has plans of distribution for all share classes, except Class F-2, R-5 and R-6 shares. Under the plans, the board of trustees approves certain categories of expenses that are used to finance activities primarily intended to sell fund shares and service existing accounts. The plans provide for payments, based on an annualized percentage of average daily net assets, ranging from 0.30% to 1.00% as noted below. In some cases, the board of trustees has limited the amounts that may be paid to less than the maximum allowed by the plans.
All share classes with a plan may use up to 0.25% of average daily net assets to pay service fees, or to compensate AFD for paying service fees, to firms that have entered into agreements with AFD to provide certain shareholder services. The remaining amounts available to be paid under each plan are paid to dealers to compensate them for their sales activities.
For Class A and 529-A shares, distribution-related expenses include the reimbursement of dealer and wholesaler commissions paid by AFD for certain shares sold without a sales charge. These share classes reimburse AFD for amounts billed within the prior 15 months but only to the extent that the overall annual expense limit of 0.30%
is not exceeded. As of September 30, 2012, there were no unreimbursed expenses subject to reimbursement for Class A or 529-A shares.
Share class
|
Currently approved limits
|
Plan limits
|
Class A
|
0.30%
|
0.30%
|
Class 529-A
|
0.30
|
0.50
|
Classes B and 529-B
|
1.00
|
1.00
|
Classes C, 529-C and R-1
|
1.00
|
1.00
|
Class R-2
|
0.75
|
1.00
|
Classes 529-E and R-3
|
0.50
|
0.75
|
Classes F-1, 529-F-1 and R-4
|
0.25
|
0.50
|
Transfer agent services
–
The fund has a shareholder services agreement with AFS under which the fund compensates AFS for providing transfer agent services to each of the fund’s share classes. These services include recordkeeping, shareholder communications and transaction processing. In addition, the fund reimburses AFS for amounts paid to third parties for performing transfer agent services on behalf of fund shareholders.
During the period October 1, 2011, through December 31, 2011, only Class A and B shares were subject to the shareholder services agreement with AFS. During this period, AFS and other third parties were compensated for providing transfer agent services to Class C, F, 529 and R shares through the fees paid by the fund to CRMC under the fund’s administrative services agreement with CRMC as described in the administrative services section below and on the following page; CRMC paid for any transfer agent services expenses in excess of 0.10% of the respective average daily net assets of each of such share classes.
Effective January 1, 2012, the shareholder services agreement with AFS was modified to include Class C, F, 529 and R shares and payment for transfer agent services for such classes under the administrative services agreement terminated. Under this structure, transfer agent services expenses for some classes may exceed 0.10% of average daily net assets, resulting in an increase in expenses paid by some share classes.
For the year
ended September 30, 2012, the total transfer agent services fee paid under these agreements was $22,800,000, of which $21,741,000 was paid by the fund to AFS and $1,059,000 was paid by the fund to CRMC through its administrative services agreement with the fund. Amounts paid to CRMC by the fund were then paid by CRMC to AFS and other third parties.
Administrative services
– The fund has an administrative services agreement with CRMC under which the fund compensates CRMC for providing administrative services to Class A, C, F, 529 and R shares. These services include, but are not limited to, coordinating, monitoring, assisting and overseeing third parties that provide services to fund shareholders.
During the period October 1, 2011, through December 31, 2011, the agreement applied only to Class C, F, 529 and R shares. The agreement also required CRMC to arrange for the provision of transfer agent services for such share classes, which paid CRMC annual fees up to 0.15% (0.10% for Class R-5 and 0.05% for Class R-6) of their respective average daily net assets. During this period, up to 0.05% of these fees were used to compensate CRMC for performing administrative services; all other amounts paid under this agreement were used to compensate AFS and other third parties for transfer agent services.
Effective January 1, 2012, the administrative services agreement with CRMC was modified to include Class A shares. Under the revised agreement, Class A shares pay an annual fee of 0.01% and Class C, F, 529 and R shares pay an annual fee of 0.05% of their respective average daily net assets to CRMC for administrative services. Fees for transfer agent services are no longer included as part of the administrative services fee paid by the fund to CRMC.
For the year
ended September 30, 2012, total fees paid to CRMC for performing administrative services were $3,509,000.
529 plan services
– Each 529 share class is subject to service fees to compensate the Commonwealth of Virginia for the maintenance of the 529 college savings plan.
The quarterly fee is based on a series of decreasing annual rates beginning with 0.10% on the first $30 billion of the net assets invested in Class 529 shares of the American Funds and decreasing to 0.06% on such assets between $120 billion and $150 billion. The fee for any given calendar quarter is accrued and calculated on the basis of the average net assets of Class 529 shares of the American Funds for the last month of the prior calendar quarter. The fee is included in other expenses on the accompanying financial statements. The Commonwealth of Virginia is not considered a related party.
Class-specific expenses under the agreements described above and on the previous page for the year ended September 30, 2012, were as follows (dollars in thousands):
Share class
|
|
Distribution services
|
|
|
Transfer agent services
|
|
|
Administrative services
|
|
|
529 plan
services
|
|
Class A
|
|
$
|
29,913
|
|
|
$
|
16,170
|
|
|
$
|
965
|
|
|
Not applicable
|
|
Class B
|
|
|
2,308
|
|
|
|
294
|
|
|
Not applicable
|
|
|
Not applicable
|
|
Class C
|
|
|
13,235
|
|
|
|
1,688
|
|
|
|
625
|
|
|
Not applicable
|
|
Class F-1
|
|
|
3,551
|
|
|
|
1,572
|
|
|
|
696
|
|
|
Not applicable
|
|
Class F-2
|
|
Not applicable
|
|
|
|
765
|
|
|
|
378
|
|
|
Not applicable
|
|
Class 529-A
|
|
|
646
|
|
|
|
295
|
|
|
|
147
|
|
|
$
|
303
|
|
Class 529-B
|
|
|
147
|
|
|
|
18
|
|
|
|
7
|
|
|
|
15
|
|
Class 529-C
|
|
|
1,152
|
|
|
|
125
|
|
|
|
56
|
|
|
|
115
|
|
Class 529-E
|
|
|
85
|
|
|
|
10
|
|
|
|
8
|
|
|
|
17
|
|
Class 529-F-1
|
|
|
-
|
|
|
|
17
|
|
|
|
8
|
|
|
|
17
|
|
Class R-1
|
|
|
227
|
|
|
|
29
|
|
|
|
13
|
|
|
Not applicable
|
|
Class R-2
|
|
|
1,607
|
|
|
|
927
|
|
|
|
111
|
|
|
Not applicable
|
|
Class R-3
|
|
|
1,619
|
|
|
|
522
|
|
|
|
178
|
|
|
Not applicable
|
|
Class R-4
|
|
|
548
|
|
|
|
229
|
|
|
|
114
|
|
|
Not applicable
|
|
Class R-5
|
|
Not applicable
|
|
|
|
135
|
|
|
|
131
|
|
|
Not applicable
|
|
Class R-6
|
|
Not applicable
|
|
|
|
4
|
|
|
|
72
|
|
|
Not applicable
|
|
Total class-specific expenses
|
|
$
|
55,038
|
|
|
$
|
22,800
|
|
|
$
|
3,509
|
|
|
$
|
467
|
|
Trustees’ deferred compensation
– Trustees who are unaffiliated with CRMC
may elect to defer the cash payment of part or all of their compensation. These deferred amounts, which remain as liabilities of the fund, are treated as if invested in shares of the fund or other American Funds. These amounts represent general, unsecured liabilities of the fund and vary according to the total returns of the selected funds. Trustees’ compensation of $151,000, shown on the accompanying financial statements, includes $131,000 in current fees (either paid in cash or deferred) and a net increase of $20,000 in the value of the deferred amounts.
Affiliated officers and trustees
– Officers and certain trustees of the fund are or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated officers or trustees received any compensation directly from the fund.
8.
|
Capital share transactions
|
Capital share transactions in the fund were as follows (dollars and shares in thousands):
|
|
Sales
(*)
|
|
|
Reinvestments of dividends
|
|
|
Repurchases
(*)
|
|
|
Net increase (decrease)
|
|
Share class
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
Year ended September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
$
|
2,950,296
|
|
|
|
270,595
|
|
|
$
|
873,157
|
|
|
|
79,970
|
|
|
$
|
(2,148,697
|
)
|
|
|
(197,821
|
)
|
|
$
|
1,674,756
|
|
|
|
152,744
|
|
Class B
|
|
|
26,355
|
|
|
|
2,420
|
|
|
|
14,390
|
|
|
|
1,320
|
|
|
|
(118,497
|
)
|
|
|
(10,933
|
)
|
|
|
(77,752
|
)
|
|
|
(7,193
|
)
|
Class C
|
|
|
364,739
|
|
|
|
33,439
|
|
|
|
80,091
|
|
|
|
7,338
|
|
|
|
(353,351
|
)
|
|
|
(32,547
|
)
|
|
|
91,479
|
|
|
|
8,230
|
|
Class F-1
|
|
|
697,962
|
|
|
|
64,204
|
|
|
|
108,051
|
|
|
|
9,897
|
|
|
|
(589,494
|
)
|
|
|
(54,444
|
)
|
|
|
216,519
|
|
|
|
19,657
|
|
Class F-2
|
|
|
504,614
|
|
|
|
46,634
|
|
|
|
50,181
|
|
|
|
4,592
|
|
|
|
(275,623
|
)
|
|
|
(25,351
|
)
|
|
|
279,172
|
|
|
|
25,875
|
|
Class 529-A
|
|
|
78,742
|
|
|
|
7,226
|
|
|
|
22,698
|
|
|
|
2,078
|
|
|
|
(43,253
|
)
|
|
|
(3,972
|
)
|
|
|
58,187
|
|
|
|
5,332
|
|
Class 529-B
|
|
|
2,460
|
|
|
|
226
|
|
|
|
987
|
|
|
|
91
|
|
|
|
(7,187
|
)
|
|
|
(662
|
)
|
|
|
(3,740
|
)
|
|
|
(345
|
)
|
Class 529-C
|
|
|
30,760
|
|
|
|
2,822
|
|
|
|
7,735
|
|
|
|
708
|
|
|
|
(19,864
|
)
|
|
|
(1,824
|
)
|
|
|
18,631
|
|
|
|
1,706
|
|
Class 529-E
|
|
|
4,687
|
|
|
|
431
|
|
|
|
1,231
|
|
|
|
113
|
|
|
|
(2,982
|
)
|
|
|
(273
|
)
|
|
|
2,936
|
|
|
|
271
|
|
Class 529-F-1
|
|
|
5,877
|
|
|
|
539
|
|
|
|
1,304
|
|
|
|
119
|
|
|
|
(3,024
|
)
|
|
|
(278
|
)
|
|
|
4,157
|
|
|
|
380
|
|
Class R-1
|
|
|
8,138
|
|
|
|
746
|
|
|
|
1,514
|
|
|
|
139
|
|
|
|
(6,534
|
)
|
|
|
(599
|
)
|
|
|
3,118
|
|
|
|
286
|
|
Class R-2
|
|
|
74,293
|
|
|
|
6,812
|
|
|
|
14,398
|
|
|
|
1,319
|
|
|
|
(73,343
|
)
|
|
|
(6,747
|
)
|
|
|
15,348
|
|
|
|
1,384
|
|
Class R-3
|
|
|
181,751
|
|
|
|
16,666
|
|
|
|
23,421
|
|
|
|
2,146
|
|
|
|
(141,935
|
)
|
|
|
(13,062
|
)
|
|
|
63,237
|
|
|
|
5,750
|
|
Class R-4
|
|
|
81,945
|
|
|
|
7,516
|
|
|
|
16,629
|
|
|
|
1,523
|
|
|
|
(91,436
|
)
|
|
|
(8,413
|
)
|
|
|
7,138
|
|
|
|
626
|
|
Class R-5
|
|
|
101,958
|
|
|
|
9,370
|
|
|
|
20,450
|
|
|
|
1,872
|
|
|
|
(74,803
|
)
|
|
|
(6,875
|
)
|
|
|
47,605
|
|
|
|
4,367
|
|
Class R-6
|
|
|
139,385
|
|
|
|
12,686
|
|
|
|
11,239
|
|
|
|
1,028
|
|
|
|
(38,982
|
)
|
|
|
(3,528
|
)
|
|
|
111,642
|
|
|
|
10,186
|
|
Total net increase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(decrease)
|
|
$
|
5,253,962
|
|
|
|
482,332
|
|
|
$
|
1,247,476
|
|
|
|
114,253
|
|
|
$
|
(3,989,005
|
)
|
|
|
(367,329
|
)
|
|
$
|
2,512,433
|
|
|
|
229,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
$
|
2,605,724
|
|
|
|
229,912
|
|
|
$
|
844,366
|
|
|
|
75,016
|
|
|
$
|
(3,058,911
|
)
|
|
|
(271,226
|
)
|
|
$
|
391,179
|
|
|
|
33,702
|
|
Class B
|
|
|
41,092
|
|
|
|
3,620
|
|
|
|
23,217
|
|
|
|
2,059
|
|
|
|
(236,503
|
)
|
|
|
(20,828
|
)
|
|
|
(172,194
|
)
|
|
|
(15,149
|
)
|
Class C
|
|
|
324,695
|
|
|
|
28,610
|
|
|
|
81,992
|
|
|
|
7,284
|
|
|
|
(421,827
|
)
|
|
|
(37,401
|
)
|
|
|
(15,140
|
)
|
|
|
(1,507
|
)
|
Class F-1
|
|
|
529,143
|
|
|
|
46,653
|
|
|
|
110,292
|
|
|
|
9,796
|
|
|
|
(730,942
|
)
|
|
|
(65,285
|
)
|
|
|
(91,507
|
)
|
|
|
(8,836
|
)
|
Class F-2
|
|
|
277,746
|
|
|
|
24,465
|
|
|
|
34,006
|
|
|
|
3,025
|
|
|
|
(210,334
|
)
|
|
|
(18,597
|
)
|
|
|
101,418
|
|
|
|
8,893
|
|
Class 529-A
|
|
|
75,124
|
|
|
|
6,629
|
|
|
|
20,114
|
|
|
|
1,788
|
|
|
|
(43,688
|
)
|
|
|
(3,871
|
)
|
|
|
51,550
|
|
|
|
4,546
|
|
Class 529-B
|
|
|
2,565
|
|
|
|
226
|
|
|
|
1,419
|
|
|
|
126
|
|
|
|
(9,838
|
)
|
|
|
(868
|
)
|
|
|
(5,854
|
)
|
|
|
(516
|
)
|
Class 529-C
|
|
|
30,054
|
|
|
|
2,653
|
|
|
|
7,072
|
|
|
|
629
|
|
|
|
(19,438
|
)
|
|
|
(1,725
|
)
|
|
|
17,688
|
|
|
|
1,557
|
|
Class 529-E
|
|
|
4,520
|
|
|
|
401
|
|
|
|
1,058
|
|
|
|
94
|
|
|
|
(1,995
|
)
|
|
|
(177
|
)
|
|
|
3,583
|
|
|
|
318
|
|
Class 529-F-1
|
|
|
6,417
|
|
|
|
566
|
|
|
|
1,037
|
|
|
|
92
|
|
|
|
(2,737
|
)
|
|
|
(244
|
)
|
|
|
4,717
|
|
|
|
414
|
|
Class R-1
|
|
|
6,478
|
|
|
|
571
|
|
|
|
1,518
|
|
|
|
135
|
|
|
|
(9,006
|
)
|
|
|
(796
|
)
|
|
|
(1,010
|
)
|
|
|
(90
|
)
|
Class R-2
|
|
|
78,238
|
|
|
|
6,908
|
|
|
|
14,994
|
|
|
|
1,332
|
|
|
|
(87,033
|
)
|
|
|
(7,692
|
)
|
|
|
6,199
|
|
|
|
548
|
|
Class R-3
|
|
|
119,975
|
|
|
|
10,572
|
|
|
|
24,046
|
|
|
|
2,133
|
|
|
|
(173,188
|
)
|
|
|
(15,397
|
)
|
|
|
(29,167
|
)
|
|
|
(2,692
|
)
|
Class R-4
|
|
|
91,285
|
|
|
|
8,062
|
|
|
|
17,262
|
|
|
|
1,533
|
|
|
|
(98,183
|
)
|
|
|
(8,664
|
)
|
|
|
10,364
|
|
|
|
931
|
|
Class R-5
|
|
|
95,406
|
|
|
|
8,410
|
|
|
|
19,487
|
|
|
|
1,731
|
|
|
|
(105,669
|
)
|
|
|
(9,381
|
)
|
|
|
9,224
|
|
|
|
760
|
|
Class R-6
|
|
|
49,975
|
|
|
|
4,389
|
|
|
|
8,737
|
|
|
|
776
|
|
|
|
(34,734
|
)
|
|
|
(3,110
|
)
|
|
|
23,978
|
|
|
|
2,055
|
|
Total net increase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(decrease)
|
|
$
|
4,338,437
|
|
|
|
382,647
|
|
|
$
|
1,210,617
|
|
|
|
107,549
|
|
|
$
|
(5,244,026
|
)
|
|
|
(465,262
|
)
|
|
$
|
305,028
|
|
|
|
24,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Includes exchanges between share classes of the fund.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
Investment transactions
|
The fund made purchases and sales of investment securities, excluding short-term securities and U.S. government obligations, if any, of $7,798,136,000 and $6,271,971,000, respectively, during the year ended September 30, 2012.