Frequently asked questions regarding current market conditions
October 9, 2008
With developments moving quickly in the nation’s financial markets, we thought the following questions and answers might be helpful.
Q: How do the challenges facing certain financial institutions affect the American Funds?
A: Various American Funds hold stocks and bonds issued by some of the financial institutions that are facing challenges due to the ongoing credit crisis. However, because the American Funds are broadly diversified, these holdings are a relatively small part of the funds’ portfolios. In fact, the broad decline in the stock and bond markets is having a much more significant impact on the current results of the American Funds than any of the funds’ individual or aggregate holdings in the financial services sector.
Q: Do you expect the decline in the market to end once a rescue plan is enacted?
A: Although we never predict the short-term direction of financial markets, we believe enactment of the Treasury Department’s rescue plan, or something similar, will have a positive long-term effect on the markets and the economy. We believe its effects are likely to be felt well beyond the specific financial institutions expected to participate.
One result of the surprisingly long decline in the markets is that many financial assets appear to be selling well below their long-term value. While this does not mean that the markets have hit bottom — and they may not have — it reminds us that the number of attractive long-term investment opportunities is growing.
We are confident that markets will recover over time and reward the patient, conservative investors as they always have in the past. For additional perspective on the current market conditions, read the message from Capital Research and Management Company Chairman James Rothenberg.
Q: Will American Funds continue participating in the government’s temporary insurance program for money market funds?
A: Yes, The Cash Management Trust of America®, The U.S. Treasury Money Fund of AmericaSM and The Tax-Exempt Money Fund of AmericaSM are participating in the program.
Under the program, investments in a money market fund as of September 19, 2008, will be temporarily insured to enable shareholders to receive a net asset value of $1.00 per share if the fund is liquidated. Investments in money market funds made after September 19, 2008, are ineligible for the program and will not be insured. The guarantee program is currently scheduled to terminate on April 30, 2009. For more information, you can read FAQs about the guarantee program on the Treasury Department’s website.
Although we are participating in the program, we believe it is highly unlikely that the insurance will be needed for any of our money market funds. Investments in money market funds managed by Capital Research and Management Company continue to adhere to strict credit quality, liquidity and diversification guidelines. The Cash Management Fund in the American Funds Insurance Series is not managed to maintain a stable asset value and thus is not eligible to participate in the program.
Q: Where can I find information about the stocks and bonds held by the American Funds?
A: The most current public information is available on americanfunds.com. Each fund’s holdings are updated about 45 days after the end of each calendar quarter. Along with the full portfolio for each American Fund, the website provides information about each fund’s industry concentrations, also updated each quarter, and top 10 holdings, updated each month.
Q: Washington Mutual Bank was taken over by the Federal Deposit Insurance Corporation and sold to J.P. Morgan. Did those actions affect my investments in Washington Mutual Investors FundSM?
A: While their names are similar, Washington Mutual Investors Fund and Washington Mutual Bank are not in any way related. Read a letter to investors in the fund for more information.
Q: Why is the yield on The Tax-Exempt Money Fund of AmericaSM higher than the yield on The Cash Management Trust of America®?
A: The Cash Management Trust of America has invested a large percentage of its assets in U.S. Treasury bills. High demand for U.S. Treasuries has pushed yields lower on those securities. The Tax-Exempt Money Fund invests exclusively in securities issued by municipalities, which are currently yielding more than Treasuries.
Q: Can the assets of the American Funds that are held by independent custodians J.P. Morgan and State Street Bank be attached by the banks’ creditors or regulators?
A. No. Under federal bankruptcy law, fund assets are not property of the bank and could not be attached by the banks’ creditors or regulators. In addition, federal securities laws and each fund’s custody agreement both require the custodian banks to hold fund assets in segregated accounts for the benefit of the fund. Moreover, our custody agreements specifically provide that the custodian may take actions pertaining to these segregated accounts only as authorized by the fund. The funds also regularly reconcile assets held by the custodian banks and receive reports from independent auditors regarding the custodian’s internal controls.
Return to topInvestors should carefully consider the investment objectives, risks, charges and expenses of each fund. This and other important information is contained in the prospectus, which can be obtained from your financial professional or downloaded. Please read the prospectus carefully before you invest or send money.