<PAGE>
[LOGO THE AMERICAN FUNDS GROUP(R)]
- --------------------------------------------------------------------------------
Fundamental Investors(SM)
Prospectus
MARCH 1, 1997
<PAGE>
FUNDAMENTAL INVESTORS, INC.
One Market
Steuart Tower, Suite 1800
San Francisco, CA 94105
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expenses 3
.............................................................................
Financial Highlights 4
.............................................................................
Investment Policies and Risks 5
.............................................................................
Securities and Investment Techniques 5
.............................................................................
Multiple Portfolio Counselor System 8
.............................................................................
Investment Results 9
.............................................................................
Dividends, Distributions and Taxes 10
.............................................................................
Fund Organization and Management 11
.............................................................................
Shareholder Services 14
</TABLE>
- --------------------------------------------------------------------------------
The investment objective of the fund is to increase its shareholders' capital
and income return over time. The fund strives to accomplish this objective by
investing primarily in a diversified portfolio of common stocks, or securities
convertible into common stocks.
This prospectus presents information you should know before investing in the
fund. You should keep it on file for future reference.
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 DEPOSIT OR OBLIGATION OF, OR INSURED OR GUARANTEED BY, ANY ENTITY OR PERSON
INCLUDING THE U.S. GOVERNMENT AND THE FEDERAL DEPOSIT INSURANCE CORPORATION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
================================================================================
EXPENSES
The effect of the expenses described below is reflected in the fund's share
price or return.
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Fund operating expenses are paid out of the fund's assets
and are factored into its share price.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.75%
</TABLE>
................................................................................
SALES CHARGES ARE REDUCED OR ELIMINATED FOR LARGER PURCHASES. There is no sales
charge on reinvested dividends, and no deferred sales charge or redemption or
exchange fees. A contingent deferred sales charge of 1% applies on certain
redemptions made within 12 months following purchases without a sales charge.
FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Management fees 0.31%
...............................................................................
12b-1 expenses 0.22%/1/
...............................................................................
Other expenses 0.13%
................................................................................
Total fund operating expenses 0.66%
</TABLE>
/1/ 12b-1 expenses may not exceed 0.25% of the fund's average net assets
annually. Due to these distribution expenses, long-term shareholders may pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
EXAMPLES
Assuming a hypothetical annual return of 5% and shareholder transaction and
operating expenses as described above, for every $1,000 you invested, you would
pay the following total expenses over the following periods:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
One year $ 64
................................................................................
Three years $ 77
................................................................................
Five years $ 92
................................................................................
Ten years $135
</TABLE>
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY. YOUR EXPENSES WILL BE LESS IF YOU QUALIFY TO PURCHASE
SHARES AT A REDUCED OR NO SALES CHARGE.
- --------------------------------------------------------------------------------
FUNDAMENTAL INVESTORS / PROSPECTUS 3
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following information for the six years ended December 31, 1996 has been
audited by Deloitte & Touche llp, independent auditors, and for the four years
ended December 31, 1990 by KPMG Peat Marwick llp, independent auditors. This
table should be read together with the financial statements which are included
in the statement of additional information and annual report.
PER-SHARE DATA AND RATIOS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
..............
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $22.29 $17.50 $18.15 $17.52 $17.47 $14.32 $16.43 $14.60 $13.45 $14.21
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income .41 .41 .42 .44 .44 .41 .48 .58 .43 .39
............................................................................................................................
Net realized and
unrealized gain (loss)
on investments 4.00 5.46 (.18) 2.65 1.27 3.82 (1.52) 3.53 1.65 .20
............................................................................................................................
Total income (loss)
from investment
operations 4.41 5.87 .24 3.09 1.71 4.23 (1.04) 4.11 2.08 .59
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from
net investment
income (.40) (.40) (.44) (.43) (.42) (.40) (.49) (.62) (.47) (.40)
............................................................................................................................
Distributions from
net realized gains (1.76) (.68) (.45) (2.03) (1.24) (.68) (.58) (1.66) (.46) (.95)
............................................................................................................................
Total distributions (2.16) (1.08) (.89) (2.46) (1.66) (1.08) (1.07) (2.28) (.93) (1.35)
............................................................................................................................
Net asset value,
end of year $24.54 $22.29 $17.50 $18.15 $17.52 $17.47 $14.32 $16.43 $14.60 $13.45
- ----------------------------------------------------------------------------------------------------------------------------
Total return/1/ 19.99% 34.21% 1.33% 18.16% 10.19% 30.34% (6.24)% 28.56% 15.95% 3.77%
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in millions) $7,165 $4,754 $2,611 $1,979 $1,440 $1,156 $ 823 $ 758 $ 632 $ 610
............................................................................................................................
Ratio of expenses to
average net assets .66% .70% .68% .65% .65% .69% .70% .67% .68% .63%
............................................................................................................................
Ratio of net income
to average net assets 1.78% 2.08% 2.45% 2.43% 2.56% 2.50% 3.15% 3.40% 2.97% 2.42%
............................................................................................................................
Average
commissions paid per
share/2/ 5.69c 5.95c 6.02c 6.14c 7.53c 7.50c 7.76c 7.80c 7.47c 6.68c
............................................................................................................................
Portfolio turnover
rate 39.07% 25.47% 23.02% 29.22% 23.98% 17.07% 11.92% 18.59% 8.09% 12.40%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Calculated without deducting a sales charge. The maximum sales charge is
5.75% of the fund's offering price.
/2/ Brokerage commissions paid on portfolio transactions increase the cost of
securities purchased or reduce the proceeds of securities sold, and are not
separately reflected in the fund's statement of operations. Shares traded on
a principal basis (without commissions), such as most fixed-income
transactions, are excluded.
- --------------------------------------------------------------------------------
4 FUNDAMENTAL INVESTORS / PROSPECTUS
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
INVESTMENT POLICIES AND RISKS
The fund's investment objective is to increase its shareholders' capital and
income return over time.
The fund seeks to accomplish this objective by investing primarily in a
diversified portfolio of common stocks or securities convertible into common
stocks. The fund may also hold straight debt securities that are generally
rated in the top four quality categories by Standard & Poor's Corporation or
Moody's Investors Service, Inc. or unrated but determined to be of equivalent
quality by the fund's investment adviser, Capital Research and Management
Company. Additionally, the fund may hold cash or cash equivalents (such as
commercial paper, commercial bank obligations, and securities of the U.S.
Government, its agencies and instrumentalities), U.S. Government securities,
or nonconvertible preferred stocks. MORE INFORMATION ON THE FUND'S INVESTMENT
POLICIES IS CONTAINED IN ITS STATEMENT OF ADDITIONAL INFORMATION.
The fund's fundamental investment restrictions (described in the statement of
additional information) and objective may not be changed without shareholder
approval. All other investment practices may be changed by the fund's board of
directors.
ACHIEVEMENT OF THE FUND'S INVESTMENT OBJECTIVE CANNOT, OF COURSE, BE ASSURED
DUE TO THE RISK OF CAPITAL LOSS FROM FLUCTUATING PRICES INHERENT IN ANY
INVESTMENT IN SECURITIES.
- --------------------------------------------------------------------------------
SECURITIES AND INVESTMENT TECHNIQUES
EQUITY SECURITIES
Equity securities represent an ownership position in a company. These
securities may include common stocks, preferred 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 fund's results will be related to the overall market
for these securities.
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 vice versa.
- --------------------------------------------------------------------------------
FUNDAMENTAL INVESTORS / PROSPECTUS 5
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
The fund may invest up to 5% of its total assets in debt securities rated Ba
and BB or below by Moody's Investors Service, Inc. or Standard & Poor's
Corporation or in unrated securities that are determined to be of equivalent
quality. These securities are commonly known as "high-yield, high-risk" or
"junk" bonds. The market prices of these securities may fluctuate more than
higher quality securities and may decline significantly in periods of general
economic difficulty.
Capital Research and Management Company attempts to reduce the risks described
above through diversification of the portfolio and by credit analysis of each
issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
U.S. GOVERNMENT SECURITIES
Securities guaranteed by the U.S. Government include: (1) direct obligations
of the U.S. Treasury (such as Treasury bills, notes and bonds) and (2) federal
agency obligations guaranteed as to principal and interest by the U.S.
Treasury.
Certain securities issued by U.S. Government instrumentalities and certain
federal agencies 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.
INVESTING IN VARIOUS COUNTRIES
The fund may invest up to 15% of its assets in securities of issuers that are
domiciled outside the U.S. and not included in the Standard & Poor's 500
Composite Index (a broad measure of the U.S. stock market). Investing outside
the U.S. involves special risks, particularly in certain developing countries,
caused by, among other things, fluctuating currency values; different
accounting, auditing, and financial reporting regulations and practices in some
countries; changing local and regional economic, political and social
conditions; 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.
CURRENCY TRANSACTIONS
The fund can purchase and sell currencies to facilitate securities transactions
and enter into forward currency contracts to hedge against changes in currency
exchange rates. 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 fund will not generally attempt to protect
against all potential changes in exchange rates.
U.S. PRIVATE PLACEMENTS
Private placements may be either purchased from another institutional investor
that originally acquired the securities in a private placement or directly from
the issuers of the securities. Generally, securities acquired in such private
placements are subject to contractual restrictions on resale and may not be
resold except
- --------------------------------------------------------------------------------
6 FUNDAMENTAL INVESTORS / PROSPECTUS
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
pursuant to a registration statement under the Securities Act of 1933 or in
reliance upon an exemption from the registration requirements under the Act
(for example, private placements sold pursuant to Rule 144A). Accordingly, all
such private placements will be considered illiquid unless they have been
specifically determined to be liquid, taking into account factors such as the
frequency and volume of trading and the commitment of dealers to make markets,
under procedures which may be adopted by the fund's board of directors.
Additionally, investing in private placement securities could have the effect
of increasing the level of illiquidity of the fund's portfolio to the extent
that "qualified" institutional investors become, for a period of time,
uninterested in purchasing these securities. The fund will not invest more than
10% of its total assets in illiquid securities and no more than 5% in private
placements, excluding Rule 144A securities.
- --------------------------------------------------------------------------------
FUNDAMENTAL INVESTORS / PROSPECTUS 7
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
The basic investment philosophy of Capital Research and Management Company is
to seek fundamental values at reasonable prices, using a system of multiple
portfolio counselors in managing mutual fund assets. Under this system the
portfolio of the 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 the fund's objective and policies and by Capital
Research and Management Company's investment committee). In addition, Capital
Research and Management Company's research professionals make investment
decisions with respect to a portion of the fund's portfolio. The primary
individual portfolio counselors for the fund are listed below.
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
...................................
YEARS OF EXPERIENCE
AS PORTFOLIO COUNSELOR WITH CAPITAL
PORTFOLIO COUNSELORS (AND RESEARCH PROFESSIONAL, RESEARCH AND
FOR IF APPLICABLE) FOR MANAGEMENT
FUNDAMENTAL FUNDAMENTAL INVESTORS, INC. COMPANY OR
INVESTORS, INC. PRIMARY TITLE(S) (APPROXIMATE) ITS AFFILIATES TOTAL YEARS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JAMES E. President of the fund; 13 years (plus 5 years as 20 years 25 years
DRASDO Senior Vice President a research professional
and Director, prior to becoming a
Capital Research portfolio counselor for
and Management the fund)
Company
- -----------------------------------------------------------------------------------------------------------------------
GORDON Senior Vice President 6 years (plus 13 years as 26 years 26 years
CRAWFORD of the fund; Senior a research professional
Vice President prior to becoming a
and Director, portfolio counselor for
Capital Research the fund)
and Management
Company
- -----------------------------------------------------------------------------------------------------------------------
DINA N. Senior Vice President 4 years (plus 1 year as a 5 years 30 years
PERRY of the fund; Senior research professional
Vice President, prior to becoming a
Capital Research portfolio counselor for
and Management the fund)
Company
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
8 FUNDAMENTAL INVESTORS / PROSPECTUS
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
INVESTMENT RESULTS
The fund may from time to time compare investment results to various indices or
other mutual funds. Fund results may be calculated on a total return, yield
and/or distribution rate basis. Results calculated without a sales charge will
be higher.
X TOTAL RETURN is the change in value of an investment in the fund over a given
period, assuming reinvestment of any dividends and capital gain
distributions.
X YIELD is computed by dividing the net investment income per share earned by
the fund over a given period of time by the maximum offering price per share
on the last day of the period, according to a formula mandated by the
Securities and Exchange Commission. A yield calculated using this formula may
be different than the income actually paid to shareholders.
X DISTRIBUTION RATE reflects dividends that were paid by the fund. The
distribution rate is calculated by dividing the dividends paid over the last
12 months by the sum of the month-end price and the capital gain
distributions paid over the last 12 months.
INVESTMENT RESULTS
(FOR PERIODS ENDED DECEMBER 31, 1996)
<TABLE>
<CAPTION>
THE FUND THE FUND AT
AVERAGE ANNUAL AT NET MAXIMUM
TOTAL RETURNS: ASSET VALUE1 SALES CHARGE/1/,/2/ S&P 5003
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
One year 19.99% 13.08% 22.90%
................................................................................
Five years 16.26% 14.89% 15.18%
................................................................................
Ten years 14.92% 14.24% 15.26%
................................................................................
Lifetime 15.97% 15.60% 15.81%
</TABLE>
- --------------------------------------------------------------------------------
Yield/1/,/2/: 1.59%
Distribution Rate/2/: 1.44%
/1/ These fund results were calculated according to a standard that is required
for all stock and bond funds.
/2/ The maximum sales charge has been deducted.
/3/ The Standard & Poor's 500 Index represents stocks. This index is unmanaged
and does not reflect sales charges, commissions or expenses.
- --------------------------------------------------------------------------------
FUNDAMENTAL INVESTORS / PROSPECTUS 9
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
Here are the fund's annual total returns calculated without a sales charge. This
information is being supplied on a calendar year basis.
[chart]
Year %
1987 3.77
1988 15.95
1989 28.56
1990 -6.24
1991 30.34
1992 10.19
1993 18.16
1994 1.33
1995 34.21
1996 19.99
[end chart]
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The fund pays dividends, which may fluctuate, four times a year (usually in
February, May, August and December). Capital gains, if any, are also usually
distributed in December. When a dividend or capital gain is distributed, the
net asset value per share is reduced by the amount of the payment.
FEDERAL TAXES
In any fiscal year in which the fund qualifies as a regulated investment
company and distributes to shareholders all of its net investment income and
net capital gains, the fund itself is relieved of federal income tax.
Generally, all dividends and capital gains are taxable whether they are
reinvested or received in cash -- unless you are exempt from taxation or
entitled to tax deferral. Early each year, you will be notified as to the
amount and federal tax status of all income distributions paid during the prior
year. Such distributions may also be subject to state or local taxes. The tax
treatment of redemptions from a retirement plan account may differ from
redemptions from an ordinary shareholder account.
YOU MUST PROVIDE THE FUND WITH A CERTIFIED CORRECT TAXPAYER IDENTIFICATION
NUMBER (GENERALLY YOUR SOCIAL SECURITY NUMBER) AND CERTIFY THAT YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING. IF YOU FAIL TO DO SO THE IRS CAN REQUIRE THE
FUND TO WITHHOLD 31% OF YOUR TAXABLE DISTRIBUTIONS AND REDEMPTIONS. Federal law
also requires the fund to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
This is a brief summary of some of the tax laws that affect your investment in
the fund. Please see the statement of additional information and your tax
adviser for further information.
- --------------------------------------------------------------------------------
10 FUNDAMENTAL INVESTORS / PROSPECTUS
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
FUND ORGANIZATION AND MANAGEMENT
FUND ORGANIZATION AND VOTING RIGHTS
The fund, an open-end, diversified management investment company, was organized
as a Delaware corporation in 1932 and reorganized as a Maryland corporation in
1990. All fund operations are supervised by the fund's board of directors who
meet periodically and perform 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 fund as described in the statement of additional information.
They may elect to defer all or a portion of these fees through a deferred
compensation plan in effect for the fund. The fund does not hold annual
meetings of shareholders. However, significant corporate 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 fund will hold a
meeting at which any member of the board could be removed by a majority vote.
THE INVESTMENT ADVISER
Capital Research and Management Company, a large and experienced investment
management organization founded in 1931, is the investment adviser to the fund
and other funds, including those in The American Funds Group. Capital Research
and Management Company, a wholly owned subsidiary of The Capital Group
Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA
90071. Capital Research and Management Company manages the investment portfolio
and business affairs of the fund. The management fee paid by the fund to
Capital Research and Management Company may not exceed 0.39% of the fund's
average net assets annually and declines at certain asset levels. The total
management fee paid by the fund, as a percentage of average net assets, for the
previous fiscal year is discussed earlier under "Expenses."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has also been
incorporated into the fund's "code of ethics."
- --------------------------------------------------------------------------------
FUNDAMENTAL INVESTORS / PROSPECTUS 11
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
PLAN OF DISTRIBUTION
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the board and the expenses paid under the
Plan were incurred within the preceding 12 months and accrued while the Plan is
in effect. The 12b-1 fee paid by the fund, as a percentage of average net
assets, for the previous fiscal year is discussed earlier under "Expenses."
PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by Capital
Research and Management Company, which strives to obtain the best available
prices, taking into account the costs and quality of executions. Fixed-income
securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are usually purchased at a fixed price which includes an
amount of compensation to the dealer, generally referred to as a concession or
discount. On occasion, securities may be purchased directly from an issuer, in
which case no commissions or discounts are paid. In the over-the-counter
market, purchases and sales are transacted directly with principal market-
makers except in those circumstances where it appears better prices and
executions are available elsewhere.
Subject to the above policy, when two or more brokers are in a position to
offer comparable prices and executions, preference may be given to brokers who
have sold shares of the fund or have provided investment research, statistical,
and other related services for the benefit of the fund and/or other funds
served by Capital Research and Management Company.
- --------------------------------------------------------------------------------
12 FUNDAMENTAL INVESTORS / PROSPECTUS
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
PRINCIPAL UNDERWRITER AND TRANSFER AGENT
American Funds Distributors, Inc. and American Funds Service Company serve as
the principal underwriter and transfer agent for the fund, respectively. They
are headquartered at 333 South Hope Street, Los Angeles, CA 90071 and 135 South
State College Boulevard, Brea, CA 92821, respectively.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
[MAP OF THE UNITED STATES APPEAR HERE]
- --------------------------------------------------------------------------------
FUNDAMENTAL INVESTORS / PROSPECTUS 13
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
SHAREHOLDER SERVICES
The fund offers you a valuable array of services you can use to alter your
investment program as your needs and circumstances change. These services,
which are summarized below, are available only in states where they may be
legally offered and may be terminated or modified at any time upon 60 days'
written notice. A COMPLETE DESCRIPTION OF SHAREHOLDER SERVICES AND ACCOUNT
POLICIES IS CONTAINED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION. In
addition, an easy-to-read guide to owning a fund in The American Funds Group
titled "Welcome to the Family" is sent to new shareholders and is available by
writing or calling American Funds Service Company.
THE SERVICES DESCRIBED MAY NOT BE AVAILABLE THROUGH SOME RETIREMENT PLANS. OR
ACCOUNTS HELD BY INVESTMENT DEALERS. IF YOU ARE INVESTING IN SUCH A MANNER
YOU SHOULD CONTACT YOUR PLAN ADMINISTRATOR/TRUSTEE OR DEALER ABOUT WHAT
SERVICES ARE AVAILABLE AND WITH QUESTIONS ABOUT YOUR ACCOUNT.
- --------------------------------------------------------------------------------
PURCHASING SHARES
HOW TO PURCHASE SHARES
Generally, you may open an account by contacting any investment dealer
authorized to sell the fund's shares. You may add to your account through your
dealer or directly through American Funds Service Company by mail, wire, or
bank debit. You may also establish or add to your account by exchanging shares
from any of your other accounts in The American Funds Group. The fund and
American Funds Distributors reserve the right to reject any purchase order.
Various purchase options are available as described below subject to certain
investment minimums and limitations described in the statement of additional
information and "Welcome to the Family."
X Automatic Investment Plan
You may invest monthly or quarterly through automatic withdrawals from your
bank account.
X Automatic Reinvestment
You may reinvest your dividends and capital gain distributions into the fund
(with no sales charge). This will be done automatically unless you elect to
have the dividends and/or capital gain distributions paid to you in cash.
- --------------------------------------------------------------------------------
14 FUNDAMENTAL INVESTORS / PROSPECTUS
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
X Cross-Reinvestment
You may invest your dividends and capital gain distributions into any other
fund in The American Funds Group.
X Exchange Privilege
You may exchange your shares into other funds in The American Funds Group
generally with no sales charge. Exchanges of shares from the money market
funds that were initially purchased with no sales charge will generally be
subject to the appropriate sales charge. You may also elect to automatically
exchange shares among any of the funds in The American Funds Group. Exchange
requests may be made in writing, by telephone including American
FundsLine(R) (see below) or by fax. EXCHANGES HAVE THE SAME TAX CONSEQUENCES
AS ORDINARY SALES AND PURCHASES.
X Retirement Plans
You may invest in the fund through various retirement plans. For further
information contact your investment dealer or American Funds Distributors.
SHARE PRICE
The fund's share price, also called net asset value, is determined as of the
close of trading (normally 4:00 p.m., Eastern time) every day the New York
Stock Exchange is open. The fund calculates its net asset value per share,
generally using market prices, by dividing the total value of its assets after
subtracting liabilities by the number of its shares outstanding. Shares are
purchased at the offering price next determined after your investment is
received and accepted by American Funds Service Company. The offering price is
the net asset value plus a sales charge, if applicable.
SHARE CERTIFICATES
Shares are credited to your account and certificates are not issued unless you
request them by writing to American Funds Service Company.
INVESTMENT MINIMUMS
<TABLE>
- --------------------------------------------------------------
<S> <C>
To establish an account $250
For a retirement plan account $250
For a retirement plan account through payroll deduction $ 25
To add to an account $ 50
For a retirement plan account $ 25
</TABLE>
- --------------------------------------------------------------------------------
FUNDAMENTAL INVESTORS / PROSPECTUS 15
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
SALES CHARGES
A sales charge may apply, as described below, when purchasing shares. Sales
charges may be reduced for larger purchases as indicated below.
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF
...................... DEALER
NET CONCESSION AS
OFFERING AMOUNT % OF OFFERING
INVESTMENT PRICE INVESTED PRICE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
................................................................................
$50,000 but less than $100,000 4.50% 4.71% 3.75%
................................................................................
$100,000 but less than $250,000 3.50% 3.63% 2.75%
................................................................................
$250,000 but less than $500,000 2.50% 2.56% 2.00%
................................................................................
$500,000 but less than $1 million 2.00% 2.04% 1.60%
................................................................................
$1 million or more and certain
other investments described below see below see below see below
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES
Investments of $1 million or more and investments made by employer-sponsored
defined contribution-type plans with 200 or more eligible employees are sold
with no initial sales charge. A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF PURCHASE BY THESE
ACCOUNTS. A dealer concession of up to 1% may be paid by the fund from its Plan
of Distribution on these investments. Investments by retirement plans,
foundations or endowments with $50 million or more in assets may be made with
no sales charge and are not subject to a contingent deferred sales charge.
A dealer concession of up to 1% may be paid by American Funds Distributors on
these investments. Investments by certain individuals and entities including
employees and other associated persons of dealers authorized to sell shares of
the fund and Capital Research and Management Company and its affiliated
companies are not subject to a sales charge.
- --------------------------------------------------------------------------------
16 FUNDAMENTAL INVESTORS / PROSPECTUS
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
ADDITIONAL DEALER COMPENSATION
In addition to the concessions listed, up to 0.25% of average net assets is
paid annually to qualified dealers for providing certain services pursuant to
the fund's Plan of Distribution. During 1997, American Funds Distributors will
also provide additional compensation to the top one hundred dealers who have
sold shares of funds in The American Funds Group based on the pro rata share of
a qualifying dealer's sales.
REDUCING YOUR SALES CHARGE
You and your immediate family may combine investments to reduce your costs. You
must let your investment dealer or American Funds Service Company know if you
qualify for a reduction in your sales charge using one or any combination of
the methods described below.
X Aggregation
Investments that may be aggregated include those made by you, your spouse
and your children under the age of 21, if all parties are purchasing shares
for their own account(s), including any business account solely "controlled
by," as well as any retirement plan or trust account solely for the benefit
of, these individuals. Investments made for multiple employee benefit plans
of a single employer or "affiliated" employers may be aggregated provided
they are not also aggregated with individual accounts. Finally, investments
made by a common trust fund or other diversified pooled account not
specifically formed for the purpose of accumulating fund shares may be
aggregated.
Purchases made for nominee or street name accounts will generally not be
aggregated with those made for other accounts unless qualified as described
above.
X Concurrent Purchases
You may combine concurrent purchases of two or more funds in The American
Funds Group, except direct purchases of the money market funds. Shares of
the money market funds purchased through an exchange, reinvestment or cross-
reinvestment from a fund having a sales charge do qualify.
X Right of Accumulation
You may take into account the current value of your existing holdings in The
American Funds Group to determine your sales charge. Direct purchases of the
money market funds are excluded.
- --------------------------------------------------------------------------------
FUNDAMENTAL INVESTORS / PROSPECTUS 17
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
X Statement of Intention
You may enter into a non-binding commitment to invest a certain amount
(which, at your request, may include purchases made during the previous 90
days) in non-money market fund shares over a 13-month period. A portion of
your account may be held in escrow to cover additional sales charges which
may be due if your total investments over the statement period are
insufficient to qualify for the applicable sales charge reduction.
- --------------------------------------------------------------------------------
SELLING SHARES
HOW TO SELL SHARES
You may sell (redeem) shares in your account by contacting your investment
dealer or American Funds Service Company. You may also use American
FundsLine(R) (see below). In addition, you may sell shares in amounts of $50 or
more automatically. If you sell shares through your investment dealer you may
be charged for this service. Shares held for you in your dealer's street name
must be sold through the dealer.
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. Sale requests may be
made in writing, by telephone, including American FundsLine(R) (see below), or
by fax. Sales by telephone or fax are limited to $10,000 in accounts registered
to individual(s) (including non-retirement trust accounts). In addition, checks
must be made payable to the registered shareholder(s) and mailed to an address
of record that has been used with the account for at least 10 days. Proceeds
will not be mailed until sufficient time has passed to provide reasonable
assurance that checks or drafts (including certified or cashier's checks) for
shares purchased have cleared (which may take up to 15 calendar days from the
purchase date). Except for delays relating to clearance of checks for share
purchases or in extraordinary circumstances (and as permissible under the
Investment Company Act of 1940), sale proceeds will be paid on or before the
seventh day following receipt and acceptance of an order. The fund may, with 60
days' written notice, close your account if due to a sale of shares the account
has a value of less than the minimum required initial investment.
Generally, written requests to sell shares must be signed by you and must
include any shares you wish to sell that are in certificate form. Your
signature must be guaranteed by a bank, savings association, credit union, or
member firm of a domestic stock exchange or the National Association of
Securities Dealers, Inc., that is an eligible guarantor institution. A
signature guarantee is not currently required for any sale of $50,000 or less
provided the check is made
- --------------------------------------------------------------------------------
18 FUNDAMENTAL INVESTORS / PROSPECTUS
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
payable to the registered shareholder(s) and is mailed to the address of record
on the account, and provided the address has been used with the account for at
least 10 days. Additional documentation may be required for sales of shares
held in corporate, partnership or fiduciary accounts.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge in any fund in The American Fund Group
within 90 days after the date of the redemption or distribution. Reinvestment
will be at the next calculated net asset value after receipt and acceptance by
American Funds Service Company.
- --------------------------------------------------------------------------------
OTHER IMPORTANT THINGS TO REMEMBER
AMERICAN FUNDSLINE(R)
You may check your share balance, the price of your shares, or your most recent
account transactions, sell shares (up to $10,000 per fund, per account each
day), or exchange shares around the clock with American FundsLine(R). To use
this service, call 800/325-3590 from a TouchTone(TM) telephone.
TELEPHONE PURCHASES, SALES AND EXCHANGES
Unless you opt out of the telephone (including American FundsLine(R)) or fax
purchase, sale and/or exchange options (see below), you agree to hold the fund,
American Funds Service Company, any of its affiliates or mutual funds managed
by such affiliates, and each of their respective directors, trustees, officers,
employees and agents harmless from any losses, expenses, costs or liability
(including attorney fees) which may be incurred in connection with the exercise
of these privileges provided American Funds Service Company employs reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine. If reasonable procedures are not
employed, the fund may be liable for losses due to unauthorized or fraudulent
instructions.
Generally, all shareholders are automatically eligible to use these options.
However, you may elect to opt out of these options by writing American Funds
Service Company. (You may also reinstate them at any time by writing to
American Funds Service Company.)
ACCOUNT STATEMENTS
You will receive regular confirmation statements reflecting transactions in
your account. Purchases through automatic investment plans and certain
retirement plans will be confirmed at least quarterly.
- --------------------------------------------------------------------------------
FUNDAMENTAL INVESTORS / PROSPECTUS 19
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
NOTES
- --------------------------------------------------------------------------------
20 FUNDAMENTAL INVESTORS / PROSPECTUS
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
NOTES
- --------------------------------------------------------------------------------
FUNDAMENTAL INVESTORS / PROSPECTUS 21
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
NOTES
- --------------------------------------------------------------------------------
22 FUNDAMENTAL INVESTORS / PROSPECTUS
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
NOTES
- --------------------------------------------------------------------------------
FUNDAMENTAL INVESTORS / PROSPECTUS 23
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
<TABLE>
<CAPTION>
FOR SHAREHOLDER FOR DEALER FOR 24-HOUR
SERVICES SERVICES INFORMATION
<S> <C> <C>
American Funds American Funds American American Funds
Service Company Distributors FundsLine(R) Internet Web site
800/421-0180 ext.1 800/421-9900 ext.11 800/325-3590 http://www.americanfunds.com
</TABLE>
Telephone conversations may be recorded or monitored for
verification, recordkeeping and quality assurance purposes.
- --------------------------------------------------------------------------------
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL STATEMENT OF ADDITIONAL
REPORT TO SHAREHOLDERS INFORMATION (SAI)
Includes financial Contains more detailed
statements, detailed information on all aspects
performance information, of the fund, including the
portfolio holdings, a fund's financial statements.
statement from portfolio
management and the
independent auditors' report.
A current SAI has been filed
CODE OF ETHICS with the Securities and
Exchange Commission ("SEC").
Includes a description of the fund's It is incorporated by
personal investing policy. reference into this prospectus
and is available along with
other related materials on
the SEC's Internet Web site
at http://www.sec.gov.
To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary of
Service Company 800/421-0180 the fund One Market Steuart
ext. 1 Tower, Suite 1800
San Francisco, CA 94105
- --------------------------------------------------------------------------------
This prospectus has been printed on recycled paper.
[LOGO]
- --------------------------------------------------------------------------------
24 FUNDAMENTAL INVESTORS / PROSPECTUS
- --------------------------------------------------------------------------------
<PAGE>
FUNDAMENTAL INVESTORS, INC.
Part B
Statement of Additional Information
MARCH 1, 1997
This document is not a prospectus but should be read in conjunction with the
current prospectus of Fundamental Investors, Inc. (the "fund" or "FI") dated
March 1, 1997. The prospectus may be obtained from your investment dealer or
financial planner or by writing to the fund at the following address:
Fundamental Investors, Inc.
Attention: Secretary
One Market
Steuart Tower, Suite 1800
San Francisco, CA 94105
Telephone: (415) 421-9360
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, and they should contact their employer for details.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE NO.
<S> <C>
DESCRIPTION OF CERTAIN SECURITIES 1
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK BONDS 3
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS 3
FUND OFFICERS AND DIRECTORS 6
MANAGEMENT 11
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 13
PURCHASE OF SHARES 16
REDEEMING SHARES 24
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 25
EXECUTION OF PORTFOLIO TRANSACTIONS 27
GENERAL INFORMATION 28
INVESTMENT RESULTS 39
DESCRIPTION OF BOND RATINGS 34
FINANCIAL STATEMENTS ATTACHED
</TABLE>
DESCRIPTION OF CERTAIN SECURITIES
THE DESCRIPTIONS BELOW ARE INTENDED TO SUPPLEMENT THE MATERIAL IN THE
PROSPECTUS UNDER "INVESTMENT POLICIES AND RISKS."
U.S. GOVERNMENT SECURITIES - From time to time, the fund may invest in U.S.
government securities. Securities guaranteed by the U.S. government include:
(1) direct obligations of the U.S. Treasury (such as Treasury bills, notes and
bonds) and (2) federal agency obligations guaranteed as to principal and
interest by the U.S. Treasury. In 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.
Certain securities issued by U.S. government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the
Treasury. However, such securities 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 Land Banks, Farmers Home
Administration, Central Bank for Cooperatives, and Federal Intermediate Credit
Banks.
CASH EQUIVALENTS - The fund invests in various high-quality money market
instruments that mature, or may be redeemed or resold, in 13 months or less (25
months in the case of U.S. government securities). These include (1)
commercial paper (notes issued by corporations or governmental bodies), (2)
commercial bank obligations (for example, certificates of deposit and banker's
acceptances (time drafts on a commercial bank where the bank accepts an
irrevocable obligation to pay at maturity), (3) savings association and savings
bank obligations (for example, certificates of deposit issued by savings banks
or savings and loan associations), (4) securities of the U.S. government, its
agencies or instrumentalities that at purchase mature, or may be redeemed, in
one year or less, and (5) corporate bonds and notes. that at purchase mature,
or that may be redeemed, in one year or less.
CURRENCY TRANSACTIONS -- The fund has the ability to enter into forward
currency contracts to protect against changes in currency exchange rates. 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. The fund intends to enter into forward currency contracts solely to
hedge into the U.S. dollar its exposure to other currencies. The fund will
segregate liquid assets which will be marked to market daily to meet its
forward contract commitments to the extent required by the Securities and
Exchange Commission.
Certain provisions of the Internal Revenue Code may affect the extent to which
the fund may enter into forward contracts. Such transactions may also affect,
for U.S. federal income tax purposes, the character and timing of income, gain
or loss recognized by the fund.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements, under
which it buys a security and obtains a simultaneous commitment from the seller
to repurchase the security at a specified time and price. The seller must
maintain with the fund's custodian collateral equal to at least 100% of the
repurchase price, including accrued interest, as monitored daily by Capital
Research and Management Company. If the seller under the repurchase agreement
defaults, the fund 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, liquidation of the collateral by the fund may be
delayed or limited. For purposes of Investment Restriction number five, under
"Investment Restrictions" below, repurchase agreements maturing in excess of
seven days are considered not readily marketable. The fund does not currently
intend (at least for the next 12 months) to invest in repurchase agreements.
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK BONDS
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high-risk bonds
can be sensitive to adverse economic changes and corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience 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. If the issuer of a bond defaulted on its obligations to pay
interest or principal or entered into bankruptcy proceedings, the fund may
incur losses or expenses in seeking recovery of amounts owed to it. In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices of high-yield, high-risk bonds.
PAYMENT EXPECTATIONS - High-yield, high-risk bonds, like other bonds, may
contain redemption or call provisions. If an issuer exercised 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 for
investors. Conversely, a high-yield, high-risk bond's value will decrease in a
rising interest rate market, as it will with all bonds.
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
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
The fund's investment adviser, Capital Research and Management Company,
attempts to reduce the fund's risks through diversification of the portfolio by
credit analysis of each issuer as well as by monitoring broad economic trends
and corporate developments, but there can be no assurance that it will be
successful in doing so. The fund's investment policy with respect to investing
in high-yield, high-risk securities is a "non-fundamental" policy and thus, may
be changed by the board of directors at any time. It is contemplated that most
of the fund's common stock investments will be made in securities that are
listed on a stock exchange.
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
The fund has adopted certain fundamental policies and investment restrictions
for the protection of the fund's shareholders that may not be changed without
shareholder approval. (Approval requires the affirmative vote of 67% or more
of the voting securities present at a meeting of shareholders, provided more
than 50% of such securities are represented at the meeting or the vote of more
than 50% of the outstanding voting securities, whichever is less.)
The fund may not:
1. borrow money or securities;
2. buy securities "on margin";
3. effect "short sales" of securities;
4. mortgage, pledge or hypothecate securities;
5. lend money or securities (but the purchase of a portion of an issue of
publicly distributed debt securities is not considered the making of a loan);
6. invest in the securities of any issuer which, including predecessors, has
a record of less than three years continuous operation;
7. invest in the securities of any issuer if any officer or director of the
fund owns more than 1/2 of 1% of the securities of that issuer or if the fund's
officers and directors together own more than 5% of the securities of that
issuer;
8. invest any of its assets in the securities of any managed investment trust
or of any other managed investment company;
9. invest more than 5% of its total assets at the market value at the time of
investment in securities of any one issuer, or hold more than 10% of such
securities of any one issuer, but these limitations do not apply to obligations
of or guaranteed by the U.S.;
10. purchase or sell real estate;
11. purchase or sell commodities or commodity contracts;
12. act as underwriter of securities issued by other persons;
13. make investments in other companies for the purpose of exercising control
or management;
14. concentrate its investments in any one industry or group of industries,
but may invest up to 25% of its assets in any one industry.
Notwithstanding investment restriction number 8, the fund may invest in
securities of other investment companies if deemed advisable by its officers in
connection with the administration of a deferred compensation plan adopted by
Directors pursuant to an exemptive order granted by the Securities and Exchange
Commission.
For purposes of investment restriction number 14, the fund will not invest 25%
or more (rather than more than 25%) of its total assets in the securities of
issuers in the same industry.
Although not fundamental policies, the fund has further agreed that it will not
invest more than 5% of the value of the fund's assets in warrants, valued at
the lower of cost or market, with no more than 2% being unlisted on the New
York or American Stock Exchanges (warrants acquired by the fund in units or
attached to securities may be deemed to be without value); or invest in puts or
calls, or in oil, gas or other mineral exploration programs; or invest more
than 10% of the value of its total assets in securities which are not readily
marketable (including repurchase agreements maturing in more than seven days or
securities for which there is no active and substantial market). In addition,
in connection with investment restriction number 10 above, the fund has
undertaken to the State of Texas that it will not, as a matter of
non-fundamental policy, purchase or sell limited partnerships in real estate
(excluding securities of companies, such as real estate investment trusts,
which deal in real estate or interests therein).
No officer or director of the fund may sell portfolio securities to the fund or
buy portfolio securities from it.
FUND OFFICERS AND DIRECTORS
Directors and Director Compensation
(with their principal occupations during the past five years)#
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION PRINCIPAL OCCUPATION(S) DURING AGGREGATE TOTAL COMPENSATION TOTAL
WITH PAST 5 YEARS (POSITIONS WITHIN COMPENSATION FROM ALL FUNDS NUMBER OF
REGISTRANT THE ORGANIZATIONS LISTED MAY (INCLUDING MANAGED BY CAPITAL FUND BOARDS
HAVE CHANGED DURING THIS VOLUNTARILY RESEARCH AND ON WHICH
PERIOD) DEFERRED MANAGEMENT DIRECTOR
COMPENSATION/1/) COMPANY/2/ SERVES/2/
FROM FUND DURING
FISCAL YEAR ENDED
12/31/96
<S> <C> <C> <C> <C> <C>
Guilford C. Babcock Director Associate Professor of Finance, $12,800/3/ $26,000
1575 Circle Drive School of Business 2
San Marino, CA 91108 Administration,
Age: 65 University of Southern California
Charles H. Black Director Private investor and consultant; $12,800
525 Alma Real Drive former Executive Vice President $115,400 4
Pacific Palisades, CA 90272 and Director, KaiserSteel
Age: 70 Corporation
Martin Fenton, Jr. Director Chairman, Senior Resource $12,800/3/ $124,400
4350 Executive Drive Group 16
Suite 101 (management of senior living
San Diego, CA 92121-2116 centers)
Age: 61
Herbert Hoover III Director Private Investor $11,600 $61,700
1520 Circle Drive 14
San Marino, CA 91108
Age: 69
Gail L. Neale Director President, The Lovejoy $13,600/3/ $54,300
The Lovejoy Consulting Group, Inc. Consulting Group, Inc.; former 4
154 Prospect Parkway Executive Vice President,
Burlington, VT 05401 Salzburg Seminar; former
Age: 62 Director of Development and the
Capital Campaign, Hampshire
College; Special Advisor, The
Commonwealth Fund and Mount
Holyoke College
Kirk P. Pendleton Director President, Cairnwood, Inc. $13,600/3/ $60,394
Cairnwood, Inc. 5
75 James Way
Southampton, PA 18966
Age: 57
+ James W. Ratzlaff Director Director, American Funds
One Market, Steuart Service Company; Senior none/4/ none/4/ 8
Tower, Suite 1800 Partner, The Capital Group
San Francisco, CA 94105 Partners, L.P.
Age: 60
Henry E. Riggs Director President and Professor of $14,000/3/ $79,500
Kingston Hall 201 Engineering, Harvey Mudd 5
Harvey Mudd College College; former Thomas W.
Claremont, CA 91711 Ford Professor of Engineering
Age: 62 and Vice President of
Development, Stanford
University
+ R. Michael Shanahan Director Chairman of the Board and
333 South Hope Street Principal Executive Officer, none/4/ none/4/ 2
Los Angeles, CA 90071 Capital Research and
Age: 58 Management Company;
Director, The Capital Group
Companies, Inc.; Director,
Capital Group Research, Inc.
+ Walter P. Stern Chairman of Chairman, Capital Group
630 Fifth Avenue the Board International, Inc.; Vice none/4/ none/4/ 8
New York, NY 10111 Chairman, Capital Research
Age: 68 International; Capital
International, Inc.; Director,
Temple-Inland, Inc.
Charles Wolf, Jr. Director Dean, The RAND Graduate $13,600/3/ $54,300
The RAND Graduate School
1700 Main Street School; Director, International 4
Santa Monica, CA 90406 Economic Studies, The RAND
Age: 72 Corporation
</TABLE>
# Positions within the organizations listed may have changed during this
period.
+ Directors who are considered "interested persons as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), on the basis of their
affiliation with the fund's Investment Adviser, Capital Research and Management
Company.
/1/ Amounts may be deferred by eligible directors under a non-qualified
deferred compensation plan adopted by the Fund in 1993. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more
funds in The American Funds Group as designated by the Director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, Inc., American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management
Trust of America, Capital Income Builder, Inc., Capital World Growth and Income
Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America,
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U. S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc. Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serves as the underlying investment vehicle for certain
variable insurance contracts; and Bond Portfolio for Endowments, Inc. and
Endowments, Inc. whose shares may be owned only by tax-exempt organizations.
/3/ Since the plan's adoption, the total amount of deferred compensation
accrued by the fund (plus earnings thereon) for participating Directors is as
follows: Guilford C. Babcock ($46,311), Martin Fenton, Jr. ($17,391), Gail L.
Neale ($39,018), Kirk P. Pendleton ($46,721), Henry E. Riggs ($51,862) and
Charles Wolf, Jr. ($48,957). Amounts deferred and accumulated earnings thereon
are not funded and are general unsecured liabilities of the fund until paid to
the Director.
/4/ James W. Ratzlaff, R. Michael Shanahan and Walter P. Stern are affiliated
with the Investment Adviser and, accordingly, receive no compensation from the
Fund.
OFFICERS
(with their principal occupations during the past five years)#
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NAME AND ADDRESS AGE POSITION(S) PRINCIPAL OCCUPATION(S)
HELD WITH DURING PAST 5 YEARS
REGISTRANT
James E. Drasdo 51 President Capital Research and
333 South Hope Street Management Company, Senior
Los Angeles, CA 90071 Vice President and Director
Gordon Crawford 50 Senior Vice Capital Research and
333 South Hope Street President Management Company, Senior
Los Angeles, CA 90071 Vice President and Director
Paul G. Haaga, Jr. 48 Executive Capital Research and
333 South Hope Street Vice Management Company, Senior
Los Angeles, CA 90071 President Vice President and Director
Dina N. Perry 51 Senior Vice Capital Research and
3000 K Street, N.W., President Management Company, Vice
Suite 230 President
Washington, D.C. 20007-5124
Julie F. Williams 48 Secretary Capital Research Company,
333 South Hope Street Vice President - Fund
Los Angeles, CA 90071 Business Management Group
Patrick F. Quan 38 Assistant Capital Research and
One Market, Steuart Tower, Secretary Management Company, Vice
Suite 1800 President - Fund Business
San Francisco, CA 94105 Management Group
Mary C. Hall 39 Treasurer Capital Research and
135 South State College Blvd. Management Company, Senior
Brea, CA 92821 Vice President - Fund
Business Management Group
Robert P. Simmer 35 Assistant Capital Research and
5300 Robin Hood Road Treasurer Management Company, Vice
Norfolk, VA 23513 President - Fund Business
Management Group
</TABLE>
# Positions within the organizations listed may have changed during this
period.
No compensation is paid by the fund to any officer or director who is a
director, officer or employee of the Investment Adviser or affiliated
companies. The compensation paid by the fund to directors who are not
affiliated with the Investment Adviser is $11,000 per annum, plus $800 for each
Board of Directors meeting attended, plus $400 for each meeting attended as a
member of a committee of the Board of Directors. No pension or retirement
benefits are accrued as part of fund expenses. The Directors may elect, on a
voluntary basis, to defer all or a portion of these fees through a deferred
compensation plan in effect for the fund. The fund also reimburses certain
expenses of the Directors who are not affiliated with the Investment Adviser.
As of February 1, 1997 the officers and directors of the fund and their
families, as a group, owned beneficially or of record less than 1% of the
outstanding shares of the fund.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington, D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience. The Investment Adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821.
The Investment Adviser's professionals travel several million miles a year,
making more than 5,000 research visits in more than 50 countries around the
world. The Investment Adviser believes that it is able to attract and retain
quality personnel. The Investment Adviser is a wholly owned subsidiary of The
Capital Group Companies, Inc.
An affiliate of the Investment Adviser compiles indices for major stock markets
around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for more than $100 billion of stocks,
bonds and money market instruments and serves over five million investors of
all types throughout the world. These investors include privately owned
businesses and large corporations as well as schools, colleges, foundations and
other non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service
Agreement (the Advisory Agreement) between the fund and the Investment Adviser,
dated December 1, 1991 and approved by shareholders on November 14, 1991, shall
be in effect until the close of business on March 31, 1998, and may be renewed
from year to year thereafter, provided that any such renewal has been
specifically approved at least annually by (i) the Board of Directors of the
fund, or by the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the fund, and (ii) the vote of a majority of
directors who are not parties to the Advisory Agreement or interested persons
(as defined in said Act) of any such party, cast in person, at a meeting called
for the purpose of voting on such approval. The Advisory Agreement also
provides that either party has the right to terminate it without penalty, upon
60 days' written notice to the other party, and that the Advisory Agreement
automatically terminates in the event of its assignment (as defined in said
Act).
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the fund, provides suitable office space, necessary small office equipment and
utilities, and provides general purpose accounting forms, supplies, and postage
used at the offices of the fund relating to the services furnished by the
Investment Adviser. The fund pays all expenses not specifically assumed by the
Investment Adviser as provided herein. Such expenses shall include, but shall
not be limited to, custodian, stock transfer and dividend disbursing fees and
expenses; costs of the designing, printing and mailing of reports,
prospectuses, proxy statements, and notices to its shareholders; taxes;
expenses of the issuance and redemption of shares of the fund (including stock
certificates, registration and qualification fees and expenses); expenses
pursuant to the fund's Plan of Distribution (described below); legal and
auditing expenses; compensation, fees, and expenses paid to directors;
association dues; costs of stationery and forms prepared exclusively for the
fund; and costs of assembling and storing shareholder account data.
The Advisory Agreement provides for an advisory fee reduction to the extent
that the fund's annual ordinary operating expenses exceed 1% of the average net
assets of the fund. Expenses which are not subject to this limitation are
interest, taxes, and extraordinary expenses. Expenditures, including costs
incurred in connection with the purchase or sale of portfolio securities, which
are capitalized in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital items and not
as expenses.
The management fee is based on an annual rate of 0.39% on the first $800
million of the fund's net assets, plus 0.336% on net assets over $800 million
to $1.8 billion, plus 0.30% on net assets over $1.8 billion to $3 billion, plus
0.276% on net assets over $3 billion. During the fiscal years ended December
31, 1996, 1995, and 1994, , the Investment Adviser received from the fund
advisory fees of $18,267,000, $11,787,000, and $7,967,000, respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the Principal
Underwriter) is the principal underwriter of the fund's shares. The fund has
adopted a Plan of Distribution (the Plan), pursuant to rule 12b-1 (see
"Principal Underwriter" in the prospectus). The Principal Underwriter receives
amounts payable pursuant to the Plan (described below) and commissions
consisting of that portion of the sales charge remaining after the discounts
which it allows to investment dealers. Commissions retained by the Principal
Underwriter on sales of fund shares during the fiscal year ended December 31,
1996, amounted to $7,993,000 after allowance of $40,389,000 to dealers. During
the fiscal years ended December 31, 1995 and 1994, the Principal Underwriter
retained $5,718,000 and $3,299,000, after allowance of $29,762,000 and
$16,822,000 to dealers, respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by the full Board of Directors, and separately by
a majority of the directors who are not "interested" persons of the fund and
who have no direct or indirect financial interest in the operation of the Plan
or the Principal Underwriting Agreement, and the Plan has been approved by the
vote of a majority of the outstanding voting securities of the fund. The
officers and directors who are "interested" persons of the fund may, due to
present or past affiliations with the Investment Adviser and related companies,
be considered to have a direct or indirect financial interest in the operation
of the Plan. Potential benefits of the plan to the fund include improved
shareholder services, savings to the fund in transfer agency costs, savings to
the fund in advisory fees and other expenses, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management organization. The selection and nomination of directors who
are not "interested persons" of the fund are committed to the discretion of the
directors who are not interested persons during the existence of the Plan. The
Plan is reviewed quarterly and must be renewed annually by the Board of
Directors.
Under the Plan the fund may expend up to 0.25% of its net assets annually to
finance any activity which is primarily intended to result in the sale of fund
shares, provided the fund's Board of Directors has approved the category of
expenses for which payment is being made. These include service fees for
qualified dealers and dealer commissions and wholesaler compensation on sales
of shares exceeding $1 million (including purchases by any employer-sponsored
403(b) plan or purchases by any defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a "401(k) plan with 200
or more eligible employees). Only expenses incurred during the preceding 12
months and accrued while the Plan is in effect may be paid by the fund. During
the year ended December 31, 1996, the fund paid or accrued $13,010,000 under
the Plan as compensation to dealers. As of December 31, 1996, distribution
expenses accrued and unpaid distribution expenses were $921,000.
The Glass-Steagall Act and other applicable laws, among other things, generally
prohibit commercial banks from engaging in the business of underwriting,
selling or distributing securities, but permit banks to make shares of mutual
funds available to their customers and to perform administrative and
shareholder servicing functions. However, judicial or administrative decisions
or interpretations of such laws, as well as changes in either federal or state
statutes or regulations relating to the permissible activities of banks or
their subsidiaries of affiliates, could prevent a bank from continuing to
perform all or a part of its servicing activities. If a bank were prohibited
from so acting, shareholder clients of such bank would be permitted to remain
shareholders of the fund and alternate means for continuing the servicing of
such shareholders would be sought. In such event, changes in the operation of
the fund might occur and shareholders serviced by such bank might no longer be
able to avail themselves of any automatic investment or other services then
being provided by such bank. It is not expected that shareholders would suffer
with adverse financial consequences as a result of any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements and has elected the tax status of
a "regulated investment company" under the provisions of Subchapter M of the
Internal Revenue Code of 1986 (the Code). Under Subchapter M, if the fund
distributes within specified times at least 90% of its investment company
taxable income, it will be taxed only on that portion of such investment
company taxable income that it retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, and
gains from the sale or other disposition of stock, securities, currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) derive less than 30% of its gross income from the
gains or sale or other disposition of stock or securities held less than three
months; and (c) diversify its holdings so that, at the end of each fiscal
quarter, (I) at least 50% of the market value of the fund's assets is
represented by cash, cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities (but such other
securities must be limited, in respect of any one issuer, to an amount not
greater than 5% of the fund's assets and 10% of the outstanding voting
securities of such issuer), and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies), or in two or more issuers which the fund controls and which are
engaged in the same or similar trades or businesses or related trades or
businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gains (both long-term and
short-term) for the one-year period ending on October 31 (as though the
one-year period ending on October 31 were the regulated investment company's
taxable year), and (iii) the sum of any untaxed, undistributed net investment
income and net capital gains of the regulated investment company for prior
periods. The term "distributed amount" generally means the sum of (i) amounts
actually distributed by the fund from its current year's ordinary income and
capital gain net income and (ii) any amount on which the fund pays income tax
for the year. The fund intends to distribute net investment income and net
capital gains so as to minimize or avoid the excise tax liability.
The fund also intends to distribute to shareholders all of the excess of net
long-term capital gain over net short-term capital loss on sales of securities.
If the net asset value of shares of the fund should, by reason of a
distribution of realized capital gains, be reduced below a shareholder's cost,
such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes. In particular, investors should consider the tax
implications of purchasing shares just prior to a dividend or distribution
record date. Those investors purchasing shares just prior to such a date will
then receive a partial return of capital upon the dividend or distribution,
which will nevertheless be taxable to them as an ordinary or capital gains
dividend.
Corporate shareholders of the fund may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gains dividends) paid by
the fund to the extent that the fund's income is derived from dividends (which,
if received directly, would qualify for such deduction) received from domestic
corporations. In order to quality for the dividends-received deduction, a
corporate shareholder must hold the fund shares paying the dividends upon which
the deduction is based for at least 46 days.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made payable
to shareholders of record in such a month are treated as paid and are thereby
taxable as of December 31, provided that the fund pays the dividend no later
than the end of January of the following year.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred in acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
The fund may be required to pay withholding and other taxes imposed by foreign
countries generally at rates from 10% to 40% which would reduce the fund's
investment income. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. It is not anticipated that
shareholders will be entitled to take a foreign tax credit or deduction for
such foreign taxes. Corporate shareholders of the fund will be eligible for
the dividends-received deduction on the dividends (excluding the net capital
gain dividends) paid by the fund to the extent the fund's income is derived
from dividends received from domestic corporations. In order to qualify for
the dividends-received deduction, a corporate shareholder must hold the fund
shares on which the dividends are paid for at least 46 days.
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or lower treaty rate). Withholding will not apply if a
dividend paid by the fund to a non-U.S. shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents or domestic
corporations will apply. However, if the distribution is effectively connected
with the conduct of the non-U.S. shareholder's trade or business within the
U.S., the distribution would be included in the net income of the shareholder
and subject to U.S. income tax at the applicable marginal rate. Distributions
of capital gains not effectively connected with a U.S. trade or business are
not subject to the withholding, but if the non-U.S. shareholder was an
individual who was physically present in the U.S. during the tax year for more
than 182 days and such shareholder is nonetheless treated as a nonresident
alien, the distributions would be subject to a 30% tax.
As of the date of this statement of additional information, the maximum federal
individual stated tax rate applicable to ordinary income is 39.6% (effective
tax rates may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual tax rate applicable to net
capital gain is 28%; and the maximum corporate tax applicable to ordinary
income and net capital gain is 35%. However, to eliminate the benefit of
lower marginal corporate income tax rates, corporations which have income in
excess of $100,000 for a taxable year will be required to pay an additional
income tax liability of up to $11,700 and corporations which have taxable
income in excess of $15,000,000 for a taxable year will be required to pay an
additional amount of tax of up to $100,000. Naturally, the amount of tax
payable by an individual will be affected by a combination of tax law rules
covering, E.G., deductions, credits, deferrals, exemptions, sources of income
and other matters. Under the Code, an individual is entitled to establish an
IRA each year (prior to the tax return filing deadline for the year) whereby
earnings on investments are tax-deferred. In addition, in some cases, the IRA
contribution itself may be deductible.
The foregoing is limited to a summary of federal taxation and should not be
viewed as a comprehensive discussion of all provisions of the Code relevant to
investors. Dividends and capital gain distributions may also be subject to
state or local taxes. Investors are urged to consult their tax advisers with
specific reference to their own tax situations.
PURCHASE OF SHARES
<TABLE>
<CAPTION>
<S> <C> <C>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums $50 minimum (except where a lower
and Fund Numbers" for initial minimum is noted under "Investment
investment minimums. Minimums and Fund Numbers").
By contacting Visit any investment dealer Mail directly to your investment dealer's
your investment who is registered in the state address printed on your account
dealer where the purchase is made statement.
and who has a sales
agreement with American
Funds Distributors.
By mail Make your check payable to Fill out the account additions form at
the fund and mail to the the bottom of a recent account
address indicated on the statement, make your check payable to
account application. Please the fund, write your account number on
indicate an investment dealer your check, and mail the check and
on the account application. form in the envelope provided with your
account statement.
By telephone Please contact your Complete the "Investments by Phone"
investment dealer to open section on the account application or
account, then follow the American FundsLink Authorization
procedures for additional Form.
investments. Once you establish the privilege, you,
your financial advisor or any person
with your account information can call
American FundsLine(R) and make
investments by telephone (subject to
conditions noted in "Shareholder
Account Services and Privileges -
Telephone Redemptions and
Exchanges" below).
By wire Call 800/421-0180 to obtain Your bank should wire your additional
your account number(s), if investments in the same manner as
necessary. Please indicate described under "Initial Investment."
an investment dealer on the
account. Instruct your bank
to wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the account of:
American Funds Service
Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE
ORDER.
</TABLE>
INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial investments
required by the funds in The American Funds Group along with fund numbers for
use with our automated phone line, American FundsLine(R) (see description
below):
<TABLE>
<CAPTION>
<S> <C> <C>
FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R) $1,000 02
American Balanced Fund(R) 500 11
American Mutual Fund(R) 250 03
Capital Income Builder(R) 1,000 12
Capital World Growth and Income Fund(SM) 1,000 33
EuroPacific Growth Fund(R) 250 16
Fundamental Investors(SM) 250 10
The Growth Fund of America(R) 1,000 05
The Income Fund of America(R) 1,000 06
The Investment Company of America(R) 250 04
The New Economy Fund(R) 1,000 14
New Perspective Fund(R) 250 07
SMALLCAP World Fund(R) 1,000 35
Washington Mutual Investors Fund(SM) 250 01
BOND FUNDS
American High-Income Municipal Bond Fund(R) 1,000 40
American High-Income Trust(SM) 1,000 21
The Bond Fund of America(SM) 1,000 08
Capital World Bond Fund(R) 1,000 31
Intermediate Bond Fund of America(SM) 1,000 23
Limited Term Tax-Exempt Bond Fund of 1,000 43
America(SM)
The Tax-Exempt Bond Fund of America(R) 1,000 19
The Tax-Exempt Fund of California(R)* 1,000 20
The Tax-Exempt Fund of Maryland(R)* 1,000 24
The Tax-Exempt Fund of Virginia(R)* 1,000 25
U.S. Government Securities Fund(SM) 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of America(R) 2,500 09
The Tax-Exempt Money Fund of America(SM) 2,500 39
The U.S. Treasury Money Fund of America(SM) 2,500 49
___________
*Available only in certain states.
</TABLE>
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
DEALER COMMISSIONS - The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND FUNDS
Less than $50,000
6.10% 5.75% 5.00%
$50,000 but less than $100,000
4.71 4.50 3.75
BOND FUNDS
Less than $25,000
4.99 4.75 4.00
$25,000 but less than $50,000
4.71 4.50 3.75
$50,000 but less than $100,000
4.17 4.00 3.25
STOCK, STOCK/BOND, AND BOND
FUNDS
$100,000 but less than $250,000
3.63 3.50 2.75
$250,000 but less than $500,000
2.56 2.50 2.00
$500,000 but less than $1,000,000
2.04 2.00 1.60
$1,000,000 or more (see below)
none none
</TABLE>
Commissions of up to 1% will be paid to dealers who initiate and are
responsible for purchases of $1 million or more, for purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution
plan qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $100 million or more: 1.00% on amounts of $1 million
to $2 million, 0.80% on amounts over $2 million to $3 million, 0.50% on amounts
over $3 million to $50 million, 0.25% on amounts over $50 million to $100
million, and 0.15% on amounts over $100 million. The level of dealer
commissions will be determined based on sales made over a 12-month period
commencing from the date of the first sale at net asset value.
American Funds Distributors, at its expense (from a designated percentage of
its income), will, during calendar year 1997, provide additional compensation
to dealers. Currently these payments are limited to the top one hundred dealers
who have sold shares of the fund or other funds in The American Funds Group.
These payments will be based on a pro rata share of a qualifying dealer's
sales. American Funds Distributors will, on an annual basis, determine the
advisability of continuing these payments.
Any employer-sponsored 403(b) plan or defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200
or more eligible employees or any other purchaser investing at least $1 million
in shares of the fund (or in combination with shares of other funds in The
American Funds Group other than the money market funds) may purchase shares at
net asset value; however, a contingent deferred sales charge of 1% is imposed
on certain redemptions made within twelve months of the purchase. (See
"Redeeming Shares--Contingent Deferred Sales Charge.") Investments by
retirement plans, foundations or endowments with $50 million or more in assets
may be made with no sales charge and are not subject to a contingent deferrred
sales charge.
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
NET ASSET VALUE PURCHASES - The stock, stock/bond and bond funds may sell
shares at net asset value to: (1) current or retired directors, trustees,
officers and advisory board members of the funds managed by Capital Research
and Management Company, employees of Washington Management Corporation,
employees and partners of The Capital Group Companies, Inc. and its affiliated
companies, certain family members of the above persons, and trusts or plans
primarily for such persons; (2) current registered representatives, retired
registered representatives with respect to accounts established while active,
or full-time employees (and their spouses, parents, and children) of dealers
who have sales agreements with American Funds Distributors (or who clear
transactions through such dealers) and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer; (4) trustees or other fiduciaries purchasing shares for
certain retirement plans of organizations with retirement plan assets of $100
million or more; (5) insurance company separate accounts; (6) accounts managed
by subsidiaries of The Capital Group Companies, Inc.; and (7) The Capital Group
Companies, Inc., its affiliated companies and Washington Management
Corporation. Shares are offered at net asset value to these persons and
organizations due to anticipated economies in sales effort and expense.
STATEMENT OF INTENTION - The reduced sales charges and offering prices set
forth in the Prospectus apply to purchases of $50,000 or more made within a
13-month period subject to a statement of intention (the "Statement"). The
Statement is not a binding obligation to purchase the indicated amount. When a
shareholder elects to utilize a Statement in order to qualify for a reduced
sales charge, shares equal to 5% of the dollar amount specified in the
Statement will be held in escrow in the shareholder's account out of the
initial purchase (or subsequent purchases, if necessary) by the Transfer Agent.
All dividends and any capital gain distributions on shares held in escrow will
be credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the specified
13-month period, the purchaser will remit to the Principal Underwriter the
difference between the sales charge actually paid and the sales charge which
would have been paid if the total of such purchases had been made at a single
time. If the difference is not paid within 45 days after written request by
the Principal Underwriter or the securities dealer, the appropriate number of
shares held in escrow will be redeemed to pay such difference. If the proceeds
from this redemption are inadequate, the purchaser will be liable to the
Principal Underwriter for the balance still outstanding. The Statement may be
revised upward at any time during the 13-month period, and such a revision will
be treated as a new Statement, except that the 13-month period during which the
purchase must be made will remain unchanged and there will be no retroactive
reduction of the sales charges paid on prior purchases. Existing holdings
eligible for rights of accumulation (see the prospectus and account
application) may be credited toward satisfying the Statement. During the
Statement period reinvested dividends and capital gain distributions,
investments in money market funds, and investments made under a right of
reinstatement will not be credited toward satisfying the Statement.
In the case of purchase orders by the trustees of certain retirement plans by
payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: The regular monthly payroll
deduction investment will be multiplied by 13 and then multiplied by 1.5. The
current value of existing American Funds investments (other than money market
fund investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period are
added to the figure determined above. The sum is the Statement amount and
applicable breakpoint level. On the first investment and all other investments
made pursuant to the Statement, a sales charge will be assessed according to
the sales charge breakpoint thus determined. There will be no retroactive
adjustments in sales charges on investments previously made during the 13-month
period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above, or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the Investment Company Act of 1940, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company; this offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. In case of orders sent directly to the fund or American Funds
Service Company, an investment dealer MUST be indicated. The dealer is
responsible for promptly transmitting purchase orders to the Principal
Underwriter. Orders received by the investment dealer, the Transfer Agent, or
the fund after the time of the determination of the net asset value will be
entered at the next calculated offering price. Prices which appear in the
newspaper are not always indicative of prices at which you will be purchasing
and redeeming shares of the fund, since such prices generally reflect the
previous day's closing price whereas purchases and redemptions are made at the
next calculated price.
The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily at the close of trading
(currently 4:00 p.m., New York time) each day the New York Stock Exchange is
open. The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The net
asset value per share is determined as follows:
1. Portfolio securities, including ADRs and EDRs, which are traded on stock
exchanges, are valued at the last sale price on the exchange 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. In
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated by or under the authority of the Board of
Directors as the primary market. Securities traded in the over-the-counter
market are valued at the last reported sale price in the over-the-counter
market prior to the time of valuation or, lacking any sales, at the last
reported bid price. Securities and assets for which market quotations are not
readily available (including restricted securities which are subject to
limitations as to their sale) are valued at fair value as determined in good
faith by or under the direction of the Board of Directors. U.S. Treasury bills
and other short-term obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, with original or remaining maturities in
excess of 60 days are valued at the mean or representative quoted bid and asked
prices for such securities or, if such prices are not available, are valued at
the mean of representative quoted bid and asked prices for securities of
comparable maturity, quality and type. Short-term securities with 60 days or
less to maturity are amortized to maturity based on their cost if acquired
within 60 days of maturity or, if already held on the 60th day, based on the
value determined on the 61st day. Trading in securities on European and Far
Eastern securities exchanges and over-the-counter markets is normally completed
well before the close of the business day in New York. In addition, European
or Far Eastern securities trading may not take place on all business days in
New York. Furthermore, trading takes place in various non-U.S. markets on days
which are not business days in New York and on which the fund's net asset value
is not calculated. The calculation of net asset value may not take place
contemporaneously with the determination of the prices of portfolio securities
used in such calculation. Events affecting the values of portfolio securities
that occur between the time their prices are determined and the close of the
New York Stock Exchange will not be reflected in the fund's calculation of net
asset value unless the Board of Directors deems that the particular event would
materially affect net asset value, in which case an adjustment will be made.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares, into U.S. dollars at the prevailing market rates. The fair value of
all other assets is added to the value of securities to arrive at the total
assets;
2. There are deducted from the total assets, thus determined, the
liabilities, including accruals of taxes and other expense items; and
3. The net assets so obtained are then divided by the total number of shares
outstanding (excluding treasury shares) and the result, rounded to the nearer
cent, is the net asset value per share.
Any purchase order may be rejected by the Principal Underwriter or the fund.
The Principal Underwriter will not knowingly sell shares directly or
indirectly, or through a unit investment trust to any other investment company,
person or entity, where, after the sale, such investment company, person, or
entity would own beneficially directly, indirectly, or though an investment
trust more than 3% of the outstanding shares of the fund without the consent of
a majority of the fund's Directors.
REDEEMING SHARES
<TABLE>
<CAPTION>
<S> <C>
Send a letter of instruction specifying the name of the fund,
By writing to American the number of shares or dollar amount to be sold, your
Funds Service Company (at name and account number. You should also enclose any
the appropriate address share certificates you wish to redeem. For redemptions
indicated under "Fund over $50,000 and for certain redemptions of $50,000 or less
Organization and (see below), your signature must be guaranteed by a bank,
Management - Principal savings association, credit union, or member firm of a
Underwriter and Transfer domestic stock exchange or the National Association of
Agent" in the prospectus) Securities Dealers, Inc. that is an eligible guarantor
institution. You should verify with the institution that it is an
eligible guarantor prior to signing. Additional documentation
may be required for redemption of shares held in corporate,
partnership or fiduciary accounts. Notarization by a Notary
Public is not an acceptable signature guarantee.
By contacting your If you redeem shares through your investment dealer, you
investment dealer may be charged for this service. SHARES HELD FOR YOU IN
YOUR INVESTMENT DEALER'S STREET NAME MUST BE REDEEMED
THROUGH THE DEALER.
You may have a You may use this option, provided the account is registered
redemption check sent to in the name of an individual(s), a UGMA/UTMA custodian,
you by using American or a non-retirement plan trust. These redemptions may not
FundsLine(R) or by exceed $10,000 per day, per fund account and the check
telephoning, faxing, or must be made payable to the shareholder(s) of record and
telegraphing American be sent to the address of record provided the address has
Funds Service Company been used with the account for at least 10 days. See "Fund
(subject to the conditions Organization and Management - Principal Underwriter and
noted in this section and in Transfer Agent" in the prospectus and "Exchange Privilege"
"Telephone Purchases, below for the appropriate telephone or fax number.
Sales and Exchanges" in
the prospectus)
In the case of the money Upon request (use the account application for the money
market funds, you may market funds) you may establish telephone redemption
have redemptions wired to privileges (which will enable you to have a redemption sent
your bank by telephoning to your bank account) and/or check writing privileges. If you
American Funds Service request check writing privileges, you will be provided with
Company ($1,000 or more) checks that you may use to draw against your account.
or by writing a check ($250 These checks may be made payable to anyone you
or more) designate and must be signed by the authorized number of
registered shareholders exactly as indicated on your
checking account signature card.
</TABLE>
A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY REDEMPTION OF $50,000
OR LESS PROVIDED THE REDEMPTION CHECK IS MADE PAYABLE TO THE REGISTERED
SHAREHOLDER(S) AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE ADDRESS HAS
BEEN USED WITH THE ACCOUNT FOR AT LEAST 10 DAYS.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares. Shares held
for the longest period are assumed to be redeemed first for purposes of
calculating this charge. The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer-sponsored
retirement plan; for distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 591/2; for tax-free returns of excess
contributions to IRAs; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
REDEMPTION OF SHARES - The Transfer Agent may redeem the shares of any
shareholder if the shares owned by such shareholder through redemptions, market
decline or otherwise, have a value of less than the minimum initial investment
amount required of new shareholders, (determined, for this purpose only as the
greater of the shareholder's cost or current net asset value of the shares,
including any shares acquired through reinvestment of income dividends and
capital gains distributions). Prior notice of at least 60 days will be given
to a shareholder before the involuntary redemption provision is made effective
with respect to the shareholder's account. The shareholder will have not less
than 30 days from the date of such notice within which to bring the account up
to the minimum determined as set forth above.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the public offering price on or about the dates you select. Bank accounts
will be charged on the day or a few days before investments are credited,
depending on the bank's capabilities, and shareholders will receive a
confirmation statement at least quarterly. Participation in the plan will
begin within 30 days after receipt of the account application. If the
shareholder's bank account cannot be charged due to insufficient funds, a
stop-payment order or closing of the account, the plan may be terminated and
the related investment reversed. The shareholder may change the amount of the
investment or discontinue the plan at any time by writing to the Transfer
Agent.
AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the paying fund) into any other fund in The
American Funds Group (the receiving fund) subject to the following conditions:
(I) the aggregate value of the shareholder's account(s) in the paying fund(s)
must equal or exceed $5,000 (this condition is waived if the value of the
account in the receiving fund equals or exceeds that fund's minimum initial
investment requirement), (ii) as long as the value of the account in the
receiving fund is below that fund's minimum initial investment requirement,
dividends and capital gain distributions paid by the receiving fund must be
automatically reinvested in the receiving fund, and (iii) if this privilege is
discontinued with respect to a particular receiving fund, the value of the
account in that fund must equal or exceed the fund's minimum initial investment
requirement or the fund shall have the right, if the shareholder fails to
increase the value of the account to such minimum within 90 days after being
notified of the deficiency, automatically to redeem the account and send the
proceeds to the shareholder. These cross-reinvestments of dividends and
capital gain distributions will be at net asset value (without sales charge).
EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLine(R) (see "American FundsLine(R)" below), or by telephoning
800/421-0180 toll-free, faxing (see "Principal Underwriter and Transfer Agent"
in the prospectus for the appropriate fax numbers) or telegraphing American
Funds Service Company. (See "Telephone Redemptions and Exchanges" below.)
Shares held in corporate-type retirement plans for which Capital Guardian Trust
Company serves as trustee may not be exchanged by telephone, fax or telegraph.
Exchange redemptions and purchases are processed simultaneously at the share
prices next determined after the exchange order is received. (See "Purchase of
Shares--Price of Shares.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS
ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES - You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS - Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments and dividend reinvestments, will be reflected on regular
confirmation statements from American Funds Service Company. Purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
AMERICAN FUNDSLINE(R) - You may check your share balance, the price of your
shares, or your most recent account transaction, redeem shares (up to $10,000
per fund, per account each day), or exchange shares around the clock with
American FundsLine(R). To use this service, call 800/325-3590 from a TouchTonet
telephone. Redemptions and exchanges through American FundsLine(R) are subject
to the conditions noted above and in "Telephone Redemptions and Exchanges"
below. You will need your fund number (see the list of funds in The American
Funds Group under "Purchase of Shares--Investment Minimums and Fund Numbers"),
personal identification number (the last four digits of your Social Security
number or other tax identification number associated with your account) and
account number.
TELEPHONE REDEMPTIONS AND EXCHANGES - By using the telephone (including
American FundsLine(R)), fax or telegraph redemption and/or exchange options,
you agree to hold the fund, American Funds Service Company, any of its
affiliates or mutual funds managed by such affiliates, and each of their
respective directors, trustees, officers, employees and agents harmless from
any losses, expenses, costs or liability (including attorney fees) which may be
incurred in connection with the exercise of these privileges. Generally, all
shareholders are automatically eligible to use these options. However, you may
elect to opt out of these options by writing American Funds Service Company
(you may also reinstate them at any time by writing American Funds Service
Company). If American Funds Service Company does not employ reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine, the fund may be liable for losses
due to unauthorized or fraudulent instructions. In the event that shareholders
are unable to reach the fund by telephone because of technical difficulties,
market conditions, or a natural disaster, redemption and exchange requests may
be made in writing only.
EXECUTION OF PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by the
Investment Adviser. The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through its
correspondent clearing agent) is in a position to obtain the best price and
execution, the order is placed with that broker. This may or may not be a
broker who has provided investment research, statistical, or other related
services to the Investment Adviser or has sold shares of the fund or other
funds served by the Investment Adviser. The fund does not consider that it has
an obligation to obtain the lowest available commission rate to the exclusion
of price, service and qualitative considerations.
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other of the funds served by the Investment Adviser, or for trust
or other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner.
As of the end of the fund's most recent fiscal year, amounts held in certain
equity and debt securities of some of its regular brokers and dealers were as
follows:
Brokerage commissions paid on portfolio transactions during the years ended
December 31, 1996, 1995, and 1994 amounted to $6,066,000, $3,599,000 and
$2,079,000 respectively.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds
from the sale of shares of the fund and of securities in the fund's portfolio,
are held by State Street Bank and Trust Company, 225 Franklin Street, Boston,
MA 02101, as Custodian. Non-U.S. securities may be held by the Custodian
pursuant to subcustodial arrangements in non-U.S. banks or foreign branches of
U.S. banks.
TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the record of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee
of $5,336,000 for the fiscal year ended December 31, 1996.
INDEPENDENT AUDITORS - Deloitte & Touche LLP, 1000 Wilshire Boulevard, Los
Angeles, CA 90017, serves as the fund's independent auditors providing audit
services, preparation of tax returns and review of certain documents to be
filed with the Securities and Exchange Commission. The financial statements
included in this Statement of Additional Information from the Annual Report,
have been so included in reliance on the report of Deloitte & Touche LLP given
on the authority of said firm as experts in auditing and accounting. The
selection of the company's independent auditor is reviewed and determined
annually by the Board of Directors.
REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on December 31.
Shareholders are provided at least semi-annually with reports showing the
investment portfolio, financial statements and other information. The annual
financial statements are audited by the fund's independent auditors, Deloitte
& Touche LLP.
PERSONAL INVESTING POLICY - Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions.
REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any director or directors from office and may elect a successor
or successors to fill any resulting vacancies for the unexpired terms of
removed directors. The fund has made an undertaking, at the request of the
staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of directors as
though the fund were a common-law trust. Accordingly, the directors of the
fund shall promptly call a meeting of shareholders for the purpose of voting
upon the question of removal of any director when requested in writing to do so
by the record holders of not less than 10% of the outstanding shares.
The financial statements including the investment portfolio and the report of
Independent Auditors contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
<TABLE>
<CAPTION>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
OFFERING PRICE PER SHARE--DECEMBER 31, 1996
<S> <C>
Net asset value and redemption price per share $24.54
(Net assets divided by shares outstanding)
Maximum offering price per share $26.04
(100/94.25 of net asset value per share which takes into
account the fund's current maximum sales charge)
</TABLE>
INVESTMENT RESULTS
The fund's yield is 1.59% based on a 30-day (or one month) period ended
December 31, 1996, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[(a-b/cd+1)/6/-1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
As of December 31, 1996, the fund's total return over the past twelve months
and average annual total returns over the past five and ten-year periods were
13.08%, 14.89% and 14.24%, respectively. The average annual total return (T)
is computed by using the value at the end of the period (ERV) of a hypothetical
initial investment of $1,000 (P) over a period of years (n) according to the
following formula as required by the Securities and Exchange Commission:
P(1+T)/n/ = ERV.
To calculate total return, an initial investment is divided by the offering
price (which includes the sales charge) as of the first day of the period in
order to determine the initial number of shares purchased. Subsequent
dividends and capital gain distributions are then reinvested at net asset value
on the reinvestment date determined by the Board of Directors. The sum of the
initial shares purchased and shares acquired through reinvestment is multiplied
by the net asset value per share as of the end of the period in order to
determine ending value. The difference between the ending value and the
initial investment divided by the initial investment converted to a percentage
equals total return. The resulting percentage indicates the positive or
negative investment results that an investor would have experienced from
reinvested dividends and capital gain distributions and changes in share price
during the period. Total return may be calculated for one year, five years,
ten years and for other periods of years. The average annual total return over
periods greater than one year also may be computed by utilizing ending values
as determined above.
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) deduction of the maximum sales load of
5.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated.
The fund may also, at times, calculate total return based on net asset value
per share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the computation. Consequently,
total return calculated in this manner will be higher. These total returns may
be calculated over periods in addition to those described above.
The fund may also calculate a distribution rate on a taxable and tax equivalent
basis. The distribution rate is computed by dividing the dividends paid by the
fund over the last 12 months by the sum of the month-end net asset value or
maximum offering price and the capital gains paid over the last 12 months.
The distribution rate may differ from the yield.
The fund may include information on its investment results and/or comparisons
of its investment results to various unmanaged indices (such as The Dow Jones
Average of 30 Industrial Stocks and The Standard and Poor's 500 Stock Composite
Index) or results of other mutual funds or investment or savings vehicles in
advertisements or in reports furnished to present or prospective shareholders.
Total return for the unmanaged indices will be calculated assuming reinvestment
of dividends and interest, but will not reflect any deductions for advisory
fees, brokerage costs or administrative expenses.
The fund may refer to results compiled by organizations such as CDA Investment
Technologies, Ibbotson Associates, Lipper Analytical Services and Wiesenberger
Investment Companies Services and by the U.S. Department of Commerce.
Additionally, the fund may, from time to time, refer to results published in
various newspapers or periodicals, including BARRONS, FORBES, FORTUNE,
INSTITUTIONAL INVESTOR, KIPLINGER'S PERSONAL FINANCE MAGAZINE, MONEY, U.S. NEWS
AND WORLD REPORT and THE WALL STREET JOURNAL.
The fund may, from time to time, illustrate the benefits of tax-deferral by
comparing taxable investments to investments made through tax-deferred
retirement plans.
The fund may, from time to time, compare its investment results with the
Consumer Price Index, which is a measure of the average change in prices over
time in a fixed market basket of goods and services (E.G. food, clothing, and
fuels, transportation, and other goods and services that people buy for
day-to-day living).
The investment results for the fund set forth below were calculated as
described in the fund's prospectus. The fund's results will vary from time to
time depending upon market conditions, the composition of the fund's portfolio
and operating expenses of the fund, so that any investment results reported by
the fund should not be considered representative of what an investment in the
fund may earn in any future period. These factors and possible differences in
calculation methods should be considered when comparing the fund's investment
results with those published for other mutual funds, other investment vehicles
and unmanaged indices. The fund's results also should be considered relative
to the risks associated with the fund's investment objective and policies.
THE FUND VS. VARIOUS UNMANAGED INDICES
<TABLE>
<CAPTION>
PERIOD FI DJIA/1/ S&P 500/2/ AVERAGE
1/1 - 12/31 SAVINGS
ACCOUNT
/3/
<S> <C> <C> <C> <C>
1987 - 1996 +278% +366% +314% +67%
1986 - 1995 +285 +360 +299 +69
1985 - 1994 +273 +349 +282 +77
1984 - 1993 +290 +333 +301 +88
1983 - 1992 +316 +367 +346 +99
1982 - 1991 +406 +452 +404 +112
1981 - 1990 +284 +328 +267 +122
1980 - 1989 +396 +426 +402 +125
1979 - 1988 +345 +340 +352 +125
1978/#/ - 1987 +273 +265 +280 +118
</TABLE>
_____________
# From 7/31/78, the date Capital Research and Management Company became the
fund's Investment Adviser.
/1/ The Dow Jones Average of 30 Industrial Stocks is comprised of 30 industrial
companies such as General Motors and General Electric.
/2/ The Standard and Poor's 500 Stock Composite Index is comprised of
industrial, transportation, public utilities and financial stocks and
represents a large portion of the value of issues traded on the New York Stock
Exchange. Selected issues traded on the American Stock Exchange are also
included.
/3/ Based on figures supplied by the U.S. League of Savings Institutions and
the Federal Reserve Board which reflect all kinds of savings deposits,
including longer-term certificates. Savings accounts offer a guaranteed return
of principal, but no opportunity for capital growth. During a portion of the
period, the maximum rates paid on some savings deposits were fixed by law.
If you are considering the fund for an Individual Retirement Account...
<TABLE>
<CAPTION>
Here's how much you would have if you invested $2,000 a year in the fund
over the past 5 and 10 years and the period under CRMC management:
<S> <C> <C>
5 Years 10 Years Lifetime
(1/1/92 - 12/31/96) (1/1/87 - 12/31/96) (7/31/78 - 12/31/96)
$16,010 $47,294 $209,503
</TABLE>
See the difference time can make in an investment program
<TABLE>
<CAPTION>
If you had invested ...and taken all
$10,000 in the fund distributions in shares,
this many years ago... your investment would
have been worth this
much at December 31, 1996
| |
Number of Years Periods Value**
1/1-12/31
<S> <C> <C>
1 1996 $ 11,309
2 1995 - 1996 15,175
3 1994 - 1996 15,377
4 1993 - 1996 18,170
5 1992 - 1996 20,019
6 1991 - 1996 26,105
7 1990 - 1996 24,474
8 1989 - 1996 31,462
9 1988 - 1996 36,481
10 1987 - 1996 37,847
11 1986 - 1996 46,188
12 1985 - 1996 60,138
13 1984 - 1996 63,620
14 1983 - 1996 80,243
15 1982 - 1996 107,560
16 1981 - 1996 106,292
17 1980 - 1996 128,844
18 1979 - 1996 148,697
Lifetime* 1978 - 1996 144,351
</TABLE>
* From July 31, 1978, the date Capital Research and Management Company became
the fund's Investment Adviser.
** Results assume deduction of the maximum sales charge of 5.75% from the
initial purchase payment.
Illustration of a $10,000 investment in the fund
WITH DIVIDENDS REINVESTED AND CAPITAL GAIN DISTRIBUTIONS TAKEN IN SHARES
(For the period under CRMC management: July 31, 1978 - December 31, 1996)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES**
Fiscal Annual Dividends Total From From From Total
Year End Dividends (cumulative) Investment Initial Capital Gains Dividends Value
December 31 Cost Investment Reinvested Reinvested
<S> <C> <C> <C> <C> <C> <C> <C>
1978* $ 217 $ 217 $10,217 $ 8,947 -- $ 208 $ 9,155
1979 421 638 10,638 9,892 -- 664 10,556
1980 603 1,241 11,241 11,390 -- 1,417 12,807
1981 665 1,906 11,906 10,688 -- 1,966 12,654
1982 769 2,675 12,675 13,522 -- 3,435 16,957
1983 755 3,430 13,430 16,424 -- 4,965 21,389
1984 734 4,164 14,164 16,113 $841 5,667 22,621
1985 795 4,959 14,959 19,379 2,351 7,718 29,448
1986 894 5,853 15,853 19,177 8,262 8,502 35,941
1987 1,034 6,887 16,887 18,151 10,221 8,923 37,295
1988 1,328 8,215 18,215 19,703 12,464 11,079 43,246
1989 1,877 10,092 20,092 22,173 19,099 14,325 55,597
1990 1,678 11,770 21,770 19,325 18,712 14,093 52,130
1991 1,477 13,247 23,247 23,576 25,593 18,778 67,947
1992 1,655 14,902 24,902 23,644 30,728 20,499 74,871
1993 1,857 16,759 26,759 24,494 40,880 23,092 88,466
1994 2,171 18,930 28,930 23,617 41,632 24,392 89,641
1995 2,082 21,012 31,012 30,081 56,840 33,385 120,306
1996 2,188 23,200 33,200 33,117 72,223 39,011 144,351
</TABLE>
The dollar amount of capital gain distributions during the period was $50,406.
* From July 31, 1978, the date Capital Research and Management Company became
the fund's Investment Adviser.
** Results assume deduction of the maximum sales charge of 5.75% from the
initial purchase payment.
EXPERIENCE OF INVESTMENT ADVISER
Capital Research and Management Company manages nine common stock funds that
are at least 10 years old. In the rolling 10-year periods since January 1,
1967 (127 in all), those funds have had better total returns than the Standard
and Poor's 500 Stock Composite Index in 91 of the 127 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
DESCRIPTION OF BOND RATINGS
CORPORATE DEBT SECURITIES
MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by
various entities from "Aaa" to "C".
"Aaa -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large, or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
"Aa -- High quality by all standards. They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
"A -- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
"Baa -- Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
"Ba -- Have speculative elements; future cannot be considered as well assured.
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
"B -- Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"Caa -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"Ca -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
STANDARD & POOR'S CORPORATION rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality.
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
"A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is in
arrears."
<PAGE>
<TABLE>
<S> <C> <C> <C>
FUNDAMENTAL INVESTORS, INC.
INVESTMENT PORTFOLIO - December 31, 1996
Percent
Of net
LARGEST EQUITY-TYPE HOLDINGS Assets
Atlantic Richfield 2.77%
Texas Instruments 2.24
Royal Dutch Petroleum/"Shell" Transport and Trading 1.53
Exxon 1.46
Pfizer 1.44
Time Warner 1.39
Seagram 1.33
AT&T 1.28
Intel 1.28
Walt Disney 1.25
Shares or Market Percent
EQUITY-TYPE SECURITIES Principal Value Of
(Common and Preferred Stocks and Amount (000) Net Assets
Convertible Debentures)
- ---------------------------------------------------- ---------- ---------- ----------
Energy Sources & Equipment- 15.14%
Atlantic Richfield Co. 1500000 $198,750 2.77%
Royal Dutch Petroleum Co. (New York Registered
Shares) (Netherlands) 612900 104653
"Shell" Transport and Trading Co., 1.53
PLC (New York Registered Shares) 50000 5119
(United Kingdom)
Exxon Corp. 1070000 104860 1.46
Murphy Oil Corp./1/ 1535000 74831 1.04
Baker Hughes Inc. 1950000 67275 .94
Halliburton Co. 1075000 64769 .90
Societe Nationale Elf Aquitaine (American Depositary Receipts)
(France) 1400000 63350 .88
Suncor Inc. (Canada) 1187000 49119 .69
Schlumberger Ltd. (Netherlands Antilles) 466700 46612 .65
Phillips Petroleum Co. 1050000 46462 .65
Western Atlas Inc./1/ 600000 42525 .60
Chevron Corp. 600000 39000 .54
Unocal Corp. 900000 36562 .52
Enterprise Oil PLC (United Kingdom) 3000000 33185 .46
Texaco Inc. 300000 29438 .41
British Petroleum Co. PLC (American Depositary
Receipts) (United Kingdom) 193370 27338 .38
Union Pacific Resources Group, Inc. 647421 18937 .26
TOTAL, Class B (American Depositary Receipts)
(France) 407013 16382 .24
Cyprus Amax Minerals Co., convertible preferred,
Series A 200000 10700 .15
Sun Co., Inc., Series A 146314 3676
Sun Co., Inc. 48186 1175 .07
Food & Household Products- 5.44%
Unilever NV (New York Registered Shares) (Netherlands) 405000 70976 .99
Colgate-Palmolive Co. 725000 66881 .93
Kellogg Co. 925000 60703 .85
General Mills, Inc. 775000 49116 .69
McCormick & Co. 1660000 39114 .55
Archer Daniels Midland Co. 1700000 37400 .52
H.J. Heinz Co. 1000000 35750 .50
CPC International Inc. 381100 29535 .41
Health & Personal Care- 5.35%
Pfizer Inc 1250000 103594 1.44
Merck & Co., Inc. 950000 75288 1.05
Johnson & Johnson 1340000 66665 .93
American Home Products Corp. 1000000 58625 .82
AB Astra, Class A (American Depositary Receipts)
(Sweden) 800000 39200 .55
Eli Lilly and Co. 300000 21900 .31
Kimberly-Clark Corp. 130000 12382 .17
Gillette Co. 75000 5831 .08
Electronic Components- 4.82%
Texas Instruments Inc. 2509128 159957 2.24
Intel Corp. 700000 91656 1.28
Motorola, Inc. 1300000 79787 1.11
Cirrus Logic, Inc. 6.00% convertible debentures 2003/2/ $15,000,000 13612 .19
Business & Public Services- 4.11%
Omnicom Group Inc. 1300000 59475 .83
Federal Express Corp./1/ 1300000 57850 .81
Shared Medical Systems Corp. 935000 46049 .64
Avery Dennison Corp. 1000000 35375 .49
Humana Inc./1/ 1800000 34425 .48
Browning-Ferris Industries, Inc. 1300000 34125 .48
United HealthCare Corp. 300000 13500 .19
Ecolab Inc. 300000 11288 .16
NCR Corp./1/ 75000 2503 .03
Banking- 4.03%
PNC Bank Corp. 1200000 45150 .63
Wells Fargo & Co. 166666 44958 .63
Fleet Financial Group, Inc. 900000 44887 .63
Norwest Corp. 1000000 43500 .61
CoreStates Financial Corp 830000 43056 .60
KeyCorp 450000 22725 .32
First Union Corp. 250000 18500 .26
Citicorp 150000 15450 .21
First Chicago NBD Corp. 200000 10750 .14
Chemicals- 3.86%
Mallinckrodt Inc. 1423000 62790 .88
Air Products and Chemicals, Inc. 775000 53572 .75
Engelhard Corp. 1900000 36337 .51
Imperial Chemical Industries PLC (American Depositary
Receipts) (United Kingdom) 500000 26000 .36
E.I. du Pont de Nemours and Co. 250000 23594 .33
Hoechst AG (Germany) 400000 18908 .26
Eastman Chemical Co. 300000 16575 .23
Witco Corp. 500000 15250 .21
Georgia Gulf Corp. 450000 12094 .17
IMC Global Inc. 300000 11738 .16
Telecommunications- 3.56%
AT&T Corp./1/ 2200000 91850 1.28
U S WEST Communications Group 2450000 79012 1.11
MCI Communications Corp. 600000 19613 .27
Bell Atlantic Corp. 300000 19425 .27
NYNEX Corp. 400000 19250 .27
Ameritech Corp. 259600 15738 .22
AirTouch Communications/1/ 250000 6312 .09
Pacific Telesis Group 100000 3675 .05
Forest Products & Paper- 3.50%
Weyerhaeuser Co. 1800000 85275 1.20
Union Camp Corp. 900000 42975 .60
Georgia-Pacific Corp. 400000 28800 .40
International Paper Co. 700000 28263 .39
Rayonier Inc. 675000 25903 .36
James River Corp. of Virginia 514300 17036 .24
Bowater Inc. 350000 13169 .18
Deltic Timber Corp./1/ /3/ 438571 9484 .13
Multi-Industry- 3.44%
AlliedSignal Inc. 900000 60300 .84
Textron Inc. 613500 57822 .81
CITIC Pacific Ltd. (Hong Kong) 8500000 49347 .69
U.S. Industries, Inc./1/ 1000000 34375 .48
Tenneco Inc./1/ 675000 30459 .42
Whitman Corp. 400000 9150 .13
Harsco Corp. 75000 5138 .07
Broadcasting & Publishing- 3.21%
Time Warner Inc. 2574000 96525
Time Warner Inc. 10.25% cumulative exchangeable 1.39
preferred, Series M 3145 3413
News Corp. Ltd. (American Depositary Receipts)
(Australia) 2200000 45925
News Corp. Ltd., preferred shares (American Depositary .91
Receipts) 1100000 19388
E.W. Scripps Co., Class A 700000 24500 .34
Comcast Corp., Class A, special stock 810784 14442 .20
Viacom Inc., Class B/1/ 305000 10637 .15
Tele-Communications, Inc., Series A, TCI Group/1/ 636115 8309 .12
Tele-Communications, Inc., Series A, Liberty Media Group/1/ 251003 7169 .10
Leisure & Tourism- 3.08%
Walt Disney Co. 1290085 89822 1.25
ITT Corp./1/ 1550000 67231 .94
McDonald's Corp. 1400000 63350 .89
Machinery & Engineering- 3.01%
Caterpillar Inc. 1000000 75250 1.05
Deere & Co. 1350000 54844 .77
Parker Hannifin Corp. 1150000 44562 .61
Cummins Engine Co., Inc./2/ 500000 23000 .32
Case Corp. 300000 16350 .23
Newport News Shipbuilding Inc./1/ 135000 2025 .03
Insurance- 2.82%
General Re Corp. 465000 73354 1.02
Aetna Inc. 450000 36000
Aetna Inc. 6.25% convertible preferred, Class C 50000 3969 .56
SAFECO Corp. 900000 35494 .50
CNA Financial Corp./1/ 320000 34240 .48
American International Group, Inc. 108750 11772 .16
Allstate Corp. 120000 6945 .10
Merchandising- 2.75%
Limited Inc. 4000000 73500 1.03
May Department Stores Co. 800000 37400 .52
Mercantile Stores Co., Inc. 725000 35797 .50
Sears, Roebuck and Co. 650000 29981 .42
Wal-Mart Stores, Inc. 450000 10294 .14
Toys "R" Us, Inc./1/ 342400 10272 .14
Data Processing & Reproduction- 2.62%
Hewlett-Packard Co. 1050000 52763 .74
International Business Machines Corp. 330000 49830 .70
Oracle Corp./1/ 600000 25050 .35
Dell Computer Corp./1/ 464836 24694 .34
Adobe Systems Inc. 625000 23359 .33
Tandem Computers Inc./1/ 850000 11688 .16
Aerospace & Military Technology- 1.88%
Raytheon Co. 925000 44516 .62
McDonnell Douglas Corp. 550000 35200 .49
Litton Industries, Inc./1/ 500000 23813 .33
Sundstrand Corp. 500000 21250 .31
Boeing Co. 90670 9645 .13
Utilities: Electric & Gas- 1.76%
DTE Energy Co. 1000000 32375 .45
Houston Industries Inc. 1350000 30544 .43
PanEnergy Corp 300000 13500 .19
Eastern Utilities Associates 640000 11120 .16
Florida Progress Corp. 300000 9675 .13
Edison International 450000 8944 .12
Long Island Lighting Co. 350000 7744 .11
Texas Utilities Co. 120800 4923 .07
Entergy Corp. 150000 4162 .06
El Paso Natural Gas Co. 62775 3170 .04
Beverages & Tobacco- 1.66%
Seagram Co. Ltd. (Canada) 2450000 94938 1.33
PepsiCo, Inc. 550000 16088 .22
Anheuser-Busch Companies, Inc. 200000 8000 .11
Electrical & Electronics- 1.58%
Nokia Corp., Class A (American Depositary Receipts)
(Finland) 1000000 57625 .81
Lucent Technologies Inc. 1198900 55449 .77
Recreation & Other Consumer Products- 1.56%
Duracell International Inc. 1200000 83850 1.17
Eastman Kodak Co. 350000 28087 .39
Industrial Components- 1.31%
Rockwell International Corp./1/ 635000 38656 .54
Goodyear Tire & Rubber Co. 700000 35962 .50
Dana Corp. 600000 19575 .27
Transportation: Airlines- 1.22%
AMR Corp./1/ 500000 44063 .61
Delta Air Lines, Inc. 610000 43234 .61
Metals: Nonferrous- 1.18%
Aluminum Co. of America 1150000 73312 1.02
Alumax Inc./1/ 250000 8344 .12
Inco Ltd. (Canada) 100000 3187 .04
Automobiles- 1.08%
General Motors Corp. 1100000 61325 .86
Ford Motor Co., Class A 505605 16116 .22
Transportation: Rail & Road- 1.07%
Union Pacific Corp. 764419 45961 .64
Conrail, Inc. 244954 24403 .34
Canadian National Railway System (Canada) 175000 6650 .09
Financial Services- 1.01%
Federal Home Loan Mortgage Corp. 350000 38544 .54
Federal National Mortgage Assn. 860000 32035 .45
Associates First Capital Corp., Class A 40000 1765 .02
Appliances & Household Durables- 1.01%
Philips Electronics NV (New York Registered Shares)
(Netherlands) 1741700 69668 1.01
Philips Electronics NV 58300 2364
Miscellaneous Materials & Commodities- 0.94%
Potash Corp. of Saskatchewan Inc. (Canada) 675000 57375 .80
TRINOVA Corp. 266700 9701 .14
Electronic Instruments- 0.59%
Tektronix, Inc. 825000 42281 .59
Metals: Steel- 0.40%
Allegheny Teledyne Inc. 1000000 23000 .32
Armco Inc., cumulative convertible preferred 124000 5363 .08
Miscellaneous
Other equity-type securities in initial period
of acquisition 308059 4.30
----------- -----------
TOTAL EQUITY-TYPE SECURITIES (cost: $5,107,564,000) 6684190 93.29
----------- -----------
Principal
Amount
(000)
Bonds & Notes
- -------------------------------------------------------- ---------- ---------- -----------
Industrials - 0.67%
Cablevision Systems Corp. 9.875% 2013 $14,000 13790 .19
Time Warner Inc. 10.15% 2012 6000 7196 .10
PriCellular Wireless Corp. 0%/12.25% 2003 /4/ 5000 4275 .06
J. Ray McDermott, SA 9.375% 2006 4000 4200 .06
Falcon Drilling Co., Inc.:
Series B, 8.875% 2003 2500 2550
Series B, 9.75% 2001 1500 1575 .06
Bell Cablemedia PLC 0%/11.95% 2004 /4/ 4000 3490 .05
MFS Communications Co., Inc. 0%/9.375% 2004 /4/ 4000 3470 .05
Forcenergy Inc. 9.50% 2006 2250 2346 .03
Abraxas Petroleum Corp. 11.50% 2004/2/ 2000 2135 .03
Texas Petrochemicals Corp. 11.125% 2006 1500 1612 .02
Cliffs Drilling Co., Series B 10.25% 2003 1500 1596 .02
---------- ----------
48235 .67
---------- ----------
Transportation- 0.20%
Delta Air Lines, Inc., Series 1993-A2, 10.50% 2016 /5/ 11500 14049 .20
---------- ----------
U.S. Treasury Obligations- 0.49%
6.875% 1997 20000 20072
6.375% 1997 15000 15077 .49
---------- ----------
35149 .49
---------- ----------
TOTAL BONDS & NOTES (cost: $93,273,000) 97433 1.36
---------- ----------
Short-Term Securities
- ----------------------------------------------------
CORPORATE SHORT-TERM NOTES-4.98%
IBM Credit Corp. 5.36%-5.49% due 1/14-1/28/97 $ 53,200 $ 53,007 0.74%
General Electric Capital Corp. 5.31%-6.50% due 1/2-2/3/97 53000 52889 .74
International Lease Finance Corp. 5.28%-5.30%
due 1/10-1/23/97 51000 50884 .71
National Rural Utilities Cooperative Finance Corp.
5.28%-5.31% due 1/10-1/22/97 49200 49109 .69
Ford Motor Credit Co. 5.32%-5.46% due 1/6-2/12/97 41500 41356 .58
Raytheon Co. 5.34%-5.39% due 1/13-1/17/97 37700 37617 .52
American Express Credit Corp. 5.32% due 1/3-1/7/97 30300 30284 .42
Gannett Co., Inc. 5.37% due 1/16/97 25300 25239 .35
Procter & Gamble Co. 5.28% due 1/9-1/24/97 16700 16662 .23
---------- ----------
357047 4.98
---------- ----------
FEDERAL AGENCY DISCOUNT NOTES-0.25%
Federal Home Loan Mortgage Corp. 5.295%-5.62%
due 1/23-1/30/97 17900 17838 .25
---------- ----------
TOTAL SHORT-TERM SECURITIES (cost: $374,887,000) 374885 5.23
---------- ----------
TOTAL INVESTMENT SECURITIES (cost: $5,575,724,000) 7156508 99.88
Excess of cash and receivables over payables 8865 .12
---------- ----------
NET ASSETS $7,165,373 100.00%
========== ==========
/1/ Non-income-producing securities.
/2/ Purchased in a private placement transaction;
resale to the public may require registration or sale
only to qualified institutional buyers.
/3/Represents a when-issued security.
/4/ Represents a step bond; coupon rate will increase at a later date.
/5/ Pass-through securities backed by a pool of mortgages
or other loans on which principal payments are
periodically made. Therefore, the effective maturity
is shorter than the stated maturity.
See Notes to Financial Statements
EQUITY-TYPE SECURITIES APPEARING IN
THE PORTFOLIO SINCE JUNE 30, 1996
Allegheny Teledyne
Bowater
Browning-Ferris Industries
Canadian National Railway System
Cirrus Logic
Comcast
Deltic Timber
El Paso Natural Gas
Elf Aquitaine
Engelhard
Enterprise Oil
International Paper
ITT
Kellogg
McCormick
McDonald's
McDonnell Douglas
NCR
Newport News Shipbuilding
PanEnergy
Raytheon
Shared Medical Systems
Societe Nationale Elf Aquitaine
Suncor
Union Pacific Resources
Witco
EQUITY-TYPE SECURITIES ELIMINATED FROM THE
PORTFOLIO SINCE JUNE 30, 1996
ALLTEL
Betz Laboratories
Bristol-Myers Squibb
Cemex
Chase Manhattan
Deutsche Bank
Digital Equipment
Dresser Industries
Fruit of the Loom
General Public Utilities
Interpublic Group of Companies
LIN Television
McKesson
Pacific Gas and Electric
Pharmacia & Upjohn
Siemens
Southern Pacific Rail
Tandy
TIG Holdings
Tribune
Walgreen
WMX Technologies
Xerox
</TABLE>
<TABLE>
<S> <C> <C>
Fundamental Investors, Inc.
Financial Statements
Statement of Assets and Liabilities (dollars in thousands)
at December 31, 1996
- ---------------------------------------- ------------ ------------
Assets:
Investment securities at market
(cost: $5,575,724) $7,156,508
Cash 112
Receivables for-
Sales of investments $ 11,060
Sales of fund's shares 13,127
Dividends and accrued interest 10,017 34,204
------------ ------------
7,190,824
Liabilities:
Payables for-
Purchases of investments 7,905
Repurchases of fund's shares 14,505
Management services 1,821
Accrued expenses 1,220 25,451
------------ ------------
Net Assets at December 31, 1996-
Equivalent to $24.54 per share on
291,977,471 shares of $1 par value
capital stock outstanding (authorized
capital stock-500,000,000 shares) $7,165,373
=============
Statement of Operations
for the Year Ended December 31, 1996 (dollars in thousands)
------------ ------------
Investment Income:
Income:
Dividends $ 119,649
Interest 25,526 $ 145,175
------------
Expenses:
Management services fee 18,267
Distribution expenses 13,010
Transfer agent fee 5,336
Reports to shareholders 214
Registration statement and prospectus 891
Postage, stationery and supplies 1,191
Directors' fees 105
Auditing and legal fees 49
Custodian fee 270
Taxes other than federal income tax 1
Other expenses 86 39,420
------------ ------------
Net investment income 105,755
------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 528,775
Net increase in unrealized
appreciation on investments:
Beginning of year 1,104,466
End of year 1,580,787
Net unrealized appreciation ------------
on investments 476,321
Net realized gain and unrealized ------------
appreciation on investments 1,005,096
Net Increase in Net Assets Resulting ------------
from Operations $1,110,851
============
Statement of Changes in Net Assets (dollars in thousands)
- ---------------------------------------- ------------- -------------
Year Ended December 31
1996 1995
Operations: ------------- -------------
Net investment income $ 105,755 $ 75,570
Net realized gain on investments 528,775 145,011
Net unrealized appreciation
on investments 476,321 815,253
------------- -------------
Net increase in net assets
resulting from operations 1,110,851 1,035,834
------------- -------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (100,250) (71,173)
Distributions from net realized
gain on investments (470,174) (128,122)
------------- -------------
Total dividends and distributions (570,424) (199,295)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
90,269,651 and 76,628,416
shares, respectively 2,123,860 1,553,921
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
21,801,000 and 8,766,797 shares,
respectively 534,260 181,420
Cost of shares repurchased:
33,388,411 and 21,343,594
shares, respectively (787,668) (428,456)
Net increase in net assets resulting ------------- -------------
from capital share transactions 1,870,452 1,306,885
------------- -------------
Total Increase in Net Assets 2,410,879 2,143,424
Net Assets:
Beginning of year 4,754,494 2,611,070
End of year (including undistributed ------------- -------------
net investment income: $15,128 and
$9,623, respectively) $7,165,373 $4,754,494
============= =============
See Notes to Financial Statements
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Fundamental Investors, Inc. (the "fund") is registered under the Investment
Company Act of 1940 as an open-end, diversified management investment company.
The fund seeks long-term growth of capital and income through investments in
common stocks. The following paragraphs summarize the significant accounting
policies consistently followed by the fund in the preparation of its financial
statements:
Equity-type securities traded on a national securities exchange (or reported
on the NASDAQ national market) and securities traded in the over-the-counter
market are stated at the last reported sales price on the day of valuation;
other securities, and securities for which no sale was reported on that date,
are stated at the last quoted bid price. Bonds and notes are valued at prices
obtained from a bond-pricing service provided by a major dealer in bonds, when
such prices are available; however, in circumstances where the investment
adviser deems it appropriate to do so, such securities will be valued at the
mean of their representative quoted bid and asked prices or, if such prices are
not available, at prices for securities of comparable maturity, quality, and
type. Short-term securities with original or remaining maturities in excess of
60 days are valued at the mean of their quoted bid and asked prices. Short-term
securities with 60 days or less to maturity are valued at amortized cost, which
approximates market value. Securities for which market quotations are not
readily available are valued at fair value by the Board of Directors or a
committee thereof.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. In the event
the fund purchases securities on a delayed delivery or "when-issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in those transactions. Realized gains and losses from
securities transactions are reported on an identified cost basis. Dividend and
interest income is reported on the accrual basis. Discounts on securities
purchased are amortized over the life of the respective securities. The fund
does not amortize premiums on securities purchased. Dividends and distributions
paid to shareholders are recorded on the ex-dividend date.
Investment securities and other assets and liabilities denominated in
non-U.S. currencies are recorded in the financial statements after translation
into U.S. dollars utilizing rates of exchange on the last business day of the
year. Purchases and sales of investment securities, income and expenses are
calculated using the prevailing exchange rate as accrued. The effects of
changes in foreign currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $270,000 includes $23,000 that was paid by these credits
rather than in cash.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of December 31, 1996, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $1,580,784,000, of which
$1,650,239,000 related to appreciated securities and $69,455,000 related to
depreciated securities. There was no difference between book and tax realized
gains on securities transactions for the year ended December 31, 1996. The cost
of portfolio securities for book and federal income tax purposes was
$5,575,724,000 at December 31, 1996.
3. The fee of $18,267,000 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.39% of the first $800 million of average net assets;
0.336% of such assets in excess of $800 million but not exceeding $1.8 billion;
0.30% of such assets in excess of $1.8 billion but not exceeding $3.0 billion;
and 0.276% of such assets in excess of $3.0 billion.
Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Directors. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the year ended December 31, 1996,
distribution expenses under the Plan were $13,010,000. As of December 31, 1996,
accrued and unpaid distribution expenses were $921,000.
American Funds Service Company (AFS), the transfer agent for the fund, was paid
a fee of $5,336,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $7,993,000 (after allowances to
dealers) as its portion of the sales charges paid by purchasers of the fund's
shares. Such sales charges are not an expense of the fund and, hence, are not
reflected in the accompanying statement of operations.
Directors who are unaffiliated with CRMC may elect to defer part or all of the
fees earned for services as members of the Board. Amounts deferred are not
funded and are general unsecured liabilities of the fund. As of December 31,
1996, aggregate amounts deferred and earnings thereon were $252,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both wholly
owned subsidiaries of CRMC. Certain Directors and officers of the fund are or
may be considered to be affiliated with CRMC, AFS and AFD. No such persons
received any remuneration directly from the fund.
4. As of December 31, 1996, accumulated undistributed net realized gain on
investments was $105,368,000 and additional paid-in capital was $5,172,113,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $3,537,440,000 and $2,206,198,000, respectively,
during the year ended December 31, 1996.
<TABLE>
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA AND RATIOS
Year ended December 31
--------- --------- --------- -------- --------
1996 1995 1994 1993 1992
--------- --------- --------- -------- --------
Net Asset Value, Beginning
of Year 22.29 17.5 18.15 17.52 17.47
--------- --------- --------- -------- --------
Income from Investment
Operations:
Net investment income .41 .41 .42 .44 .44
Net realized and unrealized
gain (loss) on investments 4.00 5.46 (.18) 2.65 1.27
Total income from --------- --------- --------- -------- --------
investment operations 4.41 5.87 .24 3.09 1.71
--------- --------- --------- -------- --------
Less Distributions:
Dividends from net investment
income (.40) (.40) (.44) (.43) (.42)
Distributions from net realized
gains (1.76) (.68) (.45) (2.03) (1.24)
--------- --------- --------- -------- --------
Total distributions (2.16) (1.08) (.89) (2.46) (1.66)
--------- --------- --------- -------- --------
Net Asset Value, End of Year 24.54 22.29 17.5 18.15 17.52
========= ========= ========= ======== ========
Total Return/1/ 19.99% 34.21% 1.33% 18.16% 10.19%
Ratios/Supplemental Data:
Net assets, end of year
(in millions) $7,165 $4,754 $2,611 $1,979 $1,440
Ratio of expenses to average
net assets .66% .70% .68% .65% .65%
Ratio of net income to
average net assets 1.78% 2.08% 2.45% 2.43% 2.56%
Average commissions paid
per share/2/ 5.69ce 5.95cents 6.02cents 6.14cents 7.53cents
Portfolio turnover rate 39.07% 25.47% 23.02% 29.22% 23.98%
/1/ Calculated without deducting a
sales charge. The maximum sales
charge is 5.75% of the fund's
offering price.
/2/ Brokerage commissions paid on
portfolio transactions increase the
cost of securities purchased or
reduce the proceeds of securities
sold, and are not separately
reflected in the fund's statement
operations. Shares traded on a
principal basis (without commission),
such as fixed-income transactions,
are excluded.
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of Fundamental Investors, Inc.:
We have audited the accompanying statement of assets and liabilities of
Fundamental Investors, Inc. (the "Fund"), including the schedule of portfolio
investments, as of December 31, 1996, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the per-share data and ratios for each
of the five years in the period then ended. These financial statements and
per-share data and ratios are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
per-share data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per-share data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other procedures. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and per-share data and ratios referred
to above present fairly, in all material respects, the financial position of
Fundamental Investors, Inc. as of December 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the per-share data and ratios for
each of the five years in the period then ended, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
January 29, 1997
1996 TAX INFORMATION (UNAUDITED)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of distributions received by shareholders
during such fiscal year.
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 53% of the dividends
paid by the fund from net investment income represents qualifying dividends.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, two percent of the
dividends paid by the fund from net investment income was derived from interest
on direct U.S. Treasury obligations.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans, and 403(b) plans need not be reported as taxable income.
However, many plan retirement trusts may need this information for their annual
information reporting.
