SIGNED
SEC. File Nos. 2-10760
811-32
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement
Under
the Securities Act of 1933
Post-Effective Amendment No. 82
and
Registration Statement
Under
The Investment Company Act of 1940
Amendment No. 25
FUNDAMENTAL INVESTORS, INC.
(Exact Name of Registrant as specified in charter)
One Market, Steuart Tower, Suite 1800
San Francisco, California 94105
(Address of principal executive offices)
Registrant's telephone number, including area code:
(415) 421-9360
JULIE F. WILLIAMS
One Market, Steuart Tower, Suite 1800
San Francisco, California 94105
(name and address of agent for service)
Copies to:
Robert E. Carlson, Esq.
Michael Glazer, Esq.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 S. Flower Street
Los Angeles, California 90071-2371
(Counsel for the Registrant)
Title of Securities being Registered: Shares of Capital Stock, $1.00 par value
Approximate date of proposed public offering:
It is proposed that this filing become effective on March 1, 1998, pursuant to
paragraph (b) of rule 485.
<PAGE>
FUNDAMENTAL INVESTORS, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER OF PART "A" OF FORM N-1A CAPTIONS IN PROSPECTUS (PART "A")
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Expenses
3. Condensed Financial Information Financial Highlights; Investment Results
4. General Description of Registrant Investment Policies and Risks; Securities and Investment
Techniques; Multiple Portfolio Counselor System; Fund
Organization and Management
5. Management of the Fund Fund Organization and Management; Securities and
Investment Techniques; Multiple Portfolio Counselor System
6. Capital Stock and Other Securities Investment Policies and Risks; Securities and Investment
Techniques; Fund Organization and Management;
Dividends, Distributions and Taxes
7. Purchase of Securities Being Offered Purchasing Shares; Fund Organization and Management
8. Redemption or Repurchase Selling Shares
9. Legal Proceedings N/A
</TABLE>
<TABLE>
<CAPTION>
ITEM NUMBER OF PART "B" OF FORM N-1A CAPTIONS IN STATEMENT OF ADDITIONAL
INFORMATION (PART "B")
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Fund Organization and Management (Part "A")
13. Investment Objectives and Policies Description of Certain Securities and Investment Techniques;
Investment Restrictions
14. Management of the Registrant Fund Directors and Officers; Management
15. Control Persons and Principal Fund Directors and Officers
Holder of Securities
16. Investment Advisory and Other Management
Services
17. Brokerage Allocation and Other Execution of Portfolio Transactions
Practices
18. Capital Stock and Other Securities Part "A"
19. Purchase, Redemption and Pricing of Purchase of Shares; Redeeming Shares; Shareholder
Securities Being Offered Account Services and Privileges; Redemption of Shares
20. Tax Status Dividends, Distributions and Federal Taxes
21. Underwriter Management -- Principal Underwriter
22. Calculation of Performance Data Investment Results
23. Financial Statements Financial Statements
</TABLE>
<TABLE>
<CAPTION>
ITEM IN PART "C"
<S> <C>
24. Financial Statements and Exhibits
25. Persons Controlled by or Under Common Control with Registrant
26. Number of Holders of Securities
27. Indemnification
28. Business and Other Connections of Investment Adviser
29. Principal Underwriters
30. Location of Accounts and Records
31. Management Services
32. Undertakings
Signature Page
</TABLE>
<PAGE>
[PHOTO APPEARS HERE]
[LOGO OF THE AMERICAN FUNDS GROUP APPEARS HERE]
- --------------------------------------------------------------------------------
Fundamental InvestorsSM
Prospectus
MARCH 1, 1998
<PAGE>
FUNDAMENTAL INVESTORS, INC.
One Market
Steuart Tower, Suite 1800
San Francisco, CA 94105
===========================================================================
TABLE OF CONTENTS
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
===========================================================================
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, and 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.
10-010-0398
<PAGE>
EXPENSES
The effect of the expenses described below is reflected in the fund's share
price and return.
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Operating expenses are paid by the fund.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge on purchases
(as a percentage of offering price) 5.75%
................................................................................
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)
- --------------------------------------------------------------------------------
Management fees 0.30%
................................................................................
12b-1 expenses 0.23%/1/
................................................................................
Other expenses 0.10%
................................................................................
Total fund operating expenses 0.63%
/1/ 12b-1 expenses may not exceed 0.25% of the fund's average net assets
annually.
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:
- --------------------------------------------------------------------------------
One year $ 64
................................................................................
Three years $ 77
................................................................................
Five years $ 91
................................................................................
Ten years $132
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 seven years ended December 31, 1997 has been
audited by Deloitte & Touche llp, independent auditors, and for the three 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.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
......................
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $24.54 $22.29 $17.50 $18.15 $17.52 $17.47 $14.32 $16.43 $14.60 $13.45
- ---------------------------------------------------------------------------------------------------------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income .41 .41 .41 .42 .44 .44 .41 .48 .58 .43
.........................................................................................................
Net realized and
unrealized gain (loss)
on investments 6.00 4.00 5.46 (.18) 2.65 1.27 3.82 (1.52) 3.53 1.65
.........................................................................................................
Total income (loss)
from investment
operations 6.41 4.41 5.87 .24 3.09 1.71 4.23 (1.04) 4.11 2.08
- ---------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from
net investment
income (.42) (.40) (.40) (.44) (.43) (.42) (.40) (.49) (.62) (.47)
.........................................................................................................
Distributions from
net realized gains (3.13) (1.76) (.68) (.45) (2.03) (1.24) (.68) (.58) (1.66) (.46)
.........................................................................................................
Total distributions (3.55) (2.16) (1.08) (.89) (2.46) (1.66) (1.08) (1.07) (2.28) (.93)
.........................................................................................................
Net asset value,
end of year $27.40 $24.54 $22.29 $17.50 $18.15 $17.52 $17.47 $14.32 $16.43 $14.60
- ---------------------------------------------------------------------------------------------------------
Total return/1/ 26.67% 19.99% 34.21% 1.33% 18.16% 10.19% 30.34% (6.24)% 28.56% 15.95%
- ---------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in millions) $10,465 $7,165 $4,754 $2,611 $1,979 $1,440 $1,156 $ 823 $ 758 $ 632
.........................................................................................................
Ratio of expenses to
average net assets .63% .66% .70% .68% .65% .65% .69% .70% .67% .68%
.........................................................................................................
Ratio of net income
to average net assets 1.54% 1.78% 2.08% 2.45% 2.43% 2.56% 2.50% 3.15% 3.40% 2.97%
.........................................................................................................
Average
commissions paid per
share/2/ 4.51c 5.69c 5.95c 6.02c 6.14c 7.53c 7.50c 7.76c 7.80c 7.47c
.........................................................................................................
Portfolio turnover
rate 45.09% 39.07% 25.47% 23.02% 29.22% 23.98% 17.07% 11.92% 18.59% 8.09%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
/1/Excludes maximum sales charge of 5.75%.
/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 over-the-counter and
fixed-income transactions, are excluded. Generally, non-U.S. commissions are
lower than U.S. commissions when expressed as cents per share but higher when
expressed as a percentage of transactions because of the lower per-share
prices of many non-U.S. securities.
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 and securities convertible into common
stocks. The fund may also invest in 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.
Investment limitations are considered at the time securities are purchased.
These limits are based on the fund's net assets unless otherwise indicated. The
fund's fundamental investment restrictions (described in the statement of
additional information) and objective may not be changed without shareholder
approval.
THE FUND MAY NOT ACHIEVE ITS INVESTMENT OBJECTIVE DUE TO MARKET CONDITIONS AND
OTHER FACTORS. IN ADDITION, THE FUND MAY EXPERIENCE DIFFICULTY LIQUIDATING
CERTAIN PORTFOLIO SECURITIES DURING SIGNIFICANT MARKET DECLINES OR PERIODS OF
HEAVY REDEMPTIONS.
- --------------------------------------------------------------------------------
SECURITIES AND INVESTMENT TECHNIQUES
EQUITY SECURITIES
Equity securities represent an ownership position in a company. 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. Certain securities
purchased by the fund, particularly smaller capitalization stocks, may involve
large price swings and potential for loss.
DEBT SECURITIES
Bonds and other debt securities are used by issuers to borrow money. Issuers
pay investors interest and generally must repay the amount borrowed at
maturity. Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. The prices of
Fundamental Investors / Prospectus 5
<PAGE>
- --------------------------------------------------------------------------------
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.
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 as well
as by monitoring broad economic trends and corporate and legislative
developments.
OTHER SECURITIES
The fund may also invest in securities that have a combination of equity and
debt characteristics such as non-convertible preferred stocks and convertible
securities. These securities may at times resemble equity more than debt and
vice versa. Non-convertible preferred stocks are similar to debt in that they
have a stated dividend rate akin to the coupon of a bond or note even though
they are often classified as equity securities. The prices and yields of non-
convertible preferred stocks generally move with changes in interest rates and
the issuer's credit quality, similar to the factors affecting debt securities.
Bonds, preferred stocks, and other securities may sometimes be converted into
shares of common stock or other securities at a stated exchange ratio. These
securities prior to conversion pay a fixed rate of interest or a dividend.
Because convertible securities have both debt and equity characteristics their
value varies in response to many factors, including the value of the underlying
equity, general market and economic conditions, convertible market valuations,
as well as changes in interest rates, credit spreads, and the credit quality of
the issuer.
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
6 Fundamental Investors / Prospectus
<PAGE>
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; expropriation or confiscatory taxation; greater market volatility;
differing securities market structures; and various administrative difficulties
such as delays in clearing and settling portfolio transactions or in receiving
payment of dividends. However, in the opinion of Capital Research and
Management Company, investing outside the U.S. also can reduce certain
portfolio risks due to greater diversification opportunities.
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.
RESTRICTED SECURITIES AND LIQUIDITY
The fund may purchase securities subject to restrictions on resale. All such
securities whose principal trading market is in the U.S. will be considered
illiquid unless they have been specifically determined to be liquid under
procedures adopted by the fund's board of directors, taking into account
factors such as the frequency and volume of trading, the commitment of dealers
to make markets and the availability of qualified investors, all of which can
change from time to time. The fund may incur certain additional costs in
disposing of illiquid securities.
Fundamental Investors / Prospectus 7
<PAGE>
- --------------------------------------------------------------------------------
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
The investment philosophy of Capital Research and Management Company is to seek
fundamental values at reasonable prices. Capital Research and Management
Company utilizes a system of multiple portfolio counselors in managing mutual
fund assets. Under this system the portfolio of a fund is divided into segments
which are managed by individual counselors. Counselors decide how their
respective segments will be invested (within the limits provided by a fund's
objective and policies and by Capital Research and Management Company's
investment committee). In addition, Capital Research and Management Company's
research professionals may make investment decisions with respect to a portion
of a fund's portfolio. The primary 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 COMPANY OR TOTAL YEARS
INVESTORS PRIMARY TITLE(S) (APPROXIMATE) ITS AFFILIATES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JAMES E. President and Director 14 years (plus 5 years as 21 years 26 years
DRASDO of the fund. a research professional
Senior Vice President prior to becoming a
and Director, portfolio counselor for
Capital Research the fund)
and Management
Company
- -----------------------------------------------------------------------------------------------------------------------------
GORDON Senior Vice President 7 years (plus 13 years as 27 years 27 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 5 years (plus 1 year as a 6 years 31 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.
. 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.
. 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.
. 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, 1997)
<TABLE>
<CAPTION>
AVERAGE LIPPER GROWTH
ANNUAL THE FUND & INCOME
TOTAL AT NET THE FUND AT MAXIMUM S&P FUNDS
RETURNS: ASSET VALUE1 SALES CHARGE/1/,/2/ 5003 INDEX/4/
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One year 26.67% 19.38% 33.32% 26.96%
................................................................................
Five years 19.55% 18.14% 20.23% 18.06%
................................................................................
Ten years 17.23% 16.54% 18.01% 16.03%
................................................................................
Lifetime/5/ 16.50% 16.14% 16.65% 15.55%
</TABLE>
- --------------------------------------------------------------------------------
Yield/1/,/2/: 1.49%
Distribution Rate/2/: 1.30%
/1/ Thesefund results were calculated according to a standard formula 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.
/4/ The Lipper Growth & Income Funds Index is an equally weighted performance
index, adjusted for capital gain distributions and income dividends, of the
30 largest qualifying funds. The qualifying funds combine a growth of
earnings orientation and an income requirement for level and/or rising
dividends. This index is unmanaged and does not reflect sales charges,
commissions or expenses.
/5/ For the period August 1, 1978 (when Capital Research and Management Company
became investment adviser) through December 31, 1978.
Fundamental Investors / Prospectus 9
<PAGE>
- --------------------------------------------------------------------------------
FUNDAMENTAL INVESTORS / PROSPECTUS
Here are the fund's annual total returns calculated without a sales charge.
This information is being supplied on a calendar year basis.
[begin bar chart]
<TABLE>
<CAPTION>
FUNDAMENTAL
Measurement Period INVESTORS
------------------- ----------
<S> <C>
FYE 1988 15.95
FYE 1989 28.56
FYE 1990 - 6.24
FYE 1991 30.34
FYE 1992 10.19
FYE 1993 18.16
FYE 1994 1.33
FYE 1995 34.21
FYE 1996 19.99
FYE 1997 26.67
</TABLE>
[end bar chart]
Past results are not an indication of future results.
- --------------------------------------------------------------------------------
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.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, or the shareholder does
not respond to mailings from American Funds Service Company with regard to
uncashed distribution checks, the shareholder's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares.
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.
10
<PAGE>
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.
- --------------------------------------------------------------------------------
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 which
meets periodically and performs duties required by applicable state and federal
laws. Members of the board who are not employed by Capital Research and
Management Company or its affiliates are paid certain fees for services
rendered to the 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 matters that 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
Fundamental Investors / Prospectus 11
<PAGE>
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.
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. 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." Since these fees are paid out of the fund's
assets on an ongoing basis, over time they will increase the cost of an
investment and may cost you more than paying higher sales loads in lieu of
these fees.
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.
12 Fundamental Investors / Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Subject to the above policy, when two or more brokers (either directly or
through their correspondent clearing agents) 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.
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
CALL TOLL-FREE FROM ANYWHERE IN THE U.S.
(8 A.M. TO 8 P.M. ET):
800/421-0180
[MAP APPEARS HERE]
<TABLE>
<S> <C> <C> <C>
WESTERN SERVICE WESTERN CENTRAL EASTERN CENTRAL EASTERN SERVICE
CENTER SERVICE CENTER SERVICE CENTER CENTER
American Funds American Funds American Funds American Funds
Service Company Service Company Service Company Service Company
P.O. Box 2205 P.O. Box 659522 P.O. Box 6007 P.O. Box 2280
Brea, California San Antonio, Texas Indianapolis, Indiana Norfolk, Virginia
92822-2205 78265-9522 46206-6007 23501-2280
Fax: 714/671-7080 Fax: 210/530-4050 Fax: 317/735-6620 Fax: 757/670-4773
</TABLE>
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, computer,
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 for any reason. This includes exchange purchase orders that may
place an unfair burden on other shareholders due to their frequency.
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."
. Automatic Investment Plan
You may invest monthly or quarterly through automatic withdrawals from your
bank account.
. 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>
. Cross-Reinvestment
You may invest your dividends and capital gain distributions into any other
fund in The American Funds Group.
. 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), by computer using American FundsLine OnLineSM (see below), or
by fax. EXCHANGES HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND
PURCHASES.
. 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 4:00
p.m. Eastern time (the normal close of trading) 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 through payroll deduction................. $ 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 100 or more eligible employees are sold
with no initial sales charge. A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE BY THESE ACCOUNTS WITHIN ONE YEAR OF
PURCHASE. 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 the fund under its Plan of Distribution and/or by American Funds
Distributors on investments made with no initial sales charge. 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.
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. American Funds Distributors currently provides
additional compensation to the top 100 dealers who have sold shares of funds in
The American Funds Group based on the pro rata share of a qualifying dealer's
sales.
16 Fundamental Investors / Prospectus
<PAGE>
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.
. 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.
. 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.
. Right of Accumulation
You may take into account the current value of your existing holdings in The
American Funds Group as well as your holdings in Endowments and Bond
Portfolio for Endowments (shares of which may be owned only by tax-exempt
organizations), to determine your sales charge on investments in accounts
eligible to be aggregated, or when making a gift to an individual or
charity. Direct purchases of the money market funds are excluded.
. 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 that
may be due if your total investments over the statement period are
insufficient to qualify for the applicable sales charge reduction.
Fundamental Investors / Prospectus 17
<PAGE>
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) or American FundsLine OnLineSM (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), by computer
using American FundsLine OnLineSM, or by fax. Sales by telephone, computer or
fax are limited to $50,000 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. Interest will not
accrue or be paid on amounts that represent uncashed distribution or redemption
checks.
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 member firm of a domestic stock exchange or
the National Association of Securities Dealers, Inc., bank, savings
association, or credit union 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 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.
18 Fundamental Investors / Prospectus
<PAGE>
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Redemption
proceeds of shares representing direct purchases in the money market funds are
excluded. 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) AND AMERICAN FUNDSLINE ONLINESM
You may check your share balance, the price of your shares, or your most recent
account transactions, sell shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(R) or American
FundsLine OnLineSM. To use these services, call 800/325-3590 from a
TouchTone(TM) telephone or access The American Funds Web site on the Internet
at www.americanfunds.com.
TELEPHONE AND COMPUTER PURCHASES, SALES AND EXCHANGES
Unless you opt out of the telephone or computer (including American
FundsLine(R) or American FundsLine OnLineSM) 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 liabilities
(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. Dividend and capital gain reinvestments and 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
21 Fundamental Investors / Prospectus
<PAGE>
NOTES
22 Fundamental Investors / Prospectus
<PAGE>
NOTES
Fundamental Investors / Prospectus 23
<PAGE>
<TABLE>
<CAPTION>
FOR SHAREHOLDER FOR RETIREMENT PLAN FOR DEALER
SERVICES SERVICES SERVICES
<S> <C> <C>
American Funds Call your employer or American Funds
Service Company plan administrator Distributors
800/421-0180 ext. 1 800/421-9900 ext. 11
</TABLE>
FOR 24-HOUR INFORMATION
<TABLE>
<S> <C>
American American Funds
FundsLine(R) Internet Web site
800/325-3590 http://www.americanfunds.com
</TABLE>
Telephone conversations may be recorded or monitored for
verification, recordkeeping and quality assurance purposes.
------------------------------------------------------------
MULTIPLE TRANSLATIONS
This prospectus may be translated into other languages. In
the event of any inconsistency or ambiguity as to the
meaning of any word or phrase in a translation, the English
text will prevail.
------------------------------------------------------------
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance
information, portfolio holdings, a statement from portfolio
management and the independent auditors' report (in the
annual report).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more detailed information on all aspects of the
fund, including the fund's financial statements.
A current SAI has been filed with the Securities and
Exchange Commission ("SEC"). It is incorporated by
reference into this prospectus and is available along with
other related materials on the SEC's Internet Web site at
http://www.sec.gov.
CODE OF ETHICS
Includes a description of the fund's personal investing
policy.
To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary of
Service Company the fund
800/421-0180 ext. 1 One Market
Steuart Tower, Suite 1800
San Francisco, CA 94105
This prospectus has been printed on recycled paper.
[LOGO OF RECYCLE APPEARS HERE]
24 Fundamental Investors / Prospectus
<PAGE>
THE FUND PROVIDES SPANISH TRANSLATIONS IN CONNECTION WITH THE PUBLIC OFFERING
AND SALE OF ITS SHARES. THE FOLLOWING IS A FAIR AND ACCURATE ENGLISH
TRANSLATION OF A SPANISH LANGUAGE PROSPECTUS FOR THE FUND.
/s/ Julie F. Williams
Julie F. Williams
Secretary
<PAGE>
[PHOTO APPEARS HERE]
[LOGO OF THE AMERICAN FUNDS GROUP APPEARS HERE]
- --------------------------------------------------------------------------------
Fundamental InvestorsSM
Prospectus
MARCH 1, 1998
<PAGE>
FUNDAMENTAL INVESTORS, INC.
One Market
Steuart Tower, Suite 1800
San Francisco, CA 94105
===========================================================================
TABLE OF CONTENTS
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
===========================================================================
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, and 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.
10-010-0398
<PAGE>
EXPENSES
The effect of the expenses described below is reflected in the fund's share
price and return.
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Operating expenses are paid by the fund.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge on purchases
(as a percentage of offering price) 5.75%
................................................................................
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)
- --------------------------------------------------------------------------------
Management fees 0.30%
................................................................................
12b-1 expenses 0.23%/1/
................................................................................
Other expenses 0.10%
................................................................................
Total fund operating expenses 0.63%
/1/ 12b-1 expenses may not exceed 0.25% of the fund's average net assets
annually.
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:
- --------------------------------------------------------------------------------
One year $ 64
................................................................................
Three years $ 77
................................................................................
Five years $ 91
................................................................................
Ten years $132
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 seven years ended December 31, 1997 has been
audited by Deloitte & Touche llp, independent auditors, and for the three 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.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
......................
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $24.54 $22.29 $17.50 $18.15 $17.52 $17.47 $14.32 $16.43 $14.60 $13.45
- ---------------------------------------------------------------------------------------------------------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income .41 .41 .41 .42 .44 .44 .41 .48 .58 .43
.........................................................................................................
Net realized and
unrealized gain (loss)
on investments 6.00 4.00 5.46 (.18) 2.65 1.27 3.82 (1.52) 3.53 1.65
.........................................................................................................
Total income (loss)
from investment
operations 6.41 4.41 5.87 .24 3.09 1.71 4.23 (1.04) 4.11 2.08
- ---------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from
net investment
income (.42) (.40) (.40) (.44) (.43) (.42) (.40) (.49) (.62) (.47)
.........................................................................................................
Distributions from
net realized gains (3.13) (1.76) (.68) (.45) (2.03) (1.24) (.68) (.58) (1.66) (.46)
.........................................................................................................
Total distributions (3.55) (2.16) (1.08) (.89) (2.46) (1.66) (1.08) (1.07) (2.28) (.93)
.........................................................................................................
Net asset value,
end of year $27.40 $24.54 $22.29 $17.50 $18.15 $17.52 $17.47 $14.32 $16.43 $14.60
- ---------------------------------------------------------------------------------------------------------
Total return/1/ 26.67% 19.99% 34.21% 1.33% 18.16% 10.19% 30.34% (6.24)% 28.56% 15.95%
- ---------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in millions) $10,465 $7,165 $4,754 $2,611 $1,979 $1,440 $1,156 $ 823 $ 758 $ 632
.........................................................................................................
Ratio of expenses to
average net assets .63% .66% .70% .68% .65% .65% .69% .70% .67% .68%
.........................................................................................................
Ratio of net income
to average net assets 1.54% 1.78% 2.08% 2.45% 2.43% 2.56% 2.50% 3.15% 3.40% 2.97%
.........................................................................................................
Average
commissions paid per
share/2/ 4.51c 5.69c 5.95c 6.02c 6.14c 7.53c 7.50c 7.76c 7.80c 7.47c
.........................................................................................................
Portfolio turnover
rate 45.09% 39.07% 25.47% 23.02% 29.22% 23.98% 17.07% 11.92% 18.59% 8.09%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
/1/Excludes maximum sales charge of 5.75%.
/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 over-the-counter and
fixed-income transactions, are excluded. Generally, non-U.S. commissions are
lower than U.S. commissions when expressed as cents per share but higher when
expressed as a percentage of transactions because of the lower per-share
prices of many non-U.S. securities.
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 and securities convertible into common
stocks. The fund may also invest in 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.
Investment limitations are considered at the time securities are purchased.
These limits are based on the fund's net assets unless otherwise indicated. The
fund's fundamental investment restrictions (described in the statement of
additional information) and objective may not be changed without shareholder
approval.
THE FUND MAY NOT ACHIEVE ITS INVESTMENT OBJECTIVE DUE TO MARKET CONDITIONS AND
OTHER FACTORS. IN ADDITION, THE FUND MAY EXPERIENCE DIFFICULTY LIQUIDATING
CERTAIN PORTFOLIO SECURITIES DURING SIGNIFICANT MARKET DECLINES OR PERIODS OF
HEAVY REDEMPTIONS.
- --------------------------------------------------------------------------------
SECURITIES AND INVESTMENT TECHNIQUES
EQUITY SECURITIES
Equity securities represent an ownership position in a company. 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. Certain securities
purchased by the fund, particularly smaller capitalization stocks, may involve
large price swings and potential for loss.
DEBT SECURITIES
Bonds and other debt securities are used by issuers to borrow money. Issuers
pay investors interest and generally must repay the amount borrowed at
maturity. Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. The prices of
Fundamental Investors / Prospectus 5
<PAGE>
- --------------------------------------------------------------------------------
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.
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 as well
as by monitoring broad economic trends and corporate and legislative
developments.
OTHER SECURITIES
The fund may also invest in securities that have a combination of equity and
debt characteristics such as non-convertible preferred stocks and convertible
securities. These securities may at times resemble equity more than debt and
vice versa. Non-convertible preferred stocks are similar to debt in that they
have a stated dividend rate akin to the coupon of a bond or note even though
they are often classified as equity securities. The prices and yields of non-
convertible preferred stocks generally move with changes in interest rates and
the issuer's credit quality, similar to the factors affecting debt securities.
Bonds, preferred stocks, and other securities may sometimes be converted into
shares of common stock or other securities at a stated exchange ratio. These
securities prior to conversion pay a fixed rate of interest or a dividend.
Because convertible securities have both debt and equity characteristics their
value varies in response to many factors, including the value of the underlying
equity, general market and economic conditions, convertible market valuations,
as well as changes in interest rates, credit spreads, and the credit quality of
the issuer.
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
6 Fundamental Investors / Prospectus
<PAGE>
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; expropriation or confiscatory taxation; greater market volatility;
differing securities market structures; and various administrative difficulties
such as delays in clearing and settling portfolio transactions or in receiving
payment of dividends. However, in the opinion of Capital Research and
Management Company, investing outside the U.S. also can reduce certain
portfolio risks due to greater diversification opportunities.
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.
RESTRICTED SECURITIES AND LIQUIDITY
The fund may purchase securities subject to restrictions on resale. All such
securities whose principal trading market is in the U.S. will be considered
illiquid unless they have been specifically determined to be liquid under
procedures adopted by the fund's board of directors, taking into account
factors such as the frequency and volume of trading, the commitment of dealers
to make markets and the availability of qualified investors, all of which can
change from time to time. The fund may incur certain additional costs in
disposing of illiquid securities.
Fundamental Investors / Prospectus 7
<PAGE>
- --------------------------------------------------------------------------------
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
The investment philosophy of Capital Research and Management Company is to seek
fundamental values at reasonable prices. Capital Research and Management
Company utilizes a system of multiple portfolio counselors in managing mutual
fund assets. Under this system the portfolio of a fund is divided into segments
which are managed by individual counselors. Counselors decide how their
respective segments will be invested (within the limits provided by a fund's
objective and policies and by Capital Research and Management Company's
investment committee). In addition, Capital Research and Management Company's
research professionals may make investment decisions with respect to a portion
of a fund's portfolio. The primary 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 COMPANY OR TOTAL YEARS
INVESTORS PRIMARY TITLE(S) (APPROXIMATE) ITS AFFILIATES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JAMES E. President and Director 14 years (plus 5 years as 21 years 26 years
DRASDO of the fund. a research professional
Senior Vice President prior to becoming a
and Director, portfolio counselor for
Capital Research the fund)
and Management
Company
- -----------------------------------------------------------------------------------------------------------------------------
GORDON Senior Vice President 7 years (plus 13 years as 27 years 27 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 5 years (plus 1 year as a 6 years 31 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.
. 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.
. 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.
. 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, 1997)
<TABLE>
<CAPTION>
AVERAGE LIPPER GROWTH
ANNUAL THE FUND & INCOME
TOTAL AT NET THE FUND AT MAXIMUM S&P FUNDS
RETURNS: ASSET VALUE1 SALES CHARGE/1/,/2/ 5003 INDEX/4/
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One year 26.67% 19.38% 33.32% 26.96%
................................................................................
Five years 19.55% 18.14% 20.23% 18.06%
................................................................................
Ten years 17.23% 16.54% 18.01% 16.03%
................................................................................
Lifetime/5/ 16.50% 16.14% 16.65% 15.55%
</TABLE>
- --------------------------------------------------------------------------------
Yield/1/,/2/: 1.49%
Distribution Rate/2/: 1.30%
/1/ Thesefund results were calculated according to a standard formula 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.
/4/ The Lipper Growth & Income Funds Index is an equally weighted performance
index, adjusted for capital gain distributions and income dividends, of the
30 largest qualifying funds. The qualifying funds combine a growth of
earnings orientation and an income requirement for level and/or rising
dividends. This index is unmanaged and does not reflect sales charges,
commissions or expenses.
/5/ For the period August 1, 1978 (when Capital Research and Management Company
became investment adviser) through December 31, 1978.
Fundamental Investors / Prospectus 9
<PAGE>
- --------------------------------------------------------------------------------
FUNDAMENTAL INVESTORS / PROSPECTUS
Here are the fund's annual total returns calculated without a sales charge.
This information is being supplied on a calendar year basis.
[begin bar chart]
<TABLE>
<CAPTION>
FUNDAMENTAL
Measurement Period INVESTORS
------------------- ----------
<S> <C>
FYE 1988 15.95
FYE 1989 28.56
FYE 1990 - 6.24
FYE 1991 30.34
FYE 1992 10.19
FYE 1993 18.16
FYE 1994 1.33
FYE 1995 34.21
FYE 1996 19.99
FYE 1997 26.67
</TABLE>
[end bar chart]
Past results are not an indication of future results.
- --------------------------------------------------------------------------------
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.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, or the shareholder does
not respond to mailings from American Funds Service Company with regard to
uncashed distribution checks, the shareholder's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares.
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.
10
<PAGE>
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.
- --------------------------------------------------------------------------------
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 which
meets periodically and performs duties required by applicable state and federal
laws. Members of the board who are not employed by Capital Research and
Management Company or its affiliates are paid certain fees for services
rendered to the 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 matters that 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
Fundamental Investors / Prospectus 11
<PAGE>
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.
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. 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." Since these fees are paid out of the fund's
assets on an ongoing basis, over time they will increase the cost of an
investment and may cost you more than paying higher sales loads in lieu of
these fees.
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.
12 Fundamental Investors / Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Subject to the above policy, when two or more brokers (either directly or
through their correspondent clearing agents) 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.
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
CALL TOLL-FREE FROM ANYWHERE IN THE U.S.
(8 A.M. TO 8 P.M. ET):
800/421-0180
[MAP APPEARS HERE]
<TABLE>
<S> <C> <C> <C>
WESTERN SERVICE WESTERN CENTRAL EASTERN CENTRAL EASTERN SERVICE
CENTER SERVICE CENTER SERVICE CENTER CENTER
American Funds American Funds American Funds American Funds
Service Company Service Company Service Company Service Company
P.O. Box 2205 P.O. Box 659522 P.O. Box 6007 P.O. Box 2280
Brea, California San Antonio, Texas Indianapolis, Indiana Norfolk, Virginia
92822-2205 78265-9522 46206-6007 23501-2280
Fax: 714/671-7080 Fax: 210/530-4050 Fax: 317/735-6620 Fax: 757/670-4773
</TABLE>
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, computer,
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 for any reason. This includes exchange purchase orders that may
place an unfair burden on other shareholders due to their frequency.
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."
. Automatic Investment Plan
You may invest monthly or quarterly through automatic withdrawals from your
bank account.
. 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>
. Cross-Reinvestment
You may invest your dividends and capital gain distributions into any other
fund in The American Funds Group.
. 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), by computer using American FundsLine OnLineSM (see below), or
by fax. EXCHANGES HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND
PURCHASES.
. 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 4:00
p.m. Eastern time (the normal close of trading) 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 through payroll deduction................. $ 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 100 or more eligible employees are sold
with no initial sales charge. A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE BY THESE ACCOUNTS WITHIN ONE YEAR OF
PURCHASE. 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 the fund under its Plan of Distribution and/or by American Funds
Distributors on investments made with no initial sales charge. 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.
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. American Funds Distributors currently provides
additional compensation to the top 100 dealers who have sold shares of funds in
The American Funds Group based on the pro rata share of a qualifying dealer's
sales.
16 Fundamental Investors / Prospectus
<PAGE>
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.
. 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.
. 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.
. Right of Accumulation
You may take into account the current value of your existing holdings in The
American Funds Group as well as your holdings in Endowments and Bond
Portfolio for Endowments (shares of which may be owned only by tax-exempt
organizations), to determine your sales charge on investments in accounts
eligible to be aggregated, or when making a gift to an individual or
charity. Direct purchases of the money market funds are excluded.
. 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 that
may be due if your total investments over the statement period are
insufficient to qualify for the applicable sales charge reduction.
Fundamental Investors / Prospectus 17
<PAGE>
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) or American FundsLine OnLineSM (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), by computer
using American FundsLine OnLineSM, or by fax. Sales by telephone, computer or
fax are limited to $50,000 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. Interest will not
accrue or be paid on amounts that represent uncashed distribution or redemption
checks.
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 member firm of a domestic stock exchange or
the National Association of Securities Dealers, Inc., bank, savings
association, or credit union 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 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.
18 Fundamental Investors / Prospectus
<PAGE>
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Redemption
proceeds of shares representing direct purchases in the money market funds are
excluded. 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) AND AMERICAN FUNDSLINE ONLINESM
You may check your share balance, the price of your shares, or your most recent
account transactions, sell shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(R) or American
FundsLine OnLineSM. To use these services, call 800/325-3590 from a
TouchTone(TM) telephone or access The American Funds Web site on the Internet
at www.americanfunds.com.
TELEPHONE AND COMPUTER PURCHASES, SALES AND EXCHANGES
Unless you opt out of the telephone or computer (including American
FundsLine(R) or American FundsLine OnLineSM) 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 liabilities
(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. Dividend and capital gain reinvestments and 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
21 Fundamental Investors / Prospectus
<PAGE>
NOTES
22 Fundamental Investors / Prospectus
<PAGE>
NOTES
Fundamental Investors / Prospectus 23
<PAGE>
<TABLE>
<CAPTION>
FOR SHAREHOLDER FOR RETIREMENT PLAN FOR DEALER
SERVICES SERVICES SERVICES
<S> <C> <C>
American Funds Call your employer or American Funds
Service Company plan administrator Distributors
800/421-0180 ext. 1 800/421-9900 ext. 11
</TABLE>
FOR 24-HOUR INFORMATION
<TABLE>
<S> <C>
American American Funds
FundsLine(R) Internet Web site
800/325-3590 http://www.americanfunds.com
</TABLE>
Telephone conversations may be recorded or monitored for
verification, recordkeeping and quality assurance purposes.
------------------------------------------------------------
MULTIPLE TRANSLATIONS
This prospectus may be translated into other languages. In
the event of any inconsistency or ambiguity as to the
meaning of any word or phrase in a translation, the English
text will prevail.
------------------------------------------------------------
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance
information, portfolio holdings, a statement from portfolio
management and the independent auditors' report (in the
annual report).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more detailed information on all aspects of the
fund, including the fund's financial statements.
A current SAI has been filed with the Securities and
Exchange Commission ("SEC"). It is incorporated by
reference into this prospectus and is available along with
other related materials on the SEC's Internet Web site at
http://www.sec.gov.
CODE OF ETHICS
Includes a description of the fund's personal investing
policy.
To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary of
Service Company the fund
800/421-0180 ext. 1 One Market
Steuart Tower, Suite 1800
San Francisco, CA 94105
This prospectus has been printed on recycled paper.
[LOGO OF RECYCLE APPEARS HERE]
24 Fundamental Investors / Prospectus
<PAGE>
FUNDAMENTAL INVESTORS, INC.
Part B
Statement of Additional Information
MARCH 1, 1998
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, 1998. 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 2
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS 3
FUND OFFICERS AND DIRECTORS 5
MANAGEMENT 10
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 12
PURCHASE OF SHARES 15
REDEEMING SHARES 22
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 23
EXECUTION OF PORTFOLIO TRANSACTIONS 25
GENERAL INFORMATION 25
INVESTMENT RESULTS 27
DESCRIPTION OF BOND RATINGS 32
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 (the
"Investment Adviser"), 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, POSITION PRINCIPAL OCCUPATION(S) AGGREGATE TOTAL TOTAL
ADDRESS WITH DURING PAST 5 YEARS COMPENSATION COMPENSATION NUMBER OF
AND AGE REGISTRANT (POSITIONS WITHIN THE (INCLUDING (INCLUDING FUND
ORGANIZATIONS LISTED VOLUNTARILY VOLUNTARILY BOARDS ON
MAY HAVE CHANGED DURING DEFERRED DEFERRED WHICH
THIS PERIOD) COMPENSATION /1/) COMPENSATION/1/) DIRECTOR
FROM FUND DURING FROM ALL FUNDS SERVES/2/
FISCAL YEAR ENDED MANAGED BY
12/31/97 CAPITAL
RESEARCH AND
MANAGEMENT
COMPANY/2/
<S> <C> <C> <C> <C> <C>
Guilford C. Babcock Director Associate Professor of $16,400/3/ $31,600 3
1575 Circle Drive Finance, School of
San Marino, CA 91108 Business
Age: 66 Administration,
University of Southern
California
Charles H. Black Director Private investor and $15,900 $122,300 4
525 Alma Real Drive consultant; former
Pacific Palisades, CA Executive Vice
90272 President and Director,
Age: 71 KaiserSteel Corporation
+James E. Drasdo President, Senior Vice President none/5/ none/5/ 1
333 South Hope Street PEO and and Director, Capital
Los Angeles, CA 90071 Director Research and Management
Age: 53 Company
Robert A. Fox Director President and Chief none/4/ $89,050 6
P. O. Box 457 Executive Officer,
Livingston, CA 95334 Foster Farms
Age: 60
Roberta L. Hazard Director Consultant, Rear none/4/ $50,000 4
1419 Audmar Drive Admiral, United States
McLean, VA 22101 Navy (Retired)
Age: 62
Leonade D. Jones Director Former Treasurer; The none/4/ $82,000 6
1536 Los Montes Drive Washington Post Company
Burlingame, CA 94010
Age: 50
John G. McDonald Director The IBJ Professor of none/4/ $162,400 7
Graduate School of Finance, Graduate
Business School of Business,
Stanford University Stanford University
Stanford, CA 94305
Age: 60
Gail L. Neale Director President, The Lovejoy $16,700/3/ $57,300 5
The Lovejoy Consulting Consulting Group, Inc.;
Group, Inc. former Executive Vice
154 Prospect Parkway President, Salzburg
Burlington, VT 05401 Seminar
Age: 63
+James W. Ratzlaff Director Senior Partner, The none/5/ none/5/ 8
333 South Hope Street Capital Group Partners,
Los Angeles, CA 90071 L.P.
Age: 61
Henry E. Riggs Director President, Keck $16,600/3/ $90,350
Keck Graduate Institute Graduate Institute of 5
of Applied Life Applied Life Sciences;
Sciences former President and
1263 Dartmouth Professor of
Claremont, CA 91711 Engineering, Harvey
Age: 63 Mudd College
+James F. Rothenberg Director President and Director, none/5/ none/5/ 3
333 South Hope Street Capital Research and
Los Angeles, CA 90071 Management Company
Age: 51
Patricia K. Woolf Director Private investor; none/4/ $91,450 6
506 Quaker Road Lecturer, Department of
Princeton, NJ 08540 Molecular Biology,
Age: 63 Princeton University
</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 ($77,322), Gail L. Neale ($49,425), and Henry E.
Riggs ($84,635. Amounts deferred and accumulated earnings thereon are not
funded and are general unsecured liabilities of the fund until paid to the
Director.
/4/ Robert A. Fox, Roberta L. Hazard, Leonade D. Jones, John G. McDonald, and
Patricia K. Woolf were elected Directors by the shareholders on February 26,
1998.
/5/ James E. Drasdo, James W. Ratzlaff, and James F. Rothenberg 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) HELD PRINCIPAL OCCUPATION(S) DURING
WITH REGISTRANT PAST 5 YEARS
Gordon Crawford 51 Senior Vice Capital Research and Management
333 South Hope Street President Company, Senior Vice President and
Los Angeles, CA 90071 Director
Paul G. Haaga, Jr. 49 Senior Vice Capital Research and Management
333 South Hope Street President Company, Executive Vice President and
Los Angeles, CA 90071 Director
Dina N. Perry 52 Senior Vice Capital Research and Management
3000 K Street, N.W., President Company, Senior Vice President
Suite 230
Washington, D.C. 20007-5124
Michael T. Kerr 38 Vice President Capital Research Company, Executive
333 South Hope Street Vice President and Research Director
Los Angeles, CA 90071
Julie F. Williams 49 Secretary Capital Research and Management
333 South Hope Street Company, Vice President - Fund Business
Los Angeles, CA 90071 Management Group
Patrick F. Quan 39 Assistant Capital Research and Management
One Market, Steuart Tower, Secretary Company, Vice President - Fund Business
Suite 1800 Management Group
San Francisco, CA 94105
Mary C. Hall 40 Treasurer Capital Research and Management
135 South State College Blvd. Company, Senior Vice President - Fund
Brea, CA 92821 Business Management Group
Robert P. Simmer 36 Assistant Capital Research and Management
5300 Robin Hood Road Treasurer Company, Vice President - Fund Business
Norfolk, VA 23513 Management Group
</TABLE>
# Positions within the organizations listed may have changed during this time.
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, 1998 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 $175 billion of stocks,
bonds and money market instruments and serves over eight 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 as of December 1, 1991 and approved by shareholders on November 14, 1991,
shall be in effect until the close of business on August 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, 1997, 1996, and 1995, the Investment Adviser received from the fund
advisory fees of $26,675,000, $18,267,000, and $11,787,000, 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,
1997, amounted to $8,356,000 after allowance of $41,667,000 to dealers. During
the fiscal years ended December 31, 1996 and 1995, the Principal Underwriter
retained $7,993,000 and $5,718,000 after allowance of $40,389,000 and
$29,762,000to 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 (the "Code") including a "401(k)
plan with 100 or more eligible employees). Since these fees are paid out of
the fund's assets on an ongoing basis over time these fees will increase the
cost of an investment and may cost the investor more than paying other types of
sales loads. During the year ended December 31, 1997, the fund paid or accrued
$20,321,000 under the Plan as compensation to dealers. As of December 31,
1997, distribution expenses accrued and unpaid distribution expenses were
$1,447,000.
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
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) 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 in effect 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 will 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 gains on assets held more than 18 months is 20%, and on assets held
more than one year and not more than 18 months 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 Individual Retirement Account ("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
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METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums and $50 minimum (except where a lower minimum is
Fund Numbers" for initial noted under "Investment Minimums and Fund
investment minimums. Numbers").
By contacting Visit any investment dealer who Mail directly to your investment dealer's address
your is registered in the state where printed on your account statement.
investment the purchase is made and who
dealer has a sales agreement with
American Funds Distributors.
By mail Make your check payable to the Fill out the account additions form at the bottom of
fund and mail to the address a recent account statement, make your check
indicated on the account payable to the fund, write your account number on
application. Please indicate an your check, and mail the check and form in the
investment dealer on the account envelope provided with your account statement.
application.
By telephone Please contact your investment Complete the "Investments by Phone" section on
dealer to open account, then the account application or American FundsLink
follow the procedures for Authorization Form. Once you establish the
additional investments. 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 and
Computer Redemptions and Exchanges" below).
By computer Please contact your investment Complete the American FundsLink Authorization
dealer to open account, then Form. Once you establish the privilege, you, your
follow the procedures for financial advisor or any person with your account
additional investments. information may access American FundsLine
OnLine(SM) on the Internet and make investments
by computer (subject to conditions noted in
"Shareholder Account Services and Privileges -
Telephone and Computer Purchases, Redemptions
and Exchanges" below).
By wire Call 800/421-0180 to obtain your Your bank should wire your additional investments
account number(s), if necessary. in the same manner as described under "Initial
Please indicate an investment 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.
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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):
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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 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.)
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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 none none (see below)
</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 Code including a "401(k)" plan with 100
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), currently provides 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 Code including a "401(k)" plan with 100 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 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 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 the Investment
Adviser, 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 the Principal Underwriter (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 foundations and endowments with assets of $50 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 American Funds
Service Company (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 1940 Act, 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 the Transfer
Agent; 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 the Transfer Agent, 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 4:00 p.m., New York time each
day the New York Stock Exchange is open. For example, if the Exchange closes
at 1:00 p.m. on one day and at 4:00 p.m. on the next, the fund's share price
would be determined as of 4:00 p.m. New York time on both days. The New York
Stock Exchange is currently closed on weekends and on the following holidays:
New Year's Day, Martin Luther King, Jr. 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. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, 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 quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
Securities with original maturities of one year or less having 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. Forward currency contracts are valued at the mean
of their representative quoted bid and asked prices.
Assets or liabilities and income ore expenses 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 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.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board. The fair value of all other assets is
added to the value of securities to arrive at the total assets.
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets.
3. Net assets so obtained are then divided by the total number of shares
outstanding, 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
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By writing to American Funds Send a letter of instruction specifying the name of the fund, the
Service Company the Transfer number of shares or dollar amount to be sold, your name and account
Agent (at the appropriate number. You should also enclose any share certificates you wish to
address indicated under "Fund redeem. For redemptions over $50,000 and for certain redemptions of
Organization and Management - $50,000 or less (see below), your signature must be guaranteed by a
Principal Underwriter and bank, savings association, credit union, or member firm of a domestic
Transfer Agent" in the stock exchange or the National Association of Securities Dealers, Inc.
prospectus) 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 investment If you redeem shares through your investment dealer, you may be
dealer 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 redemption You may use this option, provided the account is registered in the
check sent to you by using name of an individual(s), a UGMA/UTMA custodian, or a non-retirement
American FundsLine(R) or plan trust. These redemptions may not exceed $50,000 per
American FundsLine shareholder each day and the check must be made payable to the
OnLine(SM) or by telephoning, shareholder(s) of record and be sent to the address of record provided
faxing, or telegraphing the the address has been used with the account for at least 10 days. See
Transfer Agent (subject to the "Fund Organization and Management - Principal Underwriter and
conditions noted in this section Transfer Agent" in the prospectus and "Exchange Privilege" below for
and in "Telephone and Computer the appropriate telephone or fax number.
Purchases, Sales and
Exchanges" in the prospectus)
In the case of the money Upon request (use the account application for the money market
market funds, you may have funds) you may establish telephone redemption privileges (which will
redemptions wired to your bank enable you to have a redemption sent to your bank account) and/or
by telephoning the Transfer check writing privileges. If you request check writing privileges, you
Agent ($1,000 or more) or by will be provided with checks that you may use to draw against your
writing a check ($250 or more) account. These checks may be made payable to anyone you
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 Code including a "401(k)" plan with 100
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, the
Transfer Agent or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - You 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 your 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 will
have the right, if you fail 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 you. 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) and American FundsLine OnLine(SM) (see "American FundsLine(R) and
American FundsLine OnLine(SM)" 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 and Computer 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,
computer, 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, will be reflected on regular confirmation statements from the
Transfer Agent. Dividend and capital gain reinvestments and purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINE(SM) - You may check your
share balance, the price of your shares, or your most recent account
transaction, redeem shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(R) or American
FundsLine OnLine(SM). To use these services, call 800/325-3590 from a
TouchTone(TM) telephone or access the American Funds Web site on the Internet
at www.americanfunds.com. Redemptions and exchanges through American
FundsLine(R) and American FundsLine OnLine(SM) are subject to the conditions
noted above and in "Telephone and Computer 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 AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES - By using the
telephone (including American FundsLine(R)) and computer (including American
FundsLine OnLine(SM)), fax or telegraph redemption and/or exchange options, you
agree to hold the fund, the Transfer Agent, 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 the Transfer Agent (you may also reinstate them
at any time by writing the Transfer Agent). If the Transfer Agent 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.
Brokerage commissions paid on portfolio transactions during the years ended
December 31, 1997, 1996, and 1995, amounted to $7,913,000, $6,066,000 and
$3,599,000, 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 $6,514,000 for the fiscal year ended December 31, 1997.
INDEPENDENT AUDITORS - Deloitte & Touche LLP, 1000 Wilshire Boulevard, 15th
Floor, 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 independent
auditors' report given on the authority of said firm as experts in auditing and
accounting. The selection of the fund'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. In an effort to reduce the volume of mail shareholders receive
from the fund when a household owns more than one account, the Transfer Agent
has taken steps to eliminate duplicate mailings of shareholder reports. To
receive additional copies of a report, shareholders should contact the Transfer
Agent.
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; 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, 1997
<S> <C>
Net asset value and redemption price per share $27.40
(Net assets divided by shares outstanding)
Maximum offering price per share $29.07
(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 was 1.49% for the 30-day (or one month) period ended December
31, 1997, 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, 1997, the fund's total return over the past twelve months
and average annual total returns over the past five and ten-year periods were
19.38%, 18.14% and 16.54%, 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/
1988 - 1997 +362% +452% +424% +55%
<S> <C> <C> <C> <C>
1987 - 1996 +278 +366 +314 +57
1986 - 1995 +285 +360 +299 +62
1985 - 1994 +273 +349 +282 +69
1984 - 1993 +290 +333 +301 +81
1983 - 1992 +316 +367 +346 +92
1982 - 1991 +406 +452 +404 +105
1981 - 1990 +284 +328 +267 +116
1980 - 1989 +396 +426 +402 +121
1979 - 1988 +345 +340 +352 +122
1978/#/ - 1987 +273 +265 +280 +117
</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
(1/1/93 - 12/31/97) (1/1/88 - 12/31/97) (7/31/78 - 12/31/97)
$17,596 $52,695 $267,339
</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, 1997
| |
Number of Years Periods Value**
1/1-12/31
<S> <C> <C>
1 1997 $ 11,938
2 1996 - 1997 14,325
3 1995 - 1997 19,223
4 1994 - 1997 19,478
5 1993 - 1997 13,027
6 1992 - 1997 25,358
7 1991 - 1997 33,068
8 1990 - 1997 31,003
9 1989 - 1997 39,854
10 1988 - 1997 46,211
11 1987 - 1997 47,942
12 1986 - 1997 58,508
13 1985 - 1997 76,178
14 1984 - 1997 80,589
15 1983 - 1997 101,646
16 1982 - 1997 136,250
17 1981 - 1997 134,644
18 1980 - 1997 163,211
19 1979 - 1997 188,359
Lifetime* 1978 - 1997 182,855
</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, 1997)
<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
1997 2,511 25,711 35,711 36,977 99,784 46,094 182,855
</TABLE>
The dollar amount of capital gain distributions during the period was $69,225.
* 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
The Investment Adviser manages nine growth and growth-income funds that are at
least 10 years old. In the rolling 10-year periods since January 1, 1968 (133
in all), those funds have had better total returns than the Standard and Poor's
500 Stock Composite Index in 124 of the 133 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."
<TABLE>
FUNDAMENTAL INVESTORS, INC.
INVESTMENT PORTFOLIO - December 31, 1997
Percent
Of Net Percent
LARGEST EQUITY HOLDINGS Assets Change*
As of 12/31/97
<S> <C> <C> <C>
Time Warner 2.38% + 63.2%
Texas Instruments 1.94 + 41.2
Tele-Communications, TCI Group 1.68 +113.9
Monsanto 1.62 + 10.7**
Pfizer 1.57 + 79.9
Royal Dutch Petroleum/"Shell" Transport and Trading 1.54 + 27.0
General Re 1.47 + 34.4
AT&T 1.40 + 46.7
U S WEST Communications 1.38 + 39.9
Schlumberger 1.37 + 61.2
*The percentage changes reflect the increase or decrease
in market price, excluding dividends, for the year ended 12/31/97.
**This security was not held for the entire period. The percentage
change reflects the increase from 9/25/97 to 12/31/97.
Percent
Of Net
Largest Industry Holdings Assets
Energy Sources & Equipment 13.24%
Broadcasting & Publishing 6.30
Health & Personal Care 5.60
Telecommunications 5.24
Chemicals 4.50
Shares or Market Percent
EQUITY SECURITIES Principal Value of Net
(Common and Preferred Stocks and Amount (000) Assets
Convertible Debentures)
- ---------------------------------------------------- ---------- ---------- ----------
Energy Sources & Equipment- 13.24%
Royal Dutch Petroleum Co. (New York Registered Shares) (Netherlands) 2851600 $154,521
"Shell" Transport and Trading Co., PLC (New York Registered Shares) 1.54%
(United Kingdom) 150000 6563
Schlumberger Ltd. (Netherlands Antilles) 1786700 143829 1.37
Atlantic Richfield Co. 1700000 136213 1.30
Suncor Energy Inc. (Canada) 3890000 133247 1.27
Western Atlas Inc. /1/ 1600000 118400 1.13
Halliburton Co. 1950000 101278 .97
Chevron Corp. 1200000 92400 .88
Texaco Inc. 1600000 87000 .83
Murphy Oil Corp. 1535000 83178 .80
Elf Aquitaine (American Depositary Receipts) (France) 1400000 82075 .78
Unocal Corp. 700000 27169
Unocal Capital Trust, convertible preferred 450000 25369 .50
Shell Canada Ltd., Class A (Canada) 2649900 47607 .46
Phillips Petroleum Co. 900000 43762 .42
Enterprise Oil PLC (United Kingdom) 3000000 28750 .28
TOTAL, Class B (American Depositary Receipts)
(France) 407013 22589 .22
Mobil Corp. 300000 21656 .21
Diamond Offshore Drilling, Inc. 240000 11550 .11
Cyprus Amax Minerals Co., convertible preferred,
Series A 230000 10810 .10
Loews Corp. 3.125% convertible debentures 2007 $7,500,000 7575 .07
British Petroleum Co. PLC (American Depositary
Receipts) (United Kingdom) 2904 231 .00
Broadcasting & Publishing- 6.30%
Time Warner Inc. 4022000 249364 2.38
Tele-Communications, Inc., Series A, TCI Group /1/ 6300000 176006 1.68
News Corp. Ltd. (American Depositary Receipts) (Australia) 2200000 49088
News Corp. Ltd., preferred shares (American Depositary Receipts) 1500000 29813 .76
Dow Jones & Co., Inc. 1135000 60935 .58
E.W. Scripps Co., Class A 700000 33906 .32
Comcast Corp., Class A, special stock 810784 25590 .25
Viacom Inc., Class B /1/ 500000 20719 .20
Tele-Communications, Inc., Series A, Liberty Media Group /1/ 376504 13648 .13
Health & Personal Care- 5.60%
Pfizer Inc 2200000 164038 1.57
Warner-Lambert Co. 1054900 130808 1.25
AB Astra, Class A (American Depositary Receipts)
(Sweden) 6000000 103125 .99
Pharmacia & Upjohn, Inc. 1200000 43950 .42
Eli Lilly and Co. 600000 41775 .40
Zeneca Group PLC (United Kingdom) 1160400 41348 .39
Johnson & Johnson 410000 27009 .26
Dura Pharmaceuticals, Inc. 3.50% convertible debentures 2002 $12,128,000 13113 .12
Bristol-Myers Squibb Co. 125000 11828 .11
Merck & Co., Inc. 86900 9233 .09
Telecommunications- 5.24%
AT&T Corp. 2400000 147000 1.40
U S WEST Communications Group 3200000 144400 1.38
Sprint Corp. 1166500 68386 .65
France Telecom (France) 1376600 49994 .48
Bell Atlantic Corp. 500000 45500 .43
Ameritech Corp. 409600 32973 .32
MCI Communications Corp. 550000 23547 .23
AirTouch Communications /1/ 500000 20781 .20
Tele-Communications Inc., Series A, TCI Ventures Group /1/ 550000 15572 .15
Chemicals- 4.50%
Monsanto Co. 4044500 169869 1.62
Dow Chemical Co. 1000000 101500 .97
Air Products and Chemicals, Inc. 775000 63744 .61
Engelhard Corp. 1900000 33013 .31
Imperial Chemical Industries PLC (American Depositary
Receipts) (United Kingdom) 500000 32469 .31
Witco Corp. 500000 20406 .20
Mallinckrodt Inc. 443400 16849 .16
Hoechst AG (Germany) 400000 14019 .13
BOC Group PLC (United Kingdom) 600000 10072 .10
E.I. du Pont de Nemours and Co. 150000 9009 .09
Insurance- 4.35%
General Re Corp. 725000 153700 1.47
Marsh & McLennan Companies, Inc. 1400000 104388 1.00
Lincoln National Corp. 900000 70312 .67
Aetna Inc. 779900 55032
Aetna Inc., Class C, 6.25% convertible preferred 200000 14300 .66
20th Century Industries 1100000 28600 .27
American International Group, Inc. 163125 17740 .17
PMI Group, Inc. 160000 11570 .11
Banking- 4.21%
Norwest Corp. 2000000 77250 .74
Marshall & Ilsley Corp. 1026500 63771 .61
PNC Bank Corp. 971100 55413 .53
Mellon Bank Corp. 800000 48500 .46
CoreStates Financial Corp 589200 47173 .45
KeyCorp 600000 42488 .41
J.P. Morgan & Co. Inc. 300000 33863 .32
First Chicago NBD Corp. 400000 33400 .32
Toronto-Dominion Bank (Canada) 500000 18805 .18
Banc One Corp. 190000 10319 .10
Chase Manhattan Corp. 90000 9855 .09
Electronic Components- 3.85%
Texas Instruments Inc. 4518256 203322 1.94
Intel Corp. 1500000 105375 1.01
Micron Technology, Inc. /1/ 2331700 60624 .58
AMP Inc. 800000 33600 .32
Business & Public Services- 3.60%
Federal Express Corp. /1/ 1300000 79381 .76
Shared Medical Systems Corp. 1030000 67980 .65
Columbia/HCA Healthcare Corp. 1880000 55695 .53
Avery Dennison Corp. 1000000 44750 .43
Humana Inc. /1/ 1500000 31125 .30
Ecolab Inc. 300000 16631 .16
Ceridian Corp. /1/ 270000 12369 .12
USA Waste Services, Inc., 4.00% convertible debentures
2002 $11,000,000 11935 .11
IKON Office Solutions, Inc. 400000 11250 .11
Cendant Corp., 3.00% convertible debentures 2002 /2/
(formerly CUC International Inc.) $7,900,000 9845 .09
Deluxe Corp. 280000 9660 .09
First Data Corp. 330000 9653 .09
First Health Group Corp. /1/ 180000 9202 .09
Loewen Group Inc. (Canada) 270000 6969 .07
Leisure & Tourism- 3.04%
Walt Disney Co. 1085153 107498 1.03
Hilton Hotels Corp. 3200000 95200 .91
McDonald's Corp. 1900000 90725 .86
Galileo International, Inc. 872900 24114 .24
Machinery & Engineering- 2.78%
Caterpillar Inc. 2000000 97125 .93
Deere & Co. 1400000 81637 .78
Parker Hannifin Corp. 1650000 75694 .73
Cummins Engine Co., Inc. /2/ 500000 29531 .28
New Holland NV (Netherlands) 250000 6609 .06
Merchandising- 2.57%
May Department Stores Co. 1200000 63225 .60
Mercantile Stores Co., Inc. 800000 48700 .47
Limited Inc. 1800000 45900 .44
Woolworth Corp. /1/ 1839600 37482 .36
Intimate Brands, Inc., Class A 900000 21656 .21
American Stores Co. 800000 16450 .16
J.C. Penney Co., Inc. 200000 12063 .11
Albertson's, Inc. 250000 11844 .11
Lowe's Companies, Inc. 240000 11445 .11
Utilities: Electric & Gas- 2.45%
Long Island Lighting Co. 1800000 54225 .52
Western Resources, Inc. 1022600 43972 .42
Baltimore Gas & Electric Co. 1200000 40875 .39
DTE Energy Co. 1050000 36422 .35
Duke Energy Corp. 325000 17997 .17
Eastern Utilities Associates 640000 16800 .16
Southern Co. 500000 12938 .12
Edison International 450000 12234 .12
Florida Progress Corp. 300000 11775 .11
Texas Utilities Co. 120800 5021 .05
Entergy Corp. 150000 4491 .04
Forest Products & Paper- 2.28%
Union Camp Corp. 1100000 59056 .57
Weyerhaeuser Co. 900000 44156 .42
International Paper Co. 900000 38812 .37
Georgia-Pacific Corp. 400000 24300
Georgia-Pacific Corp. - Timber Group /1/ 400000 9075 .32
Fort James Corp. (formerly James River Corp. of Virginia) 600000 22950 .22
Bowater Inc. 350000 15553 .15
Rayonier Inc. 365000 15535 .15
Deltic Timber Corp. 320000 8760 .08
Financial Services- 2.26%
Freddie Mac (formerly Federal Home Loan Mortgage Corp.) 1650000 69197 .66
Capital One Financial Corp. 1200000 65025 .62
Fannie Mae (formerly Federal National Mortgage Assn.) 600000 34238 .33
Shohkoh Fund & Co., Ltd. (Japan) 95000 28969 .28
Nichiei Co., Ltd. (Japan) 250000 26624 .25
Household International, Inc. 100000 12756 .12
Data Processing & Reproduction- 2.17%
Digital Equipment Corp. /1/ 2000000 74000 .71
Oracle Corp. /1/ 1750000 39047 .37
Data General Corp. /1/ 2000000 34875 .33
Computer Associates International, Inc. 540000 28552 .27
International Business Machines Corp. 200000 20913 .20
Silicon Graphics, Inc. /1/ 1385500 17232 .17
Lexmark International Group, Inc., Class A /1/ 340000 12920 .12
Appliances & Household Durables- 2.11%
Newell Co. 1806700 76785
Newell Co. 5.25% preferred /1/ /2/ 254000 13240 .87
Sony Corp. (Japan) 1000000 88875 .85
Philips Electronics NV (New York Registered Shares)
(Netherlands) 700000 42350 .39
Food & Household Products- 1.88%
Unilever NV (New York Registered Shares) (Netherlands) 1300000 81169 .78
Archer Daniels Midland Co. 2310000 50098 .48
Kellogg Co. 441400 21904 .21
McCormick & Co. 650000 18200 .17
Bestfoods (formerly CPC International Inc.) 156100 16820 .15
General Mills, Inc. 125000 8953 .09
Transportation: Airlines- 1.88%
Delta Air Lines, Inc. 1110000 132090 1.26
AMR Corp. /1/ 500000 64250 .62
Aerospace & Military Technology- 1.78%
Raytheon Co., Class B 662500 33456
Raytheon Co. Class A 670232 33051 .64
Boeing Co. 1141340 55854 .53
General Motors Corp., Class H 1050000 38784 .37
Sundstrand Corp. 500000 25188 .24
Multi-Industry- 1.57%
Textron Inc. 1127000 70438 .67
AlliedSignal Inc. 1800000 70088 .67
Tenneco Inc. 346900 13703 .13
Whitman Corp. 400000 10425 .10
Industrial Components- 1.55%
Dana Corp. 1100000 52250 .50
Rockwell International Corp. 900000 47025 .45
Goodyear Tire & Rubber Co. 700000 44538 .43
Genuine Parts Co. 525000 17817 .17
Automobiles- 1.12%
General Motors Corp. 1250000 75781 .72
Honda Motor Co., Ltd. (American Depositary Receipts) (Japan) 350000 25856
Honda Motor Co., Ltd. 39000 1431 .26
Ford Motor Co. 295000 14363 .14
Electrical & Electronics- 1.07%
Siemens AG (Germany) 1100000 65174 .62
Lucent Technologies Inc. 400000 31950 .31
Nokia Corp., Class A (American Depositary Receipts)
(Finland) 210000 14700 .14
Beverages & Tobacco- 0.93%
Seagram Co. Ltd. (Canada) 2400000 77550 .74
PepsiCo, Inc. 550000 20041 .19
Metals: Nonferrous- 0.90%
Aluminum Co. of America 800000 56300 .54
Phelps Dodge Corp. 600000 37350 .36
Metals: Steel- 0.71%
Allegheny Teledyne Inc. 2850000 73744 .71
Transportation: Rail & Road- 0.67%
Union Pacific Corp. 1129419 70518 .67
Recreation & Other Consumer Products- 0.67%
Eastman Kodak Co. 900000 54731 .52
Nintendo Co., Ltd. (Japan) 160000 15691 .15
Textiles & Apparel - 0.59%
NIKE, Inc. Class B 1200000 47100 .45
Nine West Group Inc. /1/ 300000 7781 .07
Fruit of the Loom, Inc. /1/ 280000 7175 .07
Miscellaneous Materials & Commodities- 0.54%
Potash Corp. of Saskatchewan Inc. (Canada) 675000 56025 .54
Electronic Instruments- 0.47%
Tektronix, Inc. 1237500 49113 .47
Miscellaneous
Other equity securities in initial period
of acquisition 328631 3.14
----------- -----------
TOTAL EQUITY SECURITIES (cost: $6,944,964,000) 9420565 90.02
----------- -----------
PRINCIPAL
AMOUNT
Bonds & Notes (OOO)
- -------------------------------------------------------- ---------- ---------- -----------
Industrials - 0.94%
Adelphia Communications Corp.
10.50% 2004 $25,000 27000
9.875% 2007 /2/ 10000 10525 .46
9.25% 2002 /2/ 10000 10200
Fox Kids Worldwide, Inc. 9.25% 2007 /2/ 17500 16975 .16
Cablevision Systems Corp. 9.875% 2013 14000 15435 .15
Fox/Liberty Networks, LLC 8.875% 2007 /2/ 10000 9975 .10
Time Warner Inc. 10.15% 2012 6000 7674 .07
Transportation- 0.14%
Delta Air Lines, Inc., Series 1993-A2, 10.50% 2016 /3/ 11500 14983 .14
U.S. Treasury Obligations- 1.51%
6.375% 2027 150000 158203 1.51
---------- ----------
.00
---------- ----------
0 .00
---------- ----------
TOTAL BONDS & NOTES (cost: $260,320,000) 270970 2.59
---------- ----------
Short-Term Securities
- ----------------------------------------------------
CORPORATE SHORT-TERM NOTES-4.50%
General Electric Capital Corp. 5.55%-6.75% due 1/2-1/28/98 81400 81284 .78
International Lease Finance Corp. 5.55%-5.73% due 1/9-1/13/98 64900 64784 .62
E.I. du Pont de Nemours and Co. 5.52%-5.73% due 1/23-2/3/98 56170 55911 .53
A. I. Credit Corp. 5.61%-6.05% due 1/6-1/23/98 54000 53840 .52
Lucent Technologies Inc. 5.50%-6.03% due 1/5-1/20/98 50700 50581 .48
H.J. Heinz Co. 5.60%-5.65% due 1/5/98 44000 43965 .42
Walt Disney Co. 5.70% due 1/2-1/15/98 43000 42934 .41
Avco Financial Services, Inc. 5.54%-5.71% due 1/29-3/19/98 43200 42906 .41
IBM Credit Corp. 5.68%-5.77% due 1/12-1/16/98 34700 34616 .33
FEDERAL AGENCY DISCOUNT NOTES-2.16%
Fannie Mae 5.42%-5.62% due 1/15-3/30/98 90900 90109 .86
Federal Home Loan Banks 5.40%-5.66% due 1/7-2/25/98 87632 87051 .83
Freddie Mac 5.50%-5.65% due 1/21-3/13/98 48993 48635 .47
---------- ----------
TOTAL SHORT-TERM SECURITIES (cost: $696,642,000) 696616 6.66
---------- ----------
TOTAL INVESTMENT SECURITIES (cost: $7,901,926,000) 10388151 99.27
Excess of cash and receivables over payables 76409 .73
---------- ----------
NET ASSETS $10,464,560 100.00%
========== ========
/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/ Pass-through security 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 SECURITIES APPEARING IN
THE PORTFOLIO SINCE JUNE 30, 1997
American Stores
Baltimore Gas & Electric
Bristol-Myers Squibb
Ceridian Corp.
Data General
Digital Equipment
Dow Chemical
Dow Jones
Dura Pharmaceuticals
First Health
Ford Motor
France Telecom
Galileo International
Georgia-Pacific-Timber Group
Hilton Hotels
IKON Office Solutions
Lexmark International
Lincoln National
Loews
Loewen
Marsh & McLennan
Marshall & Ilsley
Mellon Bank
Micron Technology
Monsanto
Nichiei
NIKE
Phelps Dodge
Southern Co.
Sprint
Tele-Communications, TCI Ventures
20th Century Industries
Unocal
Western Resources
Zeneca Group
EQUITY SECURITIES ELIMINATED FROM THE
PORTFOLIO SINCE JUNE 30, 1997
American Home Products
Armco
Ascend Communications
Baker Hughes
Browning-Ferris
Case
Chiron
Citicorp
CNA Financial
Colgate-Palmolive
Electronic Data Systems
Fleet Financial Group
Gillette
Houston Industries
Imation
Inco
ITT
Kyocera
Northeast Utilities
NYNEX
Old Kent Financial
Pioneer Hi-Bred International
Rubbermaid
Sun Co.
Tandem Computers
Tribune
Union Pacific Resources
Waste Management
</TABLE>
<TABLE>
Fundamental Investors, Inc.
Financial Statements
Statement of Assets and Liabilities (dollars in thousands)
at December 31, 1997
- -------------------------------------- ------------ ------------
<S> <C> <C>
Assets:
Investment securities at market
(cost: $7,901,926) $10,388,151
Cash 3,689
Receivables for-
Sales of investments $ 68,121
Sales of fund's shares 18,688
Dividends and accrued interest 18,451 105,260
------------ ------------
10,497,100
Liabilities:
Payables for-
Purchases of investments 12,110
Repurchases of fund's shares 15,979
Management services 2,551
Accrued expenses 1,900 32,540
------------ ------------
Net Assets at December 31, 1997-
Equivalent to $27.40 per share on
381,910,231 shares of $1 par value
capital stock outstanding (authorized
capital stock-500,000,000 shares) $10,464,560
============
Statement of Operations
for the year ended December 31, 1997 (dollars in thousands)
------------ ------------
Investment Income:
Income:
Dividends $ 151,477
Interest 43,407 $ 194,884
------------
Expenses:
Management services fee 26,675
Distribution expenses 20,321
Transfer agent fee 6,514
Reports to shareholders 302
Registration statement and prospectus 918
Postage, stationery and supplies 1,433
Directors' fees 123
Auditing and legal fees 49
Custodian fee 359
Taxes other than federal income tax 1
Other expenses 110 56,805
------------ ------------
Net investment income 138,079
------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 994,082
Net increase in unrealized
appreciation on investments:
Beginning of year 1,580,787
End of year 2,486,223
Net unrealized appreciation ------------
on investments 905,436
Net realized gain and unrealized ------------
appreciation on investments 1,899,518
Net Increase in Net Assets Resulting ------------
from Operations $2,037,597
============
Statement of Changes in Net Assets (dollars in thousands)
- --------------------------------------------------- -------------
Year Ended December 31
1997 1996
Operations: ------------- -------------
Net investment income $ 138,079 $ 105,755
Net realized gain on investments 994,082 528,775
Net unrealized appreciation
on investments 905,436 476,321
------------- -------------
Net increase in net assets
resulting from operations 2,037,597 1,110,851
------------- -------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (135,717) (100,250)
Distributions from net realized
gain on investments (1,056,767) (470,174)
------------- -------------
Total dividends and distributions (1,192,484) (570,424)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
85,048,442 and 90,269,651
shares, respectively 2,340,020 2,123,860
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
41,671,055 and 21,801,000 shares,
respectively 1,123,929 534,260
Cost of shares repurchased:
36,786,737 and 33,388,411
shares, respectively (1,009,875) (787,668)
Net increase in net assets resulting ------------- -------------
from capital share transactions 2,454,074 1,870,452
------------- -------------
Total Increase in Net Assets 3,299,187 2,410,879
Net Assets:
Beginning of year 7,165,373 4,754,494
End of year (including undistributed ------------- -------------
net investment income: $17,230 and
$15,128, respectively) $10,464,560 $7,165,373
============= ============
See Notes to Financial Statements
</TABLE>
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 primarily 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 securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the investment adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market.Fixed-income securities are valued at prices
obtained from a pricing service, 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 quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type. Securities with
original maturities of one year or less having 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. Assets or liabilities initially expressed in terms of foreign
currencies are translated into U.S. dollars at the prevailing market rates at
the end of the reporting period. Purchases and sales of securities and income
and expenses are translated into U.S. dollars at the prevailing market rates on
the dates of such transactions. 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. Securities and assets for
which representative market quotations are not readily available are valued at
fair value as determined in good faith by a committee appointed by the Board of
Directors.
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 these 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. The fund does not amortize premiums on securities
purchased. Dividends and distributions paid to shareholders are recorded on the
ex-dividend date.
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, 1997 net unrealized appreciation on investments for book
and federal income tax purposes aggregated $2,486,225,000, of which
$2,637,278,000 related to appreciated securities and $151,053,000 related to
depreciated securities. There was no difference between book and tax realized
gains on securities transactions for the year ended December 31, 1997. Net
losses related to non-U.S. currency transactions of $91,000 were treated as
ordinary income for federal income tax purposes. The cost of portfolio
securities for book and federal income tax purposes was $7,901,926,000 at
December 31, 1997.
3. The fee of $26,675,000 for management services was incurred 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, 1997,
distribution expenses under the Plan were $20,321,000. As of December 31, 1997,
accrued and unpaid distribution expenses were $1,447,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $6,514,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $8,356,000 (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,
1997, aggregate amounts deferred and earnings thereon were $397,000.
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, 1997, accumulated undistributed net realized gain on
investments was $42,943,000 and additional paid-in capital was $7,536,254,000.
The fund reclassified $260,000 of realized currency loss from undistributed net
realized gains to undistributed net investment income.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $4,771,902,000 and $3,761,954,000, respectively,
during the year ended December 31, 1997.
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 $359,000 includes $82,000 that was paid by these credits
rather than in cash.
Dividend and interest income is recorded net of non-U.S. taxes paid. For the
year ended December 31, 1997, such non-U.S. taxes were $3,564,000. Net realized
currency losses on dividends, interest, and withholding taxes reclaimable were
$91,000 for the year ended December 31, 1997.
<TABLE>
PER-SHARE DATA AND RATIOS
Year ended December 31
--------- --------- --------- -------- --------
1997 1996 1995 1994 1993
--------- --------- ------------------ --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year $24.54 $22.29 $17.50 $18.15 $17.52
--------- --------- --------- --------- --------
Income from Investment
Operations:
Net investment income .41 .41 .41 .42 .44
Net realized and unrealized
gain (loss) on investments 6.00 4.00 5.46 (.18) 2.65
Total income from --------- --------- --------- --------- --------
investment operations 6.41 4.41 5.87 .24 3.09
--------- --------- --------- --------- --------
Less Distributions:
Dividends from net investment
income (.42) (.40) (.40) (.44) (.43)
Distributions from net realized
gains (3.13) (1.76) (.68) (.45) (2.03)
--------- --------- --------- --------- --------
Total distributions (3.55) (2.16) (1.08) (.89) (2.46)
--------- --------- --------- --------- --------
Net Asset Value, End of Year $27.40 $24.54 $22.29 $17.50 $18.15
========= ========= ========= ========= ========
Total Return /1/ 26.67% 19.99% 34.21% 1.33 18.16%
Ratios/Supplemental Data:
Net assets, end of year
(in millions) $10,465 $7,165 $4,754 $2,611 $1,979
Ratio of expenses to average
net assets .63% .66% .70% .68% .65%
Ratio of net income to
average net assets 1.54% 1.78% 2.08% 2.45% 2.43%
Average commissions paid
per share /2/ 4.51 5.69 5.95 c 6.02 c 6.14 c
Portfolio turnover rate 45.09% 39.07% 25.47% 23.02% 29.22%
/1/ Excludes maximum sales charge of 5.75%
/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
over-the-counter and fixed-income transactions,
are excluded. Generally, non-U.S.
commissions are lower than U.S. commissions
when expressed as cents per share
but higher when expressed as a percentage of
transactions because of the lower per-share
prices of many non-U.S. securities.
</TABLE>
Independent Auditors' 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("the fund"), including
the investment portfolio, as of December 31, 1997, 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 at December 31, 1997 by
correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing 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 at December 31, 1997, 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 28, 1998
1997 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. The distributions made during the fiscal year by the
fund were earned from the following sources:
<TABLE>
<CAPTION>
DIVIDENDS AND DISTRIBUTIONS PER SHARE
FROM FROM NET FROM NET
NET REALIZED REALIZED
TO SHAREHOLDERS OF RECORD PAYMENT INVESTMENT SHORT-TERM LONG-TERM
DATE INCOME GAINS GAINS
<S> <C> <C> <C> <C>
February 21, 1997 February 24, 1997 $0.10 $0.150 $0.200
May 23, 1997 May 27, 1997 0.10 ----- ----
August 15, 1997 August 18, 1997 0.10 ----- ----
November 28, 1997 December 1, 1997 0.12 0.365 2.415*
</TABLE>
* Includes $1.162 long-term capital gain taxed at a maximum rate of 28%.
Corporate shareholders may exclude up tp 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 31% of the
dividends paid by the fund from net investment income represent qualifying
dividends.
Dividends and distributions received by retirement plans such as IRA's,
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.
SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV, WHICH WAS MAILED IN JANUARY,
TO DETERMINE THE AMOUNTS TO BE INCLUDED ON THEIR 1997 TAX RETURNS.
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS.
<PAGE>
PART C
FUNDAMENTAL INVESTORS, INC.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS:
Included in Prospectus - Part A
Financial Highlights
Included in statement of additional information - Part B
Statement of Assets and Liabilities Per Share Data and Ratios
Statement of Operations Notes to Financial Statements
Statement of Changes in Net Assets Independent Auditors' Report
(B) EXHIBITS
1. Previously filed (see Post-Effective Amendment No. 81 filed 2/28/97).
2. Previously filed (see Post-Effective Amendment No. 81 filed 2/28/97).
3. None
4. Previously filed (see Post-Effective Amendment No. 81 filed 2/28/97).
5. Previously filed (see Post-Effective Amendment No. 81 filed 2/28/97).
6. Previously filed (see Post-Effective Amendment No. 81 filed 2/28/97).
7. None
8. Previously filed (see Post-Effective Amendment No. 81 filed 2/28/97).
9. Previously filed (see Post-Effective Amendment No. 81 filed 2/28/97).
10. Not applicable to this filing
11. Consent of Independent Accountants
12. None
13. None
14. Previously filed (see Post-Effective Amendment No. 81 filed 2/28/97).
15. Previously filed (see Post-Effective Amendment No. 81 filed 2/28/97).
16. On file (see SEC file nos. 811-32 and 2-10760)
17. EX-27 Financial data schedule
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
As of December 31, 1997
<S> <C>
Title of Class Number of Record-Holders
Common Stock 489,813
($1.00 Par Value)
</TABLE>
ITEM 27. INDEMNIFICATION.
The registrant is a joint-insured under Investment Adviser/Mutual fund Errors
and Omissions Policies written by American International Surplus Lines
Insurance Company, Chubb Custom Insurance Company, and ICI Mutual Insurance
Company which insures its officers and directors against certain liabilities.
However, in no event will Registrant maintain insurance to indemnify any such
person for any act for which Registrant itself is not permitted to indemnify
the individual.
The fund's Articles of Incorporation state:
The Corporation shall indemnify (1) its directors and officers, whether
serving the Corporation or at its request any other entity, to the full extent
required or permitted by the General Laws of the State of Maryland now or
hereafter in force, including the advance of expenses under the procedures and
to the full extent permitted by law, and (2) its other employees and agents to
such extent as shall be authorized by the Board of Directors or the
Corporation's By-Laws and be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such by-laws,
resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law. No amendment of this
Charter of the Corporation shall limit or eliminate the right to
indemnification provided hereunder with respect to acts or omissions occurring
prior to such amendment or repeal. Nothing contained herein shall be construed
to authorize the Corporation to indemnify any director or officer of the
Corporation against any liability to the Corporation or to any holders of
securities of the Corporation to which he is subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. Any indemnification by the Corporation
shall be consistent with the requirements of law, including the Investment
Company Act of 1940.
To the fullest extent permitted by Maryland statutory and decisional law and
the 1940 Act, as amended or interpreted, no director or officer of the
Corporation shall be personally liable to the Corporation or its stockholders
for money damages; provided, however, that nothing herein shall be construed to
protect any director or officer of the Corporation against any liability to
which such director or officer would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. No amendment, modification or repeal of
this Article VIII shall adversely affect any right or
protection of a director or officer that exists at the time of such amendment,
modification or repeal.
Section 2-418 (b) of The Annotated Code of Maryland states:
Permitted indemnification of director:
ITEM 27. INDEMNIFICATION (CONT)
1. A corporation may indemnify any director made a party to any proceeding
by reason of service in that capacity unless it is established that:
(i) The act or omission of the director was material to the matter giving
rise to the proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and deliberate dishonesty; or
(ii) The director actually received an improper personal benefit in money,
property, or services; or
(iii) In the case of any criminal proceeding, the director had reasonable
cause to believe that the act or omission was unlawful.
2. (i) Indemnification may be against judgments, penalties, fines,
settlements, and reasonable expenses actually incurred by the director in
connection with the proceeding.
(ii) However, if the proceeding was one by or in the right of the
corporation, indemnification may not be made in respect of any proceeding in
which the director shall have been adjudged to be liable to the corporation.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
None.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) American Funds Distributors, Inc. is also the Principal Underwriter of
shares of: AMCAP Fund, Inc., American Balanced Fund, Inc., The American Funds
Income Series, The American Funds Tax-Exempt Series I, The American Funds
Tax-Exempt Series II, American High-Income Municipal Bond Fund, Inc., American
High-Income Trust, American Mutual Fund, Inc., The Bond Fund of America, Inc.,
Capital Income Builder, Inc., Capital World Bond Fund, Inc., Capital World
Growth and Income Fund, Inc., The Cash Management Trust of America, EuroPacific
Growth Fund, 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 Money Fund of America, The U.S. Treasury Money
Fund of America and Washington Mutual Investors Fund, Inc.
ITEM 29. PRINCIPAL UNDERWRITERS. (cont.)
<TABLE>
<CAPTION>
(B) (1) (2) (3)
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
<S> <C> <C> <C>
David L. Abzug Regional Vice President None
27304 Park Vista Road
Van Nuys, CA 91301
John A. Agar Regional Vice President None
1501 N. University Drive, Suite 227A
Little Rock, AR 72207
Robert B. Aprison Regional Vice President None
2983 Bryn Wood Drive
Madison, WI 53711
S Richard Armstrong Assistant Vice President None
L William W. Bagnard Vice President None
Steven L. Barnes Vice President None
8000 Town Line Avenue South
Suite 204
Minneapolis, MN 55438
B Carl R. Bauer Assistant Vice President None
Michelle A. Bergeron Vice President None
4160 Gateswalk Drive
Smyrna, GA 30080
Joseph T. Blair Senior Vice President None
27 Drumlin Road
West Simsbury, CT 06092
John A. Blanchard Regional Vice President None
6421 Aberdeen Road
Mission Hills, KS 66208
Ian B. Bodell Senior Vice President None
P.O. Box 1665
Brentwood, TN 37024-1665
Michael L. Brethower Vice President None
2320 North Austin Avenue
Georgetown, TX 78626
C. Alan Brown Regional Vice President None
4129 Laclede Avenue
St. Louis, MO 63108
L Daniel C. Brown Director, Sr. Vice President None
H J. Peter Burns Vice President None
Brian C. Casey Regional Vice President None
9508 Cable Drive
Kensington, MO 20895
Victor C. Cassato Senior Vice President None
609 W. Littleton Blvd., Suite 310
Littleton, CO 80120
Christopher J. Cassin Senior Vice President None
111 W. Chicago Avenue, Suite G3
Hinsdale, IL 60521
Denise M. Cassin Vice President None
1301 Stoney Creek Drive
San Ramon CA 94538
L Larry P. Clemmensen Director None
L Kevin G. Clifford Director, President None
Ruth M. Collier Vice President None
145 West 67th St. Ste. 12K
New York, NY 10023
S David Coolbaugh Assistant Vice President None
Thomas E. Cournoyer Vice President None
2333 Granada Boulevard
Coral Gables, FL 33134
Douglas A. Critchell Senior Vice President None
4116 Woodbine St.
Chevy Chase, MD 20815
L Carl D. Cutting Vice President None
Dan J. Delianedis Regional Vice President None
8689 Braxton Drive
Eden Prairie, MN 55347
Michael A. Dilella Vice President None
P.O. Box 661
Ramsey, NJ 07446
G. Michael Dill Sr. Vice President None
505 E. Main Street
Jenks, OK 74037
Kirk D. Dodge Senior Vice President None
633 Menlo Avenue, Suite 210
Menlo Park, CA 94025
Peter J. Doran Sr. Vice President None
1205 Franklin Avenue
Garden City, NY 11530
L Michael J. Downer Secretary None
Robert W. Durbin Vice President None
74 Sunny Lane
Tiffin, OH 44883
I Lloyd G. Edwards Senior Vice President None
L Paul H. Fieberg Sr. Vice President None
John Fodor Vice President None
15 Latisquama Road
Southborough, MA 01772
L Mark P. Freeman, Jr. Director None
Clyde E. Gardner Vice President None
Route 2, Box 3162
Osage Beach, MO 65065
B Evelyn K. Glassford Vice President None
Jeffrey J. Greiner Vice President None
12210 Taylor Road
Plain City, OH 43064
L Paul G. Haaga, Jr. Director Senior Vice President
B Mariellen Hamann Assistant Vice President None
David E. Harper Vice President None
R.D. 1, Box 210, Rte 519
Frenchtown, NJ 08825
Ronald R. Hulsey Regional Vice President None
6744 Avalon
Dallas, TX 75214
Robert S. Irish Regional Vice President None
1225 Vista Del Mar Drive
Delray Beach, FL 33843
L Robert L. Johansen Vice President, Controller None
Michael J. Johnston Director None
630 Fifth Ave., 36th Floor
New York, NY 10111-0121
B Damien M. Jordan Vice President None
V. John Kriss Sr. Vice President None
P.O. Box 274
Surfside, CA 90743
Arthur J. Levine Vice President None
12558 Highlands Place
Fishers, IN 46038
B Karl A. Lewis Assistant Vice President None
T. Blake Liberty Regional Vice President None
5506 East Mineral Lane
Littleton, CO 80122
L Susan G. Lindgren Vice President - Institutional None
Investment Services Division
S Stella Lopez Vice President None
LW Robert W. Lovelace Director None
Stephen A. Malbasa Vice President None
13405 Lake Shore Blvd.
Cleveland, OH 44110
Steven M. Markel Senior Vice President None
5241 South Race Street
Littleton, CO 90121
L John C. Massar Senior Vice President None
L E. Lee McClennahan Senior Vice President None
L Jamie R. McCrary Assistant Vice President None
S John V. McLaughlin Senior Vice President None
Terry W. McNabb Vice President None
2002 Barrett Station Road
St. Louis, MO 63131
L R. William Melinat Vice President - Institutional None
Investment Services Division
David R. Murray Regional Vice President None
60 Briant Drive
Sudbury, MA 01776
Stephen S. Nelson Vice President None
P.O. Box 470528
Charlotte, NC 28247-0528
William E. Noe Regional Vice President None
304 River Oaks Road
Brentwood, TN 37027
Peter A. Nyhus Regional Vice President None
3084 Wilds Ridge Court
Prior Lake, MN 55372
Eric P. Olson Regional Vice President None
62 Park Drive
Glenview, IL 60025
Fredric Phillips Regional Vice President None
32 Ridge Avenue
Newton Centre, MA 02159
B Candance Pilgram Assistant Vice President None
Carl S. Platou Regional Vice President None
4021 96th Avenue, SE
Mercer Island, WA 98040
L John O. Post, Jr. Vice President None
S Richard P. Prior Assistant Vice President None
Steven J. Reitman Vice President None
212 The Lane
Hinsdale, IL 60521
Brian A. Roberts Vice President None
12025 Delmahoy Drive
Charlotte, NC 28277
George S. Ross Senior Vice President None
55 Madison Avenue
Morristown, NJ 07962
L Julie D. Roth Vice President None
L James F. Rothenberg Director None
Douglas F. Rowe Regional Vice President None
30008 Oakland Hills Drive
Georgetown, TX 78628
Christopher Rowey Regional Vice President None
9417 Beverlywood Street
Los Angeles, CA 90034
Dean B. Rydquist Vice President None
1080 Bay Pointe Crossing
Alpharetta, GA 30202
Richard R. Samson Vice President None
4604 Glencoe Avenue, No. 4
Marina del Rey, CA 90292
Joe D. Scarpitti Regional Vice President None
31465 St. Andrews
Westlake, OH 44145
L Daniel B. Seivert Assistant Vice President None
L R. Michael Shanahan Director Director
David W. Short Chairman of the Board None
1000 RIDC Plaza, Ste 212
Pittsburgh, PA 15238
William P. Simon, Jr. Senior Vice President None
554 Canterbury Lane
Berwyn, PA 19312
L John C. Smith Vice President - None
Institutional Investment Services
Division
L Mary E. Smith Vice President - None
Institutional Investment
Service Division
Rodney G. Smith Vice President None
100 N. Central Expressway, Ste 1214
Richardson, TX 75080
Nicholas D. Spadaccini Regional Vice President None
855 Markley Woods Way
Cincinnati, OH 45230
L Kristen J. Spazafumo Assistant Vice President None
Daniel S. Spradling Senior Vice President None
#4 West Fourth Avenue, Suite 406
San Mateo, CA 94402
B Max D. Stites Vice President None
Thomas A. Stout Regional Vice President None
12913 Kendale Lane
Bowie, MD 20715
Craig R. Strauser Regional Vice President None
3 Dover Way
Lake Oswego, OR 97034
Francis N. Strazzeri Vice President None
31641 Saddletree Drive
Westlake Village, CA 91361
L Drey W. Taylor Assistant Vice President None
S James P. Toomey Vice President None
I Christopher E. Trede Vice President None
George F. Truesdail Vice President None
400 Abbotsford Court
Charlotte, NC 28270
Scott W. Ursin-Smith Regional Vice President None
60 Reedland Woods Way
Tiburon, CA 94920
H Andrew J. Ward Vice President None
L David M. Ward Vice President - None
Institutional Investment Services
Division
Thomas E. Warren Regional Vice President None
1701 Starling Drive
Sarasota, FL 34231
L J. Kelly Webb Sr. Vice President, Treasurer None
Gregory J. Weimer Regional Vice President None
125 Surrey Drive
Canonsburg, PA 15317
B Timothy W. Weiss Director None
SF N. Dexter Williams Senior Vice President None
25 Whitside Court
Danville, CA 94526
Timothy J. Wilson Regional Vice President None
113 Farmview Place
Venetia, PA 15367
B Laura L. Wimberly Vice President None
H Marshall D. Wingo Sr. Vice President None
L Robert L. Winston Director, Sr. Vice President None
Laurie B. Wood Regional Vice President None
3500 West Camino de Urania
Tucson, AZ 85741
William Yost Regional Vice President None
9320 Overlook Trail
Eden Prairie, MN 55347
Janet M. Young Regional Vice President None
1616 Vermont
Houston, TX 77006
Scott D. Zambon Regional Vice President None
320 Robinson Drive
Tustin Ranch, CA 92782
</TABLE>
L Business Address, 333 South Hope Street, Los Angeles, CA 90071
LW Business Address, 11100 Santa Monica Boulevard, 15th Floor, Los Angeles, CA
90025
B Business Address, 135 South State College Boulevard, Brea, CA 928621
S Business Address, 8000 IH-10, Suite 1400, San Antonio, TX 78230
H Business Address, 5300 Robin Hood Road, Norfolk, VA 23513
I Business Address, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Accounts, books and other records required by Rules 31a-1 and 31a-2 under the
Investment Company Act of 1940, are maintained and held in the offices of the
registrant's investment adviser, Capital Research and Management Company, 333
South Hope Street, Los Angeles, California 90071, and/or 135 South State
College Boulevard, Brea, California 92621, and/or the offices of the
Registrant, One Market, Steuart Tower, San Francisco, California 94105
The registrant's records covering shareholder accounts are maintained and kept
by the registrant's transfer agent, American Funds Service Company, 135 South
State College Boulevard, Brea, California 92821, 8000 IH-10, Suite 1400, San
Antonio, Texas 78230, 8332 Woodfield Crossing Boulevard, Indianapolis, Indiana
46240, and 5300 Robin Hood Road, Norfolk, VA 23513.
The registrant's records covering portfolio transactions are maintained and
kept by the registrant's custodian, State Street Bank and Trust Company, 225
Franklin Street, Boston, MA 02101.
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS
(c) As reflected in the prospectus, the registrant undertakes to provide each
person to whom a prospectus is delivered with a copy of the registrant's latest
annual report to shareholders, upon request and without charge.
<PAGE>
SIGNATURE OF REGISTRANT
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(a) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, and State of California, on the 23rd
day of February, 1998.
FUNDAMENTAL INVESTORS, INC.
By: /s/ Walter P. Stern
(Walter P. Stern, Chairman of the Board)
Pursuant to the requirements of the Securities Act of 1933, this amendment to
Registration Statement has been signed below on February 23, 1998, by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
(1) Principal Executive Officer:
/s/ Walter P. Stern Chairman of the Board
(Walter P. Stern)
(2) Principal Financial Officer and
Principal Accounting Officer:
/s/ Mary C. Hall Treasurer
(Mary C. Hall)
(3) Directors:
Guilford C. Babcock* Director
Charles H. Black* Director
Martin Fenton, Jr.* Director
Herbert Hoover III* Director
Gail L. Neale* Director
Kirk P. Pendleton* Director
James W. Ratzlaff* Director
Henry E. Riggs* Director
/s/ R. Michael Shanahan
(R. Michael Shanahan) Director
/s/ Walter P. Stern
(Walter P. Stern) Chairman of the Board
</TABLE>
*By /s/ Julie F. Williams
(Julie F. Williams, Attorney-in-Fact)
Counsel reports that the amendment does not contain disclosures that would
make the amendment ineligible for effectiveness under the provisions of rule
485(b).
/s/ Michael J. Downer
(Michael J. Downer)
CONSENT OF INDEPENDENT AUDITORS
Fundamental Investors, Inc.:
We consent to (a) the use in this Post-Effective Amendment No. 82 to
Registration Statement No. 2-10760 on Form N-1A of our report dated January 28
, 1998 appearing in the Financial Statements, which are included in Part B, the
Statement of Additional Information of such Registration Statement, (b) the
references to us under the heading "General Information" in such Statement of
Additional Information; and (c) the reference to us under the heading
"Financial Highlights" in the Prospectus, which is a part of such Registration
Statement.
DELOITTE & TOUCHE LLP
Los Angeles, California
February 23, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 7,901,926
<INVESTMENTS-AT-VALUE> 10,388,151
<RECEIVABLES> 105,260
<ASSETS-OTHER> 3,689
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,497,100
<PAYABLE-FOR-SECURITIES> 12,110
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 20,430
<TOTAL-LIABILITIES> 32,540
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,536,254
<SHARES-COMMON-STOCK> 381,910,231
<SHARES-COMMON-PRIOR> 291,977,471
<ACCUMULATED-NII-CURRENT> 17,230
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 42,683
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,486,223
<NET-ASSETS> 10,464,560
<DIVIDEND-INCOME> 151,477
<INTEREST-INCOME> 43,407
<OTHER-INCOME> 0
<EXPENSES-NET> 56,805
<NET-INVESTMENT-INCOME> 138,079
<REALIZED-GAINS-CURRENT> 994,082
<APPREC-INCREASE-CURRENT> 905,436
<NET-CHANGE-FROM-OPS> 2,037,597
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 135,717
<DISTRIBUTIONS-OF-GAINS> 1,056,767
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 85,048,442
<NUMBER-OF-SHARES-REDEEMED> 36,786,737
<SHARES-REINVESTED> 41,671,055
<NET-CHANGE-IN-ASSETS> 3,299,187
<ACCUMULATED-NII-PRIOR> 15,128
<ACCUMULATED-GAINS-PRIOR> 105,368
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 26,675
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 56,805
<AVERAGE-NET-ASSETS> 8,958,244
<PER-SHARE-NAV-BEGIN> 24.54
<PER-SHARE-NII> .41
<PER-SHARE-GAIN-APPREC> 6.00
<PER-SHARE-DIVIDEND> .42
<PER-SHARE-DISTRIBUTIONS> 3.13
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.4
<EXPENSE-RATIO> .006
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
