<PAGE>
THE AMERICAN FUNDS GROUP LOGO
- --------------------------------------------------------------------------------
FUNDAMENTAL INVESTORS
PROSPECTUS
MARCH 1, 1999
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE
SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
FUNDAMENTAL INVESTORS, INC.
One Market
Steuart Tower, Suite 1800
San Francisco, CA 94105
TICKER SYMBOL: ANCFX NEWSPAPER ABBREV.: FdInv FUND NO.: 10
- -------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary 2
........................................................................
Fees and Expenses of the Fund 5
........................................................................
Investment Objective, Strategies and Risks 6
........................................................................
Year 2000 9
........................................................................
Management and Organization 10
........................................................................
Shareholder Information 12
........................................................................
Purchase and Exchange of Shares 13
........................................................................
Distribution Arrangements 17
........................................................................
Financial Highlights 18
</TABLE>
- -------------------------------------------------------------------
10-010-0399/MC FUNDAMENTAL INVESTORS / PROSPECTUS 1
<PAGE>
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
The fund seeks to make your investment grow and provide you with income over
time by investing primarily in common stocks of large, established companies
that offer growth potential at reasonable prices.
The fund is designed for investors seeking both capital appreciation and income.
An investment in the fund is subject to risks, including the possibility that
the fund may decline in value in response to global economic, political and
social events. The prices of equity securities will be affected by events
involving securities owned in the fund.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time.
Your investment in the fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency, entity or person.
2 FUNDAMENTAL INVESTORS / PROSPECTUS
<PAGE>
INVESTMENT RESULTS
The following information illustrates how the fund's results may fluctuate. Past
results are not an indication of future results.
Here are the fund's results calculated without a sales charge on a calendar
year basis. (If a sales charge were included, results would be lower.)
[bar chart]
<TABLE>
<S> <C>
89 28.56%
90 -6.24%
91 30.34%
92 10.19%
93 18.16%
94 1.33%
95 34.21%
96 19.99%
97 26.67%
98 16.72%
</TABLE>
[end bar chart]
The fund's highest/lowest quarterly results during this time period were:
X HIGHEST 15.46% (quarter ended December 31, 1998)
X LOWEST -17.24% (quarter ended September 30, 1990)
FUNDAMENTAL INVESTORS / PROSPECTUS 3
<PAGE>
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
THE FUND WITH
MAXIMUM
AVERAGE ANNUAL SALES CHARGE S&P LIPPER
TOTAL RETURN DEDUCTED(1) 500(2) INDEX(3)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
One Year 10.01% 28.52% 13.58%
................................................................................
Five Years 17.85% 24.02% 17.83%
................................................................................
Ten Years 16.62% 19.16% 15.54%
................................................................................
Lifetime(4) 16.17% 17.19% 15.45%
</TABLE>
Yield(1): 1.47%
(For current yield information call American FundsLine-Registered Trademark- at
1-800-325-3590)
(1) THESE FUND RESULTS WERE CALCULATED ACCORDING TO A FORMULA WHICH REQUIRES
THAT THE MAXIMUM SALES CHARGE OF 5.75% BE DEDUCTED AND REFLECT THE
REINVESTMENT OF DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS. RESULTS WOULD BE
HIGHER IF THEY WERE CALCULATED AT NET ASSET VALUE.
(2) THE STANDARD & POOR'S 500 COMPOSITE INDEX REPRESENTS PRIMARILY U.S. STOCKS.
THIS INDEX IS UNMANAGED AND DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR
EXPENSES.
(3) 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. SALES CHARGES AND COMMISSIONS ARE NOT REFLECTED IN THE RESULTS OF
THE UNDERLYING FUNDS.
(4) FOR THE PERIOD BEGINNING AUGUST 1, 1978 (WHEN CAPITAL RESEARCH AND
MANAGEMENT COMPANY BECAME THE FUND'S INVESTMENT ADVISER).
4 FUNDAMENTAL INVESTORS / PROSPECTUS
<PAGE>
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FEES AND EXPENSES OF THE FUND
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD SHARES OF THE FUND.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<S> <C>
- -----------------------------------------------
Maximum sales charge imposed on
purchases
(AS A PERCENTAGE OF OFFERING PRICE) 5.75%(1)
..............................................
Maximum sales charge imposed on
reinvested dividends 0%
..............................................
Maximum deferred sales charge 0%(2)
..............................................
Redemption or exchange fees 0%
</TABLE>
(1) SALES CHARGES ARE REDUCED OR ELIMINATED FOR LARGER PURCHASES.
(2) A CONTINGENT DEFERRED SALES CHARGE OF 1% APPLIES ON CERTAIN REDEMPTIONS MADE
WITHIN 12 MONTHS FOLLOWING ANY PURCHASES YOU MADE WITHOUT A SALES CHARGE.
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<S> <C>
- ---------------------------------------------
Management Fees 0.29%
............................................
Service (12b-1) Fees 0.23%*
............................................
Other Expenses 0.11%
............................................
Total Annual Fund Operating Expenses 0.63%
</TABLE>
*12b-1 EXPENSES MAY NOT EXCEED 0.25% OF THE FUND'S AVERAGE NET ASSETS ANNUALLY.
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<S> <C>
- -----------------------------------------------
One Year $ 636
..............................................
Three Years $ 765
..............................................
Five Years $ 906
..............................................
Ten Years $1,316
</TABLE>
FUNDAMENTAL INVESTORS / PROSPECTUS 5
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
The fund's investment objective is to achieve long-term growth of capital and
income. It invests primarily in common stocks or securities convertible into
common stocks.
The prices of equity securities will decline in response to certain events
including those directly involving securities owned in the fund, adverse
conditions affecting the general economy, or overall market declines.
The fund may also invest in cash or cash equivalents of any issuer to any extent
deemed appropriate. The extent of the fund's cash position will depend on market
conditions, fund purchases and redemptions, and other factors. For example, in
response to abnormal market conditions, the fund may invest substantially in
cash or cash equivalents. This may detract from the achievement of the fund's
objective over the short term, or may protect the fund during a market downturn.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
OTHER IMPORTANT INVESTMENT PRACTICES
In addition to the principal investment strategies described above, the fund has
other practices that are described here and in the Statement of Additional
Information.
The fund may invest up to 15% of its assets in securities of issuers domiciled
outside the U.S. and not included in the Standard & Poor's 500 Composite Index.
The value of non-U.S. securities can decline in response to various factors,
including currency fluctuations, political, social and economic instability,
differing securities regulations and administrative difficulties such as delays
in clearing and settling portfolio transactions.
The fund may invest up to 5% of its assets in lower quality debt securities
rated Ba and BB or below or unrated but determined to be of equivalent quality.
The prices of debt securities fluctuate depending on such factors as changing
interest rates, effective maturities and credit ratings. For example, their
prices generally decline when interest rates rise and vice versa.
6 FUNDAMENTAL INVESTORS / PROSPECTUS
<PAGE>
ADDITIONAL INVESTMENT RESULTS
(For periods ended December 31, 1998)
<TABLE>
<CAPTION>
AVERAGE ANNUAL THE FUND WITH NO LIPPER
TOTAL RETURN SALES CHARGE(1) S&P 500(2) INDEX(3)
<S> <C> <C> <C>
- -----------------------------------------------------------------------
One Year 16.72% 28.52% 13.58%
....................................................................................
Five Years 19.26% 24.02% 17.83%
....................................................................................
Ten Years 17.31% 19.16% 15.54%
....................................................................................
Lifetime(4) 16.51% 17.19% 15.45%
</TABLE>
THESE RESULTS DO NOT REFLECT SALES CHARGES. SALES CHARGES ARE REDUCED OR
ELIMINATED FOR LARGER PURCHASES AND PURCHASES BY CERTAIN RETIREMENT PLANS.
(1) THESE FUND RESULTS WERE CALCULATED ACCORDING TO A FORMULA THAT IS REQUIRED
FOR ALL STOCK AND BOND FUNDS.
(2) THE STANDARD & POOR'S 500 COMPOSITE INDEX REPRESENTS PRIMARILY U.S. STOCKS.
THIS INDEX IS UNMANAGED AND DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR
EXPENSES.
(3) 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. THE RESULTS OF THE UNDERLYING FUNDS IN THE INDEX INCLUDE THE
REINVESTMENT OF DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS BUT DO NOT REFLECT
SALES CHARGES AND COMMISSIONS.
(4) FOR THE PERIOD BEGINNING AUGUST 1, 1978 (WHEN CAPITAL RESEARCH AND
MANAGEMENT COMPANY BECAME THE FUND'S INVESTMENT ADVISER).
FUNDAMENTAL INVESTORS / PROSPECTUS 7
<PAGE>
THE FOLLOWING CHART ILLUSTRATES THE ASSET MIX OF THE FUND'S INVESTMENT
PORTFOLIO AS OF THE END OF THE FUND'S FISCAL YEAR, DECEMBER 31, 1998.
[pie chart]
<TABLE>
<S> <C>
US Equities 79.3%
Non-US Equities 14.0%*
Bonds 1.6%
Cash and Equivilents 5.1%
* INCLUDING NON-U.S. SECURITIES NOT INCLUDED IN THE S&P
500.
</TABLE>
[end pie chart]
<TABLE>
<CAPTION>
PERCENT OF
FIVE LARGEST INDUSTRY HOLDINGS NET ASSETS
<S> <C>
- ------------------------------------------
Broadcasting & Publishing 8.19%
.........................................
Telecommunications 7.60
.........................................
Health & Personal Care 6.78
.........................................
Banking 5.99
.........................................
Chemicals 5.80
.........................................
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST EQUITY HOLDINGS NET ASSETS
<S> <C>
- ------------------------------------------
Time Warner 3.34%
.........................................
Monsanto 2.77
.........................................
Texas Instruments 2.52
.........................................
Astra 1.66
.........................................
Viacom 1.47
.........................................
Warner-Lambert 1.44
.........................................
U.S. West 1.42
.........................................
American International 1.35
.........................................
News Corp 1.28
.........................................
MediaOne(1) 1.26
</TABLE>
(1) UPON MATURITY CONVERTS TO AIRTOUCH COMMUNICATIONS.
BECAUSE THE FUND IS ACTIVELY MANAGED, ITS HOLDINGS WILL CHANGE FROM TIME TO
TIME.
8 FUNDAMENTAL INVESTORS / PROSPECTUS
<PAGE>
- -------------------------------------------------------------------
YEAR 2000
The date-related computer issue known as the "Year 2000 problem" could have an
adverse impact on the quality of services provided to the fund and its
shareholders. However, the fund understands that its key service providers --
including the investment adviser and its affiliates -- are taking steps to
address the issue. In addition, the Year 2000 problem may adversely affect the
issuers in which the fund invests. For example, issuers may incur substantial
costs to address the problem. They may also suffer losses caused by corporate
and governmental data processing errors. The fund and its investment adviser
will continue to monitor developments relating to this issue.
FUNDAMENTAL INVESTORS / PROSPECTUS 9
<PAGE>
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MANAGEMENT AND ORGANIZATION
INVESTMENT ADVISER
Capital Research and Management Company, an experienced investment management
organization founded in 1931, serves as investment adviser to the fund and other
funds, including those in The American Funds Group. Capital Research and
Management Company, a wholly owned subsidiary of The Capital Group Companies,
Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital
Research and Management Company manages the investment portfolio and business
affairs of the fund. The total management fee paid by the fund, as a percentage
of average net assets, for the previous fiscal year is discussed earlier under
"Fees and Expenses of the Fund."
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.
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Capital Research and Management Company uses a system of multiple portfolio
counselors in managing mutual fund assets. Under this approach the portfolio of
a fund is divided into segments which are managed by individual counselors.
Counselors decide how their respective segments will be invested within the
limits provided by a fund's objective(s) and policies and by Capital Research
and Management Company's investment committee. In addition, Capital Research and
Management Company's research professionals may make investment decisions with
respect to a portion of a fund's portfolio. The primary individual portfolio
counselors for Fundamental Investors are listed on the following page.
10 FUNDAMENTAL INVESTORS / PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE YEARS
OF EXPERIENCE AS AN
INVESTMENT PROFESSIONAL
(INCLUDING THE LAST
YEARS OF EXPERIENCE AS FIVE YEARS)
PORTFOLIO COUNSELOR WITH CAPITAL
(AND RESEARCH PROFESSIONAL, RESEARCH AND
IF APPLICABLE) FOR MANAGEMENT
PORTFOLIO COUNSELORS FOR FUNDAMENTAL INVESTORS COMPANY OR
FUNDAMENTAL INVESTORS PRIMARY TITLE(S) (APPROXIMATE) AFFILIATES TOTAL YEARS
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
JAMES E. DRASDO President and Director of the 15 years (plus 5 years as a 22 years 27 years
fund. Senior Vice President research professional prior to
and Director, Capital Research becoming a portfolio counselor
and Management Company for the fund)
- -------------------------------------------------------------------------------------------------------------------------
GORDON CRAWFORD Senior Vice President of the 8 years (plus 13 years as a 28 years 28 years
fund. Senior Vice President research professional prior to
and Director, Capital Research becoming a portfolio counselor
and Management Company for the fund)
- -------------------------------------------------------------------------------------------------------------------------
DINA N. PERRY Senior Vice President of the 6 years (plus 1 year as a 7 years 21 years
fund. Senior Vice President, research professional prior to
Capital Research and becoming a portfolio counselor
Management Company for the fund)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
FUNDAMENTAL INVESTORS / PROSPECTUS 11
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
SHAREHOLDER SERVICES
American Funds Service Company, the fund's transfer agent, offers you a wide
range of services you can use to alter your investment program should your needs
and circumstances change. These services 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. For your convenience, American Funds Service Company has
four service centers across the country.
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]
<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, Norfolk, Virginia
92822-2205 78265-9522 Indiana 23501-2280
Fax: 714/671-7080 Fax: 210/474-4050 46206-6007 Fax: 757/670-4773
Fax: 317/735-6620
</TABLE>
A COMPLETE DESCRIPTION OF THE SERVICES WE OFFER IS DESCRIBED 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.
YOU MAY INVEST IN THE FUND THROUGH VARIOUS RETIREMENT PLANS. However, some
retirement plans or accounts held by investment dealers may not offer certain
services. If you have any questions, please contact your plan
administrator/trustee or dealer.
12 FUNDAMENTAL INVESTORS / PROSPECTUS
<PAGE>
- --------------------------------------------------------------------------------
PURCHASE AND EXCHANGE OF SHARES
PURCHASE
Generally, you may open an account by contacting any investment dealer
authorized to sell the fund's shares. You may purchase additional shares using
various options described in the statement of additional information and
"Welcome to the Family."
EXCHANGE
You may exchange your shares into other funds in The American Funds Group
generally without a sales charge. Exchange of shares from the money market funds
initially purchased without a sales charge generally will be subject to the
appropriate sales charge. Exchanges have the same tax consequences as ordinary
sales and purchases. See "Transactions by Telephone..." for information
regarding electronic exchanges.
THE FUND AND AMERICAN FUNDS DISTRIBUTORS, THE FUND'S PRINCIPAL UNDERWRITER,
RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER FOR ANY REASON. ALTHOUGH THERE IS
CURRENTLY NO SPECIFIC LIMIT ON THE NUMBER OF EXCHANGES YOU CAN MAKE IN A PERIOD
OF TIME, THE FUND AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT
ANY PURCHASE ORDER AND MAY TERMINATE THE EXCHANGE PRIVILEGE OF ANY INVESTOR
WHOSE PATTERN OF EXCHANGE ACTIVITY THEY HAVE DETERMINED INVOLVES ACTUAL OR
POTENTIAL HARM TO THE FUND.
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>
SHARE PRICE
The fund calculates its share price, also called net asset value, as of 4:00
p.m. New York time which is the normal close of trading on the New York Stock
Exchange, every day the Exchange is open. In calculating net asset value, market
prices are used when available. If a market price for a particular security is
not available, the fund will determine the appropriate price for the security.
FUNDAMENTAL INVESTORS / PROSPECTUS 13
<PAGE>
Your shares will be purchased at the offering price, or sold at the net asset
value, next determined after American Funds Service Company receives and accepts
your request. The offering price is the net asset value plus a sales charge, if
applicable.
SALES CHARGE
A sales charge may apply to your purchase. Your sales charge may be reduced for
larger purchases as indicated below.
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF
.................................
NET DEALER CONCESSION
OFFERING AMOUNT AS % OF
INVESTMENT PRICE INVESTED OFFERING 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 $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 CHARGE
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 BY ACCOUNTS THAT INVEST WITH NO INITIAL SALES
CHARGE (OTHER THAN EMPLOYER-SPONSORED PLANS), IF REDEMPTIONS ARE MADE WITHIN ONE
YEAR OF PURCHASE. 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.
REDUCING YOUR SALES CHARGE
You and your immediate family may combine investments to reduce your sales
charge. 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 in the statement of additional information
and "Welcome to the Family."
14 FUNDAMENTAL INVESTORS / PROSPECTUS
<PAGE>
PLAN OF DISTRIBUTION
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the fund's board of directors. 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. The 12b-1 fee paid
by the fund, as a percentage of average net assets, for the previous fiscal year
is indicated earlier under "Fees and Expenses of the Fund." 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 initial sales
charges.
OTHER COMPENSATION TO DEALERS
American Funds Distributors may provide additional compensation to, or sponsor
informational meetings for dealers as described in the statement of additional
information.
HOW TO SELL SHARES
Once a sufficient period of time has passed to reasonably assure that checks or
drafts (including certified or cashiers' checks) for shares purchased have
cleared (normally 15 calendar days), you may sell (redeem) those shares in any
of the following ways:
THROUGH YOUR DEALER (CERTAIN CHARGES MAY APPLY)
- Shares held for you in your dealer's name must be sold through the dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- Requests must be signed by the registered shareholder(s)
- A signature guarantee is required if the redemption is:
-- Over $50,000;
-- Made payable to someone other than the registered shareholder(s); or
-- Sent to an address other than the address of record, or an address of
record which has been changed within the last 10 days.
- Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
FUNDAMENTAL INVESTORS / PROSPECTUS 15
<PAGE>
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE-REGISTERED TRADEMARK- OR AMERICAN FUNDSLINE ONLINE-REGISTERED
TRADEMARK-:
- Redemptions by telephone or fax (including American FundsLine and American
FundsLine OnLine) are limited to $50,000 per shareholder each day
- Checks must be made payable to the registered shareholder
- Checks must be mailed to an address of record that has been used with the
account for at least 10 days
TRANSACTIONS BY TELEPHONE, FAX, AMERICAN FUNDSLINE, OR AMERICAN FUNDSLINE ONLINE
Generally, you are automatically eligible to use these services for redemptions
and exchanges unless you notify us in writing that you do not want any or all of
these services. You may reinstate these services at any time.
Unless you decide not to have telephone, fax, or computer services on your
account(s), 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.
16 FUNDAMENTAL INVESTORS / PROSPECTUS
<PAGE>
- -------------------------------------------------------------------
DISTRIBUTION ARRANGEMENTS
DIVIDENDS AND DISTRIBUTIONS
The fund intends to pay dividends to you, usually in February, May, August and
December. Capital gains, if any, are usually distributed in December.
You may elect to reinvest dividends and/or capital gain distributions to
purchase additional shares of this fund or any other fund in The American Funds
Group or you may elect to receive them in cash.
TAX CONSEQUENCES
Dividends and capital gains are generally taxable whether they are reinvested or
received in cash -- unless you are exempt from taxation or entitled to tax
deferral. Capital gains may be taxed at different rates depending on the length
of time the fund holds its assets.
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.
Please see the statement of additional information, "Welcome to the Family," and
your tax adviser for further information.
FUNDAMENTAL INVESTORS / PROSPECTUS 17
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's
results for the past five years. Certain information reflects financial results
for a single fund share. The total returns in the table represent the rate that
an investor would have earned or lost on an investment in the fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Deloitte & Touche LLP, whose report, along with the fund's financial
statements, are included in the statement of additional information, which is
available upon request.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
............................................
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
-----------------------------------------
Net asset value,
beginning of period $27.40 $24.54 $22.29 $17.50 $18.15
- ----------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .42 .41 .41 .41 .42
.................................................................................
Net gains or losses on securities (both
realized and unrealized) 4.09 6.00 4.00 5.46 (.18)
- ----------------------------------------------------------------------------------
Total from investment operations 4.51 6.41 4.41 5.87 .24
- ----------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends (from net investment income) (.40) (.42) (.40) (.40) (.44)
.................................................................................
Distributions (from capital gains) (2.59) (3.13) (1.76) (.68) (.45)
.................................................................................
Total distributions (2.99) (3.55) (2.16) (1.08) (.89)
- ----------------------------------------------------------------------------------
Net asset value, end of period $28.92 $27.40 $24.54 $22.29 $17.50
- ----------------------------------------------------------------------------------
Total return(1) 16.72% 26.67% 19.99% 34.21% 1.33
- ----------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in millions) $12,713 $10,465 $7,165 $4,754 $2,611
.................................................................................
Ratio of expenses to average net assets .63% .63% .66% .70% .68%
.................................................................................
Ratio of net income to average net
assets 1.47% 1.54% 1.78% 2.08% 2.45%
.................................................................................
Portfolio turnover rate 52.57% 45.09% 39.07% 25.47% 23.02%
</TABLE>
(1)EXCLUDES MAXIMUM SALES CHARGE OF 5.75%.
18 FUNDAMENTAL INVESTORS / PROSPECTUS
<PAGE>
- --------------------------------------------------------------------------------
NOTES
FUNDAMENTAL INVESTORS / PROSPECTUS 19
<PAGE>
- -------------------------------------------------------------------
NOTES
20 FUNDAMENTAL INVESTORS / PROSPECTUS
<PAGE>
- -------------------------------------------------------------------
NOTES
FUNDAMENTAL INVESTORS / PROSPECTUS 21
<PAGE>
<TABLE>
<S> <C> <C>
FOR SHAREHOLDER FOR RETIREMENT PLAN FOR DEALER
SERVICES SERVICES SERVICES
American Funds Call your employer American Funds
Service Company or plan Distributors
800/421-0180 administrator 800/421-9900 ext.11
FOR 24-HOUR INFORMATION
American American Funds
FundsLine-Registered Internet Web site
Trademark- http://www.americanfunds.com
800/325-3590
</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
inconsistencies 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
Contains additional information about the fund including financial
statements, investments results, portfolio holdings, a statement from
portfolio management discussing market conditions and the fund's investment
strategies, 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") and is incorporated by reference into this prospectus. The SAI and
other related materials about the fund are available for review or to be
copied at the SEC's Public Reference Room in Washington, D.C.
(1-800-SEC-0330) or 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:
<TABLE>
<S> <C> <C>
Call American Funds or Write to the Secretary of the
Service Company fund
800/421-0180 ext.1 P.O. Box 7650
San Francisco, CA 94120
</TABLE>
Investment Company File No. 811-32 [LOGO] Printed on recycled paper
<PAGE>
FUNDAMENTAL INVESTORS, INC.
Part B
Statement of Additional Information
MARCH 1, 1999
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, 1999. 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>
Certain Investment Limitations and Guidelines 2
Description of Certain Securities and Investment Techniques 2
Fundamental Policies and Investment Restrictions 5
Fund Organization 6
Fund Officers and Directors 7
Management 11
Dividends, Distributions and Federal Taxes 13
Purchase of Shares 16
Selling Shares 22
Shareholder Account Services and Privileges 24
Execution of Portfolio Transactions 26
General Information 27
Investment Results and Related Statistics 29
Description of Bond Ratings 34
Financial Statements Attached
</TABLE>
CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES
The following limitations and guidelines are considered at the time of
purchase, under normal market conditions, and are based on a percentage of the
fund's net assets unless otherwise noted. This summary is not intended to
reflect all of the fund's investment limitations.
DEBT SECURITIES
- - The fund may invest up to 5% of its assets in debt securities rated Ba and
BB or below by Moody's Investors Service Inc. (Moody's) or Standard & Poor's
Corporation (S&P) or in unrated securities that are determined to be of
equivalent quality.
NON-U.S. SECURITIES
- - 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.
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
The descriptions below are intended to supplement the material in the
Prospectus under "Investment Objective, Strategies and Risks."
EQUITY SECURITIES -- The fund will invest in 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. The growth-oriented,
equity-type securities generally purchased by the fund may involve large price
swings and potential for loss.
DEBT SECURITIES -- The fund will invest in debt securities. Bonds and other
debt securities are used by issuers to borrow money. Issuers pay investors
interest and generally must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values. The prices of debt securities
fluctuate depending on such factors as interest rates, credit quality and
maturity. In general their prices decline when interest rates rise and vice
versa.
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
difficulty.
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. It is contemplated
that most of the fund's common stock investments will be made in securities
that are listed on a stock exchange.
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
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 domiciled outside the U.S. and not included in the
Standard & Poor's 500 Composite Index. Investing outside the U.S. involves
special risks,, 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.
The risks described above are potentially heightened in connection with
investments in developing countries. Although there is no universally accepted
definition, a developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a low per capita
gross national product. For example, political and/or economic structures in
these countries may be in their infancy and developing rapidly. Historically,
the markets of developing countries have been more volatile than the markets of
developed countries. The fund may only invest in securities of issuers in
developing countries to a limited extent.
Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. Brokerage commissions may be higher outside the
U.S., and the fund will bear certain expenses in connection with its currency
transactions. Furthermore, increased custodian costs may be associated with the
maintenance of assets in certain jurisdictions.
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.
CASH EQUIVALENTS -- The fund invests in various high-quality money market
instruments that mature, or may be redeemed or resold, generally 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)
certificates of deposit and bankers' acceptances (time drafts on a commercial
bank where the bank accepts an irrevocable obligation to pay at maturity); (3)
savings association and bank obligations; (4) securities of the U.S.
Government, its agencies or instrumentalities; and (5) corporate bonds and
notes .
RESTRICTED SECURITIES AND LIQUIDITY -- The fund may purchase securities subject
to restrictions on resale. All such securities not actively traded outside 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 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.
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. The fund does not currently intend (at least for the next
12 months) to invest in repurchase agreements.
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
approval of the holders of a majority of its outstanding shares. Such majority
is defined by the Investment Company Act of 1940 ("1940 Act") as the vote of
the lesser of (i) 67% or more of the voting securities present at a meeting of
shareholders, if the holders of more than 50% of the outstanding voting
securities are present in person or by proxy, or (ii) more than 50% of the
outstanding voting securities.)
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 in puts or calls; 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).
No officer or director of the fund may sell portfolio securities to the fund or
buy portfolio securities from it.
FUND ORGANIZATION
The fund is an open-end, diversified management investment company. It was
organized as a Delaware corporation on October 17, 1932, and reincorporated in
Maryland on February 1, 1990.
All fund operations are supervised by the fund's board of directors. The board
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 "Fund Directors and Officers" below.
They may elect to defer all or a portion of these fees through a deferred
compensation plan in effect for the fund.
FUND OFFICERS AND DIRECTORS
Directors and Director Compensation
<TABLE>
<CAPTION>
NAME, POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
ADDRESS WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER
AND AGE REGISTRANT DURING PAST 5 (INCLUDING (INCLUDING OF FUND
YEARS VOLUNTARILY VOLUNTARILY BOARDS
DEFERRED DEFERRED ON WHICH
COMPENSATION COMPENSATION DIRECTOR
/1/) FROM FUND /1/) FROM ALL SERVES
DURING FISCAL FUNDS MANAGED /2/
YEAR ENDED BY CAPITAL
12/31/98 RESEARCH AND
MANAGEMENT
COMPANY OR ITS
AFFILIATES/2/
FOR THE YEAR
ENDED 12/31/98
<S> <C> <C> <C> <C> <C>
Guilford C. Babcock Director Associate $16,000 /3/ $34,200 2
1575 Circle Drive Professor of
San Marino, CA 91108 Finance,
Age: 67 School of
Business
Administration,
University of
Southern
California
+James E. Drasdo President, Senior Vice none/5/ none/5/ 1
333 South Hope Street PEO and President and
Los Angeles, CA 90071 Director Director,
Age: 53 Capital
Research and
Management
Company
Robert A. Fox Director President and $13,867 $106,817 6
P. O. Box 457 Chief Executive
Livingston, CA 95334 Officer, Foster
Age: 61 Farms
Roberta L. Hazard Director Consultant, $13,367 $66,317 4
1419 Audmar Drive Rear Admiral,
McLean, VA 22101 United States
Age: 64 Navy (Retired)
Leonade D. Jones Director Former $13,367 $107,967 6
1536 Los Montes Drive Treasurer; The
Burlingame, CA 94010 Washington Post
Age: 51 Company
John G. McDonald Director The IBJ $16,117 $201,867 7
Graduate School of Professor of
Business Finance,
Stanford University Graduate School
Stanford, CA 94305 of Business,
Age: 61 Stanford
University
Gail L. Neale Director President, The $19,650 /3/ $74,100 5
The Lovejoy Lovejoy
Consulting Group, Consulting
Inc. Group, Inc.;
154 Prospect Parkway former
Burlington, VT 05401 Executive Vice
Age: 63 President,
Salzburg
Seminar
+James W. Ratzlaff Director Senior Partner, none/4/ none/4/ 8
333 South Hope Street The Capital
Los Angeles, CA 90071 Group Partners,
Age: 62 L.P.
Henry E. Riggs Director President, Keck $22,150 /3/ $81,900 4
Keck Graduate Graduate
Institute of Applied Institute of
Life Sciences Applied Life
1263 Dartmouth Sciences;
Claremont, CA 91711 former
Age: 63 President and
Professor of
Engineering,
Harvey Mudd
College
+James F. Rothenberg Director President and none/4/ none/4/ 3
333 South Hope Street Director,
Los Angeles, CA 90071 Capital
Age: 52 Research and
Management
Company
Patricia K. Woolf Director Private $16,117 $109,217 6
506 Quaker Road investor;
Princeton, NJ 08540 Lecturer,
Age: 64 Department of
Molecular
Biology,
Princeton
University;
Corporation
Director
</TABLE>
+ 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 Endowments, whose shareholders are limited to
(i) any entity exempt from taxation under Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended ("501(c)(3) organization"); (ii) any trust,
the present or future beneficiary of which is a 501(c)(3) organization, and
(iii) any other entity formed for the primary purpose of benefiting a 501(c)(3)
organization. An affiliate of Capital Research and Management Company, Capital
International, Inc., manages Emerging Markets Growth Fund, Inc.
/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 ($107,591), Robert A. Fox ($14,967), John G.
McDonald ($27,102), Gail L. Neale ($57,687), and Henry E. Riggs ($122,665).
Amounts deferred and accumulated earnings thereon are not funded and are
general unsecured liabilities of the fund until paid to the Director.
/4/ 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
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) PRINCIPAL
HELD WITH OCCUPATION(S) DURING
REGISTRANT PAST 5 YEARS
<S> <C> <C> <C>
Gordon Crawford 51 Senior Vice Capital Research and
333 South Hope Street President Management Company,
Los Angeles, CA 90071 Senior Vice President
and Director
Paul G. Haaga, Jr. 50 Senior Vice Capital Research and
333 South Hope Street President Management Company,
Los Angeles, CA 90071 Executive Vice
President and
Director
Dina N. Perry 53 Senior Vice Capital Research and
3000 K Street, N.W., President Management Company,
Suite 230 Senior Vice President
Washington, D.C.
20007-5124
Michael T. Kerr 31 Vice Capital Research
333 South Hope Street President Company, Executive
Los Angeles, CA 90071 Vice President and
Research Director
C. Ross Sappenfield 33 Vice Capital Research
333 South Hope Street President Company, Vice President
Los Angeles, CA 90071
Julie F. Williams 50 Secretary Capital Research and
333 South Hope Street Management Company,
Los Angeles, CA 90071 Vice President - Fund
Business Management
Group
Sheryl F. Johnson 30 Treasurer Capital Research and
5300 Robin Hood Road Management Company,
Norfolk, VA 23513 Senior Vice President
- Fund Business
Management Group
Robert P. Simmer 36 Assistant Capital Research and
5300 Robin Hood Road Treasurer Management Company,
Norfolk, VA 23513 Vice President - Fund
Business Management
Group
</TABLE>
All of the officers listed also are officers or employees of the Investment
Adviser or affiliated companies. 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 $13,000 per
annum, plus $1,000 for each Board of Directors meeting attended, plus $500 for
each meeting attended as a member of a committee of the Board of Directors. In
lieu of meeting attendance fees, members of the Proxy Committee receive an
annual retainer fee of $4,000 per annum from the fund if they serve as a member
of four proxy committees, or $5,500 if they serve as a member of two proxy
committees, meeting jointly. 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, 1999 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 research 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 managing more than $200 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,
was amended by the Board of effective September 1, 1998. The Agreement will
continue until the close of business on August 31, 1999, unless sooner
terminated, 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.
As compensation for its services, the Investment Adviser receives a monthly fee
which is based on prior month-end net assets and is calculated at an annual
rate of 0.39% on the first $1 billion of the fund's net assets, plus 0.336% on
net assets over $1 billion to $2 billion, plus 0.30% on net assets over $2
billion to $3 billion, plus 0.276% on net assets over $3 billion to $5 billion,
plus .27% on net assets over $5 billion to $8 billion, plus .258% on net assets
over $8 billion to $13 billion, plus .252% on net assets over $13 billion.
During the fiscal years ended December 31, 1998, 1997, and 1996, the Investment
Adviser received from the fund advisory fees of $33,742,000, $26,675,000, and
$18,267,000, respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the "Principal
Underwriter") is the Principal Underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 3500 Wiseman Boulevard, San
Antonio, TX 78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240,
and 5300 Robin Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of
Distribution (the "Plan"), pursuant to rule 12b-1. 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,
1998, amounted to $7,753,000 after allowance of $38,376,000 to dealers. During
the fiscal years ended December 31, 1997 and 1996, the Principal Underwriter
retained $8,356,000 and $7,993,000 after allowance of $41,667,000 and
$40,389,000 to dealers, respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by the full Board of Directors, and separately by
a majority of the directors who are not "interested" persons of the fund and
who have no direct or indirect financial interest in the operation of the Plan
or the Principal Underwriting Agreement, and the Plan has been approved by the
vote of a majority of the outstanding voting securities of the fund. The
officers and directors who are "interested" persons of the fund may, due to
present or past affiliations with the Investment Adviser and related companies,
be considered to have a direct or indirect financial interest in the operation
of the Plan. Potential benefits of the plan to the fund include improved
shareholder services, savings to the fund in transfer agency costs, savings to
the fund in advisory fees and other expenses, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management organization. The selection and nomination of directors who
are not "interested persons" of the fund are committed to the discretion of the
directors who are not interested persons during the existence of the Plan. The
Plan is reviewed quarterly and must be renewed annually by the Board of
Directors.
Under the Plan the fund may expend up to 0.25% of its net assets annually to
finance any activity which is primarily intended to result in the sale of fund
shares, provided the fund's Board of Directors has approved the category of
expenses for which payment is being made. These include service fees for
qualified dealers and dealer commissions and wholesaler compensation on sales
of shares exceeding $1 million (including purchases by any employer-sponsored
403(b) plan or purchases by any defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code (the "Code") including a "401(k)
plan with 100 or more eligible employees or a community foundation).
Commissions on sales of shares exceeding $1 million (including purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code, including any
"401(k)" plan with 100 or more eligible employees) in excess of the Plan
limitation not reimbursed during the most recent fiscal quarter are recoverable
for five quarters, provided that such commissions do not exceed the annual
expense limit. After five quarters, commissions are not recoverable. During
the year ended December 31, 1998, the fund paid or accrued $26,855,000 under
the Plan as compensation to dealers. As of December 31, 1998, distribution
expenses accrued and unpaid distribution expenses were $2,627,000.
The Glass-Steagall Act and other applicable laws, among other things, generally
prohibit commercial banks from engaging in the business of underwriting,
selling or distributing securities, but permit banks to make shares of mutual
funds available to their customers and to perform administrative and
shareholder servicing functions. However, judicial or administrative decisions
or interpretations of such laws, as well as changes in either federal or state
statutes or regulations relating to the permissible activities of banks or
their subsidiaries of affiliates, could prevent a bank from continuing to
perform all or a part of its servicing activities. If a bank were prohibited
from so acting, shareholder clients of such bank would be permitted to remain
shareholders of the fund and alternate means for continuing the servicing of
such shareholders would be sought. In such event, changes in the operation of
the fund might occur and shareholders serviced by such bank might no longer be
able to avail themselves of any automatic investment or other services then
being provided by such bank. It is not expected that shareholders would suffer
with adverse financial consequences as a result of any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements and has elected the tax status of
a "regulated investment company" under the provisions of Subchapter M of the
Internal Revenue Code of 1986, as amended (the Code). Under Subchapter M, if
the fund distributes within specified times at least 90% of its investment
company taxable income (net investment income and the excess of net short-term
capital gains over net long-term capital losses) and its tax-exempt interest,
if any, it generally 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 total
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 total assets and to not more than 10%
of the outstanding voting securities of such issuer), and (ii) not more than
25% of the value of its total 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.
Distributions of investment company taxable income, including short-term
capital gains, generally are taxable to the shareholder as ordinary income,
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the fund. A capital gain distribution, whether paid in
cash or reinvested in shares, is taxable to shareholders as long-term capital
gains, regardless of the length of time a shareholder has held the shares or
whether such gain was realized by the fund before the shareholder acquired such
shares and was reflected in the price paid for the shares.
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, foreign
trust or estate, non-U.S. corporation or non-U.S. partnership (a "non-U.S.
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 are not subject
to tax withholding, but in the case of a non-U.S. shareholder who is a
nonresident alien individual, such distributions ordinarily will be subject to
U.S. income tax at the rate of 30% if the individual is physically present in
the U.S. during the tax year for more than 182 days.
As of the date of this statement of additional information, the maximum federal
individual stated tax rate generally 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
generally applicable to net capital gains on assets held more than one year is
20%, 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. The maximum
amount that an individual may contribute to all IRAs (deductible, nondeductible
and Roth IRAs) per year is the lesser of $2,000 or the individual's
compensation for the year. 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. Shareholders are urged to consult their tax advisers
with specific reference to their own tax situations.
PURCHASE OF SHARES
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
<S> <C> <C>
See "Investment Minimums and $50 minimum (except where a lower
Fund Numbers" for initial minimum is noted under "Investment
investment minimums. Minimums and Fund Numbers").
By contacting Visit any investment dealer Mail directly to your investment
your investment who is registered in the state dealer's address printed on your
dealer where the purchase is made and account statement.
who has a sales agreement with
American Funds Distributors.
By mail Make your check payable to the Fill out the account additions form
fund and mail to the address at the bottom of a recent account
indicated on the account statement, make your check payable to
application. Please indicate the fund, write your account number
an investment dealer on the on your check, and mail the check and
account application. form in the envelope provided with
your account statement.
By telephone Please contact your investment Complete the "Investments by Phone"
dealer to open account, then section on the account application or
follow the procedures for American FundsLink Authorization
additional investments. Form. Once you establish the
privilege, you, your financial
advisor or any person with your
account information can call American
FundsLine(R) and make investments by
telephone (subject to conditions
noted in "Shareholder Account
Services and Privileges - Telephone
and Computer Redemptions and
Exchanges" below).
By computer Please contact your investment Complete the American FundsLink
dealer to open account, then Authorization Form. Once you
follow the procedures for establish the privilege, you, your
additional investments. financial advisor or any person with
your account 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 bank should wire your additional
your account number(s), if investments in the same manner as
necessary. Please indicate an described under "Initial 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.
</TABLE>
INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial investments
required by the funds in The American Funds Group along with fund numbers for
use with our automated phone line, American FundsLine(R) (see description
below):
<TABLE>
<CAPTION>
FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
<S> <C> <C>
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 1,000 33
Fund(SM)
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 1,000 40
Fund(R)
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 1,000 23
America(SM)
Limited Term Tax-Exempt Bond Fund of 1,000 43
America(SM)
The Tax-Exempt Bond Fund of 1,000 19
America(R)
The Tax-Exempt Fund of 1,000 20
California(R)*
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 2,500 09
America(R)
The Tax-Exempt Money Fund of 2,500 39
America(SM)
The U.S. Treasury Money Fund of 2,500 49
America(SM)
*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).
SALES CHARGES - The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND
FUNDS
Less than $50,000 6.10% 5.75% 5.00%
$50,000 but less than 4.71 4.50 3.75
$100,000
BOND FUNDS
Less than $25,000 4.99 4.75 4.00
$25,000 but less than 4.71 4.50 3.75
$50,000
$50,000 but less than 4.17 4.00 3.25
$100,000
STOCK, STOCK/BOND, AND
BOND FUNDS
$100,000 but less than 3.63 3.50 2.75
$250,000
$250,000 but less than 2.56 2.50 2.00
$500,000
$500,000 but less than 2.04 2.00 1.60
$1,000,000
$1,000,000 or more none none (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 contingent
deferred sales charge may be imposed on certain redemptions by these accounts
made within one year of purchase. Investments by retirement plans, foundations
or endowments with $50 million or more in assets, and employer-sponsored
defined contribution-type plans with 100 or more eligible employees may be made
with no sales charge and are not subject to a contingent deferred sales charge.
In addition, 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.
DEALER COMMISSIONS -- 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.
OTHER COMPENSATION TO DEALERS -- 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 principally 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.
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.
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.
STATEMENT OF INTENTION - You may enter into a non-binding commitment to
purchase shares of a fund(s) over a 13-month period and receive the same sales
charge as if all shares had been purchased at once. This includes purchases
made during the previous 90 days, but does not include appreciation of your
investment or reinvested distributions. 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 use 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 pay
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.
When the trustees of certain retirement plans purchase shares 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.
CONCURRENT PURCHASES -- You may combine purchases of two or more funds in The
American Funds Group, except direct purchases of the money market funds.
Shares of 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 (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.
PRICE OF SHARES - Shares are purchased at the offering price next determined
after the purchase order is received and accepted 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 do not always indicate
the 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 fund shares, the public offering price, is based on the
net asset value per share which is calculated once daily at the normal close of
trading (currently 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.
All portfolio securities of funds managed by Capital Research and Management
Company, other than the money market funds, are valued, and 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
non-U.S. 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.
SELLING SHARES
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. You may sell
(redeem) shares in your account in any of the following ways:
THROUGH YOUR DEALER (certain charges may apply)
- - Shares held for you in your dealer's street name must be sold through the
dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- - Requests must be signed by the registered shareholder(s)
- - A signature guarantee is required if the redemption is:
-- Over $50,000;
-- Made payable to someone other than the registered shareholder(s); or
-- Sent to an address other than the address of record, or an address of
record which has been changed within the last 10 days.
Your signature may be guaranteed by a domestic stock exchange or the National
Association of Securities Dealers, Inc., bank, savings association or credit
union that is an eligible guarantor institution.
- - Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
- - You must include any shares you wish to sell that are in certificate form.
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE(R) OR AMERICAN FUNDSLINE ONLINE(R)
- - Redemptions by telephone or fax (including American FundsLine and American
FundsLine OnLine) are limited to $50,000 per shareholder each day.
- - Checks must be made payable to the registered shareholder(s).
- - Checks must be mailed to an address of record that has been used with the
account for at least 10 days.
MONEY MARKET FUNDS
- - You may have redemptions of $1,000 or more wired to your bank by writing
American Funds Service Company.
- - You may establish check writing privileges (use the money market funds
application)
-- If you request check writing privileges, you will be provided with checks
that you may use to draw against your account. These checks may be made
payable to anyone you designate and must be signed by the authorized number or
registered shareholders exactly as indicated on your checking account signature
card.
Redemption 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.
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. Proceeds will be reinvested at the next calculated net asset value
after your request is received and accepted by American Funds Service Company.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions from funds other than the money market funds
made within 12 months of purchase on investments of $1 million or more (other
than redemptions by employer-sponsored retirement plans). 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 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.
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 - An automatic investment plan enables you to make
regular monthly or quarterly investments into The American Funds through
automatic debits from your bank account. To set up a plan you must fill out an
account application and specify the amount you would like to invest ($50
minimum) and the date on which you would like your investments to occur. The
plan will begin within 30 days after your account application is received.
Your bank account will be debited on the day or a few days before your
investment is made, depending on the bank's capabilities. American Funds
Service Company will then invest your money into the fund you specified on or
around the date you specified. If your bank account cannot be debited due to
insufficient funds, a stop-payment order or closing of the account, the plan
may be terminated and the related investment reversed. You 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 cross-reinvest
dividends or dividends and capital gain distributions into any other fund in
The American Funds Group subject to the following conditions:
(a) The aggregate value of your account(s) in the fund(s) paying distributions
equals or exceeds $5,000 (this is waived if the value of the account in the
fund receiving the distributions equals or exceeds that fund's minimum initial
investment requirement),
(b) If the value of the account of the fund receiving distributions is below
the minimum initial investment requirement, dividends and capital gain
distributions must be automatically reinvested
(c) If you discontinue the cross-reinvestment of distributions, the value of
the account in the fund receiving distribution must equal or exceed the
minimum initial investment requirement. If you do not meet this requirement
within 90 days of notification, the fund has the right to automatically redeem
the account.
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 and American FundsLine OnLine(SM) (see "American FundsLine(R) and
American FundsLine OnLine" below), or by telephoning 800/421-0180 toll-free,
faxing (see "Shareholder Information - American Funds Service Company Service
Areas" 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 American
Funds Service Company. Dividend and capital gain reinvestments and purchases
through automatic investment plans and certain retirement plans will be
confirmed at least quarterly.
AMERICAN FUNDSLINE AND AMERICAN FUNDSLINE ONLINE - 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 or American FundsLine OnLine. 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 and American FundsLine OnLine 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) and computer (including American
FundsLine OnLine), 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.
SHARE CERTIFICATES -- Shares are credited to your account and certificates are
not issued unless you request them by writing to American Funds Service
Company.
EXECUTION OF PORTFOLIO TRANSACTIONS
The Investment Adviser places orders for the fund's portfolio securities
transactions. 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 have an obligation
to obtain the lowest available commission rate to the exclusion of price,
service and qualitative considerations.
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, 1998, 1997, and 1996, amounted to $9,944,000, $7,913,000, and
$6,066,000, 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 $8,550,000 for the fiscal year ended December 31, 1998.
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. The
fund provides shareholders 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.
YEAR 2000 - The fund and its shareholders depend on the proper functioning of
computer systems maintained by the Investment Adviser and its affiliates and
other key service providers. Many computer systems in use today will require
reprogramming or replacement prior to the year 2000 because of the way they
store dates and make date-related calculations. The fund understands that
these service providers are taking steps to address the "Year 2000 problem".
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the fund. In addition, the fund's investments could be
adversely affected by the Year 2000 problem. For example, the markets for
securities in which the fund invests could experience settlement problems and
liquidity issues. Corporate and governmental data processing errors may cause
losses for individual companies and overall economic uncertainties. Earnings of
individual issuers are likely to be affected by the costs of addressing the
problem, which may be substantial and may be reported inconsistently.
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.
SHAREHOLDER VOTING RIGHTS - 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 16E 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 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 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, 1998
<S> <C>
Net asset value and redemption price per share $28.92
(Net assets divided by shares outstanding)
Maximum offering price per share $30.68
(100/94.25 of net asset value per share which
takes into account the fund's current maximum
sales charge)
</TABLE>
INVESTMENT RESULTS AND RELATED STATISTICS
The fund's yield was 1.47% for the 30-day (or one month) period ended December
31, 1998, 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, 1998, the fund's total return over the past twelve months
and average annual total returns over the past five and ten-year periods were
10.01%, 17.85% and 16.62%, respectively. The fund's total return at net asset
value over the past 12 months and average annual total return for the five- and
ten-year periods ending on December 31, 1998 was 16.72%, 19.26%, and 17.31%,
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.
In calculating average annual total return, the fund assumes: (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 ("Lipper"),
Morningstar, Inc., Wiesenberger Investment Companies Services and 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 illustrate the benefits of tax-deferral by comparing taxable
investments to investments made through tax-deferred retirement plans.
The fund may compare its investment results with the Consumer Price Index,
which is a measure of the average change in prices over time in a fixed market
basket of goods and services (e.g. food, clothing, and fuels, transportation,
and other goods and services that people buy for day-to-day living).
The investment results for the fund set forth below were calculated as
described in the fund's prospectus. The fund's results will vary from time to
time depending upon market conditions, the composition of the fund's portfolio
and operating expenses of the fund, so that any investment results reported by
the fund should not be considered representative of what an investment in the
fund may earn in any future period. These factors and possible differences in
calculation methods should be considered when comparing the fund's investment
results with those published for other mutual funds, other investment vehicles
and unmanaged indices. The fund's results also should be considered relative
to the risks associated with the fund's investment objective and policies.
THE FUND VS. VARIOUS UNMANAGED INDICES
<TABLE>
<CAPTION>
Period FI DJIA/1/ S&P 500/2/ Average
1/1 - 12/31 Savings
Account/3/
<S> <C> <C> <C> <C>
1989 - 1998 +365% +460% +477% +60%
1988 - 1997 +362 +452 +424 +63
1987 - 1996 +278 +366 +314 +65
1986 - 1995 +285 +360 +299 +70
1985 - 1994 +273 +349 +282 +76
1984 - 1993 +290 +333 +301 +87
1983 - 1992 +316 +367 +346 +98
1982 - 1991 +406 +452 +404 +111
1981 - 1990 +284 +328 +267 +121
1980 - 1989 +396 +426 +402 +124
1979 - 1988 +345 +340 +352 +124
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
(1/1/94 - 12/31/98) (1/1/89 - 12/31/98) (7/31/78 - 12/31/98)
$17,365 $52,916 $314,088
</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
this many years shares, your investment
ago... would have been worth
this much at December
31, 1998
| |
Number of Years Periods Value**
1/1-12/31
<S> <C> <C>
1 1998 $ 11,001
2 1997 - 1998 13,933
3 1996 - 1998 16,720
4 1995 - 1998 22,436
5 1994 - 1998 22,734
6 1993 - 1998 26,864
7 1992 - 1998 29,597
8 1991 - 1998 38,595
9 1990 - 1998 36,185
10 1989 - 1998 46,516
11 1988 - 1998 53,936
12 1987 - 1998 55,956
13 1986 - 1998 68,288
14 1985 - 1998 88,912
15 1984 - 1998 94,060
16 1983 - 1998 118,637
17 1982 - 1998 159,025
18 1981 - 1998 157,151
19 1980 - 1998 190,493
20 1979 - 1998 219,845
Lifetime* 1978 - 1998 213,421
</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, 1979 - December 31, 1998)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES**
Fiscal Annual Dividends Total From From From Total
Year End Dividends (cumulative) Investment Initial Capital Dividends Value
December 31 Cost Investment Gains 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
1998 2,690 28,401 38,401 39,028 123,062 51,331 213,421
</TABLE>
The dollar amount of capital gain distributions during the period was $86,744.
* From July 31, 1978, the date Capital Research and Management Company became
the fund's Investment Adviser.
** Results assume deduction of the maximum sales charge of 5.75% from the
initial purchase payment.
EXPERIENCE OF INVESTMENT ADVISER
Capital Research and Management Company manages nine growth and growth-income
funds that are at least 10 years old. In the rolling 10-year periods since
January 1, 1968 (138 in all), those funds have had better total returns than
their comparable Lipper Indexes in 128 of the 138 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.
The fund may include, in advertisements or in reports furnished to present or
prospective shareholders, information on its investment results and/or
comparisons of its investment results to various unmanaged indices or results
of other mutual funds or investment or savings vehicles. The fund may also
combine its results with those of other funds in The American Funds Group for
purposes of illustrating investment strategies involving multiple funds. For
educational purposes, fund literature may contain discussions and/or
illustrations of volatility, risk tolerance, asset allocation and investment
strategies.
DESCRIPTION OF BOND RATINGS
CORPORATE DEBT SECURITIES
MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by
various entities from "Aaa" to "C".
"Aaa -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large, or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
"Aa -- High quality by all standards. They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
"A -- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
"Baa -- Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
"Ba -- Have speculative elements; future cannot be considered as well assured.
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
"B -- Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"Caa -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"Ca -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
STANDARD & POOR'S CORPORATION rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality.
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
"A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is in
arrears."
<PAGE>
<TABLE>
<S> <C> <C> <C>
FUNDAMENTAL INVESTORS, INC.
INVESTMENT PORTFOLIO - December 31, 1998
Percent
Of Net Percent
LARGEST EQUITY HOLDINGS Assets Change (1)
Time Warner 3.34% + 100.2%
Monsanto 2.77 +13.1
Texas Instruments 2.52 +90.1
Astra 1.66 + 20.4
Viacom 1.47 + 76.6
Warner-Lambert 1.44 +81.9
U S WEST 1.42 +43.2
American International 1.35 + 33.3
News Corp. 1.28 + 20.7
MediaOne (2) 1.26 +14.2 (3)
(1) Reflects increase in market price for the year ended 12/31/98.
(excludes dividends.)
(2) Upon maturity converts to AirTouch Communications.
(3) Not held for the entire period.
Change reflects the increase from 7/31/98-12/31/98.
Percent
Of Net
Largest Industry Holdings Assets
Broadcasting & Publishing 8.19%
Telecommunications 7.60
Health & Personal Care 6.78
Banking 5.99
Chemicals 5.80
Shares or Market Percent
EQUITY SECURITIES Principal Value of Net
(Common and Preferred Stocks and Amount (000) Assets
Convertible Debentures)
- ---------------------------------------------------- ---------- ---------- ----------
Broadcasting & Publishing- 4.88%
Time Warner Inc. 6,844,000 $424,756 3.34%
Viacom Inc., Class B (1) 1,355,000 100,270
Viacom Inc., Class A (1) 1,175,600 86,480 1.47
News Corp. Ltd. (ADR) (Australia) 3,150,000 83,278
News Corp. Ltd., preferred (ADR) (Australia) 3,200,000 79,000 1.28
Dow Jones & Co., Inc. 1,500,000 72,187 .57
Comcast Corp., Class A, special stock 1,110,784 65,189 .51
Fox Entertainment Group, Inc., Class A (1) 2,000,000 50,375 .40
E.W. Scripps Co., Class A 700,000 34,825 .27
Tele-Communications, Inc., Series A, Liberty Media Group (1) 564,756 26,014 .20
Tele-Communications, Inc., Series A, TCI Group (1) 300,000 16,594 .13
MediaOne Group Inc., Series D, 4.50% convertible preferred 27,000 2,565 .02
Telecommunications- 7.60%
U S WEST, Inc. 2,800,000 180,950 1.42
MediaOne Group, Inc., premium income exchangeable security,
6.25% 2001 2,400,000 159,600 1.26
AT&T Corp. 2,076,300 156,242 1.23
Sprint Corp. 1,414,300 118,978 .94
Frontier Corp. 3,100,000 105,400 .83
Telecomunicacoes Brasileiras SA (Brazil) 800,000 58,150 .46
Bell Atlantic Corp. 1,000,000 56,813 .44
Tele-Communications, Inc., Series A, TCI Ventures Group (1) 2,100,000 49,481 .39
Ameritech Corp. 700,000 44,363 .35
MCI WorldCom, Inc. (formerly WorldCom, Inc.) (1) 500,000 35,875 .28
Health & Personal Care- 6.78%
Astra AB Class A (ADR) (Sweden) 10,183,333 210,668 1.66
Warner-Lambert Co. 2,440,000 183,458 1.44
Zeneca Group PLC (United Kingdom) 2,000,000 86,987 .69
Gillette Co. 1,800,000 86,962 .69
Pfizer Inc 600,000 75,262 .59
Pharmacia & Upjohn, Inc. 1,200,000 67,950 .53
Amgen Inc. (1) 500,000 52,281 .41
American Home Products Corp. 725,000 40,827 .32
Johnson & Johnson 240,000 20,130 .16
Kimberly-Clark Corp. 350,000 19,075 .15
Eli Lilly and Co. 200,000 17,775 .14
Banking- 5.99%
Chase Manhattan Corp. 2,000,000 136,125 1.07
BankAmerica Corp. 1,900,000 114,237 .90
First Union Corp. 1,854,504 112,777 .89
Citigroup Inc. 2,000,000 99,000 .78
J.P. Morgan & Co. Inc. 700,000 73,544 .58
Washington Mutual Savings Bank 1,600,000 61,100 .48
Marshall & Ilsley Corp. 1,026,500 59,986 .47
Wells Fargo & Co. 1,400,000 55,913 .44
KeyCorp 1,200,000 38,400 .30
BANK ONE CORP. 209,000 10,672 .08
Chemicals- 5.80%
Monsanto Co. 7,403,200 351,652 2.77
Imperial Chemical Industries PLC (ADR) (United Kingdom) 3,500,000 122,281 .96
Air Products and Chemicals, Inc. 1,900,000 76,000 .60
Bayer AG (Germany) 1,480,000 61,711 .48
Dow Chemical Co. 625,000 56,836 .45
International Flavors & Fragrances Inc. 881,800 38,965 .30
Praxair, Inc. 394,700 13,913 .11
BOC Group PLC (United Kingdom) 600,000 8,589 .07
Witco Corp. 500,000 7,969 .06
Electronic Components- 5.40%
Texas Instruments Inc. 3,743,256 320,282 2.52
Corning Inc. 2,186,100 98,375 .77
Motorola, Inc. 1,502,300 91,734 .72
Intel Corp. 750,000 88,922 .70
AMP Inc. 697,800 36,329 .29
SCI Systems, Inc. (1) 600,000 34,650 .27
Micron Technology, Inc. (1) 200,000 10,113 .08
Western Digital Corp. 0% convertible
subordinated debentures 2018 (2) $22,500,000 6,806 .05
Insurance- 4.99%
American International Group, Inc. 1,770,000 171,026 1.35
Marsh & Mclennan Companies, Inc. 1,950,000 113,953 .90
EXEL Ltd. 1,059,200 79,440 .62
MGIC Investment Corp. 1,905,000 75,843 .60
Lincoln National Corp. 900,000 73,631 .58
Aetna Inc. 550,000 43,244
Aetna Inc., Class C, 6.25% convertible preferred 300,000 22,819 .52
20th Century Industries 2,000,000 46,375 .36
PMI Group, Inc. 160,000 7,900 .06
Energy Sources & Equipment- 4.65%
Suncor Energy Inc. (Canada) 3,890,000 116,725 .92
Murphy Oil Corp. 1,763,400 72,740 .57
Phillips Petroleum Co. 1,555,000 66,282 .52
Baker Hughes Inc. (formerly listed as Western Atlas Inc.) 3,441,530 60,872 .48
Atlantic Richfield Co. 700,000 45,675 .36
Unocal Capital Trust $3.125 convertible preferred 450,000 21,909
Unocal Corp. 700,000 20,431 .33
Texaco Inc. 800,000 42,300 .33
Royal Dutch Petroleum Co. (New York Registered)
(Netherlands) 500,000 23,938
"Shell" Transport and Trading Co., PLC
(New York Registered) (United Kingdom) 450,000 16,734 .32
Shell Canada Ltd., Class A (Canada) 2,649,900 40,189 .32
Sunoco, Inc. 680,500 24,541 .19
Imperial Oil Ltd. (Canada) 1,161,900 18,663 .15
Schlumberger Ltd. (Netherlands Antilles) 300,000 13,838 .11
Diamond Offshore Drilling, Inc. 3.75% convertible debentures 2007 $6,500,000 5,948 .05
Business & Public Services- 3.65%
FDX Corp. (1) 1,300,000 115,700 .91
Cendant Corp. (1) 2,700,000 51,469
Cendant Corp. 7.50% PRIDES convertible preferred 1,242,100 41,455 .79
Cendant Corp. 3.00% convertible debentures 2002 (2) $7,900,000 7,406
Electronic Data Systems Corp. 2,000,000 100,500 .79
Avery Dennison Corp. 1,000,000 45,063 .35
Columbia/HCA Healthcare Corp. 1,140,000 28,215 .22
First Data Corp. 700,000 22,181 .17
Galileo International, Inc. 400,000 17,400 .14
Waste Management, Inc. (formerly USA Waste Services, Inc.)
4.00% convertible debentures 2002 $11,000,000 13,090 .10
Budget Group, Inc. 6.25% TIDES convertible preferred 2005 300,000 11,550 .09
FIRST HEALTH Group Corp. (1) 672,500 11,138 .09
Data Processing & Reproduction- 3.36%
International Business Machines Corp. 500,000 92,375 .73
Hewlett-Packard Co. 1,350,000 92,222 .73
Microsoft Corp. (1) 500,000 69,344 .54
Computer Associates International, Inc. 1,100,000 46,887 .37
Oracle Corp. (1) 900,000 38,812 .31
Lexmark International Group, Inc., Class A (1) 270,000 27,135 .21
Compaq Computer Corp. 500,000 20,969 .16
GTECH Holdings Corp. (1) 700,000 17,937 .14
Silicon Graphics, Inc. (1) 885,500 11,401 .09
Gateway 2000, Inc. (1) 200,000 10,238 .08
Merchandising- 3.34%
American Stores Co. 4,045,000 149,412 1.18
May Department Stores Co. 1,300,000 78,488 .62
Limited Inc. 2,225,000 64,803 .51
Dillard's Inc. 1,400,000 39,725 .31
J.C. Penney Co., Inc. 600,000 28,125 .22
Lowe's Companies, Inc. 480,000 24,570 .19
Koninklijke Ahold NV 3.00% convertible debentures 2003
(Netherlands) $18,900,000 11,907 .09
Cardinal Health, Inc., Class A 154,650 11,734 .09
AutoZone, Inc. (1) 300,000 9,881 .08
Venator Group Inc. (1) 900,000 5,794 .05
Food & Household Products- 2.99%
Colgate-Palmolive Co. 1,000,000 92,875 .73
Dole Food Co., Inc. 2,700,000 81,000 .64
Kellogg Co. 1,700,000 58,013 .45
Unilever NV (New York Registered) (Netherlands) 600,000 49,763 .39
Archer Daniels Midland Co. 2,425,500 41,688 .33
Nabisco, Inc., Class A 1,000,000 41,500 .33
General Mills, Inc. 202,100 15,713 .12
Utilities: Electric & Gas- 2.62%
Baltimore Gas and Electric Co. 2,000,000 61,750 .49
Western Resources, Inc. 1,599,900 53,197 .42
KeySpan Energy Corp. (formerly MarketSpan Corp.) 1,584,000 49,104 .39
DTE Energy Co. 1,050,000 45,019 .35
Williams Companies, Inc. 1,000,000 31,187 .25
Southern Co. 982,400 28,551 .22
Florida Progress Corp. 500,000 22,406 .18
Eastern Utilities Associates 640,000 18,080 .14
Duke Energy Corp. 205,200 13,145 .10
Texas Utilities Co. 6.20% 2002 120,800 5,640 .04
Entergy Corp. 150,000 4,669 .04
Automobiles- 2.56%
DaimlerChrysler AG (New York Registered)
(formerly Chrysler Corp.) (Germany) (1) 1,247,000 119,790 .94
General Motors Corp. 1,350,000 96,609 .76
Nissan Motor Co., Ltd. (Japan) 23,000,000 70,034 .55
Honda Motor Co., Ltd. (Japan) 1,200,000 39,180 .31
Forest Products & Paper- 2.28%
Union Camp Corp. 1,100,000 74,250 .59
Weyerhaeuser Co. 1,450,000 73,678 .58
International Paper Co. 1,100,000 49,294 .39
Georgia-Pacific Corp. 400,000 23,425
Georgia-Pacific Corp., Timber Group 400,000 9,525 .26
Fort James Corp. 600,000 24,000 .19
Chesapeake Corp. 559,100 20,617 .16
Bowater Inc. 350,000 14,525 .11
Transportation: Airlines- 2.08%
Delta Air Lines, Inc. 2,806,600 145,943 1.15
AMR Corp. (1) 2,000,000 118,750 .93
Financial Services- 1.98%
Freddie Mac 1,200,000 77,325 .61
Household International, Inc. 1,700,000 67,363 .53
Capital One Financial Corp. 495,000 56,925 .45
Fannie Mae 600,000 44,400 .35
Bell Atlantic Financial Services, Inc., Senior Exchangeable
Notes, 4.25% 2005 (2) $5,000,000 5,125 .04
Leisure & Tourism- 1.81%
Mc Donald's Corp. 1,900,000 145,588 1.15
Walt Disney Co. 2,800,000 84,000 .66
Multi-Industry- 1.63%
AlliedSignal Inc. 2,200,000 97,488 .77
Textron Inc. 1,073,200 81,496 .64
Canadian Pacific Ltd. (Canada) 1,500,000 28,312 .22
Machinery & Engineering- 1.62%
Caterpillar Inc. 2,000,000 92,000 .72
Deere & Co. 2,200,000 72,875 .57
Parker Hannifin Corp. 1,275,000 41,756 .33
Aerospace & Military Technology- 1.60%
Raytheon Co., Class B 662,500 35,278
Raytheon Co., Class A 670,232 34,643 .55
Boeing Co. 1,741,340 56,811 .45
Northrop Grumman Corp. 700,000 51,187 .40
Sundstrand Corp. 500,000 25,937 .20
Recreation & Other Consumer Products- 1.40%
EMI Group PLC (United Kingdom) 12,863,600 85,779 .67
Eastman Kodak Co. 900,000 64,800 .51
Nintendo Co., Ltd. (Japan) 160,000 15,418 .12
Hasbro, Inc. 350,000 12,644 .10
Beverages & Tobacco- 1.28%
Seagram Co. Ltd. (Canada) 3,400,000 129,200 1.02
PepsiCo, Inc. 800,000 32,750 .26
Electrical & Electronics- 1.25%
Siemens AG (Germany) 1,200,000 77,338 .61
Telefonaktiebolaget LM Ericsson, Class B (ADR) (Sweden) 1,600,000 38,300 .30
Northern Telecom Ltd.(Canada) 613,440 30,749 .24
Nokia Corp., Class A (ADR) (Finland) 100,000 12,044 .10
Industrial Components- 1.19%
Federal-Mogul Corp. 1,450,000 86,275 .68
Dana Corp. 1,100,000 44,962 .35
Genuine Parts Co. 525,000 17,555 .14
Rockwell International Corp. 48,100 2,336 .02
Electronic Instruments- 0.94%
Perkin-Elmer Corp. 1,228,800 119,885 .94
Metals: Nonferrous- 0.91%
Alcoa Inc. (formerly Aluminum Co. of America) 900,000 67,106 .53
Phelps Dodge Corp. 800,000 40,700 .32
Cyprus Amax Minerals Co., Series A,
convertible preferred 230,000 7,878 .06
Textiles & Apparel - 0.71%
NIKE, Inc. Class B 2,000,000 81,125 .64
Nine West Group Inc. (1) 300,000 4,669 .04
Fruit of the Loom, Inc. (1) 280,000 3,867 .03
Metals: Steel- 0.46%
Allegheny Teledyne Inc. 2,850,000 58,247 .46
Real Estate - 0.35%
Meditrust Corp. 1,375,000 20,625 .16
AMB Property Corp. 720,000 15,840 .12
CCA Prison Realty Trust 400,000 8,200 .07
Wholesale & International Trade- 0.35%
Tech Data Corp.(1) 1,100,000 44,275 .35
Appliances & Household Durables- 0.11%
Newell Co. 5.25% convertible preferred 2027 254,000 13,399 .11
Transportation: Rail & Road- 0.09%
Union Pacific Corp. 6.25% convertible preferred 2028 (2) 260,000 11,895 .09
Miscellaneous Materials & Commodities- 0.04%
Owens-Illinois, Inc. 4.75% convertible preferred 2049 120,000 5,100 .04
Miscellaneous- 3.33%
Other equity securities in initial period
of acquisition 423,323 3.33
----------- -----------
TOTAL EQUITY SECURITIES (cost: $9,096,868,000) 11,865,296 93.33
----------- -----------
PRINCIPAL
AMOUNT
Bonds & Notes (OOO)
- -------------------------------------------------------- ---------- ---------- -----------
Industrials - 1.21%
Adelphia Communications Corp.
10.50% 2004 $25,000 $27,375
9.875% 2007 10,000 11,062 .38
Series B, 9.25% 2002 10,000 10,550
Ziff-Davis Inc. 8.50% 2008 35,000 34,125 .27
Falcon Holding Group, LP 8.375% 2010 20,000 20,100 .16
Fox Family Worldwide, Inc. 9.25% 2007 17,500 17,325 .14
Cablevision Systems Corp. 9.875% 2013 14,000 15,610 .12
Fox/Liberty Networks, LLC 8.875% 2007 10,000 10,200 .08
Time Warner Inc. 10.15% 2012 6,000 8,061 .06
Federal Agency Obligations- 0.28%
Federal Farm Credit Bank 5.32% 1999 35,000 35,000 .28
Transportation- 0.12%
Delta Air Lines, Inc., Series 1993-A2, 10.50% 2016 (3) 11,500 14,536 .12
---------- ----------
TOTAL BONDS & NOTES (cost: $193,575,000) 203,944 1.61
---------- ----------
Short-Term Securities
- ----------------------------------------------------
CORPORATE SHORT-TERM NOTES- 4.18%
Ford Motor Credit Co. 5.14%-5.18% due 1/8-2/1/1999 $65,800 $65,575 .52%
Lucent Technologies Inc. 5.05%-5.22% due 1/11-2/5/1999 54,900 54,698 .43
General Motors Acceptance Corp. 5.10% due 1/6/1999 50,000 49,957 .39
IBM Credit Corp. 5.05% due 1/7/1999 50,000 49,950 .39
Johnson & Johnson 5.05% due 2/3/1999 (2) 46,700 46,474 .37
Eastman Kodak Co. 5.07%-5.11% due 1/20-2/9/1999 45,400 45,179 .35
Procter & Gamble Co. 4.90%-5.25% due 1/15-1/25/1999 38,000 37,868 .30
E.I. du Pont de Nemours and Co. 4.98%-5.20% due 1/13-2/5/1999 37,000 36,910 .29
BellSouth Telecommunications, Inc. 5.02%-5.15% due 1/26-2/5/1999 35,950 35,802 .28
Motorola, Inc. 5.03%-5.08% due 1/28-3/23/1999 34,520 34,278 .27
Associates First Capital Corp. 5.125%-5.34% due 1/4-1/6/1999 32,400 32,372 .25
National Rural Utilities Cooperative Finance Corp.
5.00% due 1/12/1999 30,000 29,949 .24
Commerical Credit Co. 5.15%-5.22% due 1/14-2/5/1999 24,400 24,320 .19
Walt Disney Co. 4.96% due 1/14/1999 20,000 19,960 .16
American General Finance Corp. 5.05% due 1/5/1999 13,000 12,991 .10
Monsanto Co. 5.08% due 2/4/1999 (2) 10,400 10,348 .08
Monsanto Co. 5.10% due 2/5/1999 10,000 9,949 .08
Federal Short-Term Obligations-0.21%
Freddie Mac 5.00% due 3/29/1999 27,500 27,173 .21
---------- ----------
TOTAL SHORT-TERM SECURITIES (cost: $623,755,000) 623,753 4.90
---------- ----------
TOTAL INVESTMENT SECURITIES (cost: $9,914,198,000) 12,692,993 99.84
Excess of cash and receivables over payables 19,918 .16
---------- ----------
NET ASSETS $12,712,911 100.00%
========== ========
(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
of these securities is shorter than the stated maturity.
ADR = American Deposit Receipts
See Notes to Financial Statements
EQUITY SECURITIES ADDED
SINCE JUNE 30, 1998
American Homes Products
AutoZone
BankAmerica
Bayer AG
Canadian Pacific
Citigroup
Colgate-Palmolive
Compaq Computer
Dillard's
Dole Food
EXEL
Federal-Mogul
Fox Entertainment Group
Gateway 2000
General Mills
Gillette
GTECH Holdings
Hasbro
Honda Motor
International Flavors & Fragrances
Kellogg
Kimberly-Clark
Koninklijke Ahold
MGIC Investments
Nabisco
Northern Telecom
Owens-Illinois
Sunoco
Telecomunicacoes Brasileiras
Telefonaktiebolaget LM Ericsson
Washington Mutual Savings Bank
EQUITY SECURITIES ELIMINATED
SINCE JUNE 30, 1998
Bay Networks
Boston Scientific
Bristish Telecommunications
Bristol-Myers Squibb
Cummings Engine
Data General
Deltic Timber
Deluxe
Dura Pharmaceuticals
Ecolab
Elf Aquitaine
Enron
Ford Motor
General Re
Goodyear Tire & Rubber
Halliburton
Hilton Hotels
IKON Office Solutions
Loews
Mellon Bank
Mercantile Stores
Merck & Co.
Mobil
Nordstrom
Norwest
Philips Electronics
PNC Bank
Potash
Reuters Group
Shared Medical Systems
Shohkoh Fund
Tektronix
Toronto-Dominion Bank
TOTAL
UNOVA
Waste Management Technologies
</TABLE>
<TABLE>
<S> <C> <C>
Fundamental Investors, Inc.
Financial Statements
Statement of Assets and Liabilities (dollars in thousands)
at December 31, 1998
- ---------------------------------------- ------------ ------------
Assets:
Investment securities at market
(cost: $9,914,198) $12,692,993
Cash 661
Receivables for-
Sales of investments $ 28,044
Sales of fund's shares 20,382
Dividends and interest 15,856 64,282
------------ ------------
12,757,936
Liabilities:
Payables for-
Purchases of investments 19,629
Repurchases of fund's shares 19,228
Management services 2,977
Other expenses 3,191 45,025
------------ ------------
Net Assets at December 31, 1998-
Equivalent to $28.92 per share on
439,574,020 shares of $1 par value
capital stock outstanding (authorized
capital stock-500,000,000 shares) $12,712,911
============
Statement of Operations
for the year ended December 31, 1998 (dollars in thousands)
------------ ------------
Investment Income:
Income:
Dividends $ 181,436
Interest 64,244 $ 245,680
------------
Expenses:
Management services fee 33,742
Distribution expenses 26,855
Transfer agent fee 8,550
Reports to shareholders 273
Registration statement and prospectus 1,219
Postage, stationery and supplies 2,367
Directors' fees 164
Auditing and legal fees 55
Custodian fee 444
Taxes other than federal income tax 1
Other expenses 94 73,764
------------ ------------
Net investment income 171,916
------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 1,319,973
Net increase in unrealized
appreciation on investments:
Beginning of year 2,486,223
End of year 2,778,798
Net gain and unrealized appreciation ------------
on investments 292,575
Net realized gain and unrealized ------------
appreciation on investments 1,612,548
Net Increase in Net Assets Resulting ------------
from Operations $1,784,464
============
Statement of Changes in Net Assets (dollars in thousands)
- ---------------------------------------- ------------- -------------
Year Ended December 31
1998 1997
Operations: ------------- -------------
Net investment income $ 171,916 $ 138,079
Net realized gain on investments 1,319,973 994,082
Net unrealized appreciation
on investments 292,575 905,436
------------- -------------
Net increase in net assets
resulting from operations 1,784,464 2,037,597
------------- -------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (159,781) (135,717)
Distributions from net realized
gain on investments (1,046,680) (1,056,767)
------------- -------------
Total dividends and distributions (1,206,461) (1,192,484)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
74,101,353 and 85,048,442
shares, respectively 2,164,869 2,340,020
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
39,927,149 and 41,671,055 shares,
respectively 1,142,562 1,123,929
Cost of shares repurchased:
56,364,713 and 36,786,737
shares, respectively (1,637,083) (1,009,875)
Net increase in net assets resulting ------------- -------------
from capital share transactions 1,670,348 2,454,074
------------- -------------
Total Increase in Net Assets 2,248,351 3,299,187
Net Assets:
Beginning of year 10,464,560 7,165,373
End of year (including undistributed ------------- -------------
net investment income: $21,310 and
$17,230, respectively) $12,712,911 $10,464,560
============= ============
See Notes to Financial Statements
</TABLE>
FUNDAMENTAL INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNT POLICIES
ORGANIZATION - 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.
SIGNIFICANT ACCOUNTING POLICIES - The following is a summary of the
significant accounting policies consistently followed by the fund in the
preparation of its financial statements:
SECURITY VALUATION - 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. 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.
NON-U.S. CURRENCY TRANSLATION - Assets or liabilities initially expressed in
terms of non-U.S. 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 non-U.S. currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - As is customary in the
mutual fund industry, securities transactions are accounted for on the date the
securities are purchased or sold. 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 TO SHAREHOLDERS - Dividends and distributions paid
to shareholders are recorded on the ex-dividend date.
2. FEDERAL INCOME TAXATION - 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, 1998, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $2,778,795,000, of which
$3,217,323,000 related to appreciated securities and $438,528,000 related to
depreciated securities. There was no difference between book and tax realized
gains on securities transactions for the year ended December 31, 1998. Net
gains related to non-U.S. currency transactions of $24,000 were treated as
ordinary income for federal income tax purposes. The cost of portfolio
securities for book and federal income tax purposes was $9,914,198,000 at
December 31, 1998.
3. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fee of $33,742,000 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.
The Board of Directors has approved a new Investment Advisory and Service
Agreement, effective September 1, 1998, under which the Investment Adviser
receives the lower of the current Agreement or the new Agreement which provides
for monthly fees, accrued daily, based on an annual rate of 0.39% of the first
$1 billion of the fund's average net assets; 0.336% of such assets in excess of
$1 billion but not exceeding $2 billion; 0.30% of such assets in excess of $2
billion but not exceeding $3 billion; 0.276% of such assets in excess of $3
billion but not exceeding $5 billion; 0.27% of such assets in excess of $5
billion but not exceeding $8 billion, 0.258% of such assets in excess of $8
billion but not exceeding $13 billion; and 0.252% of such assets exceeding $13
billion. The latter fee provides for lower fees when net assets exceed $8
billion. Beginning June 1, 1998, CRMC has voluntarily agreed to waive its
management fees in excess of those provided by the amended agreement. As a
result, the amount waived was $185,000.
DISTRIBUTION EXPENSES - 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 selling and servicing efforts. During the year ended
December 31, 1998, distribution expenses under the Plan were $26,855,000. As
of December 31, 1998, accrued and unpaid distribution expenses were $2,627,000.
American Funds Distributors, Inc. (AFD), the principal underwriter of the
fund's shares, received $7,753,000 (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.
TRANSFER AGENT FEES - American Funds Service Company (AFS), the transfer agent
for the fund, was paid a fee of $8,550,000.
DEFERRED DIRECTORS' FEES - 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, 1998, aggregate amounts deferred and earnings thereon
were $537,000.
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. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding
short-term securities, of $6,541,162,000 and $5,776,781,000, respectively,
during the year ended December 31, 1998.
As of December 31, 1998, accumulated undistributed net realized gain on
investments was $259,314,000 and additional
paid-in capital was $9,213,915,000. The fund reclassified $55,000 from
undistributed net realized gain to undistributed net investment income, and
$8,110,000 and $56,867,000 from undistributed net investment income and
undistributed net realized gain, respectively, to additional paid-in capital
for the year ended December 31, 1998.
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 $444,000 includes $52,000 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, 1998, such non-U.S. taxes were $4,497,000. Net realized
currency gains on dividends, interest, and withholding taxes reclaimable, on a
book basis, were $55,000 for the year ended December 31, 1998.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Per-Share Data and Ratios
Year ended December 31
1998 1997 1996 1995 1994 1993
Net Asset Value, Beginning of Year $27.40 $24.54 $22.29 $17.50 $18.15 $17.52
------------ ------------ ---------- ---------- --------- ---------
Income From Investment Operations:
Net investment income $.42 $.41 $.41 $.41 $.42 $.44
Net gains (losses) on securities (both
realized and unrealized) $4.09 $6.00 $4.00 $5.46 ($.18) $2.65
------------ ------------ ---------- ---------- --------- ---------
Total income from operations 4.51 6.41 4.41 5.87 .24 3.09
----------- ----------- --------- ----------- --------- ---------
Less Distributions:
Dividends (from net investment income) (.40) (.42) (.40) (.40) (.44) (.43)
Distributions (from capital gains) (2.59) (3.13) (1.76) (.68) (.45) (2.03)
----------- ----------- --------- ----------- --------- ---------
Total distributions (2.99) (3.55) (2.16) (1.08) (.89) (2.46)
----------- ----------- --------- ---------- --------- ---------
Net Asset Value, End of Year $28.92 $27.40 $24.54 $22.29 $17.50 $18.15
========== ========== ======== ======== ======= =======
Total Return (1) 16.72% 26.67% 19.99% 34.21% 1.33% 18.16%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $12,713 $10,465 $7,165 $4,754 $2,611 $1,979
Ratio of expenses to average net assets 0.63% 0.63% 0.66% 0.70% 0.68% 0.65%
Ratio of net income to average net assets 1.47% 1.54% 1.78% 2.08% 2.45% 2.43%
Portfolio turnover rate 52.57% 45.09% 39.07% 25.47% 23.02% 29.22%
(1) Excludes maximum sales charge of 5.75%.
</TABLE>
<PAGE>
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, Inc.("the Fund"), including
the investment portfolio, as of December 31, 1998, 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, 1998 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,Inc. at December 31, 1998, 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.
/s/Deloitte & Touche LLP
Los Angeles, California
January 29, 1999
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
To Payment Date From Net From Net Realized
Shareholders Investment Long-term Gains
of Record Income
<S> <C> <C> <C>
February 13, 1998 February 17, 1998 $0.10 $0.11
May 22, 1998 May 26, 1998 0.10 -
August 14, 1998 August 17, 1998 0.10 -
December 23, 1998 December 24, 1998 0.10 2.48
</TABLE>
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 90% of the dividends
paid by the fund from net investment income represent qualifying dividends.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 5% of the dividends paid
by the fund from net investment income were derived from interest on direct
Treasury obligations.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans and 403(b) plans need not be reported as taxable income.
However, many retirement plan trusts may need this information for their annual
information reporting.
The fund also designates as a capital gain distribution a portion of earnings
and profits paid to shareholders in redemption of their shares.
SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX INFORMATION WHICH
WAS MAILED IN JANUARY 1999 TO DETERMINE THE CALENDAR YEAR AMOUNTS TO BE
INCLUDED ON THEIR 1998 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX
ADVISERS.
