ANNUAL REPORT FOR THE YEAR ENDED OCTOBER 31, 1997
AMERICAN MUTUAL FUND
[THE AMERICAN FUNDS GROUP (R)]
[cover: field of daisies]
[Begin sidebar]
About our cover
Golden wildflowers dot the foothills of the Rocky Mountains in Wyoming's Grand
Teton National Park.
[End sidebar]
[Begin sidebar]
In the past, American Mutual Fund has provided quarterly reports to its
shareholders. With the same information readily available from your financial
adviser or on the American Funds Web site at www.americanfunds.com, the cost to
produce quarterly reports no longer seems justified. We will continue to
provide annual and semi-annual reports to all shareholders.
[End sidebar]
AMERICAN MUTUAL FUND (R)
Strives for the balanced accomplishment of three objectives - current
income, capital growth and conservation of principal - through investments in
companies that participate in the growth of the American economy.
American Mutual Fund is one of the 28 funds in the American Funds
Group,(R) managed by Capital Research and Management Company. Since 1931,
Capital has invested with a long-term focus based on thorough research and
attention to risk.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTION PAID IN CALENDAR 1997
For tax purposes, here are the income dividends and the capital gain
distribution you received in calendar 1997.
INCOME DIVIDENDS PER SHARE:
$0.20 paid 4/7/97
$0.20 paid 7/7/97
$0.20 paid 10/6/97
$0.20 paid 12/8/97
CAPITAL GAIN DISTRIBUTION PER SHARE:
$2.48* paid 12/8/97
*5.6 cents of the capital gain distribution represents net short-term gains
realized on the sale of portfolio securities. Short-term gains are taxable as
ordinary income.
A Form 1099-DIV, which provides the information you will need to prepare your
federal income tax return for 1997, will be mailed to you in late January.
FUND RESULTS IN THIS REPORT WERE COMPUTED WITHOUT A SALES CHARGE UNLESS
OTHERWISE INDICATED. THE FIGURES IN THIS REPORT REFLECT PAST RESULTS. SHARE
PRICE AND RETURN WILL VARY, SO YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE
SHORTER THE TIME PERIOD OF YOUR INVESTMENT, THE GREATER THE POSSIBILITY OF
LOSS. FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR GUARANTEED
BY, THE U.S. GOVERNMENT, ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, OR ANY OTHER AGENCY, ENTITY OR PERSON.
FELLOW INVESTORS:
Rising stock prices and low inflation created a favorable atmosphere for
financial assets during American Mutual Fund's 1997 fiscal year which ended
October 31.
During the course of the year, the value of an investment in the fund
increased significantly. Those who reinvested their distributions earned a
total return of 24.2% for the year. Shareholders received quarterly dividends
totaling 81 cents a share and a capital gain distribution of $1.61 a share in
December 1996. If you took your dividends in cash and reinvested your capital
gains, the value of your investment in the fund rose 20.7% and you received an
income return of 3.2% based on the fund's net asset value of $26.54 at the
beginning of the fiscal year. Over the same period, the unmanaged Standard &
Poor's 500 Composite Index rose 32.1% with dividends reinvested.
American Mutual Fund strives to achieve three goals simultaneously:
current income, growth of capital and preservation of principal. Here is a look
at American Mutual Fund's results in light of the fund's objectives.
CURRENT INCOME
American Mutual Fund seeks to provide current income primarily through
investments in stocks which pay attractive dividends. These investments are
augmented by longer term fixed-income securities and cash equivalents. At the
end of the year, equity-type securities made up 72.5% of the portfolio, cash
and equivalents were 21.5% of the fund's holdings and 6.0% of the portfolio was
held in bonds and notes.
The fund's 3.2% income return for the year was almost 50% higher than the
2.2% income return generated by the S&P 500.
[begin bar chart]
A LONG HISTORY OF RISING DIVIDENDS
<TABLE>
<CAPTION>
<S> <C> <C>
Year AMF's regular dividends AMF's special dividends
1973 376
1974 395 118
1975 417 64
1976 492
1977 513
1978 566
1979 609
1980 709
1981 796
1982 876 355
1983 952 173
1984 1,085
1985 1,167
1986 1,262
1987 1,400
1988 1,498 211
1989 1,621 326
1990 1,745 299
1991 1,839 269
1992 1,889
1993 1,904
1994 1,979
1995 2,020
1996 2,167
1997 2,210
</TABLE>
Year ended October 31
Dividend income on a $10,000 investment assuming the dividends were taken in
cash and capital gains reinvested
[end bar chart]
As you can see from the chart on the previous page, American Mutual Fund
has a long history of providing rising dividends. If you had invested $10,000
in American Mutual Fund 25 years ago, a period which spans just over half the
fund's lifetime, and taken your income dividends in cash each year, you would
have received a total of $32,352. Shareholders who reinvested their dividends
and benefited from compounding would have received $75,405. A similar
investment in the S&P would have produced $19,150 in dividends over the same
period for investors taking dividends in cash. The table on pages 4 and 5 shows
results for the fund's lifetime.
GROWTH OF CAPITAL
American Mutual Fund's fiscal year corresponded with another strong period
in the U.S. equity market. Toward the end of the year, however, the S&P 500
experienced an 11% decline, the first correction of more than 10% since 1990.
In the last few days of the fiscal year, the market again turned upward but has
remained volatile ever since.
The nation's economic expansion is now in its seventh year and shows
little sign of ending. Unemployment remains low and inflation is hovering near
its lowest point in more than three decades. It is unusual for an economic
expansion to be this robust after so many years of solid growth. Despite the
duration of the current expansion, the economic outlook remains quite
favorable.
Two industries in the portfolio - banks and health & personal care -
experienced strong price appreciation during the year. Several of the fund's
holdings in these industries were among the best-performing stocks in the
portfolio. Rising prices of these holdings boosted the fund's value and helped
shareholders' capital grow.
Capital Research and Management Company, the investment adviser to
American Mutual Fund, relies on thorough research to find good investments. A
more detailed discussion of the fund's multifaceted approach to investing
begins on page 6.
CONSERVATION OF PRINCIPAL
The strength of the U.S. economy and continued low inflation would argue
for continued health in the stock market. As we saw in October, however, the
market can react sharply to events not directly related to the current economic
landscape. Few investors were concerned about the value of the Thai baht before
the currency's collapse spread concern across Asian markets and eventually to
Europe, Latin America and the United States. Similarly, the 1990 Iraqi invasion
of Kuwait, which sent the stock market down 20%, caught almost all investors by
surprise.
The possibility of such an unforeseen "bump in the night" is a constant
consideration as we seek to meet American Mutual Fund's goal of conservation of
principal. Our holdings of cash and equivalents play a key role in our efforts
to conserve principal, especially as markets have become more highly valued. A
sizable holding in cash, which is maintained in short-term interest-bearing
securities, serves two purposes. It gives the fund the liquidity needed when
portfolio counselors find attractive opportunities. More importantly, because
cash does not lose value in a stock market downturn and produces income, it
cushions any fall in equity prices. This also means the fund has less ground to
make up when prices turn up again.
When the market lost ground between the 7th and 27th of October, American
Mutual Fund's cash position and its conservative equity selection helped
cushion the downward movement. While the S&P lost 11% in the slump, American
Mutual Fund's net asset value declined only 6%.
During the last several years, the focus in the market has been on stocks'
long upward movement. But, over the long term, conserving gains can be just as
important as price appreciation. Cushioning the downturns is a key element of
both conservation of principal and maintaining capital growth.
We do not know, of course, if another shock will send the market down
again or if equities will continue to show the strength they have for seven
years. Experience has taught us, however, that a prudent approach to investing
is the best way to seek long-term positive returns while striving to meet
American Mutual Fund's three goals of current income, growth of capital and
preservation of principal.
Cordially,
/s/ James K. Dunton /s/ Robert G. O'Donnell
James K. Dunton Robert G. O'Donnell
Chairman of the Board President
December 16, 1997
AMERICAN MUTUAL FUND
A LOOK AT THE FUND'S RECORD
AVERAGE ANNUAL COMPOUND RETURNS
BASED ON THE MAXIMUM OFFERING PRICE+
For periods ended
9/30/97 10/31/97
TEN YEARS +12.28% +13.61%
FIVE YEARS +15.58% +15.29%
ONE YEAR +21.92% +17.05%
+Assumes reinvestment of all distributions and payment of 5.75% sales charge at
the beginning of the stated periods.
The fund's 30-day yield as of November 30, 1997, calculated in accordance
with the Securities and Exchange Commission formula, was 2.58%. Sales charges
are lower for accounts of $50,000 or more.
RESULTS OF A $10,000 INVESTMENT IN AMERICAN MUTUAL FUND
For more than 47 years, American Mutual Fund has been providing investors
with an opportunity to achieve their financial goals. A meaningful way to
compare the fund's results with the return on other investments is through its
"total return."
Total return is a combination of income return and capital results. This
chart illustrates an assumed $10,000 investment in American Mutual Fund from
February 21, 1950 - when the fund began operations - through October 31, 1997.
The table beneath the chart shows the fund's total return in each of the 47
fiscal years, broken down into its income and capital components.
As you can see, during this period a $10,000 investment in the fund, with
all dividends reinvested, would have grown to $3,652,199 compared with
$3,445,020 in the S&P 500 Index. Incidentally, over the same period, $10,000 in
a savings account, with all interest compounded, would have grown to
$101,334.(4)
You can use this table to estimate how the value of your own holdings has
grown over the years. Let's say, for example, that you have been reinvesting
all your dividends and want to know how your investment has done since the end
of 1987. At the time, the table indicates the value of the investment
illustrated here was $960,888. Since then, it has more than tripled to
$3,652,199. Thus, in the same period, the value of your 1987 investment -
regardless of its size - also has more than tripled.
$3,652,199 (1,2)
American Mutual Fund with dividends reinvested
$3,445,020
S&P 500 with dividends reinvested
$536,220 (1,3)
American Mutual Fund with dividends excluded
$101,334 (4)
Average savings institution with interest compounded
$10,000 (1)
original investment
Year-by-year summary of results
[begin chart]
Year ended October 31
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year-by-year summary of results
1950# 1951 1952 1953 1954
Dividends reinvested/5/ $247 523 513 550 579
Value at year-end/1/ $10,018 12,234 13,164 14,076 19,261
Dividends in cash/6/ $244 502 470 486 491
Value at year-end/1/ $9,769 11,414 11,803 12,131 16,066
Annual percentage returns assuming reinvestment of dividends
Income return/1/ 2.5% 5.2 4.2 4.2 4.1
Capital results/1/ (2.3)% 16.9 3.4 2.7 32.7
AMF Total Return 0.2% 22.1 7.6 6.9 36.8
Fund expenses/7/ 0.56% 0.76 0.75 0.74 0.76
Year-by-year summary of results
1955 1956 1957 1958 1959
Dividends reinvested/5/ 647 789 911 1,010 1,050
Value at year-end/1/ 25,050 29,651 28,050 36,140 41,489
Dividends in cash/6/ 536 635 711 766 772
Value at year-end/1/ 20,345 23,439 21,514 26,851 30,049
Annual percentage returns assuming reinvestment of dividends
Income return/1/ 3.4 3.1 3.1 3.6 2.9
Capital results/1/ 26.7 15.3 (8.5) 25.2 11.9
AMF Total Return 30.1 18.4 (5.4) 28.8 14.8
Fund expenses/7/ 0.80 0.79 0.81 0.76 0.71
Year-by-year summary of results
1960 1961 1962 1963 1964
Dividends reinvested/5/ 1,210 1,257 1,372 1,523 1,697
Value at year-end/1/ 40,865 54,348 46,572 61,289 71,355
Dividends in cash/6/ 866 876 933 1,006 1,093
Value at year-end/1/ 28,735 37,279 31,071 39,814 45,198
Annual percentage returns assuming reinvestment of dividends
Income return/1/ 2.9 3.1 2.5 3.3 2.8
Capital results/1/ (4.4) 29.9 (16.8) 28.3 13.6
AMF Total Return (1.5) 33.0 (14.3) 31.6 16.4
Fund expenses/7/ 0.72 0.68 0.67 0.65 0.64
Year-by-year summary of results
1965 1966 1967 1968 1969
Dividends reinvested/5/ 1,845 2,271 2,568 3,154 3,762
Value at year-end/1/ 79,919 77,646 92,836 109,586 103,216
Dividends in cash/6/ 1,156 1,389 1,527 1,820 2,103
Value at year-end/1/ 49,395 46,659 54,246 62,044 56,365
Annual percentage returns assuming reinvestment of dividends
Income return/1/ 2.6 2.8 3.3 3.4 3.4
Capital results/1/ 9.4 (5.6) 16.3 14.6 (9.2)
AMF Total Return 12.0 (2.8) 19.6 18.0 (5.8)
Fund expenses/7/ 0.62 0.61 0.59 0.58 0.58
Year-by-year summary of results
1970 1971 1972 1973 1974
Dividends reinvested/5/ 4,168 4,424 4,711 5,069 7,273
Value at year-end/1/ 93,358 112,999 125,226 124,799 105,122
Dividends in cash/6/ 2,239 2,276 2,332 2,412 3,297
Value at year-end/1/ 48,718 56,737 60,504 57,864 45,562
Annual percentage returns assuming reinvestment of dividends
Income return/1/ 4.0 4.7 4.2 4.0 5.8
Capital results/1/ (13.6) 16.3 6.6 (4.3) (21.6)
AMF Total Return (9.6) 21.0 10.8 (0.3) (15.8)
Fund expenses/7/ 0.66 0.63 0.61 0.60 0.62
Year-by-year summary of results
1975 1976 1977 1978 1979
Dividends reinvested/5/ 7,300 7,881 8,604 9,989 11,322
Value at year-end/1/ 132,196 167,379 176,434 198,947 232,805
Dividends in cash/6/ 3,092 3,161 3,286 3,629 3,911
Value at year-end/1/ 54,015 65,101 65,383 70,007 77,947
Annual percentage returns assuming reinvestment of dividends
Income return/1/ 6.9 6.0 5.1 5.7 5.7
Capital results/1/ 18.9 20.6 0.3 7.1 11.3
AMF Total Return 25.8 26.6 5.4 12.8 17.0
Fund expenses/7/ 0.62 0.58 0.60 0.60 0.58
Year-by-year summary of results
1980 1981 1982 1983 1984
Dividends reinvested/5/ 13,854 16,351 26,841 26,227 26,606
Value at year-end/1/ 303,584 334,116 426,438 544,916 577,160
Dividends in cash/6/ 4,548 5,109 7,906 7,215 6,956
Value at year-end/1/ 96,658 101,227 119,685 145,126 146,272
Annual percentage returns assuming reinvestment of dividends
Income return/1/ 6.0 5.4 8.0 6.2 4.9
Capital results/1/ 24.4 4.7 19.6 21.6 1.0
AMF Total Return 30.4 10.1 27.6 27.8 5.9
Fund expenses/7/ 0.56 0.53 0.53 0.49 0.49r
Year-by-year summary of results
1985 1986 1987 1988 1989
Dividends reinvested/5/ 30,124 34,058 39,285 50,009 59,908
Value at year-end/1/ 701,835 913,070 960,888 1,081,200 1,299,786
Dividends in cash/6/ 7,498 8,110 8,992 10,970 12,494
Value at year-end/1/ 169,750 212,102 214,839 230,001 262,717
Annual percentage returns assuming reinvestment of dividends
Income return/1/ 5.2 4.9 4.3 5.2 5.5
Capital results/1/ 16.4 25.2 0.9 7.3 14.7
AMF Total Return 21.6 30.1 5.2 12.5 20.2
Fund expenses/7/ 0.46 0.45 0.47 0.54 0.59
Year-by-year summary of results
1990 1991 1992 1993 1994
Dividends reinvested/5/ 66,101 71,767 67,509 70,887 76,471
Value at year-end/1/ 1,239,345 1,544,411 1,690,015 2,004,861 2,039,871
Dividends in cash/6/ 13,119 13,529 12,132 12,229 12,699
Value at year-end/1/ 238,224 282,076 295,907 337,865 330,609
Annual percentage returns assuming reinvestment of dividends
Income return/1/ 5.1 5.8 4.4 4.2 3.8
Capital results/1/ (9.8) 18.8 5.0 14.4 (2.1)
AMF Total Return (4.7) 24.6 9.4 18.6 1.7
Fund expenses/7/ 0.60 0.63 0.60 0.59 0.60
Year-by-year summary of results
1995 1996 1997
Dividends reinvested/5/ 83,156 90,173 95,004
Value at year-end/1/ 2,473,442 2,940,738 3,652,199
Dividends in cash/6/ 13,279 13,900 14.189
Value at year-end/1/ 386,119 444,245 536,220
Annual percentage returns assuming reinvestment of dividends
Income return/1/ 4.1 3.6 3.2
Capital results/1/ 17.2 15.3 21.0
AMF Total Return 21.3 18.9 24.2
Fund expenses/7/ 0.59 0.59 0.58
</TABLE>
<TABLE>
<CAPTION>
Year Date S&P 500 with
dividends reinvested
<S> <C> <C>
1950 2/21/50 $10,000
3/9 10,057
10/24 12,280
10/31 11,944
1951 12/4/50 13,023
10/15 15,665
10/31 15,067
1952 11/24/51 14,647
8/8 17,615
10/31 17,114
1953 1/5 18,912
9/14 16,777
10/31 18,129
1954 11/17/53 17,915
10/6 25,535
10/31 24,693
1955 11/1/54 24,779
9/23 37,128
10/31 34,451
1956 11/1/55 34,402
8/2 41,753
10/31 38,599
1957 7/15 42,818
10/22 34,310
10/31 36,141
1958 12/18/57 35,053
10/13 47,267
10/31 47,002
1959 11/25/58 46,718
8/3 56,947
10/31 54,380
1960 1/5 57,593
10/25 51,165
10/31 52,231
1961 11/1/60 52,769
10/31 69,247
1962 12/12/61 73,889
6/26 54,050
10/31 58,892
1963 11/1/62 59,517
10/28 80,198
10/31 79,691
1964 11/22/63 74,954
10/12 94,690
10/31 94,268
1965 6/28 92,788
10/27 105,954
10/31 105,851
1966 2/9 108,682
10/7 86,681
10/31 94,970
1967 11/22/66 94,343
9/25 119,489
10/31 114,971
1968 3/5 109,204
10/21 132,696
10/31 130,699
1969 11/29/68 136,968
7/29 115,719
10/31 126,769
1970 11/10/69 128,190
5/26 91,934
10/31 112,664
1971 11/18/70 112,042
4/26 144,182
10/31 131,708
1972 11/23/71 126,019
8/14 160,857
10/31 160,590
1973 1/11 174,300
8/22 147,894
10/31 160,578
1974 11/1/73 169,688
10/3 96,242
10/31 114,198
1975 12/6/74 101,839
7/15 152,971
10/31 143,968
1976 12/5/75 141,809
9/21 181,270
10/31 172,982
1977 12/31/76 182,647
10/25 180,080
10/31 162,437
1978 3/6 157,064
9/12 198,309
10/31 172,656
1979 11/14/78 171,433
10/5 217,880
10/31 199,376
1980 3/27 197,531
10/15 276,132
10/31 263,265
1981 11/28/80 290,218
9/25 244,683
10/31 264,471
1982 8/12 232,118
10/20 320,110
10/31 307,419
1983 11/23/82 305,625
10/10 415,443
10/31 393,546
1984 7/24 368,301
9/17 425,444
10/31 418,440
1985 12/13/84 412,517
7/17 509,420
10/31 499,376
1986 11/4/85 503,138
9/4 691,897
10/31 665,048
1987 11/18/86 645,422
8/25 939,701
10/31 707,329
1988 12/4 635,073
10/21 826,829
10/31 813,159
1989 11/16/88 768,999
10/9 1,085,626
10/31 1,026,969
1990 7/16 1,141,862
10/11 922,922
10/31 949,598
1991 11/7/90 955,877
8/28 1,270,958
10/31 1,267,518
1992 11/29/91 1,211,838
9/14 1,416,113
10/31 1,394,168
1993 11/4/92 1,388,940
10/15 1,607,635
10/31 1,601,916
1994 2/2 1,661,480
4/4 1,523,151
10/31 1,662,831
1995 12/8 1,579,678
10/19 2,135,464
10/31 2,102,453
1996 11/1 2,112,288
10/18 2,628,308
10/31 2,607,787
1997 11/1 2,602,240
10/7 3,703,033
10/31 3,445,020
</TABLE>
AVERAGE ANNUAL COMPOUND RETURN FOR AMF'S LIFETIME
4.22%
8.95
_____
13.17%(1)
Past results are not predictive of future results.
The S&P 500 Index is unmanaged and does not reflect sales charges, commissions
or expenses.
#Fund commenced operations February 21, 1950.
(1)These figures, unlike those shown earlier in this report, reflect payment of
5.75% sales charge on the $10,000 investment. Thus, the net amount invested was
$9,425. The maximum sales charge was 8.5% prior to July 1, 1988. There is no
sales charge on dividends reinvested or capital gain distributions taken in
shares. Results shown do not take into account income or capital gain taxes.
(2)Includes reinvested capital gain distributions totaling $1,048,486 in the
years 1950-1997 and reinvested dividends. The total "cost" of this investment
($10,000 plus $1,042,550 in reinvested dividends) was $1,052,550.
(3)Includes reinvested capital gain distributions taken in shares totaling
$235,946 but does not reflect income dividends taken in cash.
(4)Reflects all kinds of savings deposits, including longer term certificates.
Unlike investments in the fund, such deposits are insured and, if held to
maturity, offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth. Maximum allowable interest rates were
imposed by law until 1983. Results based on figures supplied by the U.S. League
of Savings Institutions and the Federal Reserve Board.
(5)Includes special dividends of $1,691 in 1974, $989 in 1975, $7,524 in 1982,
$3,967 in 1983, $6,064 in 1988, $9,850 in 1989, $9,497 in 1990 and $8,996 in
1991.
(6)Includes special dividends of $756 in 1974, $412 in 1975, $2,280 in 1982,
$1,113 in 1983, $1,356 in 1988, $2,095 in 1989, $1,920 in 1990 and $1,729 in
1991.
(7)Fund expense percentages are provided as additional information. They should
not be subtracted from any other figure in the table because the income return
figures already reflect their effect.
A MULTIFACETED APPROACH TO INVESTING
Most people invest in the stock market with the goal of watching their
money grow over time. Historically, the stock market has met that goal,
outpacing inflation and the growth rate of other financial assets along the
way. But throughout the decades, the stock market's journey has been one of
stops and starts. Even the last 15 years, a strong period for equities, has
seen its share of corrections and recoveries.
[graphic: daisies representing growth, income, conservation of principal along
timeline]
AMF'S BALANCE
GROWTH INCOME CONSERVATION
OF PRINCIPAL
Since its inception almost 50 years ago, American Mutual Fund has sought
three objectives: current income, growth of capital and conservation of
principal. To reach its goal of capital growth, the fund invests the majority
of its portfolio in stocks. It generates current income by investing in stocks
with a history of paying steady dividends, as well as in fixed-income
securities. To help preserve principal, the fund expands its cash position when
stock prices appear high. Its mix of stocks, bonds and cash gives the fund
balance and stability while helping minimize the impact of market declines.
SEARCHING FOR VALUE - AND A SMOOTHER RIDE
AMF's investment philosophy is rooted in the values of its investment
adviser, Capital Research and Management Company (CRMC): Invest with a
long-term focus based on thorough research and attention to risk.
CRMC's long history of using intensive research to find value began with the
company's founding in 1931, 19 years before AMF's inception. Evaluating a
company's financial statement is only the starting point. Analysts study the
industries and competitive and economic environments in which each company
operates.
CRMC's analysts visit the firms, talk with corporate executives, observe
production methods - and then talk with the companies' competitors, suppliers
and customers. They meet with economists, government officials, consultants and
industry specialists to round out their views and gain additional insights.
They go to great lengths to determine the difference between a stock's
fundamental value and its current price.
[Begin pull quote]
SINCE ITS INCEPTION ALMOST 50 YEARS AGO, AMERICAN MUTUAL FUND HAS SOUGHT THREE
OBJECTIVES: CURRENT INCOME, GROWTH OF CAPITAL AND CONSERVATION OF PRINCIPAL.
[End pull quote]
For AMF, CRMC's analysts confine their research to a select group of
large, established firms with long histories of rising earnings and dividends.
Dividends are important because they can help cushion the fund during market
downturns by offsetting some stock price declines. Dividends also play an
important role in meeting the fund's goal of providing current income.
HOW AMF NARROWS ITS FOCUS
2,709 DIVIDEND-PAYING U.S. STOCKS*
316 STOCKS ON AMF'S ELIGIBLE LIST
131 STOCKS IN AMF'S PORTFOLIO
*Standard and Poor's Annual Dividend Record 1996
[graphic: 2,709, 316 and 131 in graduated size]
Telecommunications and utility stocks are good examples of investments
made with dividends in mind. Historically, these stocks have produced a steady
stream of high dividends, giving them a central role in reaching AMF's goals of
providing current income and protection of principal.
AMF's portfolio counselors may also invest a portion of the fund's
holdings in bonds and cash - a significant 27.5% at the close of the fiscal
year. The income return helps the fund provide current income while its cash
holdings also offset potential declines in equity prices by maintaining a
stable value.
INVESTING IN WELL-KNOWN COMPANIES
Many of AMF's stock investments are in well-known companies whose products
play a role in the lives of millions of Americans. Page through AMF's portfolio
listings beginning on page 11 and you'll see automakers Chrysler and Ford,
pharmaceutical manufacturers Johnson & Johnson and Merck, merchandisers J.C.
Penney and Wal-Mart, and such corporate giants as IBM and AT&T. The familiarity
of these names attests to the fund's philosophy of buying well-known,
fundamentally sound companies that have been tested in the marketplace.
AMF'S HOLDINGS BY MARKET CAPITALIZATION
Small Medium Large Giant
Market $250 million- $1 billion- $5 billion- $25 billion+
Capitali
- -zation $1 billion $5 billion $25 billion
% of AMF's
equity
portfolio 0.2% 12.1% 47.4% 40.3%
[graphic: daisies, representing small, medium, large and giant market
capitalization, in graduated size]
A significant contribution of the fund's growth component is the potential
to keep shareholders' returns well ahead of inflation. By investing in equities
- - taking an ownership interest in corporations - AMF has an opportunity to do
well when the companies in its portfolio do well. Over its lifetime, AMF's
returns, bolstered by the growth of equities, have easily outpaced inflation as
measured by the Consumer Price Index.
The chart at left below shows the dramatic impact inflation can have on
the value of your money over a period of only 30 years: What you bought for $1
in October 1967 now costs you $4.80. But over those 30 years, a $1 investment
in AMF grew to $36.11.
Inflation has pushed prices higher...
[begin line chart]
<TABLE>
<CAPTION>
<S> <C>
Date CPI
10/31/67 $1.00
10/31/68 1.05
10/31/69 1.11
10/31/70 1.17
10/31/71 1.21
10/31/72 1.26
10/31/73 1.35
10/31/74 1.52
10/31/75 1.63
10/31/76 1.72
10/31/77 1.83
10/31/78 1.99
10/31/79 2.23
10/31/80 2.52
10/31/81 2.77
10/31/82 2.91
10/31/83 3.00
10/31/84 3.12
10/31/85 3.23
10/31/86 3.27
10/31/87 3.42
10/31/88 3.57
10/31/89 3.73
10/31/90 3.96
10/31/91 4.08
10/31/92 4.21
10/31/93 4.32
10/31/94 4.44
10/31/95 4.56
10/31/96 4.70
10/31/97 4.80
</TABLE>
[end line chart]
but AMF has preserved your purchasing power*
[begin line chart]
<TABLE>
<CAPTION>
<S> <C>
Date AMF at Offer
10/31/67 $0.94
10/31/68 1.12
10/31/69 1.06
10/31/70 1.15
10/31/71 1.15
10/31/72 1.26
10/31/73 1.23
10/31/74 1.02
10/31/75 1.30
10/31/76 1.65
10/31/77 1.74
10/31/78 1.95
10/31/79 2.29
10/31/80 2.97
10/31/81 3.27
10/31/82 4.19
10/31/83 5.37
10/31/84 5.68
10/31/85 6.91
10/31/86 9.01
10/31/87 9.48
10/31/88 10.67
10/31/89 12.83
10/31/90 12.21
10/31/91 15.25
10/31/92 16.69
10/31/93 19.80
10/31/94 20.13
10/31/95 24.44
10/31/96 29.06
10/31/97 36.11
</TABLE>
[end line chart]
*Growth of $1 invested in AMF on October 31, 1967 at maximum offering price,
with distributions reinvested.
SEEKING CONTINUITY THROUGH A MULTIPLE-MANAGER APPROACH
Continuity of management and a consistent investment style have been
important elements in AMF's long-term results. Both continuity and consistency
are products of CRMC's unique approach to investment management, known as the
multiple portfolio counselor system. Under this system, AMF's portfolio is
divided among five portfolio counselors who manage their portions of the assets
independently. A final portion is managed by financial analysts who are
industry specialists.
[Begin pull quote]
MANY OF AMF'S STOCK INVESTMENTS ARE IN WELL-KNOWN COMPANIES WHOSE PRODUCTS PLAY
A ROLE IN THE LIVES OF MILLIONS OF AMERICANS.
[End pull quote]
The multiple portfolio counselor system allows portfolio counselors to
concentrate on their "highest conviction" ideas, and the fund benefits from the
sum of the good ideas. With five portfolio counselors and a group of analysts
making investment decisions, no one person's investment decisions can dominate
the fund's portfolio strategy. Over the years, this has led to a more stable
and consistent investment approach.
The system also helps CRMC nurture talent on the inside. Research analysts
often spend years researching a few industries. That seasoning and long tenure
gives the fund a consistency of focus that has served shareholders well.
Giving portfolio counselors the flexibility and freedom to act on their
best ideas within the fund's guidelines has helped maintain continuity among
the fund's investment professionals, an important element in maintaining the
consistency of AMF's investment philosophy and results. The chart below shows
the tenure of AMF's five portfolio counselors. They have been with the fund an
average of almost 24 years.
Value-driven research, a drive for consistency and continuity of
management have helped to make AMF a fund investors have chosen in seeking to
meet their long-term goals. It's a fund investors have chosen when they wanted
their money to grow...steadily.
AMF'S MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Years of experience as an investment professional with AMF
[Photos: Jon B. Lovelace, James K. Dunton, Robert G. O'Donnell, R. Michael
Shanahan, Timothy D. Armour]
Jon B. Lovelace 38
James K. Dunton 28
Robert G. O'Donnell 22
R. Michael Shanahan 19
Timothy D. Armour 12
<TABLE>
<S> <C>
AMERICAN MUTUAL FUND Investment Portfolio
October 31, 1997
Percent of
Largest Industry Holdings* Net Assets
- ---------------------------- ----------------------------
Banking 12.38%
Energy Sources 8.53
Telecommunications 7.81
Health & Personal Care 6.41
Chemicals 4.16
Other Industries 33.24
Bonds, Notes, Cash & Equivalents 27.47
*Percentages above do not include certain
stocks in initial period of acquisition.
- ---------------------------- ----------------------------
Percent of
Largest Individual Holdings Net Assets
- ---------------------------- ----------------------------
AT&T 2.42%
Ameritech 2.32
DuPont 2.14
Amoco 1.79
SBC Communications 1.49
Schering-Plough 1.48
Dow Chemical 1.39
American Home Products 1.27
Atlantic Richfield 1.15
Wal-Mart Stores 1.13
</TABLE>
<TABLE>
<S> <C> <C> <C>
Market Percent
Value of Net
COMMON STOCKS Shares (Millions) Assets
----------- ----------------------
Energy
Energy Sources- 8.53%
Amoco Corp. 1,825,000 $167.330 1.79%
Ashland Inc. 1,474,200 70.301 .75
Atlantic Richfield Co. 1,310,000 107.829 1.15
Chevron Corp. 350,000 29.028 .31
Exxon Corp. 350,000 21.503 .23
Kerr-McGee Corp. 1,000,000 67.563 .72
Pennzoil Co. 638,600 47.256 .50
Phillips Petroleum Co. 2,000,000 96.750 1.03
Royal Dutch Petroleum Co.
(New York Registered Shares) 2,000,000 105.250 1.12
Texaco Inc. 700,000 39.856 .43
Ultramar Diamond Shamrock Corp. 1,500,000 46.312 .50
Utilities: Electric & Gas- 3.30%
American Electric Power Co., Inc. 200,000 9.450 .10
Carolina Power & Light Co. 200,000 7.150 .08
Central and South West Corp. 3,462,800 74.667 .80
Consolidated Edison Co. of New York, Inc. 1,900,000 65.075 .69
Dominion Resources, Inc. 150,000 5.578 .06
Duke Energy Corp. (formerly Duke Power Co.) 800,000 38.600 .41
FPL Group, Inc. 900,000 46.519 .50
Houston Industries Inc. 750,000 16.313 .17
Southern Co. 1,508,600 34.604 .37
Union Electric Co. 300,000 11.306 .12
----------- ------
1,108.240 11.83
----------- ------
Materials
Chemicals- 4.16%
Air Products and Chemicals, Inc. 200,000 15.200 .16
Dow Chemical Co. 1,429,100 129.691 1.39
E.I. du Pont de Nemours and Co. 3,525,000 200.484 2.14
Mallinckrodt Inc. 155,800 5.843 .06
Monsanto Co. 900,000 38.475 .41
Forest Products & Paper- 2.23%
Fort James Corp. 300,000 11.906 .13
Georgia-Pacific Corp. 450,000 38.166 .41
International Paper Co. 1,000,000 45.000 .48
Rayonier Inc. 50,000 2.184 .02
Union Camp Corp. 900,000 48.769 .52
Westvaco Corp. 900,000 29.531 .32
Weyerhaeuser Co. 700,000 33.425 .35
Metals: Nonferrous- 0.43%
Aluminum Co. of America 550,000 40.150 .43
Metals: Steel- 0.20%
Worthington Industries, Inc. 900,000 18.619 .20
----------- ------
657.443 7.02
----------- ------
Capital Equipment
Aerospace & Military Technology- 1.39%
Boeing Co. 200,000 9.575 .10
General Motors Corp., Class H 250,000 15.813 .17
Raytheon Co. 925,000 50.181 .54
Sundstrand Corp. 640,000 34.800 .37
United Technologies Corp. 276,900 19.383 .21
Construction & Housing- 0.15%
Stone & Webster, Inc. 300,000 13.912 .15
Data Processing & Reproduction- 1.68%
International Business Machines Corp. 1,000,000 98.063 1.05
Xerox Corp. 750,000 59.484 .63
Electrical & Electronic- 1.01%
Emerson Electric Co. 577,700 30.293 .32
Hubbell Inc., Class B 720,000 31.725 .34
Lucent Technologies Inc. 400,000 32.975 .35
Electronic Components- 0.26%
Motorola, Inc. 400,000 24.700 .26
Industrial Components- 2.01%
Dana Corp. 700,000 32.769 .35
Federal-Mogul Corp. 350,000 14.809 .16
Genuine Parts Co. 525,000 16.439 .18
Goodyear Tire & Rubber Co. 700,000 43.838 .47
TRW Inc. 1,400,000 80.150 .85
Machinery & Engineering- 2.17%
Briggs & Stratton Corp. 629,100 31.298 .33
Caterpillar Inc. 1,750,000 89.687 .95
Deere & Co. 1,564,200 82.316 .89
----------- ------
812.210 8.67
----------- ------
Consumer Goods
Appliances & Household Durables- 0.08%
Corning Inc. 164,400 7.418 .08
Automobiles- 1.39%
Chrysler Corp. 1,450,000 51.112 .55
Ford Motor Co., Class A 1,800,000 78.638 .84
Beverages- 0.39%
PepsiCo, Inc. 1,000,000 36.812 .39
Food & Household Products- 1.32%
Colgate-Palmolive Co. 200,000 12.950 .14
ConAgra, Inc. 400,000 12.050 .13
CPC International Inc. 185,000 18.315 .20
General Mills, Inc. 750,000 49.500 .53
Kellogg Co. 400,000 17.225 .18
Procter & Gamble Co. 200,000 13.600 .14
Health & Personal Care- 6.41%
American Home Products Corp. 1,600,000 118.600 1.27
Avon Products, Inc. 300,000 19.650 .21
Bristol-Myers Squibb Co. 400,000 35.100 .37
Johnson & Johnson 500,000 28.688 .31
Kimberly-Clark Corp. 400,000 20.775 .22
Eli Lilly and Co. 800,000 53.500 .57
Merck & Co., Inc. 900,000 80.325 .86
Pharmacia & Upjohn, Inc. 647,500 20.558 .22
Schering-Plough Corp. 2,470,000 138.474 1.48
Warner-Lambert Co. 591,300 84.667 .90
Textiles & Apparel- 0.48%
VF Corp. 500,000 44.688 .48
----------- ------
942.645 10.07
----------- ------
Services
Broadcasting & Publishing- 0.77%
Gannett Co., Inc. 600,000 31.538 .34
Reader's Digest Assn., Inc., Class A 1,789,500 40.711 .43
Business & Public Services- 2.00%
Browning-Ferris Industries, Inc. 2,498,100 81.188 .87
Cognizant Corp. 400,000 15.675 .17
Dun & Bradstreet Corp. 20,000 .571 .01
Electronic Data Systems Corp. 1,160,000 44.877 .48
Moore Corp. Ltd. 1,695,500 27.446 .29
Waste Management, Inc. 729,781 17.059 .18
Leisure & Tourism- 0.54%
Marriott International, Inc. 500,000 34.875 .37
McDonald's Corp. 350,000 15.684 .17
Merchandising- 2.74%
Albertson's, Inc. 1,500,000 55.313 .59
J.C. Penney Co., Inc. 1,629,100 95.608 1.02
Wal-Mart Stores, Inc. 3,000,000 105.375 1.13
Telecommunications- 7.81%
Ameritech Corp. 3,336,400 216.866 2.32
AT&T Corp. 4,625,000 226.336 2.42
Bell Atlantic Corp. 200,000 15.975 .17
GTE Corp. 304,100 12.905 .14
SBC Communications Inc. 2,197,175 139.795 1.49
Sprint Corp. 950,500 49.426 .53
U S WEST Communications Group 1,750,000 69.672 .74
Transportation: Rail & Road- 1.93%
Norfolk Southern Corp. 2,865,000 92.038 .99
Union Pacific Corp. 1,450,000 88.813 .94
----------- ------
1,477.746 15.79
----------- ------
Finance
Banking- 12.38%
AmSouth Bancorporation 1,500,000 72.094 .77
Banc One Corp. 1,440,000 75.060 .80
BankAmerica Corp. 300,000 21.450 .23
Bankers Trust New York Corp. 400,000 47.200 .50
Chase Manhattan Corp. 700,000 80.762 .86
Comerica Inc. 1,200,000 94.875 1.01
CoreStates Financial Corp 350,000 25.463 .27
Crestar Financial Corp. 800,000 37.850 .40
First Chicago NBD Corp. 900,000 65.475 .70
First Security Corp. 2,137,500 61.987 .66
First Union Corp. 600,000 29.437 .31
Firstar Corp. 2,000,000 72.250 .77
Fleet Financial Group, Inc. 1,450,000 93.253 1.00
Huntington Bancshares Inc. 1,270,500 41.053 .44
KeyCorp 900,000 55.069 .59
J.P. Morgan & Co. Inc. 450,000 49.388 .53
PNC Bank Corp. 1,400,000 66.500 .71
U.S. Bancorp 400,000 40.675 .43
Wachovia Corp. 1,100,000 82.844 .88
Wells Fargo & Co. 160,000 46.620 .52
Financial Services- 1.34%
Beneficial Corp. 268,400 20.583 .22
Fannie Mae (formerly Federal National Mortgage Assn.) 1,180,000 57.156 .61
Household International, Inc. 419,100 47.463 .51
Insurance- 3.02%
Allstate Corp. 800,000 66.350 .71
American General Corp. 1,010,000 51.510 .55
Lincoln National Corp. 600,000 41.250 .44
Marsh & McLennan Companies, Inc. 500,000 35.500 .38
SAFECO Corp. 800,000 38.100 .41
St. Paul Companies, Inc. 620,000 49.561 .53
----------- ------
1,566.778 16.74
----------- ------
Multi-Industry & Miscellaneous
Multi-Industry- 1.28%
AlliedSignal Inc. 800,000 28.800 .31
Harsco Corp. 100,000 4.150 .05
Tenneco Inc. 900,000 40.444 .43
Textron Inc. 800,000 46.250 .49
Miscellaneous- 1.13%
Other stocks in initial period of acquisition 105.861 1.13
----------- ------
225.505 2.41
----------- ------
TOTAL COMMON STOCKS (cost: $3,838.476 million) 6,790.567 72.53
----------- ------
BONDS & NOTES Principal
Amount
Corporate- 0.14% -----------
J.C. Penney Co., Inc. 9.05% 2001 $12,000,000 12.983 .14
----------- ------
U.S. Treasury Obligations- 5.88%
12.375% May 2004 50,000,000 67.477 .72
11.75% February 2001 50,000,000 58.929 .63
6.375% May 2000 90,000,000 91.435 .98
6.25% August 2000 90,000,000 91.237 .97
8.25% July 1998 60,000,000 61.106 .65
5.125% April 1998 60,000,000 59.906 .64
8.125% February 1998 60,000,000 60.422 .65
6.00% November 1997 60,000,000 60.010 .64
----------- ------
550.522 5.88
----------- ------
TOTAL BONDS & NOTES (cost: $583.313 million) 563.505 6.02
----------- ------
TOTAL INVESTMENT SECURITIES (cost: $4,421.789
million) 7,354.072 78.55
----------- ------
SHORT-TERM SECURITIES
Corporate Short-Term Notes- 13.05%
American Express Credit Corp. 5.50%-5.51% due 11/25-12/18/97 66,500,000 66.182 .70
Ameritech Corp. 5.48% due 12/12-12/19/97 57,450,000 57.063 .61
AT&T Corp. 5.47%-5.49% due 11/6-11/17/97 41,300,000 41.234 .44
Atlantic Richfield Co. 5.48%-5.49% due 11/5-12/15/97 67,000,000 66.645 .71
Campbell Soup Co. 5.48%-5.50% due 1/8-1/12/98 45,000,000 44.501 .48
Coca-Cola Co. 5.46%-5.47% due 11/3-12/16/97 72,100,000 71.836 .78
John Deere Capital Corp. 5.51%-5.52% due 11/6/97-1/22/98 41,000,000 40.613 .44
E.I. du Pont de Nemours and Co. 5.46%-5.52% due
11/5/97-1/29/98 65,100,000 64.689 .68
Ford Motor Credit Co. 5.50%-5.60% due 12/9/97-1/20/98 79,500,000 78.863 .84
General Electric Capital Corp. 5.50%-5.60% due
11/13/97-1/16/98 86,300,000 85.418 .92
Gillette Co. 5.47%-5.48% due 11/7-11/13/97* 94,600,000 94.454 1.01
H.J. Heinz Co. 5.48%-5.51% due 11/14-12/10/97 52,000,000 51.770 .56
Lucent Technologies Inc. 5.49%-5.50% due 12/10-12/17/97 87,000,000 86.432 .93
J.C. Penney Funding Corp. 5.49%-5.51% due 11/14/97-1/8/98* 90,300,000 89.739 .96
Procter & Gamble Co. 5.47%-5.48% due 12/3-12/5/97 101,600,000 101.071 1.08
Sara Lee Corp. 5.46% due 12/22-12/23/97 80,400,000 79.753 .85
Warner-Lambert Co. 5.48% due 12/8/97* 50,000,000 49.710 .53
Xerox Corp. 5.48%-5.49% due 11/7-11/19/97 51,800,000 51.652 .53
Federal Agency Discount Notes- 7.28%
Fannie Mae (formerly Federal National Mortgage Assn.)
5.38%-5.485% due 11/4/97-2/10/98 380,485,000 378.278 4.05
Federal Home Loan Banks 5.39%-5.47% due 11/12/97-1/21/98 174,870,000 173.622 1.85
Freddie Mac (formerly Federal Home Loan Mortgage Corp.)
5.40%-5.41% due 11/17-12/23/97 130000000 129.388 1.38
U.S. Treasury Bills- 0.76%
5.12%-5.155% due 2/5-3/5/98 73,000,000 71.857 .76
----------- ------
TOTAL SHORT-TERM SECURITIES (cost: $1,974.845
million) 1,974.770 21.09
Excess of cash and receivables over payables 33.308 .36
----------- ------
TOTAL SHORT-TERM SECURITIES, CASH AND RECEIVABLES,
NET OF PAYABLES 2,008.078 21.45
----------- ------
NET ASSETS $9,362.150 100.%
=========== ======
*Purchased in a private placement transaction; resale to
the public may require registration or sale only to
qualified institutional buyers.
See Notes to Financial Statements
- ----------------------------
Common Stocks
appearing in the portfolio
since April 30, 1997
- ----------------------------
Albertson's
Avon Products
Chevron
Chrysler
Corning
Fort James
Genuine Parts
Kerr-McGee
Mallinckrodt
McDonald's
Southern Co.
Ultramar Diamond Shamrock
- ------------------------------
Common Stocks
eliminated from the portfolio
since April 30, 1997
- ------------------------------
Entergy
Minnesota Mining and Manufacturing
PG&E
Pitney Bowes
Tribune
Unilever
Walgreen
</TABLE>
<TABLE>
American Mutual Fund Financial Statements
- --------------------------------------------------------------------------------------
<S> <C> <C>
Statement of Assets and Liabilities (dollars in
at October 31, 1997 millions)
- --------------------------------------------------------------------------------------
Assets:
Investment securities at market
(cost: $4,421.789) $7,354.072
Short-term securities
(cost: $1,974.845) 1,974.770
Cash .126
Receivables for-
Sales of investments $20.405
Sales of fund's shares 11.266
Dividends and accrued interest 24.931 56.602
---------------------------------
9,385.570
Liabilities:
Payables for-
Purchases of investments 14.174
Repurchases of fund's shares 3.448
Management services 2.195
Accrued expenses 3.603 23.420
---------------------------------
Net Assets at October 31, 1997-
Equivalent to $30.14 per share on
310,646,263 shares of $1 par value
capital stock outstanding (authorized
capital stock--500,000,000 shares) $9,362.150
=================
- --------------------------------------------------------------------------------------
Statement of Operations (dollars in
for the year ended October 31, 1997 millions)
- --------------------------------------------------------------------------------------
Investment Income:
Income:
Dividends $ 177.395
Interest 127.061 $304.456
-----------------
Expenses:
Management services fee 24.702
Distribution expenses 18.463
Transfer agent fee 4.206
Reports to shareholders .426
Registration statement and
prospectus .400
Postage, stationery and supplies .865
Directors' fees .197
Auditing and legal fees .062
Custodian fee .178
Taxes other than federal income tax .113
Other expenses .160 49.772
-------------------------------
Net investment income 254.684
-----------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 758.879
Net increase in unrealized appreciation on
investments:
Beginning of year 2,099.255
End of year 2,932.208 832.953
-------------------------------
Net realized gain and unrealized
appreciation on investments 1,591.832
---------------
Net Increase in Net Assets Resulting
from Operations $1,846.516
================
- ------------------------------------------------------------------------------------
Statement of Changes in Net Assets (dollars in
millions)
- --------------------------------------------------------------------------------------
Year ended October 31
1997 1996
-------------------------------
Operations:
Net investment income $ 254.684 $ 241.501
Net realized gain on investments 758.879 477.701
Net increase in unrealized appreciation
on investments 832.953 515.734
--------------------------------
Net increase in net assets
resulting from operations 1,846.516 1,234.936
-------------------------------
Dividends and Distributions
Paid to Shareholders:
Dividends from net investment income (246.337) (238.662)
Distributions from net realized
gain on investments (468.836) (311.944)
--------------------------------
Total dividends and distributions (715.173) (550.606)
--------------------------------
Capital Share Transactions:
Proceeds from shares sold:
29,819,522 and 34,457,011
shares, respectively 828.652 865.021
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions of
net realized gain on investments:
24,433,383 and 20,031,287
shares, respectively 643.000 491.254
Cost of shares repurchased:
35,919,460 and 33,206,353
shares, respectively (999.921) (833.613)
-------------------------------
Net increase in net assets
resulting from capital share
transactions 471.731 522.662
---------------------------------
Total Increase in Net Assets 1,603.074 1,206.992
Net Assets:
Beginning of year 7,759.076 6,552.084
--------------------------------
End of year (including undistributed
net investment income: $53.085
and $44.738, respectively) $9,362.150 $7,759.076
================================
See Notes to Financial Statements
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. American Mutual Fund, Inc. (the "fund") is registered under the Investment
Company Act of 1940 as an open-end, diversified management investment company.
The fund strives for the balanced accomplishment of three objectives-current
income, capital growth and conservation of principal-through investments in
companies that participate in the growth of the American economy. The following
paragraphs summarize the significant accounting policies consistently followed
by the fund in the preparation of its financial statements:
Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the investment adviser to be the broadest
and most representative market, which may be either 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.
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 over the life of the respective
securities. The fund does not amortize premiums on securities purchased.
Dividends and distributions paid to shareholders are recorded on the
ex-dividend date.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of October 31, 1997, net unrealized appreciation on investments for
federal income tax purposes aggregated $2,933,565,000, of which $3,016,891,000
related to appreciated securities and $83,326,000 related to depreciated
securities. There was no difference between book and tax realized gains on
securities transactions for the year ended October 31, 1997. The cost of
portfolio securities for federal income tax purposes was $6,395,277,000 at
October 31, 1997.
3. The fee of $24,702,000 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.384% of the first $1 billion of average net assets;
0.33% of such assets in excess of $1 billion but not exceeding $2 billion;
0.294% of such assets in excess of $2 billion but not exceeding $3 billion;
0.27% of such assets in excess of $3 billion but not exceeding $5 billion;
0.252% of such assets in excess of $5 billion but not exceeding $8 billion; and
0.24% of such assets in excess of $8 billion.
Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Directors. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the year ended October 31, 1997,
distribution expenses under the Plan were $18,463,000. As of October 31, 1997,
accrued and unpaid distribution expenses were $3,226,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $4,206,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $2,985,000 (after
allowances to dealers) as its portion of the sales charges paid by purchasers
of the fund's shares. Such sales charges are not an expense of the fund and,
hence, are not reflected in the accompanying statement of operations.
Directors who are unaffiliated with CRMC may elect to defer part or all of
the fees earned for services as members of the Board. Amounts deferred are not
funded and are general unsecured liabilities of the fund. As of October 31,
1997, aggregate amounts deferred and earnings thereon were $351,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Directors and officers of the fund
are or may be considered to be affiliated with CRMC, AFS and AFD. No such
persons received any remuneration directly from the fund.
4. As of October 31, 1997, accumulated undistributed net realized gain on
investments was $746,524,000 and additional paid-in capital was $5,319,687,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $1,328,086,000 and $1,966,885,000, respectively,
during the year ended October 31, 1997.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $178,000 includes $18,000 that was paid by these credits
rather than in cash.
<TABLE>
<S> <C> <C> <C> <C> <C>
Per-Share Data and Ratios Year ended
October 31
------- ------- ------- ------- -------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
Net Asset Value, Beginning of
Year $26.54 24.17 $21.60 $23.21 $21.29
------- ------- ------- ------- -------
Income from Investment
Operations:
Net investment income .83 .84 .87 .88 .85
Net realized and unrealized
gain (loss) on investments 5.19 3.52 3.41 (.54) 2.89
------- ------- ------- ------- -------
Total income from
investment operations 6.02 4.36 4.28 .34 3.74
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment
income (.81) (.84) (.84) (.84) (.85)
Distributions from net
realized gains (1.61) (1.15) (.87) (1.11) (.97)
------- ------- ------- ------- -------
Total distributions (2.42) (1.99) (1.71) (1.95) (1.82)
------- ------- ------- ------- -------
Net Asset Value, End of Year $30.14 $26.54 $24.17 $21.60 $23.21
======= ======= ======= ======= =======
Total Return(1) 24.19% 18.89% 21.25% 1.75% 18.63%
Ratios/Supplemental Data:
Net assets, end of year (in
millions) $9,362 $7,759 $6,552 $5,397 $5,283
Ratio of expenses to average
net assets .58% .59% .59% .60% .59%
Ratio of net income to average
net assets 2.95% 3.36% 3.92% 4.07% 3.83%
Average commissions paid
per share (2) 5.06c 5.88c 6.27c 6.54c 7.31c
Portfolio turnover rate 19.16% 24.21% 23.31% 18.46% 22.48%
(1)Calculated without deducting a sales
charge. The maximum sales charge is
5.75% of the fund's offering price.
(2)Brokerage commissions paid on
portfolio transactions increase
the cost of securities purchased
or reduce the proceeds of
securities sold, and are not
separately reflected in the
fund's statement of operations.
Shares traded on a principal
basis (without commissions),
such as most over-the-counter
and fixed-income transactions,
are excluded.
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of American Mutual Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
American Mutual Fund, Inc., (the "Fund"),including the schedule of portfolio
investments, as of October 31, 1997,and the related statements of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the per-share data and ratios for each
of the five years in the period then ended.These financial statements and
per-share data and ratios are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
per-share data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards.Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per-share data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other procedures. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of American Mutual Fund, Inc. as of October 31, 1997, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended,and the per-share data and ratios for
each of the five years in the period then ended, in conformity with generally
accepted accounting principles.
/s/ Deloitte and Touche LLP
Los Angeles, California
November 26, 1997
TAX INFORMATION (UNAUDITED)
We are required to advise you within 60 days of the fund's fiscal year end
regarding the federal tax status of distributions received by shareholders
during such fiscal year. The distributions made during the fiscal year by the
fund were earned from the following sources:
Dividends and Distributions per Share
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
To Shareholders Payment Date From Net From Net From Net
of Record Investment Realized Realized
Income Short Long-term
Term Gains
Gains
December 6,1996 December 9,1996 $.21 $.07 $1.54
April 4,1997 April 7,1997 .20 - -
July 3,1997 July 7,1997 .20 - -
October 3,1997 October 6,1997 .20 - -
</TABLE>
Corporate shareholders may exclude up to 70% of qualifying dividends
received during the year. For purposes of computing this exclusion, 65% of the
dividends paid by the fund from net investment income represents qualifying
dividends.
Certain states may exempt from income taxation that portion of the
dividends paid from net investment income that was derived from direct U.S.
Treasury obligations. For purposes of computing this exclusion, 11% of the
dividends paid by the fund from net investment income were derived from
interest on direct U.S. Treasury obligations.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans, and 403(b) plans need not be reported as taxable income.
However, many plan retirement trusts may need this information for their annual
information reporting.
SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FUND'S FISCAL YEAR AND NOT
THE CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER
TAX INFORMATION WHICH WILL BE MAILED IN JANUARY 1998 TO DETERMINE THE CALENDAR
YEAR AMOUNTS TO BE INCLUDED ON THEIR RESPECTIVE 1997 TAX RETURNS. SHAREHOLDERS
SHOULD CONSULT THEIR TAX ADVISERS.
BOARD OF DIRECTORS
H. FREDERICK CHRISTIE
Rolling Hills Estates, California
Private investor; former President and Chief Executive
Officer, The Mission Group; former President,
Southern California Edison Company
E.H. CLARK, JR.
San Clemente, California
Chairman of the Board and Chief Executive Officer,
The Friendship Group (an investment partnership);
former Chairman of the Board, Baker Hughes Inc.
MARY ANNE DOLAN
Los Angeles, California
Founder and President, M.A.D., Inc.
(communications company);
former editor, The Los Angeles Herald Examiner
JAMES K. DUNTON
Los Angeles, California
Chairman of the Board of the fund
Senior Vice President and Director,
Capital Research and Management Company
MARTIN FENTON, JR.
San Diego, California
Chairman of the Board, Senior Resource Group, Inc. (senior living centers
management)
E. ERIC JOHNSON
Los Angeles, California
Chairman of the Board, TBG Financial Services
MARY MYERS KAUPPILA
Boston, Massachusetts
Founder and President, Energy Investment, Inc.
JON B. LOVELACE, JR.
Los Angeles, California
Vice Chairman of the Board,
Capital Research and Management Company
JAMES W. RATZLAFF
San Francisco, California
Vice Chairman of the Board of the fund
Senior Partner, The Capital Group Partners L.P.
OLIN C. ROBISON, PH.D.
Middlebury, Vermont
President of the Salzburg Seminar;
President Emeritus, Middlebury College
OTHER OFFICERS
ROBERT G. O'DONNELL
San Francisco, California
President of the fund
Senior Vice President and Director,
Capital Research and Management Company
TIMOTHY D. ARMOUR
Los Angeles, California
Senior Vice President of the fund
Chairman and Chief Executive Officer,
Capital Research Company; Director,
Capital Research and Management Company
JOYCE E. GORDON
Los Angeles, California
Vice President of the fund
Senior Vice President, Capital Research Company
JOANNA F. JONSSON*
San Francisco, California
Vice President of the fund
Vice President, Capital Research Company
VINCENT P. CORTI
Los Angeles, California
Secretary of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
MARY C. HALL
Brea, California
Treasurer of the fund
enior Vice President - Fund Business
Management Group,
Capital Research and Management Company
R. MARCIA GOULD
Brea, California
Assistant Treasurer of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
STEVEN N. KEARSLEY RETIRED AS TREASURER EFFECTIVE
MAY 20, 1997. HE HAD BEEN AN OFFICER SINCE 1973.
THE DIRECTORS THANK HIM FOR HIS MANY CONTRIBUTIONS.
OFFICES OF THE FUND AND OF THE
INVESTMENT ADVISER, CAPITAL RESEARCH
AND MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5804
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071-2899
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
*Elected 11/19/97
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180 OR VISIT WWW.AMERICANFUNDS.COM ON THE WORLD
WIDE WEB.
This report is for the information of shareholders of American Mutual Fund, but
it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used after December 31, 1997,
this report must be accompanied by an American Funds Group Statistical Update
for the most recently completed calendar quarter.
Printed on recycled paper
Litho in USA SM/AL/3202
Lit. No. AMF-011-1297
[The American Funds Group (R)]
