<PAGE>
AMERICAN MUTUAL FUND, INC.
Part B
Statement of Additional Information
JANUARY 1, 1999
as amended August 1, 1999
This document is not a prospectus but should be read in conjunction with the
current Prospectus of American Mutual Fund, Inc. (the fund or AMF) dated
January 1, 1999. The Prospectus may be obtained from your investment dealer or
financial planner or by writing to the fund at the following address:
American Mutual Fund, Inc.
Attention: Secretary
333 South Hope Street
Los Angeles, CA 90071
(213) 486-9200
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 2
Techniques
Investment Restrictions 4
Fund Organization 6
Fund Directors and Officers 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 28
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.
GENERAL GUIDELINE
- - The fund's equity investments are limited to securities included on its
eligible list, which consists of securities deemed suitable in light of the
fund's investment objectives and policies.
EQUITY SECURITIES
- - The fund will invest principally in equity-type securities such as common
stocks and securities which are convertible into common stock or preferred
stock.
DEBT SECURITIES
- - The fund's investments in straight debt securities (I.E., not convertible
into equity) will be rated A or better or unrated but determined to be of
equivalent quality.
NON-U.S. SECURITIES
- - The fund may invest in securities of issuers domiciled outside the U.S. that
are part of the Standard & Poor's 500 Stock Composite Index.
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
The fund will invest primarily in equity-type securities of companies that are
likely to participate in the growth of the American economy; however, the fund
is not restricted with regard to the percentage of its portfolio which may be
placed in any particular type of investment. The economic outlook of Capital
Research and Management Company (the Investment Adviser) and the fundamental
and relative attractiveness of individual securities will determine the fund's
relative investment in cash and cash equivalents, bonds, preferred stocks,
common stocks and obligations of the U.S. Government, or its agencies or
instrumentalities.
The fund may experience difficulty liquidating certain portfolio securities
during significant market declines or periods of heavy redemptions.
The descriptions below are intended to supplement the material in the
Prospectus under "Investment Objectives, Strategies and Risks."
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.
DEBT SECURITIES -- Bonds and other debt securities are used by issuers to
borrow money. Issuers pay investors interest, and 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 in debt securities
which are rated in the top three quality categories by Standard & Poor's
Corporation or Moody's Investors Service, Inc. or determined to be of
equivalent quality by the Investment Adviser. The top three rating categories
for Standard & Poor's and Moody's are described below:
STANDARD & POOR'S CORPORATION -- ratings from AA to CCC may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within the
major rating categories:
"Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong."
"Debt rated 'AA' has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree."
"Debt rated 'A' has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of change in
circumstances and economic conditions, than debt in higher categories."
MOODY'S INVESTORS SERVICE, INC. -- applies the numerical modifiers 1, 2 and 3
in each generic rating classification from Aa through B in its corporate bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its gneric rating category:
"Bonds rated Aaa are judged to be of the best quality. They 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."
"Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities, or fluctuation of protective elements may be
of greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger than the Aaa securities."
"Bonds rated A are judged to be of 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."
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.
CASH AND CASH EQUIVALENTS -- The fund may maintain assets in cash or cash
equivalents. These securities include: (1) commercial paper (short-term notes
up to 9 months in maturity issued by corporations or governmental bodies); (2)
commercial bank obligations such as certificates of deposit (interest-bearing
time deposits), bankers' acceptances (time drafts on a commercial bank where
the bank accepts an irrevocable obligation to pay at maturity), and documented
discount notes (corporate promissory discount notes accompanied by a commercial
bank guarantee to pay at maturity); (3) savings association obligations
(certificates of deposit issued by mutual savings banks or savings and loan
associations); (4) securities of the U.S. Government, its agencies or
instrumentalities that mature, or may be redeemed, in one year or less; and (5)
corporate bonds and notes that mature, or that may be redeemed, in one year or
less.
RESTRICTED SECURITIES AND LIQUIDITY -- The fund may purchase securities subject
to restrictions on resale. All such securities will be considered illiquid
unless they have been specifically determined to be liquid under procedures
which may be adopted by the fund's board of directors, taking into account
factors such as the frequency and volume of trading, the commitment of dealers
to make markets and the availabillity of qualified investors, all of which can
change from time to time. The fund may incur certain additional costs in
disposing of illiquid securities.
INVESTMENT RESTRICTIONS
The fund has adopted certain fundamental investment restrictions, which cannot
be changed without approval by a majority of its outstanding shares. Such
majority is defined within the Investment Company Act of 1940 (the 1940 Act) as
the vote of the lesser of (i) 67% or more of the outstanding voting securities
present at a meeting, 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. Investment limitations expressed in the
following restrictions are considered at the time securities are purchased and
are based on the fund's net assets unless otherwise indicated.
These restrictions provide that the fund shall make no investment:
1. Which involves promotion or business management by the fund;
2. In any security about which information is not available with respect to
the history, management, assets, earnings, and income of the issuer;
3. If the investment would cause more than 5% of the value of the assets of
the fund, as they exist at the time of investment, to be invested in the
securities of any one issuer;
4. If the investment would cause more than 20% of the value of the assets of
the fund to be invested in securities of companies in any one industry;
5. If the investment would cause the fund to own more than 10% of any class of
securities of any one issuer or more than 10% of the outstanding voting
securities of any one issuer;
6. In any security which has not been placed on the fund's "Eligible List"
(See Prospectus).
The foregoing restrictions do not apply to the purchase of securities issued or
fully guaranteed by the U.S. Government. Such restrictions also do not apply
to the acquisition of securities or property in satisfaction of claims or as
distributions on securities owned, or to the exercise of rights distributed on
securities owned; but if any securities or property so acquired would not be
permitted as an investment under the foregoing restrictions, they must be
converted into a permissible investment as soon as reasonably practicable.
The fund is not permitted to:
7. Invest in real estate;
8. Make any investment which would subject it to unlimited liability;
9. Buy securities on margin;
10. Sell securities short; nor
11. Borrow money.
The fund does not concentrate investments in one industry or group of
industries, invest in commodities, or make loans except in the very occasional
instance where interest returns on a loan are particularly favorable, the loan
is secured by at least 150% of marketable securities, the total loans
outstanding would not exceed 20% of the current market value of the assets of
the fund, and total loans to any one borrower would not exceed 5% of the value
of such assets. No loans have ever been made to any person under the foregoing
authority. Loans may not be made to persons affiliated with the fund. The
fund does not invest to control other companies. While the fundamental
policies of the fund permit it to act as underwriter of securities issued by
others, it is not the practice of the fund to do so. The fundamental policies
set forth in this paragraph also may not be changed without shareholder
approval.
Further investment policies of the fund include the following: the fund will
not purchase or retain the securities of any issuer if those officers and
directors of the fund or the Investment Adviser who own beneficially more than
1/2 of 1% of such issuer together own more than 5% of the securities of such
issuer; the fund will not invest in the securities of other investment
companies (except in connection with the administration of a deferred
compensation plan adopted by Directors and to the extent such investments are
allowed by an exemptive order granted by the Securities and Exchange
Commission); the fund will not invest in securities of companies which, with
their predecessors, have a record of less than three years' continuous
operations; the fund will not ordinarily purchase securities which are
non-income-producing at the time of purchase; the fund will not invest in puts,
calls, straddles, spreads or any combination thereof; the fund will not
purchase partnership interests in oil, gas, or mineral exploration, drilling or
mining ventures; nor will the fund invest more than 5% of the value of the
fund's net assets in warrants, valued at the lower of cost or market, with no
more than 2% being unlisted on the New York or American Stock Exchanges
(warrants acquired by the fund in units or attached to securities may be deemed
to be without value); nor invest more than 15% 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).
FUND ORGANIZATION
The fund, an open-end, diversified management investment company, was organized
as a Delaware corporation in 1949 and reincorporated in Maryland on December
20, 1983.
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 - Directors
and Director Compensation" below. They may elect to defer all or a portion of
these fees through a deferred compensation plan in effect for the fund.
FUND DIRECTORS AND OFFICERS
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 YEARS (INCLUDING (INCLUDING OF FUND
VOLUNTARILY VOLUNTARILY BOARDS
DEFERRED DEFERRED ON WHICH
COMPENSATION COMPENSATION DIRECTOR
/1/) FROM THE /1/) FROM ALL SERVES
FUND DURING FUNDS MANAGED /2/
FISCAL YEAR BY CAPITAL
ENDED RESEARCH AND
10/31/98 MANAGEMENT
COMPANY OR ITS
AFFILIATES /2/
FOR THE YEAR
ENDED 10/31/98
<S> <C> <C> <C> <C> <C>
H. Frederick Director Private Investor; $23,300/3/ $183,000 19
Christie former President
P.O. Box 144 and Chief Executive
Palos Verdes Officer, The
Estates,CA 90274 Mission Group (non-utility holding
Age: 65 company, subsidiary
of Southern
California Edison
Company)
E. H. Clark, Jr. Director Chairman of the $24,900 $24,900 1
West Tower Board and Chief
5000 Birch Street Executive Officer,
Newport Beach, CA The Friendship
92660 Group (an
Age: 72 investment
partnership);
former Chairman of
the Board, Baker
Hughes Inc.;
former Chairman of
the Board, Baker
International
Corporation
Mary Anne Dolan Director Founder and $22,700 $35,700 2
1033 Gayley Avenue President, M.A.D.,
Los Angeles, CA Inc.
90024 (a communications
Age: 51 company)
+ James K. Dunton Chairman of Senior Vice none/4/ none/4/ 1
333 South Hope the Board President and
Street Director, Capital
Los Angeles, CA Research and
90071 Management Company
Age: 60
Martin Fenton, Director Chairman, Senior $23,300/3/ $124,800 15
Jr.4660 La Jolla Resource Group,
Village Drive Inc. (management of
Suite 725 senior living
San Diego, CA centers)
92121
Age: 63
E. Eric Johnson Director Chairman, TBG $24,300/3/ $24,300 1
2029 Century Park Financial; former
East Chairman, Johnson &
Los Angeles, CA Higgins of
90067 California
Age: 71
Mary Myers Kauppila Director Private Investor; $23,900/3/ $97,500 5
One Winthrop Square former Owner and
Boston, MA 02210 President, Energy
Age: 44 Investment, Inc.
+ Jon B. Lovelace, Director Chairman Emeritus, none/4/ none/4/ 4
Jr. Capital Research
333 South Hope and Management
Street Company
Los Angeles, CA
90071
Age: 71
+ Robert G. President Senior Vice none/4/ none/4/ 2
O'Donnell and President and
P.O. Box 7650 Director Director, Capital
San Francisco, CA Research and
94120 Management Company
Age: 54
Kirk P. Pendleton Director Chairman of the $12,000/3/ $102,400 5
75 James Way Board and Chief
Southampton, PA Executive Officer,
18966 Cairnwood, Inc.
Age: 59 (venture capital
investment)
+ James W. Ratzlaff Vice Senior Partner, The none/4/ none/4/ 7
P.O. Box 7650 Chairman of Capital Group
San Francisco, CA the Board Partners, L.P.
94120
Age: 62
Olin C. Robison Director President of the $23,300/3/ $90,000 3
The Marble Works Salzburg Seminar;
P.O. Box 886 Professor and
Middlebury, VT former President,
05753 Middlebury College
Age: 62
</TABLE>
+ Directors who are considered "interested persons" of the fund as defined in
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 29 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., New World 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 serve as the underlying investment vehicle for
certain variable insurance contracts; and Endowments, Inc. 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 deferred compensation plan's adoption, the total amount of
deferred compensation accrued by the fund (plus earnings thereon) as of the
fiscal year ended October 31, 1998 for participating Directors is as follows:
H. Frederick Christie ($88,600), Martin Fenton, Jr. ($36,200), E. Eric Johnson
($177,400), Mary Myers Kauppila ($183,500), Kirk P. Pendleton ($12,000) and
Olin C. Robison ($4,000). Amounts deferred and accumulated earnings thereon
are not funded and are general unsecured liabilities of the fund until paid to
the director.
/4/ James K. Dunton, Jon B. Lovelace, Jr., Robert G. O'Donnell and James W.
Ratzlaff are affiliated with the Investment Adviser and, accordingly, receive
no compensation from the fund.
OFFICERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) PRINCIPAL OCCUPATION(S)
HELD WITH DURING PAST 5 YEARS
REGISTRANT
<S> <C> <C> <C>
James K. Dunton
(see above)
James W. Ratzlaff
(see above)
Robert G. O'Donnell
(see above)
Timothy D. Armour 38 Senior Director, Capital
333 South Hope Vice Research and Management
Street President Company; Chairman of the
Los Angeles, CA Board, Capital Research
90071 Company
Joyce E. Gordon 42 Vice Senior Vice President
333 South Hope President and Director,
Street Capital Research Company
Los Angeles, CA
90071
Joanna F. Jonsson 35 Vice Vice President and
P.O. Box 7650 President Director,
San Francisco, CA Capital Research Company
94120
Vincent P. Corti 42 Secretary Vice President - Fund
333 South Hope Business Mangement
Street Group, Capital Research
Los Angeles, CA and Management Company
90071
Sheryl F. Johnson 30 Treasurer Vice President - Fund
5300 Robin Hood Business Mangement
Road Group, Capital Research
Norfolk, VA 23513 and Management Company
Robert P. Simmer 37 Assistant Vice President - Fund
5300 Robin Hood Treasurer Business
Road Mangement Group, Capital
Norfolk, VA 23513 Research and Management
Company
</TABLE>
All of the officers listed are officers or employees of the Investment Adviser
or affiliated companies. No compensation is paid by the fund to any director
or officer who is a director, officer or employee of the Investment Adviser or
affiliated companies. The fund pays fees of $16,000 per annum to directors who
are not affiliated with the Investment Adviser, 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. 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. As of December 1, 1998 the officers, directors
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, Hong Kong, Singapore and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience. The Investment Adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821.
The Investment Adviser's professionals travel several million miles a year,
making more than 5,000 research visits in more than 50 countries around the
world. The Investment Adviser believes that it is able to attract and retain
quality personnel. The Investment Adviser is a wholly owned subsidiary of The
Capital Group Companies, Inc.
An affiliate of the Investment Adviser compiles indices for major stock markets
around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for managing more than $175 billion of
stocks, bonds and money market instruments and serves over eight million
investors of all types. 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 Agreement) between the fund and the Investment Adviser
is dated March 1, 1995. The Agreement will continue in effect until March 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 Agreement or interested persons (as defined in the 1940 Act) of any such
party, cast in person, at a meeting called for the purpose of voting on such
approval. The Agreement provides that the Investment Adviser has no liability
to the fund for its acts or omissions in performance of its obligations to the
fund not involving willful misconduct, bad faith, gross negligence or reckless
disregard of its obligations under the Agreement. The 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 Agreement automatically
terminates in the event of its assignment (as defined in the 1940 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 and utilities, necessary office
equipment and general purpose accounting forms, supplies and postage used at
the office of the fund. The fund pays all expenses not expressly assumed by
the Investment Adviser, including, but not limited to, fees and expenses of the
transfer agent, dividend disbursing agent, legal counsel, independent
accountant and custodian, including charges of such custodian for the
preparation and maintenance of the books of account and records of the fund,
cost of designing, printing and mailing reports, prospectuses, proxy statements
and notices to shareholders; fees and expenses of registration, qualification
and issuance of fund shares; expenses pursuant to the fund's Plan of
Distribution (described below); association dues; interest; taxes; and
compensation of Directors who are not affiliated persons of the Investment
Adviser.
As compensation for its services, the Investment Adviser receives a monthly fee
which is accrued daily, calculated at the annual rate of 0.384% on the first $1
billion of net assets, plus 0.33% on net assets from $1 billion to $2 billion,
plus 0.294% on net assets from $2 billion to $3 billion, plus 0.27% on net
assets from $3 billion to $5 billion, plus 0.252% on net assets from $5 billion
to $8 billion, plus 0.24% on net assets over $8 billion. In connection with
the approval of the Agreement by the fund's Board of Directors, the Investment
Adviser has agreed to waive any fees to the extent they would exceed those
payable under the rate structure contained in its previous agreement. The fee
structure referenced above is lower than that in the previous agreement except
in the event that the fund's net assets were to fall below $3 billion. The
Agreement provides that the Investment Adviser shall pay the fund the amount by
which expenses, with the exception of taxes and expenses, if any, as may be
incurred in connection with any merger, reorganization, or recapitalization,
exceed the sum of 1% of the first $25 million of the monthly average of total
assets of the fund for the year and 3/4 of 1% of such average in excess of $25
million.
For the fiscal years ended October 31, 1998, 1997, and 1996, the Investment
Adviser received advisory fees of $27,972,000, $24,702,000 and $21,154,000,
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 78251, 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 under the 1940 Act. The
Principal Underwriter receives amounts payable pursuant to the Plan (see 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
October 31, 1998 amounted to $3,200,000, after allowance of $15,547,000 to
dealers. During the fiscal years ended October 31, 1997 and 1996 the Principal
Underwriter retained $2,985,000 and $3,378,000, after allowance of $14,517,000
and $16,767,000, respectively.
As required by rule 12b-1 and the 1940 Act, 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 be considered to have a direct or indirect financial
interest in the operation of the Plan due to present or past affiliations with
the Investment Adviser and related companies. 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 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, any defined contribution plan qualified under Section 401(a) of the
Internal Revenue 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 fiscal year ended October 31, 1998, the fund paid or accrued $21,106,000
for compensation to dealers under the Plan.
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 or 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
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 the sum 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 which 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; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the fund's assets
is represented by cash, cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities (but such other
securities must be limited, in respect of any one issuer, to an amount not
greater than 5% of the fund's 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.
The fund also intends to continue distributing to shareholders all of the
excess of net long-term capital gain over net short-term capital loss on sales
of securities. If the net asset value of shares of the fund should, by reason
of a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes.
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.
Corporate shareholders of the fund may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gain distributions) paid
by the fund to the extent the fund's income is derived from dividends (which if
received directly would qualify for such deduction) received from domestic
corporations. In order to qualify 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.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred in acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
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 net long-term 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 a rate of 30% if the individual is physically
present in the U.S. for more than 182 days during the taxable year.
As of the date of this statement of additional information, the maximum federal
individual stated tax rate applicable to ordinary income is 39.6% (effective
tax rates may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual tax rate applicable to net
capital gain 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 taxable income in excess of $100,000 for a taxable year
will be required to pay an additional amount of tax liability of up to $11,750
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 a shareholder with respect
to either distributions from the fund or disposition of fund shares will be
affected by a combination of tax law rules covering, e.g., deductions, credits,
deferrals, exemptions, sources of income and other matters. Under the Code, an
individual is entitled to establish an IRA each year (prior to the tax return
filing deadline for that year) whereby earnings on investments are
tax-deferred. The maximum amount that an individual may contribute to all
IRA's (deductible, nondeductible and Roth IRA's) 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. Investors should consult their own tax advisers with
specific reference to their own tax situations.
PURCHASE OF SHARES
<TABLE>
<CAPTION>
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METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums and Fund $50 minimum (except where a
Numbers" for initial investment lower minimum is noted under
minimums. "Investment Minimums and Fund
Numbers").
By contacting Visit any investment dealer who is Mail directly to your
your investment registered in the state where the investment dealer's address
dealer purchase is made and who has a printed on your account
sales agreement with American Funds statement.
Distributors.
By mail Make your check payable to the fund Fill out the account additions
and mail to the address indicated form at the bottom of a recent
on the account application. Please account statement, make your
indicate an investment dealer on check payable to the fund,
the account application. write your account number on
your check, and mail the check
and form in the envelope
provided with your account
statement.
By telephone Please contact your investment Complete the "Investments by
dealer to open account, then follow Phone" section on the account
the procedures for additional application or American
investments. FundsLink Authorization 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
"Telephone and Computer
Purchases, Redemptions and
Exchanges" below).
By computer Please contact your investment Complete the American FundsLink
dealer to open account, then follow Authorization Form. Once you
the procedures for additional establish the privilege, you,
investments. your 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 "Telephone
and Computer Purchases,
Redemptions and Exchanges"
below).
By wire Call 800/421-0180 to obtain your Your bank should wire your
account number(s), if necessary. additional investments in the
Please indicate an investment same manner as described under
dealer on the account. Instruct "Initial Investment."
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):
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FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R) $1,000 02
American Balanced Fund(R) 500 11
American Mutual Fund(R) 250 03
Capital Income Builder(R) 1,000 12
Capital World Growth and Income 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
New World Fund (SM) 1,000+ 36
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.
+Effective September 15, 1999.
</TABLE>
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
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.)
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AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND
FUNDS
Less than $50,000 6.10% 5.75% 5.00%
$50,000 but less than 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 -- Investment 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 purchases. 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 made with no sales charge 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 Capital Research and Management Company,
employees of Washington Management Corporation, employees and partners of The
Capital Group Companies, Inc. and its affiliated companies, certain family
members of the above persons, and trusts or plans primarily for such persons;
(2) current registered representatives, retired registered representatives
with respect to accounts established while active, or full-time employees (and
their spouses, parents, and children) of dealers who have sales agreements with
American Funds Distributors (or who clear transactions through such dealers)
and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger,
acquisition or exchange offer;
(4) trustees or other fiduciaries purchasing shares for certain retirement
plans of organizations with retirement plan assets of $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 Internal Revenue 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 $50 million or more: 1.00% on amounts of $1 million
to $4 million, 0.50% on amounts over $4 million to $10 million, and 0.25% on
amounts over $10 million.
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 100
dealers who have sold shares of the fund or other funds in The American Funds
Group. These payments will be based on a pro rata share of a qualifying
dealer's sales. American Funds Distributors will, on an annual basis,
determine the advisability of continuing these payments.
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 the following statement of intention (the
"Statement"). The Statement is not a binding obligation to purchase the
indicated amount. When a shareholder elects to utilize a Statement in order to
qualify for a reduced sales charge, shares equal to 5% of the dollar amount
specified in the Statement will be held in escrow in the shareholder's account
out of the initial purchase (or subsequent purchases, if necessary) by the
Transfer Agent. All dividends and any capital gain distributions on shares
held in escrow will be credited to the shareholder's account in shares (or paid
in cash, if requested). If the intended investment is not completed within the
specified 13-month period, the purchaser will remit to the Principal
Underwriter the difference between the sales charge actually paid and the sales
charge which would have been paid if the total of such purchases had been made
at a single time. If the difference is not paid by the close of the period,
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 account
application) and any individual investments in American Legacy products
(American Legacy, American Legacy II and American Legacy III variable
annuities, American Legacy Life, American Legacy Variable Life, and American
Legacy Estate Builder) 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)
any rollovers or transfers reasonably anticipated to be invested in non-money
market American Funds during the 13-month period, and any individual
investments in American Legacy products are added to the figure determined
above. The sum is the Statement amount and applicable breakpoint level. On
the first investment and all other investments made pursuant to the Statement,
a sales charge will be assessed according to the sales charge breakpoint thus
determined. There will be no retroactive adjustments in sales charges on
investments previously made during the 13-month period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION -- Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the Investment Company Act of 1940, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
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. When
determining your sales charge, you may also take into account the value of your
individual holdings, as of the end of the week prior to your investment, in
various American Legacy products (American Legacy, American Legacy II and
American Legacy III variable annuities, American Legacy Life, American Legacy
Variable Life, and American Legacy Estate Builder). 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 American Funds
Service Company; this offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. In the case of orders sent directly to the fund or American Funds
Service Company, an investment dealer MUST be indicated. The dealer is
responsible for promptly transmitting purchase orders to the Principal
Underwriter. Orders received by the investment dealer, the Transfer Agent, or
the fund after the time of the determination of the net asset value will be
entered at the next calculated offering price. Prices which appear in the
newspaper are not always indicative of prices at which you will be purchasing
and redeeming shares of the fund, since such prices generally reflect the
previous day's closing price whereas purchases and redemptions are made at the
next calculated price.
The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily at the close of trading
(currently 4:00 p.m., New York time) each day the New York Stock Exchange is
open. 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, President's 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 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 representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
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; and
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 of the fund directly
or indirectly to any person or entity, where, after the sale, such person or
entity would own beneficially directly or indirectly more than 3% of the
outstanding shares of the fund without the consent of a majority of the fund's
Board of 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(SM)
- - Redemptions by telephone or fax (including American FundsLine(R) and American
FundsLine OnLine(SM)) 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.
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 twelve 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.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN -- An automatic investment plan enables you to make
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 or the 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 American Funds
Service Company.
AUTOMATIC REINVESTMENT -- Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS -- You may cross-reinvest
dividends and capital gains ("distributions") into any other fund in The
American Funds Group at net asset value, 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, distributions must be automatically
reinvested,
(c) If you discontinue the cross-reinvestment of distributions, the value of
the account of 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(R) or American FundsLine OnLine(SM) (see "American FundsLine(R) and
American FundsLine OnLine(SM)" below), or by telephoning 800/421-0180
toll-free, faxing (see "Principal Underwriter and Transfer Agent" in the
Prospectus for the appropriate fax numbers) or telegraphing American Funds
Service Company. (See "Telephone and Computer Purchases, 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 (a) meet the minimum initial investment
requirement for the receiving fund or (b) 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(R) AND AMERICAN FUNDSLINE ONLINE(SM) -- You may check your
share balance, the price of your shares, or your most recent account
transaction, redeem shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(R) or American
FundsLine OnLine (SM). To use this service, call 800/325-3590 from a
TouchTone(TM) telephone or access the American Funds Web site on the Internet
at www.americanfunds.com. Redemptions and exchanges through American
FundsLine(R) and American FundsLine OnLine(SM) are subject to the conditions
noted above and in "Shareholder Account Services and Privileges -- Telephone
and Computer Purchases, Redemptions and Exchanges" below. You will need your
fund number (see the list of funds in The American Funds Group under "Purchase
of Shares--Investment Minimums and Fund Numbers"), personal identification
number (the last four digits of your Social Security number or other tax
identification number associated with your account) and account number.
TELEPHONE AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES -- By using the
telephone (including American FundsLine(R)) or computer (including American
FundsLine OnLine(SM)), fax or telegraph purchase redemption and/or exchange
options, you agree to hold the fund, American Funds Service Company, any of its
affiliates or mutual funds managed by such affiliates, and each of their
respective directors, trustees, officers, employees and agents harmless from
any losses, expenses, costs or liability (including attorney fees) which may be
incurred in connection with the exercise of these privileges. Generally, all
shareholders are automatically eligible to use these options. However, you may
elect to opt out of these options by writing American Funds Service Company
(you may also reinstate them at any time by writing American Funds Service
Company). If American Funds Service Company does not employ reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine, the fund may be liable for losses
due to unauthorized or fraudulent instructions. In the event that shareholders
are unable to reach the fund by telephone because of technical difficulties,
market conditions, or a natural disaster, redemption and exchange requests may
be made in writing only.
SHARE CERTIFICATES -- Shares are credited to your account and certificates are
not issued unless you request them by writing to American Funds Service
Company.
REDEMPTION OF SHARES -- The fund's Articles of Incorporation permit the fund to
direct the Transfer Agent to redeem the shares of any shareholder if (a) the
shares owned by such shareholder have a value (determined, for the purpose of
this sentence only, as the greater of the shareholder's cost or the then net
asset value of the shares, including the reinvestment of income dividends and
capital gain distributions, if any) of less than $250, or (b) such shareholder
owns less than ten (10) shares of capital stock of the fund. 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.
EXECUTION OF PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by the
Investment Adviser. The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through their
correspondent clearing agents) 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 funds served by
the Investment Adviser, or for trusts 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 for the fiscal years ended
October 31, 1998, 1997 and 1996 amounted to $3,840,000, $3,046,000 and
$2,889,000, respectively.
The fund is required to disclose information regarding investments in the
securities of broker-dealers (or parents of broker-dealers that derive more
than 15% of their revenue from broker-dealer activities) which have certain
relationships with the fund. During the last fiscal year, J.P. Morgan
Securities Inc. was among the top 10 dealers that received the largest amount
of brokerage commissions and that acted as principals in portfolio
transactions. The fund held equity securities of J.P. Morgan Securities Inc.
in the amount of $23,563,000 as of the close of its October 31, 1998 fiscal
year.
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 The Chase Manhattan Bank, One Chase Manhattan Plaza, New
York, NY 10081, as Custodian.
TRANSFER AGENT -- American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the records 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 $4,441,000 for the fiscal year ended October 31, 1998.
INDEPENDENT ACCOUNTANT -- Deloitte & Touche LLP, 1000 Wilshire Boulevard, 15th
Floor, Los Angeles, CA 90017, has served as the fund's independent accountant
since its inception, 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 have been so included in reliance on the report of Deloitte &
Touche LLP given on the authority of said firm as experts in auditing and
accounting.
REPORTS TO SHAREHOLDERS -- The fund's fiscal year ends on October 31.
Shareholders are provided at least semi-annually with reports showing the
investment portfolio, financial statements and other information. The fund's
annual financial statements are audited by the fund's independent accountant,
Deloitte & Touche LLP, whose selection is determined annually by the Board of
Directors. 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; a 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.
The financial statements including the investment portfolio and the report of
Independent Accountant contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE -- OCTOBER 31, 1998
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $31.18
Maximum offering price per share
(100/94.25 of net asset value per share which takes
into account the fund's current maximum sales charge $33.08
SHAREHOLDER VOTING RIGHTS -- The fund does not hold annual meetings of
shareholders. However, significant matters which require shareholder approval,
such as certain elections of board members or a change in a fundamental
investment policy, will be presented to shareholders at a meeting called for
such purpose. Shareholders have one vote per share owned. At any meeting of
shareholders, duly called and at which a quorum is present, shareholders
holding a majority of the votes entitled to be cast, may 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
agreed, at the request of the staff of the Securities and Exchange Commission,
to apply the provisions of section 16(c) of the 1940 Act with respect to the
removal of directors as though the fund were a common-law trust. Accordingly,
the directors of the fund shall promptly call a meeting of shareholders for the
purpose of voting upon the question of removal of any director when requested
in writing to do so by the record holders of not less than 10% of the
outstanding shares.
INVESTMENT RESULTS AND RELATED STATISTICS
The fund's yield is 2.44% based on a 30-day (or one month) period ended October
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.
The fund's one-year total return and average annual total returns for the five-
and ten-year periods ending on October 31, 1998 was 8.53%, 14.60%, and 13.87%,
respectively. The average annual total return (T) is computed by equating 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 may also be computed by utilizing ending values as
determined above.
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) deduction of the maximum sales load of
5.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated.
The fund may also 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, 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 (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. The fund may also, from time to time, combine its results with those
of other funds in The American Funds Group for purposes of illustrating
investment strategies involving multiple funds.
The fund may refer to results and surveys compiled by organizations such as CDA
Investment Technologies, Ibbottson Associates, Lipper Analytical Services,
Morningstar, Inc., Wiesenberger Investment Companies Services and by the U.S.
Department of Commerce. Additionally, the fund may, from time to time, refer
to results published in various newspapers or periodicals, including BARRONS,
FORBES, FORTUNE, INSTITUTIONAL INVESTOR, KIPLINGER'S PERSONAL FINANCE MAGAZINE,
MONEY, U.S. NEWS AND WORLD REPORT AND THE WALL STREET JOURNAL.
The fund may, from time to time, compare its investment results with the
following:
(1) Average of Savings Institutions deposits, which is a measure of all kinds
of savings deposits, including longer-term certificates (based on figures
supplied by the U.S. League of Savings Institutions and the Federal Reserve
Board). Savings deposits offer a guaranteed rate of return on principal, but
no opportunity for capital growth. The period shown may include periods during
which the maximum rates paid on some savings deposits were fixed by law.
(2) 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, shelter, and fuels, transportation fares, charges for doctors' and
dentists' services, prescription medicines, and other goods and services that
people buy for day-to-day living).
The fund may, from time to time, illustrate the benefits of tax-deferral by
comparing taxable investments to investments made through tax-deferred
retirement plans.
EXPERIENCE OF THE 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 (133 in all), those funds
have had better total returns than their comparable Lipper indexes in 124 of
the 133 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than some of 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 investment results 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.
AMF VS. VARIOUS UNMANAGED INDICES
<TABLE>
<CAPTION>
10-Year Average
Periods Savings
11/1 -10/31 AMF DJIA/1/ S&P 500/2/ Account/3/
<S> <C> <C> <C> <C>
1988 - 1998 +267% +432% +416% + 61%
1987 - 1997 +258 +408 +387 + 64
1986 - 1996 +204 +342 +292 + 67
1985 - 1995 +232 +384 +321 + 72
1984 - 1994 +233 +362 +297 + 79
1983 - 1993 +247 +338 +307 + 90
1982 - 1992 +273 +384 +353 +101
1981 - 1991 +336 +453 +379 +113
1980 - 1990 +285 +316 +261 +121
1979 - 1989 +426 +423 +415 +124
1978 - 1988 +412 +347 +371 +124
1977 - 1987 +413 +309 +335 +124
1976 - 1986 +414 +233 +284 +124
1975 - 1985 +400 +182 +247 +122
1974 - 1984 +418 +212 +266 +117
1973 - 1983 +312 +120 +145 +111
1972 - 1982 +221 + 76 + 91 +103
1971 - 1981 +179 + 67 +101 + 93
1970 - 1980 +207 + 97 +134 + 83
1969 - 1979 +113 + 50 + 57 + 78
1968 - 1978 + 71 + 28 + 32 + 74
1967 - 1977 + 79 + 40 + 41 + 71
1966 - 1976 +103 + 78 + 82 + 69
1965 - 1975 + 56 + 28 + 36 + 66
1964 - 1974 + 39 + 10 + 21 + 62
1963 - 1973 + 92 + 81 +102 + 59
1962 - 1972 +154 +131 +173 + 56
1961 - 1971 + 96 + 70 + 90 + 54
1960 - 1970 +115 + 86 +116 + 52
1959 - 1969 +134 + 87 +133 + 49
1958 - 1968 +186 +147 +178 + 46
1957 - 1967 +212 +184 +218 + 44
</TABLE>
/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 & 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 AMF FOR AN INDIVIDUAL RETIREMENT ACCOUNT. . .
<TABLE>
<CAPTION>
Here's how much you would have if you had invested $2,000 a
year on November 1 of each year in AMF over the past 5, 10, 20
and 30 years:
<S> <C> <C> <C>
5 years 10 years 20 years 30 years
(11/1/93 - (11/1/88 - (11/1/78 - (11/1/68 -
10/31/98) 10/31/98) 10/31/98) 10/31/98)
$15,911 $45,562 $245,157 $906,970
</TABLE>
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM...
<TABLE>
<CAPTION>
...and taken all distributions
if you had invested in shares, your investment
$10,000 in AMF would have been worth this
this many years ago... much at October 31, 1998
Number Periods
of Years 11/1 - 10-31 Value
<S> <C> <C>
1 1997 - 1998 $10,852
2 1996 - 1998 13,478
3 1995 - 1998 16,028
4 1994 - 1998 19,429
5 1993 - 1998 19,767
6 1992 - 1998 23,452
7 1991 - 1998 25,664
8 1990 - 1998 31,986
9 1989 - 1998 30,498
10 1988 - 1998 36,657
11 1987 - 1998 41,245
12 1986 - 1998 43,403
13 1985 - 1998 56,485
14 1984 - 1998 68,671
15 1983 - 1998 72,742
16 1982 - 1998 92,928
17 1981 - 1998 118,645
18 1980 - 1998 130,593
19 1979 - 1998 170,198
20 1978 - 1998 199,191
21 1977 - 1998 224,646
22 1976 - 1998 236,759
23 1975 - 1998 299,814
24 1974 - 1998 377,295
25 1973 - 1998 317,732
26 1972 - 1998 316,548
27 1971 - 1998 350,934
28 1970 - 1998 424,584
29 1969 - 1998 384,070
30 1968 - 1998 361,624
</TABLE>
Illustration of a $10,000 investment in AMF with
dividends reinvested and capital gain distributions taken in shares
(For the lifetime of the Fund, February 21, 1950 through October 31, 1998)
COST OF SHARES VALUE OF SHARES
<TABLE>
<CAPTION>
Fiscal Annual Total From From From
Year End Income Dividends Investment From Initial Capital Gains Dividends Total
10/31 Dividends (cumulative) Cost Investment Reinvested Reinvested Value
<S> <C> <C> <C> <C> <C> <C> <C>
1950 $ 310 $ 310 $ 10,310 $ 9,548 $ 163 $ 307 $ 10,018
1951 533 843 10,843 10,706 661 866 12,234
1952 524 1,367 11,367 10,536 1,267 1,360 13,164
1953 579 1,946 11,946 10,452 1,711 1,912 14,076
1954 613 2,559 12,559 13,048 3,195 3,018 19,261
1955 667 3,226 13,226 15,240 5,639 4,170 25,050
1956 789 4,015 14,015 16,087 8,412 5,152 29,651
1957 911 4,926 14,926 13,452 9,479 5,119 28,050
1958 1,010 5,936 15,936 15,936 13,037 7,166 36,140
1959 1,050 6,986 16,986 16,632 16,369 8,487 41,488
1960 1,210 8,196 18,196 15,052 16,968 8,844 40,864
1961 1,257 9,453 19,453 18,495 23,683 12,169 54,348
1962 1,372 10,825 20,825 14,638 21,047 10,887 46,572
1963 1,523 12,348 22,348 17,987 28,350 14,951 61,289
1964 1,697 14,045 24,045 19,360 34,177 17,817 71,355
1965 1,844 15,889 25,889 19,925 39,778 20,215 79,919
1966 2,271 18,160 28,160 17,611 40,060 19,975 77,646
1967 2,568 20,728 30,728 19,285 49,173 24,377 92,836
1968 3,154 23,882 33,882 20,903 58,855 29,827 109,585
1969 3,762 27,644 37,644 17,930 56,040 29,245 103,215
1970 4,168 31,812 41,812 14,506 51,046 27,805 93,358
1971 4,424 36,236 46,236 16,482 60,754 35,762 112,999
1972 4,711 40,947 50,947 16,990 66,765 41,470 125,226
1973 5,069 46,016 56,016 15,842 65,343 43,614 124,799
1974 7,273 53,289 63,289 12,474 51,452 41,195 105,121
1975 7,300 60,589 70,589 14,788 60,997 56,410 132,196
1976 7,881 68,470 78,470 17,516 75,084 74,778 167,378
1977 8,604 77,074 87,074 16,952 78,992 80,489 176,433
</TABLE>
Illustration of a $10,000 investment in AMF with
dividends reinvested and capital gain distributions taken in shares (cont.)
(For the lifetime of the Fund, February 21, 1950 through October 31, 1998)
COST OF SHARES VALUE OF SHARES
<TABLE>
<CAPTION>
Fiscal Annual Total From From From
Year End Income Dividends Investment From Initial Capital Gains Dividends Total
10/31 Dividends (cumulative) Cost Investment Reinvested Reinvested Value
<S> <C> <C> <C> <C> <C> <C> <C>
1978 $ 9,989 $ 87,063 $ 96,063 $ 17,516 $ 88,475 $ 92,954 198,946
1979 11,322 98,385 108,385 18,702 103,900 110,202 232,804
1980 13,854 112,239 122,239 22,295 135,430 145,858 303,583
1981 16,351 128,590 138,590 22,559 147,794 163,762 334,115
1982 26,841 155,431 165,431 24,271 194,579 207,586 426,436
1983 26,227 181,658 191,658 28,391 245,862 270,661 544,914
1984 26,606 208,264 218,264 27,413 260,469 289,276 577,158
1985 30,124 238,388 248,388 30,310 319,637 351,885 701,833
1986 34,058 272,446 282,446 35,974 423,333 453,760 913,068
1987 39,285 311,731 321,731 34,167 459,703 467,015 960,885
1988 50,009 361,740 371,740 35,108 513,718 532,370 1,081,197
1989 59,908 421,648 431,648 38,627 610,639 650,516 1,299,783
1990 66,101 487,749 497,749 33,697 577,410 628,233 1,239,341
1991 71,766 559,515 569,515 39,473 692,080 812,853 1,544,407
1992 67,509 627,024 637,024 40,056 755,215 894,738 1,690,010
1993 70,887 697,911 707,911 43,669 910,544 1,050,642 2,004,855
1994 76,471 774,382 784,382 40,640 943,396 1,055,828 2,039,865
1995 83,156 857,538 867,538 45,475 1,155,434 1,272,525 2,473,435
1996 90,173 947,711 957,711 49,934 1,398,546 1,492,249 2,940,729
1997 95,004 1,042,715 1,052,715 56,707 1,798,200 1,797,281 3,652,188
1998 104,111 1,146,826 1,156,826 58,664 2,180,807 1,965,981 4,205,452
</TABLE>
The dollar amount of capital gain distributions during the period was
$1,348,830.
<TABLE>
AMERICAN MUTUAL FUND Investment Portfolio
October 31, 1998
Market Percent
Value of Net
Equity Securities (Common and Preferred Stocks) Shares (Millions) Assets
----------- ----------- -----------
<S> <C> <C> <C>
Energy
Energy Sources- 6.56%
Amoco Corp. 3,350,000 $188.019 1.84%
Ashland Inc. 1,850,000 89.031 .87
Atlantic Richfield Co. 645,000 44.424 .43
Kerr-McGee Corp. 1,100,000 43.863 .43
Pennzoil Co. 700,000 25.113 .25
Phillips Petroleum Co. 2,300,000 99.475 .97
Royal Dutch Petroleum Co. (New York Registered Shares) 2,000,000 98.500 .96
Texaco Inc. 699,200 41.471 .41
Ultramar Diamond Shamrock Corp. 1,500,000 40.406 .40
Utilities: Electric & Gas- 3.80%
Ameren Corp. 300,000 11.981 .12
American Electric Power Co., Inc. 200,000 9.788 .10
Carolina Power & Light Co. 200,000 9.175 .09
Central and South West Corp. 3,687,800 102.567 1.00
Consolidated Edison, Inc. 1,085,700 54.421 .53
Duke Energy Corp. 600,000 38.812 .38
FPL Group, Inc. 500,000 31.281 .31
New Century Energies, Inc. 2,000,000 96.625 .94
Southern Co. 1,200,000 33.825 .33
---------- ---------
1,058.777 10.36
---------- ---------
Materials
Chemicals- 4.51%
Air Products and Chemicals, Inc. 400,000 15.100 .15
Dow Chemical Co. 300,000 28.087 .27
E.I. du Pont de Nemours and Co. 1,925,000 110.687 1.08
Mallinckrodt Inc. 1,300,000 37.050 .36
Monsanto Co. 2,350,000 95.469 .93
Morton International, Inc. 3,200,000 79.600 .78
PPG Industries, Inc. 772,400 44.172 .43
Praxair, Inc. 1,258,200 50.643 .51
Forest Products & Paper- 2.62%
Fort James Corp. 1,500,000 60.469 .59
Georgia-Pacific Corp., Georgia-Pacific Group 725,000 37.519
Georgia-Pacific Corp., Timber Group 725,000 16.086 .53
International Paper Co. 1,100,000 51.081 .50
Union Camp Corp. 1,000,000 43.000 .42
Westvaco Corp. 1,100,000 27.087 .27
Weyerhaeuser Co. 700,000 32.769 .31
Metals: Nonferrous- 0.43%
Aluminum Co. of America 550,000 43.587 .43
---------- ---------
772.406 7.56
---------- ---------
Capital Equipment
Aerospace & Military Technology- 1.82%
Boeing Co. 957,100 35.891 .35
Raytheon Co., Class A 140,600 7.874
Raytheon Co., Class B 1,023,100 59.404 .66
Sundstrand Corp. 382,600 17.958 .18
United Technologies Corp. 683,100 65.065 .63
Data Processing & Reproduction- 2.85%
Hewlett-Packard Co. 880,000 52.965 .52
International Business Machines Corp. 1,080,000 160.312 1.57
Xerox Corp. 800,000 77.500 .76
Electrical & Electronic- 0.97%
Emerson Electric Co. 577,700 38.128 .37
Hubbell Inc., Class B 720,000 28.710 .28
Lucent Technologies Inc. 400,000 32.075 .32
Electronic Components- 0.25%
Motorola, Inc. 484,900 25.215 .25
Energy Equipment- 0.33%
Schlumberger Ltd. (Netherlands Antilles) 650,000 34.125 .33
Industrial Components- 2.54%
Dana Corp. 700,000 29.269 .29
Federal-Mogul Corp. 350,000 18.966
Federal-Mogul Corp. 7.00% convertible preferred (1) 500,000 30.375 .49
Genuine Parts Co. 525,000 16.537 .16
Goodyear Tire & Rubber Co. 700,000 37.712 .37
TRW Inc. 2,228,900 126.908 1.23
Machinery & Engineering- 1.69%
Briggs & Stratton Corp. 629,100 29.568 .29
Caterpillar Inc. 1,050,000 47.250 .46
Deere & Co. 2,714,200 96.015 .94
---------- ---------
1,067.822 10.45
---------- ---------
Consumer Goods
Automobiles- 1.12%
Chrysler Corp. 350,000 16.844 .16
Ford Motor Co. 750,000 40.688 .40
General Motors Corp. 900,000 56.756 .56
Beverages- 0.73%
PepsiCo, Inc. 2,200,000 74.250 .73
Food & Household Products- 1.18%
Bestfoods 370,000 20.165 .20
Colgate-Palmolive Co. 250,000 22.094 .22
ConAgra, Inc. 400,000 12.175 .12
General Mills, Inc. 900,000 66.150 .64
Health & Personal Care- 3.91%
Bristol-Myers Squibb Co. 400,000 44.225 .43
Johnson & Johnson 400,000 32.600 .32
Kimberly-Clark Corp. 400,000 19.300 .19
Merck & Co., Inc. 300,000 40.575 .40
Pfizer Inc 300,000 32.194 .32
Pharmacia & Upjohn, Inc. 647,500 34.277 .34
Schering-Plough Corp. 710,000 73.041 .71
Warner-Lambert Co. 1,573,900 123.354 1.20
Recreation, Other Consumer Products- 0.51%
Stanley Works 1,750,000 52.500 .51
Textiles & Apparel- 0.70%
NIKE, Inc., Class B 679,600 29.690 .29
VF Corp. 1,000,000 41.812 .41
---------- ---------
832.690 8.15
---------- ---------
Services
Broadcasting & Publishing- 0.44%
Gannett Co., Inc. 725,900 44.915 .44
Business & Public Services- 1.79%
Browning-Ferris Industries, Inc. 2,946,900 104.431 1.02
Electronic Data Systems Corp. 1,050,000 42.722 .42
Waste Management, Inc. 800,000 36.100 .35
Leisure & Tourism- 0.21%
McDonald's Corp. 324,200 21.681 .21
Merchandising- 3.06%
Albertson's, Inc. 800,000 44.450 .44
American Stores Co. 434,500 14.148 .14
May Department Stores Co. 1,149,100 70.095 .68
J.C. Penney Co., Inc. 2,429,100 115.382 1.13
Wal-Mart Stores, Inc. 1,000,000 69.000 .67
Telecommunications- 9.33%
Ameritech Corp. 6,172,800 332.945 3.26
AT&T Corp. 4,575,000 284.794 2.79
GTE Corp. 1,177,500 69.104 .68
SBC Communications Inc. 2,200,000 101.888 1.00
Sprint Corp. 1,225,000 94.019 .92
U S WEST, Inc. 1,200,000 68.850 .68
Transportation: Rail & Road- 1.63%
Norfolk Southern Corp. 3,890,000 128.127 1.25
Union Pacific Corp. 800,000 38.100 .38
---------- ---------
1,680.751 16.46
---------- ---------
Finance
Banking- 12.68%
AmSouth Bancorporation 1,972,000 79.003 .77
BankAmerica Corp. 1,338,000 76.851 .75
Bankers Trust Corp. (formerly Bankers Trust New York Corp.) 645,000 40.514 .40
Bank of New York Co., Inc. 750,000 23.672 .23
Bank One Corp. (formerly Banc One Corp.) 2,920,000 142.715 1.40
Chase Manhattan Corp. 1,218,900 69.249 .68
Comerica Inc. 1,500,000 96.750 .95
Crestar Financial Corp. 800,000 52.700 .52
Firstar Corp. 2,200,000 124.850 1.22
First Security Corp. 3,206,250 65.528 .64
First Union Corp. 2,067,000 119.886 1.17
Fleet Financial Group, Inc. 1,600,000 63.900 .63
Huntington Bancshares Inc. 1,320,000 37.950 .37
KeyCorp 1,800,000 54.563 .53
J.P. Morgan & Co. Inc. 250,000 23.563 .23
PNC Bank Corp. 400,000 20.000 .20
U.S. Bancorp 1,200,000 43.800 .43
Wachovia Corp. 1,100,000 99.962 .98
Wells Fargo & Co. 160,000 59.200 .58
Financial Services- 2.43%
Associates First Capital Corp., Class A 196,668 13.865 .14
Fannie Mae 1,180,000 83.559 .82
Household International, Inc. 2,424,800 88.657 .87
Transamerica Corp. 600,000 62.400 .60
Insurance- 3.47%
Allstate Corp. 1,500,000 64.594 .63
American General Corp. 1,010,000 69.185 .68
Aon Corp. 427,000 26.474 .26
Jefferson-Pilot Corp. 800,000 48.600 .48
Lincoln National Corp. 600,000 45.525 .45
Marsh & McLennan Companies, Inc. 400,000 22.200 .22
St. Paul Companies, Inc. 2,340,000 77.512 .75
---------- ---------
1,897.227 18.58
---------- ---------
Multi-Industry & Miscellaneous
Multi-Industry- 0.98%
AlliedSignal Inc. 800,000 31.150 .30
Harsco Corp. 299,900 9.822 .10
Textron Inc. 800,000 59.500 .58
Miscellaneous- 0.75%
Other equity securities in initial period of acquisition 77.101 .75
---------- ---------
177.573 1.73
---------- ---------
TOTAL EQUITY SECURITIES (cost $4,448.251 million) 7,487.246 73.29
---------- ---------
Principal
Bonds & Notes Amount
- ----------------------------------------------------------------- --------- --------- ---------
Corporate- 0.13%
J.C. Penney Co., Inc. 9.05% 2001 $12,000,000 12.909 .13
Federal Agency- 0.69%
Federal Farm Credit Government Agency 4.85%-5.32% 1999 70,000,000 69.985 .69
U.S. Treasury Obligations- 4.87%
12.375% May 2004 50,000,000 69.023 .68
7.75% February 2001 56,000,000 60.113 .59
5.625% November 2000 90,000,000 92.306 .90
6.25% August 2000 90,000,000 92.995 .91
6.375% May 2000 90,000,000 92.686 .91
5.625% November 1999 90,000,000 91.139 .88
---------- ---------
TOTAL BONDS & NOTES (cost: $572.575 million) 581.156 5.69
---------- ---------
TOTAL INVESTMENT SECURITIES (cost: $5,020.826 million) 8,068.402 78.98
---------- ---------
Short-Term Securities
Corporate Short-Term Notes- 13.33%
American Express Credit Corp. 5.02% - 5.05% due 12/17/98-1/6/99 70,600,000 69.990 .69
BellSouth Telecommunications, Inc. 4.95%-5.32% due 12/3-12/9/98 68,400,000 68.059 .67
Coca-Cola Co. 5.11%-5.12% due 11/25-12/22/98 77,400,000 76.962 .75
E.I. du Pont de Nemours and Co. 5.05%-5.40% due 11/24-12/2/98 83,290,000 82.958 .81
Eli Lilly and Co. 5.37% due 12/11/98 20,000,000 19.884 .19
Ford Motor Credit Co. 5.00%-5.05% due 12/14/98-1/7/99 70,800,000 70.288 .69
Gannett Co., Inc. 5.02% due 11/9/98 37,400,000 37.353 .37
General Electric Capital Corp. 5.50%-5.72% due 11/2-11/23/98 57,100,000 56.955 .56
Gillette Co. 4.98%-5.48% due 11/2/98-1/5/99 (1) 89,800,000 89.336 .87
H.J. Heinz Co. 5.17%-5.40% due 11/16-11/20/98 65,100,000 64.920 .64
IBM Credit Corp. 5.49% due 11/2/98 50,000,000 49.985 .49
Johnson & Johnson 4.90% due 1/22/99 (1) 50,000,000 49.420 .48
Lucent Technologies Inc. 5.00%-5.21% due 11/18-11/30/98 98,300,000 97.990 .96
Minnesota Mining and Manufacturing Co. 5.05%-5.47% due 11/16/98-1/21/99 98,296,000 97.721 .96
Monsanto Co. 5.51% due 11/6/98 25,000,000 24.977 .24
Motorola, Inc. 5.10%-5.15% due 12/1-12/28/98 65,000,000 64.621 .63
Procter & Gamble Co. 5.00%-5.47% due 11/4-12/1/98 81,900,000 81.685 .80
Sara Lee Corp. 4.93% due 12/21/98 77,600,000 77.058 .75
Shell Oil Co. 5.13% due 12/7/98 50,000,000 49.736 .49
U S WEST Communications, Inc. 5.49% due 11/17/98 25,000,000 24.937 .24
Xerox Corp. 4.95%-5.45% due 11/5/98-1/11/99 106,600,000 106.023 1.05
Federal Agency Discount Notes- 7.96%
Fannie Mae 5.06%-5.41% due 11/25/98-3/18/99 211,200,000 208.745 2.04
Federal Home Loan Banks 5.02%-5.40% due 11/12-12/16/98 192,000,000 191.152 1.87
Freddie Mac 4.98%-5.42% due 11/3/98-2/25/99 416,403,000 413.596 4.05
---------- ---------
TOTAL SHORT-TERM SECURITIES (cost:$2,174.126 million) 2,174.351 21.29
Excess of payables over cash and receivables 27.389 .27
---------- ---------
TOTAL SHORT-TERM SECURITIES, CASH AND RECEIVABLES, NET OF PAYABLES 2,146.962 21.02
---------- ---------
NET ASSETS 10,215.364 100.00
---------- ---------
(1)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
</TABLE>
<TABLE>
American Mutual Fund Financial Statements
- -------------------------------------------------- ----------- -----------
Statement of Assets and Liabilities (dollars in
at October 31, 1998 millions)
- -------------------------------------------------- ----------- -----------
<S> <C> <C>
Assets:
Investment securities at market
(cost: $5,020.826) $8,068.402
Short-term securities
(cost: $2,174.126) 2,174.351
Cash .813
Receivables for-
Sales of investments $17.445
Sales of fund's shares 5.501
Dividends and interest 24.957 47.903
----------- -----------
10,291.469
Liabilities:
Payables for-
Purchases of investments 63.766
Repurchases of fund's shares 6.105
Management services 2.363
Other expenses 3.871 76.105
----------- -----------
Net Assets at October 31, 1998-
Equivalent to $31.18 per share on
327,610,869 shares of $1 par value
capital stock outstanding (authorized
capital stock--500,000,000 shares) $10,215.364
===========
- -------------------------------------------------- ----------- -----------
Statement of Operations (dollars in
for the year ended October 31, 1998 millions)
- -------------------------------------------------- ----------- -----------
Investment Income:
Income:
Dividends $ 175.475
Interest 155.195 $330.670
-----------
Expenses:
Management services fee 27.972
Distribution expenses 21.106
Transfer agent fee 4.441
Reports to shareholders .238
Registration statement and
prospectus .358
Postage, stationery and supplies .977
Directors' fees .173
Auditing and legal fees .062
Custodian fee .134
Taxes other than federal income tax .091
Other expenses .065 55.617
----------- -----------
Net investment income 275.053
-----------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 1,003.521
Net increase in unrealized appreciation on
investments:
Beginning of year 2,932.208
End of year 3,047.801 115.593
----------- -----------
Net realized gain and unrealized
appreciation on investments 1,119.114
-----------
Net Increase in Net Assets Resulting
from Operations $1,394.167
==========
- -------------------------------------------------- ----------- -----------
Statement of Changes in Net Assets (dollars in
millions)
- -------------------------------------------------- ----------- -----------
Year ended 10/31
1998 1997
----------- -----------
Operations:
Net investment income $ 275.053 $ 254.684
Net realized gain on investments 1,003.521 758.879
Net increase in unrealized appreciation
on investments 115.593 832.953
----------- -----------
Net increase in net assets
resulting from operations 1,394.167 1,846.516
----------- -----------
Dividends and Distributions
Paid to Shareholders:
Dividends from net investment income (260.046) (246.337)
Distributions from net realized
gain on investments (769.233) (468.836)
----------- -----------
Total dividends and distributions (1,029.279) (715.173)
----------- -----------
Capital Share Transactions:
Proceeds from shares sold:
28,085,473 and 29,819,522
shares, respectively 855.659 828.652
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions of
net realized gain on investments:
31,459,296 and 24,433,383
shares, respectively 928.317 643.000
Cost of shares repurchased:
42,580,163 and 35,919,460
shares, respectively (1,295.650) (999.921)
----------- -----------
Net increase in net assets
resulting from capital share
transactions 488.326 471.731
----------- -----------
Total Increase in Net Assets 853.214 1,603.074
Net Assets:
Beginning of year 9,362.150 7,759.076
----------- -----------
End of year (including undistributed
net investment income: $68.123
and $53.085, respectively) $10,215.364 $9,362.150
========== ==========
See Notes to Financial Statements
</TABLE>
American Mutual Fund
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - 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.
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 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.
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 October 31, 1998, net unrealized appreciation on investments for
federal income tax purposes aggregated $3,048,550,000, of which $3,140,108,000
related to appreciated securities and $91,558,000 related to depreciated
securities. During the year ended October 31, 1998, the fund realized, on a tax
basis, a net capital gain of $1,004,129,000 on securities transactions. The
cost of portfolio securities for federal income tax purposes was $7,194,203,000
at October 31, 1998.
3. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fee of $27,972,000 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 0.384% 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.
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 their selling and servicing efforts. During the year ended
October 31, 1998, distribution expenses under the Plan were $21,106,000. As of
October 31, 1998, accrued and unpaid distribution expenses were $3,397,000.
American Funds Distributors, Inc. (AFD), the principal underwriter of the
fund's shares, received $3,200,000 (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 FEE - American Funds Service Company (AFS), the transfer agent
for the fund, was paid a fee of $4,441,000.
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 October 31, 1998, aggregate amounts deferred and earnings
thereon were $502,000.
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 $2,277,778,000 and $2,682,549,000 respectively,
during the year ended October 31, 1998.
As of October 31, 1998, accumulated undistributed net realized gain on
investments was $929,002,000 and additional paid-in capital was $5,842,827,000.
The fund reclassified $31,000 to undistributed net investment income from
additional paid-in capital and $51,810,000 from undistributed net realized
gains to additional paid-in capital for the year ended October 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 $134,000 includes $31,000 that was paid by these credits
rather than in cash.
<TABLE>
American Mutual Fund
Per-Share Data and Ratios Year ended October 31
------- ------- ------- ------- -------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $30.14 $26.54 24.17 $21.60 $23.21
------- ------- ------- ------- -------
Income from Investment
Operations:
Net investment income .84 .83 .84 .87 .88
Net realized and unrealized
gain (loss) on investments 3.48 5.19 3.52 3.41 (.54)
------- ------- ------- ------- -------
Total income from
investment operations 4.32 6.02 4.36 4.28 .34
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment
income (.80) (.81) (.84) (.84) (.84)
Distributions from net
realized gains (2.48) (1.61) (1.15) (.87) (1.11)
------- ------- ------- ------- -------
Total distributions (3.28) (2.42) (1.99) (1.71) (1.95)
------- ------- ------- ------- -------
Net Asset Value, End of Year $31.18 $30.14 $26.54 $24.17 $21.60
======= ======= ======= ======= =======
Total Return/1/ 15.15% 24.19% 18.89% 21.25% 1.75%
Ratios/Supplemental Data:
Net assets, end of year (in
millions) $10,215 $9,362 $7,759 $6,552 $5,397
Ratio of expenses to average
net assets .56% .58% .59% .59% .60%
Ratio of net income to average
net assets 2.75% 2.95% 3.36% 3.92% 4.07%
Portfolio turnover rate 28.97% 19.16% 24.21% 23.31% 18.46%
/1/Excludes maximum sales charge of
5.75%.
</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 investments portfolio,
as of October 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 as of October 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 American Mutual Fund, Inc. as of October 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.
DELOITTE & TOUCHE LLP
Los Angeles, California
November 30, 1998
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>
To Shareholders Payment Date From Net From Net From Net
of Record Investment Realized Realized
Income Short- Long-
Term term
Gains Gains
<S> <C> <C> <C> <C>
December 5,1997 December 8,1997 $.20 $.056 $2.424
March 27,1998 March 30,1998 .20 - -
June 26,1998 June 29,1998 .20 - -
September 25,1998 September 28,1998 .20 - -
</TABLE>
The funds also designates as a capital gain distribution a portion of earnings
and profits paid to shareholders in redemption of their shares.
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 63% 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, 12% 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 1999 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR RESPECTIVE 1998 TAX RETURNS. SHAREHOLDERS
SHOULD CONSULT THEIR TAX ADVISERS.
