UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
Certified Shareholder Report of
Registered Management Investment Companies
Investment Company Act File Number: 811-572
American Mutual Fund, Inc.
(Exact Name of Registrant as specified in charter)
333 South Hope Street
Los Angeles, California 90071
(Address of principal executive offices)
Registrant's telephone number, including area code: (213) 486-9200
Date of fiscal year end: October 31, 2005
Date of reporting period: April 30, 2005
Julie F. Williams
Capital Research and Management Company
333 South Hope Street
Los Angeles, California 90071
(name and address of agent for service)
Copies to:
Eric A.S. Richards, Esq.
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071
(Counsel for the Registrant)
ITEM 1 - Reports to Stockholders
[logo - American Funds(R)]
The right choice for the long term(R)
AMERICAN MUTUAL FUND
[photo of the eastern Lake Michigan shoreline from the sand dunes]
Semi-annual report for the six months ended April 30, 2005
American Mutual Fund(R) strives for the balanced accomplishment of three
objectives -- current income, growth of capital and conservation of principal --
through investments in companies that participate in the growth of the American
economy.
This fund is one of the 29 American Funds. The organization ranks among the
nation's three largest mutual fund families. For more than seven decades,
Capital Research and Management Company,SM the American Funds adviser, has
invested with a long-term focus based on thorough research and attention to
risk.
FIGURES SHOWN ARE PAST RESULTS FOR CLASS A SHARES AND ARE NOT PREDICTIVE OF
RESULTS IN FUTURE PERIODS. CURRENT AND FUTURE RESULTS MAY BE LOWER OR HIGHER
THAN THOSE SHOWN. SHARE PRICES AND RETURNS WILL VARY, SO INVESTORS MAY LOSE
MONEY. INVESTING FOR SHORT PERIODS MAKES LOSSES MORE LIKELY. INVESTMENTS ARE NOT
FDIC-INSURED, NOR ARE THEY DEPOSITS OF OR GUARANTEED BY A BANK OR ANY OTHER
ENTITY. FOR THE MOST CURRENT INFORMATION AND MONTH-END RESULTS, VISIT
AMERICANFUNDS.COM. FUND RESULTS SHOWN, UNLESS OTHERWISE INDICATED, ARE AT NET
ASSET VALUE. IF A SALES CHARGE (MAXIMUM 5.75%) HAD BEEN DEDUCTED, THE RESULTS
WOULD HAVE BEEN LOWER.
Here are the average annual total returns on a $1,000 investment with all
distributions reinvested for periods ended March 31, 2005 (the most recent
calendar quarter):
Class A shares 1 year 5 years 10 years
Reflecting 5.75% maximum sales charge +1.93% +5.88% +10.38%
The fund's investment adviser is waiving a portion of its management fees.
Results shown reflect the waiver, without which they would have been lower.
Please see the Financial Highlights table on page 20 for details.
The fund's 30-day yield for Class A shares as of May 31, 2005, calculated in
accordance with the Securities and Exchange Commission formula, was 1.96%, which
reflects a fee waiver (1.94% without the fee waiver). The fund's distribution
rates for Class A shares as of that date was 1.61%. Both reflect the 5.75%
maximum sales charge. The SEC yield reflects the rate at which the fund is
earning income on its current portfolio of securities while the distribution
rate reflects the fund's past dividends paid to shareholders. Accordingly, the
fund's SEC yield and distribution rate may differ.
Results for other share classes can be found on page 3. Please see the inside
back cover for important information about other share classes.
[photo of a man and a boy walking along the beach]
FELLOW SHAREHOLDERS:
American Mutual Fund produced a total return of 3.5% for the six months ended
April 30, 2005, essentially in line with the 3.3% return of its benchmark, the
unmanaged Standard & Poor's 500 Composite Index. For the past 12 months, AMF's
total return was 7.4% compared with 6.3% for the S&P 500.
Investors received income dividends totaling 23 cents a share and 5 cents per
share in capital gain distributions during the past six months. In March, the
fund increased its quarterly dividend to 12 cents per share from 11 cents. AMF's
return assumes reinvestment of all income dividends and the capital gain
distribution.
ECONOMIC REVIEW
We are in the fourth year of the economic recovery in the United States and
growth has begun to slow a bit. Gross domestic product grew at an annual rate of
3.5% during the first quarter of 2005, down from an annual rate of 3.8% in the
fourth quarter of 2004. Oil prices remained high during the past six months,
which has had a negative impact on consumer discretionary spending. Inflation
rose as companies passed higher energy and raw-material costs onto consumers.
Recently, activity slowed somewhat across much of the economy, including
corporate investment. Given all these factors, corporate profit growth has
slowed in 2005 after very strong gains in the two previous years.
It is not unusual at this stage of an economic recovery to see these
developments occur. In the past, interest rates have risen to mitigate the
threat of inflation after a period of strong economic growth. The Federal
Reserve Board raised its target for the federal funds rate to 3% on May 3.
Despite the fact that this was the eighth quarter-percentage point increase in
the past 12 months, longer term interest rates have not increased. Federal
Reserve officials are puzzled over why the yield on the 10-year Treasury bond is
lower than it was when the Fed started raising the federal funds rate in June
2004. Fed Chairman Alan Greenspan called the contrast between rising short-term
rates and declining yields on longer term rates a "conundrum." We are similarly
puzzled by this phenomenon and suspect it is likely to resolve itself in favor
of higher long-term rates.
PORTFOLIO REVIEW
Since its inception more than 55 years ago, American Mutual Fund has sought the
balanced accomplishment of three objectives -- current income, growth of capital
and conservation of principal -- through investments in companies that
participate in the growth of the American economy. The fund seeks to invest in
established, well-managed companies that are reasonably priced and have a
history of growing revenues and profits. To be eligible, they must also pay a
dividend. Over the past two years, a growing number of large, well-managed
companies have initiated regular dividend payments, giving the fund a wider
array of investment choices. Microsoft, which initiated regular dividends in
2003, exemplifies this trend and is now owned in the portfolio.
The character of the portfolio has not changed significantly in the past six
months with 85% of the portfolio invested in stocks and the rest essentially in
short-term, fixed income securities -- nearly the same investment mix with which
we began the fiscal year. We increased our holdings in industrials and health
care by a small amount and slightly pared our energy holdings.
Our holdings in energy, health care and utilities helped the fund's results the
most in the recent six-month period. Telecommunication services and financials
detracted from results. A number of our investments in financial services stocks
were impacted negatively by company-specific problems.
GOING FORWARD
As usual, some concerns remain. High oil prices, the situation in the Middle
East and the large federal deficit combined with the U.S. trade imbalance,
certainly create uncertainty. In addition, stock market volatility seems to be
picking up after a long relatively quiet period. However, investors seem aware
of these concerns, and common stock valuations seem well within their typical
range.
We continue to invest based upon our research-driven approach, focusing on
companies with sound prospects and attractive valuations. This approach has
provided long-term investors in the fund with reasonable returns in the past,
and we believe it will continue to do so in the future.
Cordially,
/s/ James K. Dunton /s/ Robert G. O'Donnell
James K. Dunton Robert G. O'Donnell
Chairman of the Board President
June 3, 2005
For current information about the fund, visit americanfunds.com.
OTHER SHARE CLASS RESULTS unaudited
Class B, Class C, Class F and Class 529
Figures shown are past results and are not predictive of results in future
periods. Current and future results may be lower or higher than those shown.
Share prices and returns will vary, so investors may lose money. For the most
current information and month-end results, visit americanfunds.com.
Average annual total returns for periods ended March 31, 2005 (the most recent
calendar quarter):
1 year 5 years Life of class
Class B shares
Reflecting applicable contingent deferred sales
charge (CDSC), maximum of 5%, payable only
if shares are sold within six years of purchase +2.25% +5.97% +7.38%(1)
Not reflecting CDSC +7.25% +6.29% +7.53%(1)
Class C shares
Reflecting CDSC, maximum of 1%, payable only
if shares are sold within one year of purchase +6.19% -- +5.26%(2)
Not reflecting CDSC +7.19% -- +5.26%(2)
Class F shares(3)
Not reflecting annual asset-based fee charged by
sponsoring firm +8.02% -- +6.04%(2)
Class 529-A shares
Reflecting 5.75% maximum sales charge +1.79% -- +4.67%(4)
Not reflecting maximum sales charge +8.00% -- +6.68%(4)
Class 529-B shares
Reflecting applicable CDSC, maximum of 5%, payable
only if shares are sold within six years of purchase +2.06% -- +4.86%(4)
Not reflecting CDSC +7.06% -- +5.73%(4)
Class 529-C shares
Reflecting CDSC, maximum of 1%, payable only if
shares are sold within one year of purchase +6.08% -- +5.41%(5)
Not reflecting CDSC +7.08% -- +5.41%(5)
Class 529-E shares(3) +7.61% -- +4.09%(6)
Class 529-F shares(3)
Not reflecting annual asset-based fee charged by
sponsoring firm +7.89% -- +13.04%(7)
The fund's investment adviser is waiving a portion of its management fees.
Results shown reflect the waiver, without which they would have been lower.
Please see the Financial Highlights table on page 20 for details.
(1) From March 15, 2000, when Class B shares were first sold.
(2) From March 15, 2001, when Class C and Class F shares were first sold.
(3) These shares are sold without any initial or contingent deferred sales
charge.
(4) From February 19, 2002, when Class 529-A and Class 529-B shares were first
sold.
(5) From February 20, 2002, when Class 529-C shares were first sold.
(6) From March 7, 2002, when Class 529-E shares were first sold.
(7) From September 17, 2002, when Class 529-F shares were first sold.
Summary investment portfolio, April 30, 2005 unaudited
The following summary investment portfolio is designed to streamline the report
and help investors better focus on a fund's principal holdings. For details on
how to obtain a complete schedule of portfolio holdings, please see the inside
back cover.
[begin pie chart]
percent
of net
Industry sector diversification assets
Financials 17.16 %
Industrials 9.81
Health care 9.71
Consumer discretionary 8.08
Energy 8.07
Convertible securities .86
Bonds & notes 1.36
Other industries 31.03
Cash & equivalents 13.92
[end pie chart]
Shares Market Percent
value of net
Common stocks - 83.86% (000) assets
Energy - 8.07%
ChevronTexaco Corp. 2,938,900 $ 152,823 1.01%
ConocoPhillips 1,566,589 164,257 1.09
Exxon Mobil Corp. 3,335,000 190,195 1.26
Marathon Oil Corp. 4,200,000 195,594 1.29
Sunoco, Inc. 1,468,100 145,724 .96
Unocal Corp. 2,580,400 140,761 .93
Other securities 230,877 1.53
1,220,231 8.07
Materials - 4.63%
MeadWestvaco Corp. 4,588,000 135,117 .89
Other securities 565,635 3.74
700,752 4.63
Industrials - 9.81%
General Electric Co. 8,351,000 302,306 2.00
Norfolk Southern Corp. 5,606,500 176,044 1.16
Tyco International Ltd. 4,500,000 140,895 .93
United Technologies Corp. 1,500,000 152,580 1.01
Other securities 711,813 4.71
1,483,638 9.81
Consumer discretionary - 8.08%
Clear Channel Communications, Inc. 4,000,000 127,760 .84
General Motors Corp. 6,055,000 161,547 1.07
Magna International Inc., Class A 1,780,000 108,811 .72
TJX Companies, Inc. 5,850,000 132,503 .88
Other securities 692,396 4.57
1,223,017 8.08
Consumer staples - 4.25%
Coca-Cola Co. 3,050,000 132,492 .87
H.J. Heinz Co. 3,350,000 123,448 .82
Wal-Mart Stores, Inc. 1,050,000 49,497 .33
Other securities 337,458 2.23
642,895 4.25
Health care - 9.71%
Abbott Laboratories 5,300,000 260,548 1.72
Bristol-Myers Squibb Co. 7,857,200 204,287 1.35
Eli Lilly and Co. 4,105,000 240,019 1.59
Johnson & Johnson 1,650,000 113,239 .75
Merck & Co., Inc. 4,450,000 150,855 1.00
Pfizer Inc 3,308,100 89,881 .59
Wyeth 3,598,000 161,694 1.07
Other securities 249,148 1.64
1,469,671 9.71
Financials - 17.16%
American International Group, Inc. 2,829,000 143,855 .95
Bank of America Corp. 4,637,652 208,880 1.38
Citigroup Inc. 6,210,000 291,622 1.93
Fannie Mae 4,435,000 239,268 1.58
Freddie Mac 3,000,000 184,560 1.22
J.P. Morgan Chase & Co. 5,446,000 193,279 1.28
St. Paul Travelers Companies, Inc. 4,950,000 177,210 1.17
SunTrust Banks, Inc. 1,475,000 107,424 .71
UnumProvident Corp. 7,900,000 132,088 .87
Washington Mutual, Inc. 3,300,000 136,356 .90
Other securities 781,042 5.17
2,595,584 17.16
Information technology - 7.53%
Hewlett-Packard Co. 13,000,000 266,110 1.76
International Business Machines Corp. 3,335,000 254,727 1.68
Microchip Technology Inc. 4,000,000 113,920 .75
Microsoft Corp. 6,385,000 161,541 1.07
Other securities 342,558 2.27
1,138,856 7.53
Telecommunication services - 5.69%
AT&T Corp. 7,434,600 142,224 .94
BellSouth Corp. 9,300,000 246,357 1.63
SBC Communications Inc. 6,000,000 142,800 .94
Sprint Corp. 7,707,000 171,558 1.13
Other securities 157,200 1.05
860,139 5.69
Utilities - 5.82%
American Electric Power Co., Inc. 3,700,000 130,314 .86
Duke Energy Corp. 4,800,000 140,112 .92
Exelon Corp. 2,348,400 116,246 .77
Other securities 494,557 3.27
881,229 5.82
Miscellaneous - 3.11%
Other common stocks in initial period of acquisition 469,845 3.11
Total common stocks (cost: $10,617,730,000) 12,685,857 83.86
Principal amount
Convertible securities - 0.86% (000)
Industrials - 0.10%
Tyco International Group SA, Series B, 3.125% convertible debentures 2023 $10,000 14,725 .10
Consumer discretionary - 0.19%
Other securities 29,463 .19
Health care - 0.09%
Other securities 13,925 .09
Financials - 0.26%
Other securities 38,449 .26
Utilities - 0.22%
Other securities 33,708 .22
Total convertible securities (cost: $136,634,000) 130,270 .86
Bonds & notes - 1.36%
Utilities - 0.07%
Other securities 10,159 .07
Mortgage-backed obligations - 0.05%
Fannie Mae 6.00% 2017 (1) 7,780 8,070 .05
Government & government agency bonds & notes - 1.24%
Fannie Mae 6.00% 2005 160,000 162,456
Fannie Mae 5.00% 2007 25,000 25,483 1.24
187,939 1.24
Total bonds & notes (cost: $204,187,000) 206,168 1.36
Short-term securities - 13.48%
Bank of America Corp. 2.73%-2.97% due 5/4-6/28/2005 108,800 108,566 .72
BellSouth Corp. 2.78%-2.81% due 5/3-5/17/2005 (2) 46,000 45,958 .30
CAFCO, LLC 2.82%-2.96% due 5/13-6/14/2005 (2) 97,500 97,313 .64
Coca-Cola Co. 2.83%-2.90% due 5/27-6/17/2005 80,600 80,371 .53
DuPont (E.I.) de Nemours & Co. 2.82%-2.92% due 5/25-6/17/2005 111,500 111,191 .74
Exxon Project Investment Corp. 2.92% due 6/3/2005 (2) 17,500 17,452 .12
Federal Home Loan Bank 2.64%-2.92% due 5/6-7/5/2005 197,480 196,929 1.30
Freddie Mac 2.63%-2.94% due 5/2-6/30/2005 181,900 181,364 1.20
General Electric Capital Corp. 2.93%-2.97% due 6/3-6/14/2005 51,200 51,031 .34
International Business Machines Corp. 2.805% due 5/26/2005 50,000 49,899 .33
International Lease Finance Corp. 2.97% due 6/7/2005 50,000 49,843 .33
Park Avenue Receivables Co., LLC 2.92% due 5/20/2005 (2) 25,600 25,558
Preferred Receivables Funding Corp. 2.86% due 5/13/2005 (2) 18,900 18,881 .29
Pfizer Inc 2.76%-2.93% due 5/16-5/26/2005 (2) 70,815 70,696 .47
Three Pillars Funding, LLC 2.85%-2.98% due 5/9-5/25/2005 (2) 112,200 112,022 .74
Wal-Mart Stores Inc. 2.75%-2.88% due 5/10-6/1/2005 (2) 131,680 131,426 .87
Other securities 689,740 4.56
Total short-term securities (cost: $2,038,211,000) 2,038,240 13.48
Total investment securities (cost: $12,996,762,000) 15,060,535 99.56
Other assets less liabilities 66,463 .44
Net assets $15,126,998 100.00%
"Miscellaneous" securities include holdings in their initial period of
acquisition that have not previously been publicly disclosed.
"Other securities" includes all issues that are not disclosed separately in the
summary investment portfolio.
(1) Pass-through security backed by a pool of mortgages or other loans on which
principal payments are periodically made. Therefore, the effective maturity
is shorter than the stated maturity.
(2) Restricted securities that can be resold only to institutional investors.
In practice, these securities are typically as liquid as unrestricted
securities in the portfolio. The total value of all such restricted
securities, including those included in "Other securities" in the summary
investment portfolio, was $842,978,000, which represented 5.57% of
the net assets of the fund.
See Notes to Financial Statements
Financial statements
Statement of assets and liabilities unaudited
at April 30, 2005 (dollars and shares in thousands,
except per-share amounts)
Assets:
Investment securities at market (cost: $12,996,762) $15,060,535
Cash 121
Receivables for:
Sales of investments $52,438
Sales of fund's shares 30,863
Dividends and interest 31,569 114,870
15,175,526
Liabilities:
Payables for:
Purchases of investments 27,656
Repurchases of fund's shares 9,766
Investment advisory services 2,995
Services provided by affiliates 6,493
Deferred Directors' compensation 1,593
Other fees and expenses 25 48,528
Net assets at April 30, 2005 $15,126,998
Net assets consist of:
Capital paid in on shares of capital stock $12,727,034
Undistributed net investment income 53,194
Undistributed net realized gain 282,997
Net unrealized appreciation 2,063,773
Net assets at April 30, 2005 $15,126,998
Total authorized capital stock - 750,000 shares, $0.001 par value (588,934 total
shares outstanding)
Net asset value
Net assets Shares outstanding per share (1)
Class A $13,008,708 506,104 $25.70
Class B 554,785 21,718 25.55
Class C 596,678 23,396 25.50
Class F 388,234 15,139 25.64
Class 529-A 126,668 4,934 25.67
Class 529-B 28,736 1,123 25.60
Class 529-C 41,010 1,602 25.60
Class 529-E 6,799 265 25.62
Class 529-F 2,367 92 25.69
Class R-1 12,610 493 25.57
Class R-2 84,039 3,290 25.54
Class R-3 149,402 5,836 25.60
Class R-4 44,344 1,728 25.66
Class R-5 82,618 3,214 25.71
(1) Maximum offering price and redemption price per share were equal to the net
asset value per share for all share classes, except for classes A and
529-A, for which the maximum offering prices per share were $27.27 and
$27.24, respectively.
See Notes to Financial Statements
Statement of operations unaudited
for the six months ended April 30, 2005 (dollars in thousands)
Investment income:
Income:
Dividends (net of non-U.S. withholding
tax of $203) $165,335
Interest 27,380 $192,715
Fees and expenses:
Investment advisory services 19,797
Distribution services 21,207
Transfer agent services 5,141
Administrative services 1,467
Reports to shareholders 278
Registration statement and prospectus 582
Postage, stationery and supplies 662
Directors' compensation 253
Auditing and legal 55
Custodian 52
State and local taxes 133
Other 105
Total expenses before reimbursements/waivers 49,732
Reimbursement/waiver of expenses 1,234 48,498
Net investment income 144,217
Net realized gain and unrealized
appreciation on investments:
Net realized gain on investments 318,769
Net unrealized appreciation on investments 10,334
Net realized gain and
unrealized appreciation
on investments 329,103
Net increase in net assets resulting
from operations $473,320
See Notes to Financial Statements
Statement of changes in net assets (dollars in thousands)
Six months Year ended
ended April 30, October 31,
2005* 2004
Operations:
Net investment income $144,217 $236,159
Net realized gain on investments 318,769 782
Net unrealized appreciation on investments 10,334 971,758
Net increase in net assets
resulting from operations 473,320 1,208,699
Dividends and distributions paid to
shareholders:
Dividends from net investment income (125,182) (224,102)
Distributions from net realized gain
on investments (27,858) (42,043)
Total dividends and distributions paid
to shareholders (153,040) (266,145)
Capital share transactions 994,594 2,178,397
Total increase in net assets 1,314,874 3,120,951
Net assets:
Beginning of year 13,812,124 10,691,173
End of period (including undistributed
net investment income: $53,194 and $34,159, respectively) $15,126,998 $13,812,124
*Unaudited
See Notes to Financial Statements
Notes to financial statements unaudited
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 balanced accomplishment of three objectives -
current income, growth of capital and conservation of principal - through
investments in companies that participate in the growth of the American economy.
The fund offers 14 share classes consisting of four retail share classes, five
CollegeAmerica(R) savings plan share classes and five retirement plan share
classes. The CollegeAmerica savings plan share classes (529-A, 529-B, 529-C,
529-E and 529-F) are sponsored by the Commonwealth of Virginia and can be
utilized to save for college education. The five retirement plan share classes
(R-1, R-2, R-3, R-4 and R-5) are sold without any sales charges and do not carry
any conversion rights. The fund's share classes are described below:
- ---------------------------------------------------------------------------------------------------------
Share class Initial sales charge Contingent deferred sales Conversion feature
charge upon redemption
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes A and 529-A Up to 5.75% None (except 1% for None
certain redemptions
within one year of
purchase without an
initial sales charge)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes B and 529-B None Declines from 5% to zero Classes B and 529-B convert to
for redemptions within classes A and 529-A,
six years of purchase respectively, after eight years
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class C None 1% for redemptions within Class C converts to Class F
one year of purchase after 10 years
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class 529-C None 1% for redemptions within None
one year of purchase
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class 529-E None None None
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes F and 529-F None None None
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes R-1, R-2, R-3, None None None
R-4 and R-5
- ---------------------------------------------------------------------------------------------------------
Holders of all share classes have equal pro rata rights to assets, dividends and
liquidation proceeds. Each share class has identical voting rights, except for
the exclusive right to vote on matters affecting only its class. Share classes
have different fees and expenses ("class-specific fees and expenses"), primarily
due to different arrangements for distribution, administrative and shareholder
services. Differences in class-specific fees and expenses will result in
differences in net investment income and, therefore, the payment of different
per-share dividends by each class Significant accounting policies - The
financial statements have been prepared to comply with accounting principles
generally accepted in the United States of America. These principles require
management to make estimates and assumptions that affect reported amounts and
disclosures. Actual results could differ from those estimates. The following is
a summary of the significant accounting policies followed by the fund:
SECURITY VALUATION - Equity securities are valued at the official
closing price of, or 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. Prices for each security are
taken from the principal exchange or market in which the security
trades. Fixed-income securities are valued at prices obtained from an
independent pricing service, when such prices are available. However,
where the investment adviser deems it appropriate, such securities
will be valued at the mean quoted bid and asked prices (or bid prices,
if asked prices are not available) or at prices for securities of
comparable maturity, quality and type. Securities with both
fixed-income and equity characteristics, or equity securities traded
principally among fixed-income dealers, are valued in the manner
described above for either equity or fixed-income securities,
depending on which method is deemed most appropriate by the investment
adviser. Short-term securities purchased within 60 days to maturity
are valued at amortized cost, which approximates market value. The
value of short-term securities purchased with greater than 60 days to
maturity with 60 days or less remaining to maturity is determined
based on the market value on the 61st day. The ability of the issuers
of the debt securities held by the fund to meet their obligations may
be affected by economic developments in a specific industry, state or
region. Securities and other assets for which representative market
quotations are not readily available are fair valued as determined in
good faith under procedures adopted by authority of the fund's Board
of Directors. Various factors may be reviewed in order to make a good
faith determination of a security's fair value. These factors include,
but are not limited to, the type and cost of the security; contractual
or legal restrictions on resale of the security; relevant financial or
business developments of the issuer; actively traded similar or
related securities; conversion or exchange rights on the security;
related corporate actions; significant events occurring after the
close of trading in the security; and changes in overall market
conditions.
CollegeAmerica is a registered trademark of the Virginia College Savings
Plan.(sm)
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security
transactions are recorded by the fund as of the date the trades are
executed with brokers. Realized gains and losses from security
transactions are determined based on the specific identified cost of
the securities. Dividend income is recognized on the ex-dividend date
and interest income is recognized on an accrual basis. Market
discounts, premiums and original issue discounts on fixed-income
securities are amortized daily over the expected life of the security.
CLASS ALLOCATIONS - Income, fees and expenses (other than
class-specific fees and expenses) and realized and unrealized gains
and losses are allocated daily among the various share classes based
on their relative net assets. Class-specific fees and expenses, such
as distribution, administrative and shareholder services, are charged
directly to the respective share class.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and
distributions paid to shareholders are recorded on the ex-dividend
date.
TAXATION - Dividend income is recorded net of non-U.S. taxes paid.
2. FEDERAL INCOME TAXATION AND DISTRIBUTIONS
The fund complies with the requirements under Subchapter M of the Internal
Revenue Code applicable to mutual funds and intends to distribute substantially
all of its net taxable income and net capital gains each year. The fund is not
subject to income taxes to the extent such distributions are made.
DISTRIBUTIONS - Distributions paid to shareholders are based on net investment
income and net realized gains determined on a tax basis, which may differ from
net investment income and net realized gains for financial reporting purposes.
These differences are due primarily to differing treatment for items such as
short-term capital gains and losses; capital losses related to sales of certain
securities within 30 days of purchase; deferred expenses; cost of investments
sold; and paydowns on investments. The fiscal year in which amounts are
distributed may differ from the year in which the net investment income and net
realized gains are recorded by the fund. As of April 30, 2005, the cost of
investment securities for federal income tax purposes was $13,003,471,000.
As of April 30, 2005, the components of distributable earnings on a tax basis
were as follows (dollars in thousands):
Undistributed net investment income $54,789
Accumulated short-term capital losses (334)
Undistributed long-term capital gains 290,784
Gross unrealized appreciation on investment securities 2,494,825
Gross unrealized depreciation on investment securities (437,761)
Net unrealized appreciation on investment securities 2,057,064
During the six months ended April 30, 2005, the fund realized, on a tax basis, a
net capital gain of $318,308,000.
The tax character of distributions paid to shareholders was as follows (dollars
in thousands):
Six months ended April 30, 2005
Ordinary income Long-term capital gains Total distributions paid
Share class
Class A $ 113,194 $ 24,216 $ 137,410
Class B 2,667 1,015 3,682
Class C 2,598 1,035 3,633
Class F 3,065 672 3,737
Class 529-A 937 204 1,141
Class 529-B 108 50 158
Class 529-C 154 68 222
Class 529-E 41 11 52
Class 529-F 16 4 20
Class R-1 55 21 76
Class R-2 360 133 493
Class R-3 916 230 1,146
Class R-4 342 75 417
Class R-5 729 124 853
Total $ 125,182 $ 27,858 $ 153,040
Year ended October 31, 2004
Ordinary income Long-term capital gains Total distributions paid
Share class
Class A $ 206,064 $ 38,064 $ 244,128
Class B 4,617 1,279 5,896
Class C 4,073 1,110 5,183
Class F 4,386 683 5,069
Class 529-A 1,349 212 1,561
Class 529-B 180 57 237
Class 529-C 234 69 303
Class 529-E 62 12 74
Class 529-F 20 3 23
Class R-1 53 16 69
Class R-2 517 133 650
Class R-3 952 142 1,094
Class R-4 391 63 454
Class R-5 1,204 200 1,404
Total $ 224,102 $ 42,043 $ 266,145
3. FEES AND TRANSACTIONS WITH RELATED PARTIES
Capital Research and Management Company ("CRMC"), the fund's investment adviser,
is the parent company of American Funds Service Company ("AFS"), the fund's
transfer agent, and American Funds Distributors, Inc. ("AFD"), the principal
underwriter of the fund's shares.
INVESTMENT ADVISORY SERVICES - The Investment Advisory and Service Agreement
with CRMC provides for monthly fees accrued daily. At the beginning of the year,
these fees were based on a declining series of annual rates beginning with
0.384% on the first $1 billion of month-end net assets and decreasing to 0.230%
on such assets in excess of $13 billion. The Board of Directors approved an
amended agreement effective April 1, 2005, continuing the series of rates to
include an additional annual rate of 0.225% on month-end net assets in excess of
$21 billion. During the six months ended April 30, 2005, CRMC reduced investment
advisory services fees by $1,156,000. As a result, the fee shown on the
accompanying financial statements of $19,797,000, which was equivalent to an
annualized rate of 0.268%, was reduced to $18,641,000, or 0.253% of average
daily net assets.
CLASS-SPECIFIC FEES AND EXPENSES - Expenses that are specific to individual
share classes are accrued directly to the respective share class. The principal
class-specific fees and expenses are described on the following page:
DISTRIBUTION SERVICES - The fund has adopted plans of distribution for
all share classes, except Class R-5. Under the plans, the Board of
Directors approves certain categories of expenses that are used to
finance activities primarily intended to sell fund shares. The plans
provide for annual expenses, based on a percentage of average daily
net assets, ranging from 0.25% to 1.00% as noted below. In some cases,
the Board of Directors has approved expense amounts lower than plan
limits. All share classes may use up to 0.25% of average daily net
assets to pay service fees, or to compensate AFD for paying service
fees, to firms that have entered into agreements with AFD for
providing certain shareholder services. Expenses in excess of these
amounts, up to approved limits, may be used to compensate dealers and
wholesalers for shares sold.
For classes A and 529-A, the Board of Directors has also approved the
reimbursement of dealer and wholesaler commissions paid by AFD for
certain shares sold without a sales charge. Each class reimburses AFD
for amounts billed within the prior 15 months but only to the extent
that the overall annual expense limit of 0.25% is not exceeded. As of
April 30, 2005, there were no unreimbursed expenses subject to
reimbursement for classes A or 529-A.
------------------------------------------------ ----------------------------- -----------------------------
Share class Currently approved limits Plan limits
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Class A 0.25% 0.25%
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Class 529-A 0.25 0.50
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes B and 529-B 1.00 1.00
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes C, 529-C and R-1 1.00 1.00
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Class R-2 0.75 1.00
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes 529-E and R-3 0.50 0.75
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes F, 529-F and R-4 0.25 0.50
------------------------------------------------ ----------------------------- -----------------------------
TRANSFER AGENT SERVICES - The fund has a transfer agent agreement with
AFS for classes A and B. Under this agreement, these share classes
compensate AFS for transfer agent services including shareholder
recordkeeping, communications and transaction processing. AFS is also
compensated for certain transfer agent services provided to all other
share classes from the administrative services fees paid to CRMC
described below.
ADMINISTRATIVE SERVICES - The fund has an administrative services
agreement with CRMC to provide transfer agent and other related
shareholder services for all classes of shares other than classes A
and B. Each relevant class pays CRMC annual fees of 0.15% (0.10% for
Class R-5) based on its respective average daily net assets. Each
relevant class also pays AFS additional amounts for certain transfer
agent services. CRMC and AFS may use these fees to compensate third
parties for performing these services. During the six months ended
April 30, 2005, CRMC agreed to pay a portion of these fees for Class
R-2. For the six months ended April 30, 2005, the total fees paid by
CRMC were $78,000 for Class R-2. Administrative services fees are
presented gross of any payments made by CRMC. Each 529 share class is
subject to an additional annual administrative services fee of 0.10%
of its respective average daily net assets; this fee is payable to the
Commonwealth of Virginia for the maintenance of the CollegeAmerica
plan. Although these amounts are included with administrative services
fees in the accompanying financial statements, the Commonwealth of
Virginia is not considered a related party.
Expenses under the agreements described above for the six months ended
April 30, 2005, were as follows (dollars in thousands):
--------------------------------------------------------------------------------------------------------------
Share class Distribution Transfer agent Administrative services
services services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
CRMC Transfer agent Commonwealth of
administrative services Virginia
services administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class A $14,094 $4,893 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class B 2,681 248 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class C 2,800 Included $420 $58 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class F 458 Included 275 21 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-A 107 Included 86 7 $57
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-B 136 Included 20 6 14
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-C 189 Included 28 6 19
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-E 16 Included 5 -* 3
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-F 3 Included 2 -* 1
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-1 58 Included 9 3 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-2 284 Included 57 179 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-3 331 Included 99 21 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-4 50 Included 30 2 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-5 Not Included 38 1 Not applicable
applicable in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Total $21,207 $5,141 $1,069 $304 $94
--------------------------------------------------------------------------------------------------------------
* Amount less than one thousand.
DEFERRED DIRECTORS' COMPENSATION - Since the adoption of the deferred
compensation plan in 1993, Directors who are unaffiliated with CRMC may elect to
defer the cash payment of part or all of their compensation. These deferred
amounts, which remain as liabilities of the fund, are treated as if invested in
shares of the fund or other American Funds. These amounts represent general,
unsecured liabilities of the fund and vary according to the total returns of the
selected funds. Directors' compensation of $253,000, shown on the accompanying
financial statements, includes $141,000 in current fees (either paid in cash or
deferred) and a net increase of $112,000 in the value of the deferred amounts.
AFFILIATED OFFICERS AND DIRECTORS - Officers and certain Directors of the fund
are or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated
officers or Directors received any compensation directly from the fund.
4. CAPITAL SHARE TRANSACTIONS
Capital share transactions in the fund were as follows (dollars and shares in
thousands):
Reinvestments of
Share class Sales(1) dividends and distributions
Amount Shares Amount Shares
Six months ended April 30, 2005
Class A $ 1,190,014 45,671 $ 126,115 4,835
Class B 66,982 2,587 3,506 135
Class C 123,792 4,786 3,313 128
Class F 94,528 3,634 3,349 129
Class 529-A 28,880 1,108 1,141 44
Class 529-B 4,009 154 159 6
Class 529-C 8,421 324 222 8
Class 529-E 1,212 46 52 2
Class 529-F 596 23 20 1
Class R-1 3,705 143 76 3
Class R-2 28,528 1,102 493 19
Class R-3 44,500 1,715 1,129 44
Class R-4 18,420 708 417 16
Class R-5 26,284 1,001 535 20
Total net increase
(decrease) $ 1,639,871 63,002 $ 140,527 5,390
Year ended October 31, 2004
Class A $ 2,249,778 91,778 $ 223,459 9,214
Class B 179,897 7,391 5,661 236
Class C 245,538 10,093 4,919 204
Class F 184,317 7,536 4,602 189
Class 529-A 44,044 1,801 1,561 64
Class 529-B 9,686 398 237 10
Class 529-C 16,215 664 303 13
Class 529-E 2,434 100 75 3
Class 529-F 1,058 43 23 1
Class R-1 7,582 307 69 3
Class R-2 35,768 1,465 649 27
Class R-3 87,583 3,572 1,080 44
Class R-4 21,888 891 453 19
Class R-5 14,855 606 786 32
Total net increase
(decrease) $ 3,100,643 126,645 $ 243,877 10,059
Share class Repurchases(1) Net increase
Amount Shares Amount Shares
Six months ended April 30, 2005
Class A $ (633,233) (24,292) $ 682,896 26,214
Class B (24,357) (940) 46,131 1,782
Class C (41,341) (1,599) 85,764 3,315
Class F (40,815) (1,567) 57,062 2,196
Class 529-A (4,070) (156) 25,951 996
Class 529-B (501) (19) 3,667 141
Class 529-C (1,391) (53) 7,252 279
Class 529-E (131) (5) 1,133 43
Class 529-F (79) (3) 537 21
Class R-1 (1,473) (57) 2,308 89
Class R-2 (10,625) (410) 18,396 711
Class R-3 (11,053) (426) 34,576 1,333
Class R-4 (9,744) (375) 9,093 349
Class R-5 (6,991) (268) 19,828 753
Total net increase
(decrease) $ (785,804) (30,170) $ 994,594 38,222
Year ended October 31, 2004
Class A $ (991,735) (40,523) $ 1,481,502 60,469
Class B (33,058) (1,357) 152,500 6,270
Class C (44,390) (1,822) 206,067 8,475
Class F (54,526) (2,245) 134,393 5,480
Class 529-A (3,580) (146) 42,025 1,719
Class 529-B (680) (28) 9,243 380
Class 529-C (1,648) (67) 14,870 610
Class 529-E (280) (12) 2,229 91
Class 529-F (55) (2) 1,026 42
Class R-1 (1,822) (75) 5,829 235
Class R-2 (7,664) (314) 28,753 1,178
Class R-3 (11,818) (484) 76,845 3,132
Class R-4 (4,981) (203) 17,360 707
Class R-5 (9,886) (407) 5,755 231
Total net increase
(decrease) $ (1,166,123) (47,685) $ 2,178,397 89,019
(1) Includes exchanges between share classes of the fund.
5. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding short-term
securities, of $2,074,276,000 and $1,468,076,000, respectively, during the six
months ended April 30, 2005.
The fund receives a reduction in its custodian fee equal to the amount of
interest calculated on certain cash balances held at the custodian bank. For the
six months ended April 30, 2005, the custodian fee of $52,000, shown on the
accompanying financial statements, includes $6,000 that was offset by this
reduction, rather than paid in cash.
Financial highlights (1)
Income (loss) from investment operations (2)
Net
Net asset gains (losses)
value, Net on securities Total from
beginning investment (both realized investment
of period income and unrealized) operations
Class A:
Six months ended 4/30/2005 (5) $25.10 $.26 $.62 $.88
Year ended 10/31/2004 23.17 .48 2.00 2.48
Year ended 10/31/2003 20.20 .49 3.31 3.80
Year ended 10/31/2002 23.22 .49 (2.29) (1.80)
Year ended 10/31/2001 24.36 .65 .19 .84
Year ended 10/31/2000 30.09 .80 (.74) .06
Class B:
Six months ended 4/30/2005 (5) 24.94 .16 .63 .79
Year ended 10/31/2004 23.04 .29 1.98 2.27
Year ended 10/31/2003 20.11 .32 3.28 3.60
Year ended 10/31/2002 23.13 .32 (2.28) (1.96)
Year ended 10/31/2001 24.30 .44 .21 .65
Period from 3/15/2000 to 10/31/2000 21.78 .37 2.46 2.83
Class C:
Six months ended 4/30/2005 (5) 24.90 .15 .62 .77
Year ended 10/31/2004 23.01 .27 1.97 2.24
Year ended 10/31/2003 20.09 .30 3.28 3.58
Year ended 10/31/2002 23.12 .30 (2.28) (1.98)
Period from 3/15/2001 to 10/31/2001 23.48 .24 (.35) (.11)
Class F:
Six months ended 4/30/2005 (5) 25.04 .25 .62 .87
Year ended 10/31/2004 23.12 .45 2.00 2.45
Year ended 10/31/2003 20.17 .46 3.30 3.76
Year ended 10/31/2002 23.20 .47 (2.30) (1.83)
Period from 3/15/2001 to 10/31/2001 23.54 .34 (.35) (.01)
Class 529-A:
Six months ended 4/30/2005 (5) 25.07 .24 .62 .86
Year ended 10/31/2004 23.15 .45 2.00 2.45
Year ended 10/31/2003 20.20 .47 3.31 3.78
Period from 2/19/2002 to 10/31/2002 23.31 .34 (3.07) (2.73)
Class 529-B:
Six months ended 4/30/2005 (5) 25.00 .13 .62 .75
Year ended 10/31/2004 23.09 .24 1.99 2.23
Year ended 10/31/2003 20.16 .27 3.30 3.57
Period from 2/19/2002 to 10/31/2002 23.31 .20 (3.06) (2.86)
Class 529-C:
Six months ended 4/30/2005 (5) 25.00 .13 .63 .76
Year ended 10/31/2004 23.09 .24 1.99 2.23
Year ended 10/31/2003 20.16 .27 3.30 3.57
Period from 2/20/2002 to 10/31/2002 23.54 .21 (3.30) (3.09)
Class 529-E:
Six months ended 4/30/2005 (5) 25.02 .20 .62 .82
Year ended 10/31/2004 23.10 .37 1.99 2.36
Year ended 10/31/2003 20.16 .38 3.30 3.68
Period from 3/7/2002 to 10/31/2002 24.93 .27 (4.67) (4.40)
Class 529-F:
Six months ended 4/30/2005 (5) 25.08 .23 .63 .86
Year ended 10/31/2004 23.16 .43 2.00 2.43
Year ended 10/31/2003 20.22 .43 3.32 3.75
Period from 9/17/2002 to 10/31/2002 20.63 .05 (.34) (.29)
Financial highlights (1) (continued)
Income (loss) from investment operations (2)
Net
Net asset gains(losses)
value, Net on securities Total from
beginning investment (both realized investment
of period income and unrealized) operations
Class R-1:
Six months ended 4/30/2005 (5) $24.97 $.15 $.62 $.77
Year ended 10/31/2004 23.06 .26 1.99 2.25
Year ended 10/31/2003 20.17 .26 3.33 3.59
Period from 6/11/2002 to 10/31/2002 23.56 .12 (3.29) (3.17)
Class R-2:
Six months ended 4/30/2005 (5) 24.95 .15 .61 .76
Year ended 10/31/2004 23.05 .27 1.99 2.26
Year ended 10/31/2003 20.17 .29 3.28 3.57
Period from 5/31/2002 to 10/31/2002 24.35 .14 (4.10) (3.96)
Class R-3:
Six months ended 4/30/2005 (5) 25.00 .21 .62 .83
Year ended 10/31/2004 23.09 .37 1.99 2.36
Year ended 10/31/2003 20.18 .37 3.30 3.67
Period from 6/6/2002 to 10/31/2002 23.70 .17 (3.44) (3.27)
Class R-4:
Six months ended 4/30/2005 (5) 25.06 .25 .62 .87
Year ended 10/31/2004 23.14 .46 1.99 2.45
Year ended 10/31/2003 20.19 .44 3.32 3.76
Period from 6/27/2002 to 10/31/2002 22.95 .17 (2.79) (2.62)
Class R-5:
Six months ended 4/30/2005 (5) 25.10 .29 .63 .92
Year ended 10/31/2004 23.17 .53 2.00 2.53
Year ended 10/31/2003 20.21 .54 3.29 3.83
Period from 5/15/2002 to 10/31/2002 24.66 .26 (4.43) (4.17)
Financial highlights (1)
Dividends and distributions
Dividends
(from net Distributions Total Net asset
investment (from capital dividends and value, end
income) gains) distributions of period
Class A:
Six months ended 4/30/2005 (5) $(.23) $(.05) $(.28) $25.70
Year ended 10/31/2004 (.46) (.09) (.55) 25.10
Year ended 10/31/2003 (.52) (.31) (.83) 23.17
Year ended 10/31/2002 (.57) (.65) (1.22) 20.20
Year ended 10/31/2001 (.72) (1.26) (1.98) 23.22
Year ended 10/31/2000 (.74) (5.05) (5.79) 24.36
Class B:
Six months ended 4/30/2005 (5) (.13) (.05) (.18) 25.55
Year ended 10/31/2004 (.28) (.09) (.37) 24.94
Year ended 10/31/2003 (.36) (.31) (.67) 23.04
Year ended 10/31/2002 (.41) (.65) (1.06) 20.11
Year ended 10/31/2001 (.56) (1.26) (1.82) 23.13
Period from 3/15/2000 to 10/31/2000 (.31) - (.31) 24.30
Class C:
Six months ended 4/30/2005 (5) (.12) (.05) (.17) 25.50
Year ended 10/31/2004 (.26) (.09) (.35) 24.90
Year ended 10/31/2003 (.35) (.31) (.66) 23.01
Year ended 10/31/2002 (.40) (.65) (1.05) 20.09
Period from 3/15/2001 to 10/31/2001 (.25) - (.25) 23.12
Class F:
Six months ended 4/30/2005 (5) (.22) (.05) (.27) 25.64
Year ended 10/31/2004 (.44) (.09) (.53) 25.04
Year ended 10/31/2003 (.50) (.31) (.81) 23.12
Year ended 10/31/2002 (.55) (.65) (1.20) 20.17
Period from 3/15/2001 to 10/31/2001 (.33) - (.33) 23.20
Class 529-A:
Six months ended 4/30/2005 (5) (.21) (.05) (.26) 25.67
Year ended 10/31/2004 (.44) (.09) (.53) 25.07
Year ended 10/31/2003 (.52) (.31) (.83) 23.15
Period from 2/19/2002 to 10/31/2002 (.38) - (.38) 20.20
Class 529-B:
Six months ended 4/30/2005 (5) (.10) (.05) (.15) 25.60
Year ended 10/31/2004 (.23) (.09) (.32) 25.00
Year ended 10/31/2003 (.33) (.31) (.64) 23.09
Period from 2/19/2002 to 10/31/2002 (.29) - (.29) 20.16
Class 529-C:
Six months ended 4/30/2005 (5) (.11) (.05) (.16) 25.60
Year ended 10/31/2004 (.23) (.09) (.32) 25.00
Year ended 10/31/2003 (.33) (.31) (.64) 23.09
Period from 2/20/2002 to 10/31/2002 (.29) - (.29) 20.16
Class 529-E:
Six months ended 4/30/2005 (5) (.17) (.05) (.22) 25.62
Year ended 10/31/2004 (.35) (.09) (.44) 25.02
Year ended 10/31/2003 (.43) (.31) (.74) 23.10
Period from 3/7/2002 to 10/31/2002 (.37) - (.37) 20.16
Class 529-F:
Six months ended 4/30/2005 (5) (.20) (.05) (.25) 25.69
Year ended 10/31/2004 (.42) (.09) (.51) 25.08
Year ended 10/31/2003 (.50) (.31) (.81) 23.16
Period from 9/17/2002 to 10/31/2002 (.12) - (.12) 20.22
Financial highlights (1) (continued)
Dividends and distributions
Dividends
(from net Distributions Total Net asset
investment (from capital dividends and value, end
income) gains) distributions of period
Class R-1:
Six months ended 4/30/2005 (5) $(.12) $(.05) $(.17) $25.57
Year ended 10/31/2004 (.25) (.09) (.34) 24.97
Year ended 10/31/2003 (.39) (.31) (.70) 23.06
Period from 6/11/2002 to 10/31/2002 (.22) - (.22) 20.17
Class R-2:
Six months ended 4/30/2005 (5) (.12) (.05) (.17) 25.54
Year ended 10/31/2004 (.27) (.09) (.36) 24.95
Year ended 10/31/2003 (.38) (.31) (.69) 23.05
Period from 5/31/2002 to 10/31/2002 (.22) - (.22) 20.17
Class R-3:
Six months ended 4/30/2005 (5) (.18) (.05) (.23) 25.60
Year ended 10/31/2004 (.36) (.09) (.45) 25.00
Year ended 10/31/2003 (.45) (.31) (.76) 23.09
Period from 6/6/2002 to 10/31/2002 (.25) - (.25) 20.18
Class R-4:
Six months ended 4/30/2005 (5) (.22) (.05) (.27) 25.66
Year ended 10/31/2004 (.44) (.09) (.53) 25.06
Year ended 10/31/2003 (.50) (.31) (.81) 23.14
Period from 6/27/2002 to 10/31/2002 (.14) - (.14) 20.19
Class R-5:
Six months ended 4/30/2005 (5) (.26) (.05) (.31) 25.71
Year ended 10/31/2004 (.51) (.09) (.60) 25.10
Year ended 10/31/2003 (.56) (.31) (.87) 23.17
Period from 5/15/2002 to 10/31/2002 (.28) - (.28) 20.21
Financial highlights (1)
Ratio of expenses Ratio of expenses
to average net to average net Ratio of
Net assets, assets before assets after net income
Total end of period reimbursements/ reimbursements/ to average
return (3) (in millions) waivers waivers (4) net assets
Class A:
Six months ended 4/30/2005 (5) 3.49% $13,009 .59% (6) .58% (6) 2.03% (6)
Year ended 10/31/2004 10.81 12,044 .60 .60 1.97
Year ended 10/31/2003 19.31 9,716 .62 .62 2.32
Year ended 10/31/2002 (8.42) 7,782 .60 .60 2.15
Year ended 10/31/2001 3.71 8,399 .59 .59 2.68
Year ended 10/31/2000 1.21 8,343 .59 .59 3.29
Class B:
Six months ended 4/30/2005 (5) 3.15 555 1.39 (6) 1.37 (6) 1.24 (6)
Year ended 10/31/2004 9.92 497 1.39 1.39 1.18
Year ended 10/31/2003 18.32 315 1.41 1.41 1.49
Year ended 10/31/2002 (9.11) 156 1.40 1.40 1.40
Year ended 10/31/2001 2.88 59 1.38 1.38 1.80
Period from 3/15/2000 to 10/31/2000 13.07 10 1.38 (6) 1.38 (6) 2.33 (6)
Class C:
Six months ended 4/30/2005 (5) 3.08 597 1.47 (6) 1.45 (6) 1.15 (6)
Year ended 10/31/2004 9.82 500 1.47 1.46 1.09
Year ended 10/31/2003 18.23 267 1.49 1.49 1.39
Year ended 10/31/2002 (9.20) 107 1.48 1.48 1.34
Period from 3/15/2001 to 10/31/2001 (.48) 28 1.48 (6) 1.48 (6) 1.64 (6)
Class F:
Six months ended 4/30/2005 (5) 3.45 388 .70 (6) .69 (6) 1.92 (6)
Year ended 10/31/2004 10.70 324 .70 .70 1.86
Year ended 10/31/2003 19.14 172 .72 .72 2.14
Year ended 10/31/2002 (8.57) 54 .75 .75 2.08
Period from 3/15/2001 to 10/31/2001 (.05) 12 .76 (6) .76 (6) 2.30 (6)
Class 529-A:
Six months ended 4/30/2005 (5) 3.43 127 .75 (6) .73 (6) 1.87 (6)
Year ended 10/31/2004 10.70 99 .71 .71 1.85
Year ended 10/31/2003 19.19 51 .67 .67 2.22
Period from 2/19/2002 to 10/31/2002 (11.88) 19 .70 (6) .70 (6) 2.25 (6)
Class 529-B:
Six months ended 4/30/2005 (5) 3.00 29 1.59 (6) 1.57 (6) 1.03 (6)
Year ended 10/31/2004 9.72 24 1.59 1.59 .97
Year ended 10/31/2003 18.07 14 1.61 1.61 1.27
Period from 2/19/2002 to 10/31/2002 (12.40) 5 1.60 (6) 1.60 (6) 1.36 (6)
Class 529-C:
Six months ended 4/30/2005 (5) 3.01 41 1.58 (6) 1.57 (6) 1.04 (6)
Year ended 10/31/2004 9.74 33 1.58 1.58 .98
Year ended 10/31/2003 18.09 16 1.60 1.60 1.28
Period from 2/20/2002 to 10/31/2002 (13.25) 6 1.59 (6) 1.59 (6) 1.38 (6)
Class 529-E:
Six months ended 4/30/2005 (5) 3.27 7 1.06 (6) 1.04 (6) 1.56 (6)
Year ended 10/31/2004 10.32 6 1.06 1.06 1.50
Year ended 10/31/2003 18.72 3 1.07 1.07 1.80
Period from 3/7/2002 to 10/31/2002 (17.78) 1 1.05 (6) 1.05 (6) 1.95 (6)
Class 529-F:
Six months ended 4/30/2005 (5) 3.43 2 .81 (6) .79 (6) 1.81 (6)
Year ended 10/31/2004 10.58 2 .81 .80 1.75
Year ended 10/31/2003 19.03 1 .82 .82 1.99
Period from 9/17/2002 to 10/31/2002 (1.42) - (7) .09 .09 .26
Financial highlights (1) (continued)
Ratio of expenses Ratio of expenses
to average net to average net Ratio of
Net assets, assets before assets after net income
Total end of period reimbursements/ reimbursements/ to average
return (in millions) waivers waivers (4) net assets
Class R-1:
Six months ended 4/30/2005 (5) 3.08% $12 1.48% (6) 1.47% (6) 1.14% (6)
Year ended 10/31/2004 9.83 10 1.51 1.49 1.07
Year ended 10/31/2003 18.19 4 1.65 1.50 1.18
Period from 6/11/2002 to 10/31/2002 (13.50) - (7) 1.24 .58 .60
Class R-2:
Six months ended 4/30/2005 (5) 3.04 84 1.66 (6) 1.44 (6) 1.15 (6)
Year ended 10/31/2004 9.86 64 1.76 1.45 1.10
Year ended 10/31/2003 18.10 32 1.86 1.47 1.35
Period from 5/31/2002 to 10/31/2002 (16.31) 3 .75 .61 .67
Class R-3:
Six months ended 4/30/2005 (5) 3.31 149 .97 (6) .96 (6) 1.64 (6)
Year ended 10/31/2004 10.32 113 1.05 1.04 1.49
Year ended 10/31/2003 18.64 32 1.14 1.08 1.72
Period from 6/6/2002 to 10/31/2002 (13.87) 2 .53 .43 .83
Class R-4:
Six months ended 4/30/2005 (5) 3.45 44 .70 (6) .69 (6) 1.91 (6)
Year ended 10/31/2004 10.69 34 .70 .70 1.86
Year ended 10/31/2003 19.14 16 .73 .72 2.03
Period from 6/27/2002 to 10/31/2002 (11.43) - (7) .53 .25 .84
Class R-5:
Six months ended 4/30/2005 (5) 3.64 83 .39 (6) .38 (6) 2.22 (6)
Year ended 10/31/2004 11.04 62 .39 .39 2.18
Year ended 10/31/2003 19.50 52 .41 .41 2.53
Period from 5/15/2002 to 10/31/2002 (16.98) 41 .18 .18 1.22
Six months ended
April 30, Year ended October 31
2005(5) 2004 2003 2002 2001 2000
Portfolio turnover rate for all classes of shares 11% 17% 24% 31% 45% 29%
(1) Based on operations for the period shown (unless otherwise noted) and,
accordingly, may not be representative of a full year.
(2) Based on average shares outstanding.
(3) Total returns exclude all sales charges, including contingent deferred
sales charges.
(4) The ratios in this column reflect the impact, if any, of certain
reimbursements/waivers from CRMC. During some of the periods shown, CRMC
reduced fees for investment advisory services for all share classes.
In addition, during the start-up period for the retirement plan share
classes (except Class R-5), CRMC agreed to pay a portion of the fees
related to transfer agent services.
(5) Unaudited.
(6) Annualized.
(7) Amount less than $1 million.
See Notes to Financial Statements
EXPENSE EXAMPLE (unaudited)
As a shareholder of the fund, you incur two types of costs: (1) transaction
costs such as initial sales charges on purchase payments and contingent deferred
sales charges on redemptions (loads); and (2) ongoing costs, including
management fees; distribution and service (12b-1) fees; and other expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the fund so you can compare these costs with the ongoing costs of
investing in other mutual funds. The example is based on an investment of $1,000
invested at the beginning of the period and held for the entire period (November
1, 2004 through April 30, 2005).
ACTUAL EXPENSES:
The first line of each share class in the table on the next page provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the first line under the heading entitled
"Expenses paid during period" to estimate the expenses you paid on your account
during this period. There are some account fees that are charged to certain
types of accounts, such as Individual Retirement Accounts and CollegeAmerica
accounts (generally, a $10 fee is charged to set up the account and an
additional $10 fee is charged to the account annually) that would increase the
amount of expenses paid on your account. In addition, retirement plan
participants may be subject to certain fees charged by the plan sponsor, and
Class F and Class 529-F shareholders may be subject to fees charged by financial
intermediaries, typically ranging from 0.75% to 1.50% of assets annually
depending on services offered. You can estimate the impact of these fees by
adding the amount of the fees to the total estimated expenses you paid on your
account during the period as calculated above. In addition, your ending account
value would also be lower by the amount of these fees.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES:
The second line of each share class in the table on the next page provides
information about hypothetical account values and hypothetical expenses based on
the actual expense ratio for the share class and an assumed rate of return of
5.00% per year before expenses, which is not the actual return of the share
class. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the fund and
other funds. To do so, compare this 5.00% hypothetical example with the 5.00%
hypothetical examples that appear in the shareholder reports of the other funds.
There are some account fees that are charged to certain shareholders, such as
Individual Retirement Accounts and CollegeAmerica accounts (generally, a $10 fee
is charged to set up the account and an additional $10 fee is charged to the
account annually) that would increase the amount of expenses paid on your
account. In addition, retirement plan participants may be subject to certain
fees charged by the plan sponsor, and Class F and Class 529-F shareholders may
be subject to fees charged by financial intermediaries, typically ranging from
0.75% to 1.50% of assets annually depending on services offered. You can
estimate the impact of these fees by adding the amount of the fees to the total
estimated expenses you paid on your account during the period as calculated
above. In addition, your ending account value would also be lower by the amount
of these fees.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of each share class in the table is
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these
transactional costs were included, your costs would have been higher.
Beginning account Ending account Expenses paid Annualized
value 11/1/2004 value 4/30/2005 during period(1) expense ratio
Class A -- actual return $1,000.00 $1,034.94 $2.93 .58%
Class A -- assumed 5% return 1,000.00 1,021.92 2.91 .58
Class B -- actual return 1,000.00 1,031.48 6.90 1.37
Class B -- assumed 5% return 1,000.00 1,018.00 6.85 1.37
Class C -- actual return 1,000.00 1.030.84 7.30 1.45
Class C -- assumed 5% return 1,000.00 1,017.60 7.25 1.45
Class F -- actual return 1,000.00 1,034.47 3.48 .69
Class F -- assumed 5% return 1,000.00 1.021.37 3.46 .69
Class 529-A -- actual return 1,000.00 1,034.27 3.68 .73
Class 529-A -- assumed 5% return 1,000.00 1,021.17 3.66 .73
Class 529-B -- actual return 1,000.00 1,030.02 7.90 1.57
Class 529-B -- assumed 5% return 1,000.00 1,017.01 7.85 1.57
Class 529-C -- actual return 1,000.00 1,030.14 7.90 1.57
Class 529-C -- assumed 5% return 1,000.00 1,017.01 7.85 1.57
Class 529-E -- actual return 1,000.00 1,032.69 5.24 1.04
Class 529-E -- assumed 5% return 1,000.00 1,019.64 5.21 1.04
Class 529-F -- actual return 1,000.00 1,034.25 3.98 .79
Class 529-F -- assumed 5% return 1,000.00 1,020.88 3.96 .79
Class R-1 -- actual return 1,000.00 1,030.75 7.40 1.47
Class R-1 -- assumed 5% return 1,000.00 1,017.50 7.35 1.47
Class R-2 -- actual return 1,000.00 1,030.41 7.25 1.44
Class R-2 -- assumed 5% return 1,000.00 1.017.65 7.20 1.44
Class R-3 -- actual return 1,000.00 1,033.06 4.84 .96
Class R-3 -- assumed 5% return 1,000.00 1,020.03 4.81 .96
Class R-4 -- actual return 1,000.00 1,034.48 3.48 .69
Class R-4 -- assumed 5% return 1,000.00 1,021.37 3.46 .69
Class R-5 -- actual return 1,000.00 1,036.37 1.92 .38
Class R-5 -- assumed 5% return 1,000.00 1,022.91 1.91 .38
(1) Expenses are equal to the annualized expense ratio, multiplied by the
average account value over the period, multiplied by the number of days in
the period (181), and divided by 365 (to reflect the one-half year period).
APPROVAL OF AMENDMENT AND RENEWAL OF INVESTMENT ADVISORY AND SERVICE AGREEMENT
The fund's Board of Directors has approved the renewal of the fund's Investment
Advisory and Service Agreement (the "agreement") with Capital Research and
Management Company (CRMC) for an additional one-year term through March 31,
2006, as well as an amendment to the agreement adding an additional advisory fee
breakpoint if and when the fund's net assets exceed $21 billion. Both the
amendment and the renewal of the agreement were approved by the Board following
the recommendation of the fund's Contracts Committee (the "committee"), which is
composed of all of the fund's independent Directors. The information, material
factors and conclusions that formed the basis for the committee's recommendation
and the Board's subsequent approval are described below.
1. Information received
Materials reviewed -- During the course of each year, the independent Directors
receive a wide variety of materials relating to the services provided by CRMC,
including reports on the fund's investment results; portfolio composition;
portfolio trading practices; shareholder services; and other information
relating to the nature, extent and quality of services provided by CRMC to the
fund. In addition, the committee requests and reviews supplementary information
that includes extensive materials regarding the fund's investment results,
advisory fee and expense comparisons (including comparisons to advisory fees
charged by an affiliate of CRMC to institutional clients), financial and
profitability information regarding CRMC, descriptions of various functions such
as compliance monitoring and portfolio trading practices, and information about
the personnel providing investment management and administrative services to the
fund.
Review process -- The committee received assistance and advice regarding legal
and industry standards from independent counsel to the independent Directors.
The committee discussed the renewal and amendment of the agreement with CRMC
representatives and in a private session with independent legal counsel at which
no representatives of CRMC were present. In deciding to recommend the renewal
and amendment of the agreement, the committee did not identify any single issue
or particular information that, in isolation, was the controlling factor. This
summary describes the most important, but not all, of the factors considered by
the Board and the committee.
2. Nature, extent and quality of services
CRMC, its personnel and its resources -- The Board and the committee considered
the depth and quality of CRMC's investment management process, including its
global research capabilities; the experience, capability and integrity of its
senior management and other personnel; the low turnover rates of its key
personnel; the overall financial strength and stability of its organization; and
the ability of its organizational structure to address the recent growth in
assets under management. The Board and the committee also considered that CRMC
made available to its investment professionals a variety of resources and
systems relating to investment management, compliance, trading, performance and
portfolio accounting. They considered CRMC's commitment to investing in
information technology supporting investment management and compliance. They
further considered CRMC's continuing need to attract and retain qualified
personnel and to maintain and enhance its resources and systems.
Other services -- The Board and the committee considered CRMC's policies,
procedures and systems to ensure compliance with applicable laws and regulations
and its commitment to these programs; its efforts to keep the Directors
informed; and its attention to matters that may involve conflicts of interest
with the fund. The Board and the committee also considered the nature, extent,
quality and cost of administrative, distribution and shareholder services
provided by CRMC to the fund under the agreement and other agreements, including
the administrative, legal, and fund accounting and treasury functions.
The Board and the committee concluded that the nature, extent and quality of the
services provided by CRMC has benefited and will continue to benefit the fund
and its shareholders.
3. Investment performance
The Board and the committee considered the fund's unique, balanced pursuit of
three investment objectives (current income, preservation of principal and
growth of capital) and the investment results of the fund in light of these
blended objectives. They compared the fund's total returns with the Lipper
Multi-Cap Value Funds Index (the Lipper category that includes the fund) and the
Lipper Growth & Income Funds Index (another relevant Lipper category given the
fund's investment objectives, which might lead some to characterize it as a
conservative growth and income fund). The Board and the committee noted that the
fund's investment results approximated both indices for each of the one-, five-
and 10-year periods ended October 31, 2004. However, they also reviewed
information prepared by CRMC suggesting that the fund's returns over these same
periods were achieved for materially less risks (measured by reference to
volatility). As further confirmation of the fund's commitment to a relatively
conservative blend of investment objectives, the Board and the committee also
observed that, for the annual period ended October 31, 2004, the fund ranked
first in yield among all funds in the Lipper Multi-Cap Value Funds Index, and
second in yield among all funds in the Lipper Growth & Income Funds Index. The
Board and the committee ultimately concluded that CRMC's performance record in
managing the fund indicates that its continued management will benefit the fund
and its shareholders.
4. Advisory fees and total expenses
The Board and the committee reviewed the advisory fees and total expenses of the
fund (each as a percentage of average net assets) and compared such amounts with
the average fee and expense levels of other funds in both the Lipper Multi-Cap
Value Funds Index and the Lipper Growth & Income Funds Index. The Board and the
committee observed that the fund's advisory fees and total expenses (each as a
percentage of average net assets) were well below the median fee and expense
levels of the other funds in both indices. The Board and the committee also
noted the 5% voluntary advisory fee waiver that CRMC put into effect
complex-wide during 2004. The Board and the committee concluded that the
relatively low level of the fees charged by CRMC will benefit the fund and its
shareholders.
The Board and the committee also reviewed information regarding the advisory
fees paid by institutional clients of an affiliate of CRMC with similar
investment mandates. They concluded that although the fees paid by those clients
generally were lower than those paid by the American Funds, the differences
appropriately reflected CRMC's significantly greater responsibilities with
respect to the American Funds, and the more comprehensive regulatory regime
applicable to mutual funds.
5. Adviser costs, level of profits and economies of scale
The Board and the committee reviewed information regarding CRMC's costs of
providing services to the American Funds, as well as the resulting level of
profits to CRMC, noting that those results were comparable to the reported
results of several large publicly held investment management companies. The
committee also received information during the past year regarding the structure
and manner in which CRMC's investment professionals were compensated and CRMC's
view of the relationship of such compensation to the attraction and retention of
quality personnel. The Board and the committee considered CRMC's need to invest
in technology, infrastructure and staff to reinforce and offer new services and
to accommodate changing regulatory requirements. They further considered that
breakpoints in the fund's advisory fee structure provide for reductions in the
level of fees charged by CRMC to the fund as fund assets increase, reflecting
economies of scale in the cost of operations that are shared with fund
shareholders. The Board and the committee concluded that the fund's cost
structure was reasonable and that CRMC was sharing economies of scale with the
fund and its shareholders, to their benefit.
6. Ancillary benefits
The Board and the committee considered a variety of other benefits received by
CRMC and its affiliates as a result of CRMC's relationship with the fund and the
other American Funds, including fees for administrative services provided to
certain share classes; fees paid to CRMC's affiliated transfer agent; sales
charges and distribution fees received and retained by the fund's principal
underwriter, an affiliate of CRMC; and possible ancillary benefits to CRMC's
institutional management affiliate. The Board and the committee reviewed CRMC's
portfolio trading practices, noting that while CRMC receives the benefit of
research provided by broker-dealers executing portfolio transactions on behalf
of the fund, it does not obtain third-party research or other services in return
for allocating brokerage to such broker-dealers.
7. Conclusions
Based on their review, including their consideration of each of the factors
referred to above, the Board and the committee concluded that the agreement is
fair and reasonable to the fund and its shareholders, that the fund's
shareholders received reasonable value in return for the advisory fees and other
amounts paid to CRMC by the fund, and that the amendment and renewal of the
agreement was in the best interests of the fund and its shareholders.
OFFICES OF THE FUND AND OF THE
INVESTMENT ADVISER
Capital Research and
Management Company
333 South Hope Street
Los Angeles, CA 90071-1406
135 South State College Boulevard
Brea, CA 92821-5823
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address
nearest you.)
P.O. Box 25065
Santa Ana, CA 92799-5065
P.O. Box 659522
San Antonio, TX 78265-9522
P.O. Box 6007
Indianapolis, IN 46206-6007
P.O. Box 2280
Norfolk, VA 23501-2280
CUSTODIAN OF ASSETS
JPMorgan Chase Bank
270 Park Avenue
New York, NY 10017-2070
COUNSEL
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, CA 90071-2899
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Deloitte & Touche LLP
695 Town Center Drive
Suite 1200
Costa Mesa, CA 92626-7188
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, CA 90071-1406
There are several ways to invest in American Mutual Fund. Class A shares are
subject to a 5.75% maximum up-front sales charge that declines for accounts (and
aggregated investments) of $25,000 or more and is eliminated for purchases of $1
million or more. Other share classes, which are generally not available for
certain employer-sponsored retirement plans, have no up-front sales charges but
are subject to additional annual expenses and fees. Annualized expenses for
Class B shares were 0.79 percentage points higher than for Class A shares; Class
B shares convert to Class A shares after eight years of ownership. If redeemed
within six years, Class B shares may also be subject to a contingent deferred
sales charge ("CDSC") of up to 5% that declines over time. Class C shares were
subject to annualized expenses 0.87 percentage points higher than those for
Class A shares and a 1% CDSC if redeemed within the first year after purchase.
Class C shares convert to Class F shares after 10 years. Class F shares, which
are available only through certain fee-based programs offered by broker-dealer
firms and registered investment advisers, had higher annualized expenses (by
0.11 percentage points) than did Class A shares, and an annual asset-based fee
charged by the sponsoring firm. Expenses are deducted from income earned by the
fund. As a result, dividends and investment results will differ for each share
class.
INVESTORS SHOULD CAREFULLY CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES
AND EXPENSES OF THE AMERICAN FUNDS AND COLLEGEAMERICA. THIS AND OTHER IMPORTANT
INFORMATION IS CONTAINED IN THE FUND'S PROSPECTUS AND THE COLLEGEAMERICA PROGRAM
DESCRIPTION, WHICH CAN BE OBTAINED FROM YOUR FINANCIAL ADVISER AND SHOULD BE
READ CAREFULLY BEFORE INVESTING. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY (AFS) AT 800/421-0180 OR VISIT THE AMERICAN FUNDS WEBSITE AT
AMERICANFUNDS.COM.
"American Funds Proxy Voting Guidelines" -- which describes how we vote proxies
relating to portfolio securities -- is available free of charge on the U.S.
Securities and Exchange Commission (SEC) website at www.sec.gov, on the American
Funds website or upon request by calling AFS. The fund's proxy voting record for
the 12 months ended June 30, 2004, is also available on the SEC and American
Funds websites.
A complete April 30, 2005, portfolio of American Mutual Fund's investments is
available free of charge on the SEC website or upon request by calling AFS.
American Mutual Fund files a complete list of its portfolio holdings with the
SEC for the first and third quarters of each fiscal year on Form N-Q. This form
is available free of charge on the SEC website or upon request by calling AFS.
You may also review or, for a fee, copy the form at the SEC's Public Reference
Room in Washington, D.C. (800/SEC-0330).
This report is for the information of shareholders of American Mutual Fund, but
it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used as sales material after
June 30, 2005, this report must be accompanied by an American Funds statistical
update for the most recently completed calendar quarter.
[logo - American Funds(R)]
The right choice for the long term(R)
WHAT MAKES AMERICAN FUNDS DIFFERENT?
For more than 70 years, we have followed a consistent philosophy that we firmly
believe is in our investors' best interests. The range of opportunities offered
by our family of just 29 carefully conceived, broadly diversified funds has
attracted over 30 million shareholder accounts.
Our unique combination of strengths includes these five factors:
o A LONG-TERM, VALUE-ORIENTED APPROACH
Rather than follow fads, we pursue a consistent strategy, focusing on each
investment's long-term potential.
o AN UNPARALLELED GLOBAL RESEARCH EFFORT
American Funds draws on one of the industry's most globally integrated
research networks.
o THE MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Every American Fund is divided among a number of portfolio counselors. Each
takes responsibility for a portion independently, within each fund's
objectives; in most cases, research analysts manage a portion as well. Over
time this method has contributed to a consistency of results and continuity
of management.
o EXPERIENCED INVESTMENT PROFESSIONALS
The recent market decline was not the first for most of the portfolio
counselors who serve the American Funds. More than half of them were in the
investment business before the sharp market decline of 1987.
o A COMMITMENT TO LOW OPERATING EXPENSES
American Funds' operating expenses are among the lowest in the mutual fund
industry. Our portfolio turnover rates are low as well, keeping transaction
costs and tax consequences contained.
29 mutual funds, consistent philosophy, consistent results
o GROWTH FUNDS
AMCAP Fund(R)
EuroPacific Growth Fund(R)
The Growth Fund of America(R)
The New Economy Fund(R)
New Perspective Fund(R)
New World Fund(SM)
SMALLCAP World Fund(R)
o GROWTH-AND-INCOME FUNDS
> American Mutual Fund(R)
Capital World Growth and Income Fund(SM)
Fundamental Investors(SM)
The Investment Company of America(R)
Washington Mutual Investors Fund(SM)
o EQUITY-INCOME FUNDS
Capital Income Builder(R)
The Income Fund of America(R)
o BALANCED FUND
American Balanced Fund(R)
o BOND FUNDS
American High-Income Trust(SM)
The Bond Fund of America(SM)
Capital World Bond Fund(R)
Intermediate Bond Fund of America(R)
U.S. Government Securities Fund(SM)
o TAX-EXEMPT BOND FUNDS
American High-Income Municipal Bond Fund(R)
Limited Term Tax-Exempt Bond Fund of America(SM)
The Tax-Exempt Bond Fund of America(R)
STATE-SPECIFIC TAX-EXEMPT FUNDS
The Tax-Exempt Fund of California(R)
The Tax-Exempt Fund of Maryland(R)
The Tax-Exempt Fund of Virginia(R)
o MONEY MARKET FUNDS
The Cash Management Trust of America(R)
The Tax-Exempt Money Fund of America(SM)
The U.S. Treasury Money Fund of America(SM)
THE CAPITAL GROUP COMPANIES
American Funds
Capital Research and Management
Capital International
Capital Guardian
Capital Bank and Trust
Lit. No. MFGESR-903-0605P
Litho in USA BC/L/8079-S1931
Printed on recycled paper
ITEM 2 - Code of Ethics
Not applicable for filing of Semiannual Reports to Shareholders.
ITEM 3 - Audit Committee Financial Expert
Not applicable for filing of Semiannual Reports to Shareholders.
ITEM 4 - Principal Accountant Fees and Services
Not applicable for filing of Semiannual Reports to Shareholders.
ITEM 5 - Audit Committee of Listed Registrants
Not applicable.
ITEM 6 - Schedule of Investments
[logo - American Funds (r)]
AMERICAN MUTUAL FUND
Investment portfolio
April 30, 2005
unaudited
Market value
Common stocks -- 83.86% Shares (000)
ENERGY -- 8.07%
Ashland Inc. 900,000 $ 60,516
ChevronTexaco Corp. 2,938,900 152,823
ConocoPhillips 1,566,589 164,257
Devon Energy Corp. 2,000,000 90,340
Exxon Mobil Corp. 3,335,000 190,195
Halliburton Co. 1,200,000 49,908
Marathon Oil Corp. 4,200,000 195,594
Schlumberger Ltd. 440,200 30,113
Sunoco, Inc. 1,468,100 145,724
Unocal Corp. 2,580,400 140,761
1,220,231
MATERIALS -- 4.63%
Air Products and Chemicals, Inc. 1,200,000 70,476
Alcoa Inc. 2,450,000 71,099
Dow Chemical Co. 1,129,300 51,869
E.I. du Pont de Nemours and Co. 750,000 35,333
Georgia-Pacific Corp., Georgia-Pacific Group 1,900,000 65,113
International Paper Co. 2,350,000 80,581
MeadWestvaco Corp. 4,588,000 135,117
PPG Industries, Inc. 750,000 50,662
Praxair, Inc. 1,400,000 65,562
Sonoco Products Co. 1,500,000 40,635
Weyerhaeuser Co. 500,000 34,305
700,752
INDUSTRIALS -- 9.81%
Boeing Co. 750,000 44,640
Burlington Northern Santa Fe Corp. 650,000 31,363
Caterpillar Inc. 350,000 30,818
Emerson Electric Co. 1,350,000 84,604
General Dynamics Corp. 185,000 19,434
General Electric Co. 8,351,000 302,306
Lockheed Martin Corp. 1,500,000 91,425
Manpower Inc. 2,000,000 77,100
Norfolk Southern Corp. 5,606,500 176,044
Northrop Grumman Corp. 1,450,000 79,518
Pitney Bowes Inc. 1,600,000 71,552
ServiceMaster Co. 5,600,000 71,848
Tyco International Ltd. 4,500,000 140,895
Union Pacific Corp. 350,000 22,375
United Parcel Service, Inc., Class B 742,500 52,948
United Technologies Corp. 1,500,000 152,580
Waste Management, Inc. 1,200,000 34,188
1,483,638
CONSUMER DISCRETIONARY -- 8.08%
Carnival Corp., units 875,000 $ 42,770
Clear Channel Communications, Inc. 4,000,000 127,760
Dana Corp. 2,170,000 24,781
Delphi Corp. 13,200,000 43,560
Dow Jones & Co., Inc. 96,800 3,237
Ford Motor Co. 2,900,000 26,419
Gap, Inc. 1,500,000 32,025
General Motors Corp. 6,055,000 161,547
Genuine Parts Co. 1,800,000 77,220
Knight-Ridder, Inc. 500,000 32,350
Leggett & Platt, Inc. 2,950,000 79,532
Lowe's Companies, Inc. 810,000 42,209
Magna International Inc., Class A 1,780,000 108,811
Mattel, Inc. 5,000,000 90,250
Newell Rubbermaid Inc. 500,000 10,865
NIKE, Inc., Class B 150,000 11,522
Target Corp. 1,700,000 78,897
TJX Companies, Inc. 5,850,000 132,503
VF Corp. 1,150,000 65,079
Walt Disney Co. 1,200,000 31,680
1,223,017
CONSUMER STAPLES -- 4.25%
Albertson's, Inc. 2,700,000 53,433
Avon Products, Inc. 1,095,000 43,888
Coca-Cola Co. 3,050,000 132,492
General Mills, Inc. 600,000 29,640
H.J. Heinz Co. 3,350,000 123,448
Kimberly-Clark Corp. 1,110,000 69,319
Kraft Foods Inc., Class A 700,000 22,687
PepsiCo, Inc. 650,000 36,166
Procter & Gamble Co. 132,600 7,180
Sara Lee Corp. 1,500,000 32,085
Walgreen Co. 1,000,000 43,060
Wal-Mart Stores, Inc. 1,050,000 49,497
642,895
HEALTH CARE -- 9.71%
Abbott Laboratories 5,300,000 260,548
Applera Corp. - Applied Biosystems Group 1,176,700 24,946
Becton, Dickinson and Co. 600,000 35,112
Bristol-Myers Squibb Co. 7,857,200 204,287
Eli Lilly and Co. 4,105,000 240,019
Johnson & Johnson 1,650,000 113,239
McKesson Corp. 2,500,000 92,500
Medtronic, Inc. 1,250,000 65,875
Merck & Co., Inc. 4,450,000 150,855
Pfizer Inc 3,308,100 89,881
Schering-Plough Corp. 1,471,700 30,715
Wyeth 3,598,000 161,694
1,469,671
FINANCIALS -- 17.16%
Allstate Corp. 1,200,000 $ 67,392
American Express Co. 750,000 39,525
American International Group, Inc. 2,829,000 143,855
Aon Corp. 2,250,000 46,913
Bank of America Corp. 4,637,652 208,880
Bank of New York Co., Inc. 3,050,000 85,217
Citigroup Inc. 6,210,000 291,622
Fannie Mae 4,435,000 239,268
Freddie Mac 3,000,000 184,560
J.P. Morgan Chase & Co. 5,446,000 193,279
Jefferson-Pilot Corp. 2,150,000 107,951
Lincoln National Corp. 1,167,900 52,520
Marsh & McLennan Companies, Inc. 1,500,300 42,053
National City Corp. 1,100,000 37,356
Regions Financial Corp. 2,500,000 83,725
St. Paul Travelers Companies, Inc. 4,950,000 177,210
SunTrust Banks, Inc. 1,475,000 107,424
U.S. Bancorp 2,750,000 76,725
UnumProvident Corp. 7,900,000 132,088
Wachovia Corp. 813,600 41,640
Washington Mutual, Inc. 3,300,000 136,356
Wells Fargo & Co. 1,668,750 100,025
2,595,584
INFORMATION TECHNOLOGY -- 7.53%
Automatic Data Processing, Inc. 2,450,000 106,428
Electronic Data Systems Corp. 2,500,000 48,375
First Data Corp. 1,200,000 45,636
Hewlett-Packard Co. 13,000,000 266,110
Intel Corp. 1,900,000 44,688
International Business Machines Corp. 3,335,000 254,727
Linear Technology Corp. 1,050,000 37,527
Microchip Technology Inc. 4,000,000 113,920
Microsoft Corp. 6,385,000 161,541
Texas Instruments Inc. 2,400,000 59,904
1,138,856
TELECOMMUNICATION SERVICES -- 5.69%
ALLTEL Corp. 1,000,000 56,960
AT&T Corp. 7,434,600 142,224
BellSouth Corp. 9,300,000 246,357
SBC Communications Inc. 6,000,000 142,800
Sprint Corp. 7,707,000 171,558
Verizon Communications Inc. 2,800,000 100,240
860,139
UTILITIES -- 5.82%
Ameren Corp. 300,000 15,510
American Electric Power Co., Inc. 3,700,000 130,314
Dominion Resources, Inc. 850,000 64,090
Duke Energy Corp. 4,800,000 140,112
Exelon Corp. 2,348,400 116,246
FirstEnergy Corp. 1,620,000 70,502
Progress Energy, Inc. 950,000 39,891
Public Service Enterprise Group Inc. 800,000 46,480
Questar Corp. 1,500,000 87,600
Southern Co. 2,700,000 88,965
Xcel Energy Inc. 4,745,000 81,519
881,229
MISCELLANEOUS -- 3.11%
Other common stocks in initial period of acquisition 469,845
Total common stocks (cost: $10,617,730,000) 12,685,857
Shares or
Convertible securities -- 0.86% principal amount
INDUSTRIALS -- 0.10%
Tyco International Group SA, Series B, 3.125% convertible debentures 2023 $10,000,000 14,725
CONSUMER DISCRETIONARY -- 0.19%
Ford Motor Co. Capital Trust II 6.50% cumulative convertible trust preferred 2032 756,430 29,463
HEALTH CARE -- 0.09%
Baxter International Inc. 7.00% convertible preferred 2006 250,000 units 13,925
FINANCIALS -- 0.26%
Chubb Corp. 7.00% convertible preferred 2005 400,000 units 11,940
Chubb Corp. 7.00% convertible preferred 2006 350,000 units 10,444
XL Capital Ltd. 6.50% ACES convertible preferred 2007 700,000 units 16,065
38,449
UTILITIES -- 0.22%
Ameren Corp. 9.75% ACES convertible preferred 2005 1,200,000 units 33,708
Total convertible securities (cost: $136,634,000) 130,270
Principal amount
Bonds & notes -- 1.36% (000)
UTILITIES -- 0.07%
Virginia Electric and Power Co., Series 2002-A, 5.375% 2007 $9,960 10,159
MORTGAGE-BACKED OBLIGATIONS -- 0.05%
Fannie Mae 6.00% 2017(1) 7,780 8,070
GOVERNMENT & GOVERNMENT AGENCY BONDS & NOTES -- 1.24%
Fannie Mae 6.00% 2005 $160,000 $ 162,456
Fannie Mae 5.00% 2007 25,000 25,483
187,939
Total bonds & notes (cost: $204,187,000) 206,168
Short-term securities -- 13.48%
3M Co. 2.78% due 5/19/2005 13,600 13,581
American Express Credit Corp. 2.97% due 6/24/2005 25,000 24,887
Bank of America Corp. 2.73%-2.97% due 5/4-6/28/2005 108,800 108,566
BellSouth Corp. 2.78%-2.81% due 5/3-5/17/2005(2) 46,000 45,958
CAFCO, LLC 2.82%-2.96% due 5/13-6/14/2005(2) 97,500 97,313
Clipper Receivables Co., LLC 2.84%-3.02% due 5/12-6/3/2005(2) 78,000 77,847
Coca-Cola Co. 2.83%-2.90% due 5/27-6/17/2005 80,600 80,371
Colgate-Palmolive Co. 2.89% due 5/24/2005(2) 13,300 13,274
DuPont (E.I.) de Nemours & Co. 2.82%-2.92% due 5/25-6/17/2005 111,500 111,191
Exxon Project Investment Corp. 2.92% due 6/3/2005(2) 17,500 17,452
FCAR Owner Trust I 2.95%-2.98% due 6/14-6/20/2005 69,000 68,720
Federal Home Loan Bank 2.64%-2.92% due 5/6-7/5/2005 197,480 196,929
First Data Corp. 2.90% due 5/17/2005 25,000 24,966
Freddie Mac 2.63%-2.94% due 5/2-6/30/2005 181,900 181,364
Gannett Co. 2.81% due 5/23/2005(2) 15,500 15,472
General Electric Capital Corp. 2.93%-2.97% due 6/3-6/14/2005 51,200 51,031
Household Finance Corp. 2.70%-2.95% due 5/2-6/24/2005 67,050 66,841
IBM Capital Inc. 2.88% due 5/26/2005(2) 30,000 29,938
International Business Machines Corp. 2.805% due 5/26/2005 50,000 49,899
International Bank for Reconstruction and Development 2.85% due 6/20/2005 50,000 49,802
International Lease Finance Corp. 2.97% due 6/7/2005 50,000 49,843
Park Avenue Receivables Co., LLC 2.92% due 5/20/2005(2) 25,600 25,558
Preferred Receivables Funding Corp. 2.86% due 5/13/2005(2) 18,900 18,881
PepsiCo Inc. 2.76% due 5/10/2005(2) 24,600 24,581
Pfizer Inc 2.76%-2.93% due 5/16-5/26/2005(2) 70,815 70,696
Procter & Gamble Co. 2.77%-2.91% due 5/13-6/16/2005(2) 87,900 87,687
Three Pillars Funding, LLC 2.85%-2.98% due 5/9-5/25/2005(2) 112,200 112,022
U.S. Treasury Bills 2.605%-2.71% due 5/5-6/9/2005 87,400 87,271
Variable Funding Capital Corp. 2.83%-2.85% due 5/18-5/24/2005(2) 75,000 74,873
Wal-Mart Stores Inc. 2.75%-2.88% due 5/10-6/1/2005(2) 131,680 131,426
Wells Fargo & Co. 2.87% due 5/19/2005 30,000 30,000
Total short-term securities (cost: $2,038,211,000) 2,038,240
Total investment securities (cost: $12,996,762,000) 15,060,535
Other assets less liabilities 66,463
Net assets $15,126,998
"Miscellaneous" securities include holdings in their initial period of
acquisition that have not previously been publicly disclosed.
(1) Pass-through security backed by a pool of mortgages or other loans on which
principal payments are periodically made. Therefore, the effective maturity
is shorter than the stated maturity.
(2) Restricted securities that can be resold only to institutional investors.
In practice, these securities are typically as liquid as unrestricted
securities in the portfolio. The total value of all restricted securities
was $842,978,000, which represented 5.57% of the net assets of the fund.
ITEM 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end
management investment company.
ITEM 8 - Portfolio Managers of Closed-End Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end
management investment company.
ITEM 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers
Not applicable to this Registrant, insofar as the Registrant is not a closed-end
management investment company.
ITEM 10 - Submission of Matters to a Vote of Security Holders
There have been no material changes to the procedures by which shareholders may
recommend nominees to the Registrant's Board of Directors since the Registrant
last submitted a proxy statement to its shareholders. The procedures are as
follows. The Registrant has a Nominating Committee comprised solely of persons
who are not considered "interested persons" of the Registrant within the meaning
of the Investment Company Act of 1940, as amended. The committee periodically
reviews such issues as the Board's composition, responsibilities, committees,
compensation and other relevant issues, and recommends any appropriate changes
to the full Board of Directors. While the committee normally is able to identify
from its own resources an ample number of qualified candidates, it will consider
shareholder suggestions of persons to be considered as nominees to fill future
vacancies on the Nominating Committee of the Registrant, c/o the Registrant's
Secretary, and must be accompanied by complete biographical and occupational
data on the prospective nominee, along with a written consent of the prospective
nominee for consideration of his or her name by the Nominating Committee.
ITEM 11 - Controls and Procedures
(a) The Registrant's Principal Executive Officer and Principal Financial
Officer have concluded, based on their evaluation of the Registrant's
disclosure controls and procedures (as such term is defined in Rule 30a-3
under the Investment Company Act of 1940), that such controls and
procedures are adequate and reasonably designed to achieve the purposes
described in paragraph (c) of such rule.
(b) There were no changes in the Registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of
1940) that occurred during the Registrant's second fiscal quarter of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the Registrant's internal control
over financial reporting.
ITEM 12 - Exhibits
(a) (1) The Code of Ethics - not applicable for filing of Semiannual Reports to
Shareholders.
(a) (2) The certifications required by Rule 30a-2 of the Investment Company Act
of 1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley Act of
2002 are attached as exhibits hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN MUTUAL FUND, INC.
By /s/ James K. Dunton
- --------------------------------------
James K. Dunton, Vice Chairman and PEO
Date: July 8, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By /s/ James K. Dunton
- --------------------------------------
James K. Dunton, Vice Chairman and PEO
Date: July 8, 2005
By /s/ Jeffrey P. Regal
- -----------------------------------
Jeffrey P. Regal, Treasurer and PFO
Date: July 8, 2005