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Investment Insights September 2013

The active advantage

“The average active manager can’t beat the index.” This phrase has been repeated so many times it almost seems as if it’s gospel. Actually, it does contain a measure of truth. Taken as a whole, on average, active managers beat their benchmarks only about half the time.

But not all active managers are average. Some investment managers, American Funds among them, have distinguished themselves with a proven track record of consistently outpacing broad market returns.

Although the debate over the merits of active management and passive investing has raged for quite some time, recent articles in various publications touting index investing have re-ignited the issue. Several of them have cast a negative spotlight on actively managed funds and their fees and returns.

In this report, we’ll look at how American Funds’ active equity manage-ment has provided clear advantages over index investing during every meaningful period of time for decades. We believe the study makes a compelling case for our active advantage. More importantly, we think it’s time to reframe the debate and to focus on investor outcomes.

Capital Idea: The active advantage can help investors pursue better outcomes.

Investments are not FDIC-insured, nor are they deposits of or guaran-teed by a bank or any other entity, so they may lose value.Past results are not predictive of results in future periods.

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The argument for the superiority of passive, or index, investing over active manage-ment has been accepted and adopted by a significant number of academics, consul-tants and investors.

Active management, the argument goes, is unable to outpace a respective index for a variety of reasons, ranging from the drag posed by fees to the efficient-market hypothesis. Those who adhere to that theory contend, in brief, that all information is reflected in a firm’s share price, making it impossible to beat the market consistently.

But much of the literature in favor of index investing uses “the average active man-ager” to make the point. And indeed, in ag-gregate, U.S. equity active managers have not consistently outpaced the Standard & Poor’s 500 Composite Index.

We believe this is a flawed way to frame the issue, akin to concluding that because the average person cannot dunk a basketball, no one can dunk a basketball. Obviously, some are playing at a higher level, and using the average to characterize an entire industry obscures the fact that there are in-vestment managers that have consistently added value over a variety of market cycles, including American Funds.

To be clear, we are not defending all active management. Specifically, we are noting our persistent, long-term added value as an active manager. We believe it’s impor-tant to focus on the qualities associated with success, including alignment with clients’ objectives, low fees, experienced managers, global research, a history of out-pacing indexes and an investment culture that’s built to last.

The problem with averages

“The active-versus-passive debate has been grossly overplayed to the detriment of many fine, actively managed fund shops and to intelligent investment discourse.”

Don Phillips, Morningstar

Investment Insights September 2013

The active advantage

“The average active manager can’t beat the index” True, but not the whole story

Data from Morningstar. Based on calendar-year returns of actively managed funds, excluding the American Funds, whose relevant benchmark is the S&P 500 Index. This universe excludes funds that fell in the Morningstar Moderate and World Allocation categories. Funds with incomplete data were removed from the analysis. For more information on filtering methodology, see General Methodology, page 10.

Percentage of funds100%

80

60

40

20

0

–20

–40

–60

–80

–100

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

47% of the time, U.S. equity active managers outpaced the S&P 500 Index during the 20 calendar years ended 12/31/12

53% of the time, U.S. equity active managers trailed the S&P 500 Index during the 20 calendar years ended 12/31/12

Percentage led index Percentage lagged index

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Our equity-focused American Funds have a long history of outpacing the marketDecade after decade, active management has provided investors with an advantage

Outpaced indexes

3,897 1,066 3,971 1,255 4,021 1,377 3,761 1,575 2,834 1,974

Total number of rolling monthly periods 6,804 1,850 6,409 1,815 6,034 1,783 5,134 1,721 3,413 2,020

Data from published sources were calculated internally. Numbers of periods are based on rolling monthly data for all funds — reducing entry- and exit-point bias and better reflecting the range of entry points experienced by investors. American Funds represents 17 equity-focused funds, in aggregate, including: AMCAP Fund®, American Balanced Fund®, American Funds Global Balanced FundSM , American Mutual Fund®, Capital Income Builder®, Capital World Growth and Income Fund®, EuroPacific Growth Fund®, Fundamental Investors®, The Growth Fund of America®, The Income Fund of America®, International Growth and Income FundSM , The Investment Company of America®, The New Economy Fund®, New Perspective Fund®, New World Fund®, SMALLCAP World Fund®, Washington Mutual Investors FundSM. For each fund’s comparable index/index blend, see General Methodology, page 10. Past results are not predictive of results in future periods.

Has American Funds added value? We sought to answer this question both to hold ourselves accountable and to seek a way to continually improve our approach.

As part of an extensive new study, we analyzed the track records of all of our equity-focused American Funds. In an attempt to be as comprehensive and transparent as possible, results for every fund over every possible one-, three-, five-, 10-, 20- and 30-year rolling period (monthly basis) between December 31, 1933, and December 31, 2012, were included. The data set therefore spans virtually the entire history of the mutual fund industry.

Our overall active success rate — or the percent of rolling periods in which we outpaced the index — was superior for

each investment horizon considered, from one year to 30 years.

Of course, American Funds’ track record is not perfect. It’s important to acknowledge there have been times when not all of our results have been stellar and times when our funds have lagged the index.

But the chart below shows a consistent, long-term record of our funds in aggregate outpacing market returns decade after de-cade. Indeed, overall results demonstrate that our funds have outpaced their indexes the majority of the time, and actually got stronger over longer periods.

The record stands as a testament to The Capital SystemSM and our process of active management.

1-year 3-year 5-year 10-year 20-year 30-year

57%67%

73%83%

62%

98%

58% 69%

77%

92%

Historical track record:Percentage of time American Funds led their indexes (1934–2012)

Recent track record: Percentage of time American Funds led their indexes (1/31/03–12/31/12; includes one-, three-, five- and 10-year rolling periods ended in the last 10 years)

A note on methodology

We analyzed the track records of all of our equity-focused American Funds from 1934 through 2012. Our study encompassed thousands of data points and spans virtually the entire history of the mutual fund industry. In addition, a large accounting firm performed an objective validation of our methodology to ensure accuracy.

A long history of active advantage

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1-year 3-year 5-year 10-year 20-year 30-year

62% 64% 64%

80%

Percentage of time American Funds led their indexes in one period and repeated leadership in the subsequent period (1934–2012)

60%

96%

Data from published sources were calculated internally. Numbers of periods are based on rolling monthly data for all funds — reducing entry- and exit-point bias and better reflecting the range of entry points experienced by investors. American Funds represents 17 equity-focused funds, in aggregate. For the list of funds and their comparable indexes/index blends, see General Methodology, page 10.

Outpaced indexes

2,363 2,212 2,169 1,402 710 246

Total number of rolling monthly periods 3,792 3,682 3,403 2,186 893 257

Can you do it again?

If an investment manager has outpaced the index in the previous period, can the manager do so again? Put another way, is the track record the result of luck or skill?

Persistency is a measure that can help investors answer these questions. It is the percentage of time that funds continued to lead their indexes after having led in the previous period.

The potential benefits of a track record of persistency are clear. While past results are not indicative of future returns, persistency can give investors some confidence that the manager has the potential to help them succeed in the future.

Persistency has been relatively abundant for American Funds’ equity funds. More often than not, our funds have led their indexes and continued to lead in the subsequent period. Their overall persistency advantage increased over longer holding periods.

Some critics of active management con-tend that it’s challenging to find managers that can continue to provide above-bench-mark returns based on past results.

We believe persistency is a criterion that investors can use to help select managers with the potential to add value in the future. Other important criteria include alignment with clients’ objectives, low fees, manager tenure, a history of above-benchmark returns and a sustainable process.

The persistency question

Persistency is the percentage of time that funds continued to lead their indexes after having led in the previous period.

Persistency has been relatively abundant for American Funds Funds have led their indexes and often continued to lead in the subsequent period

Investment Insights September 2013

The active advantage

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A long history of resilience during downturnsOur funds have often shown strength in market declines

The capture ratio measures the extent to which a manager has limited negative absolute returns, relative to the market’s decline. Market declines are defined as those months in which the market return was negative. This ratio is akin to a downside beta – specifying the percentage of the down market “captured” by the manager. If, for example, it is greater than 100%, then the manager has trailed in the down market. Conversely, a percentage less than 100% indicates a positive excess return for those market declines; the smaller, the better. Market indexes are unmanaged and, therefore, have no expenses. Data for downside capture are based on monthly returns for Class A shares. American Funds’ U.S. equity-focused funds represent only those funds (there are seven) whose comparable index is the S&P 500 Index. For the list of funds that fall into this group, see General Methodology, page 10.

When markets are volatile, investors often react by making short-term decisions that can have long-term consequences for their portfolios. That’s especially true during a downturn. Why does that happen? Simply put, for many investors losses hurt more than gains help.

American Funds has always emphasized a long-term perspective and the importance of preserving capital during downturns. In contrast, index investing captures 100% of a market decline. We believe the key is to produce results that are less volatile than the results of the broad market.

The charts below depict our U.S. equity-focused funds’ downside resilience using capture ratios, which express the ratio of an investment’s returns to those of a

benchmark during periods of positive or negative index returns. Lower numbers are preferable on the downside, and the chart shows that our U.S. equity-focused funds have often spared investors the full brunt of declines.

Capture ratios can help identify managers that are generally defensive and conser-vative in nature. That can be particularly important during the distribution phase, when downside protection is crucial to a sustainable retirement income portfolio.

When building portfolios, it’s important to select managers whose investment process is oriented to downside resilience and low volatility, both of which can improve the investor experience.

Improving the investor experienceThe active advantage can help investors navigate market declines.

3-year(Rolling monthly periods ended 1/31/80–12/31/12)

10-year(Rolling monthly periods ended 1/31/80–12/31/12)

120%

110

100

90

80

70

60

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40

2008 20122004200019961992198819841980

120%

110

100

90

80

70

60

50

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More downsidethan the S&P 500

Less downsidethan the S&P 500

2008 20122004200019961992198819841980

American Funds U.S. equity funds’ average downside capture ratios relative to the S&P 500 Index

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Source for industry averages: Lipper, based on comparable categories for front-end load funds, excluding funds of funds, as of each fund’s most recent fiscal year-end available as of December 31, 2012. Due to their significant investments outside the U.S., Capital World Growth and Income Fund, EuroPacific Growth Fund, International Growth and Income Fund, New Perspective Fund, New World Fund and SMALLCAP World Fund are included in the International/Global equity category. The American Funds expense ratios for both Class A and F-2 shares are as of each fund’s most recent printed prospectus available on January 1, 2013. Expense ratios do not reflect sales charges. American Funds offers plan sponsors flexibility in how they pay for plan operating expenses (such as recordkeeping fees) through six distinct retirement plan share classes. Expenses differ for each share class, so expense ratios will vary. Class F shares are available through financial professionals who typically charge ongoing fees for the services they provide. Please see americanfunds.com for more information.

Low fees fuel our active advantage

Lower is better: American Funds’ annual operating expenses

Growth

0.76%

1.33%

International/global equity

0.93%

1.52%

Equity-income

0.61%

1.07%

Growth-and-income

1.16%

0.62%

Balanced

0.77%

1.27%

American Funds (Class A)Industry average

What’s the difference?

The growth of hypothetical investments of $100,000 over 30 years, assuming an annual growth rate of 8% before expenses and annual expense ratios of 1.00% and 0.50%, respectively

Annual operating expenses

1.00%

0.50%

$761,226

$875,496

$114,270 is the total a 0.50% difference in expenses can mean over 30 years — more than the initial investment.

Not intended to portray actual expenses and investment results. Your experience will differ.

One of the most important issues for long-term investors is the expense ratio. Expenses matter, and low fees are often cited as one of the benefits of index invest-ing. But low fees aren’t solely the province of passive investing.

American Funds believes lower is better, and the chart below left shows that the an-nual operating expenses across our equity funds are significantly below the industry average. That’s important for several rea-sons. Simply stated, costs reduce invest-ment returns.

The chart below right shows the dramatic impact a 50-basis-point difference in fees can make over a 30-year period. In this example, a difference of 0.50% cost the investor more than was originally invested.

Fees may also serve investors in other ways. In selecting an active manager, a

variety of academic researchers have con-cluded that the expense ratio has proved to be a strong predictor of future results.

In a 2010 report, Russel Kinnel, Morning-star’s director of mutual fund research, said, “Expense ratios are strong predictors of performance. In every asset class over every time period, the cheapest quintile produced higher total returns than the most expensive quintile.” Of course, past returns aren’t predictive of future results.

At American Funds, our primary goal is to provide consistently superior long-term investment results. Low fees are a crucial element in achieving that goal and a dem-onstration of our alignment with investors. For decades, American Funds has sought to provide quality investment management at a reasonable cost, and we remain com-mitted to doing so in the future.

Investment Insights September 2013

The active advantage

0.51% 0.41% 0.66% 0.41% 0.56% 0.93 0.90 1.13 0.84 1.02

American Funds (Class F-2)Industry average

“Expense ratios are strong predictors of performance. In every asset class over every time period, the cheapest quintile produced higher total returns than the most expensive quintile.”

Russel Kinnel, Morningstar

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The active advantage can be the difference between success and shortfallEquity-focused American Funds provided a significant advantage for investors

Index blend American Funds

$626,946

Index blend

$234,004

American Funds

$290,369

37%more accumulated wealth

24%more accumulated wealth

$ 700K

600K

500K

400K

300K

200K

100K

0

$ 350K

300K

250K

200K

150K

100K

50K

0

$456,740

The 401(k) hypothetical $500-a-month investment represents a total of $120,000 for the 20-year period ended December 31, 2012. Data from published sources were calculated internally. For the constituents of the American Funds and index blend, as well as additional details about the data, see Specific Methodology for Hypothetical 20-Year Investments Illustrations, page 11. The market indexes are unmanaged and, therefore, have no expenses. There have been periods when the funds have lagged their relevant indexes.

Translating numbers into outcomes

Lump sum: Hypothetical $100,000 invested in December 1992 for 20 years (ending values)

401(k): Hypothetical $500-a-month investment in December 1992 for 20 years (ending values)

Bottom line: The active advantage can offer investors the potential for greater wealth.

This isn’t just an academic exercise. Inves-tors have real needs and goals. In a world of underfunded pension plans and house-holds at risk of running out of retirement income, it is crucial to select an investment manager with a proven track record of consistently outpacing the broad market. The right decision can transform long-term investment outcomes, and mean the differ-ence between success and shortfall.

Our analysis looked at investor outcomes from several perspectives. In one, a $100,000 lump sum was spread across American Funds’ equity-focused funds over a 20-year period beginning on December 31, 1992. In this example, the initial investment would have had an end-ing value of $626,946, or $170,206 more than the same amount invested in an index blend, or 37% more wealth.

We also looked at the outcome through the lens of a 401(k) investor. In this example, an investor contributed $500 a month for 20 years. The same amount was invested in a blend of relevant indexes. The equity-focused American Funds produced an end-ing value that was $56,365 greater than the index blend, or 24% more wealth.

In both cases, the dispersion of results created meaningful value for the investor, and a significant advantage in their pursuit of retirement security or other financial objectives.

Whether it’s an individual saving for retirement, a fiduciary selecting a 401(k) plan lineup, an advisor constructing client portfolios, or a pension plan sponsor ad-dressing underfunded status, the goal is to create better investment outcomes and increase the likelihood of success.

Figures shown are past results for Class A shares with all distributions reinvested 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. Unless otherwise indicated, fund results are for Class A shares at net asset value with all distributions reinvested. If the funds’ maximum sales charge (5.75%) had been deducted, results would have been lower. For current information and month-end results, visit americanfunds.com.

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Through the decades, and many challeng-ing environments, Capital Group’s active management has provided clear advan-tages over index investing.

The tables on this page and the next show superior results across multiple investment strategies and time periods.

We believe the returns make a strong case for a process that is able to add real value for investors, and do so consistently.

Our contention, of course, is that the objectives of investors are more likely to be met by The Capital System, our distinctive investment culture, approach and process.

The system is built in alignment with client interests, which is further reinforced by

a compensation structure that is heavily influenced by results over four- and eight-year periods. We believe that the objec-tives of investors are more likely to be met by experienced professionals with diverse perspectives, who have the ability to act on their highest convictions, and are support-ed by a global research network.

That approach has served investors well. Our funds have consistently outpaced their benchmarks, provided resilience in chal-lenging environments, produced results with less volatility than the broad market and done so at a relatively low cost. Our consis-tent approach, in combination with a proven system, has resulted in the superior long-term track record displayed on these pages.

Behind the numbers: The Capital SystemSM

Fund-specific active advantage Rolling monthly periods ended 12/31/12

Fund and inception date 1-year 3-year 5-year 10-year 15-year 20-year 30-yearGrowth funds

AMCAP Fund (5/1/67) Percentage of time fund outpaced index 52% 52% 50% 69% 80% 80% 94% Fund annualized return (%) 12.77 11.64 11.66 12.92 13.59 13.57 13.59 Index annualized return (%) 11.05 10.09 10.09 10.98 12.05 12.37 12.12 Difference (%) 1.72 1.55 1.57 1.94 1.54 1.20 1.47EuroPacific Growth Fund (4/16/84) Percentage of time fund outpaced index 59% 71% 80% 95% 100% 100% — Fund annualized return (%) 13.32 11.65 11.06 10.87 10.92 11.02 — Index annualized return (%) 12.52 9.64 7.93 7.27 7.01 7.50 — Difference (%) 0.80 2.01 3.13 3.60 3.91 3.52 —The Growth Fund of America (12/1/73) Percentage of time fund outpaced index 55% 66% 68% 73% 84% 100% 100% Fund annualized return (%) 15.42 14.48 14.43 14.45 14.79 14.74 14.40 Index annualized return (%) 12.39 11.44 11.38 12.07 12.73 12.81 11.90 Difference (%) 3.03 3.04 3.05 2.38 2.06 1.93 2.50The New Economy Fund (12/1/83) Percentage of time fund outpaced index 51% 54% 61% 52% 48% 59% — Fund annualized return (%) 12.91 10.94 10.27 10.36 10.77 10.36 — Index annualized return (%) 12.17 10.69 10.07 10.32 10.81 10.18 — Difference (%) 0.74 0.25 0.20 0.04 –0.04 0.18 —New Perspective Fund (3/13/73) Percentage of time fund outpaced index 71% 84% 86% 90% 100% 100% 100% Fund annualized return (%) 13.73 13.14 13.15 13.53 13.81 13.79 13.47 Index annualized return (%) 10.56 10.14 10.13 10.64 10.97 10.88 10.53 Difference (%) 3.17 3.00 3.02 2.89 2.84 2.91 2.94New World Fund (6/17/99) Percentage of time fund outpaced index 76% 93% 100% 100% — — — Fund annualized return (%) 11.35 11.38 12.39 11.23 — — — Index annualized return (%) 4.45 3.69 4.23 3.52 — — — Difference (%) 6.90 7.69 8.16 7.71 — — —SMALLCAP World Fund (4/30/90) Percentage of time fund outpaced index 59% 59% 57% 54% 84% 100% — Fund annualized return (%) 12.52 9.91 9.02 8.33 8.96 9.30 — Index annualized return (%) 9.66 8.24 7.38 7.45 7.69 7.81 — Difference (%) 2.86 1.67 1.64 0.88 1.27 1.49 —

Investment Insights September 2013

The active advantage

Figures shown are past results for Class A shares with all distributions reinvested 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. Unless otherwise indicated, fund results are for Class A shares at net asset value with all distributions reinvested. If the funds’ maximum sales charge (5.75%) had been deducted, results would have been lower. For current information and month-end results, visit americanfunds.com.

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Fund-specific active advantage Rolling monthly periods ended 12/31/12

Fund and inception date 1-year 3-year 5-year 10-year 15-year 20-year 30-yearGrowth-and-income funds

American Mutual Fund (2/21/50) Percentage of time fund outpaced index 47% 53% 58% 66% 73% 70% 94% Fund annualized return (%) 12.46 11.72 11.62 11.64 11.83 11.94 12.44 Index annualized return (%) 12.25 11.06 10.82 10.71 10.95 10.95 11.19 Difference (%) 0.21 0.66 0.80 0.93 0.88 0.99 1.25Capital World Growth and Income Fund (3/26/93) Percentage of time fund outpaced index 80% 86% 100% 100% 100% — — Fund annualized return (%) 11.78 10.91 10.51 10.70 10.27 — — Index annualized return (%) 8.07 6.67 5.73 5.15 5.48 — — Difference (%) 3.71 4.24 4.78 5.55 4.79 — —Fundamental Investors (8/1/78) Percentage of time fund outpaced index 55% 65% 74% 79% 82% 89% 100% Fund annualized return (%) 13.81 12.81 12.76 12.84 13.30 13.22 12.44 Index annualized return (%) 12.84 11.61 11.45 11.64 12.28 12.17 11.05 Difference (%) 0.97 1.20 1.31 1.20 1.02 1.05 1.39International Growth and Income Fund (10/1/08) Percentage of time fund outpaced index 54% 73% — — — — — Fund annualized return (%) 12.32 9.97 — — — — — Index annualized return (%) 12.59 9.50 — — — — — Difference (%) –0.27 0.47 — — — — —The Investment Company of America (1/1/34) Percentage of time fund outpaced index 54% 61% 67% 69% 70% 75% 98% Fund annualized return (%) 13.48 12.01 11.75 12.20 12.46 12.62 12.52 Index annualized return (%) 12.29 10.98 10.81 11.31 11.70 11.77 11.41 Difference (%) 1.19 1.03 0.94 0.89 0.76 0.85 1.11Washington Mutual Investors Fund (7/31/52) Percentage of time fund outpaced index 59% 61% 69% 82% 91% 97% 100% Fund annualized return (%) 13.03 12.02 11.70 11.91 12.24 12.41 12.92 Index annualized return (%) 11.90 10.76 10.33 10.44 10.77 10.89 11.26 Difference (%) 1.13 1.26 1.37 1.47 1.47 1.52 1.66

Equity-income funds/balanced funds

Capital Income Builder (7/30/87) Percentage of time fund outpaced index 64% 75% 82% 100% 100% 100% — Fund annualized return (%) 10.55 10.07 10.00 10.41 10.32 10.04 — Index annualized return (%) 7.70 7.21 7.15 7.17 7.06 7.20 — Difference (%) 2.85 2.86 2.85 3.24 3.26 2.84 —The Income Fund of America (12/1/73) Percentage of time fund outpaced index 60% 53% 60% 68% 79% 82% 100% Fund annualized return (%) 12.14 11.46 11.28 11.87 11.93 11.95 11.83 Index annualized return (%) 10.81 10.42 10.43 11.04 11.45 11.48 10.93 Difference (%) 1.33 1.04 0.85 0.83 0.48 0.47 0.90American Balanced Fund (7/26/75) Percentage of time fund outpaced index 52% 44% 42% 50% 53% 70% 100% Fund annualized return (%) 11.20 10.72 10.77 11.35 11.46 11.52 11.14 Index annualized return (%) 10.77 10.44 10.51 11.02 11.33 11.39 10.79 Difference (%) 0.43 0.28 0.26 0.33 0.13 0.13 0.35

American Funds Global Balanced Fund (2/1/11) Percentage of time fund outpaced index 100% — — — — — — Fund annualized return (%) 5.65 — — — — — — Index annualized return (%) 3.63 — — — — — — Difference (%) 2.02 — — — — — —

Both fund and index annualized returns reflect the average of the average annual total returns for all periods. Data from published sources were calculated internally. Returns are from the first month-end following each fund’s inception date through December 31, 2012. For each fund’s comparable index/index blend, see General Methodology, page 10.

First, check assumptions. The evidence shows select active managers, contrary to what some have argued, can and have con-sistently outpaced broad market returns.

Second, revisit allocations. Some portfolios could benefit in the long run from core al-locations to flexible, actively managed funds with broad mandates.

Third, broaden the criteria generally applied when evaluating investment managers.

People, process, performance and price have long driven the manager selection process. We would encourage the addition of a fifth “P” to the due diligence exercise — persistency.

The importance of persistency on investor outcomes cannot be overstated. American Funds has not only demonstrated the ability to provide positive excess returns, but to do so consistently decade after decade.

Three ways to put theactive advantage to work

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General methodology

The 17 American Funds equity-focused funds used in our analysis and the relevant indexes/index blends with which they were com-pared are as follows: AMCAP Fund, The Growth Fund of America, The New Economy Fund, American Mutual Fund, Fundamental Investors, The Investment Company of America and Washington Mutual Investors Fund (Standard & Poor’s 500 Index); EuroPacific Growth Fund and International Growth and Income Fund (MSCI All Country World ex USA Index); New Perspective Fund, New World Fund, and Capital World Growth and Income Fund (MSCI All Country World Index); SMALLCAP World Fund (MSCI All Country World Small Cap Index); Capital Income Builder and American Funds Global Balanced Fund (60% MSCI All Country World and 40% Barclays Global Aggregate indexes); and The Income Fund of America and American Balanced Fund (60% Standard & Poor’s 500 and 40% Barclays U.S. Aggregate indexes). All relevant indexes listed are funds’ primary benchmarks, with the exception of Capital Income Builder and The Income Fund of America. The primary benchmark for Capital Income Builder is Standard & Poor’s 500 Index; for The Income Fund of America, they are Standard and Poor’s 500 and Barclays U.S. Aggregate indexes.

Some of the aforementioned indexes do not have sufficient history to have covered the lifetime of certain funds; therefore, compa-rable indexes were used for those periods. These funds, indexes and periods are as follows. For American Balanced Fund, 60% Standard & Poor’s 500 and 40% Barclays U.S. Government/Credit indexes were used for the period July 31, 1975 (month-end fol-lowing the fund’s inception on July 26, 1975), through December 31, 1975. Results for this index blend and the index blend (60% Standard & Poor’s 500 and 40% Barclays U.S. Aggregate indexes) that was subsequently used were rebalanced monthly. For Capital World Growth and Income Fund, results for the MSCI All Country World Index reflect dividends gross of withholding taxes for the period March 31, 1993 (month-end following the fund’s incep-tion on March 26, 1993), through December 31, 2000, and net of withholding taxes thereafter. For New World Fund, results for the MSCI All Country World Index reflect dividends gross of withhold-ing taxes for the period June 30, 1999 (month-end following the fund’s inception on June 17, 1999), through December 31, 2000, and net of withholding taxes thereafter. For EuroPacific Growth Fund, the MSCI EAFE (Europe, Australasia, Far East) Index was used for the period April 30, 1984 (month-end following the fund’s inception on April 16, 1984), through December 31, 1987; results for the index reflect dividends net of withholding taxes. Results for the MSCI All Country World ex USA Index, which was subsequently used, reflect dividends gross of withholding taxes from January 1, 1988, through December 31, 2000, and dividends net of withhold-ing taxes thereafter. For New Perspective Fund, the MSCI World Index was used for the period March 31, 1973 (month-end follow-ing the fund’s inception on March 13, 1973), through December 31, 1987; results for the index reflect dividends net of withholding taxes. Results for the MSCI All Country World Index, which was

subsequently used, reflect dividends gross of withholding taxes from January 1, 1988, through December 31, 2000, and dividends net of withholding taxes thereafter. For SMALLCAP World Fund, the S&P Global <$1.2 Billion Index was used for the period April 30, 1990 (fund’s inception date), through May 31, 1994. Results for the MSCI All Country World Small Cap Index, which was subsequently used, reflect dividends net of withholding taxes. For Capital Income Builder, 60% MSCI World and 40% Citigroup World Government Bond indexes were used for the period July 31, 1987 (month-end following the fund’s inception on July 30, 1987), through December 31, 1987; results for the MSCI World Index reflect dividends net of withholding taxes. From January 1, 1988, through December 31, 1989, 60% MSCI All Country World and 40% Citigroup World Government Bond indexes were used; results for the MSCI All Country World Index reflect dividends gross of withholding taxes. From January 1, 1990, and thereafter, 60% MSCI All Country World and 40% Barclays Global Aggregate indexes were used; results for the MSCI All Country World Index reflect dividends gross of withholding taxes from January 1, 1988, through December 31, 2000, and net of withholding taxes thereaf-ter. Results for this index blend and the index blend used prior to it were rebalanced monthly. For The Income Fund of America, 60% Standard & Poor’s 500 and 40% Barclays U.S. Government/Credit indexes were used for the period November 30, 1973 (fund’s inception date), through December 31, 1975. Results for this index blend and the index blend (60% Standard & Poor’s 500 and 40% Barclays U.S. Aggregate indexes) that was subsequently used were rebalanced monthly.

In order to compare Capital Income Builder, The Income Fund of America, American Balanced Fund and American Funds Global Balanced Fund with more relevant indexes/index blends, the Morningstar World and Moderate Allocation categories were filtered from the universe of funds in the Standard & Poor’s 500 Index grouping. Capital Income Builder and American Funds Global Balanced Fund fall in the Morningstar World Allocation Cat-egory, and The Income Fund of America and American Balanced Fund in the Morningstar Moderate Allocation Category. Addition-ally, a total of 20 other actively managed funds were removed from the Standard & Poor’s 500 Index group due to incomplete data or existing less than one year as of December 31, 2012. All other groupings were pulled by the following benchmarks: Standard & Poor’s 500 Index, MSCI All Country World Index (gross and net), MSCI All Country World ex USA Index (gross and net) and MSCI All Country World Small Cap Index (gross and net). The groupings were filtered for oldest share class and excluded fund of funds, index funds, feeder funds, lifecycle funds, in-house fund of funds and enhanced index funds.

Due to the dynamic nature of the Morningstar database, results for the index groupings may change.

Investment Insights September 2013

The active advantage

11

Specific methodology for hypothetical 20-year investments illustrations, page 7

The equity-focused American Funds represent a combination of the 17 equity-focused American Funds, as listed on pages 8 and 9. The illustration assumed hypothetical investments equally weight-ed into the funds for each month as they came into existence. The investments were rebalanced monthly.

The index blend represents relevant index blends, weighted ac-cording to the primary benchmarks of the American Funds with which they were compared. The investments were rebalanced monthly. MSCI ACWI, MSCI ACWI ex USA and MSCI ACWI Small

Cap results reflect dividends gross of withholding taxes through December 31, 2000, and dividends net of withholding taxes there-after. MSCI World and MSCI EAFE results reflect dividends net of withholding taxes. For the specific indexes/index blends and weightings, which reflect the benchmark distribution of the Ameri-can Funds in the illustration, refer to the table below (percentages may not add up to 100% due to rounding).

The ending dollar amounts of the hypothetical investments are based on monthly returns calculated internally.

All periods were calculated using geometric linking of net-of-fee monthly returns from Morningstar. The American Funds and index returns were calculated internally in the same manner using monthly returns.

Barclays Global Aggregate Index represents the global invest-ment-grade fixed-income markets. Barclays U.S. Aggregate Index represents the U.S. investment-grade fixed-rate bond market. Barclays U.S. Government/Credit Index is a market-value weighted index that tracks the total return results of fixed-rate, publicly placed, dollar-denominated obligations issued by the U.S. Trea-sury, U.S. government agencies, quasi-federal corporations, corporate or foreign debt guaranteed by the U.S. government, and U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements, with maturities of more than one year. Citigroup World Govern-ment Bond Index represents a comprehensive measure of the total return results of the government bond markets of more than 20 countries meeting certain market capitalization requirements. MSCI All Country World Index is a free float-adjusted market capitalization-weighted index that is designed to measure results of more than 40 developed and emerging equity markets. Results reflect dividends gross of withholding taxes through December 31,

2000, and dividends net of withholding taxes thereafter. MSCI All Country World ex USA Index is a free float-adjusted market capi-talization weighted index that is designed to measure results of more than 40 developed and emerging equity markets, excluding the United States. Results reflect dividends gross of withholding taxes through December 31, 2000, and dividends net of withhold-ing taxes thereafter. MSCI All Country World Small Cap Index is a free float-adjusted market capitalization-weighted index that is designed to measure results of smaller capitalization companies in both developed and emerging equity markets. Results reflect dividends net of withholding taxes. MSCI EAFE (Europe, Austral-asia, Far East) Index is a free float-adjusted market capitalization-weighted index that is designed to measure developed equity market results, excluding the United States and Canada. Results reflect dividends net of withholding taxes. MSCI World Index is a free float-adjusted market capitalization-weighted index that is designed to measure results of more than 20 developed equity markets. Results reflect dividends net of withholding taxes. Stan-dard & Poor’s 500 Index is a market capitalization-weighted index based on the average weighted results of 500 widely held com-mon stocks. S&P Global <$1.2 Billion Index includes only stocks in developed countries.

PeriodStandard & Poor’s 500

Index

60% MSCI All Country World/

40% Barclays Global Aggregate indexes

MSCI All Country World ex USA/MSCI EAFE

(Europe, Australasia, Far East) indexes

60% Standard & Poor’s 500/

40% Barclays U.S. Aggregate indexes

MSCI All Country World/

MSCI World indexes

MSCI All Country World Small Cap/S&P

Developed <$1.2 Billion indexes

12/31/92–3/31/93 54 % 8 % 8 % 15 % 8 % 8 %

3/31/93–6/30/99 50 7 7 14 14 7

6/30/99–10/31/08 47 7 7 13 20 7

10/31/08–2/28/11 44 6 13 13 19 6

2/28/11–12/31/12 41 12 12 12 18 6

Investment Insights September 2013

The active advantage

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. Expense ratios are as of each fund’s prospectus available at the time of publication. When applicable, investment results reflect fee waivers and/or expense reim-bursements, without which the results would have been lower. Please see americanfunds.com for more information.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. Investing outside the United States involves risks, such as currency fluctuations, periods of illiquidity and price volatility, as more fully described in the prospectus. These risks may be heightened in connection with investments in developing countries. Small-company stocks entail additional risks, and they can fluctuate in price more than larger company stocks. The return of principal for bond funds and funds with significant underlying bond holdings is not guaranteed.

Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings. Lower rated bonds are subject to greater fluctuations in value and risk of loss of income and principal than higher rated bonds. If used after September 30, 2013, this white paper must be accompanied by a current American Funds quarterly statistical update.

Lit. No. MFCPWP-028-1113O CGD/9569-S40518 © 2013 American Funds Distributors, Inc.

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. Results shown below reflect the deduction of the 5.75% maximum sales charge with all distributions reinvested. For current information and month-end results, visit americanfunds.com.

Results as of June 30, 2013 Average annual total returns for Class A shares (%)

Funds Inception date 1 year 5 years 10 years Lifetime Expense ratio (%)

Growth fundsAMCAP Fund 5/1/67 14.58 7.50 6.69 11.20 0.74EuroPacific Growth Fund 4/16/84 8.83 –0.06 8.92 11.04 0.86The Growth Fund of America 12/1/73 15.88 3.60 7.37 13.35 0.71The New Economy Fund 12/1/83 18.78 7.46 8.72 10.76 0.87New Perspective Fund 3/13/73 12.69 3.75 9.15 12.19 0.80New World Fund 6/17/99 4.68 –0.35 11.73 8.15 1.07SMALLCAP World Fund 4/30/90 14.84 4.13 10.31 9.28 1.14

Growth-and-income fundsAmerican Mutual Fund 2/21/50 11.22 6.17 6.87 11.55 0.63Capital World Growth and Income Fund 3/26/93 12.44 1.69 9.18 10.56 0.82Fundamental Investors 8/1/78 15.52 3.83 8.79 12.21 0.65International Growth and Income Fund 10/1/08 11.59 — — 7.94 0.93The Investment Company of America 1/1/34 13.05 4.58 6.31 12.02 0.62Washington Mutual Investors Fund 7/31/52 13.55 6.00 6.48 11.74 0.62

Equity-income funds

Capital Income Builder 7/30/87 4.55 2.52 6.91 9.42 0.63The Income Fund of America 12/1/73 7.25 5.46 7.00 11.15 0.59

Balanced fundsAmerican Balanced Fund 7/26/75 9.18 6.27 6.36 10.65 0.63American Funds Global Balanced Fund 2/1/11 5.50 — — 3.62 0.91