"Miscellaneous" securities include holdings in their initial period of acquisition that have not previously been publicly disclosed.
Financial statements
Statement of assets and liabilities at October 31, 2006 | unaudited |
| (dollars and shares in thousands, except per-share amounts) | |
| | |
| Investment securities at market: | | | | | | | |
| Unaffiliated issuers (cost: $59,189,505) | | | $82,054,784 | | | | |
| Affiliated issuer (cost: $364,479) | | | 586,070 | | | $82,640,854 | |
| Cash | | | | | | 980 | |
| Receivables for: | | | | | | | |
| Sales of investments | | | 337,377 | | | | |
| Sales of Fund’s shares | | | 79,978 | | | | |
| Dividends and interest | | | 124,870 | | | 542,225 | |
| | | | | | | 83,184,059 | |
Liabilities: | | | | | | | |
| Payables for: | | | | | | | |
| Purchases of investments | | | 121,052 | | | | |
| Repurchases of Fund’s shares | | | 106,972 | | | | |
| Management services | | | 16,405 | | | | |
| Services provided by affiliates | | | 52,080 | | | | |
| Deferred directors’ and advisory board compensation | | | 1,599 | | | | |
| Other fees and expenses | | | 229 | | | 298,337 | |
Net assets at October 31, 2006 | | | | | | $82,885,722 | |
| | | | | | | | |
Net assets consist of: | | | | | | | |
| Capital paid in on shares of capital stock | | | | | | $57,657,344 | |
| Undistributed net investment income | | | | | | 504,962 | |
| Undistributed net realized gain | | | | | | 1,636,546 | |
| Net unrealized appreciation | | | | | | 23,086,870 | |
Net assets at October 31, 2006 | | | | | | $82,885,722 | |
Total authorized capital stock — 4,000,000 shares, $.001 par value (2,386,069 total shares outstanding) |
| | Net assets | Shares outstanding | Net asset value per share* |
| Class A | $66,972,826 | 1,926,249 | $34.77 |
| Class B | 3,139,915 | 90,852 | 34.56 |
| Class C | 3,252,518 | 94,285 | 34.50 |
| Class F | 2,893,653 | 83,393 | 34.70 |
| Class 529-A | 939,585 | 27,051 | 34.73 |
| Class 529-B | 197,085 | 5,697 | 34.59 |
| Class 529-C | 326,699 | 9,448 | 34.58 |
| Class 529-E | 52,158 | 1,506 | 34.62 |
| Class 529-F | 38,351 | 1,105 | 34.69 |
| Class R-1 | 56,128 | 1,624 | 34.57 |
| Class R-2 | 900,022 | 26,097 | 34.49 |
| Class R-3 | 2,045,136 | 59,097 | 34.61 |
| Class R-4 | 1,034,227 | 29,822 | 34.68 |
| Class R-5 | 1,037,419 | 29,843 | 34.76 |
*Maximum offering price and redemption price per share were equal to the net asset value per share for all share classes, except for Class A and 529-A, for which the maximum offering prices per share were $36.89 and $36.85, respectively.
See Notes to Financial Statements
Statement of operations for the six months ended October 31, 2006 | unaudited |
Investment income: | | (dollars in thousands) | |
| Income: | | | | | | | |
Dividends (net of non-U.S. taxes of $707; also includes $5,972 from affiliate) | | | $950,134 | | | | |
| Interest | | | 63,062 | | | $1,013,196 | |
| | | | | | | | |
| Fees and expenses*: | | | | | | | |
| Investment advisory services | | | 76,371 | | | | |
| Business management services | | | 28,034 | | | | |
| Distribution services | | | 124,432 | | | | |
| Transfer agent services | | | 26,344 | | | | |
| Administrative services | | | 10,159 | | | | |
| Reports to shareholders | | | 1,475 | | | | |
| Registration statement and prospectus | | | 557 | | | | |
| Postage, stationery and supplies | | | 3,738 | | | | |
| Directors’ and advisory board compensation | | | 688 | | | | |
| Auditing and legal | | | 111 | | | | |
| Custodian | | | 196 | | | | |
| Other | | | 39 | | | | |
| Total fees and expenses before reimbursements/waivers | | | 272,144 | | | | |
| Less reimbursements/waivers of fees and expenses: | | | | | | | |
| Investment advisory services | | | 7,637 | | | | |
| Business management services | | | 2,804 | | | | |
| Administrative services | | | 229 | | | | |
| Total fees and expenses after reimbursements/waivers | | | | | | 261,474 | |
| Net investment income | | | | | | 751,722 | |
| | | | | | | | |
Net realized gain and unrealized appreciation on investments: | | | | | | | |
| Net realized gain on investments (including $232 net gain | | | | | | | |
| from affiliate) | | | | | | 509,915 | |
| Net unrealized appreciation on investments | | | | | | 4,490,935 | |
| Net realized gain and unrealized appreciation on investments | | | | | | 5,000,850 | |
Net increase in net assets resulting from operations | | | | | | $5,752,572 | |
| | | | | | | | |
*Additional information related to class-specific fees and expenses is included in the Notes to Financial Statements.
See Notes to Financial Statements
Statements of changes in net assets (dollars in thousands) | |
| | |
| | | Six months ended October 31, 2006* | | Year ended April 30, 2006 | |
Operations: | | | | | | | |
| Net investment income | | | $751,722 | | | $1,578,232 | |
| Net realized gain on investments | | | 509,915 | | | 1,992,122 | |
| Net unrealized appreciation on investments | | | 4,490,935 | | | 5,840,968 | |
| Net increase in net assets resulting from operations | | | 5,752,572 | | | 9,411,322 | |
| | | | | | | | |
Dividends and distributions paid to shareholders: | | | | | | | |
| Dividends from net investment income | | | (731,361) | | | (1,464,289) | |
| Distributions from net realized gain on investments | | | — | | | (1,051,850) | |
| Total dividends and distributions paid to shareholders | | | (731,361) | | | (2,516,139) | |
| | | | | | | | |
Capital share transactions | | | (1,168,446) | | | (2,318,017) | |
| | | | | | | | |
Total increase in net assets | | | 3,852,765 | | | 4,577,166 | |
| | | | | | | | |
Net assets: | | | | | | | |
| Beginning of period | | | 79,032,957 | | | 74,455,791 | |
| End of period (including undistributed net investment income: $504,962 and $484,601, respectively) | | | $82,885,722 | | | $79,032,957 | |
| | | | | | | | |
*Unaudited.
See Notes to Financial Statements
Notes to financial statements unaudited
1. Organization and significant accounting policies |
Organization — Washington Mutual Investors Fund (the "Fund") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company. The Fund’s investment objective is to produce current income and to provide an opportunity for growth of principal consistent with sound common stock investing.
The Fund offers 14 share classes consisting of four retail share classes, five CollegeAmerica¨ 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) 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 charge upon redemption | Conversion feature |
| Class A and 529-A | Up to 5.75% | None (except 1% for certain redemptions within one year of purchase without an initial sales charge) | None |
| Class B and 529-B | None | Declines from 5% to 0% for redemptions within six years of purchase | Class B and 529-B convert to Class A and 529-A, respectively, after eight years |
| Class C | None | 1% for redemptions within one year of purchase | Class C converts to Class F after 10 years |
| Class 529-C | None | 1% for redemptions within one year of purchase | None |
| Class 529-E | None | None | None |
| Class F and 529-F | None | None | None |
Class R-1, R-2, R-3, R-4 and R-5 | None | None | None |
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, including short-term securities purchased with more than 60 days left to maturity, 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 originally purchased with maturities greater than 60 days is determined based on an amortized value to par when they reach 60 days or less remaining to maturity. 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 or are considered unreliable by the investment adviser 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.
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.
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. Therefore, no Federal income tax provision is required.
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 and cost of investments sold. 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 for financial reporting purposes.
The components of distributable earnings on a tax basis are reported as of the Fund’s most recent year end. As of April 30, 2006, the Fund had tax basis undistributed ordinary income of $486,631,000 and undistributed long-term capital gain of $1,156,451,000.
As of October 31, 2006, the tax basis unrealized appreciation (depreciation) and cost of investments were as follows:
| | (dollars in thousands) |
| Gross unrealized appreciation on investment securities | $23,469,991 |
| Gross unrealized depreciation on investment securities | (413,075) |
| Net unrealized appreciation on investment securities | 23,056,916 |
| Cost of investment securities | 59,583,938 |
The tax character of distributions paid to shareholders was as follows (dollars in thousands):
| | | Six months ended October 31, 2006 | | Year ended April 30, 2006 | |
Share class | | Ordinary income | | Long-term capital gains | | Total distributions paid | | Ordinary income | | Long-term capital gains | | Total distributions paid | |
| Class A | | | $619,490 | | | — | | | $619,490 | | | $1,246,004 | | | $856,631 | | | $2,102,635 | |
| Class B | | | 18,106 | | | — | | | 18,106 | | | 36,979 | | | 41,104 | | | 78,083 | |
| Class C | | | 17,467 | | | — | | | 17,467 | | | 36,207 | | | 42,338 | | | 78,545 | |
| Class F | | | 25,913 | | | — | | | 25,913 | | | 50,606 | | | 35,323 | | | 85,929 | |
| Class 529-A | | | 8,083 | | | — | | | 8,083 | | | 13,993 | | | 10,202 | | | 24,195 | |
| Class 529-B | | | 983 | | | — | | | 983 | | | 1,805 | | | 2,293 | | | 4,098 | |
| Class 529-C | | | 1,632 | | | — | | | 1,632 | | | 2,901 | | | 3,641 | | | 6,542 | |
| Class 529-E | | | 381 | | | — | | | 381 | | | 662 | | | 578 | | | 1,240 | |
| Class 529-F | | | 355 | | | — | | | 355 | | | 531 | | | 353 | | | 884 | |
| Class R-1 | | | 284 | | | — | | | 284 | | | 468 | | | 566 | | | 1,034 | |
| Class R-2 | | | 4,703 | | | — | | | 4,703 | | | 8,618 | | | 10,244 | | | 18,862 | |
| Class R-3 | | | 15,056 | | | — | | | 15,056 | | | 30,347 | | | 24,319 | | | 54,666 | |
| Class R-4 | | | 9,197 | | | — | | | 9,197 | | | 17,967 | | | 12,688 | | | 30,655 | |
| Class R-5 | | | 9,711 | | | — | | | 9,711 | | | 17,201 | | | 11,570 | | | 28,771 | |
| Total | | | $731,361 | | | — | | | $731,361 | | | $1,464,289 | | | $1,051,850 | | | $2,516,139 | |
| | | | | | | | | | | | | | | | | | | |
3. Fees and transactions with related parties |
Business management services — The Fund has a business management agreement with Washington Management Corporation (WMC). Under this agreement, WMC provides services necessary to carry on the Fund’s general administrative and corporate affairs. These services encompass matters relating to general corporate governance, regulatory compliance and monitoring of the Fund’s contractual service providers, including custodian
operations, shareholder services and Fund share distribution functions. Under the agreement, all expenses chargeable to the Class A shares of the Fund, including compensation to the business manager, shall not exceed 1% of the average net assets of the Fund on an annual basis. The agreement provides for monthly fees, accrued daily, based on a declining
series of annual rates beginning with 0.175% on the first $3 billion of daily net assets and decreasing to 0.030% on such assets in excess of $77 billion. WMC is currently waiving 10% of business management services fees. During the six months ended October 31, 2006, WMC reduced business management services fees by $2,804,000. As a result, the fee shown on the accompanying financial statements of $28,034,000, which was equivalent to an annualized rate of 0.071%, was reduced to $25,230,000, or 0.064% of average daily net assets. During the six months ended October 31, 2006, WMC paid the Fund’s investment adviser $1,142,000 for performing various fundaccounting services for the Fund and for The American Funds Tax-Exempt Series I, another registered investment company for which WMC serves as business manager. Johnston, Lemon & Co. Incorporated (JLC), a wholly owned subsidiary of The Johnston-Lemon Group, Incorporated (JLG) (parent company of WMC), earned $273,000 on its retail sales of shares and distribution plans of the Fund. JLC received no brokerage commissions resulting from the purchases and sales of securities for the investment account of the Fund.
Investment advisory services — Capital Research and Management Company (CRMC), the Fund’s investment adviser, is the parent company of American Funds Service CompanySM (AFS), the Fund’s transfer agent, and American Funds Distributors, Inc.SM (AFD), the principal underwriter of the Fund’s shares. The Investment Advisory Agreement with CRMC provides for monthly fees accrued daily. These fees are based on a declining series of annual rates beginning with 0.225% on the first $3 billion of daily net assets and decreasing to 0.177% on such assets in excess of $89 billion. CRMC is currently waiving 10% of investment advisory services fees. During the six months ended October 31, 2006, total investment advisory services fees waived by CRMC were $7,637,000. As a result, the fee shown on the accompanying financial statements of $76,371,000, which was equivalent to an annualized rate of 0.193%, was reduced to $68,734,000, or 0.174% 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 below:
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 and service existing accounts. The plans provide for payments, based on an annualized percentage of average daily net assets, ranging from 0.25% to 1.00% as noted on the following page. In some cases, the board of directors has limited the amounts that may be paid to less than the maximum allowed by the plans. 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 to provide certain shareholder services. The remaining amounts available to be paid under each plan are paid to dealers to compensate them for their sales activities.
For Class 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. These classes reimburse 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 October 31, 2006, there were no unreimbursed expenses subject to reimbursement for Class A or 529-A.
Share class | Currently approved limits | Plan limits |
| Class A | 0.25% | 0.25% |
| Class 529-A | 0.25 | 0.50 |
| Class B and 529-B | 1.00 | 1.00 |
| Class C, 529-C and R-1 | 1.00 | 1.00 |
| Class R-2 | 0.75 | 1.00 |
| Class 529-E and R-3 | 0.50 | 0.75 |
| Class F, 529-F and R-4 | 0.25 | 0.50 |
Transfer agent services — The Fund has a transfer agent agreement with AFS for Class 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 share classes other than Class A and B. Each relevant share class pays CRMC annual fees up to 0.15% (0.10% for Class R-5) based on its respective average daily net assets. Each relevant share 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. CRMC has agreed to pay AFS on the Fund’s behalf for a portion of the transfer agent services fees for some of the retirement plan share classes. For the six months ended October 31, 2006, the total administrative services fees paid by CRMC were $151 and $229,000 for Class R-1 and R-2, respectively. 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 on the accompanying financial statements, the Commonwealth of Virginia is not considered a related party.
Expenses under the agreements described on the previous page for the six months ended October 31, 2006, were as follows (dollars in thousands):
| | | | | | | Administrative services | |
Share class | | Distribution services | | Transfer agent services | | CRMC administrative services | | Transfer agent services | | Commonwealth of Virginia administrative services | |
| Class A | | | $77,509 | | | $25,088 | | | Not applicable | | | Not applicable | | | Not applicable | |
| Class B | | | 15,168 | | | 1,256 | | | Not applicable | | | Not applicable | | | Not applicable | |
| Class C | | | 15,547 | | | | | | $2,063 | | | $318 | | | Not applicable | |
| Class F | | | 3,377 | | | | | | 1,167 | | | 172 | | | Not applicable | |
| Class 529-A | | | 859 | | | | | | 344 | | | 58 | | | $434 | |
| Class 529-B | | | 924 | | | | | | 73 | | | 34 | | | 93 | |
| Class 529-C | | | 1,521 | | | Included in | | | 120 | | | 47 | | | 152 | |
| Class 529-E | | | 121 | | | administrative | | | 19 | | | 3 | | | 24 | |
| Class 529-F | | | — | | | services | | | 14 | | | 2 | | | 17 | |
| Class R-1 | | | 254 | | | | | | 30 | | | 11 | | | Not applicable | |
| Class R-2 | | | 3,137 | | | | | | 618 | | | 1,346 | | | Not applicable | |
| Class R-3 | | | 4,768 | | | | | | 1,340 | | | 460 | | | Not applicable | |
| Class R-4 | | | 1,247 | | | | | | 727 | | | 17 | | | Not applicable | |
| Class R-5 | | | Not applicable | | | | | | 448 | | | 8 | | | Not applicable | |
| Total | | | $124,432 | | | $26,344 | | | $6,963 | | | $2,476 | | | $720 | |
| | | | | | | | | | | | | | | | | |
Deferred directors’ and advisory board compensation — Since the adoption of the deferred compensation plan in 1994, independent directors and advisory board members 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’ and advisory board compensation of $688,000, shown on the accompanying financial statements, includes $600,000 in current fees (either paid in cash or deferred) and a net increase of $88,000 in the value of the deferred amounts.
Affiliated officers and directors — All officers and certain directors of the Fund are affiliated with WMC. Officers and affiliated directors do not receive compensation directly from the Fund.
4. Investment transactions |
The Fund made purchases and sales of investment securities, excluding short-term securities, of $6,792,236,000 and $8,802,806,000, respectively, during the six months ended October 31, 2006.
5. Capital share transactions |
Capital share transactions in the Fund were as follows (dollars and shares in thousands):
| | | Sales* | | Reinvestments of dividends and distributions | | Repurchases* | | Net (decrease) increase | |
Share class | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | |
Six months ended October 31, 2006 | |
| Class A | | | $2,648,037 | | | 80,619 | | | $580,319 | | | 17,903 | | | $(4,520,186) | | | (138,152) | | | $(1,291,830) | | | (39,630) | |
| Class B | | | 79,058 | | | 2,425 | | | 17,259 | | | 535 | | | (200,584) | | | (6,158) | | | (104,267) | | | (3,198) | |
| Class C | | | 198,517 | | | 6,097 | | | 16,426 | | | 510 | | | (271,656) | | | (8,374) | | | (56,713) | | | (1,767) | |
| Class F | | | 367,817 | | | 11,202 | | | 22,914 | | | 708 | | | (317,376) | | | (9,698) | | | 73,355 | | | 2,212 | |
| Class 529-A | | | 73,354 | | | 2,241 | | | 8,082 | | | 249 | | | (31,747) | | | (970) | | | 49,689 | | | 1,520 | |
| Class 529-B | | | 9,338 | | | 286 | | | 983 | | | 31 | | | (5,445) | | | (167) | | | 4,876 | | | 150 | |
| Class 529-C | | | 26,747 | | | 820 | | | 1,632 | | | 51 | | | (15,991) | | | (492) | | | 12,388 | | | 379 | |
| Class 529-E | | | 4,582 | | | 140 | | | 381 | | | 12 | | | (2,437) | | | (75) | | | 2,526 | | | 77 | |
| Class 529-F | | | 5,098 | | | 156 | | | 355 | | | 11 | | | (1,060) | | | (32) | | | 4,393 | | | 135 | |
| Class R-1 | | | 11,114 | | | 342 | | | 281 | | | 9 | | | (5,995) | | | (183) | | | 5,400 | | | 168 | |
| Class R-2 | | | 121,618 | | | 3,736 | | | 4,702 | | | 146 | | | (92,379) | | | (2,838) | | | 33,941 | | | 1,044 | |
| Class R-3 | | | 294,422 | | | 9,001 | | | 15,044 | | | 466 | | | (265,249) | | | (8,132) | | | 44,217 | | | 1,335 | |
| Class R-4 | | | 169,567 | | | 5,157 | | | 9,196 | | | 284 | | | (220,685) | | | (6,714) | | | (41,922) | | | (1,273) | |
| Class R-5 | | | 181,447 | | | 5,424 | | | 9,456 | | | 292 | | | (95,402) | | | (2,930) | | | 95,501 | | | 2,786 | |
| Total net increase (decrease) | | | $4,190,716 | | | 127,646 | | | $687,030 | | | 21,207 | | | $(6,046,192) | | | (184,915) | | | $(1,168,446) | | | (36,062) | |
Year ended April 30, 2006 |
| Class A | | | $5,298,942 | | | 169,863 | | | $1,984,249 | | | 63,236 | | | $(9,900,129) | | | (316,730) | | | $(2,616,938) | | | (83,631) | |
| Class B | | | 197,144 | | | 6,359 | | | 74,794 | | | 2,398 | | | (387,807) | | | (12,467) | | | (115,869) | | | (3,710) | |
| Class C | | | 411,237 | | | 13,293 | | | 74,370 | | | 2,389 | | | (637,968) | | | (20,562) | | | (152,361) | | | (4,880) | |
| Class F | | | 645,258 | | | 20,720 | | | 77,224 | | | 2,466 | | | (812,986) | | | (26,060) | | | (90,504) | | | (2,874) | |
| Class 529-A | | | 169,808 | | | 5,447 | | | 24,194 | | | 771 | | | (59,439) | | | (1,898) | | | 134,563 | | | 4,320 | |
| Class 529-B | | | 23,901 | | | 770 | | | 4,098 | | | 131 | | | (10,474) | | | (336) | | | 17,525 | | | 565 | |
| Class 529-C | | | 64,090 | | | 2,065 | | | 6,542 | | | 210 | | | (25,102) | | | (805) | | | 45,530 | | | 1,470 | |
| Class 529-E | | | 9,853 | | | 317 | | | 1,240 | | | 40 | | | (3,572) | | | (114) | | | 7,521 | | | 243 | |
| Class 529-F | | | 9,675 | | | 309 | | | 884 | | | 28 | | | (2,272) | | | (73) | | | 8,287 | | | 264 | |
| Class R-1 | | | 22,484 | | | 725 | | | 1,026 | | | 33 | | | (14,131) | | | (455) | | | 9,379 | | | 303 | |
| Class R-2 | | | 297,143 | | | 9,596 | | | 18,857 | | | 606 | | | (191,087) | | | (6,147) | | | 124,913 | | | 4,055 | |
| Class R-3 | | | 621,188 | | | 20,035 | | | 54,620 | | | 1,748 | | | (659,035) | | | (21,381) | | | 16,773 | | | 402 | |
| Class R-4 | | | 364,970 | | | 11,744 | | | 30,654 | | | 979 | | | (295,958) | | | (9,478) | | | 99,666 | | | 3,245 | |
| Class R-5 | | | 373,131 | | | 12,027 | | | 28,237 | | | 900 | | | (207,870) | | | (6,613) | | | 193,498 | | | 6,314 | |
| Total net increase (decrease) | | | $8,508,824 | | | 273,270 | | | $2,380,989 | | | 75,935 | | | $(13,207,830 | ) | | (423,119) | | | $(2,318,017) | | | (73,914) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| *Includes exchanges between share classes of the Fund. |
Financial highlights1
| | Income (loss) from investment operations2 | | Dividends and distributions | Net asset value, end of period | Total return3 | Net assets, end of period (in millions) | Ratio of expenses to average net assets before reimbursements/ waivers | Ratio of expenses to average net assets after reimbursements/ waivers4 | Ratio of net income (loss) to average net assets |
| Net asset value, beginning of period | Net investment income (loss) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | | Dividends (from net investment income) | Distributions (from capital gains) | Total dividends and distributions |
Class A: | Six months ended 10/31/20065 | $32.66 | $ .33 | $ 2.10 | $ 2.43 | | $(.32) | $ — | $ (.32) | $34.77 | 7.51% | $66,973 | .60%6 | .57%6 | 1.99%6 |
| Year ended 4/30/2006 | 29.85 | .66 | 3.20 | 3.86 | | (.62) | (.43) | (1.05) | 32.66 | 13.11 | 64,202 | .60 | .57 | 2.13 |
| Year ended 4/30/2005 | 28.79 | .67 | 1.22 | 1.89 | | (.60) | (.23) | (.83) | 29.85 | 6.55 | 61,185 | .61 | .60 | 2.24 |
| Year ended 4/30/2004 | 23.99 | .59 | 4.94 | 5.53 | | (.54) | (.19) | (.73) | 28.79 | 23.19 | 57,027 | .64 | .64 | 2.14 |
| Year ended 4/30/2003 | 28.37 | .55 | (4.35) | (3.80) | | (.54) | (.04) | (.58) | 23.99 | (13.36) | 43,701 | .67 | .67 | 2.28 |
| Year ended 4/30/2002 | 29.80 | .50 | (.75) | (.25) | | (.54) | (.64) | (1.18) | 28.37 | (.73) | 50,669 | .65 | .65 | 1.72 |
Class B: | Six months ended 10/31/20065 | 32.47 | .20 | 2.09 | 2.29 | | (.20) | — | (.20) | 34.56 | 7.09 | 3,140 | 1.366 | 1.346 | 1.236 |
| Year ended 4/30/2006 | 29.69 | .42 | 3.17 | 3.59 | | (.38) | (.43) | (.81) | 32.47 | 12.24 | 3,053 | 1.37 | 1.34 | 1.37 |
| Year ended 4/30/2005 | 28.64 | .43 | 1.22 | 1.65 | | (.37) | (.23) | (.60) | 29.69 | 5.75 | 2,902 | 1.38 | 1.37 | 1.47 |
| Year ended 4/30/2004 | 23.88 | .37 | 4.92 | 5.29 | | (.34) | (.19) | (.53) | 28.64 | 22.25 | 2,549 | 1.40 | 1.40 | 1.36 |
| Year ended 4/30/2003 | 28.25 | .36 | (4.32) | (3.96) | | (.37) | (.04) | (.41) | 23.88 | (14.01) | 1,538 | 1.45 | 1.45 | 1.52 |
| Year ended 4/30/2002 | 29.71 | .25 | (.72) | (.47) | | (.35) | (.64) | (.99) | 28.25 | (1.50) | 1,097 | 1.41 | 1.41 | .88 |
Class C: | Six months ended 10/31/20065 | 32.41 | .19 | 2.08 | 2.27 | | (.18) | — | (.18) | 34.50 | 7.06 | 3,253 | 1.436 | 1.416 | 1.156 |
| Year ended 4/30/2006 | 29.64 | .40 | 3.16 | 3.56 | | (.36) | (.43) | (.79) | 32.41 | 12.15 | 3,113 | 1.43 | 1.41 | 1.30 |
| Year ended 4/30/2005 | 28.59 | .41 | 1.22 | 1.63 | | (.35) | (.23) | (.58) | 29.64 | 5.69 | 2,991 | 1.46 | 1.45 | 1.39 |
| Year ended 4/30/2004 | 23.84 | .35 | 4.92 | 5.27 | | (.33) | (.19) | (.52) | 28.59 | 22.19 | 2,460 | 1.48 | 1.48 | 1.27 |
| Year ended 4/30/2003 | 28.22 | .35 | (4.33) | (3.98) | | (.36) | (.04) | (.40) | 23.84 | (14.10) | 1,214 | 1.51 | 1.51 | 1.46 |
| Year ended 4/30/2002 | 29.70 | .21 | (.73) | (.52) | | (.32) | (.64) | (.96) | 28.22 | (1.68) | 678 | 1.51 | 1.51 | .72 |
Class F: | Six months ended 10/31/20065 | 32.60 | .32 | 2.10 | 2.42 | | (.32) | — | (.32) | 34.70 | 7.49 | 2,894 | .636 | .606 | 1.966 |
| Year ended 4/30/2006 | 29.80 | .65 | 3.19 | 3.84 | | (.61) | (.43) | (1.04) | 32.60 | 13.06 | 2,646 | .63 | .61 | 2.10 |
| Year ended 4/30/2005 | 28.74 | .64 | 1.22 | 1.86 | | (.57) | (.23) | (.80) | 29.80 | 6.47 | 2,505 | .69 | .68 | 2.15 |
| Year ended 4/30/2004 | 23.95 | .56 | 4.94 | 5.50 | | (.52) | (.19) | (.71) | 28.74 | 23.13 | 1,917 | .71 | .71 | 2.04 |
| Year ended 4/30/2003 | 28.33 | .53 | (4.34) | (3.81) | | (.53) | (.04) | (.57) | 23.95 | (13.42) | 899 | .74 | .74 | 2.24 |
| Year ended 4/30/2002 | 29.79 | .42 | (.72) | (.30) | | (.52) | (.64) | (1.16) | 28.33 | (.89) | 444 | .78 | .78 | 1.46 |
Class 529-A: | Six months ended 10/31/20065 | 32.63 | .32 | 2.09 | 2.41 | | (.31) | — | (.31) | 34.73 | 7.45 | 940 | .676 | .656 | 1.916 |
| Year ended 4/30/2006 | 29.83 | .64 | 3.19 | 3.83 | | (.60) | (.43) | (1.03) | 32.63 | 13.01 | 833 | .68 | .65 | 2.05 |
| Year ended 4/30/2005 | 28.76 | .63 | 1.23 | 1.86 | | (.56) | (.23) | (.79) | 29.83 | 6.47 | 633 | .71 | .70 | 2.12 |
| Year ended 4/30/2004 | 23.97 | .56 | 4.95 | 5.51 | | (.53) | (.19) | (.72) | 28.76 | 23.07 | 426 | .71 | .71 | 2.03 |
| Year ended 4/30/2003 | 28.36 | .54 | (4.35) | (3.81) | | (.54) | (.04) | (.58) | 23.97 | (13.38) | 199 | .70 | .70 | 2.29 |
| Period from 2/15/2002 to 4/30/2002 | 27.71 | .04 | .75 | .79 | | (.14) | — | (.14) | 28.36 | 2.82 | 49 | .16 | .16 | .14 |
Class 529-B: | Six months ended 10/31/20065 | 32.50 | .18 | 2.09 | 2.27 | | (.18) | — | (.18) | 34.59 | 7.01 | 197 | 1.506 | 1.476 | 1.096 |
| Year ended 4/30/2006 | 29.72 | .38 | 3.17 | 3.55 | | (.34) | (.43) | (.77) | 32.50 | 12.07 | 180 | 1.51 | 1.48 | 1.22 |
| Year ended 4/30/2005 | 28.68 | .38 | 1.21 | 1.59 | | (.32) | (.23) | (.55) | 29.72 | 5.52 | 148 | 1.58 | 1.57 | 1.26 |
| Year ended 4/30/2004 | 23.91 | .32 | 4.96 | 5.28 | | (.32) | (.19) | (.51) | 28.68 | 22.08 | 110 | 1.59 | 1.59 | 1.15 |
| Year ended 4/30/2003 | 28.34 | .32 | (4.35) | (4.03) | | (.36) | (.04) | (.40) | 23.91 | (14.18) | 53 | 1.62 | 1.62 | 1.36 |
| Period from 2/19/2002 to 4/30/2002 | 27.25 | (.01) | 1.22 | 1.21 | | (.12) | — | (.12) | 28.34 | 4.38 | 11 | .30 | .30 | (.02) |
Class 529-C: | Six months ended 10/31/20065 | 32.49 | .18 | 2.09 | 2.27 | | (.18) | — | (.18) | 34.58 | 7.02 | 327 | 1.496 | 1.466 | 1.096 |
| Year ended 4/30/2006 | 29.71 | .38 | 3.18 | 3.56 | | (.35) | (.43) | (.78) | 32.49 | 12.10 | 295 | 1.50 | 1.47 | 1.23 |
| Year ended 4/30/2005 | 28.67 | .37 | 1.22 | 1.59 | | (.32) | (.23) | (.55) | 29.71 | 5.54 | 226 | 1.57 | 1.56 | 1.27 |
| Year ended 4/30/2004 | 23.91 | .32 | 4.93 | 5.25 | | (.30) | (.19) | (.49) | 28.67 | 22.06 | 156 | 1.58 | 1.58 | 1.15 |
| Year ended 4/30/2003 | 28.33 | .32 | (4.34) | (4.02) | | (.36) | (.04) | (.40) | 23.91 | (14.18) | 69 | 1.61 | 1.61 | 1.38 |
| Period from 2/15/2002 to 4/30/2002 | 27.71 | (.01) | .75 | .74 | | (.12) | — | (.12) | 28.33 | 2.65 | 15 | .32 | .32 | (.03) |
| | | | | | | | | | | | | | | | |
| | | Income (loss) from investment operations2 | | Dividends and distributions | Net asset value, end of period | Total return | Net assets, end of period (in millions) | Ratio of expenses to average net assets before reimbursements/ waivers | Ratio of expenses to average net assets after reimbursements/ waivers4 | Ratio of net income to average net assets |
| Net asset value, beginning of period | Net investment income | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | | Dividends (from net investment income) | Distributions (from capital gains) | Total dividends and distributions |
Class 529-E: | Six months ended 10/31/20065 | $32.52 | $.26 | $ 2.10 | $ 2.36 | | $(.26) | $ — | $ (.26) | $34.62 | 7.32% | $ 52 | .97%6 | .95%6 | 1.61%6 |
| | Year ended 4/30/2006 | 29.74 | .54 | 3.17 | 3.71 | | (.50) | (.43) | (.93) | 32.52 | 12.64 | 46 | .98 | .96 | 1.74 |
| Year ended 4/30/2005 | 28.69 | .53 | 1.22 | 1.75 | | (.47) | (.23) | (.70) | 29.74 | 6.09 | 35 | 1.05 | 1.04 | 1.79 |
| Year ended 4/30/2004 | 23.92 | .46 | 4.94 | 5.40 | | (.44) | (.19) | (.63) | 28.69 | 22.68 | 23 | 1.06 | 1.06 | 1.68 |
| Year ended 4/30/2003 | 28.34 | .45 | (4.35) | (3.90) | | (.48) | (.04) | (.52) | 23.92 | (13.73) | 9 | 1.08 | 1.08 | 1.92 |
| Period from 3/1/2002 to 4/30/2002 | 28.59 | .01 | (.13) | (.12) | | (.13) | — | (.13) | 28.34 | (.44) | 1 | .17 | .17 | .04 |
Class 529-F: | Six months ended 10/31/20065 | 32.59 | .35 | 2.09 | 2.44 | | (.34) | — | (.34) | 34.69 | 7.56 | 38 | .476 | .456 | 2.106 |
| Year ended 4/30/2006 | 29.79 | .70 | 3.18 | 3.88 | | (.65) | (.43) | (1.08) | 32.59 | 13.20 | 32 | .49 | .46 | 2.24 |
| Year ended 4/30/2005 | 28.74 | .60 | 1.22 | 1.82 | | (.54) | (.23) | (.77) | 29.79 | 6.35 | 21 | .80 | .79 | 2.03 |
| Year ended 4/30/2004 | 23.96 | .53 | 4.95 | 5.48 | | (.51) | (.19) | (.70) | 28.74 | 23.00 | 11 | .81 | .81 | 1.90 |
| Period from 9/16/2002 to 4/30/2003 | 23.98 | .32 | .10 | .42 | | (.40) | (.04) | (.44) | 23.96 | 1.85 | 3 | .826 | .826 | 2.256 |
Class R-1: | Six months ended 10/31/20065 | 32.48 | .19 | 2.08 | 2.27 | | (.18) | — | (.18) | 34.57 | 7.04 | 56 | 1.446 | 1.416 | 1.146 |
| Year ended 4/30/2006 | 29.71 | .39 | 3.17 | 3.56 | | (.36) | (.43) | (.79) | 32.48 | 12.10 | 47 | 1.47 | 1.44 | 1.26 |
| Year ended 4/30/2005 | 28.68 | .40 | 1.21 | 1.61 | | (.35) | (.23) | (.58) | 29.71 | 5.62 | 34 | 1.50 | 1.47 | 1.35 |
| Year ended 4/30/2004 | 23.92 | .35 | 4.93 | 5.28 | | (.33) | (.19) | (.52) | 28.68 | 22.16 | 16 | 1.52 | 1.49 | 1.25 |
| Period from 5/29/2002 to 4/30/2003 | 28.52 | .32 | (4.46) | (4.14) | | (.42) | (.04) | (.46) | 23.92 | (14.50) | 8 | 1.716 | 1.516 | 1.506 |
Class R-2: | Six months ended 10/31/20065 | 32.40 | .19 | 2.08 | 2.27 | | (.18) | — | (.18) | 34.49 | 7.06 | 900 | 1.506 | 1.416 | 1.146 |
| Year ended 4/30/2006 | 29.64 | .40 | 3.16 | 3.56 | | (.37) | (.43) | (.80) | 32.40 | 12.13 | 812 | 1.53 | 1.41 | 1.29 |
| Year ended 4/30/2005 | 28.60 | .41 | 1.22 | 1.63 | | (.36) | (.23) | (.59) | 29.64 | 5.68 | 622 | 1.57 | 1.44 | 1.38 |
| Year ended 4/30/2004 | 23.88 | .35 | 4.91 | 5.26 | | (.35) | (.19) | (.54) | 28.60 | 22.12 | 371 | 1.69 | 1.45 | 1.26 |
| Period from 5/31/2002 to 4/30/2003 | 28.46 | .33 | (4.40) | (4.07) | | (.47) | (.04) | (.51) | 23.88 | (14.29) | 96 | 1.786 | 1.476 | 1.586 |
Class R-3: | Six months ended 10/31/20065 | 32.51 | .27 | 2.09 | 2.36 | | (.26) | — | (.26) | 34.61 | 7.32 | 2,045 | .976 | .946 | 1.626 |
| Year ended 4/30/2006 | 29.73 | .54 | 3.18 | 3.72 | | (.51) | (.43) | (.94) | 32.51 | 12.68 | 1,878 | .97 | .94 | 1.75 |
| Year ended 4/30/2005 | 28.68 | .56 | 1.21 | 1.77 | | (.49) | (.23) | (.72) | 29.73 | 6.17 | 1,705 | .95 | .94 | 1.89 |
| Year ended 4/30/2004 | 23.93 | .46 | 4.94 | 5.40 | | (.46) | (.19) | (.65) | 28.68 | 22.68 | 1,009 | 1.07 | 1.07 | 1.63 |
| Period from 6/4/2002 to 4/30/2003 | 27.81 | .41 | (3.74) | (3.33) | | (.51) | (.04) | (.55) | 23.93 | (11.94) | 125 | 1.116 | 1.096 | 1.956 |
Class R-4: | Six months ended 10/31/20065 | 32.57 | .32 | 2.10 | 2.42 | | (.31) | — | (.31) | 34.68 | 7.49 | 1,034 | .686 | .656 | 1.916 |
| Year ended 4/30/2006 | 29.78 | .64 | 3.18 | 3.82 | | (.60) | (.43) | (1.03) | 32.57 | 13.00 | 1,013 | .68 | .65 | 2.06 |
| Year ended 4/30/2005 | 28.73 | .64 | 1.22 | 1.86 | | (.58) | (.23) | (.81) | 29.78 | 6.46 | 830 | .68 | .67 | 2.14 |
| Year ended 4/30/2004 | 23.95 | .56 | 4.94 | 5.50 | | (.53) | (.19) | (.72) | 28.73 | 23.11 | 330 | .70 | .70 | 2.01 |
| Period from 5/20/2002 to 4/30/2003 | 28.78 | .51 | (4.74) | (4.23) | | (.56) | (.04) | (.60) | 23.95 | (14.66) | 71 | .746 | .736 | 2.326 |
Class R-5: | Six months ended 10/31/20065 | 32.65 | .36 | 2.11 | 2.47 | | (.36) | — | (.36) | 34.76 | 7.63 | 1,037 | .386 | .356 | 2.206 |
| Year ended 4/30/2006 | 29.85 | .73 | 3.19 | 3.92 | | (.69) | (.43) | (1.12) | 32.65 | 13.34 | 883 | .38 | .35 | 2.34 |
| Year ended 4/30/2005 | 28.79 | .73 | 1.22 | 1.95 | | (.66) | (.23) | (.89) | 29.85 | 6.78 | 619 | .38 | .37 | 2.45 |
| Year ended 4/30/2004 | 23.99 | .65 | 4.94 | 5.59 | | (.60) | (.19) | (.79) | 28.79 | 23.49 | 395 | .39 | .39 | 2.36 |
| Period from 5/15/2002 to 4/30/2003 | 28.84 | .57 | (4.78) | (4.21) | | (.60) | (.04) | (.64) | 23.99 | (14.57) | 230 | .416 | .416 | 2.516 |
| | Six months ended October 31, 20065 | | | |
| | | |
Year ended April 30 |
2006 | 2005 | 2004 | 2003 | 2002 |
Portfolio turnover rate for all classes of shares | 9% | 13% | 16% | 12% | 21% | 22% |
| | | |
1 Based on operations for the periods 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 and WMC. During some of the periods shown, CRMC and WMC reduced fees for investment advisory services and business management 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.
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 (May 1, 2006 through October 31, 2006).
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 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 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 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 on the previous page. 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 value 5/1/2006 | Ending account value 10/31/2006 | Expenses paid during period* | Annualized expense ratio |
| Class A — actual return | $1,000.00 | $1,075.12 | $2.98 | .57% |
| Class A — assumed 5% return | 1,000.00 | 1,022.33 | 2.91 | .57 |
| Class B — actual return | 1,000.00 | 1,070.88 | 6.99 | 1.34 |
| Class B — assumed 5% return | 1,000.00 | 1,018.45 | 6.82 | 1.34 |
| Class C — actual return | 1,000.00 | 1,070.60 | 7.36 | 1.41 |
| Class C — assumed 5% return | 1,000.00 | 1,018.10 | 7.17 | 1.41 |
| Class F — actual return | 1,000.00 | 1,074.87 | 3.14 | .60 |
| Class F — assumed 5% return | 1,000.00 | 1,022.18 | 3.06 | .60 |
| Class 529-A — actual return | 1,000.00 | 1,074.51 | 3.40 | .65 |
| Class 529-A — assumed 5% return | 1,000.00 | 1,021.93 | 3.31 | .65 |
| Class 529-B — actual return | 1,000.00 | 1,070.08 | 7.67 | 1.47 |
| Class 529-B — assumed 5% return | 1,000.00 | 1,017.80 | 7.48 | 1.47 |
| Class 529-C — actual return | 1,000.00 | 1,070.18 | 7.62 | 1.46 |
| Class 529-C — assumed 5% return | 1,000.00 | 1,017.85 | 7.43 | 1.46 |
| Class 529-E — actual return | 1,000.00 | 1,073.15 | 4.96 | .95 |
| Class 529-E — assumed 5% return | 1,000.00 | 1,020.42 | 4.84 | .95 |
| Class 529-F — actual return | 1,000.00 | 1,075.63 | 2.35 | .45 |
| Class 529-F — assumed 5% return | 1,000.00 | 1,022.94 | 2.29 | .45 |
| Class R-1 — actual return | 1,000.00 | 1,070.39 | 7.36 | 1.41 |
| Class R-1 — assumed 5% return | 1,000.00 | 1,018.10 | 7.17 | 1.41 |
| Class R-2 — actual return | 1,000.00 | 1,070.64 | 7.36 | 1.41 |
| Class R-2 — assumed 5% return | 1,000.00 | 1,018.10 | 7.17 | 1.41 |
| Class R-3 — actual return | 1,000.00 | 1,073.19 | 4.91 | .94 |
| Class R-3 — assumed 5% return | 1,000.00 | 1,020.47 | 4.79 | .94 |
| Class R-4 — actual return | 1,000.00 | 1,074.91 | 3.40 | .65 |
| Class R-4 — assumed 5% return | 1,000.00 | 1,021.93 | 3.31 | .65 |
| Class R-5 — actual return | 1,000.00 | 1,076.34 | 1.83 | .35 |
| Class R-5 — assumed 5% return | 1,000.00 | 1,023.44 | 1.79 | .35 |
*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 (184), and divided by 365 (to reflect the one-half year period).
Approval of Investment Advisory Agreement
On June 15, 2006, the Fund’s Board of Directors (the "Board"), including a majority of the Independent Directors, approved the renewal of the Fund’s Investment Advisory Agreement (the "Agreement") with Capital Research and Management Company ("CRMC") for an additional one-year term through August 31, 2007. The Board approved renewal of the Agreement following the recommendation of the Contracts Sub-Committee of the Fund’s Governance Committee (the "Committee"), which is comprised 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.
Materials reviewed — During the course of each year, Board members review a wide variety of materials relating to the services provided by CRMC, including: reports on the investment results of the Fund; 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, including: 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 other services to the Fund.
Review process — The Committee received assistance and advice regarding legal and industry standards from counsel to the Fund and its Independent Directors. The Committee discussed the renewal of the Agreement with representatives of CRMC, as well as Fund officers, and in a private session with independent legal counsel at which no representatives from CRMC or Fund management were present. In deciding to recommend the renewal of the Agreement, the Committee did not identify any single or particular piece of information that, in isolation, was a controlling factor. This summary describes the more 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 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 complex-wide assets under management and in the number of shareholder accounts. 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, investment results 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. The Board and the Committee also considered the benefits to Fund shareholders from investing in a fund that is part of a large family of funds offering a variety of investment objectives.
Other services — The Board and the Committee considered CRMC’s (or its affiliates’) policies, procedures and systems designed to comply with applicable laws and regulations and its commitment to compliance programs; its efforts to keep the Board members informed; and its attention to matters that may involve potential 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 to the Fund by CRMC and its affiliates under various agreements with the Fund. Ultimately, the Board and the Committee concluded that the nature, extent and quality of the services provided by CRMC have benefited and will likely continue to benefit the Fund and its shareholders.
The Board and the Committee examined both the short-term and long-term investment results of the Fund in light of its primary objective of providing income and growth of principal through investments in quality common stocks. In particular, the Board and the Committee considered analytical data developed by Lipper that compared the performance of the Fund relative to the Lipper Large-Cap Value Funds Index, the Lipper Growth & Income Funds Index and the Standard & Poor’s 500 Composite Index. It was noted that although the Fund underperformed the comparisons in certain one-year periods, its return was superior over the 10-year period. The board also reviewed data that showed the Fund to be less volatile than the market as represented by the S&P 500. The Board and the Committee further noted that the Fund had continued to follow its long-term investment objective and determined that they are satisfied with the Fund’s long-term performance. The Board and the Committee ultimately concluded that CRMC’s record in managing the Fund indicates that its continued advisory services 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 (as a percentage of average net assets) and compared such amounts with the average fee and expense levels of other similar mutual funds. In particular, the Board and the Committee reviewed data that compared the median advisory fees of other large-cap value funds, with the advisory fees of the Fund, noting that the Fund’s advisory fees were lower. The Board and Committee also reviewed data comparing expense information on the largest 25 actively-managed funds, regardless of investment classification or objective, and noted that the Fund ranked 8 out of 25 for lowest total expenses and 5 out of 25 when excluding Rule 12b-1 service fees. They also noted that CRMC has voluntarily waived 10% of its advisory fee, which waiver has been in effect since April 2005 and is expected to continue until further review. The Board discussed with representatives of CRMC the purpose of the voluntary fee waiver and the circumstances and process that might lead to its change or removal. Based on the information presented by CRMC, members of the Board and the Committee then determined, in their business judgment, that the fees charged by CRMC are fair and reasonable.
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 a whole, 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 noted that it had also received information in the past 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 willingness to invest in technology, infrastructure and staff to reinforce and offer new services to accommodate changing regulatory requirements. They further considered that breakpoint discounts in the Fund’s advisory fee structure reduce the level of fees charged by CRMC as the Fund’s assets increase. The fee structure currently includes a series of breakpoints, with the last effective breakpoint when total net assets surpass $89 billion. The Board and the Committee then noted that net assets for the Fund at April 30, 2006 were at approximately $79 billion. The Board and the Committee also considered the impact of the current voluntary 10% advisory fee waiver. 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.
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 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 affiliates. The Board and the Committee reviewed CRMC’s portfolio trading practices, noting that although CRMC receives the benefit of research provided by broker-dealers executing portfolio transactions on behalf of the American Funds, it does not obtain third-party research or other services in return for allocating brokerage to such broker-dealers.
Based on their review, including their consideration of each of the factors referred to above, the Board and the Committee concluded that the nature, extent and quality of the services rendered to the Fund by CRMC supported renewal of the Agreement. The Board and the Committee concluded that the Agreement continues to be 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 renewal of the Agreement is in the best interests of the Fund and its shareholders.
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 current information and month-end results, visit americanfunds.com.
Average annual total returns for periods ended September 30, 2006 (the most recent calendar quarter):
| | 1 year | 5 years | Life of class |
Class B shares — first sold 3/15/00 Reflecting applicable contingent deferred sales charge (CDSC), maximum of 5%, payable only if shares are sold within six years of purchase | +6.92% | +6.54% | +6.99% |
Not reflecting CDSC | +11.92% | +6.85% | +6.99% |
Class C shares — first sold 3/15/01 Reflecting CDSC, maximum of 1%, payable only if shares are sold within one year of purchase | +10.83% | +6.78% | +5.32% |
Not reflecting CDSC | +11.83% | +6.78% | +5.32% |
| | | | |
Class F shares* — first sold 3/15/01 Not reflecting annual asset-based fee charged by sponsoring firm | +12.74% | +7.60% | +6.15% |
Class 529-A shares — first sold 2/15/02 Reflecting 5.75% maximum sales charge | +6.21% | — | +5.77% |
Not reflecting maximum sales charge | +12.71% | — | +7.13% |
Class 529-B shares — first sold 2/19/02 Reflecting applicable CDSC, maximum of 5%, payable only if shares are sold within six years of purchase | +6.73% | — | +6.27% |
Not reflecting CDSC | +11.73% | — | +6.61% |
Class 529-C shares — first sold 2/15/02 Reflecting CDSC, maximum of 1%, payable only if shares are sold within one year of purchase | +10.75% | — | +6.22% |
Not reflecting CDSC | +11.75% | — | +6.22% |
Class 529-E shares* — first sold 3/1/02 | +12.38% | — | +6.10% |
Class 529-F shares* — first sold 9/16/02 Not reflecting annual asset-based fee charged by sponsoring firm | +12.87% | — | +11.88% |
The Fund’s investment adviser and business manager each waived 5% of their management fees from September 1, 2004 through March 31, 2005, and increased the waivers to 10% on April 1, 2005. Fund results shown reflect the waivers, without which they would have been lower. Please see the Financial Highlights table on pages 20 to 23 for details.
* These shares are sold without any initial or contingent deferred sales charge.
Results shown do not reflect the $10 initial account setup fee and an annual $10 account maintenance fee.
Offices of the Fund and of the business manager Washington Management Corporation 1101 Vermont Avenue, NW Washington, DC 20005-3521 202/842-5665 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 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 Dechert LLP 1775 I Street, NW Washington, DC 20006-2401 Independent registered public accounting firm PricewaterhouseCoopers LLP 350 South Grand Avenue Los Angeles, CA 90071-2889 Principal underwriter American Funds Distributors, Inc. 333 South Hope Street Los Angeles, CA 90071-1406 |
Investors should carefully consider the investment objectives, risks, charges and expenses of the American Funds. This and other important information is contained in the Fund’s prospectus, 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 sec.gov, on the American Funds website or upon request by calling AFS. The Fund files its proxy voting record with the SEC for the 12 months ended June 30 by August 31. The report also is available on the SEC and American Funds websites.
Washington Mutual Investors 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 filing is available free of charge on the SEC website. You may also review or, for a fee, copy this filing at the SEC’s Public Reference Room in Washington, DC (800/SEC-0330). Additionally, the list of portfolio holdings also is available by calling AFS.
This report is for the information of shareholders of Washington Mutual Investors 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 December 31, 2006, this report must be accompanied by an American Funds statistical update for the most recently completed calendar quarter.
The Capital Group Companies
American Funds Capital Research and Management Capital International Capital GuardianCapital Bank and Trust
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