Washington, D.C. 20549
P.O. Box 7650, One Market, Steuart Tower
[logo - American Funds®]
The right choice for the long term®
Fundamental Investors
[photo - rope around a mooring bit]
Semi-annual report for the six months ended June 30, 2007
Fundamental InvestorsSM seeks long-term growth of capital and income primarily through investments in common stocks.
This fund is one of the 30 American Funds. American Funds ranks among the nation’s three largest mutual fund families. For 75 years, Capital Research and Management Company,SM the American Funds adviser, has invested with a long-term focus based on thorough research and attention to risk.
Figures shown are past results for Class A shares and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity. For current information and month-end results, visit americanfunds.com. Fund results shown, unless otherwise indicated, are at net asset value. If a sales charge (maximum 5.75%) had been deducted, the results would have been lower.
Here are the average annual total returns on a $1,000 investment with all distributions reinvested for periods ended June 30, 2007:
Class A shares | 1 year | 5 years | 10 years |
Reflecting 5.75% maximum sales charge | +14.77% | +13.10% | +9.94% |
The total annual fund operating expense ratio for Class A shares as of the most recent fiscal year-end was 0.61%. This figure does not reflect a fee waiver currently in effect; therefore, the actual expense ratio is lower.
The fund’s investment adviser waived 5% of its management fees from September 1, 2004, through March 31, 2005, and increased it to 10% on April 1, 2005. Fund results shown reflect actual expenses, with the waiver applied. Fund results would have been lower without the waiver. Please see the Financial Highlights table on pages 22 to 25 for details.
The fund’s 30-day yield for Class A shares as of July 31, 2007, calculated in accordance with the Securities and Exchange Commission formula, was 1.36% (1.33% without the fee waiver). The fund’s distribution rate for Class A shares as of that date was 1.23%. Both reflect the 5.75% maximum sales charge. The SEC yield reflects the rate at which the fund is earning income on its current portfolio of securities while the distribution rate reflects the fund’s past dividends paid to shareholders. Accordingly, the fund’s SEC yield and distribution rate may differ.
Results for other share classes can be found on page 5.
Investing outside the United States is subject to additional risks, such as currency fluctuations and political instability, which are detailed in the fund’s prospectus.
Fellow shareholders:
[photo - rope around a mooring bit]
For the six months ended June 30, 2007, shares of Fundamental Investors gained 11.2%. This return includes reinvestment of a 6.2 cents a share capital gain distribution and regular quarterly dividends totaling 24 cents a share.
The fund’s results significantly outpaced those of its primary benchmark, the unmanaged Standard & Poor’s 500 Composite Index, which gained 7.0%. Fundamental Investors’ return also surpassed the 7.9% figure for the Lipper Growth and Income Funds Index, a measure of the fund’s peer group.
Though Fundamental Investors is focused primarily on the United States, we are able to invest up to 30% of assets outside the U.S. and Canada. During this period, the fund’s return exceeded that of the unmanaged MSCI World Index, a gauge of stock markets in 23 countries, which gained 9.5%.
While short-term results were solid, we always take care to place greater emphasis on the long term. By this measure, Fundamental Investors has provided similarly strong returns for shareholders, besting the S&P 500 and Lipper for all the time periods shown in the table below.
[Begin Sidebar]
Class A share results at a glance
For periods ended June 30, 2007, with all distributions reinvested.
| | | Total returns | | | Average annual total returns | |
| | | 6 months | | | 1 year | | | 5 years | | | 10 years | | | Lifetime* | |
| | | | | | | | | | | | | | | | |
| Fundamental Investors | | | +11.2 | % | | | +21.8 | % | | | +14.4 | % | | | +10.6 | % | | | +14.4 | % |
| Lipper Growth and Income Funds Index | | | +7.9 | | | | +19.8 | | | | +11.2 | | | | +7.2 | | | | +12.5 | |
| | | | | | | | | | | | | | | | | | | | | |
MSCI World Index† | | | +9.5 | | | | +24.2 | | | | +14.5 | | | | +7.5 | | | | +12.3 | |
Standard & Poor’s 500 Composite Index† | | | +7.0 | | | | +20.6 | | | | +10.7 | | | | +7.1 | | | | +13.2 | |
| | | | | | | | | | | | | | | | | | | | | |
*Since Capital Research and Management Company began managing the fund on August 1, 1978.
†Unmanaged.
[End Sidebar]
Strength at home, strength abroad
For the six months, the U.S. market recorded healthy gains fueled by strong corporate earnings, robust mergers and acquisitions activity, and generally positive growth, employment and inflation data. The first quarter was a roller coaster in which stocks finished relatively flat, but equities shrugged off fears about the shaky subprime mortgage market to surge during April and May. Some of the jitters returned in June, however, as rising rates and the near collapse of a pair of hedge funds renewed concerns about liquidity and risk in the credit markets.
Robust global economic growth continued to drive stock markets higher worldwide. The European economy was particularly strong as evidenced by the euro zone’s unemployment rate dropping to a record low in February. Japan’s relatively muted economic growth was reflected in its more modest stock market gains.
Currency results had a mixed effect on portfolio returns. The U.S. dollar appreciated against the Japanese yen, was relatively flat against the Swiss franc and lost ground to the euro and British pound. Returns for Fundamental Investors’ Canadian holdings — the fund’s largest non-U.S. country concentration — were helped by the greenback’s significant slide against the Canadian dollar.
[Begin Sidebar]
Fundamental Investors’ 10 largest holdings
Company | Country | Percent of net assets |
| | | |
| Suncor Energy | Canada | 3.6% |
| Nokia | Finland | 1.9 |
| Microsoft | United States | 1.8 |
| Altria Group | United States | 1.7 |
| Deere | United States | 1.5 |
| Merck | United States | 1.4 |
| Roche Holding | Switzerland | 1.4 |
| Texas Instruments | United States | 1.3 |
| AT&T | United States | 1.2 |
| Lowe’s Companies | United States | 1.2 |
[End Sidebar]
Well positioned for global growth
Fundamental Investors’ portfolio has continued to benefit from ongoing global infrastructure expansion and the accompanying growth in natural resource consumption.
Stocks of machinery companies rose sharply for the six months. Global growth has been benefiting companies that sell the machines and components used in building infrastructure and extracting and processing commodities used in these construction projects. Sizable fund holdings Mitsubishi Heavy Industries (+40.7%), Caterpillar (+27.7%) and Parker-Hannifin (+27.4%) all saw significant rises in their share prices.
The fund’s energy holdings were also major contributors to results, just as they have been for the last few years. As global demand for energy continues to press up against the industry’s capacity to supply it, commodity prices remain high and so do the profits of most producers. Among the fund’s larger holdings, Consol Energy (+43.5%) and Norsk Hydro (+24.0%) were up sharply, while Occidental Petroleum (+18.5%), Royal Dutch Shell (+14.7%), Chevron (+14.6%) and Suncor Energy (+14.7%) — the fund’s largest holding — recorded more modest, but still hefty, gains. Lukoil (–13.7%), however, finished well into negative territory, dragged down by the perception that political risk in Russia — the company’s country of domicile — had increased.
Agricultural trends boost results
Agricultural trends helped boost results for holdings across a variety of sectors. During the past year, a global surge in demand for biofuels like ethanol, combined with low grain inventories and rising Asian demand, caused corn and soybean prices to rise sharply. Farmers looking to keep pace with demand and maximize profit sought to boost production and used massive amounts of seeds, fertilizer and crop protection chemicals to do so.
Fertilizer manufacturers Mosaic (+82.7%) and Potash Corp. (+63.0%) saw their shares jump in response to the trend. Among producers of seeds and crop protection chemicals, Bayer (+41.2%) appreciated strongly, while gains for DuPont (+4.4%) and Syngenta (+4.8%) were more modest.
Agricultural equipment manufacturer Deere (+27.0%), a longtime fund holding, benefited as farmers used profits from elevated grain prices to step up equipment purchases. One less obvious beneficiary was railroad operator Union Pacific (+25.1%), which enjoyed robust business in transporting many agricultural commodities to the export market.
Beyond the trends
While the aforementioned sectors were particularly strong, our company-by-company approach to investing meant that results were built on a broad foundation, with large holdings from many industries making significant contributions. Top 10 holdings Nokia (+37.9%), Texas Instruments (+30.7%), AT&T (+16.7%) and pharmaceutical giant Merck (+14.2%) all posted large gains.
Some of the fund’s other sizable positions, however, experienced drops in their share prices. Home improvement retailer Lowe’s (–1.5%), Microsoft (–1.3%) and pharmaceutical manufacturer Roche (–1.1%) — all top 10 holdings — slipped. Other large positions decreasing in price were Starbucks (–25.9%), Freddie Mac (–10.6%) and Citigroup (–7.9%).
In general, we did not make major changes to the portfolio, but rather added selectively. Included among new positions we built were European aerospace companies EADS (parent of Airbus) and Finmeccanica, search giant Yahoo!, electric equipment producer Schneider Electric and pharmaceutical manufacturer Shire.
Looking ahead
Looking ahead, we believe the global economy is sound and that the portfolio is well-positioned to benefit from continued worldwide growth.
Notwithstanding our overall optimism, we do maintain concerns about housing weakness and the possibility of continuing problems within the U.S. subprime mortgage market. Even during periods when results are strong, such potential trouble spots keep us focused on managing risk for shareholders. We do this by maintaining a commitment to bottom-up research and a company-by-company approach to building the fund’s portfolio.
We thank you for your commitment to long-term investing.
Sincerely,
| /s/ James F. Rothenberg | /s/ Dina N. Perry |
| James F. Rothenberg | Dina N. Perry |
| Vice Chairman | President |
August 6, 2007
For current information about the fund, visit americanfunds.com.
Other share class results
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 June 30, 2007:
| | | 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 | | | +15.85 | % | | | +13.33 | % | | | +7.04 | % |
Not reflecting CDSC | | | +20.85 | % | | | +13.57 | % | | | +7.04 | % |
| | | | | | | | | | | | | |
Class C shares — first sold 3/15/01 | | | | | | | | | | | | |
Reflecting CDSC, maximum of 1%, payable only if shares are sold within one year of purchase | | | +19.76 | % | | | +13.49 | % | | | +8.73 | % |
Not reflecting CDSC | | | +20.76 | % | | | +13.49 | % | | | +8.73 | % |
| | | | | | | | | | | | | |
Class F shares* — first sold 3/15/01 | | | | | | | | | | | | |
Not reflecting annual asset-based fee charged by sponsoring firm | | | +21.76 | % | | | +14.40 | % | | | +9.60 | % |
| | | | | | | | | | | | | |
Class 529-A shares†— first sold 2/15/02 | | | | | | | | | | | | |
Reflecting 5.75% maximum sales charge | | | +14.70 | % | | | +13.02 | % | | | +11.27 | % |
Not reflecting maximum sales charge | | | +21.71 | % | | | +14.37 | % | | | +12.51 | % |
| | | | | | | | | | | | | |
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 | | | +15.67 | % | | | +13.15 | % | | | +11.81 | % |
Not reflecting CDSC | | | +20.67 | % | | | +13.40 | % | | | +11.92 | % |
| | | | | | | | | | | | | |
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 | | | +19.68 | % | | | +13.40 | % | | | +11.56 | % |
Not reflecting CDSC | | | +20.68 | % | | | +13.40 | % | | | +11.56 | % |
| | | | | | | | | | | | | |
Class 529-E shares*†— first sold 3/7/02 | | | +21.29 | % | | | +13.98 | % | | | +11.10 | % |
| | | | | | | | | | | | | |
Class 529-F shares*†— first sold 9/23/02 | | | | | | | | | | | | |
Not reflecting annual asset-based fee charged by sponsoring firm | | | +21.91 | % | | | — | | | | +19.60 | % |
| | | | | | | | | | | | | |
*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.
The fund’s investment adviser waived 5% of its management fees from September 1, 2004, through March 31, 2005, and increased it to 10% on April 1, 2005. Fund results shown reflect the waiver, without which they would have been lower. Please see the Financial Highlights table on pages 22 to 25 for details that include expense ratios for all share classes.
For information regarding the differences among the various share classes, please refer to the fund’s prospectus.
Summary investment portfolio | June 30, 2007 | |
| | | | |
| The following summary investment portfolio is designed to streamline the report and help investors better focus on a fund's principal holdings. For details on how to obtain a complete schedule of portfolio holdings, please see the inside back cover. |
| | | | |
| [pie chart] | | | |
| Industry sector diversification (percent of net assets) | | | |
| | | | |
| Energy | 14.10% | | |
| Information technology | 12.70% | | |
| Health care | 10.11% | | |
| Financials | 9.99% | | |
| Convertible securities | 0.02% | | |
| Industries | 14.71% | | |
| Other industries | 34.17% | | |
| Short-term securities & other assets less liabilities | 4.20% | | |
| [end pie chart] | | | |
| | | | |
| | | | |
| Country diversification (percent of net assets) | | | |
| | | | |
| United States | 65.97% | | |
| Euro zone* | 10.47 | | |
| Canada | 5.95 | | |
| Japan | 4.06 | | |
| United Kingdom | 3.55 | | |
| Switzerland | 2.24 | | |
| Other countries | 3.56 | | |
Bonds, short-term securities & other assets less liabilities | 4.20 | | |
| | | | |
| *Countries using the euro as a common currency; those represented in the fund's portfolio are Belgium, Finland, France, Germany, Ireland, Italy and the Netherlands. |
| | | | |
| | | | |
| | | Market | Percent |
| | | value | of net |
| Common stocks - 95.78% | Shares | (000) | assets |
| | | | |
Industrials - 14.71% | | | |
| Deere & Co. | 5,660,000 | $ 683,388 | 1.47% |
| General Electric Co. | 14,750,000 | 564,630 | 1.21 |
| Union Pacific Corp. | 3,700,000 | 426,055 | .91 |
| Caterpillar Inc. | 5,400,000 | 422,820 | .91 |
| Boeing Co. | 3,800,000 | 365,408 | .78 |
| Northrop Grumman Corp. | 4,166,243 | 324,425 | .70 |
| Deutsche Post AG (1) | 8,945,000 | 290,640 | .62 |
| Emerson Electric Co. | 6,000,000 | 280,800 | .60 |
| General Dynamics Corp. | 3,545,800 | 277,353 | .59 |
| Other securities | | 3,227,502 | 6.92 |
| | | 6,863,021 | 14.71 |
| | | | |
Energy - 14.10% | | | |
| Suncor Energy Inc. | 18,386,434 | 1,662,767 | 3.57 |
| Norsk Hydro ASA (1) | 10,840,000 | 416,759 | |
| Norsk Hydro ASA (ADR) | 3,500,000 | 133,945 | 1.18 |
| Royal Dutch Shell PLC, Class A (ADR) | 6,370,000 | 517,244 | 1.11 |
| Baker Hughes Inc. | 5,128,000 | 431,419 | .93 |
| CONSOL Energy Inc. (2) | 7,400,000 | 341,214 | .73 |
| Occidental Petroleum Corp. | 5,734,244 | 331,898 | .71 |
| Chevron Corp. | 3,285,674 | 276,785 | .59 |
| Other securities | | 2,462,821 | 5.28 |
| | | 6,574,852 | 14.10 |
| | | | |
Information technology - 12.70% | | | |
| Nokia Corp. (1) | 18,900,000 | 531,345 | |
| Nokia Corp. (ADR) | 11,987,000 | 336,955 | 1.86 |
| Microsoft Corp. | 28,200,000 | 831,054 | 1.78 |
| Texas Instruments Inc. | 15,808,024 | 594,856 | 1.28 |
| Oracle Corp. (3) | 28,050,000 | 552,865 | 1.18 |
| International Business Machines Corp. | 3,000,000 | 315,750 | .68 |
| Other securities | | 2,762,009 | 5.92 |
| | | 5,924,834 | 12.70 |
| | | | |
Health care - 10.11% | | | |
| Merck & Co., Inc. | 13,400,000 | 667,320 | 1.43 |
| Roche Holding AG (1) | 3,575,000 | 634,181 | 1.36 |
| Eli Lilly and Co. | 7,470,000 | 417,424 | .89 |
| Medtronic, Inc. | 6,615,200 | 343,064 | .74 |
| Wyeth | 5,700,000 | 326,838 | .70 |
| Abbott Laboratories | 5,960,000 | 319,158 | .68 |
| Bristol-Myers Squibb Co. | 9,350,000 | 295,086 | .63 |
| Schering-Plough Corp. | 9,000,000 | 273,960 | .59 |
| Other securities | | 1,440,064 | 3.09 |
| | | 4,717,095 | 10.11 |
| | | | |
Financials - 9.99% | | | |
| Fannie Mae | 8,517,800 | 556,468 | 1.19 |
| Citigroup Inc. | 8,905,000 | 456,737 | .98 |
| Freddie Mac | 6,790,000 | 412,153 | .88 |
| Washington Mutual, Inc. | 8,580,000 | 365,851 | .79 |
| Allied Irish Banks, PLC (1) | 11,800,000 | 320,787 | .69 |
| Other securities | | 2,548,699 | 5.46 |
| | | 4,660,695 | 9.99 |
| | | | |
Materials - 9.98% | | | |
| Syngenta AG (1) | 2,117,750 | 412,919 | .89 |
| Mosaic Co. (3) | 10,500,000 | 409,710 | .88 |
| Rohm and Haas Co. | 7,435,600 | 406,579 | .87 |
| Weyerhaeuser Co. | 3,583,000 | 282,806 | .61 |
| Bayer AG (1) | 3,688,000 | 279,403 | .60 |
| Alcoa Inc. | 6,823,000 | 276,536 | .59 |
| Other securities | | 2,586,430 | 5.54 |
| | | 4,654,383 | 9.98 |
| | | | |
Consumer discretionary - 7.90% | | | |
| Lowe's Companies, Inc. | 18,610,000 | 571,141 | 1.22 |
| Target Corp. | 7,490,000 | 476,364 | 1.02 |
| Johnson Controls, Inc. | 2,500,000 | 289,425 | .62 |
| Other securities | | 2,350,162 | 5.04 |
| | | 3,687,092 | 7.90 |
| | | | |
Consumer staples - 6.56% | | | |
| Altria Group, Inc. | 11,124,800 | 780,293 | 1.67 |
| Coca-Cola Co. | 9,100,000 | 476,021 | 1.02 |
| PepsiCo, Inc. | 4,300,000 | 278,855 | .60 |
| Other securities | | 1,525,282 | 3.27 |
| | | 3,060,451 | 6.56 |
| | | | |
Telecommunication services - 4.75% | | | |
| AT&T Inc. | 13,912,500 | 577,369 | 1.24 |
| KDDI Corp. (1) | 69,028 | 511,213 | 1.10 |
| Verizon Communications Inc. | 7,950,000 | 327,301 | .70 |
| Other securities | | 797,410 | 1.71 |
| | | 2,213,293 | 4.75 |
| | | | |
Utilities - 3.38% | | | |
| Questar Corp. | 6,000,000 | 317,100 | .68 |
| Other securities | | 1,258,477 | 2.70 |
| | | 1,575,577 | 3.38 |
| | | | |
MISCELLANEOUS - 1.60% | | | |
| Other common stocks in initial period of acquisition | | 746,427 | 1.60 |
| | | | |
| | | | |
Total common stocks (cost: $31,006,483,000) | | 44,677,720 | 95.78 |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Convertible securities - 0.02% | | | |
| | | | |
Information Technology - 0.02% | | | |
| Other securities | | 11,763 | .02 |
| | | | |
| | | | |
Total convertible securities (cost: $7,010,000) | | 11,763 | .02 |
| | | | |
| | | | |
| | | | |
| | Principal | |
| | amount | | |
| Short-term securities - 3.98% | (000) | | |
| | | | |
| Coca-Cola Co. 5.18%-5.21% due 7/16-9/17/2007 (2) | 112,200 | 111,336 | |
| Atlantic Industries 5.20% due 7/13/2007 (2) | 20,956 | 20,916 | .28 |
| CAFCO, LLC 5.23%-5.28% due 8/20-9/21/2007 (2) | 51,100 | 50,668 | |
| Citigroup Funding Inc. 5.24% due 7/9/2007 | 50,000 | 49,936 | |
| Ciesco LLC 5.27% due 8/17/2007 (2) (4) | 18,000 | 17,873 | .26 |
| AT&T Inc. 5.25%-5.26% due 8/23-8/29/2007 (2) | 75,000 | 74,378 | .16 |
| Freddie Mac 5.12%-5.125% due 7/30-8/13/2007 | 54,808 | 54,575 | .12 |
| Fannie Mae 5.155% due 8/10/2007 | 43,200 | 42,940 | .09 |
| Edison Asset Securitization LLC 5.23%-5.24% due 7/23-9/4/2007 (2) | 38,900 | 38,682 | .08 |
| Other securities | | 1,395,725 | 2.99 |
| | | | |
| | | | |
Total short-term securities (cost: $1,856,848,000) | | 1,857,029 | 3.98 |
| | | | |
| | | | |
Total investment securities (cost: $32,870,341,000) | | 46,546,512 | 99.78 |
Other assets less liabilities | | 100,768 | .22 |
| | | | |
Net assets | | $46,647,280 | 100.00% |
| | | | |
| | | | |
| "Miscellaneous" securities include holdings in their initial period of acquisition that have not previously been publicly disclosed. |
| "Other securities" includes all issues that are not disclosed separately in the summary investment portfolio. | | |
Investments in affiliates | | | | | | |
| | | | | | | |
A company is considered to be an affiliate of the fund under the Investment Company Act of 1940 if the fund's holdings in that company represent 5% or more of the outstanding voting shares of that company. Further details on such holdings and related transactions during the six months ended June 30, 2007, appear below. |
| | | | | | | |
Company | Beginning shares | Purchases | Sales | Ending shares | | Market value of affiliate at 6/30/2007 (000) |
| Comverse Technology, Inc. (3) (5) | - | 13,130,000 | 5,006,130 | 8,123,870 | - | - |
| The following footnotes apply to either the individual securities noted or one or more of the securities aggregated and listed as a single line item. |
| (1) Valued under fair value procedures adopted by authority of the board of directors. The total value of all such securities, |
| including those in “Miscellaneous” and “Other securities,” was $9,669,383,000. |
| (2) Purchased in a private placement transaction; resale may be limited to qualified institutional buyers; resale to the public |
| may require registration. The total value of all such restricted securities, including those in "Other securities" in the |
| summary investment portfolio, was $1,720,488,000, which represented 3.69% of the net assets of the fund. |
| (3) Security did not produce income during the last 12 months. |
| (4) This security, or a portion of this security, has been segregated to cover funding requirements on investment transactions |
| settling in the future. |
| (5) Unaffiliated issuer at 6/30/2007. |
| |
| ADR = American Depositary Receipts |
| |
| See Notes to Financial Statements |
Financial statements | | | |
| | | | |
Statement of assets and liabilities at June 30, 2007 | | | unaudited |
| (dollars and shares in thousands, except per-share amounts) |
| | | | |
Assets: | | | |
| Investment securities at market (cost: $32,870,341) | | | $46,546,512 |
| Cash denominated in non-U.S. currencies (cost: $459) | | | 459 |
| Cash | | | 68 |
| Receivables for: | | | |
| Sales of investments | | $78,753 | |
| Sales of fund's shares | | 144,728 | |
| Dividends and interest | | 58,851 | 282,332 |
| | | | 46,829,371 |
Liabilities: | | | |
| Payables for: | | | |
| Purchases of investments | | 107,604 | |
| Repurchases of fund's shares | | 44,849 | |
| Investment advisory services | | 8,728 | |
| Services provided by affiliates | | 15,315 | |
| Deferred directors' compensation | | 2,435 | |
| Other | | 3,160 | 182,091 |
Net assets at June 30, 2007 | | | $46,647,280 |
| | | | |
Net assets consist of: | | | |
| Capital paid in on shares of capital stock | | | $31,639,704 |
| Undistributed net investment income | | | 223,387 |
| Undistributed net realized gain | | | 1,110,846 |
| Net unrealized appreciation | | | 13,673,343 |
Net assets at June 30, 2007 | | | $46,647,280 |
| | | | |
Total authorized capital stock - 1,500,000 shares, $1.00 par value (1,055,732 total shares outstanding) | |
| | Net assets | Shares outstanding | Net asset value per share* |
| | | | |
| Class A | $37,168,124 | 840,927 | $44.20 |
| Class B | 1,620,931 | 36,757 | 44.10 |
| Class C | 1,787,456 | 40,574 | 44.05 |
| Class F | 2,518,197 | 56,999 | 44.18 |
| Class 529-A | 548,812 | 12,426 | 44.17 |
| Class 529-B | 73,818 | 1,672 | 44.15 |
| Class 529-C | 168,191 | 3,810 | 44.14 |
| Class 529-E | 25,797 | 584 | 44.14 |
| Class 529-F | 15,728 | 356 | 44.14 |
| Class R-1 | 36,659 | 832 | 44.07 |
| Class R-2 | 406,648 | 9,232 | 44.05 |
| Class R-3 | 864,620 | 19,594 | 44.13 |
| Class R-4 | 676,018 | 15,316 | 44.14 |
| Class R-5 | 736,281 | 16,653 | 44.21 |
| (*) 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 $46.90 and $46.86, respectively. |
| | | | |
| See Notes to Financial Statements | | | |
| | | | |
Statement of operations for the six months ended June 30. 2007 | | | unaudited |
| | | (dollars in thousands) |
| | | | |
Investment income: | | | |
| Income: | | | |
| Dividends (net of non-U.S. taxes of $17,025) | | $416,601 | |
| Interest | | 57,852 | $474,453 |
| | | | |
| Fees and expenses(*): | | | |
| Investment advisory services | | 54,084 | |
| Distribution services | | 65,162 | |
| Transfer agent services | | 15,604 | |
| Administrative services | | 5,018 | |
| Reports to shareholders | | 813 | |
| Registration statement and prospectus | | 1,022 | |
| Postage, stationery and supplies | | 1,621 | |
| Directors' compensation | | 486 | |
| Auditing and legal | | 26 | |
| Custodian | | 573 | |
| State and local taxes | | 1 | |
| Other | | 123 | |
| Total fees and expenses before reimbursements/waivers | | 144,533 | |
| Less reimbursements/waivers of fees and expenses: | | | |
| Investment advisory services | | 5,408 | |
| Administrative services | | 70 | |
| Total fees and expenses after reimbursements/waivers | | | 139,055 |
| Net investment income | | | 335,398 |
| | | | |
Net realized gain and unrealized appreciation on investments | | | |
and non-U.S. currency: | | | |
| Net realized gain (loss) on: | | | |
| Investments (including $6,704 net gain from affiliate) | | 1,122,614 | |
| Non-U.S. currency transactions | | (1,139) | 1,121,475 |
| Net unrealized appreciation (depreciation) on: | | | |
| Investments | | 3,084,517 | |
| Non-U.S. currency translations | | (99) | 3,084,418 |
| Net realized gain and unrealized appreciation on investments | | | |
| and non-U.S. currency | | | 4,205,893 |
Net increase in net assets resulting from operations | | | $4,541,291 |
| | | | |
| (*) 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 | Year ended |
| | | ended June 30, | December 31, |
| | | 2007* | 2006 |
Operations: | | | |
| Net investment income | | $335,398 | $515,580 |
| Net realized gain on investments and non-U.S. | | | |
| currency transactions | | 1,121,475 | 1,740,056 |
| Net unrealized appreciation on investments and | | | |
| non-U.S. currency translations | | 3,084,418 | 3,593,171 |
| Net increase in net assets resulting from operations | | 4,541,291 | 5,848,807 |
| | | | |
Dividends and distributions paid to shareholders: | | | |
| Dividends from net investment income and non-U.S. currency gain | | (229,260) | (473,267) |
| Distributions from net realized gain on investments | | (62,103) | (1,471,900) |
| Total dividends and distributions paid to shareholders | | (291,363) | (1,945,167) |
| | | | |
Net capital share transactions | | 3,209,411 | 7,151,659 |
| | | | |
Total increase in net assets | | 7,459,339 | 11,055,299 |
| | | | |
Net assets: | | | |
| Beginning of period | | 39,187,941 | 28,132,642 |
| End of period (including undistributed net investment | | | |
| income: $223,387 and $117,249, respectively) | | $46,647,280 | $39,187,941 |
| | | | |
| *Unaudited. | | | |
| | | | |
| See Notes to Financial Statements | | | |
Notes to financial statements | unaudited |
| 1. | Organization and significant accounting policies |
Organization– Fundamental Investors, Inc. (the "fund") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company. The fund seeks long-term growth of capital and income primarily through investments in common stocks.
The fund offers 14 share classes consisting of four retail share classes, five 529 college savings plan share classes and five retirement plan share classes. The 529 college 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. Market quotations may be considered unreliable if events occur that materially affect the value of securities (particularly non-U.S. securities) between the close of trading in those securities and the close of regular trading on the New York Stock Exchange. 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. In the event a security is purchased with a delayed payment date, the fund will segregate liquid assets sufficient to meet its payment obligations. 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.
Non-U.S. currency translation– Assets and liabilities, including investment securities, denominated in non-U.S. currencies are translated into U.S. dollars at the exchange rates in effect on the valuation date. Purchases and sales of investment securities and income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions. On the accompanying financial statements, the effects of changes in non-U.S. exchange rates on investment securities are included with the net realized gain or loss and net unrealized appreciation or depreciation on investments. The realized gain or loss and unrealized appreciation or depreciation resulting from all other transactions denominated in non-U.S. currencies are disclosed separately.
Investment risk – The risks of investing in securities of non-U.S. issuers may include, but are not limited to, investment and repatriation restrictions; revaluation of currencies; adverse political, social and economic developments; government involvement in the private sector; limited and less reliable investor information; lack of liquidity; certain local tax law considerations; and limited regulation of the securities markets.
Taxation– Dividend and interest income is recorded net of non-U.S. taxes paid. Gains realized by the fund on the sale of securities in certain countries are subject to non-U.S. taxes. The fund records a liability based on unrealized gains to provide for potential non-U.S. taxes payable upon the sale of these securities. For the six months ended June 30, 2007, there were no non-U.S. taxes paid on realized gains. As of June 30, 2007, non-U.S. taxes provided on unrealized gains were $2,862,000.
3. 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.
The fund adopted the provisions of Financial Accounting Standards Board Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes, on June 29, 2007. The implementation of FIN 48 resulted in no material liability for unrecognized tax benefits and no material change to the beginning net asset value of the fund.
As of and during the period ended June 30, 2007, the fund did not have a liability for any unrecognized tax benefits. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the period, the fund did not incur any interest or penalties.
The fund is not subject to examination by U.S. federal tax authorities for tax years before 2003, by state tax authorities for tax years before 2002 and by non-U.S. tax authorities for tax years before 2005.
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 non-U.S. currency gains and losses; short-term capital gains and losses; and capital losses related to sales of certain securities within 30 days of purchase. 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 December 31, 2006, the fund had tax basis undistributed ordinary income of $120,074,000, non-U.S. currency loss deferrals (realized during the period November 1, 2006, through December 31, 2006) of $778,000 and an undistributed long-term capital gain of $61,925,000.
As of June 30, 2007, the tax basis unrealized appreciation (depreciation) and cost of investments were as follows:
| | | | (dollars in thousands) |
| Gross unrealized appreciation on investment securities | | | $13,912,142 |
| Gross unrealized depreciation on investment securities | | | (244,534) |
| Net unrealized appreciation on investment securities | | | 13,667,608 |
| Cost of investment securities | | | 32,878,904 |
The tax character of distributions paid to shareholders was as follows (dollars in thousands):
| | | Six months ended June 30, 2007 | | | Year ended December 31, 2006 |
| | | Ordinary income | | | Long-term capital gains | | | Total distributions paid | | | Ordinary income | | | Long-term capital gains | | | Total distributions paid | |
Share class | | | | | | | | | | | | | | | | | | |
| Class A | | $ | 197,751 | | | $ | 50,523 | | | $ | 248,274 | | | $ | 415,933 | | | $ | 1,209,190 | | | $ | 1,625,123 | |
| Class B | | | 2,978 | | | | 2,215 | | | | 5,193 | | | | 8,802 | | | | 53,464 | | | | 62,266 | |
| Class C | | | 2,662 | | | | 2,250 | | | | 4,912 | | | | 7,248 | | | | 51,882 | | | | 59,130 | |
| Class F | | | 12,265 | | | | 3,017 | | | | 15,282 | | | | 18,703 | | | | 68,161 | | | | 86,864 | |
| Class 529-A | | | 2,608 | | | | 678 | | | | 3,286 | | | | 4,668 | | | | 15,407 | | | | 20,075 | |
| Class 529-B | | | 94 | | | | 96 | | | | 190 | | | | 294 | | | | 2,243 | | | | 2,537 | |
| Class 529-C | | | 204 | | | | 208 | | | | 412 | | | | 603 | | | | 4,713 | | | | 5,316 | |
| Class 529-E | | | 90 | | | | 34 | | | | 124 | | | | 180 | | | | 752 | | | | 932 | |
| Class 529-F | | | 84 | | | | 19 | | | | 103 | | | | 130 | | | | 417 | | | | 547 | |
| Class R-1 | | | 52 | | | | 50 | | | | 102 | | | | 113 | | | | 882 | | | | 995 | |
| Class R-2 | | | 578 | | | | 485 | | | | 1,063 | | | | 1,503 | | | | 10,912 | | | | 12,415 | |
| Class R-3 | | | 2,778 | | | | 956 | | | | 3,734 | | | | 4,196 | | | | 19,585 | | | | 23,781 | |
| Class R-4 | | | 3,121 | | | | 793 | | | | 3,914 | | | | 4,339 | | | | 16,233 | | | | 20,572 | |
| Class R-5 | | | 3,995 | | | | 779 | | | | 4,774 | | | | 6,555 | | | | 18,059 | | | | 24,614 | |
| Total | | $ | 229,260 | | | $ | 62,103 | | | $ | 291,363 | | | $ | 473,267 | | | $ | 1,471,900 | | | $ | 1,945,167 | |
4. Fees and transactions with related parties
Capital Research and Management Company ("CRMC"), the fund’s investment adviser, is the parent company of American Funds Service Company SM ("AFS"), the fund’s transfer agent, and American Funds Distributors, SM Inc. ("AFD"), the principal underwriter of the fund’s shares.
Investment advisory services– The Investment Advisory and Service Agreement with CRMC provides for monthly fees accrued daily. These fees are based on a declining series of annual rates beginning with 0.390% on the first $1 billion of daily net assets and decreasing to 0.234% on such assets in excess of $44 billion. CRMC is currently waiving 10% of investment advisory services fees. During the six months ended June 30, 2007, total investment advisory services fees waived by CRMC were $5,408,000. As a result, the fee shown on the accompanying financial statements of $54,084,000, which was equivalent to an annualized rate of 0.255%, was reduced to $48,676,000, or 0.230% 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 June 30, 2007, 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 June 30, 2007, the total administrative services fees paid by CRMC were $1,000 and $69,000 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 529 college savings 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 June 30, 2007, were as follows (dollars in thousands):
Share class | Distribution services | Transfer agent services | Administrative services |
CRMC administrative services | Transfer agent services | Commonwealth of Virginia administrative services |
| Class A | $41,722 | $14,951 | Not applicable | Not applicable | Not applicable |
| Class B | 7,494 | 653 | Not applicable | Not applicable | Not applicable |
| Class C | 7,823 | Included in administrative services | $1,068 | $109 | Not applicable |
| Class F | 2,658 | 852 | 84 | Not applicable |
| Class 529-A | 458 | 224 | 26 | $238 |
| Class 529-B | 330 | 31 | 6 | 33 |
| Class 529-C | 727 | 68 | 11 | 73 |
| Class 529-E | 57 | 11 | 1 | 12 |
| Class 529-F | - | 6 | 1 | 6 |
| Class R-1 | 155 | 18 | 10 | Not applicable |
| Class R-2 | 1,295 | 243 | 530 | Not applicable |
| Class R-3 | 1,739 | 479 | 206 | Not applicable |
| Class R-4 | 704 | 371 | 12 | Not applicable |
| Class R-5 | Not applicable | 282 | 7 | Not applicable |
| Total | $65,162 | $15,604 | $3,653 | $1,003 | $362 |
Deferred directors’ compensation– Since the adoption of the deferred compensation plan in 1993, directors who are unaffiliated with CRMC may elect to defer the cash payment of part or all of their compensation. These deferred amounts, which remain as liabilities of the fund, are treated as if invested in shares of the fund or other American Funds. These amounts represent general, unsecured liabilities of the fund and vary according to the total returns of the selected funds. Directors’ compensation of $486,000, shown on the accompanying financial statements, includes $226,000 in current fees (either paid in cash or deferred) and a net increase of $260,000 in the value of the deferred amounts.
Affiliated officers and directors – Officers and certain directors of the fund are or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated officers or directors received any compensation directly from the fund.
5. Capital share transactions
Capital share transactions in the fund were as follows (dollars and shares in thousands):
Share class | | Sales(*) | | | | | | Reinvestments of dividends and distributions | | | Repurchases(*) | | | Net increase | |
| | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | |
Six months ended June 30, 2007 | | | | | | | | | | | | | | | | | | | | | | |
| Class A | | $ | 3,291,240 | | | | 78,880 | | | $ | 236,172 | | | | 5,577 | | | $ | (1,977,265 | ) | | | (47,237 | ) | | $ | 1,550,147 | | | | 37,220 | |
| Class B | | | 126,966 | | | | 3,044 | | | | 5,011 | | | | 120 | | | | (77,719 | ) | | | (1,862 | ) | | | 54,258 | | | | 1,302 | |
| Class C | | | 339,852 | | | | 8,161 | | | | 4,726 | | | | 113 | | | | (94,400 | ) | | | (2,266 | ) | | | 250,178 | | | | 6,008 | |
| Class F | | | 651,755 | | | | 15,543 | | | | 13,056 | | | | 308 | | | | (174,805 | ) | | | (4,185 | ) | | | 490,006 | | | | 11,666 | |
| Class 529-A | | | 94,970 | | | | 2,279 | | | | 3,286 | | | | 78 | | | | (11,743 | ) | | | (280 | ) | | | 86,513 | | | | 2,077 | |
| Class 529-B | | | 8,463 | | | | 203 | | | | 189 | | | | 4 | | | | (1,261 | ) | | | (30 | ) | | | 7,391 | | | | 177 | |
| Class 529-C | | | 31,574 | | | | 757 | | | | 412 | | | | 10 | | | | (4,786 | ) | | | (115 | ) | | | 27,200 | | | | 652 | |
| Class 529-E | | | 3,803 | | | | 91 | | | | 124 | | | | 3 | | | | (664 | ) | | | (16 | ) | | | 3,263 | | | | 78 | |
| Class 529-F | | | 4,120 | | | | 98 | | | | 103 | | | | 2 | | | | (973 | ) | | | (23 | ) | | | 3,250 | | | | 77 | |
| Class R-1 | | | 14,954 | | | | 361 | | | | 101 | | | | 3 | | | | (4,998 | ) | | | (119 | ) | | | 10,057 | | | | 245 | |
| Class R-2 | | | 126,800 | | | | 3,047 | | | | 1,063 | | | | 25 | | | | (46,861 | ) | | | (1,121 | ) | | | 81,002 | | | | 1,951 | |
| Class R-3 | | | 344,362 | | | | 8,283 | | | | 3,729 | | | | 88 | | | | (79,004 | ) | | | (1,895 | ) | | | 269,087 | | | | 6,476 | |
| Class R-4 | | | 242,887 | | | | 5,833 | | | | 3,910 | | | | 93 | | | | (66,037 | ) | | | (1,569 | ) | | | 180,760 | | | | 4,357 | |
| Class R-5 | | | 230,750 | | | | 5,463 | | | | 4,557 | | | | 107 | | | | (39,008 | ) | | | (933 | ) | | | 196,299 | | | | 4,637 | |
| Total net increase | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (decrease) | | $ | 5,512,496 | | | | 132,043 | | | $ | 276,439 | | | | 6,531 | | | $ | (2,579,524 | ) | | | (61,651 | ) | | $ | 3,209,411 | | | | 76,923 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2006 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A | | $ | 5,807,510 | | | | 150,813 | | | $ | 1,556,073 | | | | 39,076 | | | $ | (2,898,417 | ) | | | (75,162 | ) | | $ | 4,465,166 | | | | 114,727 | |
| Class B | | | 242,131 | | | | 6,302 | | | | 60,167 | | | | 1,507 | | | | (123,484 | ) | | | (3,209 | ) | | | 178,814 | | | | 4,600 | |
| Class C | | | 551,355 | | | | 14,335 | | | | 57,032 | | | | 1,428 | | | | (122,224 | ) | | | (3,178 | ) | | | 486,163 | | | | 12,585 | |
| Class F | | | 1,130,387 | | | | 29,210 | | | | 74,949 | | | | 1,878 | | | | (172,348 | ) | | | (4,462 | ) | | | 1,032,988 | | | | 26,626 | |
| Class 529-A | | | 144,288 | | | | 3,732 | | | | 20,072 | | | | 504 | | | | (16,375 | ) | | | (422 | ) | | | 147,985 | | | | 3,814 | |
| Class 529-B | | | 13,817 | | | | 359 | | | | 2,537 | | | | 63 | | | | (1,745 | ) | | | (45 | ) | | | 14,609 | | | | 377 | |
| Class 529-C | | | 46,215 | | | | 1,198 | | | | 5,315 | | | | 132 | | | | (7,072 | ) | | | (183 | ) | | | 44,458 | | | | 1,147 | |
| Class 529-E | | | 6,630 | | | | 172 | | | | 932 | | | | 24 | | | | (651 | ) | | | (17 | ) | | | 6,911 | | | | 179 | |
| Class 529-F | | | 5,683 | | | | 146 | | | | 547 | | | | 14 | | | | (708 | ) | | | (18 | ) | | | 5,522 | | | | 142 | |
| Class R-1 | | | 14,244 | | | | 369 | | | | 983 | | | | 24 | | | | (4,185 | ) | | | (109 | ) | | | 11,042 | | | | 284 | |
| Class R-2 | | | 147,153 | | | | 3,832 | | | | 12,407 | | | | 310 | | | | (48,232 | ) | | | (1,252 | ) | | | 111,328 | | | | 2,890 | |
| Class R-3 | | | 325,070 | | | | 8,397 | | | | 23,740 | | | | 595 | | | | (80,993 | ) | | | (2,087 | ) | | | 267,817 | | | | 6,905 | |
| Class R-4 | | | 234,425 | | | | 5,947 | | | | 20,545 | | | | 515 | | | | (50,824 | ) | | | (1,308 | ) | | | 204,146 | | | | 5,154 | |
| Class R-5 | | | 187,718 | | | | 4,875 | | | | 23,765 | | | | 597 | | | | (36,773 | ) | | | (950 | ) | | | 174,710 | | | | 4,522 | |
| Total net increase | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (decrease) | | $ | 8,856,626 | | | | 229,687 | | | $ | 1,859,064 | | | | 46,667 | | | $ | (3,564,031 | ) | | | (92,402 | ) | | $ | 7,151,659 | | | | 183,952 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (*) Includes exchanges between share classes of the fund. | | | | | | | | | | | | | | | | | | | | | |
6. Investment transactions
The fund made purchases and sales of investment securities, excluding short-term securities, of $8,356,356,000 and $4,891,648,000, respectively, during the six months ended June 30, 2007.
Financial highlights(1) | | | | | | | | | | | | | | |
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| | | | Income (loss) from investment operations(2) | Dividends and distributions | | | | | | | | | | |
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| | | 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 | Net asset value, end of period | Total return (3)(4) | 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/ waivers(4) | Ratio of net income to average net assets(4) |
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| Class A: | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2007 | (5) | $40.05 | $.34 | $4.11 | $4.45 | $(.24) | $(.06) | $(.30) | $44.20 | 11.15% | $37,168 | | .61% | (6) | .58% | (6) | 1.65% | (6) |
| Year ended 12/31/2006 | | 35.40 | .62 | 6.16 | 6.78 | (.56) | (1.57) | (2.13) | 40.05 | 19.24 | 32,187 | | .61 | | .58 | | 1.60 | |
| Year ended 12/31/2005 | | 32.25 | .58 | 3.16 | 3.74 | (.59) | - | (.59) | 35.40 | 11.68 | 24,390 | | .62 | | .60 | | 1.75 | |
| Year ended 12/31/2004 | | 28.85 | .61 | 3.35 | 3.96 | (.56) | - | (.56) | 32.25 | 13.91 | 21,543 | | .63 | | .63 | | 2.05 | |
| Year ended 12/31/2003 | | 22.23 | .50 | 6.52 | 7.02 | (.40) | - | (.40) | 28.85 | 31.96 | 19,212 | | .66 | | .66 | | 2.08 | |
| Year ended 12/31/2002 | | 27.45 | .42 | (5.14) | (4.72) | (.50) | - | (.50) | 22.23 | (17.34) | 15,201 | | .67 | | .67 | | 1.68 | |
| Class B: | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2007 | (5) | 39.96 | .19 | 4.09 | 4.28 | (.08) | (.06) | (.14) | 44.10 | 10.74 | 1,621 | | 1.36 | (6) | 1.34 | (6) | .90 | (6) |
| Year ended 12/31/2006 | | 35.33 | .32 | 6.14 | 6.46 | (.26) | (1.57) | (1.83) | 39.96 | 18.33 | 1,417 | | 1.38 | | 1.35 | | .83 | |
| Year ended 12/31/2005 | | 32.19 | .33 | 3.15 | 3.48 | (.34) | - | (.34) | 35.33 | 10.84 | 1,090 | | 1.39 | | 1.36 | | .99 | |
| Year ended 12/31/2004 | | 28.80 | .38 | 3.35 | 3.73 | (.34) | - | (.34) | 32.19 | 13.03 | 971 | | 1.40 | | 1.39 | | 1.29 | |
| Year ended 12/31/2003 | | 22.19 | .31 | 6.51 | 6.82 | (.21) | - | (.21) | 28.80 | 30.97 | 836 | | 1.44 | | 1.44 | | 1.30 | |
| Year ended 12/31/2002 | | 27.40 | .23 | (5.14) | (4.91) | (.30) | - | (.30) | 22.19 | (17.97) | 618 | | 1.45 | | 1.45 | | .91 | |
| Class C: | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2007 | (5) | 39.92 | .17 | 4.09 | 4.26 | (.07) | (.06) | (.13) | 44.05 | 10.70 | 1,787 | | 1.43 | (6) | 1.40 | (6) | .84 | (6) |
| Year ended 12/31/2006 | | 35.30 | .30 | 6.13 | 6.43 | (.24) | (1.57) | (1.81) | 39.92 | 18.23 | 1,380 | | 1.43 | | 1.41 | | .77 | |
| Year ended 12/31/2005 | | 32.17 | .30 | 3.15 | 3.45 | (.32) | - | (.32) | 35.30 | 10.76 | 776 | | 1.45 | | 1.43 | | .91 | |
| Year ended 12/31/2004 | | 28.78 | .37 | 3.34 | 3.71 | (.32) | - | (.32) | 32.17 | 12.96 | 566 | | 1.47 | | 1.46 | | 1.24 | |
| Year ended 12/31/2003 | | 22.17 | .30 | 6.51 | 6.81 | (.20) | - | (.20) | 28.78 | 30.93 | 413 | | 1.50 | | 1.50 | | 1.23 | |
| Year ended 12/31/2002 | | 27.39 | .21 | (5.14) | (4.93) | (.29) | - | (.29) | 22.17 | (18.06) | 266 | | 1.50 | | 1.50 | | .86 | |
| Class F: | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2007 | (5) | 40.03 | .35 | 4.10 | 4.45 | (.24) | (.06) | (.30) | 44.18 | 11.15 | 2,518 | | .61 | (6) | .58 | (6) | 1.66 | (6) |
| Year ended 12/31/2006 | | 35.39 | .62 | 6.15 | 6.77 | (.56) | (1.57) | (2.13) | 40.03 | 19.21 | 1,815 | | .61 | | .58 | | 1.58 | |
| Year ended 12/31/2005 | | 32.24 | .57 | 3.16 | 3.73 | (.58) | - | (.58) | 35.39 | 11.64 | 662 | | .66 | | .63 | | 1.71 | |
| Year ended 12/31/2004 | | 28.84 | .59 | 3.35 | 3.94 | (.54) | - | (.54) | 32.24 | 13.84 | 463 | | .70 | | .70 | | 2.02 | |
| Year ended 12/31/2003 | | 22.22 | .49 | 6.52 | 7.01 | (.39) | - | (.39) | 28.84 | 31.92 | 311 | | .71 | | .71 | | 2.02 | |
| Year ended 12/31/2002 | | 27.44 | .40 | (5.14) | (4.74) | (.48) | - | (.48) | 22.22 | (17.38) | 203 | | .72 | | .72 | | 1.65 | |
| Class 529-A: | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2007 | (5) | 40.02 | .33 | 4.11 | 4.44 | (.23) | (.06) | (.29) | 44.17 | 11.13 | 549 | | .67 | (6) | .65 | (6) | 1.60 | (6) |
| Year ended 12/31/2006 | | 35.38 | .60 | 6.15 | 6.75 | (.54) | (1.57) | (2.11) | 40.02 | 19.16 | 414 | | .66 | | .63 | | 1.55 | |
| Year ended 12/31/2005 | | 32.24 | .55 | 3.15 | 3.70 | (.56) | - | (.56) | 35.38 | 11.60 | 231 | | .70 | | .67 | | 1.66 | |
| Year ended 12/31/2004 | | 28.84 | .59 | 3.34 | 3.93 | (.53) | - | (.53) | 32.24 | 13.77 | 146 | | .73 | | .72 | | 2.00 | |
| Year ended 12/31/2003 | | 22.22 | .50 | 6.52 | 7.02 | (.40) | - | (.40) | 28.84 | 31.99 | 88 | | .68 | | .68 | | 2.03 | |
| Period from 2/15/2002 to 12/31/2002 | | 26.71 | .33 | (4.34) | (4.01) | (.48) | - | (.48) | 22.22 | (15.16) | 39 | | .76 | (6) | .76 | (6) | 1.64 | (6) |
| Class 529-B: | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2007 | (5) | 40.01 | .16 | 4.10 | 4.26 | (.06) | (.06) | (.12) | 44.15 | 10.67 | 74 | | 1.49 | (6) | 1.46 | (6) | .78 | (6) |
| Year ended 12/31/2006 | | 35.37 | .27 | 6.16 | 6.43 | (.22) | (1.57) | (1.79) | 40.01 | 18.18 | 60 | | 1.50 | | 1.47 | | .71 | |
| Year ended 12/31/2005 | | 32.23 | .27 | 3.16 | 3.43 | (.29) | - | (.29) | 35.37 | 10.66 | 40 | | 1.54 | | 1.52 | | .82 | |
| Year ended 12/31/2004 | | 28.83 | .33 | 3.35 | 3.68 | (.28) | - | (.28) | 32.23 | 12.83 | 29 | | 1.59 | | 1.59 | | 1.13 | |
| Year ended 12/31/2003 | | 22.22 | .27 | 6.52 | 6.79 | (.18) | - | (.18) | 28.83 | 30.74 | 19 | | 1.61 | | 1.61 | | 1.10 | |
| Period from 2/19/2002 to 12/31/2002 | | 26.27 | .16 | (3.91) | (3.75) | (.30) | - | (.30) | 22.22 | (14.35) | 8 | | 1.62 | (6) | 1.62 | (6) | .77 | (6) |
| Class 529-C: | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2007 | (5) | 40.00 | .16 | 4.10 | 4.26 | (.06) | (.06) | (.12) | 44.14 | 10.67 | 168 | | 1.49 | (6) | 1.46 | (6) | .78 | (6) |
| Year ended 12/31/2006 | | 35.37 | .28 | 6.14 | 6.42 | (.22) | (1.57) | (1.79) | 40.00 | 18.16 | 126 | | 1.49 | | 1.47 | | .71 | |
| Year ended 12/31/2005 | | 32.23 | .27 | 3.16 | 3.43 | (.29) | - | (.29) | 35.37 | 10.68 | 71 | | 1.53 | | 1.51 | | .83 | |
| Year ended 12/31/2004 | | 28.83 | .34 | 3.34 | 3.68 | (.28) | - | (.28) | 32.23 | 12.84 | 45 | | 1.58 | | 1.58 | | 1.14 | |
| Year ended 12/31/2003 | | 22.22 | .27 | 6.52 | 6.79 | (.18) | - | (.18) | 28.83 | 30.75 | 27 | | 1.60 | | 1.60 | | 1.11 | |
| Period from 2/15/2002 to 12/31/2002 | | 26.71 | .16 | (4.34) | (4.18) | (.31) | - | (.31) | 22.22 | (15.74) | 11 | | 1.60 | (6) | 1.60 | (6) | .79 | (6) |
| Class 529-E: | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2007 | (5) | 40.00 | .27 | 4.09 | 4.36 | (.16) | (.06) | (.22) | 44.14 | 10.94 | 26 | | .98 | (6) | .96 | (6) | 1.28 | (6) |
| Year ended 12/31/2006 | | 35.36 | .48 | 6.15 | 6.63 | (.42) | (1.57) | (1.99) | 40.00 | 18.80 | 20 | | .97 | | .95 | | 1.23 | |
| Year ended 12/31/2005 | | 32.23 | .44 | 3.15 | 3.59 | (.46) | - | (.46) | 35.36 | 11.24 | 12 | | 1.02 | | .99 | | 1.34 | |
| Year ended 12/31/2004 | | 28.83 | .49 | 3.35 | 3.84 | (.44) | - | (.44) | 32.23 | 13.40 | 7 | | 1.06 | | 1.05 | | 1.66 | |
| Year ended 12/31/2003 | | 22.21 | .40 | 6.52 | 6.92 | (.30) | - | (.30) | 28.83 | 31.42 | 4 | | 1.08 | | 1.08 | | 1.61 | |
| Period from 3/7/2002 to 12/31/2002 | | 28.13 | .26 | (5.85) | (5.59) | (.33) | - | (.33) | 22.21 | (19.92) | 2 | | 1.07 | (6) | 1.07 | (6) | 1.35 | (6) |
| Class 529-F: | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2007 | (5) | $40.00 | $.37 | $4.10 | $4.47 | $(.27) | $(.06) | $(.33) | $44.14 | 11.22% | $16 | | .48% | (6) | .46% | (6) | 1.79% | (6) |
| Year ended 12/31/2006 | | 35.36 | .67 | 6.15 | 6.82 | (.61) | (1.57) | (2.18) | 40.00 | 19.40 | 11 | | .47 | | .45 | | 1.73 | |
| Year ended 12/31/2005 | | 32.22 | .59 | 3.15 | 3.74 | (.60) | - | (.60) | 35.36 | 11.68 | 5 | | .58 | | .56 | | 1.76 | |
| Year ended 12/31/2004 | | 28.82 | .58 | 3.33 | 3.91 | (.51) | - | (.51) | 32.22 | 13.73 | 2 | | .81 | | .80 | | 1.95 | |
| Year ended 12/31/2003 | | 22.22 | .45 | 6.52 | 6.97 | (.37) | - | (.37) | 28.82 | 31.72 | 1 | | .82 | | .82 | | 1.81 | |
| Period from 9/23/2002 to 12/31/2002 | | 21.22 | .12 | 1.08 | 1.20 | (.20) | - | (.20) | 22.22 | 5.65 | - | (7) | .22 | | .22 | | .51 | |
| Class R-1: | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2007 | (5) | 39.93 | .17 | 4.10 | 4.27 | (.07) | (.06) | (.13) | 44.07 | 10.72 | 37 | | 1.45 | (6) | 1.42 | (6) | .83 | (6) |
| Year ended 12/31/2006 | | 35.31 | .29 | 6.13 | 6.42 | (.23) | (1.57) | (1.80) | 39.93 | 18.19 | 23 | | 1.47 | | 1.43 | | .74 | |
| Year ended 12/31/2005 | | 32.18 | .29 | 3.16 | 3.45 | (.32) | - | (.32) | 35.31 | 10.74 | 11 | | 1.50 | | 1.46 | | .88 | |
| Year ended 12/31/2004 | | 28.79 | .37 | 3.33 | 3.70 | (.31) | - | (.31) | 32.18 | 12.92 | 6 | | 1.53 | | 1.49 | | 1.26 | |
| Year ended 12/31/2003 | | 22.19 | .27 | 6.54 | 6.81 | (.21) | - | (.21) | 28.79 | 30.90 | 2 | | 1.70 | | 1.50 | | 1.08 | |
| Period from 6/19/2002 to 12/31/2002 | | 26.04 | .13 | (3.75) | (3.62) | (.23) | - | (.23) | 22.19 | (13.91) | - | (7) | 4.20 | (6) | 1.50 | (6) | 1.11 | (6) |
| Class R-2: | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2007 | (5) | 39.92 | .18 | 4.08 | 4.26 | (.07) | (.06) | (.13) | 44.05 | 10.69 | 407 | | 1.47 | (6) | 1.40 | (6) | .85 | (6) |
| Year ended 12/31/2006 | | 35.29 | .30 | 6.14 | 6.44 | (.24) | (1.57) | (1.81) | 39.92 | 18.26 | 291 | | 1.54 | | 1.41 | | .77 | |
| Year ended 12/31/2005 | | 32.17 | .30 | 3.14 | 3.44 | (.32) | - | (.32) | 35.29 | 10.73 | 155 | | 1.64 | | 1.43 | | .91 | |
| Year ended 12/31/2004 | | 28.77 | .38 | 3.34 | 3.72 | (.32) | - | (.32) | 32.17 | 13.02 | 93 | | 1.76 | | 1.45 | | 1.29 | |
| Year ended 12/31/2003 | | 22.18 | .30 | 6.51 | 6.81 | (.22) | - | (.22) | 28.77 | 30.93 | 45 | | 1.94 | | 1.46 | | 1.19 | |
| Period from 5/21/2002 to 12/31/2002 | | 27.39 | .14 | (5.13) | (4.99) | (.22) | - | (.22) | 22.18 | (18.22) | 7 | | 1.64 | (6) | 1.46 | (6) | 1.05 | (6) |
| Class R-3: | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2007 | (5) | 39.98 | .27 | 4.10 | 4.37 | (.16) | (.06) | (.22) | 44.13 | 10.98 | 864 | | .97 | (6) | .94 | (6) | 1.32 | (6) |
| Year ended 12/31/2006 | | 35.35 | .47 | 6.14 | 6.61 | (.41) | (1.57) | (1.98) | 39.98 | 18.75 | 525 | | .99 | | .96 | | 1.21 | |
| Year ended 12/31/2005 | | 32.21 | .45 | 3.16 | 3.61 | (.47) | - | (.47) | 35.35 | 11.26 | 220 | | 1.01 | | .98 | | 1.35 | |
| Year ended 12/31/2004 | | 28.82 | .50 | 3.33 | 3.83 | (.44) | - | (.44) | 32.21 | 13.41 | 125 | | 1.05 | | 1.04 | | 1.69 | |
| Year ended 12/31/2003 | | 22.21 | .40 | 6.52 | 6.92 | (.31) | - | (.31) | 28.82 | 31.45 | 66 | | 1.10 | | 1.08 | | 1.60 | |
| Period from 6/4/2002 to 12/31/2002 | | 26.66 | .18 | (4.38) | (4.20) | (.25) | - | (.25) | 22.21 | (15.75) | 11 | | 1.13 | (6) | 1.08 | (6) | 1.41 | (6) |
| Class R-4: | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2007 | (5) | 39.99 | .34 | 4.10 | 4.44 | (.23) | (.06) | (.29) | 44.14 | 11.14 | 676 | | .66 | (6) | .63 | (6) | 1.62 | (6) |
| Year ended 12/31/2006 | | 35.36 | .59 | 6.14 | 6.73 | (.53) | (1.57) | (2.10) | 39.99 | 19.12 | 438 | | .67 | | .65 | | 1.52 | |
| Year ended 12/31/2005 | | 32.22 | .55 | 3.16 | 3.71 | (.57) | - | (.57) | 35.36 | 11.61 | 205 | | .69 | | .66 | | 1.66 | |
| Year ended 12/31/2004 | | 28.83 | .60 | 3.33 | 3.93 | (.54) | - | (.54) | 32.22 | 13.85 | 80 | | .69 | | .69 | | 2.04 | |
| Year ended 12/31/2003 | | 22.21 | .48 | 6.53 | 7.01 | (.39) | - | (.39) | 28.83 | 31.91 | 48 | | .71 | | .71 | | 1.94 | |
| Period from 7/25/2002 to 12/31/2002 | | 21.75 | .22 | .55 | .77 | (.31) | - | (.31) | 22.21 | 3.51 | 7 | | .34 | | .32 | | .96 | |
| Class R-5: | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2007 | (5) | 40.06 | .40 | 4.10 | 4.50 | (.29) | (.06) | (.35) | 44.21 | 11.28 | 736 | | .37 | (6) | .35 | (6) | 1.91 | (6) |
| Year ended 12/31/2006 | | 35.41 | .71 | 6.16 | 6.87 | (.65) | (1.57) | (2.22) | 40.06 | 19.50 | 481 | | .38 | | .35 | | 1.83 | |
| Year ended 12/31/2005 | | 32.26 | .65 | 3.17 | 3.82 | (.67) | - | (.67) | 35.41 | 11.94 | 265 | | .39 | | .36 | | 1.96 | |
| Year ended 12/31/2004 | | 28.86 | .68 | 3.35 | 4.03 | (.63) | - | (.63) | 32.26 | 14.19 | 141 | | .39 | | .39 | | 2.31 | |
| Year ended 12/31/2003 | | 22.23 | .56 | 6.53 | 7.09 | (.46) | - | (.46) | 28.86 | 32.34 | 112 | | .39 | | .39 | | 2.30 | |
| Period from 5/15/2002 to 12/31/2002 | | 27.62 | .28 | (5.34) | (5.06) | (.33) | - | (.33) | 22.23 | (18.34) | 53 | | .40 | (6) | .40 | (6) | 1.91 | (6) |
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| | | Six months ended June 30, | | | Year ended December 31 |
| | | 2007(5) | | | 2006 | | | 2005 | | | 2004 | | | 2003 | | | 2002 | |
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| Portfolio turnover rate for all classes of shares | | | 12 | % | | | 21 | % | | | 24 | % | | | 30 | % | | | 31 | % | | | 38 | % |
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| (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) This column reflects the impact, if any, of certain reimbursements/waivers from CRMC. | | | | | | | | | |
| During some of the periods shown, CRMC reduced fees for investment advisory services for all share classes. In addition, during | |
| some of the periods shown, CRMC paid a portion of the fund's transfer agent fees for certain retirement plan share classes. | |
| (5) Unaudited. | | | | | | | | | | | | | | | | | | | | | | | | |
| (6) Annualized. | | | | | | | | | | | | | | | | | | | | | | | | |
| (7) Amount less than $1 million. | | | | | | | | | | | | | | | | | | | | | | | | |
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| See Notes to Financial Statements | | | | | | | | | | | | | | | | | | | | | | | | |
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 (January 1, 2007, through June 30, 2007).
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.
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.
Notes:
There are some account fees that are charged to certain types of accounts, such as Individual Retirement Accounts and 529 college savings plan 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.
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 1/1/2007 | | Ending account value 6/30/2007 | | Expenses paid during period* | | Annualized expense ratio |
| | | | | | | | | |
| Class A -- actual return | | $1,000.00 | | $1,111.54 | | $3.04 | | .58% |
| Class A -- assumed 5% return | | 1,000.00 | | 1,021.92 | | 2.91 | | .58 |
| Class B -- actual return | | 1,000.00 | | 1,107.40 | | 7.00 | | 1.34 |
| Class B -- assumed 5% return | | 1,000.00 | | 1,018.15 | | 6.71 | | 1.34 |
| Class C -- actual return | | 1,000.00 | | 1,106.98 | | 7.31 | | 1.40 |
| Class C -- assumed 5% return | | 1,000.00 | | 1,017.85 | | 7.00 | | 1.40 |
| Class F -- actual return | | 1,000.00 | | 1,111.52 | | 3.04 | | .58 |
| Class F -- assumed 5% return | | 1,000.00 | | 1,021.92 | | 2.91 | | .58 |
| Class 529-A -- actual return | | 1,000.00 | | 1,111.32 | | 3.40 | | .65 |
| Class 529-A -- assumed 5% return | | 1,000.00 | | 1,021.57 | | 3.26 | | .65 |
| Class 529-B -- actual return | | 1,000.00 | | 1,106.71 | | 7.63 | | 1.46 |
| Class 529-B -- assumed 5% return | | 1,000.00 | | 1,017.55 | | 7.30 | | 1.46 |
| Class 529-C -- actual return | | 1,000.00 | | 1,106.72 | | 7.63 | | 1.46 |
| Class 529-C -- assumed 5% return | | 1,000.00 | | 1,017.55 | | 7.30 | | 1.46 |
| Class 529-E -- actual return | | 1,000.00 | | 1,109.41 | | 5.02 | | .96 |
| Class 529-E -- assumed 5% return | | 1,000.00 | | 1,020.03 | | 4.81 | | .96 |
| Class 529-F -- actual return | | 1,000.00 | | 1,112.15 | | 2.41 | | .46 |
| Class 529-F -- assumed 5% return | | 1,000.00 | | 1,022.51 | | 2.31 | | .46 |
| Class R-1 -- actual return | | 1,000.00 | | 1,107.17 | | 7.42 | | 1.42 |
| Class R-1 -- assumed 5% return | | 1,000.00 | | 1,017.75 | | 7.10 | | 1.42 |
| Class R-2 -- actual return | | 1,000.00 | | 1,106.93 | | 7.31 | | 1.40 |
| Class R-2 -- assumed 5% return | | 1,000.00 | | 1,017.85 | | 7.00 | | 1.40 |
| Class R-3 -- actual return | | 1,000.00 | | 1,109.78 | | 4.92 | | .94 |
| Class R-3 -- assumed 5% return | | 1,000.00 | | 1,020.13 | | 4.71 | | .94 |
| Class R-4 -- actual return | | 1,000.00 | | 1,111.40 | | 3.30 | | .63 |
| Class R-4 -- assumed 5% return | | 1,000.00 | | 1,021.67 | | 3.16 | | .63 |
| Class R-5 -- actual return | | 1,000.00 | | 1,112.77 | | 1.83 | | .35 |
| Class R-5 -- assumed 5% return | | 1,000.00 | | 1,023.06 | | 1.76 | | .35 |
*The “expenses paid during period” are equal to the “annualized expense ratio,” multiplied by the average account value over the period, multiplied by the number of days in the period (181), and divided by 365 (to reflect the one-half year period).
Office of the fund
One Market
Steuart Tower, Suite 1800
Mailing address: P.O. Box 7650
San Francisco, CA 94120-7650
Investment adviser
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071-1406
135 South State College Boulevard
Brea, CA 92821-5823
Transfer agent for shareholder accounts
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 25065
Santa Ana, CA 92799-5065
P.O. Box 659522
San Antonio, TX 78265-9522
P.O. Box 6007
Indianapolis, IN 46206-6007
P.O. Box 2280
Norfolk, VA 23501-2280
Custodian of assets
State Street Bank and Trust Company
One Lincoln Street
Boston, MA 02111
Counsel
Paul, Hastings, Janofsky & Walker LLP
515 South Flower Street
Los Angeles, CA 90071-2228
Independent registered public
accounting firm
Deloitte & Touche LLP
695 Town Center Drive
Suite 1200
Costa Mesa, CA 92626-7188
Principal underwriter
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, CA 90071-1406
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.
A complete June 30, 2007, portfolio of Fundamental Investors’ investments is available free of charge by calling AFS or visiting the SEC website (where it is part of Form N-CSR).
Fundamental Investors 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, D.C. (800/SEC-0330). Additionally, the list of portfolio holdings also is available by calling AFS.
This report is for the information of shareholders of Fundamental Investors, but it also may 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 September 30, 2007, this report must be accompanied by an American Funds statistical update for the most recently completed calendar quarter.
[logo - American Funds®]
The right choice for the long term®
What makes American Funds different?
For 75 years, we have followed a consistent philosophy to benefit our investors. Our 30 carefully conceived, broadly diversified funds, in addition to the target date retirement series, offer opportunities that have attracted over 40 million shareholder accounts.
Our unique combination of strengths includes these five factors:
| • | A long-term, value-oriented approach |
| We seek to buy securities at reasonable prices relative to their prospects and hold them for the long term. |
| • | An extensive global research effort |
| Our investment professionals travel the world to find the best investment opportunities and gain a comprehensive understanding of companies and markets. |
| • | The multiple portfolio counselor system |
| Our unique method of portfolio management, developed nearly 50 years ago, blends teamwork with individual accountability and has provided American Funds with a sustainable method of achieving fund objectives. |
| • | Experienced investment professionals |
| American Funds portfolio counselors have an average of 24 years of investment experience, providing a wealth of knowledge and experience that few organizations have. |
| • | A commitment to low operating expenses |
| The American Funds provide exceptional value for shareholders, with operating expenses that are among the lowest in the mutual fund industry. |
American Funds span a range of investment objectives
AMCAP Fund®
| The Growth Fund of America® |
| Capital World Growth and Income FundSM |
| The Investment Company of America® |
| Washington Mutual Investors FundSM |
| The Income Fund of America® |
| American High-Income TrustSM |
| The Bond Fund of AmericaSM |
| Intermediate Bond Fund of America® |
Short-Term Bond Fund of AmericaSM
| U.S. Government Securities FundSM |
| American High-Income Municipal Bond Fund® |
| Limited Term Tax-Exempt Bond Fund of AmericaSM |
| The Tax-Exempt Bond Fund of America® |
| State-specific tax-exempt funds |
| The Tax-Exempt Fund of California® |
| The Tax-Exempt Fund of Maryland® |
| The Tax-Exempt Fund of Virginia® |
| The Cash Management Trust of America® |
| The Tax-Exempt Money Fund of AmericaSM |
| The U.S. Treasury Money Fund of AmericaSM |
| • | American Funds Target Date Retirement SeriesSM |
The Capital Group Companies
American Funds Capital Research and Management Capital International Capital Guardian Capital Bank and Trust
Lit. No. MFGESR-910-0807P
Litho in USA KBDA/LPT/8083-S10061
Printed on recycled paper
Not applicable for filing of semi-annual reports to shareholders.
Not applicable for filing of semi-annual reports to shareholders.
Not applicable for filing of semi-annual reports to shareholders.
Not applicable to this Registrant, insofar as the Registrant is not a listed issuer as defined in Rule 10A-3 under the Securities Exchange Act of 1934.
ITEM 7 – Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.
Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.
ITEM 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.
There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s board of directors since the Registrant last submitted a proxy statement to its shareholders. The procedures are as follows. The Registrant has a nominating and governance committee comprised solely of persons who are not considered ‘‘interested persons’’ of the Registrant within the meaning of the Investment Company Act of 1940, as amended. The committee periodically reviews such issues as the board’s composition, responsibilities, committees, compensation and other relevant issues, and recommends any appropriate changes to the full board of directors. While the committee normally is able to identify from its own resources an ample number of qualified candidates, it will consider shareholder suggestions of persons to be considered as nominees to fill future vacancies on the board. Such suggestions must be sent in writing to the nominating and governance committee of the Registrant, c/o the Registrant’s Secretary, and must be accompanied by complete biographical and occupational data on the prospective nominee, along with a written consent of the prospective nominee for consideration of his or her name by the nominating and governance committee.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
