UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
Certified Shareholder Report of
Registered Management Investment Companies
Investment Company Act File Number: 811-00032
Fundamental Investors, Inc.
(Exact Name of Registrant as Specified in Charter)
P.O. Box 7650, One Market, Steuart Tower
San Francisco, California 94120
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (415) 421-9360
Date of fiscal year end: December 31
Date of reporting period: December 31, 2009
Patrick F. Quan
Capital Research and Management Company
P.O. Box 7650, One Market, Steuart Tower
San Francisco, California 94120
(Name and Address of Agent for Service)
Copies to:
Mark D. Perlow
K&L Gates LLP
Four Embarcadero Center, Suite 1200
San Francisco, California 94111
(Counsel for the Registrant)
ITEM 1 – Reports to Stockholders
[logo - American Funds®]
The right choice for the long term®
Fundamental Investors
[close-up photo of water running over rocks in a stream]
A consistent approach amid changing markets
Annual report for the year ended December 31, 2009
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 is one of the nation’s largest mutual fund families. For nearly 80 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.
Fund results shown in this report, unless otherwise indicated, are for Class A shares at net asset value. If a sales charge (maximum 5.75%) had been deducted, the results would have been lower. Results are for past periods and are not predictive of results for 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, so they may lose value. For current information and month-end results, visit americanfunds.com.
Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from September 1, 2004, through December 31, 2008. Fund results shown reflect the waiver, without which they would have been lower. See the Financial Highlights table on pages 26 and 27 for details.
The fund’s 30-day yield for Class A shares as of January 31, 2010, calculated in accordance with the Securities and Exchange Commission formula, was 1.38%. The fund’s distribution rate for Class A shares as of that date was 1.44%. 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 29.
Equity investments are subject to market fluctuations. Investing outside the United States involves additional risks, such as currency fluctuations, periods of illiquidity and price volatility, as more fully described in the prospectus. These risks may be heightened in connection with investments in developing countries. See the prospectus and the Risk Factors section of this report for more information on these and other risks associated with investing in the fund.
Fellow shareholders:
[close-up photo of water running over rocks in a stream]
During its recently concluded fiscal year, Fundamental Investors overcame the extremely difficult economic and market conditions that marked the beginning of the period to post a sizable gain. For the 12 months ended December 31, 2009, the fund rose 33.4% for shareholders who reinvested quarterly dividends totaling 48 cents a share.
The fund’s results topped the 26.5% gain of its primary benchmark, the unmanaged Standard & Poor’s 500 Composite Index, a broad measure of U.S. stocks. In addition, the fund’s results surpassed those of its peer group as measured by the Lipper Growth and Income Funds Index, which advanced 29.1%.
Fundamental Investors also registered a larger increase than the MSCI World Index, a measure of stocks in 23 developed nations, which climbed 30.8%. While this is not one of the fund’s key benchmark indexes, because Fundamental Investors is able to invest up to 30% of its assets outside the United States and Canada, we think it provides context on the broader global market environment.
As most fund shareholders invest for long-term objectives, we encourage you to take a long-term perspective on evaluating fund results. As you can see in the table below, Fundamental Investors has posted higher returns than its key benchmarks for all the time periods shown.
[Begin Sidebar]
Results at a glance | ||||||||||||||||
For periods ended December 31, 2009, with all distributions reinvested | ||||||||||||||||
Total returns | Average annual returns | |||||||||||||||
1 year | 5 years | 10 years | Lifetime1 | |||||||||||||
Fundamental Investors | 33.4 | % | 4.0 | % | 3.6 | % | 12.5 | % | ||||||||
(Class A shares) | ||||||||||||||||
Standard & Poor’s | 26.5 | 0.4 | –0.9 | 11.2 | ||||||||||||
500 Composite Index2 | ||||||||||||||||
Lipper Growth and | 29.1 | 0.8 | 1.2 | 10.6 | ||||||||||||
Income Funds Index3 | ||||||||||||||||
MSCI World Index2 | 30.8 | 2.6 | 0.2 | 10.4 | ||||||||||||
1 Since Capital Research and Management Company began managing the fund on August 1, 1978. | ||||||||||||||||
2 The indexes are unmanaged and their results do not reflect the effect of sales charges, commissions or expenses. | ||||||||||||||||
3 The Lipper index does not reflect the effect of sales charges. |
[End Sidebar] |
In this report | |
Special feature | |
6 | A consistent approach amid changing markets |
How research, a value orientation and a long-term perspective help the fund navigate diverse | |
investment climates. | |
Contents | |
1 | Letter to shareholders |
4 | Results of a $10,000 investment in Fundamental Investors |
12 | Summary investment portfolio |
16 | Financial statements |
35 | Board of directors and other officers |
Maintaining the dividend
We were pleased to be able to hold the line on the fund’s dividend amid a very challenging climate in which many historically high yielding areas of the market, included but not limited to financial companies, markedly reduced or eliminated their payouts.
Surging returns follow slow start
The 12 months ended December 31, 2009 began in the throes of a deeply uncertain financial and market environment in which a full-scale global economic collapse seemed a real possibility. Investors faced a rising tide of bad news as trade fell, industrial production and consumer spending flagged, GDP contracted and unemployment rose.
In March however, investors returned to the market, lured by low valuations and an increasing belief that the coordinated global efforts of central bankers and governments had warded off financial calamity. They ignited a run-up that saw the S&P 500 rise a total of more than 30% during the second and third quarters. A combination of low interest rates and slightly improving economic indicators helped sustain the rally through the end of the year.
The U.S. dollar weakened against all major currencies except the Japanese yen. This helped boost returns for most of the fund’s investments in companies headquartered beyond our shores. As of year-end, 23% of fund assets were invested in companies located abroad, a figure virtually unchanged from the end of 2008.
China takes up the slack
Fund results were bolstered by rising stock prices in several areas that have been meaningful contributors in recent years. Specifically, energy, metals and mining, and chemical companies notched very strong returns.
Many of these companies had suffered mightily in 2008, when the global economic slowdown caused significant demand contraction. But in the throes of the downturn, many countries in the developing world, principally China, drew on sizable reserves and initiated projects to stimulate economies. The resulting increase in demand for energy and materials helped offset sagging consumption in the developed world, and stock prices rallied.
Among energy companies, Suncor, the fund’s largest holding, gained 86.4%, while Tenaris (103.3%), Petrobras (94.7%), Diamond Offshore Drilling (67.0%) and Occidental Petroleum (35.6%) also surged.
Mining companies Rio Tinto (146.3%), Xstrata (87.0%) and BHP Billiton (78.2%) were major contributors. The steep run-up in many metals and mining holdings presented an opportunity to trim some positions and realize the profits, which we did.
Among chemical stocks, DuPont gained 33.1%, but the highest returns came from companies more tightly focused on agriculture. These included fertilizer producers Mosaic (72.6%) and Potash (48.2%), and seed manufacturer Syngenta (45.4%).
Widespread portfolio strength
Beyond these areas, broad market strength translated into widespread portfolio strength, as over 80% of the companies held for the full 12 months notched price gains.
The fund’s 10 largest positions, which reflect the diversity of the broader portfolio, all finished in positive territory. In addition to Suncor, Microsoft (56.8%), Cisco Systems (46.9%), Medtronic (40.0%), Oracle (38.4%), JPMorgan Chase (32.2%), Coca-Cola (25.9%) and Merck (20.2%) all turned in sizable increases. Roche (11.1%) recorded a more modest gain while McDonald’s (0.4%) finished with only a slight uptick.
Among larger holdings that detracted from results were Citigroup (–50.7%), Eli Lilly (–11.3%) and General Electric (–6.6%).
[Begin Sidebar]
Fundamental Investors’ total return year by year (ending December 31) | ||||||||||||
Capital return | Income return | Total return | ||||||||||
2000 | 3.1 | % | 1.2 | % | 4.3 | % | ||||||
2001 | –10.9 | 1.3 | –9.6 | |||||||||
2002 | –19.1 | 1.8 | –17.3 | |||||||||
2003 | 30.2 | 1.8 | 32.0 | |||||||||
2004 | 11.9 | 2.0 | 13.9 | |||||||||
2005 | 9.9 | 1.8 | 11.7 | |||||||||
2006 | 17.6 | 1.6 | 19.2 | |||||||||
2007 | 11.2 | 2.4 | 13.6 | |||||||||
2008 | –41.1 | 1.4 | –39.7 | |||||||||
2009 | 31.5 | 1.9 | 33.4 | |||||||||
10-year average annual total return | 3.6 | % | ||||||||||
10-year cumulative total return | 42.5 | |||||||||||
Lifetime cumulative total return (since 8/1/78) | 3,922.3 | |||||||||||
Total return measures both capital results (changes in net asset value) and income return (from dividends). | ||||||||||||
All returns assume reinvestment of all dividends and capital gain distributions. |
[End Sidebar]
Despite strong results, uncertainty
To some degree, the robust results of the past year do not speak to the level of turbulence and uncertainty that remains in the market. Our hope, of course, is for a sustained recovery, and we are keeping a close eye on economic indicators such as consumer spending and capital investment which help us gauge its strength.
We believe the fund’s portfolio is well positioned to benefit should the global economy mount a comeback. Yet we do not build a one-dimensional portfolio designed to thrive only in certain market conditions. Instead, as we discuss in the feature article that begins on page 6, we conduct thorough research in order to identify companies that we believe can do well over extended periods of time amid a variety of market environments.
We thank you for your commitment to long-term investing.
Sincerely,
/s/ James F. Rothenberg
James F. Rothenberg
Vice Chairman
/s/ Dina N. Perry
Dina N. Perry
President
February 8, 2010
Results of a $10,000 investment in Fundamental Investors
How a $10,000 investment has grown
The chart and the table below it illustrate how a $10,000 investment in the fund grew between August 1, 1978 — when Capital Research and Management Company became Fundamental Investors’ investment adviser — and December 31, 2009. The chart also shows how Standard & Poor’s 500 Composite Index and the Lipper Growth and Income Funds Index fared over this same period, and what happened to inflation (as measured by the Consumer Price Index).
Average annual total returns based on a $1,000 investment (for periods ended December 31, 2009)* | ||||||||||||
1 year | 5 years | 10 years | ||||||||||
Class A shares | 25.71 | % | 2.77 | % | 2.99 | % | ||||||
*Assumes reinvestment of all distributions and payment of the maximum 5.75% sales charge. |
The total annual fund operating expense ratio was 0.69% for Class A shares as of December 31, 2009.
Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from September 1, 2004, through December 31, 2008. Fund results shown reflect the waiver, without which they would have been lower. See the Financial Highlights table on pages 26 and 27 for details.
Fund results shown are for Class A shares and reflect deduction of the maximum sales charge of 5.75% on the $10,000 investment.1 Thus, the net amount invested was $9,425.2 Results are for past periods and are not predictive of results for 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.
[begin mountain chart]
Fundamental Investors with dividends reinvested1,3 | Fundamental Investors not including dividends1,6 | S&P 500 with dividends reinvested4 | Lipper Growth and Income Funds Index with dividends reinvested5 | Consumer Price Index (inflation)7 | ||||||||||||||||||||||||||
Initial Investment | 7/31/1978 | $ | 9,425 | $ | 9,425 | $ | 10,000 | $ | 10,000 | $ | 10,000 | |||||||||||||||||||
1978 | 8 | High | 11-Sep-78 | 10,000 | 9,919 | High | 12-Sep-78 | 10,670 | High | 31-Aug-78 | 10,369 | Low | 31-Jul-78 | 10,000 | ||||||||||||||||
Low | 14-Nov-78 | 8,667 | 8,596 | Low | 14-Nov-78 | 9,306 | Low | 31-Oct-78 | 9,237 | High | 29-Dec-78 | 10,304 | ||||||||||||||||||
Close | 29-Dec-78 | 9,155 | 8,947 | Close | 29-Dec-78 | 9,762 | Close | 29-Dec-78 | 9,684 | Close | 29-Dec-78 | 10,304 | ||||||||||||||||||
1979 | Low | 27-Feb-79 | 9,086 | 8,880 | Low | 27-Feb-79 | 9,807 | Low | 28-Feb-79 | 9,822 | Low | 31-Jan-79 | 10,396 | |||||||||||||||||
High | 5-Oct-79 | 10,823 | 10,310 | High | 5-Oct-79 | 11,769 | High | 31-Dec-79 | 11,995 | High | 31-Dec-79 | 11,674 | ||||||||||||||||||
Close | 31-Dec-79 | 10,556 | 9,892 | Close | 31-Dec-79 | 11,579 | Close | 31-Dec-79 | 11,995 | Close | 31-Dec-79 | 11,674 | ||||||||||||||||||
1980 | Low | 21-Apr-80 | 9,625 | 8,907 | Low | 27-Mar-80 | 10,627 | Low | 31-Mar-80 | 11,317 | Low | 31-Jan-80 | 11,842 | |||||||||||||||||
High | 20-Nov-80 | 13,131 | 11,876 | High | 28-Nov-80 | 15,813 | High | 30-Nov-80 | 15,695 | High | 31-Dec-80 | 13,135 | ||||||||||||||||||
Close | 31-Dec-80 | 12,807 | 11,390 | Close | 31-Dec-80 | 15,336 | Close | 31-Dec-80 | 15,386 | Close | 31-Dec-80 | 13,135 | ||||||||||||||||||
1981 | High | 27-Apr-81 | 13,986 | 12,308 | High | 6-Jan-81 | 15,603 | High | 31-May-81 | 15,965 | Low | 31-Jan-81 | 13,242 | |||||||||||||||||
Low | 25-Sep-81 | 11,906 | 10,243 | Low | 25-Sep-81 | 13,172 | Low | 30-Sep-81 | 14,172 | High | 31-Dec-81 | 14,307 | ||||||||||||||||||
Close | 31-Dec-81 | 12,654 | 10,688 | Close | 31-Dec-81 | 14,581 | Close | 31-Dec-81 | 15,172 | Close | 31-Dec-81 | 14,307 | ||||||||||||||||||
1982 | Low | 22-Jan-82 | 10,593 | 8,947 | Low | 12-Aug-82 | 12,625 | Low | 31-Jul-82 | 14,274 | Low | 31-Jan-82 | 14,353 | |||||||||||||||||
High | 7-Dec-82 | 17,346 | 13,833 | High | 9-Nov-82 | 17,877 | High | 31-Dec-82 | 18,839 | High | 31-Oct-82 | 14,947 | ||||||||||||||||||
Close | 31-Dec-82 | 16,957 | 13,522 | Close | 31-Dec-82 | 17,723 | Close | 31-Dec-82 | 18,839 | Close | 31-Dec-82 | 14,855 | ||||||||||||||||||
1983 | Low | 3-Jan-83 | 16,636 | 13,266 | Low | 3-Jan-83 | 17,433 | Low | 31-Jan-83 | 19,378 | Low | 31-Jan-83 | 14,886 | |||||||||||||||||
High | 10-Oct-83 | 21,599 | 16,721 | High | 10-Oct-83 | 22,491 | High | 30-Nov-83 | 23,277 | High | 30-Dec-83 | 15,419 | ||||||||||||||||||
Close | 30-Dec-83 | 21,389 | 16,424 | Close | 30-Dec-83 | 21,721 | Close | 30-Dec-83 | 23,127 | Close | 30-Dec-83 | 15,419 | ||||||||||||||||||
1984 | High | 9-Jan-84 | 22,004 | 16,896 | Low | 24-Jul-84 | 19,933 | Low | 31-May-84 | 21,038 | Low | 31-Jan-84 | 15,510 | |||||||||||||||||
Low | 24-Jul-84 | 18,549 | 13,980 | High | 6-Nov-84 | 23,337 | High | 31-Dec-84 | 24,119 | High | 31-Oct-84 | 16,027 | ||||||||||||||||||
Close | 31-Dec-84 | 22,621 | 16,759 | Close | 31-Dec-84 | 23,083 | Close | 31-Dec-84 | 24,119 | Close | 31-Dec-84 | 16,027 | ||||||||||||||||||
1985 | Low | 1-May-85 | 22,882 | 16,819 | Low | 4-Jan-85 | 22,592 | Low | 31-Jan-85 | 25,851 | Low | 31-Jan-85 | 16,058 | |||||||||||||||||
High | 16-Dec-85 | 29,736 | 21,355 | High | 16-Dec-85 | 30,417 | High | 31-Dec-85 | 31,006 | High | 31-Dec-85 | 16,636 | ||||||||||||||||||
Close | 31-Dec-85 | 29,448 | 21,148 | Close | 31-Dec-85 | 30,407 | Close | 31-Dec-85 | 31,006 | Close | 31-Dec-85 | 16,636 | ||||||||||||||||||
1986 | Low | 14-Feb-86 | 31,766 | 22,665 | Low | 22-Jan-86 | 29,286 | Low | 31-Jan-86 | 31,537 | Low | 30-Apr-86 | 16,530 | |||||||||||||||||
High | 4-Sep-86 | 36,571 | 25,757 | High | 2-Dec-86 | 37,737 | High | 31-Aug-86 | 37,352 | High | 31-Dec-86 | 16,819 | ||||||||||||||||||
Close | 31-Dec-86 | 35,941 | 25,151 | Close | 31-Dec-86 | 36,082 | Close | 31-Dec-86 | 36,472 | Close | 31-Dec-86 | 16,819 | ||||||||||||||||||
1987 | High | 25-Aug-87 | 50,132 | 34,478 | High | 25-Aug-87 | 51,060 | High | 31-Aug-87 | 47,533 | Low | 31-Jan-87 | 16,925 | |||||||||||||||||
Low | 4-Dec-87 | 33,691 | 23,002 | Low | 4-Dec-87 | 34,314 | Low | 30-Nov-87 | 35,112 | High | 30-Nov-87 | 17,565 | ||||||||||||||||||
Close | 31-Dec-87 | 37,295 | 25,463 | Close | 31-Dec-87 | 37,977 | Close | 31-Dec-87 | 37,434 | Close | 31-Dec-87 | 17,565 | ||||||||||||||||||
1988 | Low | 20-Jan-88 | 36,464 | 24,895 | Low | 20-Jan-88 | 37,293 | Low | 31-Jan-88 | 39,236 | Low | 31-Jan-88 | 17,610 | |||||||||||||||||
High | 5-Jul-88 | 43,076 | 28,988 | High | 21-Oct-88 | 44,800 | High | 30-Dec-88 | 44,304 | High | 30-Dec-88 | 18,341 | ||||||||||||||||||
Close | 30-Dec-88 | 43,246 | 28,561 | Close | 30-Dec-88 | 44,267 | Close | 30-Dec-88 | 44,304 | Close | 30-Dec-88 | 18,341 | ||||||||||||||||||
1989 | Low | 3-Jan-89 | 43,068 | 28,443 | Low | 3-Jan-89 | 43,883 | Low | 28-Feb-89 | 46,392 | Low | 31-Jan-89 | 18,432 | |||||||||||||||||
High | 9-Oct-89 | 58,786 | 38,138 | High | 9-Oct-89 | 58,837 | High | 31-Aug-89 | 55,358 | High | 29-Dec-89 | 19,193 | ||||||||||||||||||
Close | 29-Dec-89 | 55,597 | 35,438 | Close | 29-Dec-89 | 58,269 | Close | 29-Dec-89 | 54,819 | Close | 29-Dec-89 | 19,193 | ||||||||||||||||||
1990 | High | 4-Jun-90 | 60,265 | 37,947 | High | 16-Jul-90 | 61,897 | High | 31-May-90 | 55,785 | Low | 31-Jan-90 | 19,391 | |||||||||||||||||
Low | 11-Oct-90 | 46,988 | 29,390 | Low | 11-Oct-90 | 50,026 | Low | 31-Oct-90 | 47,212 | High | 30-Nov-90 | 20,365 | ||||||||||||||||||
Close | 31-Dec-90 | 52,130 | 32,180 | Close | 31-Dec-90 | 56,457 | Close | 31-Dec-90 | 51,534 | Close | 31-Dec-90 | 20,365 | ||||||||||||||||||
1991 | Low | 9-Jan-91 | 50,201 | 30,989 | Low | 9-Jan-91 | 53,255 | Low | 31-Jan-91 | 54,196 | Low | 31-Jan-91 | 20,487 | |||||||||||||||||
High | 31-Dec-91 | 67,947 | 40,940 | High | 31-Dec-91 | 73,620 | High | 31-Dec-91 | 65,836 | High | 31-Dec-91 | 20,989 | ||||||||||||||||||
Close | 31-Dec-91 | 67,947 | 40,940 | Close | 31-Dec-91 | 73,620 | Close | 31-Dec-91 | 65,836 | Close | 31-Dec-91 | 20,989 | ||||||||||||||||||
1992 | Low | 8-Apr-92 | 66,472 | 39,828 | Low | 8-Apr-92 | 70,130 | Low | 31-Jan-92 | 65,763 | Low | 31-Jan-92 | 21,020 | |||||||||||||||||
High | 12-Nov-92 | 72,487 | 42,938 | High | 18-Dec-92 | 80,063 | High | 31-Dec-92 | 72,177 | High | 30-Nov-92 | 21,613 | ||||||||||||||||||
Close | 31-Dec-92 | 74,871 | 44,059 | Close | 31-Dec-92 | 79,222 | Close | 31-Dec-92 | 72,177 | Close | 31-Dec-92 | 21,598 | ||||||||||||||||||
1993 | Low | 8-Jan-93 | 74,615 | 43,908 | Low | 8-Jan-93 | 78,011 | Low | 31-Jan-93 | 73,298 | Low | 31-Jan-93 | 21,705 | |||||||||||||||||
High | 2-Nov-93 | 88,379 | 51,169 | High | 28-Dec-93 | 87,854 | High | 31-Dec-93 | 82,730 | High | 30-Nov-93 | 22,192 | ||||||||||||||||||
Close | 31-Dec-93 | 88,466 | 50,884 | Close | 31-Dec-93 | 87,189 | Close | 31-Dec-93 | 82,730 | Close | 31-Dec-93 | 22,192 | ||||||||||||||||||
1994 | High | 2-Feb-94 | 91,634 | 52,706 | High | 2-Feb-94 | 90,223 | Low | 20-Apr-94 | 79,545 | Low | 31-Jan-94 | 22,253 | |||||||||||||||||
Low | 8-Dec-94 | 86,773 | 48,708 | Low | 4-Apr-94 | 82,600 | High | 31-Aug-94 | 85,813 | High | 30-Nov-94 | 22,785 | ||||||||||||||||||
Close | 30-Dec-94 | 89,641 | 50,319 | Close | 30-Dec-94 | 88,336 | Close | 30-Dec-94 | 82,387 | Close | 30-Dec-94 | 22,785 | ||||||||||||||||||
1995 | Low | 3-Jan-95 | 89,539 | 50,261 | Low | 3-Jan-95 | 88,305 | Low | 3-Jan-95 | 82,387 | Low | 31-Jan-95 | 22,877 | |||||||||||||||||
High | 29-Nov-95 | 119,498 | 66,056 | High | 13-Dec-95 | 122,408 | High | 6-Dec-95 | 108,087 | High | 31-Oct-95 | 23,394 | ||||||||||||||||||
Close | 29-Dec-95 | 120,306 | 66,210 | Close | 29-Dec-95 | 121,491 | Close | 29-Dec-95 | 108,042 | Close | 29-Dec-95 | 23,364 | ||||||||||||||||||
1996 | Low | 10-Jan-96 | 117,715 | 64,784 | Low | 10-Jan-96 | 118,049 | Low | 10-Jan-96 | 105,553 | Low | 31-Jan-96 | 23,501 | |||||||||||||||||
High | 26-Nov-96 | 145,602 | 79,119 | High | 25-Nov-96 | 152,084 | High | 27-Dec-96 | 131,831 | High | 30-Nov-96 | 24,140 | ||||||||||||||||||
Close | 31-Dec-96 | 144,352 | 78,143 | Close | 31-Dec-96 | 149,367 | Close | 31-Dec-96 | 130,379 | Close | 31-Dec-96 | 24,140 | ||||||||||||||||||
1997 | Low | 11-Apr-97 | 144,443 | 77,891 | Low | 2-Jan-97 | 148,615 | Low | 2-Jan-97 | 129,511 | Low | 31-Jan-97 | 24,216 | |||||||||||||||||
High | 7-Oct-97 | 189,427 | 101,423 | High | 5-Dec-97 | 201,641 | High | 8-Oct-97 | 167,437 | High | 31-Oct-97 | 24,597 | ||||||||||||||||||
Close | 31-Dec-97 | 182,855 | 97,513 | Close | 31-Dec-97 | 199,183 | Close | 31-Dec-97 | 165,420 | Close | 31-Dec-97 | 24,551 | ||||||||||||||||||
1998 | High | 17-Jul-98 | 212,584 | 112,606 | Low | 9-Jan-98 | 190,410 | High | 17-Jul-98 | 190,194 | Low | 31-Jan-98 | 24,597 | |||||||||||||||||
Low | 8-Oct-98 | 173,534 | 91,600 | High | 29-Dec-98 | 258,425 | Low | 8-Oct-98 | 152,689 | High | 31-Oct-98 | 24,962 | ||||||||||||||||||
Close | 31-Dec-98 | 213,421 | 112,292 | Close | 31-Dec-98 | 256,100 | Close | 31-Dec-98 | 187,884 | Close | 31-Dec-98 | 24,947 | ||||||||||||||||||
1999 | Low | 14-Jan-99 | 211,060 | 111,050 | Low | 14-Jan-99 | 252,550 | Low | 17-Feb-99 | 183,318 | Low | 31-Jan-99 | 25,008 | |||||||||||||||||
High | 10-Dec-99 | 258,554 | 134,742 | High | 31-Dec-99 | 309,980 | High | 16-Jul-99 | 214,455 | High | 30-Nov-99 | 25,616 | ||||||||||||||||||
Close | 31-Dec-99 | 265,882 | 138,151 | Close | 31-Dec-99 | 309,980 | Close | 31-Dec-99 | 210,168 | Close | 31-Dec-99 | 25,616 | ||||||||||||||||||
2000 | High | 1-Sep-00 | 293,957 | 151,363 | High | 24-Mar-00 | 322,882 | Low | 25-Feb-00 | 191,317 | Low | 31-Jan-00 | 25,693 | |||||||||||||||||
Low | 21-Dec-00 | 266,380 | 136,743 | Low | 20-Dec-00 | 269,684 | High | 1-Sep-00 | 221,351 | High | 30-Nov-00 | 26,499 | ||||||||||||||||||
Close | 29-Dec-00 | 277,235 | 142,315 | Close | 29-Dec-00 | 281,766 | Close | 29-Dec-00 | 210,997 | Close | 29-Dec-00 | 26,484 | ||||||||||||||||||
2001 | High | 1-Feb-01 | 287,822 | 147,750 | High | 30-Jan-01 | 293,173 | High | 21-May-01 | 216,930 | Low | 31-Jan-01 | 26,651 | |||||||||||||||||
Low | 21-Sep-01 | 211,970 | 107,718 | Low | 21-Sep-01 | 207,919 | Low | 21-Sep-01 | 166,373 | High | 30-Sep-01 | 27,139 | ||||||||||||||||||
Close | 31-Dec-01 | 250,761 | 126,959 | Close | 31-Dec-01 | 248,303 | Close | 31-Dec-01 | 195,336 | Close | 31-Dec-01 | 26,895 | ||||||||||||||||||
2002 | High | 19-Mar-02 | 260,698 | 131,491 | High | 4-Jan-02 | 253,587 | High | 19-Mar-02 | 201,690 | Low | 31-Jan-02 | 26,956 | |||||||||||||||||
Low | 9-Oct-02 | 182,355 | 91,253 | Low | 9-Oct-02 | 169,983 | Low | 9-Oct-02 | 140,313 | High | 31-Oct-02 | 27,595 | ||||||||||||||||||
Close | 31-Dec-02 | 207,271 | 102,816 | Close | 31-Dec-02 | 193,447 | Close | 31-Dec-02 | 160,381 | Close | 31-Dec-02 | 27,534 | ||||||||||||||||||
2003 | Low | 12-Mar-03 | 186,058 | 91,854 | Low | 11-Mar-03 | 176,642 | Low | 11-Mar-03 | 145,989 | Low | 31-Jan-03 | 27,656 | |||||||||||||||||
High | 31-Dec-03 | 273,523 | 133,434 | High | 31-Dec-03 | 248,903 | High | 31-Dec-03 | 204,175 | High | 30-Sep-03 | 28,189 | ||||||||||||||||||
Close | 31-Dec-03 | 273,523 | 133,434 | Close | 31-Dec-03 | 248,903 | Close | 31-Dec-03 | 204,175 | Close | 31-Dec-03 | 28,052 | ||||||||||||||||||
2004 | Low | 17-May-04 | 264,555 | 128,624 | Low | 12-Aug-04 | 240,252 | Low | 12-Aug-04 | 199,152 | Low | 31-Jan-04 | 28,189 | |||||||||||||||||
High | 30-Dec-04 | 311,756 | 149,252 | High | 30-Dec-04 | 275,924 | High | 30-Dec-04 | 228,446 | High | 30-Nov-04 | 29,072 | ||||||||||||||||||
Close | 31-Dec-04 | 311,563 | 149,159 | Close | 31-Dec-04 | 275,970 | Close | 31-Dec-04 | 228,113 | Close | 31-Dec-04 | 28,965 | ||||||||||||||||||
2005 | Low | 28-Apr-05 | 297,315 | 141,898 | Low | 20-Apr-05 | 260,187 | Low | 20-Apr-05 | 218,372 | Low | 31-Jan-05 | 29,026 | |||||||||||||||||
High | 14-Dec-05 | 352,458 | 167,197 | High | 14-Dec-05 | 294,796 | High | 14-Dec-05 | 246,907 | High | 31-Oct-05 | 30,320 | ||||||||||||||||||
Close | 30-Dec-05 | 347,960 | 163,728 | Close | 30-Dec-05 | 289,511 | Close | 30-Dec-05 | 243,681 | Close | 30-Dec-05 | 29,954 | ||||||||||||||||||
2006 | Low | 13-Jun-06 | 354,244 | 165,717 | Low | 13-Jun-06 | 286,100 | Low | 13-Jun-06 | 242,646 | Low | 31-Jan-06 | 30,183 | |||||||||||||||||
High | 14-Dec-06 | 416,828 | 194,392 | High | 15-Dec-06 | 336,807 | High | 15-Dec-06 | 283,196 | High | 31-Aug-06 | 31,035 | ||||||||||||||||||
Close | 29-Dec-06 | 414,904 | 192,480 | Close | 29-Dec-06 | 335,199 | Close | 29-Dec-06 | 281,615 | Close | 29-Dec-06 | 30,715 | ||||||||||||||||||
2007 | Low | 5-Mar-07 | 406,016 | 187,812 | Low | 5-Mar-07 | 325,873 | Low | 5-Mar-07 | 275,075 | Low | 31-Jan-07 | 30,809 | |||||||||||||||||
High | 31-Oct-07 | 490,222 | 225,499 | High | 9-Oct-07 | 374,990 | High | 13-Jul-07 | 312,492 | High | 30-Nov-07 | 31,990 | ||||||||||||||||||
Close | 31-Dec-07 | 471,134 | 213,905 | Close | 31-Dec-07 | 353,601 | Close | 31-Dec-07 | 293,656 | Close | 31-Dec-07 | 31,969 | ||||||||||||||||||
2008 | Low | 20-Nov-08 | 236,224 | 106,274 | Low | 20-Nov-08 | 184,490 | Low | 20-Nov-08 | 151,582 | Low | 31-Dec-08 | 31,998 | |||||||||||||||||
High | 19-May-08 | 477,753 | 216,251 | High | 2-Jan-08 | 348,496 | High | 3-Jan-08 | 289,857 | High | 31-Jul-08 | 33,480 | ||||||||||||||||||
Close | 31-Dec-08 | 284,112 | 126,717 | Close | 31-Dec-08 | 222,801 | Close | 31-Dec-08 | 183,429 | Close | 31-Dec-08 | 31,998 | ||||||||||||||||||
2009 | Low | 9-Mar-09 | 228,825 | 101,506 | Low | 9-Mar-09 | 167,859 | Low | 9-Mar-09 | 139,956 | Low | 31-Jan-09 | 32,137 | |||||||||||||||||
High | 28-Dec-09 | 382,823 | 167,756 | High | 28-Dec-09 | 284,556 | High | 28-Dec-09 | 238,932 | High | 30-Nov-09 | 32,927 | ||||||||||||||||||
Close | 31-Dec-09 | 378,888 | 166,031 | Close | 31-Dec-09 | 281,781 | Close | 31-Dec-09 | 236,804 | Close | 31-Dec-09 | 32,869 |
[end mountain chart]
Year ended | ||||||||||||||||||||||||||||||||
December 31 | 1978 | 8 | 1979 | 1980 | 1981 | 1982 | 1983 | 1984 | 1985 | |||||||||||||||||||||||
Capital value | ||||||||||||||||||||||||||||||||
Dividends in cash | $ | 216 | 405 | 553 | 580 | 634 | 594 | 556 | 582 | |||||||||||||||||||||||
Value at year-end1 | $ | 8,947 | 9,892 | 11,390 | 10,688 | 13,522 | 16,424 | 16,759 | 21,148 | |||||||||||||||||||||||
Total value | ||||||||||||||||||||||||||||||||
Dividends reinvested | $ | 217 | 421 | 603 | 665 | 768 | 755 | 734 | 795 | |||||||||||||||||||||||
Value at year-end1 | $ | 9,155 | 10,556 | 12,807 | 12,654 | 16,957 | 21,389 | 22,621 | 29,448 | |||||||||||||||||||||||
Total return | (8.4 | )% | 15.3 | 21.3 | (1.2 | ) | 34.0 | 26.1 | 5.8 | 30.2 | ||||||||||||||||||||||
Year ended | ||||||||||||||||||||||||||||||||
December 31 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | ||||||||||||||||||||||||
Capital value | ||||||||||||||||||||||||||||||||
Dividends in cash | 636 | 717 | 895 | 1,225 | 1,058 | 904 | 988 | 1,084 | ||||||||||||||||||||||||
Value at year-end1 | 25,151 | 25,463 | 28,561 | 35,438 | 32,180 | 40,940 | 44,059 | 50,884 | ||||||||||||||||||||||||
Total value | ||||||||||||||||||||||||||||||||
Dividends reinvested | 894 | 1,034 | 1,328 | 1,877 | 1,679 | 1,478 | 1,655 | 1,858 | ||||||||||||||||||||||||
Value at year-end1 | 35,941 | 37,295 | 43,246 | 55,597 | 52,130 | 67,947 | 74,871 | 88,466 | ||||||||||||||||||||||||
Total return | 22.0 | 3.8 | 16.0 | 28.6 | (6.2 | ) | 30.3 | 10.2 | 18.2 | |||||||||||||||||||||||
Year ended | ||||||||||||||||||||||||||||||||
December 31 | 1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | ||||||||||||||||||||||||
Capital value | ||||||||||||||||||||||||||||||||
Dividends in cash | 1,238 | 1,160 | 1,196 | 1,351 | 1,428 | 1,578 | 1,716 | 1,844 | ||||||||||||||||||||||||
Value at year-end1 | 50,319 | 66,210 | 78,143 | 97,513 | 112,292 | 138,151 | 142,315 | 126,959 | ||||||||||||||||||||||||
Total value | ||||||||||||||||||||||||||||||||
Dividends reinvested | 2,171 | 2,082 | 2,187 | 2,511 | 2,691 | 3,013 | 3,319 | 3,611 | ||||||||||||||||||||||||
Value at year-end1 | 89,641 | 120,306 | 144,352 | 182,855 | 213,421 | 265,882 | 277,235 | 250,761 | ||||||||||||||||||||||||
Total return | 1.3 | 34.2 | 20.0 | 26.7 | 16.7 | 24.6 | 4.3 | (9.6 | ) | |||||||||||||||||||||||
Year ended | ||||||||||||||||||||||||||||||||
December 31 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | ||||||||||||||||||||||||
Capital value | ||||||||||||||||||||||||||||||||
Dividends in cash | 2,289 | 1,850 | 2,590 | 2,729 | 2,590 | 4,572 | 2,938 | 2,435 | ||||||||||||||||||||||||
Value at year-end1 | 102,816 | 133,434 | 149,159 | 163,728 | 192,480 | 213,905 | 126,717 | 166,031 | 6 | |||||||||||||||||||||||
Total value | ||||||||||||||||||||||||||||||||
Dividends reinvested | 4,553 | 3,755 | 5,345 | 5,735 | 5,534 | 9,917 | 6,506 | 5,500 | ||||||||||||||||||||||||
Value at year-end1 | 207,271 | 273,523 | 311,563 | 347,960 | 414,904 | 471,134 | 284,112 | 378,888 | 3 | |||||||||||||||||||||||
Total return | (17.3 | ) | 32.0 | 13.9 | 11.7 | 19.2 | 13.6 | (39.7 | ) | 33.4 |
Average annual total return 12.3%1
¹As outlined in the prospectus, the sales charge is reduced for accounts of $25,000 or more and is eliminated for purchases of $1 million of more. There is no sales charge on dividends or capital gain distributions that are reinvested in additional shares. |
²The maximum initial sales charge was 8.50% prior to July 1, 1988. |
³Includes reinvested dividends of $85,192 and reinvested capital gain distributions of $170,881. |
4Standard & Poor’s 500 Composite Index is unmanaged, and includes reinvested distributions but does not reflect the effect of sales charges, commissions or expenses. |
5Results of the Lipper Growth and Income Funds Index reflect fund expenses but do not reflect any applicable front-end sales charges. If any applicable front-end sales charges were included, results of the index would be lower. |
6Includes reinvested capital gain distributions of $91,556 but does not reflect dividends of $45,132 taken in cash. |
7Computed from data supplied by the U.S. Department of Labor, Bureau of Labor Statistics. |
8For the period August 1, 1978 (when Capital Research and Management Company became investment adviser), through December 31, 1978. |
The results shown are before taxes on fund distributions and sale of fund shares.
[photo of a stream - a forest in the background]
A consistent approach amid changing markets
In 2008, the S&P 500 Composite Index, a key barometer of U.S. stocks, was down 37%. In 2009, it leapt 26%. While the contrast is stark, it doesn’t fully speak to the highly volatile conditions that characterized the two-year stretch. Precipitous market drops were followed by a swift run-up; economic indicators swung wildly, valuations were elusive and uncertainty always seemed close at hand.
These conditions were extreme, but for the men and women who manage your fund, investing amid dynamic market environments is the norm. And given the fund’s growth and income objectives, it’s also a key challenge — one that necessitates charting a prudent course when stocks are skyrocketing and balancing caution with opportunism when markets are in retreat.
Such shifting conditions might seem to call for an ever-changing mix of strategies and tactics, but we have always believed that navigating varied market and economic environments actually requires a consistent approach. In the following pages, we take a closer look at some of the key principles we apply as we seek to meet Fundamental Investors’ objectives and the long-term investing goals of its shareholders.
Relying on research
“We faced extremely challenging economic and market conditions these last two years. But amid the volatility of 2008 and early 2009, as well as during the recent recovery, we have stayed true to our process and approach,” emphasizes Dina Perry, Fundamental Investors’ president and one of its portfolio counselors. “At the center of that process in any environment is fundamental research aimed at identifying companies we believe will reward investors over time.”
“If you were to look at how I allocated my time during the downturn of 2008 and early 2009, it wouldn’t have looked much different from how I have spent it during more bullish periods,” explains portfolio counselor Brady Enright. “I continued to make sure I was meeting with companies and working to understand them better. During that period I was particularly interested in whether a company’s management was strengthening its business or taking measures that might jeopardize its long-term value. In steadier markets, my research would be emphasizing other things. But research is the common denominator in all conditions.”
“We benefit from a vast global research organization,” says portfolio counselor Mike Kerr. “We have people on the ground all over the world. They are visiting companies, meeting with senior managers and gathering data. This is shared daily through the investment notes, conference calls and one-on-one conversations that are the lifeblood of our investment process.”
This kind of timely firsthand information proved highly important during the latest downturn, when many of the traditional methods used to value companies became elusive and unreliable.
“During relatively stable periods, investors have metrics like price-to-earnings ratios that help in evaluating both existing and potential investments,” explains Brady. “But when markets are in free-fall and the economy contracts very quickly, revenues and profits can evaporate, which makes it difficult to have faith in those metrics. An in-depth understanding of companies and, in many cases, longstanding relationships with their senior managers, helps us tune out the short-term market noise and allows us to make judgments on the real value of the investments we’ve made and those we’re considering.”
Providing the insight needed to act
Market downturns are perilous, but they also present opportunity for well-prepared investors.
“During difficult periods, it’s particularly beneficial to have done your homework up front so that you can take advantage of market dips,” explains media analyst Mark Casey. “And because of our significant research resources, we’re able to maintain detailed coverage on lots of companies and can act quickly when opportunities arise. This is important as, generally speaking, attractive companies aren’t undervalued for long periods of time.”
Software and computer hardware analyst Paul Benjamin continues, “In downturns, we may be transacting more frequently, but it’s not panic selling. Rather, it’s opportunistic selling: We’ll trim holdings in companies we like in order to invest in companies we love that may have come into attractive valuation ranges. We view it as an opportunity to upgrade the portfolio.”
[photo of water flowing over moss-covered rocks]
Staying focused on value
Research also plays a key role during rising market environments. “During the dot-com bubble, our research led us to conclude that certain areas of the market such as technology, media and telecom were significantly overvalued,” notes Dina. “Rather than getting caught up in that frenzy and investing in companies with very high valuations but little-to-no earnings, we focused on the merits of the underlying companies. Sticking to our value criteria meant we steered clear of many of the firms that suffered worst when the bubble burst.”
“In any environment, we continually ask ourselves, ‘Based on our research, is the stock price attractive given my level of conviction in the company?’” says energy analyst Frank Hu. “The reality is that even great companies are not always great investments. If we believe they are fully valued, their investment upside may be limited. So whether we’re choosing to make an initial investment or hold our ground, the price has to be right.”
“Importantly, being able to ground our decisions in research helps take some of the emotion out of the process. That’s critical because it’s easy, for example, to get attached to an investment that has done very well,” admits Mark. “Regularly revisiting the premise that sparked our investment helps us to determine whether we think a given holding remains attractive or if it might be time to trim or sell the position to invest in a higher conviction idea.”
A long-term approach
Of course the benefits of research can be mitigated during a broad market collapse like the one we recently experienced, when solid companies suffered alongside more troubled ones. But the fund’s long-term orientation helps investment professionals stay focused on the big picture.
“We believe buying and holding solid companies is the best formula for delivering on the fund’s growth and income objectives,” says Mark. “That’s why we seek out those firms we believe can weather some of the economic and market challenges that invariably arise.”
[Begin Sidebar]
An in-depth understanding of companies and, in many cases, longstanding relationships with their senior managers helps investment professionals tune out the short-term market noise and allows them to make judgments on the real value of the investments they’ve made and those they’re considering.
[End Sidebar]
Indeed, portfolio counselors and analysts describe a kind of symbiosis between the fund’s emphasis on research and its long-term orientation.
“When you know you’re expected to take a longer term view and, importantly, you are evaluated based on your results over the longer term, it reinforces your commitment to getting to know a company inside and out,” says Mike. “And if you’ve selected companies that present real value, chances are you’re going to hold them longer.”
“In addition, a long-term approach lessens the need to time the market, which is extremely difficult to do,” notes Brady. “Take this past year as an example. If I only planned on holding an investment for a short time, whether I invested last January versus whether I invested last March would have made a huge difference. But that difference is less pronounced if I intend to remain invested for three or four years.”
Nonetheless, the fund’s portfolio counselors recognize that a three-to-four-year time horizon means fund holdings will likely be exposed to the different phases of an economic cycle — the multi-year expansion-recession-recovery pattern that economies typically follow. Historically, certain types of companies do better during different phases of the cycle. For example, oil and gas companies would be expected to do well during the recovery and expansion phases when energy use is robust. Conversely, consumer staples companies, which sell products people need regardless of economic conditions, might hold up well during the recession phase.
[Begin Sidebar]
The best teacher | ||||||||
Fundamental Investors’ five portfolio counselors average over 31 years of investment experience. As they pursue the fund’s growth-and-income objectives and seek to manage the risks inherent in investing, they draw on insights gained over a wide variety of market conditions. | ||||||||
Portfolio counselor | Years of investment experience | Years with American Funds | ||||||
Jim Drasdo | 38 | 33 | ||||||
Brady Enright | 18 | 13 | ||||||
Mike Kerr | 27 | 25 | ||||||
Ron Morrow | 42 | 13 | ||||||
Dina Perry | 32 | 18 |
[End Sidebar]
“We know that certain types of companies generally do better at different points in the cycle, and this influences when we invest in them as well as when we choose to sell them,” says Dina. “That being said, both market and economic cycles can be unpredictable so we try to seek out companies we believe can weather a variety of market conditions to produce a strong total return.”
A firm like Suncor Energy, for many years one of the fund’s largest holdings, helps illustrate the fund’s investment process. “As the economy fell into recession in 2008, energy stocks including Suncor declined sharply as the global economy contracted and oil prices plunged,” explains Frank. “Rather than selling when prices were low, we looked to our research which suggested that, in light of the long-term global supply and demand trends for oil, the market was pricing the company’s stock far below its value. As a result, we maintained our investment in Suncor.”
“During volatile periods, it’s hard not to think short term. But the culture of our investment organization continually reinforces the need to look out several years and see the big picture,” continues Frank. “During the past couple of years it’s a principle that was continually emphasized by my more experienced colleagues. It kept me focused on the next four years rather than the next four months.”
Flexible when necessary
“It’s important to note that we don’t hold for the long-term simply on principle. Rather, an investment professional will remain invested only if he or she believes that a given holding still provides opportunity to help meet the fund’s objectives,” explains Brady.
For example, sometimes an investment rises very quickly and reaches a price range that it had been expected to achieve only over a longer period of time. In those cases, investment professionals are often content to trim or sell the holding. The same holds true on the downside — sometimes portfolio counselors and analysts obtain new information that undermines their belief in the long-term value of an investment, and they sell before they had expected to.
Income: A consistent objective
As a growth-and-income fund, Fundamental Investors is committed to providing shareholders with regular quarterly income. To do so, the fund invests mostly in dividend-paying companies and does so whether or not dividends happen to be in fashion.
“The ability to pay a dividend may be a sign that a company has real earnings and also can serve as an indicator of its health and strength,” explains portfolio counselor Ron Morrow. “Moreover, an ongoing commitment to pay dividends can help ensure that company managers remain good stewards of cash.”
A portfolio filled with these types of companies not only offers the potential for added stability, it provides real return regardless of market conditions. This has historically made a significant contribution to an investor’s total return.
Interestingly, the fund’s unwavering focus on income played a significant role in helping it largely steer clear of the high-flying stocks that characterized the dot-com bubble, as most of those companies paid no dividends.
“Emphasizing dividends has been a key part of our approach to investing in all market conditions,” notes Dina. “Together with our long-term perspective, value orientation and focus on research, it has been instrumental in helping many Fundamental Investors’ shareholders reach their investing objectives.” n
[photo of moss-covered rocks in a stream]
Measuring results over meaningful periods of time
Funds with a history of weathering diverse economic and market conditions can help investors reach their long-term goals. Looking at results for 10-year periods, which generally encompass a variety of investment environments, is one way to evaluate a fund’s historical ability to meet those needs.
The table to the right shows annualized results for 22 different 10-year periods. As you can see, Fundamental Investors outpaced the unmanaged Standard & Poor’s 500 Composite Index in 17 of the 22 time frames shown. And in every period, the fund outpaced the Lipper Growth and Income Funds Index, a measure of its category peers.
It’s also interesting to note that, unlike the benchmarks, the fund delivered a positive average annual return during every period shown.
Fund results shown are for Class A shares at net asset value with all distributions reinvested. If a sales charge had been deducted, the results would have been lower. Results are for past periods and are not predictive of results for 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 | ||||||||||||
10-year periods ended December 31 | ||||||||||||
Fundamental Investors | S&P 500 | Lipper Growth and Income Funds Index | ||||||||||
1988 | 16.8 | % | 16.3 | % | 16.4 | % | ||||||
1989 | 18.1 | 17.5 | 16.4 | |||||||||
1990 | 15.1 | 13.9 | 12.8 | |||||||||
1991 | 18.3 | 17.6 | 15.8 | |||||||||
1992 | 16.0 | 16.2 | 14.4 | |||||||||
1993 | 15.3 | 14.9 | 13.6 | |||||||||
1994 | 14.8 | 14.4 | 13.1 | |||||||||
1995 | 15.1 | 14.9 | 13.3 | |||||||||
1996 | 14.9 | 15.3 | 13.6 | |||||||||
1997 | 17.2 | 18.0 | 16.0 | |||||||||
1998 | 17.3 | 19.2 | 15.5 | |||||||||
1999 | 16.9 | 18.2 | 14.4 | |||||||||
2000 | 18.2 | 17.4 | 15.1 | |||||||||
2001 | 13.9 | 12.9 | 11.5 | |||||||||
2002 | 10.7 | 9.3 | 8.3 | |||||||||
2003 | 11.9 | 11.1 | 9.5 | |||||||||
2004 | 13.3 | 12.1 | 10.7 | |||||||||
2005 | 11.2 | 9.1 | 8.5 | |||||||||
2006 | 11.1 | 8.4 | 8.0 | |||||||||
2007 | 9.9 | 5.9 | 5.9 | |||||||||
2008 | 2.9 | –1.4 | –0.2 | |||||||||
2009 | 3.6 | –0.9 | 1.2 |
[Begin Sidebar]
During volatile periods, it’s hard not to think short term. But the culture of the fund’s investment organization continually reinforces the need to look out several years and see the bigger picture.
[End Sidebar]
Summary investment portfolio, December 31, 2009
The following summary investment portfolio is designed to streamline the report and help investors better focus on a fund’s principal holdings. See the inside back cover for details on how to obtain a complete schedule of portfolio holdings.
[begin pie chart]
Industry sector diversification | (percent of net assets) | |||
Information technology | 16.99 | % | ||
Energy | 12.65 | |||
Health Care | 12.13 | |||
Industrials | 10.99 | |||
Financials | 9.57 | |||
Other industries | 32.99 | |||
Convertible securities | 0.03 | |||
Bonds & notes | 0.01 | |||
Short-term securities & other assets less liabilities | 4.64 |
[end pie chart]
Country diversification (percent of net assets) | ||||
United States | 72.3 | % | ||
Euro zone * | 8.0 | |||
Canada | 4.9 | |||
United Kingdom | 3.1 | |||
Switzerland | 3.1 | |||
Other countries | 3.9 | |||
Bonds, short-term securities & other assets less liabilities | 4.7 | |||
*Countries using the euro as a common currency; those represented in the fund's portfolio are France, Germany, Ireland, Italy, the Netherlands and Spain |
Percent | ||||||||||||
Value | of net | |||||||||||
Common stocks - 95.32% | Shares | (000 | ) | assets | ||||||||
�� | ||||||||||||
Information technology - 16.99% | ||||||||||||
Microsoft Corp. | 38,795,000 | $ | 1,182,860 | 2.62 | % | |||||||
Oracle Corp. | 40,523,879 | 994,456 | 2.20 | |||||||||
Cisco Systems, Inc. (1) | 25,643,500 | 613,905 | 1.36 | |||||||||
Google Inc., Class A (1) | 920,000 | 570,382 | 1.27 | |||||||||
Yahoo! Inc. (1) | 30,660,000 | 514,475 | 1.14 | |||||||||
Apple Inc. (1) | 2,420,000 | 510,281 | 1.13 | |||||||||
Corning Inc. | 24,270,000 | 468,654 | 1.04 | |||||||||
Intuit Inc. (1) | 10,875,000 | 333,971 | .74 | |||||||||
SAP AG (ADR) | 6,500,000 | 304,265 | .68 | |||||||||
Other securities | 2,170,111 | 4.81 | ||||||||||
7,663,360 | 16.99 | |||||||||||
Energy - 12.65% | ||||||||||||
Suncor Energy Inc. | 40,433,040 | 1,437,387 | 3.18 | |||||||||
Occidental Petroleum Corp. | 6,204,244 | 504,715 | 1.12 | |||||||||
CONSOL Energy Inc. (2) | 6,700,000 | 333,660 | .74 | |||||||||
ConocoPhillips | 5,470,000 | 279,353 | .62 | |||||||||
TOTAL SA (3) | 4,210,000 | 269,586 | .60 | |||||||||
Tenaris SA (ADR) | 6,200,000 | 264,430 | .59 | |||||||||
FMC Technologies, Inc. (1) | 4,500,000 | 260,280 | .58 | |||||||||
Other securities | 2,357,846 | 5.22 | ||||||||||
5,707,257 | 12.65 | |||||||||||
Health care - 12.13% | ||||||||||||
Merck & Co., Inc. | 36,151,059 | 1,320,960 | 2.93 | |||||||||
Roche Holding AG (3) | 3,820,000 | 649,122 | 1.44 | |||||||||
Medtronic, Inc. | 13,625,000 | 599,227 | 1.33 | |||||||||
Eli Lilly and Co. | 13,685,000 | 488,691 | 1.08 | |||||||||
Baxter International Inc. | 6,940,000 | 407,239 | .90 | |||||||||
Pfizer Inc | 15,940,000 | 289,949 | .64 | |||||||||
Other securities | 1,719,292 | 3.81 | ||||||||||
5,474,480 | 12.13 | |||||||||||
Industrials - 10.99% | ||||||||||||
Lockheed Martin Corp. | 5,398,200 | 406,754 | .90 | |||||||||
Union Pacific Corp. | 6,100,000 | 389,790 | .87 | |||||||||
Schneider Electric SA (3) | 3,157,277 | 365,509 | .81 | |||||||||
Deere & Co. | 5,600,000 | 302,904 | .67 | |||||||||
Boeing Co. | 5,500,000 | 297,715 | .66 | |||||||||
First Solar, Inc. (1) | 2,110,000 | 285,694 | .63 | |||||||||
Other securities | 2,909,600 | 6.45 | ||||||||||
4,957,966 | 10.99 | |||||||||||
Financials - 9.57% | ||||||||||||
JPMorgan Chase & Co. | 16,255,000 | 677,346 | 1.50 | |||||||||
Wells Fargo & Co. | 19,513,000 | 526,656 | 1.17 | |||||||||
U.S. Bancorp | 21,952,000 | 494,140 | 1.09 | |||||||||
Bank of America Corp. | 28,000,000 | 421,680 | .93 | |||||||||
Berkshire Hathaway Inc., Class A (1) | 2,945 | 292,144 | .65 | |||||||||
ACE Ltd. | 5,700,000 | 287,280 | .64 | |||||||||
Aon Corp. | 6,700,000 | 256,878 | .57 | |||||||||
Other securities | 1,363,800 | 3.02 | ||||||||||
4,319,924 | 9.57 | |||||||||||
Materials - 9.03% | ||||||||||||
Rio Tinto PLC (3) | 10,662,500 | 575,417 | 1.27 | |||||||||
Syngenta AG (3) | 2,025,400 | 566,922 | 1.26 | |||||||||
Potash Corp. of Saskatchewan Inc. | 2,684,100 | 291,225 | .65 | |||||||||
Other securities | 2,639,682 | 5.85 | ||||||||||
4,073,246 | 9.03 | |||||||||||
Consumer discretionary - 7.79% | ||||||||||||
McDonald's Corp. | 11,556,400 | 721,582 | 1.60 | |||||||||
Home Depot, Inc. | 12,600,000 | 364,518 | .81 | |||||||||
Starbucks Corp. (1) | 14,000,000 | 322,840 | .72 | |||||||||
Walt Disney Co. | 8,000,000 | 258,000 | .57 | |||||||||
Other securities | 1,845,711 | 4.09 | ||||||||||
3,512,651 | 7.79 | |||||||||||
Consumer staples - 6.12% | ||||||||||||
Coca-Cola Co. | 11,460,000 | 653,220 | 1.45 | |||||||||
Philip Morris International Inc. | 8,224,800 | 396,353 | .88 | |||||||||
Altria Group, Inc. | 14,175,100 | 278,257 | .61 | |||||||||
Other securities | 1,433,644 | 3.18 | ||||||||||
2,761,474 | 6.12 | |||||||||||
Utilities - 4.44% | ||||||||||||
Exelon Corp. | 7,760,900 | 379,275 | .84 | |||||||||
GDF Suez (3) | 6,029,861 | 261,407 | .58 | |||||||||
Other securities | 1,364,583 | 3.02 | ||||||||||
2,005,265 | 4.44 | |||||||||||
Telecommunication services - 2.91% | ||||||||||||
Verizon Communications Inc. | 16,800,000 | 556,584 | 1.23 | |||||||||
Telefónica, SA (3) | 9,500,000 | 264,586 | .59 | |||||||||
Other securities | 490,144 | 1.09 | ||||||||||
1,311,314 | 2.91 | |||||||||||
Miscellaneous - 2.70% | ||||||||||||
Other common stocks in initial period of acquisition | 1,219,520 | 2.70 | ||||||||||
Total common stocks (cost: $37,957,243,000) | 43,006,457 | 95.32 | ||||||||||
Percent | ||||||||||||
Value | of net | |||||||||||
Convertible securities - 0.03% | (000 | ) | assets | |||||||||
Miscellaneous - 0.03% | ||||||||||||
Other convertible securities in initial period of acquisition | 13,875 | .03 | ||||||||||
Total convertible securities (cost: $12,500,000) | 13,875 | .03 | ||||||||||
Percent | ||||||||||||
Value | of net | |||||||||||
Bonds & notes - 0.01% | (000 | ) | assets | |||||||||
Mortgage-backed obligations - 0.01% | ||||||||||||
Other securities | 6,360 | .01 | ||||||||||
Total bonds & notes (cost: $6,440,000) | 6,360 | .01 | ||||||||||
Principal | Percent | |||||||||||
amount | Value | of net | ||||||||||
Short-term securities - 4.59% | (000 | ) | (000 | ) | assets | |||||||
Freddie Mac 0.08%-1.00% due 1/20-9/14/2010 | $ | 754,000 | 753,730 | 1.67 | ||||||||
Coca-Cola Co. 0.18%-0.21% due 1/6-3/18/2010 (2) | 102,850 | 102,841 | .23 | |||||||||
Variable Funding Capital Company LLC 0.16%-0.21% due 1/5-1/14/2010 (2) | 77,000 | 76,991 | .17 | |||||||||
Enterprise Funding Co. LLC 0.20% due 3/17/2010 (2) | 35,019 | 35,003 | ||||||||||
Bank of America Corp. 0.23% due 3/23/2010 | 30,000 | 29,986 | .15 | |||||||||
Park Avenue Receivables Co., LLC 0.15% due 1/4/2010 (2) | 35,000 | 34,999 | ||||||||||
Jupiter Securitization Co., LLC 0.15%-0.21% due 1/12-1/15/2010 (2) | 24,500 | 24,497 | .13 | |||||||||
Medtronic Inc. 0.14% due 1/5/2010 (2) | 26,300 | 26,300 | .06 | |||||||||
Other securities | 984,630 | 2.18 | ||||||||||
Total short-term securities (cost: $2,068,739,000) | 2,068,977 | 4.59 | ||||||||||
Total investment securities (cost: $40,044,922,000) | 45,095,669 | 99.95 | ||||||||||
Other assets less liabilities | 22,220 | .05 | ||||||||||
Net assets | $ | 45,117,889 | 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. The value of the fund's holdings in affiliated companies is included in "Other securities" under the respective industry sectors in the summary investment portfolio. Further details on these holdings and related transactions during the year ended December 31, 2009, appear below. |
Dividend | Value of affiliates | |||||||||||||||||||||||
Beginning | Ending | income | at 12/31/09 | |||||||||||||||||||||
shares | Additions | Reductions | shares | (000 | ) | (000 | ) | |||||||||||||||||
Strayer Education, Inc. | - | 743,100 | - | 743,100 | $ | 1,369 | $ | 157,901 | ||||||||||||||||
Grafton Group PLC, units (3) | 14,650,000 | 312,000 | - | 14,962,000 | 1,492 | 62,041 | ||||||||||||||||||
Corporate Executive Board Co. | 2,304,200 | - | - | 2,304,200 | 1,705 | 52,582 | ||||||||||||||||||
FMC Technologies, Inc. (1) (4) (5) | 6,200,000 | 322,400 | 2,022,400 | 4,500,000 | - | - | ||||||||||||||||||
$ | 4,566 | $ | 272,524 |
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) Security did not produce income during the last 12 months. | |||
(2) Purchased in a transaction exempt from registration under the Securities Act of 1933. May be resold in the U.S. in transactions exempt from registration, normally to qualified institutional buyers. The total value of all such securities, including those in "Other securities," was $982,869,000, which represented 2.18% of the net assets of the fund. | |||
(3) 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 $6,744,614,000, which represented 14.95% of the net assets of the fund. This entire amount relates to certain securities trading outside the U.S. whose values were adjusted as a result of significant market movements following the close of local trading. | |||
(4) This security was an unaffiliated issuer in its initial period of acquisition at 12/31/2008; it was not publicly disclosed. | |||
(5) Unaffiliated issuer at 12/31/2009. | |||
Key to abbreviation | |||
ADR = American Depositary Receipts | |||
See Notes to Financial Statements |
Financial statements
Statement of assets and liabilities | ||||||||
at December 31, 2009 | (dollars in thousands) | |||||||
Assets: | ||||||||
Investment securities, at value: | ||||||||
Unaffiliated issuers (cost: $39,576,506) | $ | 44,823,145 | ||||||
Affiliated issuers (cost: $468,416) | 272,524 | $ | 45,095,669 | |||||
Cash | 53 | |||||||
Receivables for: | ||||||||
Sales of investments | 1,206 | |||||||
Sales of fund's shares | 93,673 | |||||||
Dividends and interest | 65,285 | 160,164 | ||||||
45,255,886 | ||||||||
Liabilities: | ||||||||
Payables for: | ||||||||
Purchases of investments | 9,801 | |||||||
Repurchases of fund's shares | 94,633 | |||||||
Investment advisory services | 9,688 | |||||||
Services provided by affiliates | 17,325 | |||||||
Directors' deferred compensation | 2,477 | |||||||
Other | 4,073 | 137,997 | ||||||
Net assets at December 31, 2009 | $ | 45,117,889 | ||||||
Net assets consist of: | ||||||||
Capital paid in on shares of capital stock | $ | 44,948,255 | ||||||
Undistributed net investment income | 148,902 | |||||||
Accumulated net realized loss | (5,030,779 | ) | ||||||
Net unrealized appreciation | 5,051,511 | |||||||
Net assets at December 31, 2009 | $ | 45,117,889 |
(dollars and shares in thousands, except per-share amounts) | ||||||||||||
Total authorized capital stock - 2,500,000 shares, $1.00 par value (1,379,017 total shares outstanding) | ||||||||||||
Net assets | Shares outstanding | Net asset value per share* | ||||||||||
Class A | $ | 30,953,609 | 945,682 | $ | 32.73 | |||||||
Class B | 897,167 | 27,483 | 32.64 | |||||||||
Class C | 1,925,132 | 59,027 | 32.61 | |||||||||
Class F-1 | 3,867,745 | 118,222 | 32.72 | |||||||||
Class F-2 | 640,678 | 19,574 | 32.73 | |||||||||
Class 529-A | 723,224 | 22,113 | 32.71 | |||||||||
Class 529-B | 70,590 | 2,159 | 32.69 | |||||||||
Class 529-C | 215,199 | 6,583 | 32.69 | |||||||||
Class 529-E | 32,228 | 986 | 32.69 | |||||||||
Class 529-F-1 | 27,393 | 838 | 32.69 | |||||||||
Class R-1 | 97,904 | 3,001 | 32.62 | |||||||||
Class R-2 | 549,800 | 16,861 | 32.61 | |||||||||
Class R-3 | 1,707,176 | 52,252 | 32.67 | |||||||||
Class R-4 | 1,544,555 | 47,260 | 32.68 | |||||||||
Class R-5 | 1,269,294 | 38,764 | 32.74 | |||||||||
Class R-6 | 596,195 | 18,212 | 32.74 | |||||||||
(*) Maximum offering price and redemption price per share were equal to the net asset value per share for all share classes, except for Classes A and 529-A, for which the maximum offering prices per share were $34.73 and $34.71, respectively. | ||||||||||||
See Notes to Financial Statements |
Statement of operations | ||||||||
for the year ended December 31, 2009 | (dollars in thousands) | |||||||
Investment income: | ||||||||
Income: | ||||||||
Dividends (net of non-U.S. taxes of $28,985; also includes $4,566 from affiliates) | $ | 837,362 | ||||||
Interest | 25,254 | $ | 862,616 | |||||
Fees and expenses*: | ||||||||
Investment advisory services | 97,096 | |||||||
Distribution services | 109,627 | |||||||
Transfer agent services | 43,931 | |||||||
Administrative services | 17,773 | |||||||
Reports to shareholders | 2,527 | |||||||
Registration statement and prospectus | 8,033 | |||||||
Directors' compensation | 1,067 | |||||||
Auditing and legal | 122 | |||||||
Custodian | 1,228 | |||||||
State and local taxes | 2 | |||||||
Other | 2,333 | 283,739 | ||||||
Net investment income | 578,877 | |||||||
Net realized loss and unrealized appreciation on investments and currency: | ||||||||
Net realized (loss) gain on: | ||||||||
Investments (including $25,862 net gain from affiliates) | (1,996,639 | ) | ||||||
Currency transactions | 2,385 | (1,994,254 | ) | |||||
Net unrealized appreciation on: | ||||||||
Investments | 12,486,938 | |||||||
Currency translations | 1,037 | 12,487,975 | ||||||
Net realized loss and unrealized appreciation on investments and currency | 10,493,721 | |||||||
Net increase in net assets resulting from operations | $ | 11,072,598 | ||||||
(*) 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) | |||||||
Year ended December 31 | ||||||||
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 578,877 | $ | 745,138 | ||||
Net realized loss on investments and currency transactions | (1,994,254 | ) | (3,028,217 | ) | ||||
Net unrealized appreciation (depreciation) on investments and currency translations | 12,487,975 | (19,833,779 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 11,072,598 | (22,116,858 | ) | |||||
Dividends and distributions paid to shareholders: | ||||||||
Dividends from net investment income | (631,972 | ) | (721,047 | ) | ||||
Distributions from net realized gain on investments | - | (316,888 | ) | |||||
Total dividends and distributions paid to shareholders | (631,972 | ) | (1,037,935 | ) | ||||
Net capital share transactions | 587,441 | 6,867,554 | ||||||
Total increase (decrease) in net assets | 11,028,067 | (16,287,239 | ) | |||||
Net assets: | ||||||||
Beginning of year | 34,089,822 | 50,377,061 | ||||||
End of year (including undistributed net investment income: $148,902 and $199,930, respectively) | $ | 45,117,889 | $ | 34,089,822 | ||||
See Notes to Financial Statements |
Notes to financial statements
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.
On November 24, 2009, shareholders approved a proposal to reorganize the fund from a Maryland corporation to a Delaware statutory trust. The reorganization may be completed in 2010 or early 2011; however, the fund reserves the right to delay the implementation. Shareholders also approved amendments to the fund’s Investment Advisory and Service Agreement and amendments to and elimination of certain fundamental investment policies of the fund.
The fund has 16 share classes consisting of five retail share classes, five 529 college savings plan share classes and six retirement plan share classes. The 529 college savings plan share classes (529-A, 529-B, 529-C, 529-E and 529-F-1) can be used to save for college education. The six retirement plan share classes (R-1, R-2, R-3, R-4, R-5 and R-6) are generally offered only through eligible employer-sponsored retirement plans. The fund’s share classes are described below:
Share class | Initial sales charge | Contingent deferred sales charge upon redemption | Conversion feature |
Classes 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 |
Classes B and 529-B* | None | Declines from 5% to 0% for redemptions within six years of purchase | Classes B and 529-B convert to Classes 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-1 after 10 years |
Class 529-C | None | 1% for redemptions within one year of purchase | None |
Class 529-E | None | None | None |
Classes F-1, F-2 and 529-F-1 | None | None | None |
Classes R-1, R-2, R-3, R-4, R-5 and R-6 | None | None | None |
*Effective April 21, 2009, Class B and 529-B shares of the fund are not available for purchase.
On May 1, 2009, the fund made an additional retirement plan share class (Class R-6) available for sale pursuant to an amendment to its registration statement filed with the Securities and Exchange Commission (“SEC”). Refer to the fund’s retirement plan prospectus for more details.
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:
Net asset value – The fund generally determines its net asset value as of approximately 4:00 p.m. New York time each day the New York Stock Exchange is open.
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 one or more independent pricing vendors when such prices are available. However, where the investment adviser deems it appropriate to do so, such securities will be valued in good faith at the mean quoted bid and asked prices that are reasonably and timely available (or bid prices, if asked prices are not available) or at prices for securities of comparable maturity, quality and type. Vendors base bond prices on, among other things, valuation matrices that incorporate dealer-supplied valuations, proprietary pricing models and evaluations of the yield curve as of approximately 3:00 p.m. New York time. 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.
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 guidelines 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 securities outside the U.S.) 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. Fair valuations and valuations of investments that are not actively trading involve judgment and may differ materially from valuations that would have been used had greater market activity occurred.
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.
Currency translation – Assets and liabilities, including investment securities, denominated in currencies other than U.S. dollars 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 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 currencies other than U.S. dollars are disclosed separately.
2. Risk factors
Investing in the fund may involve certain risks including, but not limited to, those described below.
The prices of, and the income generated by, the common stocks and other securities held by the fund may decline in response to certain events taking place around the world, including those directly involving the issuers whose securities are owned by the fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; governmental or governmental agency responses to economic conditions; and currency, interest rate and commodity price fluctuations.
Investments in securities issued by entities based outside the U.S. may be subject to the risks described above to a greater extent. These investments may also be affected by currency fluctuations and controls; different accounting, auditing, financial reporting, disclosure, regulatory and legal standards and practices; expropriation; changes in tax policy; greater market volatility; different securities market structures; higher transaction costs; and various administrative difficulties, such as delays in clearing and settling portfolio transactions or in receiving payment of dividends. These risks may be heightened in connection with investments in developing countries. Investments in securities issued by entities domiciled in the U.S. may also be subject to many of these risks.
3. Taxation and distributions
Federal income taxation – 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.
As of and during the period ended December 31, 2009, 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 2006, by state tax authorities for tax years before 2005 and by tax authorities outside the U.S. for tax years before 2005.
Non-U.S. taxation – Dividend 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.
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 different treatment for items such as currency gains and losses; short-term capital gains and losses; capital losses related to sales of certain securities within 30 days of purchase; cost of investments sold; paydowns on fixed-income securities; net capital losses; and income on certain investments. The fiscal year in which amounts are distributed may differ from the year in which the net investment income and net realized gains are recorded by the fund for financial reporting purposes.
During the year ended December 31, 2009, the fund reclassified $2,568,000 from accumulated net realized loss to undistributed net investment income and $501,000 from undistributed net investment income to capital paid in on shares of capital stock to align financial reporting with tax reporting.
As of December 31, 2009, the tax basis components of distributable earnings, unrealized appreciation (depreciation) and cost of investment securities were as follows:
(dollars in thousands) | ||||||||
Undistributed ordinary income | $ | 198,508 | ||||||
Post-October currency loss deferrals (realized during the period November 1, 2009, through December 31, 2009)* | (1,425 | ) | ||||||
Capital loss carryforwards†: | ||||||||
Expiring 2016 | $ | (1,885,675 | ) | |||||
Expiring 2017 | (3,190,744 | ) | (5,076,419 | ) | ||||
Gross unrealized appreciation on investment securities | 8,389,073 | |||||||
Gross unrealized depreciation on investment securities | (3,338,390 | ) | ||||||
Net unrealized appreciation on investment securities | 5,050,683 | |||||||
Cost of investment securities | 40,044,986 | |||||||
*These deferrals are considered incurred in the subsequent year. †The capital loss carryforwards will be used to offset any capital gains realized by the fund in future years through the expiration dates. The fund will not make distributions from capital gains while capital loss carryforwards remain. |
The tax character of distributions paid to shareholders was as follows (dollars in thousands):
Year ended December 31, 2009 | Year ended December 31, 2008 | |||||||||||||||||||||||
Share class | Ordinary income | Long-term capital gains | Total distributions paid | Ordinary income | Long-term capital gains | Total distributions paid | ||||||||||||||||||
Class A | $ | 458,892 | $ | - | $ | 458,892 | $ | 557,598 | $ | 241,668 | $ | 799,266 | ||||||||||||
Class B | 8,510 | - | 8,510 | 11,804 | 10,319 | 22,123 | ||||||||||||||||||
Class C | 15,323 | - | 15,323 | 16,584 | 13,050 | 29,634 | ||||||||||||||||||
Class F-1 | 55,986 | - | 55,986 | 60,738 | 21,382 | 82,120 | ||||||||||||||||||
Class F-2* | 6,438 | - | 6,438 | 779 | - | 779 | ||||||||||||||||||
Class 529-A | 9,809 | - | 9,809 | 9,941 | 4,136 | 14,077 | ||||||||||||||||||
Class 529-B | 527 | - | 527 | 570 | 506 | 1,076 | ||||||||||||||||||
Class 529-C | 1,504 | - | 1,504 | 1,515 | 1,251 | 2,766 | ||||||||||||||||||
Class 529-E | 353 | - | 353 | 360 | 187 | 547 | ||||||||||||||||||
Class 529-F-1 | 442 | - | 442 | 424 | 134 | 558 | ||||||||||||||||||
Class R-1 | 765 | - | 765 | 628 | 389 | 1,017 | ||||||||||||||||||
Class R-2 | 3,950 | - | 3,950 | 3,842 | 3,036 | 6,878 | ||||||||||||||||||
Class R-3 | 19,065 | - | 19,065 | 16,994 | 7,755 | 24,749 | ||||||||||||||||||
Class R-4 | 21,195 | - | 21,195 | 17,908 | 6,485 | 24,393 | ||||||||||||||||||
Class R-5 | 23,009 | - | 23,009 | 21,362 | 6,590 | 27,952 | ||||||||||||||||||
Class R-6† | 6,204 | - | 6,204 | - | - | - | ||||||||||||||||||
Total | $ | 631,972 | $ | - | $ | 631,972 | $ | 721,047 | $ | 316,888 | $ | 1,037,935 | ||||||||||||
*Class F-2 was offered beginning August 1, 2008. | ||||||||||||||||||||||||
†Class R-6 was offered beginning May 1, 2009. |
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 Distributors,® Inc. ("AFD"), the principal underwriter of the fund’s shares, and American Funds Service Company® ("AFS"), the fund’s transfer agent.
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 0.232% on such assets in excess of $55 billion. For the year ended December 31, 2009, the investment advisory services fee was $97,096,000, which was equivalent to an annualized rate of 0.258% 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 Classes F-2, R-5 and R-6. 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 with a plan 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 Classes A and 529-A, the board of directors has also approved the reimbursement of dealer and wholesaler commissions paid by AFD for certain shares sold without a sales charge. 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 December 31, 2009, there were no unreimbursed expenses subject to reimbursement for Classes A or 529-A.
Share class | Currently approved limits | Plan limits |
Class A | 0.25% | 0.25% |
Class 529-A | 0.25 | 0.50 |
Classes B and 529-B | 1.00 | 1.00 |
Classes C, 529-C and R-1 | 1.00 | 1.00 |
Class R-2 | 0.75 | 1.00 |
Classes 529-E and R-3 | 0.50 | 0.75 |
Classes F-1, 529-F-1 and R-4 | 0.25 | 0.50 |
Transfer agent services – The fund has a transfer agent agreement with AFS for Classes A and B. Under this agreement, these share classes compensate AFS for transfer agent services including shareholder recordkeeping, communications and transaction processing. AFS is also compensated for certain transfer agent services provided to all other share classes from the administrative services fees paid to CRMC as 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 Classes A and B. Each relevant share class pays CRMC annual fees up to 0.15% (0.10% for Class R-5 and 0.05% for Class R-6) 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. Each 529 share class is subject to an additional administrative services fee payable to the Commonwealth of Virginia for the maintenance of the 529 college savings plan. The quarterly fee is based on a declining series of annual rates beginning with 0.10% on the first $30 billion of the net assets invested in Class 529 shares of the American Funds and decreasing to 0.06% on such assets between $120 billion and $150 billion. The fee for any given calendar quarter is accrued and calculated on the basis of the average net assets of Class 529 shares of the American Funds for the last month of the prior calendar quarter. 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 above for the year ended December 31, 2009, 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 | $59,885 | $42,535 | Not applicable | Not applicable | Not applicable |
Class B | 8,642 | 1,396 | Not applicable | Not applicable | Not applicable |
Class C | 16,027 | Included in administrative services | $2,407 | $433 | Not applicable |
Class F-1 | 7,661 | 4,121 | 272 | Not applicable | |
Class F-2 | Not applicable | 440 | 21 | Not applicable | |
Class 529-A | 1,119 | 680 | 107 | $ 574 | |
Class 529-B | 601 | 72 | 23 | 60 | |
Class 529-C | 1,712 | 204 | 56 | 172 | |
Class 529-E | 127 | 30 | 5 | 25 | |
Class 529-F-1 | - | 28 | 5 | 24 | |
Class R-1 | 807 | 106 | 46 | Not applicable | |
Class R-2 | 3,319 | 651 | 1,449 | Not applicable | |
Class R-3 | 6,653 | 1,948 | 726 | Not applicable | |
Class R-4 | 3,074 | 1,795 | 45 | Not applicable | |
Class R-5 | Not applicable | 1,077 | 20 | Not applicable | |
Class R-6* | Not applicable | 151 | - † | Not applicable | |
Total | $109,627 | $43,931 | $13,710 | $3,208 | $855 |
*Class R-6 was offered beginning May 1, 2009.
†Amount less than one thousand.
Directors’ deferred 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 $1,067,000, shown on the accompanying financial statements, includes $545,000 in current fees (either paid in cash or deferred) and a net increase of $522,000 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. Disclosure of fair value measurements
The fund classifies its assets and liabilities into three levels based on the method used to value the assets or liabilities. Level 1 values are based on quoted prices in active markets for identical securities. Level 2 values are based on significant observable market inputs, such as quoted prices for similar securities and quoted prices in inactive markets. Level 3 values are based on significant unobservable inputs that reflect the fund’s determination of assumptions that market participants might reasonably use in valuing the securities. The valuation levels are not necessarily an indication of the risk or liquidity associated with the underlying investment. For example, U.S. government securities are generally high-quality and liquid; however, they are reflected as Level 2 because the inputs used to determine fair value may not always be quoted prices in an active market. The following table presents the fund’s valuation levels as of December 31, 2009 (dollars in thousands):
Investment securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common stocks: | ||||||||||||||||
Information technology | $ | 7,580,389 | $ | 82,971 | * | $ | - | $ | 7,663,360 | |||||||
Energy | 5,187,929 | 519,328 | * | - | 5,707,257 | |||||||||||
Health care | 4,486,319 | 988,161 | * | - | 5,474,480 | |||||||||||
Industrials | 4,205,339 | 752,627 | * | - | 4,957,966 | |||||||||||
Financials | 3,833,435 | 486,489 | * | - | 4,319,924 | |||||||||||
Materials | 2,394,148 | 1,679,098 | * | - | 4,073,246 | |||||||||||
Consumer discretionary | 3,237,331 | 275,320 | * | - | 3,512,651 | |||||||||||
Consumer staples | 2,198,432 | 563,042 | * | - | 2,761,474 | |||||||||||
Utilities | 1,414,557 | 590,708 | * | - | 2,005,265 | |||||||||||
Telecommunication services | 756,998 | 554,316 | * | - | 1,311,314 | |||||||||||
Miscellaneous | 966,966 | 252,554 | * | - | 1,219,520 | |||||||||||
Convertible securities | - | 13,875 | - | 13,875 | ||||||||||||
Bonds & notes | - | 6,360 | - | 6,360 | ||||||||||||
Short-term securities | - | 2,068,977 | - | 2,068,977 | ||||||||||||
Total | $ | 36,261,843 | $ | 8,833,826 | $ | - | $ | 45,095,669 | ||||||||
(*) Includes certain securities trading outside the U.S. whose values were adjusted as a result of significant market movements following the close of local trading; therefore, $6,744,614,000 of investment securities were classified as Level 2 instead of Level 1. |
6. Capital share transactions
Capital share transactions in the fund were as follows (dollars and shares in thousands):
Share class | Sales(1) | Reinvestments of dividends and distributions | Repurchases(1) | Net (decrease) increase | ||||||||||||||||||||||||||||
Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | |||||||||||||||||||||||||
Year ended December 31, 2009 | ||||||||||||||||||||||||||||||||
Class A | $ | 4,133,420 | 152,140 | $ | 437,083 | 16,132 | $ | (5,318,512 | ) | (200,947 | ) | $ | (748,009 | ) | (32,675 | ) | ||||||||||||||||
Class B | 76,831 | 2,969 | 8,202 | 311 | (341,345 | ) | (12,885 | ) | (256,312 | ) | (9,605 | ) | ||||||||||||||||||||
Class C | 336,939 | 12,332 | 14,652 | 550 | (336,935 | ) | (12,840 | ) | 14,656 | 42 | ||||||||||||||||||||||
Class F-1 | 1,304,172 | 47,008 | 49,006 | 1,806 | (1,278,430 | ) | (47,975 | ) | 74,748 | 839 | ||||||||||||||||||||||
Class F-2 | 541,618 | 19,496 | 5,112 | 175 | (107,195 | ) | (3,766 | ) | 439,535 | 15,905 | ||||||||||||||||||||||
Class 529-A | 125,979 | 4,562 | 9,805 | 361 | (60,203 | ) | (2,232 | ) | 75,581 | 2,691 | ||||||||||||||||||||||
Class 529-B | 5,218 | 203 | 527 | 20 | (6,215 | ) | (230 | ) | (470 | ) | (7 | ) | ||||||||||||||||||||
Class 529-C | 41,294 | 1,498 | 1,503 | 56 | (23,111 | ) | (855 | ) | 19,686 | 699 | ||||||||||||||||||||||
Class 529-E | 6,233 | 226 | 352 | 13 | (2,902 | ) | (106 | ) | 3,683 | 133 | ||||||||||||||||||||||
Class 529-F-1 | 8,008 | 288 | 442 | 16 | (7,887 | ) | (265 | ) | 563 | 39 | ||||||||||||||||||||||
Class R-1 | 43,940 | 1,610 | 761 | 28 | (31,016 | ) | (1,070 | ) | 13,685 | 568 | ||||||||||||||||||||||
Class R-2 | 170,514 | 6,366 | 3,946 | 146 | (117,622 | ) | (4,361 | ) | 56,838 | 2,151 | ||||||||||||||||||||||
Class R-3 | 594,024 | 21,683 | 19,055 | 701 | (345,362 | ) | (12,572 | ) | 267,717 | 9,812 | ||||||||||||||||||||||
Class R-4 | 564,135 | 20,763 | 21,187 | 777 | (337,037 | ) | (12,025 | ) | 248,285 | 9,515 | ||||||||||||||||||||||
Class R-5 | 617,507 | 22,851 | 22,633 | 842 | (755,761 | ) | (28,025 | ) | (115,621 | ) | (4,332 | ) | ||||||||||||||||||||
Class R-6(2) | 519,256 | 19,015 | 6,203 | 208 | (32,583 | ) | (1,011 | ) | 492,876 | 18,212 | ||||||||||||||||||||||
Total net increase | ||||||||||||||||||||||||||||||||
(decrease) | $ | 9,089,088 | 333,010 | $ | 600,469 | 22,142 | $ | (9,102,116 | ) | (341,165 | ) | $ | 587,441 | 13,987 | ||||||||||||||||||
Year ended December 31, 2008 | ||||||||||||||||||||||||||||||||
Class A | $ | 7,911,594 | 231,401 | $ | 763,364 | 22,342 | $ | (6,050,793 | ) | (191,212 | ) | $ | 2,624,165 | 62,531 | ||||||||||||||||||
Class B | 276,235 | 7,940 | 21,439 | 636 | (363,229 | ) | (10,840 | ) | (65,555 | ) | (2,264 | ) | ||||||||||||||||||||
Class C | 785,133 | 22,623 | 28,519 | 865 | (416,578 | ) | (13,019 | ) | 397,074 | 10,469 | ||||||||||||||||||||||
Class F-1 | 2,763,196 | 78,243 | 72,793 | 2,178 | (1,213,116 | ) | (39,270 | ) | 1,622,873 | 41,151 | ||||||||||||||||||||||
Class F-2(3) | 116,845 | 4,125 | 650 | 25 | (12,665 | ) | (481 | ) | 104,830 | 3,669 | ||||||||||||||||||||||
Class 529-A | 190,435 | 5,390 | 14,075 | 417 | (50,723 | ) | (1,537 | ) | 153,787 | 4,270 | ||||||||||||||||||||||
Class 529-B | 14,144 | 400 | 1,076 | 33 | (5,318 | ) | (159 | ) | 9,902 | 274 | ||||||||||||||||||||||
Class 529-C | 62,565 | 1,765 | 2,766 | 84 | (19,014 | ) | (572 | ) | 46,317 | 1,277 | ||||||||||||||||||||||
Class 529-E | 7,990 | 228 | 547 | 16 | (2,522 | ) | (75 | ) | 6,015 | 169 | ||||||||||||||||||||||
Class 529-F-1 | 14,406 | 390 | 558 | 17 | (2,864 | ) | (88 | ) | 12,100 | 319 | ||||||||||||||||||||||
Class R-1 | 55,324 | 1,583 | 1,012 | 32 | (18,085 | ) | (537 | ) | 38,251 | 1,078 | ||||||||||||||||||||||
Class R-2 | 240,522 | 6,876 | 6,875 | 210 | (120,579 | ) | (3,509 | ) | 126,818 | 3,577 | ||||||||||||||||||||||
Class R-3 | 835,509 | 23,703 | 24,701 | 750 | (317,096 | ) | (9,313 | ) | 543,114 | 15,140 | ||||||||||||||||||||||
Class R-4 | 850,916 | 23,655 | 24,370 | 735 | (258,547 | ) | (7,396 | ) | 616,739 | 16,994 | ||||||||||||||||||||||
Class R-5 | 800,099 | 24,178 | 27,167 | 814 | (196,142 | ) | (5,773 | ) | 631,124 | 19,219 | ||||||||||||||||||||||
Total net increase | ||||||||||||||||||||||||||||||||
(decrease) | $ | 14,924,913 | 432,500 | $ | 989,912 | 29,154 | $ | (9,047,271 | ) | (283,781 | ) | $ | 6,867,554 | 177,873 | ||||||||||||||||||
(1) Includes exchanges between share classes of the fund. | ||||||||||||||||||||||||||||||||
(2)Class R-6 was offered beginning May 1, 2009. | ||||||||||||||||||||||||||||||||
(3)Class F-2 was offered beginning August 1, 2008. |
7. Investment transactions
The fund made purchases and sales of investment securities, excluding short-term securities and U.S. government obligations, if any, of $13,164,241,000 and $10,654,786,000, respectively, during the year ended December 31, 2009.
8. Subsequent events
As of February 8, 2010, the date the financial statements were available to be issued, no subsequent events or transactions had occurred that would have materially impacted the financial statements as presented.
Financial highlights(1)
Income (loss) from investment operations(2) | Dividends and distributions | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | Net investment income (3) | 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(4) (5) | 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(5) | Ratio of net income to average net assets(3) (5) | ||||||||||||||||||||||||||||||||||||||||
Class A: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/2009 | $ | 24.98 | $ | .44 | $ | 7.79 | $ | 8.23 | $ | (.48 | ) | $ | - | $ | (.48 | ) | $ | 32.73 | 33.36 | % | $ | 30,954 | .69 | % | .69 | % | 1.60 | % | ||||||||||||||||||||||||
Year ended 12/31/2008 | 42.45 | .60 | (17.23 | ) | (16.63 | ) | (.58 | ) | (.26 | ) | (.84 | ) | 24.98 | (39.70 | ) | 24,443 | .63 | .61 | 1.70 | |||||||||||||||||||||||||||||||||
Year ended 12/31/2007 | 40.05 | 1.03 | 4.39 | 5.42 | (.95 | ) | (2.07 | ) | (3.02 | ) | 42.45 | 13.55 | 38,877 | .60 | .57 | 2.40 | ||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||
Class B: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/2009 | 24.92 | .23 | 7.76 | 7.99 | (.27 | ) | - | (.27 | ) | 32.64 | 32.30 | 897 | 1.46 | 1.46 | .85 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/2008 | 42.35 | .34 | (17.20 | ) | (16.86 | ) | (.31 | ) | (.26 | ) | (.57 | ) | 24.92 | (40.14 | ) | 924 | 1.39 | 1.37 | .94 | |||||||||||||||||||||||||||||||||
Year ended 12/31/2007 | 39.96 | .70 | 4.38 | 5.08 | (.62 | ) | (2.07 | ) | (2.69 | ) | 42.35 | 12.70 | 1,667 | 1.36 | 1.33 | 1.63 | ||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||
Class C: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/2009 | 24.90 | .22 | 7.75 | 7.97 | (.26 | ) | - | (.26 | ) | 32.61 | 32.26 | 1,925 | 1.48 | 1.48 | .81 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/2008 | 42.31 | .32 | (17.17 | ) | (16.85 | ) | (.30 | ) | (.26 | ) | (.56 | ) | 24.90 | (40.16 | ) | 1,468 | 1.43 | 1.41 | .90 | |||||||||||||||||||||||||||||||||
Year ended 12/31/2007 | 39.92 | .70 | 4.36 | 5.06 | (.60 | ) | (2.07 | ) | (2.67 | ) | 42.31 | 12.65 | 2,053 | 1.41 | 1.38 | 1.62 | ||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||
Class F-1: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/2009 | 24.97 | .45 | 7.79 | 8.24 | (.49 | ) | - | (.49 | ) | 32.72 | 33.40 | 3,868 | .67 | .67 | 1.61 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/2008 | 42.43 | .60 | (17.22 | ) | (16.62 | ) | (.58 | ) | (.26 | ) | (.84 | ) | 24.97 | (39.69 | ) | 2,932 | .62 | .60 | 1.72 | |||||||||||||||||||||||||||||||||
Year ended 12/31/2007 | 40.03 | 1.06 | 4.36 | 5.42 | (.95 | ) | (2.07 | ) | (3.02 | ) | 42.43 | 13.55 | 3,235 | .61 | .58 | 2.45 | ||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||
Class F-2: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/2009 | 24.98 | .49 | 7.81 | 8.30 | (.55 | ) | - | (.55 | ) | 32.73 | 33.72 | 641 | .43 | .43 | 1.69 | |||||||||||||||||||||||||||||||||||||
Period from 8/1/2008 to 12/31/2008 | 37.09 | .23 | (11.97 | ) | (11.74 | ) | (.37 | ) | - | (.37 | ) | 24.98 | (31.78 | ) | 92 | .17 | .16 | .88 | ||||||||||||||||||||||||||||||||||
Class 529-A: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/2009 | 24.97 | .43 | 7.78 | 8.21 | (.47 | ) | - | (.47 | ) | 32.71 | 33.30 | 723 | .73 | .73 | 1.55 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/2008 | 42.42 | .58 | (17.21 | ) | (16.63 | ) | (.56 | ) | (.26 | ) | (.82 | ) | 24.97 | (39.71 | ) | 485 | .68 | .65 | 1.66 | |||||||||||||||||||||||||||||||||
Year ended 12/31/2007 | 40.02 | 1.03 | 4.36 | 5.39 | (.92 | ) | (2.07 | ) | (2.99 | ) | 42.42 | 13.49 | 643 | .66 | .64 | 2.37 | ||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||
Class 529-B: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/2009 | 24.96 | .20 | 7.77 | 7.97 | (.24 | ) | - | (.24 | ) | 32.69 | 32.16 | 71 | 1.55 | 1.55 | .74 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/2008 | 42.41 | .30 | (17.22 | ) | (16.92 | ) | (.27 | ) | (.26 | ) | (.53 | ) | 24.96 | (40.20 | ) | 54 | 1.50 | 1.47 | .84 | |||||||||||||||||||||||||||||||||
Year ended 12/31/2007 | 40.01 | .66 | 4.38 | 5.04 | (.57 | ) | (2.07 | ) | (2.64 | ) | 42.41 | 12.57 | 80 | 1.48 | 1.46 | 1.53 | ||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||
Class 529-C: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/2009 | 24.95 | .20 | 7.78 | 7.98 | (.24 | ) | - | (.24 | ) | 32.69 | 32.22 | 215 | 1.55 | 1.55 | .74 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/2008 | 42.40 | .30 | (17.22 | ) | (16.92 | ) | (.27 | ) | (.26 | ) | (.53 | ) | 24.95 | (40.21 | ) | 147 | 1.49 | 1.47 | .85 | |||||||||||||||||||||||||||||||||
Year ended 12/31/2007 | 40.00 | .67 | 4.37 | 5.04 | (.57 | ) | (2.07 | ) | (2.64 | ) | 42.40 | 12.58 | 195 | 1.48 | 1.45 | 1.56 | ||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||
Class 529-E: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/2009 | 24.95 | .34 | 7.78 | 8.12 | (.38 | ) | - | (.38 | ) | 32.69 | 32.89 | 32 | 1.04 | 1.04 | 1.24 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/2008 | 42.40 | .48 | (17.21 | ) | (16.73 | ) | (.46 | ) | (.26 | ) | (.72 | ) | 24.95 | (39.90 | ) | 21 | .98 | .96 | 1.36 | |||||||||||||||||||||||||||||||||
Year ended 12/31/2007 | 40.00 | .88 | 4.38 | 5.26 | (.79 | ) | (2.07 | ) | (2.86 | ) | 42.40 | 13.14 | 29 | .97 | .95 | 2.05 | ||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||
Class 529-F-1: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/2009 | $ | 24.95 | $ | .48 | $ | 7.78 | $ | 8.26 | $ | (.52 | ) | $ | - | $ | (.52 | ) | $ | 32.69 | 33.56 | % | $ | 27 | .54 | % | .54 | % | 1.74 | % | ||||||||||||||||||||||||
Year ended 12/31/2008 | 42.39 | .64 | (17.19 | ) | �� | (16.55 | ) | (.63 | ) | (.26 | ) | (.89 | ) | 24.95 | (39.59 | ) | 20 | .48 | .46 | 1.84 | ||||||||||||||||||||||||||||||||
Year ended 12/31/2007 | 40.00 | 1.13 | 4.33 | 5.46 | (1.00 | ) | (2.07 | ) | (3.07 | ) | 42.39 | 13.69 | 20 | .47 | .45 | 2.62 | ||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||
Class R-1: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/2009 | 24.90 | .22 | 7.76 | 7.98 | (.26 | ) | - | (.26 | ) | 32.62 | 32.30 | 98 | 1.47 | 1.47 | .80 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/2008 | 42.31 | .32 | (17.18 | ) | (16.86 | ) | (.29 | ) | (.26 | ) | (.55 | ) | 24.90 | (40.16 | ) | 61 | 1.43 | 1.41 | .91 | |||||||||||||||||||||||||||||||||
Year ended 12/31/2007 | 39.93 | .72 | 4.33 | 5.05 | (.60 | ) | (2.07 | ) | (2.67 | ) | 42.31 | 12.62 | 57 | 1.44 | 1.42 | 1.67 | ||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||
Class R-2: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/2009 | 24.89 | .21 | 7.76 | 7.97 | (.25 | ) | - | (.25 | ) | 32.61 | 32.22 | 550 | 1.52 | 1.52 | .77 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/2008 | 42.30 | .30 | (17.17 | ) | (16.87 | ) | (.28 | ) | (.26 | ) | (.54 | ) | 24.89 | (40.19 | ) | 366 | 1.49 | 1.47 | .85 | |||||||||||||||||||||||||||||||||
Year ended 12/31/2007 | 39.92 | .70 | 4.34 | 5.04 | (.59 | ) | (2.07 | ) | (2.66 | ) | 42.30 | 12.61 | 471 | 1.46 | 1.40 | 1.62 | ||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||
Class R-3: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/2009 | 24.94 | .36 | 7.77 | 8.13 | (.40 | ) | - | (.40 | ) | 32.67 | 32.93 | 1,707 | .99 | .99 | 1.29 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/2008 | 42.38 | .48 | (17.20 | ) | (16.72 | ) | (.46 | ) | (.26 | ) | (.72 | ) | 24.94 | (39.89 | ) | 1,058 | .98 | .95 | 1.37 | |||||||||||||||||||||||||||||||||
Year ended 12/31/2007 | 39.98 | .92 | 4.34 | 5.26 | (.79 | ) | (2.07 | ) | (2.86 | ) | 42.38 | 13.17 | 1,157 | .97 | .94 | 2.12 | ||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||
Class R-4: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/2009 | 24.95 | .44 | 7.77 | 8.21 | (.48 | ) | - | (.48 | ) | 32.68 | 33.31 | 1,545 | .69 | .69 | 1.58 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/2008 | 42.39 | .58 | (17.19 | ) | (16.61 | ) | (.57 | ) | (.26 | ) | (.83 | ) | 24.95 | (39.70 | ) | 942 | .67 | .65 | 1.68 | |||||||||||||||||||||||||||||||||
Year ended 12/31/2007 | 39.99 | 1.05 | 4.34 | 5.39 | (.92 | ) | (2.07 | ) | (2.99 | ) | 42.39 | 13.51 | 879 | .66 | .64 | 2.42 | ||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||
Class R-5: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/2009 | 24.99 | .52 | 7.79 | 8.31 | (.56 | ) | - | (.56 | ) | 32.74 | 33.75 | 1,269 | .39 | .39 | 1.92 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/2008 | 42.46 | .69 | (17.23 | ) | (16.54 | ) | (.67 | ) | (.26 | ) | (.93 | ) | 24.99 | (39.53 | ) | 1,077 | .37 | .35 | 1.98 | |||||||||||||||||||||||||||||||||
Year ended 12/31/2007 | 40.06 | 1.18 | 4.34 | 5.52 | (1.05 | ) | (2.07 | ) | (3.12 | ) | 42.46 | 13.81 | 1,014 | .37 | .34 | 2.73 | ||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||
Class R-6: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Period from 5/1/2009 to 12/31/2009 | 25.63 | .37 | 7.17 | 7.54 | (.43 | ) | - | (.43 | ) | 32.74 | 29.60 | 596 | .35 | (6) | .35 | (6) | 1.87 | (6) |
Year ended December 31 | ||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Portfolio turnover rate for all classes of shares | 30 | % | 29 | % | 27 | % | 21 | % | 24 | % |
(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)For the year ended December 31, 2007, this column reflects the impact of a corporate action event that resulted in a one-time increase to net investment income. If the corporate action had not occurred, the Class A net investment income per share and ratio of net income to average net assets would have been lower by $0.39 and 0.90%, respectively. The impact to the other share classes would have been similar. | |||||||||||||
(4)Total returns exclude any applicable sales charges, including contingent deferred sales charges. | |||||||||||||
(5)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. 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. | |||||||||||||
(6)Annualized. | |||||||||||||
See Notes to Financial Statements |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Fundamental Investors, Inc.:
We have audited the accompanying statement of assets and liabilities, including the summary investment portfolio, of Fundamental Investors, Inc. (the “Fund”), as of December 31, 2009, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2009, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Fundamental Investors, Inc. as of December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Costa Mesa, California
February 8, 2010
Other share class results
Classes B, C, F and 529
Fund results shown are for past periods and are not predictive of results for 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 December 31, 2009: | ||||||||||||
1 year | 5 years | Life of class | ||||||||||
Class B shares1 — 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 | 27.30 | % | 2.84 | % | 3.04 | % | ||||||
Not reflecting CDSC | 32.30 | 3.20 | 3.04 | |||||||||
Class C shares — first sold 3/15/01 | ||||||||||||
Reflecting CDSC, maximum of 1%, payable only | ||||||||||||
if shares are sold within one year of purchase | 31.26 | 3.14 | 3.59 | |||||||||
Not reflecting CDSC | 32.26 | 3.14 | 3.59 | |||||||||
Class F-1 shares2 — first sold 3/15/01 | ||||||||||||
Not reflecting annual asset-based fee charged | ||||||||||||
by sponsoring firm | 33.40 | 3.99 | 4.43 | |||||||||
Class F-2 shares2 — first sold 8/1/08 | ||||||||||||
Not reflecting annual asset-based fee charged | ||||||||||||
by sponsoring firm | 33.72 | — | –6.28 | |||||||||
Class 529-A shares3 — first sold 2/15/02 | ||||||||||||
Reflecting 5.75% maximum sales charge | 25.65 | 2.71 | 4.89 | |||||||||
Not reflecting maximum sales charge | 33.30 | 3.94 | 5.68 | |||||||||
Class 529-B shares1,3 — first sold 2/19/02 | ||||||||||||
Reflecting applicable CDSC, maximum of 5%, payable | ||||||||||||
only if shares are sold within six years of purchase | 27.16 | 2.72 | 5.02 | |||||||||
Not reflecting CDSC | 32.16 | 3.07 | 5.02 | |||||||||
Class 529-C shares3 — first sold 2/15/02 | ||||||||||||
Reflecting CDSC, maximum of 1%, payable only | ||||||||||||
if shares are sold within one year of purchase | 31.22 | 3.08 | 4.80 | |||||||||
Not reflecting CDSC | 32.22 | 3.08 | 4.80 | |||||||||
Class 529-E shares2,3 — first sold 3/7/02 | 32.89 | 3.61 | 4.63 | |||||||||
Class 529-F-1 shares2,3 — first sold 9/23/02 | ||||||||||||
Not reflecting annual asset-based fee charged | ||||||||||||
by sponsoring firm | 33.56 | 4.11 | 9.51 |
1These shares are not available for purchase.
2These shares are sold without any initial or contingent deferred sales charge.
3Results shown do not reflect the $10 account setup fee and an annual $10 account maintenance fee.
Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from September 1, 2004, through December 31, 2008. Fund results shown reflect the waiver, without which they would have been lower. See the Financial Highlights table on pages 26 and 27 for details that include expense ratios for all share classes.
For information regarding the differences among the various share classes, refer to the fund’s prospectus.
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 (July 1, 2009, through December 31, 2009).
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-1, F-2 and 529-F-1 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 be lower by the amount of these fees.
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 7/1/2009 | Ending account value 12/31/2009 | Expenses paid during period* | Annualized expense ratio | |||||||||||||
Class A -- actual return | $ | 1,000.00 | $ | 1,221.22 | $ | 3.75 | .67 | % | ||||||||
Class A -- assumed 5% return | 1,000.00 | 1,021.83 | 3.41 | .67 | ||||||||||||
Class B -- actual return | 1,000.00 | 1,216.46 | 8.04 | 1.44 | ||||||||||||
Class B -- assumed 5% return | 1,000.00 | 1,017.95 | 7.32 | 1.44 | ||||||||||||
Class C -- actual return | 1,000.00 | 1,216.42 | 8.27 | 1.48 | ||||||||||||
Class C -- assumed 5% return | 1,000.00 | 1,017.74 | 7.53 | 1.48 | ||||||||||||
Class F-1 -- actual return | 1,000.00 | 1,221.83 | 3.75 | .67 | ||||||||||||
Class F-1 -- assumed 5% return | 1,000.00 | 1,021.83 | 3.41 | .67 | ||||||||||||
Class F-2 -- actual return | 1,000.00 | 1,223.12 | 2.41 | .43 | ||||||||||||
Class F-2 -- assumed 5% return | 1,000.00 | 1,023.04 | 2.19 | .43 | ||||||||||||
Class 529-A -- actual return | 1,000.00 | 1,221.16 | 4.03 | .72 | ||||||||||||
Class 529-A -- assumed 5% return | 1,000.00 | 1,021.58 | 3.67 | .72 | ||||||||||||
Class 529-B -- actual return | 1,000.00 | 1,215.81 | 8.60 | 1.54 | ||||||||||||
Class 529-B -- assumed 5% return | 1,000.00 | 1,017.44 | 7.83 | 1.54 | ||||||||||||
Class 529-C -- actual return | 1,000.00 | 1,216.30 | 8.60 | 1.54 | ||||||||||||
Class 529-C -- assumed 5% return | 1,000.00 | 1,017.44 | 7.83 | 1.54 | ||||||||||||
Class 529-E -- actual return | 1,000.00 | 1,219.37 | 5.76 | 1.03 | ||||||||||||
Class 529-E -- assumed 5% return | 1,000.00 | 1,020.01 | 5.24 | 1.03 | ||||||||||||
Class 529-F-1 -- actual return | 1,000.00 | 1,222.41 | 2.97 | .53 | ||||||||||||
Class 529-F-1 -- assumed 5% return | 1,000.00 | 1,022.53 | 2.70 | .53 | ||||||||||||
Class R-1 -- actual return | 1,000.00 | 1,216.76 | 8.21 | 1.47 | ||||||||||||
Class R-1 -- assumed 5% return | 1,000.00 | 1,017.80 | 7.48 | 1.47 | ||||||||||||
Class R-2 -- actual return | 1,000.00 | 1,216.32 | 8.32 | 1.49 | ||||||||||||
Class R-2 -- assumed 5% return | 1,000.00 | 1,017.69 | 7.58 | 1.49 | ||||||||||||
Class R-3 -- actual return | 1,000.00 | 1,219.31 | 5.59 | 1.00 | ||||||||||||
Class R-3 -- assumed 5% return | 1,000.00 | 1,020.16 | 5.09 | 1.00 | ||||||||||||
Class R-4 -- actual return | 1,000.00 | 1,221.48 | 3.92 | .70 | ||||||||||||
Class R-4 -- assumed 5% return | 1,000.00 | 1,021.68 | 3.57 | .70 | ||||||||||||
Class R-5 -- actual return | 1,000.00 | 1,222.87 | 2.19 | .39 | ||||||||||||
Class R-5 -- assumed 5% return | 1,000.00 | 1,023.24 | 1.99 | .39 | ||||||||||||
Class R-6 -- actual return | 1,000.00 | 1,223.59 | 1.96 | .35 | ||||||||||||
Class R-6 -- assumed 5% return | 1,000.00 | 1,023.44 | 1.79 | .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, and divided by 365 (to reflect the one-half year period).
Tax information
unaudited
We are required to advise you within 60 days of the fund’s fiscal year-end regarding the federal tax status of certain distributions received by shareholders during such fiscal year. The fund hereby designates the following amounts for the fund’s fiscal year ended December 31, 2009:
Qualified dividend income | 100 | % | ||
Corporate dividends received deduction | $ | 631,968,000 | ||
U.S. government income that may be exempt from state taxation | $ | 2,908,000 |
Individual shareholders should refer to their Form 1099 or other tax information, which was mailed in January 2010, to determine the calendar year amounts to be included on their 2009 tax returns. Shareholders should consult their tax advisers.
Approval of Investment Advisory and Service Agreement
The fund’s board has approved the fund’s Investment Advisory and Service Agreement (the “agreement”) with Capital Research and Management Company (“CRMC”) for an additional one-year term through August 31, 2010. The board approved the agreement following the recommendation of the fund’s Contracts Committee (the “committee”), which is composed of all of the fund’s independent board members. The board and the committee determined that the fund’s advisory fee structure was fair and reasonable in relation to the services provided and that approving the agreement was in the best interests of the fund and its shareholders.
In reaching this decision, the board and the committee took into account information furnished to them throughout the year, as well as information prepared specifically in connection with their review of the agreement, and were advised by their independent counsel. They considered the factors discussed below, among others, but did not identify any single issue or particular piece of information that, in isolation, was the controlling factor.
1. Nature, extent and quality of services
The board and the committee considered the depth and quality of CRMC’s investment management process, including its global research capabilities; the experience, capability and integrity of its senior management and other personnel; the low turnover rates of its key personnel; the overall financial strength and stability of its organization; and the ongoing evolution of CRMC’s organizational structure designed to maintain and strengthen these qualities. The board and the committee considered, among other things, the impact of current market conditions on the fund and CRMC. The board and the committee also considered the nature, extent and quality of administrative, compliance and shareholder services provided by CRMC to the fund under the agreement and other agreements as well as the benefits to fund shareholders from investing in a fund that is part of a large family of funds. The board and the committee concluded that the nature, extent and quality of the services provided by CRMC have benefited and should continue to benefit the fund and its shareholders.
2. Investment results
The board and the committee considered the investment results of the fund in light of its objective of providing long-term growth of capital and income. They compared the fund’s total returns with those of other relevant funds (including the other funds that are the basis of the Lipper index for the category in which the fund is included) and market data such as relevant market indices, in each case as available at the time of the related meetings. In addition to the information reviewed by the board and the committee, this report, including the letter to shareholders and related disclosures, contains certain information about the fund’s investment results. The board and the committee concluded that although the fund’s net asset value per share had declined during the one-year period ended December 31, 2008, its long-term results have been satisfactory and that CRMC’s record in managing the fund indicated that its continued management should benefit the fund and its shareholders.
3. Advisory fees and total expenses
The board and the committee compared the advisory fees and total expense levels of the fund to those of other relevant funds. They observed that the fund’s advisory fees and expenses remain significantly below those of most other relevant funds. The board and the committee also noted the breakpoint discounts in the fund’s advisory fee structure that reduce the level of fees charged by CRMC to the fund as fund assets increase. In addition, they reviewed information regarding the advisory fees paid by institutional clients of an affiliate of CRMC with investment mandates similar to those of the fund. They noted that, although the fees paid by those clients generally were lower than those paid by the fund, the differences appropriately reflected the significant investment, operational and regulatory differences between advising mutual funds and institutional clients. The board and the committee concluded that the fund’s cost structure was fair and reasonable in relation to the services provided, and that the shareholders receive reasonable value in return for the advisory fees and other amounts paid to CRMC by the fund.
4. Ancillary benefits
The board and the committee considered a variety of other benefits received by CRMC and its affiliates as a result of CRMC’s relationship with the fund and the other American Funds, including fees for administrative services provided to certain share classes; fees paid to CRMC’s affiliated transfer agent; sales charges and distribution fees received and retained by the fund’s principal underwriter, an affiliate of CRMC; and possible ancillary benefits to CRMC’s institutional management affiliates. The board and the committee reviewed CRMC’s portfolio trading practices, noting that while CRMC receives the benefit of research provided by broker-dealers executing portfolio transactions on behalf of the fund, it does not obtain third-party research or other services in return for allocating brokerage to such broker-dealers. The board and the committee took these ancillary benefits into account in evaluating the reasonableness of the advisory fees and other amounts paid to CRMC by the fund.
5. Adviser financial information
The board and the committee reviewed information regarding CRMC’s costs of providing services to the American Funds, including personnel, systems and resources of investment, compliance, trading, accounting and other administrative operations. They considered CRMC’s costs and willingness to invest in technology, infrastructure and staff to maintain and expand services and capabilities, respond to industry and regulatory developments, and attract and retain qualified personnel. They noted information previously received regarding the compensation structure for CRMC’s investment professionals. The board and the committee also compared CRMC’s profitability to the reported results of several large, publicly held investment management companies. The board and the committee noted the competitiveness and cyclicality of both the mutual fund industry and the capital markets, and the importance in that environment of CRMC’s long-term profitability for maintaining its independence, company culture and management continuity. They further considered the breakpoint discounts in the fund’s advisory fee structure and the termination of CRMC’s 10% advisory fee waiver effective December 31, 2008. The board and the committee concluded that the fund’s advisory fee structure reflected a reasonable sharing of benefits between CRMC and the fund’s shareholders.
Results of meeting of shareholders held November 24, 2009
Shares outstanding (all classes) | |||||
on record date (August 28, 2009): | 1,380,208,908 | ||||
Total shares voting on November 24, 2009: | 883,462,712 | 64.0% (of shares outstanding) |
Election of board members | ||||||||||||||||
Director* | Votes for | Percent of shares voting for | Votes withheld | Percent of shares withheld | ||||||||||||
Ronald P. Badie | 850,844,903 | 96.3 | % | 32,617,809 | 3.7 | % | ||||||||||
Joseph C. Berenato | 850,852,674 | 96.3 | 32,610,038 | 3.7 | ||||||||||||
Louise H. Bryson | 850,934,706 | 96.3 | 32,528,006 | 3.7 | ||||||||||||
Robert J. Denison | 850,867,885 | 96.3 | 32,594,827 | 3.7 | ||||||||||||
Mary Anne Dolan | 850,872,317 | 96.3 | 32,590,395 | 3.7 | ||||||||||||
Robert A. Fox | 850,743,412 | 96.3 | 32,719,300 | 3.7 | ||||||||||||
John G. Freund | 850,790,833 | 96.3 | 32,671,879 | 3.7 | ||||||||||||
Leonade D. Jones | 850,813,104 | 96.3 | 32,649,608 | 3.7 | ||||||||||||
William H. Kling | 850,601,094 | 96.3 | 32,861,618 | 3.7 | ||||||||||||
John G. McDonald | 850,665,315 | 96.3 | 32,797,397 | 3.7 | ||||||||||||
Dina N. Perry | 850,905,418 | 96.3 | 32,557,294 | 3.7 | ||||||||||||
James F. Rothenberg | 850,907,296 | 96.3 | 32,555,416 | 3.7 | ||||||||||||
Christopher E. Stone | 850,886,977 | 96.3 | 32,575,735 | 3.7 |
Votes for | Percent of outstanding shares voting for | Votes against | Percent of outstanding shares voting against | Votes abstaining | Percent of outstanding shares abstaining | |||||||||||||||||||
To approve an Agreement and Plan of Reorganization | 702,463,282 | 50.9 | % | 17,899,751 | 1.3 | % | 163,099,679 | † | 11.8 | % | ||||||||||||||
Votes for | Percent of outstanding shares voting for | Votes against | Percent of outstanding shares voting against | Votes abstaining | Percent of outstanding shares abstaining | |||||||||||||||||||
To update the fund’s fundamental investment policies regarding: | ||||||||||||||||||||||||
Borrowing | 694,625,218 | 78.6 | % | 25,911,668 | 3.0 | % | 162,925,826 | † | 18.4 | % | ||||||||||||||
Issuance of senior securities | 695,160,917 | 78.7 | 24,747,085 | 2.8 | 163,554,710 | † | 18.5 | |||||||||||||||||
Underwriting | 695,551,788 | 78.7 | 24,232,421 | 2.7 | 163,678,503 | † | 18.6 | |||||||||||||||||
Investments in real estate or commodities | 693,397,638 | 78.5 | 26,973,967 | 3.0 | 163,091,107 | † | 18.5 | |||||||||||||||||
Lending | 692,774,991 | 78.4 | 27,433,837 | 3.1 | 163,253,884 | † | 18.5 | |||||||||||||||||
Industry concentration | 695,579,897 | 78.7 | 24,350,285 | 2.8 | 163,532,530 | † | 18.5 | |||||||||||||||||
Elimination of certain polices | 692,571,825 | 78.4 | 26,227,569 | 3.0 | 164,663,318 | † | 18.6 | |||||||||||||||||
To approve a policy allowing CRMC to appoint subsidiary advisers for the fund’s day-to-day investment management without additional shareholder approval | 688,230,988 | 77.9 | 26,587,579 | 3.0 | 168,644,145 | † | 19.1 | |||||||||||||||||
To approve amendments to the fund’s Investment Advisory and Service Agreement with CRMC | 690,800,021 | 78.2 | 23,102,979 | 2.6 | 169,559,712 | † | 19.2 | |||||||||||||||||
To approve a form of Subsidiary Agreement and appointment of one or more subsidiary advisers for the fund | 688,868,241 | 78.0 | 25,179,244 | 2.8 | 169,415,227 | † | 19.2 | |||||||||||||||||
To consider a shareholder proposal regarding genocide-free investing | 81,858,292 | 11.0 | 618,308,319 | 83.4 | 41,293,579 | 5.6 | ||||||||||||||||||
(broker non-votes = | ||||||||||||||||||||||||
142,002,522 | ) |
*Gail L. Neale and Henry E. Riggs did not stand for election at the Meeting of Shareholders because they plan to retire in December 2010. |
†Includes broker non-votes. |
Board of directors and other officers
“Independent” directors | ||
Year first | ||
elected a | ||
director of | ||
Name and age | the fund1 | Principal occupation(s) during past five years |
Ronald P. Badie, 67 | 2008 | Retired; former Vice Chairman, Deutsche Bank |
Alex. Brown | ||
Joseph C. Berenato, 63 | 2003 | Chairman and CEO, Ducommun Incorporated |
Chairman of the Board | (aerospace components manufacturer) | |
(Independent and | ||
Non-Executive) | ||
Louise H. Bryson, 65 | 2008 | Chair of the Board of Trustees, J. Paul Getty Trust; |
former President, Distribution, Lifetime Entertainment | ||
Network; former Executive Vice President and | ||
General Manager, Lifetime Movie Network | ||
Robert J. Denison, 68 | 2005 | Chair, First Security Management (private investment) |
Mary Anne Dolan,4 62 | 2010 | Founder and President, MAD Ink (communications |
company); former Editor-in-Chief, The Los Angeles | ||
Herald Examiner | ||
Robert A. Fox, 72 | 1998 | Managing General Partner, Fox Investments LP; |
corporate director; retired President and CEO, Foster | ||
Farms (poultry producer) | ||
John G. Freund,4 56 | 2010 | Founder and Managing Director, Skyline Ventures |
(venture capital investor in health care companies) | ||
Leonade D. Jones, 62 | 1998 | Co-founder, VentureThink LLC (developed and |
managed e-commerce businesses) and Versura Inc. | ||
(education loan exchange); former Treasurer, The | ||
Washington Post Company | ||
William H. Kling,4 67 | 2010 | President and CEO, American Public Media Group |
John G. McDonald, 72 | 1998 | Stanford Investors Professor, Graduate School of |
Business, Stanford University | ||
Gail L. Neale, 75 | 1985 | President, The Lovejoy Consulting Group, Inc. |
(a pro bono consulting group advising nonprofit | ||
organizations) | ||
Henry E. Riggs, 75 | 1989 | President Emeritus, Keck Graduate Institute of |
Applied Life Sciences | ||
Christopher E. Stone,4 53 | 2010 | Daniel and Florence Guggenheim Professor of the |
Practice of Criminal Justice, John F. Kennedy School | ||
of Government, Harvard University | ||
“Independent” directors | ||
Number of | ||
portfolios | ||
in fund | ||
complex2 | ||
overseen by | ||
Name and age | director | Other directorships3 held by director |
Ronald P. Badie, 67 | 4 | Amphenol Corporation; Merisel, Inc.; Nautilus, Inc.; Obagi Medical Products, Inc. |
Joseph C. Berenato, 63 | 6 | None |
Chairman of the Board | ||
(Independent and | ||
Non-Executive) | ||
Louise H. Bryson, 65 | 6 | None |
Robert J. Denison, 68 | 7 | None |
Mary Anne Dolan,4 62 | 9 | None |
Robert A. Fox, 72 | 9 | None |
John G. Freund,4 56 | 3 | Hansen Medical, Inc.; Mako Surgical Corporation; |
MAP Pharmaceuticals, Inc.; XenoPort, Inc. | ||
Leonade D. Jones, 62 | 9 | None |
William H. Kling,4 67 | 9 | None |
John G. McDonald, 72 | 12 | iStar Financial, Inc.; Plum Creek Timber Co.; |
Scholastic Corporation; Varian, Inc. | ||
Gail L. Neale, 75 | 5 | None |
Henry E. Riggs, 75 | 5 | None |
Christopher E. Stone,4 53 | 6 | None |
Patricia K. Woolf retired from the board in December 2009. The directors thank Dr. Woolf for her dedication and long service to the fund.
The fund’s statement of additional information includes additional information about fund directors and is available without charge upon request by calling American Funds Service Company at 800/421-0180. The address for all directors and officers of the fund is 333 South Hope Street, Los Angeles, CA 90071, Attention: Secretary.
See page 36 for footnotes.
“Interested” directors5 | ||
Year first | ||
elected a | ||
director or | Principal occupation(s) during past five years and | |
Name, age and | officer of | positions held with affiliated entities or the |
position with fund | the fund1 | principal underwriter of the fund |
James F. Rothenberg, 63 | 1998 | Chairman of the Board, Capital Research and |
Vice Chairman of the Board | Management Company; Director and Non-Executive Chair, American Funds Distributors, Inc.;6 Director and Non-Executive Chair, The Capital Group Companies, Inc.6 | |
Dina N. Perry, 64 | 1994 | Senior Vice President — Capital World Investors, |
President | Capital Research and Management Company; Director, Capital Research and Management Company | |
“Interested” directors5 | ||
Number of | ||
portfolios | ||
in fund | ||
complex2 | ||
Name, age and | overseen by | |
position with fund | director | Other directorships3 held by director |
James F. Rothenberg, 63 | 2 | None |
Vice Chairman of the Board | ||
Dina N. Perry, 64 | 1 | None |
President |
Other officers7 | ||
Year first | ||
elected | Principal occupation(s) during past five years | |
Name, age and | an officer | and positions held with affiliated entities or the |
position with fund | of the fund1 | principal underwriter of the fund |
Paul G. Haaga, Jr., 61 | ||
Executive Vice President | 1994 | Vice Chairman of the Board, Capital Research and |
Management Company; Senior Vice President — | ||
Fixed Income, Capital Research and Management | ||
Company | ||
Michael T. Kerr, 50 | ||
Senior Vice President | 1995 | Senior Vice President — Capital World Investors, |
Capital Research and Management Company; | ||
Director, Capital Research and Management | ||
Company | ||
Martin Romo,7 42 | ||
Senior Vice President | 1999 | Senior Vice President — Capital World Investors, |
Capital Research Company;6 Director and | ||
Co-President, Capital Research Company;6 | ||
Director, The Capital Group Companies, Inc.6 | ||
Mark L. Casey,7 39 | 2008 | Senior Vice President — Capital World Investors, |
Vice President | Capital Research Company;6 Director, | |
Capital Research Company6 | ||
Ronald B. Morrow, 64 | 2004 | Senior Vice President — Capital World Investors, |
Vice President | Capital Research and Management Company | |
Donald H. Rolfe, 37 | 2007 | Associate Counsel — Fund Business Management |
Vice President | Group, Capital Research and Management Company | |
Patrick F. Quan, 51 | 1989–1998 | Vice President — Fund Business Management |
Secretary | 2000 | Group, Capital Research and Management Company |
Jeffrey P. Regal, 38 | 2006 | Vice President — Fund Business Management |
Treasurer | Group, Capital Research and Management Company | |
Gregory F. Niland, 38 | 2009 | Vice President — Fund Business Management |
Assistant Treasurer | Group, Capital Research and Management Company |
1Directors and officers of the fund serve until their resignation, removal or retirement. |
2Capital Research and Management Company manages the American Funds, consisting of 30 funds. Capital Research and Management Company also manages American Funds Insurance Series,® which is composed of 16 funds and serves as the underlying investment vehicle for certain variable insurance contracts; American Funds Target Date Retirement Series,® Inc., which is composed of 10 funds and is available through tax-deferred retirement plans and IRAs; and Endowments, which is available to certain nonprofit organizations. |
3This includes all directorships (other than those in the American Funds or other funds managed by Capital Research and Management Company) that are held by each director as a director of a public company or a registered investment company. |
4Mary Anne Dolan, John G. Freund, William H. Kling and Christopher E. Stone were newly elected to the board by the fund’s shareholders effective January 1, 2010. |
5“Interested persons” within the meaning of the 1940 Act, as amended, on the basis of their affiliation with the fund’s investment adviser, Capital Research and Management Company, or affiliated entities (including the fund’s principal underwriter). |
6Company affiliated with Capital Research and Management Company. |
7 All of the officers listed, except Martin Romo and Mark L. Casey, are officers and/or directors/trustees of one or more of the other funds for which Capital Research and Management Company serves as investment adviser. |
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
6455 Irvine Center Drive
Irvine, CA 92618
Transfer agent for shareholder accounts
American Funds Service Company
(Write to the address near you.)
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
K&L Gates LLP
Four Embarcadero Center, Suite 1200
San Francisco, CA 94111-5994
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 summary prospectus and prospectus, which can be obtained from your financial professional 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 Procedures and Principles” — which describes how we vote proxies relating to portfolio securities — is available on the American Funds website or upon request by calling AFS. The fund files its proxy voting record with the U.S. Securities and Exchange Commission (SEC) for the 12 months ended June 30 by August 31. The proxy voting record is available free of charge on the SEC website at sec.gov and on the American Funds website.
A complete December 31, 2009, 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. Additional information regarding the operation of the Public Reference Room may be obtained by calling the SEC’s Office of Investor Education and Advocacy at 800/SEC-0330. Additionally, the list of portfolio holdings 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 summary prospectus or prospectus, which gives details about charges, expenses, investment objectives and operating policies of the fund. If used as sales material after March 31, 2010, 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 nearly 80 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 50 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 approach to portfolio management, developed 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 25 years of investment experience, providing a depth of knowledge and broad perspective that few organizations have. |
•A commitment to low management fees |
The American Funds provide exceptional value for shareholders, with management fees that are among the lowest in the mutual fund industry. |
American Funds span a range of investment objectives
•Growth funds |
Emphasis on long-term growth through stocks |
AMCAP Fund® |
EuroPacific Growth Fund® |
The Growth Fund of America® |
The New Economy Fund® |
New Perspective Fund® |
New World Fund® |
SMALLCAP World Fund® |
•Growth-and-income funds |
Emphasis on long-term growth and dividends through stocks |
American Mutual Fund® |
Capital World Growth and Income FundSM |
>Fundamental InvestorsSM |
International Growth and Income FundSM |
The Investment Company of America® |
Washington Mutual Investors FundSM |
•Equity-income funds |
Emphasis on above-average income and growth through stocks and/or bonds |
Capital Income Builder® |
The Income Fund of America® |
•Balanced fund |
Emphasis on long-term growth and current income through stocks and bonds |
American Balanced Fund® |
•Bond funds |
Emphasis on current income through bonds |
American High-Income TrustSM |
The Bond Fund of AmericaSM |
Capital World Bond Fund® |
Intermediate Bond Fund of America® |
Short-Term Bond Fund of AmericaSM |
U.S. Government Securities FundSM |
•Tax-exempt bond funds |
Emphasis on tax-exempt current income through municipal bonds |
American Funds Short-Term Tax-Exempt Bond 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® |
•Money market fund |
American Funds Money Market FundSM |
•American Funds Target Date Retirement Series® |
The Capital Group Companies
American Funds Capital Research and Management Capital International Capital Guardian Capital Bank and Trust
Lit. No. MFGEAR-910-0210P
Litho in USA KBDA/RRD/8056-S20668
Printed on paper containing 10% post-consumer waste
Printed with inks containing soy and/or vegetable oil
ITEM 2 – Code of Ethics
The Registrant has adopted a Code of Ethics that applies to its Principal Executive Officer and Principal Financial Officer. The Registrant undertakes to provide to any person without charge, upon request, a copy of the Code of Ethics. Such request can be made to American Funds Service Company at 800/421-0180 or to the Secretary of the Registrant, One Market, Steuart Tower, Suite 1800, San Francisco, California 94105.
ITEM 3 – Audit Committee Financial Expert
The Registrant’s board has determined that Ronald P. Badie, a member of the Registrant’s audit committee, is an “audit committee financial expert” and "independent," as such terms are defined in this Item. This designation will not increase the designee’s duties, obligations or liability as compared to his or her duties, obligations and liability as a member of the audit committee and of the board, nor will it reduce the responsibility of the other audit committee members. There may be other individuals who, through education or experience, would qualify as "audit committee financial experts" if the board had designated them as such. Most importantly, the board believes each member of the audit committee contributes significantly to the effective oversight of the Registrant’s financial statements and condition.
ITEM 4 – Principal Accountant Fees and Services
Registrant: | ||||
a) Audit Fees: | ||||
2008 | $76,000 | |||
2009 | $80,000 | |||
b) Audit-Related Fees: | ||||
2008 | $16,000 | |||
2009 | $10,000 | |||
The audit-related fees consist of assurance and related services relating to the examination of the Registrant’s investment adviser conducted in accordance with Statement on Auditing Standards Number 70 issued by the American Institute of Certified Public Accountants. | ||||
c) Tax Fees: | ||||
2008 | $10,000 | |||
2009 | $8,000 | |||
The tax fees consist of professional services relating to the preparation of the Registrant’s tax returns including returns relating to the Registrant’s investments in non-U.S. jurisdictions. | ||||
d) All Other Fees: | ||||
2008 | None | |||
2009 | None | |||
Adviser and affiliates (includes only fees for non-audit services billed to the adviser and affiliates for engagements that relate directly to the operations and financial reporting of the Registrant and were subject to the pre-approval policies described below): | ||||
a) Audit Fees: | ||||
Not Applicable | ||||
b) Audit-Related Fees: | ||||
2008 | $1,070,000 | |||
2009 | $1,029,000 | |||
The audit-related fees consist of assurance and related services relating to the examination of the Registrant’s transfer agent, principal underwriter and investment adviser conducted in accordance with Statement on Auditing Standards Number 70 issued by the American Institute of Certified Public Accountants. | ||||
c) Tax Fees: | ||||
2008 | $8,000 | |||
2009 | None | |||
The tax fees consist of consulting services relating to the Registrant’s investments. | ||||
d) All Other Fees: | ||||
2008 | None | |||
2009 | $2,000 | |||
The other fees consist of subscription services related to an accounting research tool. | ||||
All audit and permissible non-audit services that the Registrant’s audit committee considers compatible with maintaining the independent registered public accounting firm’s independence are required to be pre-approved by the committee. The pre-approval requirement will extend to all non-audit services provided to the Registrant, the investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant, if the engagement relates directly to the operations and financial reporting of the Registrant. The committee will not delegate its responsibility to pre-approve these services to the investment adviser. The committee may delegate to one or more committee members the authority to review and pre-approve audit and permissible non-audit services. Actions taken under any such delegation will be reported to the full committee at its next meeting. The pre-approval requirement is waived with respect to non-audit services if certain conditions are met. The pre-approval requirement was not waived for any of the non-audit services listed above provided to the Registrant, adviser and affiliates.
Aggregate non-audit fees paid to the Registrant’s auditors, including fees for all services billed to the Registrant, adviser and affiliates that provide ongoing services to the Registrant, were $1,396,000 for fiscal year 2008 and $1,479,000 for fiscal year 2009. The non-audit services represented by these amounts were brought to the attention of the committee and considered to be compatible with maintaining the auditors’ independence.
ITEM 5 – Audit Committee of Listed Registrants
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 6 – Schedule of Investments
[logo – American Funds®]
Fundamental InvestorsSM
Investment portfolio
December 31, 2009
Common stocks — 95.32% | Shares | Value (000) | ||||||
INFORMATION TECHNOLOGY — 16.99% | ||||||||
Microsoft Corp. | 38,795,000 | $ | 1,182,860 | |||||
Oracle Corp. | 40,523,879 | 994,456 | ||||||
Cisco Systems, Inc.1 | 25,643,500 | 613,905 | ||||||
Google Inc., Class A1 | 920,000 | 570,382 | ||||||
Yahoo! Inc.1 | 30,660,000 | 514,475 | ||||||
Apple Inc.1 | 2,420,000 | 510,281 | ||||||
Corning Inc. | 24,270,000 | 468,654 | ||||||
Intuit Inc.1 | 10,875,000 | 333,971 | ||||||
SAP AG (ADR) | 6,500,000 | 304,265 | ||||||
EMC Corp.1 | 14,000,000 | 244,580 | ||||||
QUALCOMM Inc. | 5,125,000 | 237,083 | ||||||
Fidelity National Information Services, Inc. | 8,285,499 | 194,212 | ||||||
Intel Corp. | 8,000,000 | 163,200 | ||||||
Visa Inc., Class A | 1,850,000 | 161,801 | ||||||
Xilinx, Inc. | 6,300,000 | 157,878 | ||||||
Lender Processing Services, Inc. | 3,807,500 | 154,813 | ||||||
Microchip Technology Inc. | 5,300,000 | 154,018 | ||||||
Hewlett-Packard Co. | 2,600,000 | 133,926 | ||||||
Red Hat, Inc.1 | 3,000,000 | 92,700 | ||||||
Applied Materials, Inc. | 6,500,000 | 90,610 | ||||||
Comverse Technology, Inc.1 | 7,684,470 | 72,618 | ||||||
Tyco Electronics Ltd. | 2,615,000 | 64,198 | ||||||
Paychex, Inc. | 2,043,500 | 62,613 | ||||||
Linear Technology Corp. | 1,860,000 | 56,804 | ||||||
ASML Holding NV2 | 1,374,568 | 46,719 | ||||||
KLA-Tencor Corp. | 1,274,500 | 46,086 | ||||||
HTC Corp.2 | 1,880,940 | 21,430 | ||||||
Murata Manufacturing Co., Ltd.2 | 300,000 | 14,822 | ||||||
7,663,360 | ||||||||
ENERGY — 12.65% | ||||||||
Suncor Energy Inc. | 40,433,040 | 1,437,387 | ||||||
Occidental Petroleum Corp. | 6,204,244 | 504,715 | ||||||
CONSOL Energy Inc.3 | 6,700,000 | 333,660 | ||||||
ConocoPhillips | 5,470,000 | 279,353 | ||||||
TOTAL SA2 | 4,210,000 | 269,586 | ||||||
Tenaris SA (ADR) | 6,200,000 | 264,430 | ||||||
FMC Technologies, Inc.1 | 4,500,000 | 260,280 | ||||||
Chevron Corp. | 3,117,763 | 240,036 | ||||||
Royal Dutch Shell PLC, Class A (ADR) | 3,500,000 | 210,385 | ||||||
Royal Dutch Shell PLC, Class B (ADR) | 450,000 | 26,158 | ||||||
Murphy Oil Corp. | 4,343,636 | 235,425 | ||||||
Baker Hughes Inc. | 5,220,000 | 211,305 | ||||||
Diamond Offshore Drilling, Inc. | 2,050,000 | 201,761 | ||||||
Petróleo Brasileiro SA – Petrobras, ordinary nominative (ADR) | 3,210,000 | 153,053 | ||||||
Hess Corp. | 2,500,000 | 151,250 | ||||||
Acergy SA2 | 9,520,000 | 150,096 | ||||||
Imperial Oil Ltd. | 3,608,739 | 140,185 | ||||||
Smith International, Inc. | 4,810,000 | 130,688 | ||||||
OAO TMK (GDR)1,2 | 5,685,000 | 99,646 | ||||||
Halliburton Co. | 3,040,000 | 91,474 | ||||||
Schlumberger Ltd. | 1,200,000 | 78,108 | ||||||
Devon Energy Corp. | 1,000,000 | 73,500 | ||||||
Quicksilver Resources Inc.1 | 2,592,200 | 38,909 | ||||||
Canadian Oil Sands Trust | 1,249,700 | 35,711 | ||||||
Exxon Mobil Corp. | 500,000 | 34,095 | ||||||
Arch Coal, Inc. | 1,286,600 | 28,627 | ||||||
Cameco Corp. | 846,300 | 27,434 | ||||||
5,707,257 | ||||||||
HEALTH CARE — 12.13% | ||||||||
Merck & Co., Inc. | 36,151,059 | 1,320,960 | ||||||
Roche Holding AG2 | 3,820,000 | 649,122 | ||||||
Medtronic, Inc. | 13,625,000 | 599,227 | ||||||
Eli Lilly and Co. | 13,685,000 | 488,691 | ||||||
Baxter International Inc. | 6,940,000 | 407,239 | ||||||
Pfizer Inc | 15,940,000 | 289,949 | ||||||
Shire Ltd. (ADR) | 3,500,000 | 205,450 | ||||||
Intuitive Surgical, Inc.1 | 649,895 | 197,126 | ||||||
Hologic, Inc.1 | 12,730,000 | 184,585 | ||||||
Novartis AG2 | 3,200,000 | 174,150 | ||||||
Johnson & Johnson | 2,300,000 | 148,143 | ||||||
Amgen Inc.1 | 2,058,000 | 116,421 | ||||||
Abbott Laboratories | 1,800,000 | 97,182 | ||||||
Stryker Corp. | 1,800,000 | 90,666 | ||||||
Hospira, Inc.1 | 1,700,000 | 86,700 | ||||||
Novo Nordisk A/S, Class B2 | 1,329,000 | 85,022 | ||||||
Bayer AG2 | 1,000,000 | 79,867 | ||||||
Aetna Inc. | 2,310,000 | 73,227 | ||||||
St. Jude Medical, Inc.1 | 1,900,000 | 69,882 | ||||||
Medco Health Solutions, Inc.1 | 926,000 | 59,181 | ||||||
Boston Scientific Corp.1 | 4,445,000 | 40,005 | ||||||
C. R. Bard, Inc. | 150,000 | 11,685 | ||||||
5,474,480 | ||||||||
INDUSTRIALS — 10.99% | ||||||||
Lockheed Martin Corp. | 5,398,200 | 406,754 | ||||||
Union Pacific Corp. | 6,100,000 | 389,790 | ||||||
Schneider Electric SA2 | 3,157,277 | 365,509 | ||||||
Deere & Co. | 5,600,000 | 302,904 | ||||||
Boeing Co. | 5,500,000 | 297,715 | ||||||
First Solar, Inc.1 | 2,110,000 | 285,694 | ||||||
Emerson Electric Co. | 6,000,000 | 255,600 | ||||||
Tyco International Ltd. | 7,040,000 | 251,187 | ||||||
Parker Hannifin Corp. | 4,500,000 | 242,460 | ||||||
United Technologies Corp. | 3,250,000 | 225,582 | ||||||
Northrop Grumman Corp. | 3,966,243 | 221,515 | ||||||
Waste Management, Inc. | 5,700,000 | 192,717 | ||||||
United Parcel Service, Inc., Class B | 3,250,000 | 186,452 | ||||||
European Aeronautic Defence and Space Co. EADS NV2 | 8,000,000 | 159,688 | ||||||
Precision Castparts Corp. | 1,200,000 | 132,420 | ||||||
Joy Global Inc. | 2,238,638 | 115,491 | ||||||
Fastenal Co. | 2,500,500 | 104,121 | ||||||
General Electric Co. | 6,650,000 | 100,615 | ||||||
Honeywell International Inc. | 2,300,000 | 90,160 | ||||||
Raytheon Co. | 1,732,732 | 89,270 | ||||||
Republic Services, Inc. | 3,051,600 | 86,391 | ||||||
MTU Aero Engines Holding AG2 | 1,475,220 | 80,890 | ||||||
General Dynamics Corp. | 1,145,800 | 78,109 | ||||||
KBR, Inc. | 3,950,000 | 75,050 | ||||||
Grafton Group PLC, units2,4 | 14,962,000 | 62,041 | ||||||
Corporate Executive Board Co.4 | 2,304,200 | 52,582 | ||||||
Vestas Wind Systems A/S1,2 | 787,000 | 48,148 | ||||||
Vallourec SA2 | 200,000 | 36,351 | ||||||
Iron Mountain Inc.1 | 1,000,000 | 22,760 | ||||||
4,957,966 | ||||||||
FINANCIALS — 9.57% | ||||||||
JPMorgan Chase & Co. | 16,255,000 | 677,346 | ||||||
Wells Fargo & Co. | 19,513,000 | 526,656 | ||||||
U.S. Bancorp | 21,952,000 | 494,140 | ||||||
Bank of America Corp. | 28,000,000 | 421,680 | ||||||
Berkshire Hathaway Inc., Class A1 | 2,945 | 292,144 | ||||||
ACE Ltd. | 5,700,000 | 287,280 | ||||||
Aon Corp. | 6,700,000 | 256,878 | ||||||
SunTrust Banks, Inc. | 9,250,000 | 187,682 | ||||||
Marsh & McLennan Companies, Inc. | 8,060,000 | 177,965 | ||||||
AMP Ltd.2 | 25,571,383 | 154,000 | ||||||
Crédit Agricole SA2 | 8,000,000 | 139,367 | ||||||
Industrial and Commercial Bank of China Ltd., Class H2 | 133,400,000 | 109,488 | ||||||
New York Community Bancorp, Inc. | 7,500,000 | 108,825 | ||||||
Citigroup Inc. | 30,000,000 | 99,300 | ||||||
Cincinnati Financial Corp. | 3,000,000 | 78,720 | ||||||
Travelers Companies, Inc. | 1,500,000 | 74,790 | ||||||
American Express Co. | 1,100,000 | 44,572 | ||||||
Irish Life & Permanent PLC1,2 | 8,435,059 | 39,795 | ||||||
People’s United Financial, Inc. | 2,000,000 | 33,400 | ||||||
Bank of Ireland1,2 | 15,863,513 | 29,586 | ||||||
Bank of New York Mellon Corp. | 1,000,000 | 27,970 | ||||||
CapitalSource Inc. | 6,725,954 | 26,702 | ||||||
Marshall & Ilsley Corp. | 3,189,998 | 17,385 | ||||||
Allied Irish Banks, PLC1,2 | 8,200,000 | 14,253 | ||||||
4,319,924 | ||||||||
MATERIALS — 9.03% | ||||||||
Rio Tinto PLC2 | 10,662,500 | 575,417 | ||||||
Syngenta AG2 | 2,025,400 | 566,922 | ||||||
Potash Corp. of Saskatchewan Inc. | 2,684,100 | 291,225 | ||||||
Monsanto Co. | 2,850,000 | 232,987 | ||||||
Dow Chemical Co. | 8,376,600 | 231,445 | ||||||
CRH PLC2 | 8,219,550 | 222,485 | ||||||
Vale SA, ordinary nominative (ADR) | 7,000,000 | 203,210 | ||||||
Weyerhaeuser Co. | 3,583,000 | 154,571 | ||||||
E.I. du Pont de Nemours and Co. | 4,565,300 | 153,714 | ||||||
Mosaic Co. | 2,500,000 | 149,325 | ||||||
Praxair, Inc. | 1,725,000 | 138,535 | ||||||
PPG Industries, Inc. | 2,166,649 | 126,836 | ||||||
Xstrata PLC1,2 | 7,000,000 | 123,456 | ||||||
Newmont Mining Corp. | 2,500,000 | 118,275 | ||||||
BHP Billiton Ltd.2 | 2,860,000 | 109,514 | ||||||
MeadWestvaco Corp. | 3,750,000 | 107,362 | ||||||
Ecolab Inc. | 2,200,000 | 98,076 | ||||||
Sigma-Aldrich Corp. | 1,925,000 | 97,270 | ||||||
Alcoa Inc. | 6,000,000 | 96,720 | ||||||
Cliffs Natural Resources Inc. | 2,000,000 | 92,180 | ||||||
Grupo México, SAB de CV, Series B | 30,000,000 | 68,854 | ||||||
Norsk Hydro ASA1,2 | 6,500,000 | 54,025 | ||||||
Vulcan Materials Co. | 637,233 | 33,563 | ||||||
Buzzi Unicem SpA, nonconvertible shares2 | 2,640,000 | 27,279 | ||||||
4,073,246 | ||||||||
CONSUMER DISCRETIONARY — 7.79% | ||||||||
McDonald’s Corp. | 11,556,400 | 721,582 | ||||||
Home Depot, Inc. | 12,600,000 | 364,518 | ||||||
Starbucks Corp.1 | 14,000,000 | 322,840 | ||||||
Walt Disney Co. | 8,000,000 | 258,000 | ||||||
Time Warner Inc. | 8,500,000 | 247,690 | ||||||
Comcast Corp., Class A | 12,330,000 | 207,884 | ||||||
Johnson Controls, Inc. | 7,500,000 | 204,300 | ||||||
Strayer Education, Inc.4 | 743,100 | 157,901 | ||||||
Industria de Diseño Textil, SA2 | 2,500,000 | 154,796 | ||||||
Virgin Media Inc.1 | 8,000,000 | 134,640 | ||||||
Lowe’s Companies, Inc. | 5,630,000 | 131,686 | ||||||
Shaw Communications Inc., Class B, nonvoting | 6,000,000 | 123,420 | ||||||
Macy’s, Inc. | 6,500,000 | 108,940 | ||||||
Marriott International, Inc., Class A | 3,352,545 | 91,357 | ||||||
Nikon Corp.2 | 3,977,000 | 78,483 | ||||||
News Corp., Class A | 3,650,000 | 49,968 | ||||||
Penn National Gaming, Inc.1 | 1,763,000 | 47,918 | ||||||
Toyota Motor Corp.2 | 1,000,000 | 42,041 | ||||||
Chipotle Mexican Grill, Inc.1 | 379,832 | 33,486 | ||||||
Weight Watchers International, Inc. | 1,070,000 | 31,201 | ||||||
3,512,651 | ||||||||
CONSUMER STAPLES — 6.12% | ||||||||
Coca-Cola Co. | 11,460,000 | 653,220 | ||||||
Philip Morris International Inc. | 8,224,800 | 396,353 | ||||||
Altria Group, Inc. | 14,175,100 | 278,257 | ||||||
Pernod Ricard SA2 | 2,473,500 | 212,158 | ||||||
PepsiCo, Inc. | 3,100,000 | 188,480 | ||||||
Avon Products, Inc. | 5,600,000 | 176,400 | ||||||
Procter & Gamble Co. | 2,555,000 | 154,910 | ||||||
Wal-Mart Stores, Inc. | 2,400,000 | 128,280 | ||||||
Unilever NV, depository receipts2 | 3,500,000 | 113,965 | ||||||
British American Tobacco PLC2 | 3,150,000 | 102,321 | ||||||
Coca-Cola Amatil Ltd.2 | 9,390,556 | 96,762 | ||||||
Colgate-Palmolive Co. | 1,100,000 | 90,365 | ||||||
CVS/Caremark Corp. | 2,500,000 | 80,525 | ||||||
Kraft Foods Inc., Class A | 1,900,000 | 51,642 | ||||||
C&C Group PLC2 | 8,773,609 | 37,836 | ||||||
2,761,474 | ||||||||
UTILITIES — 4.44% | ||||||||
Exelon Corp. | 7,760,900 | 379,275 | ||||||
GDF Suez2 | 6,029,861 | 261,407 | ||||||
Questar Corp. | 5,000,000 | 207,850 | ||||||
Edison International | 5,250,000 | 182,595 | ||||||
E.ON AG2 | 4,000,000 | 166,868 | ||||||
PPL Corp. | 4,500,000 | 145,395 | ||||||
American Water Works Co., Inc. | 5,000,000 | 112,050 | ||||||
Duke Energy Corp. | 6,500,000 | 111,865 | ||||||
Electricité de France SA2 | 1,761,147 | 104,721 | ||||||
PG&E Corp. | 2,000,000 | 89,300 | ||||||
NV Energy, Inc. | 7,000,000 | 86,660 | ||||||
SUEZ Environnement Co.2 | 2,500,000 | 57,712 | ||||||
FPL Group, Inc. | 1,050,000 | 55,461 | ||||||
Xcel Energy Inc. | 1,500,000 | 31,830 | ||||||
Entergy Corp. | 150,000 | 12,276 | ||||||
2,005,265 | ||||||||
TELECOMMUNICATION SERVICES — 2.91% | ||||||||
Verizon Communications Inc. | 16,800,000 | 556,584 | ||||||
Telefónica, SA2 | 9,500,000 | 264,586 | ||||||
AT&T Inc. | 7,150,000 | 200,414 | ||||||
SOFTBANK CORP.2 | 4,700,000 | 109,917 | ||||||
Vodafone Group PLC2 | 44,500,000 | 103,183 | ||||||
China Telecom Corp. Ltd., Class H2 | 185,180,000 | 76,630 | ||||||
1,311,314 | ||||||||
MISCELLANEOUS — 2.70% | ||||||||
Other common stocks in initial period of acquisition | 1,219,520 | |||||||
Total common stocks (cost: $37,957,243,000) | 43,006,457 | |||||||
Convertible securities — 0.03% | ||||||||
MISCELLANEOUS — 0.03% | ||||||||
Other convertible securities in initial period of acquisition | 13,875 | |||||||
Total convertible securities (cost: $12,500,000) | 13,875 | |||||||
Principal amount | ||||||||
Bonds & notes — 0.01% | (000 | ) | ||||||
MORTGAGE-BACKED OBLIGATIONS5 — 0.01% | ||||||||
ChaseFlex Trust, Series 2007-2, Class A-1, 0.511% 20376 | $ | 10,392 | 6,360 | |||||
Total bonds & notes (cost: $6,440,000) | 6,360 | |||||||
Principal amount | Value | |||||||
Short-term securities — 4.59% | (000 | ) | (000 | ) | ||||
Freddie Mac 0.08%–1.00% due 1/20–9/14/2010 | $ | 754,000 | $ | 753,730 | ||||
Fannie Mae 0.07%–0.25% due 1/25–8/16/2010 | 251,330 | 251,104 | ||||||
U.S. Treasury Bills 0.161%–0.28% due 2/4–8/26/2010 | 145,450 | 145,399 | ||||||
Coca-Cola Co. 0.18%–0.21% due 1/6–3/18/20103 | 102,850 | 102,841 | ||||||
Straight-A Funding LLC 0.18% due 2/9–3/8/20103 | 100,000 | 99,976 | ||||||
Federal Home Loan Bank 0.06%–0.10% due 1/8–3/29/2010 | 96,900 | 96,893 | ||||||
Private Export Funding Corp. 0.15%–0.22% due 2/3–3/3/20103 | 96,600 | 96,578 | ||||||
General Electric Capital Corp. 0.17%–0.20% due 1/11–1/20/2010 | 67,700 | 67,691 | ||||||
General Electric Capital Services, Inc. 0.18% due 2/22/2010 | 25,000 | 24,992 | ||||||
Variable Funding Capital Company LLC 0.16%–0.21% due 1/5–1/14/2010 3 | 77,000 | 76,991 | ||||||
Enterprise Funding Co. LLC 0.20% due 3/17/20103 | 35,019 | 35,003 | ||||||
Bank of America Corp. 0.23% due 3/23/2010 | 30,000 | 29,986 | ||||||
Park Avenue Receivables Co., LLC 0.15% due 1/4/20103 | 35,000 | 34,999 | ||||||
Jupiter Securitization Co., LLC 0.15%–0.21% due 1/12–1/15/20103 | 24,500 | 24,497 | ||||||
Procter & Gamble International Funding S.C.A. 0.21%–0.22% due 1/14–2/11/20103 | 50,500 | 50,492 | ||||||
Federal Farm Credit Banks 0.37% due 5/10/2010 | 50,000 | 49,973 | ||||||
NetJets Inc. 0.12% due 3/1/20103 | 41,550 | 41,537 | ||||||
Abbott Laboratories 0.11% due 2/1/20103 | 35,000 | 34,997 | ||||||
Medtronic Inc. 0.14% due 1/5/20103 | 26,300 | 26,300 | ||||||
Walt Disney Co. 0.11% due 1/20/20103 | 25,000 | 24,998 | ||||||
Total short-term securities (cost: $2,068,739,000) | 2,068,977 | |||||||
Total investment securities (cost: $40,044,922,000) | 45,095,669 | |||||||
Other assets less liabilities | 22,220 | |||||||
Net assets | $ | 45,117,889 |
"Miscellaneous" securities include holdings in their initial period of acquisition that have not previously been publicly disclosed.
1Security did not produce income during the last 12 months.
2Valued under fair value procedures adopted by authority of the board of directors. The total value of all such securities, including those in "Miscellaneous," was $6,744,614,000, which represented 14.95% of the net assets of the fund. This entire amount relates to certain securities trading outside the U.S. whose values were adjusted as a result of significant market movements following the close of local trading.
3Purchased in a transaction exempt from registration under the Securities Act of 1933. May be resold in the U.S. in transactions exempt from registration, normally to qualified institutional buyers. The total value of all such securities was $982,869,000, which represented 2.18% of the net assets of the fund.
4Represents an affiliated company as defined under the Investment Company Act of 1940.
5Principal payments may be made periodically. Therefore, the effective maturity date may be earlier than the stated maturity date.
6Coupon rate may change periodically.
Key to abbreviations
ADR = American Depositary Receipts
GDR = Global Depositary Receipts
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so you may lose money.
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 summary prospectus and prospectus, which can be obtained from your financial professional 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.
MFGEFP-910-0210O-S21491
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INVESTMENT PORTFOLIO
To the Shareholders and Board of Directors of
Fundamental Investors, Inc.:
We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the financial statements of Fundamental Investors, Inc. (the “Fund”) as of December 31, 2009, and for the year then ended and have issued our report thereon dated February 8, 2010, which report and financial statements are included in Item 1 of this Certified Shareholder Report on Form N-CSR. Our audit also included the Fund���s investment portfolio (the “Schedule”) as of December 31, 2009, appearing in Item 6 of this Form N-CSR. This Schedule is the responsibility of the Fund’s management. Our responsibility is to express an opinion based on our audit. In our opinion, the Schedule referred to above, when considered in relation to the basic financial statements taken as a whole of the Fund referred to above, presents fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Costa Mesa, California
February 8, 2010
ITEM 7 – Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.
ITEM 8 – Portfolio Managers of Closed-End Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.
ITEM 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.
ITEM 10 – Submission of Matters to a Vote of Security Holders
There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s board of directors since the Registrant last submitted a proxy statement to its shareholders. The procedures are as follows. The Registrant has a nominating 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.
ITEM 11 – Controls and Procedures
(a) | The Registrant’s Principal Executive Officer and Principal Financial Officer have concluded, based on their evaluation of the Registrant’s disclosure controls and procedures (as such term is defined in Rule 30a-3 under the Investment Company Act of 1940), that such controls and procedures are adequate and reasonably designed to achieve the purposes described in paragraph (c) of such rule. |
(b) | There were no changes in the Registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the Registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
ITEM 12 – Exhibits
(a)(1) | The Code of Ethics that is the subject of the disclosure required by Item 2 is attached as an exhibit hereto. |
(a)(2) | The certifications required by Rule 30a-2 of the Investment Company Act of 1940 and Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are attached as exhibits hereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FUNDAMENTAL INVESTORS, INC. | |
By /s/ Paul G. Haaga, Jr. | |
Paul G. Haaga, Jr., Executive Vice President and Principal Executive Officer | |
Date: February 26, 2010 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By /s/ Paul G. Haaga, Jr. |
Paul G. Haaga, Jr., Executive Vice President and Principal Executive Officer |
Date: February 26, 2010 |
By /s/ Jeffrey P. Regal |
Jeffrey P. Regal, Treasurer and Principal Financial Officer |
Date: February 26, 2010 |