Fundamental InvestorsSM
[photo of machine gears]
Semi-annual report for the six months ended June 30, 2011
Fundamental Investors seeks long-term growth of capital and income.
This fund is one of the 33 American Funds. American Funds is one of the nation’s largest mutual fund families. For 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.
Here are the average annual total returns on a $1,000 investment with all distributions reinvested for periods ended June 30, 2011: | |
| | | | | | | | | |
Class A shares | | 1 year | | | 5 years | | | 10 years | |
| | | | | | | | | |
Reflecting 5.75% maximum sales charge | | | 23.54 | % | | | 2.68 | % | | | 5.00 | % |
The total annual fund operating expense ratio was 0.64% for Class A shares as of the most recent fiscal year-end.
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. Applicable fund results shown reflect the waiver, without which they would have been lower. See the Financial Highlights table on pages 28 to 34 for details.
Results for other share classes can be found on page 6.
Investing outside the United States may be subject to risks such as currency fluctuations, periods of illiquidity, price volatility and political instability. 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:
[photo of machine gears]
For the six months ended June 30, 2011, Fundamental Investors gained 6.1%. This return includes quarterly dividends totaling 24 cents a share paid during the period.
The fund’s results were on par with those of its primary benchmark, the unmanaged Standard & Poor’s 500 Composite Index (S&P 500) which gained 6.0%, but exceeded the 5.3% return of its growth-and-income fund peers, as measured by the Lipper Growth and Income Funds Index.
Results for the fund also topped those of the unmanaged MSCI World Index, a measure of stock markets in more than 20 developed nations, which rose 5.6%. Though not one of the fund’s principal benchmarks, we include results for this index because Fundamental Investors is able to invest up to 30% of its assets outside the United States and Canada, and we believe it provides context for the global investing environment.
[Begin Sidebar]
Results at a glance | | | | | | | | | | | | | | | |
For periods ended June 30, 2011, with all distributions reinvested | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | Total returns | | | Average annual total returns | |
| | 6 months | | | 12 months | | | 5 years | | | 10 years | | | Lifetime1 | |
Fundamental Investors | | | | | | | | | | | | | | | |
(Class A shares) | | | 6.1 | % | | | 31.1 | % | | | 3.9 | % | | | 5.6 | % | | | 12.5 | % |
Standard & Poor’s 500 | | | | | | | | | | | | | | | | | | | | |
Composite Index2 | | | 6.0 | | | | 30.7 | | | | 2.9 | | | | 2.7 | | | | 11.3 | |
Lipper Growth and | | | | | | | | | | | | | | | | | | | | |
Income Funds Index3 | | | 5.3 | | | | 28.8 | | | | 2.3 | | | | 3.3 | | | | 10.7 | |
MSCI World Index2 | | | 5.6 | | | | 31.2 | | | | 2.8 | | | | 4.5 | | | | 10.5 | |
| | | | | | | | | | | | | | | | | | | | |
1 Since Capital Research and Management Company began managing the fund on August 1, 1978. |
2 The market indexes are unmanaged and their results do not reflect the effect of sales charges, commissions, account fees, expenses or taxes. |
3 Results do not reflect the effect of sales charges, account fees or taxes. |
[End Sidebar]
The last few years have underscored the importance of maintaining a long-term perspective. Staying the course amid volatile conditions like those experienced during the past decade can be difficult. But a review of the 10-year results shown in the table on the previous page reveals that even in a period marked by two steep market downturns, the fund posted solid results and meaningfully outpaced all its benchmark indexes. Overall, Fundamental Investors cumulatively gained 72.8% for the 10 years ended June 30, 2011 — more than double the 30.8% registered by the S&P 500.
Substantive returns amid challenging conditions
The period began with global markets on the rise, powered by robust corporate earnings and broad indications that a worldwide economic recovery was in progress. Despite the concerns and challenges created by civil unrest in many oil-rich nations in the Middle East and North Africa, as well as the tragic and widespread impact of the Japanese earthquake and tsunami, most indexes climbed. However, toward the end of the period and after its close, the combination of slowing global growth, ongoing government debt crises in Europe, inflation concerns in certain developing countries and the U.S. debt ceiling standoff drove markets sharply lower. The S&P downgrade of the U.S. credit rating on August 5 added to the uncertainty.
A mixed impact
Shifting economic and market circumstances exerted a varied effect on the fund’s portfolio. In keeping with the pattern described in the most recent annual report, fund results were largely attributable to solid returns across its broad base of holdings rather than to those of its larger investments — only three of which gained more than the wider market.
Positive contributions were made by companies from a range of sectors. They included many retailers, chemical producers, pharmaceutical manufacturers, aerospace and defense firms, and media companies.
[Begin Sidebar]
Fundamental Investors’ 10 largest holdings | | | |
| | | |
Company | | Percent of net assets | |
| | | |
Merck | | | 2.6 | % |
Home Depot | | | 2.3 | |
Suncor | | | 2.1 | |
Union Pacific | | | 1.8 | |
Dow Chemical | | | 1.6 | |
Verizon | | | 1.5 | |
Bristol-Myers Squibb | | | 1.5 | |
Microsoft | | | 1.3 | |
Royal Dutch Shell | | | 1.2 | |
Texas Instruments | | | 1.2 | |
[End Sidebar]
Areas of relative weakness for the fund included financials, metals and mining, and Internet software and services.
The fund’s holdings in companies based outside the United States strongly supported results. Thanks to a combination of price appreciation and selective additions, they stood at 22.8% of fund assets at period end, up from 19.2% when we last reported to you.
Designed for diversification
The fund’s breadth of holdings — it has investments in more than 200 companies — is a natural outgrowth of our unique investment approach, known as the multiple portfolio counselor system. Each of the fund’s six portfolio counselors is allocated a portion of fund assets to invest according to his or her highest convictions. Because counselors have differing styles and outlooks on markets, no two invest in the same group of companies. Thus, in contrast to a portfolio built from a single point of view, multiple perspectives are captured within a single portfolio. As a result, solid results have not historically been as dependent on specific market or economic conditions.
An evolving portfolio
Although they have the freedom to think and act independently, one point of view currently shared by several portfolio counselors is the belief that an improvement in living standards worldwide will be a key driver of economic growth. Accordingly, during the six months, individual counselors continued to build positions in a number of energy, chemicals, media and semiconductor manufacturing companies they feel stand to benefit from this macroeconomic trend.
We reduced some of our positions in the consumer discretionary and pharmaceuticals areas. However, acting on the guidance of seasoned analysts, we rotated some of the proceeds from those sales into companies within the same sectors whose prospects we believe to be more attractive. We also significantly trimmed our investments among financial companies.
Dividends on the rise
Recently, profit growth, improved cash flows and healthier balance sheets have led many companies to pass additional cash through to shareholders in the form of dividend increases. This has been a welcome development for the fund, as dividend income has historically constituted a meaningful component of its total return.
Cautious but prepared to act
As mentioned before, we believe that new investment opportunities will emerge as global living standards continue to improve. Notwithstanding this belief, we are facing some very significant challenges — both at home and abroad.
We navigate these conditions as we always have — by working closely with our extensive global research network to identify solid individual companies we believe can withstand near-term challenges to capture long-term opportunities.
We appreciate your commitment to Fundamental Investors.
Sincerely,
/s/ James F. Rothenberg
James F. Rothenberg
Vice Chairman
/s/ Dina N. Perry
Dina N. Perry
President
August 12, 2011
For current information about the fund, visit americanfunds.com.
The fund’s 30-day yield for Class A shares as of July 31, 2011, calculated in accordance with the U.S. Securities and Exchange Commission formula, was 1.48%. The fund’s distribution rate for Class A shares as of that date was 1.43%. 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.
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 June 30, 2011: | | | | | | | | | |
| | | | | | | | 10 years1/ | |
| | 1 year | | | 5 years | | | Life of class | |
Class B shares2 | | | | | | | | | |
Reflecting applicable contingent deferred sales charge | | | | | | | | | |
(CDSC), maximum of 5%, payable only if shares | | | | | | | | | |
are sold within six years of purchase | | | 25.08 | % | | | 2.76 | % | | | 4.98 | % |
Not reflecting CDSC | | | 30.08 | | | | 3.12 | | | | 4.98 | |
| | | | | | | | | | | | |
Class C shares | | | | | | | | | | | | |
Reflecting CDSC, maximum of 1%, payable only | | | | | | | | | | | | |
if shares are sold within one year of purchase | | | 29.00 | | | | 3.08 | | | | 4.76 | |
Not reflecting CDSC | | | 30.00 | | | | 3.08 | | | | 4.76 | |
| | | | | | | | | | | | |
Class F-1 shares3 | | | | | | | | | | | | |
Not reflecting annual asset-based fee charged | | | | | | | | | | | | |
by sponsoring firm | | | 31.02 | | | | 3.90 | | | | 5.59 | |
| | | | | | | | | | | | |
Class F-2 shares3 — first sold 8/1/08 | | | | | | | | | | | | |
Not reflecting annual asset-based fee charged | | | | | | | | | | | | |
by sponsoring firm | | | 31.37 | | | | — | | | | 3.59 | |
| | | | | | | | | | | | |
Class 529-A shares4 — first sold 2/15/02 | | | | | | | | | | | | |
Reflecting 5.75% maximum sales charge | | | 23.47 | | | | 2.63 | | | | 6.23 | |
Not reflecting maximum sales charge | | | 31.00 | | | | 3.85 | | | | 6.90 | |
| | | | | | | | | | | | |
Class 529-B shares2,4 — first sold 2/19/02 | | | | | | | | | | | | |
Reflecting applicable CDSC, maximum of 5%, payable | | | | | | | | | | | | |
only if shares are sold within six years of purchase | | | 24.95 | | | | 2.64 | | | | 6.33 | |
Not reflecting CDSC | | | 29.95 | | | | 3.00 | | | | 6.33 | |
| | | | | | | | | | | | |
Class 529-C shares4 — first sold 2/15/02 | | | | | | | | | | | | |
Reflecting CDSC, maximum of 1%, payable only | | | | | | | | | | | | |
if shares are sold within one year of purchase | | | 28.96 | | | | 3.01 | | | | 6.02 | |
Not reflecting CDSC | | | 29.96 | | | | 3.01 | | | | 6.02 | |
| | | | | | | | | | | | |
Class 529-E shares3,4 — first sold 3/7/02 | | | 30.64 | | | | 3.54 | | | | 5.97 | |
| | | | | | | | | | | | |
Class 529-F-1 shares3,4 — first sold 9/23/02 | | | | | | | | | | | | |
Not reflecting annual asset-based fee charged | | | | | | | | | | | | |
by sponsoring firm | | | 31.29 | | | | 4.06 | | | | 10.23 | |
| 1Applicable to Classes B, C and F-1 shares only. All other share classes reflect results for the life of the class. |
| 2These shares are not available for purchase. |
| 3These shares are sold without any initial or contingent deferred sales charge. |
| 4Results 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. Applicable fund results shown reflect the waiver, without which they would have been lower. See the Financial Highlights table on pages 28 to 34 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.
Summary investment portfolio June 30, 2011
The following summary investment portfolio is designed to streamline the report and help investors better focus on the 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 | | | 14.75 | % |
Energy | | | 13.46 | |
Industrials | | | 13.38 | |
Consumer discretionary | | | 12.10 | |
Financials | | | 10.49 | |
Other industries | | | 31.63 | |
Convertible securities and bonds & notes | | | 0.04 | |
Short-term securities & other assets less liabilities | | | 4.15 | |
[end pie chart]
Country diversification | | (percent of net assets) | |
United States | | | 73.0 | % |
Euro zone* | | | 6.9 | |
Canada | | | 4.9 | |
United Kingdom | | | 3.8 | |
Switzerland | | | 2.3 | |
Other countries | | | 4.9 | |
Short-term securities & other assets less liabilities | | | 4.2 | |
| | | | |
*Countries using the euro as a common currency; those represented in the fund’s portfolio are France, Germany, Ireland, Italy, the Netherlands, Portugal and Spain. |
| | | | | | | | Percent | |
| | | | | Value | | | of net | |
Common stocks - 95.81% | | Shares | | | | (000 | ) | | assets | |
| | | | | | | | | | |
Information technology - 14.75% | | | | | | | | | | |
Microsoft Corp. | | | 25,920,000 | | | $ | 673,920 | | | | 1.27 | % |
Texas Instruments Inc. | | | 19,270,300 | | | | 632,644 | | | | 1.19 | |
Apple Inc. (1) | | | 1,663,800 | | | | 558,488 | | | | 1.05 | |
Google Inc., Class A (1) | | | 1,032,000 | | | | 522,584 | | | | .99 | |
Samsung Electronics Co. Ltd. (2) | | | 606,500 | | | | 471,396 | | | | .89 | |
EMC Corp. (1) | | | 16,875,000 | | | | 464,906 | | | | .88 | |
Taiwan Semiconductor Manufacturing Co. Ltd. (ADR) | | | 24,234,400 | | | | 305,596 | | | | | |
Taiwan Semiconductor Manufacturing Co. Ltd. (2) | | | 55,025,000 | | | | 139,272 | | | | .84 | |
Oracle Corp. | | | 12,407,950 | | | | 408,346 | | | | .77 | |
Intuit Inc. (1) | | | 6,450,000 | | | | 334,497 | | | | .63 | |
Other securities | | | | | | | 3,305,029 | | | | 6.24 | |
| | | | | | | 7,816,678 | | | | 14.75 | |
| | | | | | | | | | | | |
Energy - 13.46% | | | | | | | | | | | | |
Suncor Energy Inc. | | | 28,723,361 | | | | 1,125,764 | | | | 2.13 | |
Royal Dutch Shell PLC, Class B (ADR) | | | 5,562,700 | | | | 399,124 | | | | | |
Royal Dutch Shell PLC, Class A (ADR) | | | 3,630,000 | | | | 258,202 | | | | 1.24 | |
Occidental Petroleum Corp. | | | 4,784,244 | | | | 497,753 | | | | .94 | |
Tenaris SA (ADR) | | | 10,060,000 | | | | 460,044 | | | | .87 | |
ConocoPhillips | | | 5,500,000 | | | | 413,545 | | | | .78 | |
FMC Technologies, Inc. (1) | | | 8,200,000 | | | | 367,278 | | | | .69 | |
Chevron Corp. | | | 3,547,763 | | | | 364,852 | | | | .69 | |
Baker Hughes Inc. | | | 4,500,000 | | | | 326,520 | | | | .62 | |
Other securities | | | | | | | 2,912,048 | | | | 5.50 | |
| | | | | | | 7,125,130 | | | | 13.46 | |
| | | | | | | | | | | | |
Industrials - 13.38% | | | | | | | | | | | | |
Union Pacific Corp. | | | 8,885,000 | | | | 927,594 | | | | 1.75 | |
Schneider Electric SA (2) | | | 3,242,272 | | | | 541,693 | | | | 1.02 | |
Lockheed Martin Corp. | | | 6,558,200 | | | | 531,017 | | | | 1.00 | |
Parker Hannifin Corp. | | | 5,750,000 | | | | 516,005 | | | | .98 | |
General Electric Co. | | | 22,000,000 | | | | 414,920 | | | | .78 | |
Deere & Co. | | | 4,000,000 | | | | 329,800 | | | | .62 | |
Other securities | | | | | | | 3,820,406 | | | | 7.23 | |
| | | | | | | 7,081,435 | | | | 13.38 | |
| | | | | | | | | | | | |
Consumer discretionary - 12.10% | | | | | | | | | | | | |
Home Depot, Inc. | | | 33,878,000 | | | | 1,227,061 | | | | 2.32 | |
Amazon.com, Inc. (1) | | | 2,620,000 | | | | 535,764 | | | | 1.01 | |
Walt Disney Co. | | | 11,800,000 | | | | 460,672 | | | | .87 | |
Starbucks Corp. | | | 11,000,000 | | | | 434,390 | | | | .82 | |
Virgin Media Inc. | | | 13,385,000 | | | | 400,613 | | | | .76 | |
Time Warner Inc. | | | 10,775,000 | | | | 391,887 | | | | .74 | |
Comcast Corp., Class A | | | 13,465,000 | | | | 341,203 | | | | .64 | |
Other securities | | | | | | | 2,616,591 | | | | 4.94 | |
| | | | | | | 6,408,181 | | | | 12.10 | |
| | | | | | | | | | | | |
Financials - 10.49% | | | | | | | | | | | | |
American Express Co. | | | 9,770,000 | | | | 505,109 | | | | .95 | |
Citigroup Inc. | | | 11,560,000 | | | | 481,358 | | | | .91 | |
Wells Fargo & Co. | | | 15,195,200 | | | | 426,377 | | | | .81 | |
ACE Ltd. | | | 5,700,000 | | | | 375,174 | | | | .71 | |
Marsh & McLennan Companies, Inc. | | | 10,865,000 | | | | 338,879 | | | | .64 | |
Other securities | | | | | | | 3,426,782 | | | | 6.47 | |
| | | | | | | 5,553,679 | | | | 10.49 | |
| | | | | | | | | | | | |
Health care - 9.33% | | | | | | | | | | | | |
Merck & Co., Inc. | | | 39,176,664 | | | | 1,382,544 | | | | 2.61 | |
Bristol-Myers Squibb Co. | | | 27,050,000 | | | | 783,368 | | | | 1.48 | |
Baxter International Inc. | | | 10,175,000 | | | | 607,346 | | | | 1.15 | |
Roche Holding AG (2) | | | 3,000,000 | | | | 501,897 | | | | .95 | |
Pfizer Inc | | | 17,470,000 | | | | 359,882 | | | | .68 | |
Other securities | | | | | | | 1,302,239 | | | | 2.46 | |
| | | | | | | 4,937,276 | | | | 9.33 | |
| | | | | | | | | | | | |
Materials - 8.77% | | | | | | | | | | | | |
Dow Chemical Co. | | | 23,607,900 | | | | 849,884 | | | | 1.61 | |
Syngenta AG (2) | | | 1,760,000 | | | | 594,142 | | | | 1.12 | |
Potash Corp. of Saskatchewan Inc. | | | 6,900,000 | | | | 393,231 | | | | .74 | |
Other securities | | | | | | | 2,803,284 | | | | 5.30 | |
| | | | | | | 4,640,541 | | | | 8.77 | |
| | | | | | | | | | | | |
Consumer staples - 6.01% | | | | | | | | | | | | |
Philip Morris International Inc. | | | 8,250,000 | | | | 550,852 | | | | 1.04 | |
Altria Group, Inc. | | | 16,535,100 | | | | 436,692 | | | | .82 | |
Other securities | | | | | | | 2,192,804 | | | | 4.15 | |
| | | | | | | 3,180,348 | | | | 6.01 | |
| | | | | | | | | | | | |
Telecommunication services - 2.89% | | | | | | | | | | | | |
Verizon Communications Inc. | | | 21,305,000 | | | | 793,185 | | | | 1.50 | |
AT&T Inc. | | | 11,000,000 | | | | 345,510 | | | | .65 | |
Other securities | | | | | | | 389,805 | | | | .74 | |
| | | | | | | 1,528,500 | | | | 2.89 | |
| | | | | | | | | | | | |
Utilties - 2.64% | | | | | | | | | | | | |
Other securities | | | | | | | 1,400,572 | | | | 2.64 | |
| | | | | | | | | | | | |
Miscellaneous - 1.99% | | | | | | | | | | | | |
Other common stocks in initial period of acquisition | | | | | | | 1,053,973 | | | | 1.99 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total common stocks (cost: $38,972,604,000) | | | | | | | 50,726,313 | | | | 95.81 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | Percent | |
| | | | | | Value | | | of net | |
Convertible securities - 0.03% | | | | | | | (000 | ) | | assets | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Industrials - 0.03% | | | | | | | | | | | | |
Other securities | | | | | | | 17,461 | | | | .03 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total convertible securities (cost: $12,275,000) | | | | | | | 17,461 | | | | .03 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | Percent | |
| | | | | | Value | | | of net | |
Bonds & notes - 0.01% | | | | | | | (000 | ) | | assets | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Mortgage-backed obligations - 0.01% | | | | | | | | | | | | |
Other securities | | | | | | | 5,599 | | | | .01 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total bonds & notes (cost: $5,865,000) | | | | | | | 5,599 | | | | .01 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Principal | | | | | | | Percent | |
| | amount | | | Value | | | of net | |
Short-term securities - 3.57% | | | (000 | ) | | | (000 | ) | | assets | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Fannie Mae 0.10%-0.21% due 8/9/2011-2/1/2012 | | $ | 465,171 | | | | 465,049 | | | | .88 | |
Freddie Mac 0.115%-0.20% due 7/18-12/15/2011 | | | 402,200 | | | | 402,138 | | | | .76 | |
U.S. Treasury Bills 0.07%-0.258% due 7/21/2011-5/3/2012 | | | 369,000 | | | | 368,917 | | | | .70 | |
Google Inc. 0.12% due 8/31/2011 (3) | | | 25,000 | | | | 24,992 | | | | .05 | |
Other securities | | | | | | | 627,281 | | | | 1.18 | |
| | | | | | | | | | | | |
Total short-term securities (cost: $1,888,076,000) | | | | | | | 1,888,377 | | | | 3.57 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total investment securities (cost: $40,878,820,000) | | | | | | | 52,637,750 | | | | 99.42 | |
Other assets less liabilities | | | | | | | 306,153 | | | | .58 | |
| | | | | | | | | | | | |
Net assets | | | | | | $ | 52,943,903 | | | | 100.00 | % |
Notes to financial statements
unaudited
American Funds Fundamental Investors (the “trust”) is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company and has initially issued one series of shares, Fundamental Investors (the “fund”). The fund seeks long-term growth of capital and income.
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 |
*Class B and 529-B shares of the fund are not available for purchase.
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.
2. | 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 fund follows the significant accounting policies described below, as well as the valuation policies described in the next section on valuation.
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.
The fund’s investments are reported at fair value as defined by accounting principles generally accepted in the United States of America. The fund generally determines the net asset value of each share class as of approximately 4:00 p.m. New York time each day the New York Stock Exchange is open.
Methods and inputs – The fund uses the following methods and inputs to establish the fair value of its assets and liabilities. Use of particular methods and inputs may vary over time based on availability and relevance as market and economic conditions evolve.
Equity securities are generally 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 on which the security trades.
Fixed-income securities, including short-term securities purchased with more than 60 days left to maturity, are generally valued at prices obtained as of approximately 3:00 p.m. New York time, or relevant local time for securities trading outside U.S. time zones, from one or more pricing vendors. Vendors value such securities based on one or more of the inputs described in the following table. The table provides examples of inputs that are commonly relevant for valuing particular classes of fixed-income securities in which the fund is authorized to invest. However, these classifications are not exclusive, and any of the inputs may be used to value any other class of fixed-income security.
Fixed-income class | Examples of standard inputs |
All | Benchmark yields, transactions, bids, offers, quotations from dealers and trading systems, new issues, spreads and other relationships observed in the markets among comparable securities; and proprietary pricing models such as yield measures calculated using factors such as cash flows, financial or collateral performance and other reference data (collectively referred to as “standard inputs”) |
Corporate bonds & notes; convertible securities | Standard inputs and underlying equity of the issuer |
Bonds & notes of governments & government agencies | Standard inputs and interest rate volatilities |
Mortgage-backed; asset-backed obligations | Standard inputs and cash flows, prepayment information, default rates, delinquency and loss assumptions, collateral characteristics, credit enhancements and specific deal information |
Where the investment adviser deems it appropriate to do so (such as when vendor prices are unavailable or not deemed to be representative), fixed-income 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.
Securities with both fixed-income and equity characteristics, or equity securities traded principally among fixed-income dealers, are generally 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 fair 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.
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 trustees. Market quotations may be considered unreliable if events occur that materially affect the value of securities (particularly equity securities trading 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 inputs may be reviewed in order to make a good faith determination of a security’s fair value. These inputs 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.
Classifications - The fund classifies its assets and liabilities into three levels based on the inputs 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 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 June 30, 2011 (dollars in thousands):
Investment securities: | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Common stocks: | | | | | | | | | | | | |
Information technology | | $ | 7,024,983 | | | $ | 791,695 | * | | $ | - | | | $ | 7,816,678 | |
Energy | | | 6,612,447 | | | | 512,683 | * | | | - | | | | 7,125,130 | |
Industrials | | | 5,499,657 | | | | 1,581,778 | * | | | - | | | | 7,081,435 | |
Consumer discretionary | | | 5,481,372 | | | | 926,809 | * | | | - | | | | 6,408,181 | |
Financials | | | 5,061,968 | | | | 491,711 | * | | | - | | | | 5,553,679 | |
Health care | | | 4,163,682 | | | | 773,594 | * | | | - | | | | 4,937,276 | |
Materials | | | 3,495,911 | | | | 1,144,630 | * | | | - | | | | 4,640,541 | |
Consumer staples | | | 2,438,339 | | | | 742,009 | * | | | - | | | | 3,180,348 | |
Telecommunication services | | | 1,138,695 | | | | 389,805 | * | | | - | | | | 1,528,500 | |
Utilities | | | 1,126,074 | | | | 274,498 | * | | | - | | | | 1,400,572 | |
Miscellaneous | | | 878,280 | | | | 175,693 | * | | | - | | | | 1,053,973 | |
Convertible securities | | | - | | | | 17,461 | | | | - | | | | 17,461 | |
Bonds & notes | | | - | | | | 5,599 | | | | - | | | | 5,599 | |
Short-term securities | | | - | | | | 1,888,377 | | | | - | | | | 1,888,377 | |
Total | | $ | 42,921,408 | | | $ | 9,716,342 | | | $ | - | | | $ | 52,637,750 | |
| | | | | | | | | | | | | | | | |
(*) 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, $7,804,905,000 of investment securities were classified as Level 2 instead of Level 1. |
Investing in the fund may involve certain risks including, but not limited to, those described below.
Market conditions — The prices of, and the income generated by, the common stocks and other securities held by the fund may decline due to market conditions and other factors, including those directly involving the issuers of securities held by the fund.
Investing in growth-oriented stocks — Growth-oriented stocks may involve larger price swings and greater potential for loss than other types of investments.
Investing in income-oriented stocks — Income provided by the fund may be reduced by changes in the dividend policies of, and the capital resources available at, the companies in which the fund invests.
Investing outside the U.S. — Securities of issuers domiciled outside the U.S., or with significant operations outside the U.S., may lose value because of political, social or economic developments in the country or region in which the issuer operates. These securities may also lose value due to changes in the exchange rate of the country’s currency against the U.S. dollar. Securities markets in certain countries may be more volatile and/or less liquid than those in the U.S. Investments outside the U.S. may also be subject to different settlement and accounting practices and different regulatory, legal and reporting standards than those in the U.S. These risks may be heightened in connection with investments in developing countries.
Management — The investment adviser to the fund actively manages the fund’s investments. Consequently, the fund is subject to the risk that the methods and analyses employed by the investment adviser in this process may not produce the desired results. This could cause the fund to lose value or its results to lag relevant benchmarks or other funds with similar objectives.
5. | 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 June 30, 2011, 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 2007, by state tax authorities for tax years before 2006 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; and net capital losses. The fiscal year in which amounts are distributed may differ from the year in which the net investment income and net realized gains are recorded by the fund for financial reporting purposes.
The components of distributable earnings on a tax basis are reported as of the fund’s most recent year-end. As of December 31, 2010, the components of distributable earnings on a tax basis were as follows:
| | (dollars in thousands) | |
Undistributed ordinary income | | | | | $ | 232,529 | |
Capital loss carryforwards*: | | | | | | | |
Expiring 2016 | | $ | (1,512,929 | ) | | | | |
Expiring 2017 | | | (3,190,744 | ) | | | (4,703,673 | ) |
*The capital loss carryforwards will be used to offset any capital gains realized by the fund in the current year or in subsequent years through the expiration dates. The fund will not make distributions from capital gains while capital loss carryforwards remain. |
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2010, may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
As of June 30, 2011, the tax basis unrealized appreciation (depreciation) and cost of investment securities were as follows:
(dollars in thousands) | |
Gross unrealized appreciation on investment securities | | $ | 12,968,142 | |
Gross unrealized depreciation on investment securities | | | (1,216,199 | ) |
Net unrealized appreciation on investment securities | | | 11,751,943 | |
Cost of investment securities | | | 40,885,807 | |
Tax-basis distributions paid to shareholders from ordinary income were as follows (dollars in thousands):
Share class | | Six months ended June 30, 2011 | | | Year ended December 31, 2010 | |
Class A | | $ | 215,156 | | | $ | 522,129 | |
Class B | | | 1,765 | | | | 6,978 | |
Class C | | | 4,867 | | | | 17,623 | |
Class F-1 | | | 28,457 | | | | 66,841 | |
Class F-2 | | | 7,206 | | | | 14,478 | |
Class 529-A | | | 5,983 | | | | 13,222 | |
Class 529-B | | | 123 | | | | 531 | |
Class 529-C | | | 590 | | | | 2,047 | |
Class 529-E | | | 202 | | | | 485 | |
Class 529-F-1 | | | 288 | | | | 595 | |
Class R-1 | | | 364 | | | | 1,147 | |
Class R-2 | | | 1,670 | | | | 5,371 | |
Class R-3 | | | 10,812 | | | | 26,995 | |
Class R-4 | | | 14,153 | | | | 29,941 | |
Class R-5 | | | 11,221 | | | | 26,478 | |
Class R-6 | | | 9,495 | | | | 15,526 | |
Total | | $ | 312,352 | | | $ | 750,387 | |
6. | 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 fund has an investment advisory and service agreement with CRMC that provides for monthly fees accrued daily. These fees are based on a series of decreasing 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 six months ended June 30, 2011, the investment advisory services fee was $65,398,000, which was equivalent to an annualized rate of 0.251% 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 plans of distribution for all share classes, except Classes F-2, R-5 and R-6. Under the plans, the board of trustees 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 below. In some cases, the board of trustees 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, distribution-related expenses include 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.
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 for all share classes, except Classes A and B, to provide certain services, including transfer agent and recordkeeping services; coordinating, monitoring, assisting and overseeing third-party service providers; and educating advisers and shareholders about the impact of market-related events, tax laws affecting investments, retirement plan restrictions, exchange limitations and other related matters. 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 series of decreasing 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 six months ended June 30, 2011, were as follows (dollars in thousands):
| | | | | | | | Administrative services | |
Share class | | Distribution services | | | Transfer agent services | | | CRMC administrative services | | | Transfer agent services | | | Commonwealth of Virginia administrative services | |
Class A | | $ | 40,389 | | | $ | 21,429 | | | Not applicable | | | Not applicable | | | Not applicable | |
Class B | | | 3,616 | | | | 454 | | | Not applicable | | | Not applicable | | | Not applicable | |
Class C | | | 10,723 | | | Included in administrative services | | | $ | 1,609 | | | $ | 234 | | | Not applicable | |
Class F-1 | | | 5,707 | | | | | | | | 3,216 | | | | 138 | | | Not applicable | |
Class F-2 | | Not applicable | | | | | 725 | | | | 20 | | | Not applicable | |
Class 529-A | | | 1,037 | | | | | | | | 492 | | | | 78 | | | $ | 492 | |
Class 529-B | | | 311 | | | | | | | | 31 | | | | 10 | | | | 31 | |
Class 529-C | | | 1,412 | | | | | | | | 142 | | | | 36 | | | | 141 | |
Class 529-E | | | 109 | | | | | | | | 21 | | | | 4 | | | | 22 | |
Class 529-F-1 | | | - | | | | | | | | 20 | | | | 3 | | | | 20 | |
Class R-1 | | | 752 | | | | | | | | 103 | | | | 16 | | | Not applicable | |
Class R-2 | | | 2,480 | | | | | | | | 483 | | | | 780 | | | Not applicable | |
Class R-3 | | | 5,755 | | | | | | | | 1,691 | | | | 554 | | | Not applicable | |
Class R-4 | | | 2,848 | | | | | | | | 1,687 | | | | 28 | | | Not applicable | |
Class R-5 | | Not applicable | | | | | 731 | | | | 9 | | | Not applicable | |
Class R-6 | | Not applicable | | | | | 290 | | | | 4 | | | Not applicable | |
Total | | $ | 75,139 | | | $ | 21,883 | | | $ | 11,241 | | | $ | 1,914 | | | $ | 706 | |
Trustees’ deferred compensation – Trustees 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. Trustees’ compensation of $560,000, shown on the accompanying financial statements, includes $207,000 in current fees (either paid in cash or deferred) and a net increase of $353,000 in the value of the deferred amounts.
Affiliated officers and trustees – Officers and certain trustees of the fund are or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated officers or trustees received any compensation directly from the fund.
7. | Capital share transactions |
Capital share transactions in the fund were as follows (dollars and shares in thousands):
| | Sales(*) | | | Reinvestments of dividends and distributions | | | Repurchases(*) | | | Net (decrease) increase | |
Share class | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | |
Six months ended June 30, 2011 | | | | | | | | | | | | | | | | | | | | | | |
Class A | | $ | 2,098,005 | | | | 54,770 | | | $ | 207,967 | | | | 5,442 | | | $ | (2,750,670 | ) | | | (71,836 | ) | | $ | (444,698 | ) | | | (11,624 | ) |
Class B | | | 23,528 | | | | 615 | | | | 1,759 | | | | 46 | | | | (120,849 | ) | | | (3,170 | ) | | | (95,562 | ) | | | (2,509 | ) |
Class C | | | 191,543 | | | | 5,018 | | | | 4,697 | | | | 123 | | | | (248,258 | ) | | | (6,502 | ) | | | (52,018 | ) | | | (1,361 | ) |
Class F-1 | | | 715,223 | | | | 18,669 | | | | 27,287 | | | | 715 | | | | (567,705 | ) | | | (14,847 | ) | | | 174,805 | | | | 4,537 | |
Class F-2 | | | 198,818 | | | | 5,184 | | | | 5,959 | | | | 156 | | | | (125,704 | ) | | | (3,288 | ) | | | 79,073 | | | | 2,052 | |
Class 529-A | | | 102,251 | | | | 2,674 | | | | 5,982 | | | | 157 | | | | (42,562 | ) | | | (1,113 | ) | | | 65,671 | | | | 1,718 | |
Class 529-B | | | 2,103 | | | | 55 | | | | 123 | | | | 3 | | | | (8,448 | ) | | | (222 | ) | | | (6,222 | ) | | | (164 | ) |
Class 529-C | | | 28,926 | | | | 758 | | | | 590 | | | | 16 | | | | (14,340 | ) | | | (376 | ) | | | 15,176 | | | | 398 | |
Class 529-E | | | 4,346 | | | | 114 | | | | 202 | | | | 5 | | | | (2,097 | ) | | | (54 | ) | | | 2,451 | | | | 65 | |
Class 529-F-1 | | | 6,818 | | | | 177 | | | | 288 | | | | 7 | | | | (3,043 | ) | | | (79 | ) | | | 4,063 | | | | 105 | |
Class R-1 | | | 24,445 | | | | 643 | | | | 363 | | | | 10 | | | | (15,711 | ) | | | (412 | ) | | | 9,097 | | | | 241 | |
Class R-2 | | | 103,988 | | | | 2,726 | | | | 1,668 | | | | 44 | | | | (102,192 | ) | | | (2,675 | ) | | | 3,464 | | | | 95 | |
Class R-3 | | | 350,320 | | | | 9,178 | | | | 10,807 | | | | 283 | | | | (290,179 | ) | | | (7,592 | ) | | | 70,948 | | | | 1,869 | |
Class R-4 | | | 489,721 | | | | 12,838 | | | | 14,148 | | | | 371 | | | | (265,581 | ) | | | (6,935 | ) | | | 238,288 | | | | 6,274 | |
Class R-5 | | | 200,881 | | | | 5,254 | | | | 11,196 | | | | 293 | | | | (191,774 | ) | | | (5,039 | ) | | | 20,303 | | | | 508 | |
Class R-6 | | | 336,671 | | | | 8,810 | | | | 9,485 | | | | 248 | | | | (47,635 | ) | | | (1,239 | ) | | | 298,521 | | | | 7,819 | |
Total net increase | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(decrease) | | $ | 4,877,587 | | | | 127,483 | | | $ | 302,521 | | | | 7,919 | | | $ | (4,796,748 | ) | | | (125,379 | ) | | $ | 383,360 | | | | 10,023 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2010 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Class A | | $ | 3,363,931 | | | | 100,692 | | | $ | 502,448 | | | | 15,020 | | | $ | (5,287,374 | ) | | | (159,761 | ) | | $ | (1,420,995 | ) | | | (44,049 | ) |
Class B | | | 33,827 | | | | 1,016 | | | | 6,834 | | | | 203 | | | | (276,082 | ) | | | (8,334 | ) | | | (235,421 | ) | | | (7,115 | ) |
Class C | | | 298,138 | | | | 8,974 | | | | 16,968 | | | | 504 | | | | (381,354 | ) | | | (11,579 | ) | | | (66,248 | ) | | | (2,101 | ) |
Class F-1 | | | 1,239,671 | | | | 37,371 | | | | 63,906 | | | | 1,912 | | | | (1,301,972 | ) | | | (39,467 | ) | | | 1,605 | | | | (184 | ) |
Class F-2 | | | 366,241 | | | | 10,977 | | | | 11,752 | | | | 351 | | | | (222,407 | ) | | | (6,699 | ) | | | 155,586 | | | | 4,629 | |
Class 529-A | | | 157,006 | | | | 4,699 | | | | 13,220 | | | | 395 | | | | (73,466 | ) | | | (2,219 | ) | | | 96,760 | | | | 2,875 | |
Class 529-B | | | 2,618 | | | | 78 | | | | 530 | | | | 16 | | | | (17,463 | ) | | | (523 | ) | | | (14,315 | ) | | | (429 | ) |
Class 529-C | | | 45,797 | | | | 1,371 | | | | 2,047 | | | | 61 | | | | (25,887 | ) | | | (781 | ) | | | 21,957 | | | | 651 | |
Class 529-E | | | 7,077 | | | | 211 | | | | 485 | | | | 14 | | | | (3,288 | ) | | | (99 | ) | | | 4,274 | | | | 126 | |
Class 529-F-1 | | | 9,722 | | | | 292 | | | | 595 | | | | 18 | | | | (4,787 | ) | | | (142 | ) | | | 5,530 | | | | 168 | |
Class R-1 | | | 50,584 | | | | 1,528 | | | | 1,142 | | | | 34 | | | | (25,889 | ) | | | (784 | ) | | | 25,837 | | | | 778 | |
Class R-2 | | | 176,158 | | | | 5,322 | | | | 5,364 | | | | 159 | | | | (168,070 | ) | | | (5,082 | ) | | | 13,452 | | | | 399 | |
Class R-3 | | | 708,464 | | | | 21,359 | | | | 26,982 | | | | 804 | | | | (495,947 | ) | | | (14,982 | ) | | | 239,499 | | | | 7,181 | |
Class R-4 | | | 683,852 | | | | 20,549 | | | | 29,929 | | | | 894 | | | | (418,514 | ) | | | (12,755 | ) | | | 295,267 | | | | 8,688 | |
Class R-5 | | | 365,246 | | | | 11,013 | | | | 26,411 | | | | 789 | | | | (400,796 | ) | | | (11,927 | ) | | | (9,139 | ) | | | (125 | ) |
Class R-6 | | | 330,441 | | | | 10,094 | | | | 15,526 | | | | 464 | | | | (94,419 | ) | | | (2,889 | ) | | | 251,548 | | | | 7,669 | |
Total net increase | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(decrease) | | $ | 7,838,773 | | | | 235,546 | | | $ | 724,139 | | | | 21,638 | | | $ | (9,197,715 | ) | | | (278,023 | ) | | $ | (634,803 | ) | | | (20,839 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
* Includes exchanges between share classes of the fund. | | | | | | | | | | | | | | | | | | | | | |
8. | Investment transactions |
The fund made purchases and sales of investment securities, excluding short-term securities and U.S. government obligations, if any, of $9,461,119,000 and $8,093,007,000, respectively, during the six months ended June 30, 2011.
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 six-month period (January 1, 2011, through June 30, 2011).
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 1/1/2011 | | | Ending account value 6/30/2011 | | | Expenses paid during period* | | | Annualized expense ratio | |
| | | | | | | | | | | | |
Class A -- actual return | | $ | 1,000.00 | | | $ | 1,061.39 | | | $ | 3.22 | | | | .63 | % |
Class A -- assumed 5% return | | | 1,000.00 | | | | 1,021.67 | | | | 3.16 | | | | .63 | |
Class B -- actual return | | | 1,000.00 | | | | 1,057.72 | | | | 7.09 | | | | 1.39 | |
Class B -- assumed 5% return | | | 1,000.00 | | | | 1,017.90 | | | | 6.95 | | | | 1.39 | |
Class C -- actual return | | | 1,000.00 | | | | 1,057.36 | | | | 7.35 | | | | 1.44 | |
Class C -- assumed 5% return | | | 1,000.00 | | | | 1,017.65 | | | | 7.20 | | | | 1.44 | |
Class F-1 -- actual return | | | 1,000.00 | | | | 1,061.31 | | | | 3.37 | | | | .66 | |
Class F-1 -- assumed 5% return | | | 1,000.00 | | | | 1,021.52 | | | | 3.31 | | | | .66 | |
Class F-2 -- actual return | | | 1,000.00 | | | | 1,062.55 | | | | 2.15 | | | | .42 | |
Class F-2 -- assumed 5% return | | | 1,000.00 | | | | 1,022.71 | | | | 2.11 | | | | .42 | |
Class 529-A -- actual return | | | 1,000.00 | | | | 1,061.15 | | | | 3.53 | | | | .69 | |
Class 529-A -- assumed 5% return | | | 1,000.00 | | | | 1,021.37 | | | | 3.46 | | | | .69 | |
Class 529-B -- actual return | | | 1,000.00 | | | | 1,056.89 | | | | 7.65 | | | | 1.50 | |
Class 529-B -- assumed 5% return | | | 1,000.00 | | | | 1,017.36 | | | | 7.50 | | | | 1.50 | |
Class 529-C -- actual return | | | 1,000.00 | | | | 1,057.04 | | | | 7.60 | | | | 1.49 | |
Class 529-C -- assumed 5% return | | | 1,000.00 | | | | 1,017.41 | | | | 7.45 | | | | 1.49 | |
Class 529-E -- actual return | | | 1,000.00 | | | | 1,059.67 | | | | 5.00 | | | | .98 | |
Class 529-E -- assumed 5% return | | | 1,000.00 | | | | 1,019.93 | | | | 4.91 | | | | .98 | |
Class 529-F-1 -- actual return | | | 1,000.00 | | | | 1,062.30 | | | | 2.45 | | | | .48 | |
Class 529-F-1 -- assumed 5% return | | | 1,000.00 | | | | 1,022.41 | | | | 2.41 | | | | .48 | |
Class R-1 -- actual return | | | 1,000.00 | | | | 1,057.47 | | | | 7.24 | | | | 1.42 | |
Class R-1 -- assumed 5% return | | | 1,000.00 | | | | 1,017.75 | | | | 7.10 | | | | 1.42 | |
Class R-2 -- actual return | | | 1,000.00 | | | | 1,057.63 | | | | 7.09 | | | | 1.39 | |
Class R-2 -- assumed 5% return | | | 1,000.00 | | | | 1,017.90 | | | | 6.95 | | | | 1.39 | |
Class R-3 -- actual return | | | 1,000.00 | | | | 1,059.82 | | | | 4.90 | | | | .96 | |
Class R-3 -- assumed 5% return | | | 1,000.00 | | | | 1,020.03 | | | | 4.81 | | | | .96 | |
Class R-4 -- actual return | | | 1,000.00 | | | | 1,061.37 | | | | 3.37 | | | | .66 | |
Class R-4 -- assumed 5% return | | | 1,000.00 | | | | 1,021.52 | | | | 3.31 | | | | .66 | |
Class R-5 -- actual return | | | 1,000.00 | | | | 1,063.10 | | | | 1.84 | | | | .36 | |
Class R-5 -- assumed 5% return | | | 1,000.00 | | | | 1,023.01 | | | | 1.81 | | | | .36 | |
Class R-6 -- actual return | | | 1,000.00 | | | | 1,063.37 | | | | 1.59 | | | | .31 | |
Class R-6 -- assumed 5% return | | | 1,000.00 | | | | 1,023.26 | | | | 1.56 | | | | .31 | |
| | | | | | | | | | | | | | | | |
*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). |
Office of the fund
One Market
Steuart Tower, Suite 2000
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 prospectus and summary 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 June 30, 2011, 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 prospectus or summary prospectus, which gives details about charges, expenses, investment objectives and operating policies of the fund. If used as sales material after September 30, 2011, this report must be accompanied by an American Funds statistical update for the most recently completed calendar quarter.
What makes American Funds different?
For 80 years, we have followed a consistent philosophy to benefit our investors. Our 33 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 more than 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 27 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
| The Growth Fund of America® |
| Capital World Growth and Income FundSM |
| International Growth and Income FundSM |
| The Investment Company of America® |
| Washington Mutual Investors FundSM |
| The Income Fund of America® |
| American Funds Global Balanced FundSM |
| American Funds Mortgage FundSM |
| American High-Income TrustSM |
| The Bond Fund of AmericaSM |
| Intermediate Bond Fund of America® |
| Short-Term Bond Fund of AmericaSM |
| U.S. Government Securities FundSM |
| American 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 |
| American Funds Tax-Exempt Fund of New YorkSM |
| The Tax-Exempt Fund of California® |
| The Tax-Exempt Fund of Maryland® |
| The Tax-Exempt Fund of Virginia® |
| American Funds Money Market Fund® |
| •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. MFGESR-910-0811P
Litho in USA KBDA/ALD/8083-S28721
Printed on paper containing 10% post-consumer waste
Printed with inks containing soy and/or vegetable oil
ITEM 2 – Code of Ethics