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: June 30, 2006
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:
Michael Glazer
Paul, Hastings, Janofsky & Walker LLP
515 South Flower Street
Los Angeles, California 90071
(Counsel for the Registrant)
ITEM 1 - Reports to Stockholders
[logo - American Funds® ]
The right choice for the long term®
Fundamental Investors
[photo of six viewfinders overlooking the Hudson River - the Statue of Liberty in the distance]
Semi-annual report for the six months ended June 30, 2006
Fundamental InvestorsSMseeks long-term growth of capital and income primarily through investments in common stocks.
This fund is one of the 29 American Funds. The organization ranks among the nation’s three largest mutual fund families. For nearly 75 years, Capital Research and Management Company,SM the American Funds adviser, has invested with a long-term focus based on thorough research and
attention to risk.
Figures shown are past results for Class A shares and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity. For current information and month-end results, visit americanfunds.com. Fund results shown, unless otherwise indicated, are at net asset value. If a sales charge (maximum 5.75%) had been deducted, the results would have been lower.
Here are the average annual total returns on a $1,000 investment with all distributions reinvested for periods ended June 30, 2006:
Class A shares | 1 year | 5 years | 10 years |
| | | | |
Reflecting 5.75% maximum sales charge | +13.63% | +6.10% | +10.71% |
The fund’s investment adviser waived 5% of its management fees from September 1, 2004, through March 31, 2005, and increased the waiver to 10% on April 1, 2005. Fund results shown reflect the waiver, without which they would have been lower. Please see the Financial Highlights table on pages 22-25 for details.
The fund’s 30-day yield for Class A shares as of July 31, 2006, calculated in accordance with the Securities and Exchange Commission formula, was 1.49%, which reflects a fee waiver (1.47% without the fee waiver). The fund’s distribution rate for Class A shares as of that date was 1.50%. Both reflect the 5.75% maximum sales charge. The SEC yield reflects the rate at which the fund is earning income on its current portfolio of securities while the distribution rate reflects the fund’s past dividends paid to shareholders. Accordingly, the fund’s SEC yield and distribution rate may differ.
Results for other share classes can be found on page 5. Please see the inside back cover for important information about other share classes.
Investing outside the United States is subject to additional risks, such as currency fluctuations and political instability, which are detailed in the fund’s prospectus.
Fellow shareholders:
[photo - row of coin operated binoculars and Statue of Liberty in background]
For the six months ended June 30, 2006, shares of Fundamental Investors increased 8.8% for shareholders who reinvested quarterly dividends totaling 22 cents a share.
This return significantly outpaced those of the fund’s two most relevant benchmarks, the unmanaged Standard & Poor’s 500 Composite Index, which rose 2.7%, and the Lipper Large-Cap Value Funds Index, which gained 4.5%.
Even on the heels of such a strong six months, we urge investors to focus on the long term. The table below shows longer term results for the fund and, as you can see, Fundamental Investors has bested its benchmarks for each of the time periods shown.
Results at a glance
For periods ended June 30, 2006, with all distributions reinvested.
| | | Total returns | | Average annual total returns | |
| | | 6 months | | 1 year | | 5 years | | 10 years | | Lifetime1 | |
| | | | | | | | | | | | |
| Fundamental Investors | | | +8.8 | % | | +20.6 | % | | +7.4 | % | | +11.4 | % | | +14.1 | % |
| Lipper Large-Cap Value | | | | | | | | | | | | | | | | |
| Funds Index | | | +4.5 | | | +10.5 | | | +3.9 | | | +8.4 | | | +12.7 | |
| Lipper Large-Cap Core | | | | | | | | | | | | | | | | |
| Funds Index | | | +2.2 | | | +9.1 | | | +1.7 | | | +7.2 | | | —2 | |
| Standard & Poor’s 500 | | | | | | | | | | | | | | | | |
Composite Index3 | | | +2.7 | | | +8.6 | | | +2.5 | | | +8.3 | | | +12.9 | |
| | | | | | | | | | | | | | | | | |
1 Since Capital Research and Management Company began managing the fund on August 1, 1978.
2 Index began on December 29, 1978, therefore lifetime results are not available.
3 Unmanaged.
Mismatched quarters
A strong economy buoyed by resurgent corporate profits led U.S. markets higher throughout the first half of the period, but inflation fears, elevated fuel prices and the Federal Reserve’s mixed guidance on future interest rate moves resulted in a sharp market downturn that began in May. However, a moderating U.S. economic growth rate helped allay some inflation worries and markets were on the rise as the period drew to a close.
Markets worldwide broadly mirrored the U.S. pattern, rising significantly in the first quarter before struggling in the second. European and Canadian returns were stronger than those in Japan, where some disappointing corporate data exacerbated the second quarter downturn.
As of June 30, Fundamental Investors had 27.4% of its assets invested in non-U.S. companies, and this component of the portfolio bolstered results during the period. The U.S. dollar weakened against most major currencies, heightening the beneficial impact of these non-U.S. holdings for shareholders.
The fund’s ability to invest up to 30% of assets outside the United States and Canada continues to be a cornerstone of our approach as it allows us to broaden the investment opportunities available to shareholders. Currently, three of the fund’s top 10 holdings — Canada’s Suncor Energy, Swiss pharmaceutical manufacturer Roche and U.K. energy giant Royal Dutch Shell — are non-U.S. companies.
Fundamental Investors’ 10 largest holdings | | | |
| | | | | | |
Company | | Country | | Percent of net assets | |
| | | | | | |
| Suncor Energy | | | Canada | | | 4.3 | % |
| Altria | | | United States | | | 2.2 | |
| Microsoft | | | United States | | | 2.1 | |
| Roche | | | Switzerland | | | 1.7 | |
| Oracle | | | United States | | | 1.5 | |
| Deere | | | United States | | | 1.4 | |
| Lowe’s | | | United States | | | 1.4 | |
| Royal Dutch Shell | | | United Kingdom | | | 1.3 | |
| Eli Lilly | | | United States | | | 1.2 | |
| Caterpillar | | | United States | | | 1.2 | |
A familiar portfolio; strong results
A look inside Fundamental Investors’ portfolio shows that the fund continued to maintain sizable concentrations in many industries that have fueled its returns during recent reporting periods. Among those industries are energy, materials and industrials, which in many ways have been the lifeblood of the global economic growth that has occurred over the past few years.
The scale of this growth — which has, in large part, emanated from the United States but been most pronounced in developing nations like China and India — has created unprecedented demand for things like oil, copper, aluminum and heavy equipment. The profitability of many producers and manufacturers of these goods has soared — and so have many of their stock prices.
The six months saw this trend continuing and the fund benefiting. Oil sands producer Suncor Energy (+28.4%), Fundamental Investors’ largest holding, continued to surge, as did oil services provider Baker Hughes (+34.7%). Mining companies BHP Billiton of Australia and the United Kingdom’s Rio Tinto rose 29.1% and 15.7%, respectively. Heavy equipment manufacturers and longtime fund holdings Caterpillar (+28.9%) and Deere (+22.6%), both of the United States, also made significant contributions.
Within these sectors, decliners were scarce, though the U.S.’s Devon Energy (-3.4%) finished in negative territory and American mining concern Freeport-McMoRan (+3.6%) appreciated only modestly.
Elsewhere in the portfolio
Pharmaceuticals contributed positively during the period. Within this sector, we have been increasing our holdings in both European and U.S. companies, but for different reasons. European drug companies are presently better positioned, with the ramp up in new product sales offsetting the demise of products losing patent protection. In the United States, valuations are more attractive as companies face challenges due to patent expirations. The heightened dividend yields resulting from these valuations make the companies appealing as we await the next generation of new products. For the six months, Roche (+10.0%), Merck (+14.5%) and Abbott Labs (+10.6%) helped results, while Eli Lilly (-2.3%) and Schering Plough (-8.7%) detracted from them.
We reduced or eliminated our holdings in a number of media companies. We believe that many traditional media concerns face challenging prospects for growth and, spotting well-priced opportunities in companies within other sectors, we elected to deploy assets elsewhere.
Interestingly, the fund’s positive results occurred despite declines in a number of its larger holdings. Among top 10 positions that fell in price were Microsoft (-10.9%) and home improvement retailer Lowe’s (-9.0%). Other sizable holdings whose share prices decreased were Target (-11.1%) and cruise ship operator Carnival (-21.9%).
Looking forward
We remain optimistic about the coming months. We believe economic growth will continue to be robust and look for healthy corporate profits to continue. We also expect interest rates to stabilize around current or slightly higher levels.
As always, we temper our optimism with a conservative approach that pays special attention to risk. That approach is manifest in our unwavering commitment to bottom-up, company-by-company research. It’s how we will continue to build Fundamental Investors’ portfolio and pursue the growth-and-income objectives of our shareholders.
We thank you for your commitment to long-term investing.
Sincerely,
| /s/ James F. Rothenberg | /s/ Dina N. Perry |
| James F. Rothenberg | Dina N. Perry |
| Vice Chairman of the Board | President |
August 7, 2006
For current information about the fund, visit americanfunds.com.
Other share class results unaudited
Class B, Class C, Class F and Class 529
Figures shown are past results and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com.
Average annual total returns for periods ended June 30, 2006:
| | 1 year | 5 years | Life of class |
Class B shares— first sold 3/15/00 | | | |
| Reflecting applicable contingent deferred sales | | | |
| charge (CDSC), maximum of 5%, payable only | | | |
| if shares are sold within six years of purchase | +14.65% | +6.24% | +4.99% |
| Not reflecting CDSC | +19.65% | +6.55% | +4.99% |
| | | | |
Class C shares— first sold 3/15/01 | | | |
| Reflecting CDSC, maximum of 1%, payable only | | | |
| if shares are sold within one year of purchase | +18.58% | +6.47% | +6.60% |
| Not reflecting CDSC | +19.58% | +6.47% | +6.60% |
| | | | |
Class F shares*— first sold 3/15/01 | | | |
| Not reflecting annual asset-based fee charged by | | | |
| sponsoring firm | +20.59% | +7.32% | +7.45% |
| | | | |
Class 529-A shares†— first sold 2/15/02 | | | |
| Reflecting 5.75% maximum sales charge | +13.58% | — | +9.01% |
| Not reflecting maximum sales charge | +20.50% | — | +10.50% |
| | | | |
Class 529-B shares†— first sold 2/19/02 | | | |
| Reflecting applicable CDSC, maximum of 5%, payable | | | |
| only if shares are sold within six years of purchase | +14.50% | — | +9.67% |
| Not reflecting CDSC | +19.50% | — | +10.00% |
| | | | |
Class 529-C shares†— first sold 2/15/02 | | | |
| Reflecting CDSC, maximum of 1%, payable only if | | | |
| shares are sold within one year of purchase | +18.52% | — | +9.57% |
| Not reflecting CDSC | +19.52% | — | +9.57% |
| | | | |
Class 529-E shares*†— first sold 3/7/02 | +20.14% | — | +8.86% |
| | | | |
Class 529-F shares*†— first sold 9/23/02 | | | |
| Not reflecting annual asset-based fee charged by | | | |
| sponsoring firm | +20.74% | — | +18.99% |
| | | | |
The fund’s investment adviser waived 5% of its management fees from September 1, 2004, through March 31, 2005, and increased the waiver to 10% on April 1, 2005. Fund results shown reflect the waiver, without which they would have been lower. Please see the Financial Highlights table on pages 22-25 for details.
*These shares are sold without any initial or contingent deferred sales charge.
† Results shown do not reflect the $10 initial account setup fee and an annual $10 account maintenance fee.
| Summary investment portfolio, June 30, 2006 | | | unaudited |
The following summary investment portfolio is designed to streamline the report and help investors better focus on a fund’s principal holdings. For details on how to obtain a complete schedule of portfolio holdings, please see the inside back cover.
[begin pie chart]
| Energy | | 16.49 | % |
| Industrials | | | 11.97 | |
| Financials | | | 11.16 | |
| Information technology | | | 10.50 | |
| Health care | | | 9.94 | |
| Other industries | | | 34.07 | |
| Convertible securities | | | 0.15 | |
| Bonds & notes | | | 0.04 | |
| Short-term securities & other assets less liabilities | | | 5.68 | |
[end pie chart]
| | | | | Market | | Percent | |
| | | | | value | | of net | |
| Common stocks - 94.13% | | Shares | | (000) | | assets | |
| | | | | | | | |
Energy - 16.49% | | | | | | | |
| Suncor Energy Inc. | | | 17,895,019 | | $ | 1,448,598 | | | 4.34 | % |
| Royal Dutch Shell PLC, Class A (ADR) | | | 6,370,000 | | | 426,663 | | | 1.28 | |
| Baker Hughes Inc. | | | 4,828,000 | | | 395,172 | | | 1.19 | |
| OAO LUKOIL (ADR) | | | 4,700,000 | | | 391,040 | | | 1.17 | |
| Norsk Hydro ASA | | | 10,840,000 | | | 287,210 | | | | |
| Norsk Hydro ASA (ADR) | | | 3,500,000 | | | 93,485 | | | 1.14 | |
| CONSOL Energy Inc. (1) | | | 7,400,000 | | | 345,728 | | | 1.04 | |
| Chevron Corp. | | | 4,985,674 | | | 309,411 | | | .93 | |
| Murphy Oil Corp. | | | 4,063,000 | | | 226,959 | | | .68 | |
| Other securities | | | | | | 1,574,039 | | | 4.72 | |
| | | | | | | 5,498,305 | | | 16.49 | |
| | | | | | | | | | | |
Industrials - 11.97% | | | | | | | | | | |
| Deere & Co. | | | 5,660,000 | | | 472,553 | | | 1.42 | |
| Caterpillar Inc. | | | 5,400,000 | | | 402,192 | | | 1.21 | |
| Union Pacific Corp. | | | 4,200,000 | | | 390,432 | | | 1.17 | |
| Boeing Co. | | | 3,400,000 | | | 278,494 | | | .83 | |
| General Electric Co. | | | 8,250,000 | | | 271,920 | | | .81 | |
| Deutsche Post AG | | | 8,945,000 | | | 239,534 | | | .72 | |
| General Dynamics Corp. | | | 3,545,800 | | | 232,108 | | | .70 | |
| Parker Hannifin Corp. | | | 2,800,000 | | | 217,280 | | | .65 | |
| Other securities | | | | | | 1,486,885 | | | 4.46 | |
| | | | | | | 3,991,398 | | | 11.97 | |
| | | | | | | | | | | |
Financials - 11.16% | | | | | | | | | | |
| Washington Mutual, Inc. | | | 8,580,000 | | | 391,076 | | | 1.17 | |
| Citigroup Inc. | | | 7,630,000 | | | 368,071 | | | 1.10 | |
| Allied Irish Banks, PLC | | | 12,540,000 | | | 300,556 | | | .90 | |
| Fannie Mae | | | 4,467,800 | | | 214,901 | | | .65 | |
| Bank of Ireland | | | 11,765,000 | | | 209,682 | | | .63 | |
| Other securities | | | | | | 2,237,854 | | | 6.71 | |
| | | | | | | 3,722,140 | | | 11.16 | |
| | | | | | | | | | | |
Information technology - 10.50% | | | | | | | | | | |
| Microsoft Corp. | | | 30,150,000 | | | 702,495 | | | 2.11 | |
| Oracle Corp. (2) | | | 35,000,000 | | | 507,150 | | | 1.52 | |
| Texas Instruments Inc. | | | 11,383,024 | | | 344,792 | | | 1.03 | |
| International Business Machines Corp. | | | 3,650,000 | | | 280,393 | | | .84 | |
| Motorola, Inc. | | | 10,706,080 | | | 215,727 | | | .65 | |
| Other securities | | | | | | 1,452,875 | | | 4.35 | |
| | | | | | | 3,503,432 | | | 10.50 | |
| | | | | | | | | | | |
Health care - 9.94% | | | | | | | | | | |
| Roche Holding AG | | | 3,535,000 | | | 583,346 | | | 1.75 | |
| Eli Lilly and Co. | | | 7,370,000 | | | 407,340 | | | 1.22 | |
| Merck & Co., Inc. | | | 8,800,000 | | | 320,584 | | | .96 | |
| Abbott Laboratories | | | 6,310,000 | | | 275,179 | | | .83 | |
| Bristol-Myers Squibb Co. | | | 9,550,000 | | | 246,963 | | | .74 | |
| Sanofi-Aventis | | | 2,192,600 | | | 213,737 | | | .64 | |
| Other securities | | | | | | 1,268,978 | | | 3.80 | |
| | | | | | | 3,316,127 | | | 9.94 | |
| | | | | | | | | | | |
Materials - 9.37% | | | | | | | | | | |
| BHP Billiton Ltd. | | | 17,995,030 | | | 387,582 | | | 1.16 | |
| Alcoa Inc. | | | 9,173,800 | | | 296,864 | | | .89 | |
| Rio Tinto PLC | | | 5,066,709 | | | 267,551 | | | .80 | |
| Weyerhaeuser Co. | | | 3,383,000 | | | 210,592 | | | .63 | |
| International Paper Co. | | | 6,316,000 | | | 204,007 | | | .61 | |
| Other securities | | | | | | 1,758,436 | | | 5.28 | |
| | | | | | | 3,125,032 | | | 9.37 | |
| | | | | | | | | | | |
Consumer discretionary - 7.31% | | | | | | | | | | |
| Lowe's Companies, Inc. | | | 7,630,000 | | | 462,912 | | | 1.39 | |
| Target Corp. | | | 7,090,000 | | | 346,488 | | | 1.04 | |
| Limited Brands, Inc. | | | 10,815,980 | | | 276,781 | | | .83 | |
| Other securities | | | | | | 1,351,946 | | | 4.05 | |
| | | | | | | 2,438,127 | | | 7.31 | |
| | | | | | | | | | | |
Consumer staples - 7.12% | | | | | | | | | | |
| Altria Group, Inc. | | | 9,974,800 | | | 732,450 | | | 2.20 | |
| Coca-Cola Co. | | | 4,800,000 | | | 206,496 | | | .62 | |
| Kirin Brewery Co., Ltd. | | | 13,087,000 | | | 205,782 | | | .62 | |
| Other securities | | | | | | 1,229,104 | | | 3.68 | |
| | | | | | | 2,373,832 | | | 7.12 | |
| | | | | | | | | | | |
Telecommunication services - 4.96% | | | | | | | | | | |
| KDDI Corp. | | | 61,000 | | | 374,818 | | | 1.12 | |
| AT&T Inc. | | | 13,173,536 | | | 367,410 | | | 1.10 | |
| Verizon Communications Inc. | | | 6,500,000 | | | 217,685 | | | .65 | |
| Other securities | | | | | | 695,901 | | | 2.09 | |
| | | | | | | 1,655,814 | | | 4.96 | |
| | | | | | | | | | | |
Utilities - 3.80% | | | | | | | | | | |
| Dominion Resources, Inc. | | | 3,390,000 | | | 253,538 | | | .76 | |
| Questar Corp. | | | 3,000,000 | | | 241,470 | | | .73 | |
| Other securities | | | | | | 770,777 | | | 2.31 | |
| | | | | | | 1,265,785 | | | 3.80 | |
| | | | | | | | | | | |
Miscellaneous - 1.51% | | | | | | | | | | |
| Other common stocks in initial period of acquisition | | | | | | 504,776 | | | 1.51 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total common stocks (cost: $22,962,949,000) | | | | | | 31,394,768 | | | 94.13 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Convertible securities - 0.15% | | | | | | | | | | |
| | | | | | | | | | | |
Other - 0.15% | | | | | | | | | | |
| Other securities | | | | | | 48,799 | | | .15 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total convertible securities (cost: $38,027,000) | | | | | | 48,799 | | | .15 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Bonds & notes - 0.04% | | | | | | | | | | |
| | | | | | | | | | | |
Industrials - 0.04% | | | | | | | | | | |
| Other securities | | | | | | 14,143 | | | .04 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total bonds & notes (cost: $14,969,000) | | | | | | 14,143 | | | .04 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | Principal | | | | | | | |
| | | | amount | | | | | | | |
Short-term securities - 5.51% | | | (000 | ) | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Federal Home Loan Bank 4.89%-5.255% due 7/26-9/22/2006 | | | 237,200 | | | 235,655 | | | .70 | |
| Clipper Receivables Co., LLC 4.96%-5.16% due 7/5-8/21/2006 (1) | | | 233,800 | | | 233,265 | | | .70 | |
| CAFCO, LLC 5.04%-5.35% due 7/21-9/6/2006 (1) | | | 123,500 | | | 122,670 | | | .37 | |
| AT&T Inc. 5.12% due 7/10/2006 (1) | | | 22,500 | | | 22,468 | | | .07 | |
| Caterpillar Financial Services Corp. 5.00% due 7/24/2006 | | | 20,400 | | | 20,332 | | | .06 | |
| Other securities | | | | | | 1,203,997 | | | 3.61 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total short-term securities (cost: $1,838,385,000) | | | | | | 1,838,387 | | | 5.51 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total investment securities (cost: $24,854,330,000) | | | | | | 33,296,097 | | | 99.83 | |
Other assets less liabilities | | | | | | 55,150 | | | .17 | |
| | | | | | | | | | | |
Net assets | | | | | $ | 33,351,247 | | | 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. | | | | |
| | | | | | | | | | | |
| 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) Purchased in a private placement transaction; resale may be limited to qualified institutional buyers; resale to the public may require registration. The total value of all such restricted securities, including those in "Other securities" in the summary investment portfolio, was $1,547,302,000, which represented 4.64% of the net assets of the fund. | |
| (2) Security did not produce income during the last 12 months. | | | | | | | | | | |
| | | | | | | | | | | |
| ADR = American Depositary Receipts | | | | | | | | | | |
| | | | | | | | | | | |
| See Notes to Financial Statements | | | | | | | | | | |
| Financial statements | | | | | | | |
| | | | | | | | |
| Statement of assets and liabilities | | | | | | unaudited | |
| at June 30, 2006 | | (dollars and shares in thousands, except per-share amounts) | |
| | | | | | | | |
| Assets: | | | | | | | |
| Investment securities at market (cost $24,854,330) | | | | | | | | $ | 33,296,097 | |
| Cash denominated in non-U.S. currencies (cost: $1,112) | | | | | | | | | 1,120 | |
| Cash | | | | | | | | | 3,198 | |
| Receivables for: | | | | | | | | | | |
| Sales of investments | | | | | $ | 6,378 | | | | |
| Sales of fund's shares | | | | | | 77,658 | | | | |
| Dividends and interest | | | | | | 48,160 | | | 132,196 | |
| | | | | | | | | | 33,432,611 | |
| Liabilities: | | | | | | | | | | |
| Payables for: | | | | | | | | | | |
| Purchases of investments | | | | | | 44,077 | | | | |
| Repurchases of fund's shares | | | | | | 18,705 | | | | |
| Investment advisory services | | | | | | 6,228 | | | | |
| Services provided by affiliates | | | | | | 10,267 | | | | |
| Deferred directors' compensation | | | | | | 1,815 | | | | |
| Other fees and expenses | | | | | | 272 | | | 81,364 | |
| Net assets at June 30, 2006 | | | | | | | | $ | 33,351,247 | |
| | | | | | | | | | | |
| Net assets consist of: | | | | | | | | | | |
| Capital paid in on shares of capital stock | | | | | | | | $ | 24,152,930 | |
| Undistributed net investment income | | | | | | | | | 160,496 | |
| Undistributed net realized gain | | | | | | | | | 595,913 | |
| Net unrealized appreciation | | | | | | | | | 8,441,908 | |
| Net assets at June 30, 2006 | | | | | | | | $ | 33,351,247 | |
| | | | | | | | | | | |
Total authorized capital stock - 1,000,000 shares, $1.00 par value (870,886 total shares outstanding) | | | | |
| | | | Net assets | | | Shares outstanding | | | Net asset value per share | |
| | | | | | | | | | | |
| Class A | | $ | 28,211,131 | | | 736,493 | | $ | 38.30 | |
| Class B | | | 1,255,627 | | | 32,844 | | | 38.23 | |
| Class C | | | 1,062,447 | | | 27,817 | | | 38.19 | |
| Class F | | | 1,124,280 | | | 29,363 | | | 38.29 | |
| Class 529-A | | | 316,096 | | | 8,257 | | | 38.28 | |
| Class 529-B | | | 49,454 | | | 1,292 | | | 38.28 | |
| Class 529-C | | | 97,573 | | | 2,550 | | | 38.27 | |
| Class 529-E | | | 15,600 | | | 408 | | | 38.27 | |
| Class 529-F | | | 7,355 | | | 192 | | | 38.26 | |
| Class R-1 | | | 15,943 | | | 417 | | | 38.21 | |
| Class R-2 | | | 223,844 | | | 5,861 | | | 38.19 | |
| Class R-3 | | | 340,474 | | | 8,902 | | | 38.25 | |
| Class R-4 | | | 254,372 | | | 6,649 | | | 38.26 | |
| Class R-5 | | | 377,051 | | | 9,841 | | | 38.31 | |
| (*) Maximum offering price and redemption price per share were equal to the net asset value per share for all share classes, except for Class A and 529-A, for which the maximum offering prices per share were $40.64 and $40.62, respectively. | |
| | | | | | | | | | | |
| See Notes to Financial Statements | | | | | | | | | | |
| | | | | | | | | | | |
Statement of operations | | | | | | | | | unaudited | |
| for the six months ended June 30, 2006 | | | | | | (dollars in thousands | ) |
| | | | | | | | | | | |
| Investment income: | | | | | | | | | | |
| Income: | | | | | | | | | | |
| Dividends (net of non-U.S. taxes of $8,914) | | | | | $ | 317,411 | | | | |
| Interest | | | | | $ | 34,118 | | $ | 351,529 | |
| | | | | | | | | | | |
| Fees and expenses(*): | | | | | | | | | | |
| Investment advisory services | | | | | | 40,690 | | | | |
| Distribution services | | | | | | 47,391 | | | | |
| Transfer agent services | | | | | | 12,196 | | | | |
| Administrative services | | | | | | 2,685 | | | | |
| Reports to shareholders | | | | | | 522 | | | | |
| Registration statement and prospectus | | | | | | 1,029 | | | | |
| Postage, stationery and supplies | | | | | | 1,297 | | | | |
| Directors' compensation | | | | | | 305 | | | | |
| Auditing and legal | | | | | | 15 | | | | |
| Custodian | | | | | | 988 | | | | |
| State and local taxes | | | | | | 1 | | | | |
| Other | | | | | | 123 | | | | |
| Total fees and expenses before reimbursements/waivers | | | | | | 107,242 | | | | |
| Less reimbursements/waivers of fees and expenses: | | | | | | | | | | |
| Investment advisory services | | | | | | 4,069 | | | | |
| Administrative services | | | | | | 112 | | | | |
| Total fees and expenses after reimbursements/waivers | | | | | | | | | 103,061 | |
| Net investment income | | | | | | | | | 248,468 | |
| | | | | | | | | | | |
| Net realized gain and unrealized appreciation on investments and non-U.S. currency: | | | | | | | | | | |
| Net realized gain (loss) on: | | | | | | | | | | |
| Investments | | | | | | 824,889 | | | | |
| Non-U.S. currency transactions | | | | | | (2,061 | ) | | 822,828 | |
| Net unrealized appreciation on: | | | | | | | | | | |
| Investments | | | | | | 1,445,968 | | | | |
| Non-U.S. currency translations | | | | | | 186 | | | 1,446,154 | |
| Net realized gain and unrealized appreciation on investments and non-U.S. currency | | | | | | | | | 2,268,982 | |
| Net increase in net assets resulting from operations | | | | | | | | $ | 2,517,450 | |
| | | | | | | | | | | |
| * Additional information related to class-specific fees and expenses is included in the Notes to Financial Statements. | | | | | | | |
| | | | | | | | | | | |
| See Notes to Financial Statements | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Statements of changes in net assets | | | | | | (dollars in thousands | ) |
| | | | | | | | | | | |
| | | | | | | Six months | | | Year ended | |
| | | | | | | ended June 30, | | | December 31, | |
| | | | | | | 2006* | | | 2005 | |
| Operations: | | | | | | | | | | |
| Net investment income | | | | | $ | 248,468 | | $ | 426,609 | |
| Net realized gain on investments and non-U.S. currency transactions | | | | | | 822,828 | | | 590,506 | |
| Net unrealized appreciation on investments and non-U.S. currency translations | | | | | | 1,446,154 | | | 1,849,761 | |
| Net increase in net assets resulting from operations | | | | | | 2,517,450 | | | 2,866,876 | |
| | | | | | | | | | | |
| Dividends paid to shareholders from net investment income and non-U.S. currency gains | | | | | | (173,208 | ) | | (440,865 | ) |
| | | | | | | | | | | |
| Capital share transactions | | | | | | 2,874,363 | | | 1,489,209 | |
| | | | | | | | | | | |
| Total increase in net assets | | | | | | 5,218,605 | | | 3,915,220 | |
| | | | | | | | | | | |
| Net assets: | | | | | | | | | | |
| Beginning of period | | | | | | 28,132,642 | | | 24,217,422 | |
| End of period (including undistributed net investment income: $160,496 and $85,236, respectively) | | | | | $ | 33,351,247 | | $ | 28,132,642 | |
| | | | | | | | | | | |
| *Unaudited | | | | | | | | | | |
| | | | | | | | | | | |
| See Notes to Financial Statements | | | | | | | | | | |
Notes to financial statements unaudited
| 1. | Organization and significant accounting policies |
Organization - Fundamental Investors, Inc. (the "fund") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company. The fund seeks long-term growth of capital and income primarily through investments in common stocks.
The fund offers 14 share classes consisting of four retail share classes, five CollegeAmerica® savings plan share classes and five retirement plan share classes. The CollegeAmerica savings plan share classes (529-A, 529-B, 529-C, 529-E and 529-F) can be utilized to save for college education. The five retirement plan share classes (R-1, R-2, R-3, R-4 and R-5) are sold without any sales charges and do not carry any conversion rights. The fund’s share classes are described below:
Share class | | Initial sales charge | | Contingent deferred sales charge upon redemption | | Conversion feature |
| Class A and 529-A | | Up to 5.75% | | None (except 1% for certain redemptions within one year of purchase without an initial sales charge) | | None |
| Class B and 529-B | | None | | Declines from 5% to 0% for redemptions within six years of purchase | | Class B and 529-B convert to Class A and 529-A, respectively, after eight years |
| Class C | | None | | 1% for redemptions within one year of purchase | | Class C converts to Class F after 10 years |
| Class 529-C | | None | | 1% for redemptions within one year of purchase | | None |
| Class 529-E | | None | | None | | None |
| Class F and 529-F | | None | | None | | None |
| Class R-1, R-2, R-3, R-4 and R-5 | | None | | None | | None |
Holders of all share classes have equal pro rata rights to assets, dividends and liquidation proceeds. Each share class has identical voting rights, except for the exclusive right to vote on matters affecting only its class. Share classes have different fees and expenses ("class-specific fees and expenses"), primarily due to different arrangements for distribution, administrative and shareholder services. Differences in class-specific fees and expenses will result in differences in net investment income and, therefore, the payment of different per-share dividends by each class.
Significant accounting policies - The financial statements have been prepared to comply with accounting principles generally accepted in the United States of America. These principles require management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the fund:
Security valuation - Equity securities are valued at the official closing price of, or the last reported sale price on, the exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. Prices for each security are taken from the principal exchange or market in which the security trades. Fixed-income securities, including short-term securities purchased with more than 60 days left to maturity, are valued at prices obtained from an independent pricing service when such prices are available. However, where the investment adviser deems it appropriate, such securities will be valued at the mean quoted bid and asked prices (or bid prices, if asked prices are not available) or at prices for securities of comparable maturity, quality and type. Securities with both fixed-income and equity characteristics, or equity securities traded principally among fixed-income dealers, are valued in the manner described above for either equity or fixed-income securities, depending on which method is deemed most appropriate by the investment adviser. Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates market value. The value of short-term securities originally purchased with maturities greater than 60 days is determined based on an amortized value to par when they reach 60 days or less remaining to maturity. The ability of the issuers of the debt securities held by the fund to meet their obligations may be affected by economic developments in a specific industry, state or region. Securities and other assets for which representative market quotations are not readily available or are considered unreliable are fair valued as determined in good faith under procedures adopted by authority of the fund's board of directors. Various factors may be reviewed in order to make a good faith determination of a security’s fair value. These factors include, but are not limited to, the type and cost of the security; contractual or legal restrictions on resale of the security; relevant financial or business developments of the issuer; actively traded similar or related securities; conversion or exchange rights on the security; related corporate actions; significant events occurring after the close of trading in the security; and changes in overall market conditions.
Security transactions and related investment income - Security transactions are recorded by the fund as of the date the trades are executed with brokers. Realized gains and losses from security transactions are determined based on the specific identified cost of the securities. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. Market discounts, premiums and original issue discounts on fixed-income securities are amortized daily over the expected life of the security.
Class allocations - Income, fees and expenses (other than class-specific fees and expenses) and realized and unrealized gains and losses are allocated daily among the various share classes based on their relative net assets. Class-specific fees and expenses, such as distribution, administrative and shareholder services, are charged directly to the respective share class.
Dividends and distributions to shareholders - Dividends and distributions paid to shareholders are recorded on the ex-dividend date.
Non-U.S. currency translation - Assets and liabilities, including investment securities, denominated in non-U.S. currencies are translated into U.S. dollars at the exchange rates in effect on the valuation date. Purchases and sales of investment securities and income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions. In the accompanying financial statements, the effects of changes in non-U.S. exchange rates on investment securities are included with the net realized gain or loss and net unrealized appreciation or depreciation on investments. The realized gain or loss and unrealized appreciation or depreciation resulting from all other transactions denominated in non-U.S. currencies are disclosed separately.
Investment risk - The risks of investing in securities of non-U.S. issuers may include, but are not limited to, investment and repatriation restrictions; revaluation of currencies; adverse political, social and economic developments; government involvement in the private sector; limited and less reliable investor information; lack of liquidity; certain local tax law considerations; and limited regulation of the securities markets.
Taxation - Dividend and interest income is recorded net of non-U.S. taxes paid. Gains realized by the fund on the sale of securities in certain countries are subject to non-U.S. taxes. The fund records a liability based on unrealized gains to provide for potential non-U.S. taxes payable upon the sale of these securities. For the six months ended June 30, 2006, non-U.S. taxes paid on realized gains were $6,804,000. As of June 30, 2006, there were no non-U.S. taxes provided on unrealized gains.
3. Federal income taxation and distributions
The fund complies with the requirements under Subchapter M of the Internal Revenue Code applicable to mutual funds and intends to distribute substantially all of its net taxable income and net capital gains each year. The fund is not subject to income taxes to the extent such distributions are made.
Distributions - Distributions paid to shareholders are based on net investment income and net realized gains determined on a tax basis, which may differ from net investment income and net realized gains for financial reporting purposes. These differences are due primarily to differing treatment for items such as non-U.S. currency gains and losses; short-term capital gains and losses; and non-U.S. taxes on capital gains. 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, 2005, the fund had tax basis undistributed ordinary income of $86,813,000 and a capital loss carryforward of $216,463,000 expiring in 2011.
As of June 30, 2006, the tax basis unrealized appreciation (depreciation) and cost of investments were as follows (dollars in thousands):
| | |
| Gross unrealized appreciation on investment securities | $9,101,138 |
| Gross unrealized depreciation on investment securities | (669,822) |
| Net unrealized appreciation on investment securities | 8,431,316 |
| Cost of investment securities | 24,864,781 |
Ordinary income distributions paid to shareholders from net investment income were as follows (dollars in thousands):
Share class | | Six months ended June 30, 2006 | | Year ended December 31, 2005 | |
| Class A | | $ | 157,032 | | $ | 398,335 | |
| Class B | | | 2,406 | | | 10,375 | |
| Class C | | | 1,575 | | | 6,729 | |
| Class F | | | 5,320 | | | 9,749 | |
| Class 529-A | | | 1,567 | | | 3,286 | |
| Class 529-B | | | 63 | | | 312 | |
| Class 529-C | | | 119 | | | 553 | |
| Class 529-E | | | 56 | | | 137 | |
| Class 529-F | | | 41 | | | 68 | |
| Class R-1 | | | 21 | | | 90 | |
| Class R-2 | | | 314 | | | 1,327 | |
| Class R-3 | | | 1,121 | | | 2,603 | |
| Class R-4 | | | 1,294 | | | 2,838 | |
| Class R-5 | | | 2,279 | | | 4,463 | |
| Total | | $ | 173,208 | | $ | 440,865 | |
4. Fees and transactions with related parties
Capital Research and Management Company ("CRMC"), the fund’s investment adviser, is the parent company of American Funds Service Company SM ("AFS"), the fund’s transfer agent, and American Funds Distributors, Inc.SM ("AFD"), the principal underwriter of the fund’s shares.
Investment advisory services - The Investment Advisory and Service Agreement with CRMC provides for monthly fees accrued daily. These fees are based on a declining series of annual rates beginning with 0.390% on the first $1 billion of daily net assets and decreasing to 0.240% on such assets in excess of $27 billion. CRMC is currently waiving 10% of investment advisory services fees. During the six months ended June 30, 2006, total investment advisory services fees waived by CRMC were $4,069,000. As a result, the fee shown on the accompanying financial statements of $40,690,000, which was equivalent to an annualized rate of 0.262%, was reduced to $36,621,000, or 0.235% of average daily net assets.
Class-specific fees and expenses - Expenses that are specific to individual share classes are accrued directly to the respective share class. The principal class-specific fees and expenses are described below.
Distribution services - The fund has adopted plans of distribution for all share classes, except Class R-5. Under the plans, the board of directors approves certain categories of expenses that are used to finance activities primarily intended to sell fund shares and service existing accounts. The plans provide for payments, based on an annualized percentage of average daily net assets, ranging from 0.25% to 1.00% as noted below. In some cases, the board of directors has limited the amounts that may be paid to less than the maximum allowed by the plans. All share classes may use up to 0.25% of average daily net assets to pay service fees, or to compensate AFD for paying service fees, to firms that have entered into agreements with AFD to provide certain shareholder services. The remaining amounts available to be paid under each plan are paid to dealers to compensate them for their sales activities.
For Class A and 529-A, the board of directors has also approved the reimbursement of dealer and wholesaler commissions paid by AFD for certain shares sold without a sales charge. These classes reimburse AFD for amounts billed within the prior 15 months but only to the extent that the overall annual expense limit of 0.25% is not exceeded. As of June 30, 2006, there were no unreimbursed expenses subject to reimbursement for Class A or 529-A.
Share class | Currently approved limits | Plan limits |
| Class A | 0.25% | 0.25% |
| Class 529-A | 0.25 | 0.50 |
| Class B and 529-B | 1.00 | 1.00 |
| Class C, 529-C and R-1 | 1.00 | 1.00 |
| Class R-2 | 0.75 | 1.00 |
| Class 529-E and R-3 | 0.50 | 0.75 |
| Class F, 529-F and R-4 | 0.25 | 0.50 |
Transfer agent services - The fund has a transfer agent agreement with AFS for Class A and B. Under this agreement, these share classes compensate AFS for transfer agent services including shareholder recordkeeping, communications and transaction processing. AFS is also compensated for certain transfer agent services provided to all other share classes from the administrative services fees paid to CRMC described below.
Administrative services - The fund has an administrative services agreement with CRMC to provide transfer agent and other related shareholder services for all share classes other than Class A and B. Each relevant share class pays CRMC annual fees up to 0.15% (0.10% for Class R-5) based on its respective average daily net assets. Each relevant share class also pays AFS additional amounts for certain transfer agent services. CRMC and AFS may use these fees to compensate third parties for performing these services. CRMC has agreed to pay AFS on the fund's behalf for a portion of the transfer agent services fees for some of the retirement plan share classes. For the six months ended June 30, 2006, the total administrative services fees paid by CRMC were $1,000 and $111,000 for Class R-1 and R-2, respectively. Administrative services fees are presented gross of any payments made by CRMC. Each 529 share class is subject to an additional annual administrative services fee of 0.10% of its respective average daily net assets; this fee is payable to the Commonwealth of Virginia for the maintenance of the CollegeAmerica plan. Although these amounts are included with administrative services fees on the accompanying financial statements, the Commonwealth of Virginia is not considered a related party.
Expenses under the agreements described on the previous page for the six months ended June 30, 2006, 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 | $32,969 | $11,628 | Not applicable | Not applicable | Not applicable |
| Class B | 5,942 | 568 | Not applicable | Not applicable | Not applicable |
| Class C | 4,637 | Included in administrative services | $615 | $97 | Not applicable |
| Class F | 1,110 | 323 | 48 | Not applicable |
| Class 529-A | 264 | 113 | 18 | $139 |
| Class 529-B | 225 | 18 | 8 | 22 |
| Class 529-C | 426 | 35 | 13 | 43 |
| Class 529-E | 35 | 6 | 1 | 7 |
| Class 529-F | - | 2 | -* | 3 |
| Class R-1 | 66 | 9 | 4 | Not applicable |
| Class R-2 | 719 | 142 | 368 | Not applicable |
| Class R-3 | 709 | 203 | 109 | Not applicable |
| Class R-4 | 289 | 169 | 4 | Not applicable |
| Class R-5 | Not applicable | 163 | 3 | Not applicable |
| Total | $47,391 | $12,196 | $1,798 | $673 | $214 |
* Amount less than one thousand.
Deferred directors’ compensation - Since the adoption of the deferred compensation plan in 1993, directors who are unaffiliated with CRMC may elect to defer the cash payment of part or all of their compensation. These deferred amounts, which remain as liabilities of the fund, are treated as if invested in shares of the fund or other American Funds. These amounts represent general, unsecured liabilities of the fund and vary according to the total returns of the selected funds. Directors’ compensation of $305,000, shown on the accompanying financial statements, includes $148,000 in current fees (either paid in cash or deferred) and a net increase of $157,000 in the value of the deferred amounts.
Affiliated officers and directors - Officers and certain directors of the fund are or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated officers or directors received any compensation directly from the fund.
5. Capital share transactions
Capital share transactions in the fund were as follows (dollars and shares in thousands):
| Share class | | Sales* | | Reinvestments of dividends and distributions | | Repurchases* | | Net increase | |
| | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | |
Six months ended June 30, 2006 | | | | | | | | | | | | | | | | | |
| Class A | | $ | 3,102,478 | | | 82,171 | | $ | 148,438 | | | 3,934 | | $ | (1,452,842 | ) | | (38,592 | ) | $ | 1,798,074 | | | 47,513 | |
| Class B | | | 132,435 | | | 3,512 | | | 2,312 | | | 61 | | | (59,562 | ) | | (1,584 | ) | | 75,185 | | | 1,989 | |
| Class C | | | 277,021 | | | 7,359 | | | 1,503 | | | 40 | | | (58,701 | ) | | (1,563 | ) | | 219,823 | | | 5,836 | |
| Class F | | | 469,195 | | | 12,417 | | | 4,614 | | | 122 | | | (70,636 | ) | | (1,883 | ) | | 403,173 | | | 10,656 | |
| Class 529-A | | | 69,956 | | | 1,859 | | | 1,567 | | | 42 | | | (6,721 | ) | | (179 | ) | | 64,802 | | | 1,722 | |
| Class 529-B | | | 7,265 | | | 193 | | | 63 | | | 2 | | | (777 | ) | | (21 | ) | | 6,551 | | | 174 | |
| Class 529-C | | | 23,315 | | | 620 | | | 119 | | | 3 | | | (3,183 | ) | | (84 | ) | | 20,251 | | | 539 | |
| Class 529-E | | | 3,183 | | | 85 | | | 56 | | | 2 | | | (218 | ) | | (6 | ) | | 3,021 | | | 81 | |
| Class 529-F | | | 2,450 | | | 65 | | | 41 | | | 1 | | | (415 | ) | | (11 | ) | | 2,076 | | | 55 | |
| Class R-1 | | | 5,958 | | | 158 | | | 20 | | | - † | | | (1,663 | ) | | (44 | ) | | 4,315 | | | 114 | |
| Class R-2 | | | 78,467 | | | 2,088 | | | 314 | | | 8 | | | (23,443 | ) | | (626 | ) | | 55,338 | | | 1,470 | |
| Class R-3 | | | 137,643 | | | 3,656 | | | 1,119 | | | 30 | | | (37,589 | ) | | (997 | ) | | 101,173 | | | 2,689 | |
| Class R-4 | | | 51,527 | | | 1,368 | | | 1,294 | | | 34 | | | (20,940 | ) | | (558 | ) | | 31,881 | | | 844 | |
| Class R-5 | | | 101,654 | | | 2,691 | | | 2,118 | | | 56 | | | (15,072 | ) | | (400 | ) | | 88,700 | | | 2,347 | |
| Total net increase | | | | | | | | | | | | | | | | | | | | | | | | | |
| (decrease) | | $ | 4,462,547 | | | 118,242 | | $ | 163,578 | | | 4,335 | | $ | (1,751,762 | ) | | (46,548 | ) | $ | 2,874,363 | | | 76,029 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2005 | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A | | $ | 3,005,984 | | | 90,443 | | $ | 375,768 | | | 11,039 | | $ | (2,648,000 | ) | | (80,442 | ) | $ | 733,752 | | | 21,040 | |
| Class B | | | 109,936 | | | 3,324 | | | 9,966 | | | 289 | | | (95,999 | ) | | (2,920 | ) | | 23,903 | | | 693 | |
| Class C | | | 218,924 | | | 6,608 | | | 6,422 | | | 186 | | | (79,167 | ) | | (2,409 | ) | | 146,179 | | | 4,385 | |
| Class F | | | 244,749 | | | 7,340 | | | 8,448 | | | 247 | | | (106,338 | ) | | (3,245 | ) | | 146,859 | | | 4,342 | |
| Class 529-A | | | 72,664 | | | 2,186 | | | 3,286 | | | 96 | | | (9,106 | ) | | (273 | ) | | 66,844 | | | 2,009 | |
| Class 529-B | | | 7,547 | | | 228 | | | 312 | | | 9 | | | (942 | ) | | (28 | ) | | 6,917 | | | 209 | |
| Class 529-C | | | 23,294 | | | 702 | | | 553 | | | 16 | | | (3,668 | ) | | (111 | ) | | 20,179 | | | 607 | |
| Class 529-E | | | 3,417 | | | 103 | | | 137 | | | 4 | | | (312 | ) | | (10 | ) | | 3,242 | | | 97 | |
| Class 529-F | | | 2,261 | | | 68 | | | 68 | | | 2 | | | (214 | ) | | (7 | ) | | 2,115 | | | 63 | |
| Class R-1 | | | 5,776 | | | 176 | | | 89 | | | 3 | | | (2,202 | ) | | (66 | ) | | 3,663 | | | 113 | |
| Class R-2 | | | 71,936 | | | 2,187 | | | 1,327 | | | 38 | | | (24,346 | ) | | (735 | ) | | 48,917 | | | 1,490 | |
| Class R-3 | | | 110,345 | | | 3,339 | | | 2,595 | | | 76 | | | (35,242 | ) | | (1,065 | ) | | 77,698 | | | 2,350 | |
| Class R-4 | | | 130,964 | | | 4,035 | | | 2,837 | | | 83 | | | (26,250 | ) | | (795 | ) | | 107,551 | | | 3,323 | |
| Class R-5 | | | 152,129 | | | 4,640 | | | 4,015 | | | 117 | | | (54,754 | ) | | (1,618 | ) | | 101,390 | | | 3,139 | |
| Total net increase | | | | | | | | | | | | | | | | | | | | | | | | | |
| (decrease) | | $ | 4,159,926 | | | 125,379 | | $ | 415,823 | | | 12,205 | | $ | (3,086,540 | ) | | (93,724 | ) | $ | 1,489,209 | | | 43,860 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| * Includes exchanges between share classes of the fund. | | | | | | | | | | | | | | | | | | | | | | | |
| † Amount less than one thousand. | | | | | | | | | | | | | | | | | | | | | | | | | |
The fund made purchases and sales of investment securities, excluding short-term securities, of $5,515,398,000 and $3,285,971,000, respectively, during the six months ended June 30, 2006.
Financial highlights (1)
| | | | | Income (loss) from investment operations(2) | | Dividends and distributions | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset value, beginning of period | | Net investment income | | Net gains (losses) on securities (both realized and unrealized) | | Total from investment operations | | Dividends (from net investment income) | | Distributions (from capital gains) | | Total dividends and distributions | | Net asset value, end of period | | Total return (3) | | Net assets, end of period (in millions) | | | | Ratio of expenses to average net assets before reimbursments/ waivers | | | | Ratio of expenses to average net assets after reimbursements/ waivers (4) | | | | Ratio of net income to average net assets | | | |
| Class A: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2006 (5) | | $ | 35.40 | | $ | .31 | | $ | 2.81 | | $ | 3.12 | | $ | (.22 | ) | $ | - | | $ | (.22 | ) | $ | 38.30 | | | 8.83 | % | $ | 28,211 | | | | | | .62 | % | | (6 | ) | | .60 | % | | (6 | ) | | 1.66 | % | | (6 | ) |
| Year ended 12/31/2005 | | | 32.25 | | | .58 | | | 3.16 | | | 3.74 | | | (.59 | ) | | - | | | (.59 | ) | | 35.40 | | | 11.68 | | | 24,390 | | | | | | .62 | | | | | | .60 | | | | | | 1.75 | | | | |
| Year ended 12/31/2004 | | | 28.85 | | | .61 | | | 3.35 | | | 3.96 | | | (.56 | ) | | - | | | (.56 | ) | | 32.25 | | | 13.91 | | | 21,543 | | | | | | .63 | | | | | | .63 | | | | | | 2.05 | | | | |
| Year ended 12/31/2003 | | | 22.23 | | | .50 | | | 6.52 | | | 7.02 | | | (.40 | ) | | - | | | (.40 | ) | | 28.85 | | | 31.96 | | | 19,212 | | | | | | .66 | | | | | | .66 | | | | | | 2.08 | | | | |
| Year ended 12/31/2002 | | | 27.45 | | | .42 | | | (5.14 | ) | | (4.72 | ) | | (.50 | ) | | - | | | (.50 | ) | | 22.23 | | | (17.34 | ) | | 15,201 | | | | | | .67 | | | | | | .67 | | | | | | 1.68 | | | | |
| Year ended 12/31/2001 | | | 31.16 | | | .40 | | | (3.34 | ) | | (2.94 | ) | | (.40 | ) | | (.37 | ) | | (.77 | ) | | 27.45 | | | (9.55 | ) | | 19,331 | | | | | | .65 | | | | | | .65 | | | | | | 1.41 | | | | |
| Class B: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2006 (5) | | | 35.33 | | | .17 | | | 2.81 | | | 2.98 | | | (.08 | ) | | - | | | (.08 | ) | | 38.23 | | | 8.43 | | | 1,256 | | | | | | 1.38 | | | (6 | ) | | 1.36 | | | (6 | ) | | .90 | | | (6 | ) |
| Year ended 12/31/2005 | | | 32.19 | | | .33 | | | 3.15 | | | 3.48 | | | (.34 | ) | | - | | | (.34 | ) | | 35.33 | | | 10.84 | | | 1,090 | | | | | | 1.39 | | | | | | 1.36 | | | | | | .99 | | | | |
| Year ended 12/31/2004 | | | 28.80 | | | .38 | | | 3.35 | | | 3.73 | | | (.34 | ) | | - | | | (.34 | ) | | 32.19 | | | 13.03 | | | 971 | | | | | | 1.40 | | | | | | 1.39 | | | | | | 1.29 | | | | |
| Year ended 12/31/2003 | | | 22.19 | | | .31 | | | 6.51 | | | 6.82 | | | (.21 | ) | | - | | | (.21 | ) | | 28.80 | | | 30.97 | | | 836 | | | | | | 1.44 | | | | | | 1.44 | | | | | | 1.30 | | | | |
| Year ended 12/31/2002 | | | 27.40 | | | .23 | | | (5.14 | ) | | (4.91 | ) | | (.30 | ) | | - | | | (.30 | ) | | 22.19 | | | (17.97 | ) | | 618 | | | | | | 1.45 | | | | | | 1.45 | | | | | | .91 | | | | |
| Year ended 12/31/2001 | | | 31.12 | | | .18 | | | (3.34 | ) | | (3.16 | ) | | (.19 | ) | | (.37 | ) | | (.56 | ) | | 27.40 | | | (10.24 | ) | | 653 | | | | | | 1.42 | | | | | | 1.42 | | | | | | .64 | | | | |
| Class C: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2006 (5) | | | 35.30 | | | .16 | | | 2.79 | | | 2.95 | | | (.06 | ) | | - | | | (.06 | ) | | 38.19 | | | 8.37 | | | 1,062 | | | | | | 1.44 | | | (6 | ) | | 1.42 | | | (6 | ) | | .85 | | | (6 | ) |
| Year ended 12/31/2005 | | | 32.17 | | | .30 | | | 3.15 | | | 3.45 | | | (.32 | ) | | - | | | (.32 | ) | | 35.30 | | | 10.76 | | | 776 | | | | | | 1.45 | | | | | | 1.43 | | | | | | .91 | | | | |
| Year ended 12/31/2004 | | | 28.78 | | | .37 | | | 3.34 | | | 3.71 | | | (.32 | ) | | - | | | (.32 | ) | | 32.17 | | | 12.96 | | | 566 | | | | | | 1.47 | | | | | | 1.46 | | | | | | 1.24 | | | | |
| Year ended 12/31/2003 | | | 22.17 | | | .30 | | | 6.51 | | | 6.81 | | | (.20 | ) | | - | | | (.20 | ) | | 28.78 | | | 30.93 | | | 413 | | | | | | 1.50 | | | | | | 1.50 | | | | | | 1.23 | | | | |
| Year ended 12/31/2002 | | | 27.39 | | | .21 | | | (5.14 | ) | | (4.93 | ) | | (.29 | ) | | - | | | (.29 | ) | | 22.17 | | | (18.06 | ) | | 266 | | | | | | 1.50 | | | | | | 1.50 | | | | | | .86 | | | | |
| Period from 3/15/2001 to 12/31/2001 | | | 28.52 | | | .11 | | | (1.13 | ) | | (1.02 | ) | | (.11 | ) | | - | | | (.11 | ) | | 27.39 | | | (3.60 | ) | | 203 | | | | | | 1.55 | | | (6 | ) | | 1.55 | | | (6 | ) | | .49 | | | (6 | ) |
| Class F: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2006 (5) | | | 35.39 | | | .32 | | | 2.80 | | | 3.12 | | | (.22 | ) | | - | | | (.22 | ) | | 38.29 | | | 8.83 | | | 1,124 | | | | | | .62 | | | (6 | ) | | .59 | | | (6 | ) | | 1.69 | | | (6 | ) |
| Year ended 12/31/2005 | | | 32.24 | | | .57 | | | 3.16 | | | 3.73 | | | (.58 | ) | | - | | | (.58 | ) | | 35.39 | | | 11.64 | | | 662 | | | | | | .66 | | | | | | .63 | | | | | | 1.71 | | | | |
| Year ended 12/31/2004 | | | 28.84 | | | .59 | | | 3.35 | | | 3.94 | | | (.54 | ) | | - | | | (.54 | ) | | 32.24 | | | 13.84 | | | 463 | | | | | | .70 | | | | | | .70 | | | | | | 2.02 | | | | |
| Year ended 12/31/2003 | | | 22.22 | | | .49 | | | 6.52 | | | 7.01 | | | (.39 | ) | | - | | | (.39 | ) | | 28.84 | | | 31.92 | | | 311 | | | | | | .71 | | | | | | .71 | | | | | | 2.02 | | | | |
| Year ended 12/31/2002 | | | 27.44 | | | .40 | | | (5.14 | ) | | (4.74 | ) | | (.48 | ) | | - | | | (.48 | ) | | 22.22 | | | (17.38 | ) | | 203 | | | | | | .72 | | | | | | .72 | | | | | | 1.65 | | | | |
| Period from 3/15/2001 to 12/31/2001 | | | 28.56 | | | .28 | | | (1.12 | ) | | (.84 | ) | | (.28 | ) | | - | | | (.28 | ) | | 27.44 | | | (2.97 | ) | | 153 | | | | | | .74 | | | (6 | ) | | .74 | | | (6 | ) | | 1.31 | | | (6 | ) |
| Class 529-A: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2006 (5) | | | 35.38 | | | .30 | | | 2.81 | | | 3.11 | | | (.21 | ) | | - | | | (.21 | ) | | 38.28 | | | 8.80 | | | 316 | | | | | | .67 | | | (6 | ) | | .65 | | | (6 | ) | | 1.62 | | | (6 | ) |
| Year ended 12/31/2005 | | | 32.24 | | | .55 | | | 3.15 | | | 3.70 | | | (.56 | ) | | - | | | (.56 | ) | | 35.38 | | | 11.60 | | | 231 | | | | | | .70 | | | | | | .67 | | | | | | 1.66 | | | | |
| Year ended 12/31/2004 | | | 28.84 | | | .59 | | | 3.34 | | | 3.93 | | | (.53 | ) | | - | | | (.53 | ) | | 32.24 | | | 13.77 | | | 146 | | | | | | .73 | | | | | | .72 | | | | | | 2.00 | | | | |
| Year ended 12/31/2003 | | | 22.22 | | | .50 | | | 6.52 | | | 7.02 | | | (.40 | ) | | - | | | (.40 | ) | | 28.84 | | | 31.99 | | | 88 | | | | | | .68 | | | | | | .68 | | | | | | 2.03 | | | | |
| Period from 2/15/2002 to 12/31/2002 | | | 26.71 | | | .33 | | | (4.34 | ) | | (4.01 | ) | | (.48 | ) | | - | | | (.48 | ) | | 22.22 | | | (15.16 | ) | | 39 | | | | | | .76 | | | (6 | ) | | .76 | | | (6 | ) | | 1.64 | | | (6 | ) |
| Class 529-B: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2006 (5) | | | 35.37 | | | .15 | | | 2.81 | | | 2.96 | | | (.05 | ) | | - | | | (.05 | ) | | 38.28 | | | 8.38 | | | 49 | | | | | | 1.51 | | | (6 | ) | | 1.48 | | | (6 | ) | | .78 | | | (6 | ) |
| Year ended 12/31/2005 | | | 32.23 | | | .27 | | | 3.16 | | | 3.43 | | | (.29 | ) | | - | | | (.29 | ) | | 35.37 | | | 10.66 | | | 40 | | | | | | 1.54 | | | | | | 1.52 | | | | | | .82 | | | | |
| Year ended 12/31/2004 | | | 28.83 | | | .33 | | | 3.35 | | | 3.68 | | | (.28 | ) | | - | | | (.28 | ) | | 32.23 | | | 12.83 | | | 29 | | | | | | 1.59 | | | | | | 1.59 | | | | | | 1.13 | | | | |
| Year ended 12/31/2003 | | | 22.22 | | | .27 | | | 6.52 | | | 6.79 | | | (.18 | ) | | - | | | (.18 | ) | | 28.83 | | | 30.74 | | | 19 | | | | | | 1.61 | | | | | | 1.61 | | | | | | 1.10 | | | | |
| Period from 2/19/2002 to 12/31/2002 | | | 26.27 | | | .16 | | | (3.91 | ) | | (3.75 | ) | | (.30 | ) | | - | | | (.30 | ) | | 22.22 | | | (14.35 | ) | | 8 | | | | | | 1.62 | | | (6 | ) | | 1.62 | | | (6 | ) | | .77 | | | (6 | ) |
| Class 529-C: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2006 (5) | | | 35.37 | | | .15 | | | 2.80 | | | 2.95 | | | (.05 | ) | | - | | | (.05 | ) | | 38.27 | | | 8.35 | | | 98 | | | | | | 1.50 | | | (6 | ) | | 1.47 | | | (6 | ) | | .79 | | | (6 | ) |
| Year ended 12/31/2005 | | | 32.23 | | | .27 | | | 3.16 | | | 3.43 | | | (.29 | ) | | - | | | (.29 | ) | | 35.37 | | | 10.68 | | | 71 | | | | | | 1.53 | | | | | | 1.51 | | | | | | .83 | | | | |
| Year ended 12/31/2004 | | | 28.83 | | | .34 | | | 3.34 | | | 3.68 | | | (.28 | ) | | - | | | (.28 | ) | | 32.23 | | | 12.84 | | | 45 | | | | | | 1.58 | | | | | | 1.58 | | | | | | 1.14 | | | | |
| Year ended 12/31/2003 | | | 22.22 | | | .27 | | | 6.52 | | | 6.79 | | | (.18 | ) | | - | | | (.18 | ) | | 28.83 | | | 30.75 | | | 27 | | | | | | 1.60 | | | | | | 1.60 | | | | | | 1.11 | | | | |
| Period from 2/15/2002 to 12/31/2002 | | | 26.71 | | | .16 | | | (4.34 | ) | | (4.18 | ) | | (.31 | ) | | - | | | (.31 | ) | | 22.22 | | | (15.74 | ) | | 11 | | | | | | 1.60 | | | (6 | ) | | 1.60 | | | (6 | ) | | .79 | | | (6 | ) |
| Class 529-E: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2006 (5) | | | 35.36 | | | .24 | | | 2.82 | | | 3.06 | | | (.15 | ) | | - | | | (.15 | ) | | 38.27 | | | 8.66 | | | 16 | | | | | | .98 | | | (6 | ) | | .96 | | | (6 | ) | | 1.31 | | | (6 | ) |
| Year ended 12/31/2005 | | | 32.23 | | | .44 | | | 3.15 | | | 3.59 | | | (.46 | ) | | - | | | (.46 | ) | | 35.36 | | | 11.24 | | | 12 | | | | | | 1.02 | | | | | | .99 | | | | | | 1.34 | | | | |
| Year ended 12/31/2004 | | | 28.83 | | | .49 | | | 3.35 | | | 3.84 | | | (.44 | ) | | - | | | (.44 | ) | | 32.23 | | | 13.40 | | | 7 | | | | | | 1.06 | | | | | | 1.05 | | | | | | 1.66 | | | | |
| Year ended 12/31/2003 | | | 22.21 | | | .40 | | | 6.52 | | | 6.92 | | | (.30 | ) | | - | | | (.30 | ) | | 28.83 | | | 31.42 | | | 4 | | | | | | 1.08 | | | | | | 1.08 | | | | | | 1.61 | | | | |
| Period from 3/7/2002 to 12/31/2002 | | | 28.13 | | | .26 | | | (5.85 | ) | | (5.59 | ) | | (.33 | ) | | - | | | (.33 | ) | | 22.21 | | | (19.92 | ) | | 2 | | | | | | 1.07 | | | (6 | ) | | 1.07 | | | (6 | ) | | 1.35 | | | (6 | ) |
| Class 529-F: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2006 (5) | | | 35.36 | | | .34 | | | 2.81 | | | 3.15 | | | (.25 | ) | | - | | | (.25 | ) | | 38.26 | | | 8.91 | | | 7 | | | | | | .48 | | | (6 | ) | | .46 | | | (6 | ) | | 1.82 | | | (6 | ) |
| Year ended 12/31/2005 | | | 32.22 | | | .59 | | | 3.15 | | | 3.74 | | | (.60 | ) | | - | | | (.60 | ) | | 35.36 | | | 11.68 | | | 5 | | | | | | .58 | | | | | | .56 | | | | | | 1.76 | | | | |
| Year ended 12/31/2004 | | | 28.82 | | | .58 | | | 3.33 | | | 3.91 | | | (.51 | ) | | - | | | (.51 | ) | | 32.22 | | | 13.73 | | | 2 | | | | | | .81 | | | | | | .80 | | | | | | 1.95 | | | | |
| Year ended 12/31/2003 | | | 22.22 | | | .45 | | | 6.52 | | | 6.97 | | | (.37 | ) | | - | | | (.37 | ) | | 28.82 | | | 31.72 | | | 1 | | | | | | .82 | | | | | | .82 | | | | | | 1.81 | | | | |
| Period from 9/23/2002 to 12/31/2002 | | | 21.22 | | | .12 | | | 1.08 | | | 1.20 | | | (.20 | ) | | - | | | (.20 | ) | | 22.22 | | | 5.65 | | | - | | | (7 | ) | | .22 | | | | | | .22 | | | | | | .51 | | | | |
| Class R-1: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2006 (5) | | $ | 35.31 | | $ | .16 | | $ | 2.80 | | $ | 2.96 | | $ | (.06 | ) | | - | | $ | (.06 | ) | $ | 38.21 | | | 8.38 | % | $ | 16 | | | | | | 1.48 | % | | (6 | ) | | 1.44 | % | | (6 | ) | | .83 | % | | (6 | ) |
| Year ended 12/31/2005 | | | 32.18 | | | .29 | | | 3.16 | | | 3.45 | | | (.32 | ) | | - | | | (.32 | ) | | 35.31 | | | 10.74 | | | 11 | | | | | | 1.50 | | | | | | 1.46 | | | | | | .88 | | | | |
| Year ended 12/31/2004 | | | 28.79 | | | .37 | | | 3.33 | | | 3.70 | | | (.31 | ) | | - | | | (.31 | ) | | 32.18 | | | 12.92 | | | 6 | | | | | | 1.53 | | | | | | 1.49 | | | | | | 1.26 | | | | |
| Year ended 12/31/2003 | | | 22.19 | | | .27 | | | 6.54 | | | 6.81 | | | (.21 | ) | | - | | | (.21 | ) | | 28.79 | | | 30.90 | | | 2 | | | | | | 1.70 | | | | | | 1.50 | | | | | | 1.08 | | | | |
| Period from 6/19/2002 to 12/31/2002 | | | 26.04 | | | .13 | | | (3.75 | ) | | (3.62 | ) | | (.23 | ) | | - | | | (.23 | ) | | 22.19 | | | (13.91 | ) | | - | | | (7 | ) | | 4.20 | | | (6 | ) | | 1.50 | | | (6 | ) | | 1.11 | | | (6 | ) |
| Class R-2: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2006 (5) | | | 35.29 | | | .16 | | | 2.80 | | | 2.96 | | | (.06 | ) | | - | | | (.06 | ) | | 38.19 | | | 8.39 | | | 224 | | | | | | 1.57 | | | (6 | ) | | 1.42 | | | (6 | ) | | .85 | | | (6 | ) |
| Year ended 12/31/2005 | | | 32.17 | | | .30 | | | 3.14 | | | 3.44 | | | (.32 | ) | | - | | | (.32 | ) | | 35.29 | | | 10.73 | | | 155 | | | | | | 1.64 | | | | | | 1.43 | | | | | | .91 | | | | |
| Year ended 12/31/2004 | | | 28.77 | | | .38 | | | 3.34 | | | 3.72 | | | (.32 | ) | | - | | | (.32 | ) | | 32.17 | | | 13.02 | | | 93 | | | | | | 1.76 | | | | | | 1.45 | | | | | | 1.29 | | | | |
| Year ended 12/31/2003 | | | 22.18 | | | .30 | | | 6.51 | | | 6.81 | | | (.22 | ) | | - | | | (.22 | ) | | 28.77 | | | 30.93 | | | 45 | | | | | | 1.94 | | | | | | 1.46 | | | | | | 1.19 | | | | |
| Period from 5/21/2002 to 12/31/2002 | | | 27.39 | | | .14 | | | (5.13 | ) | | (4.99 | ) | | (.22 | ) | | - | | | (.22 | ) | | 22.18 | | | (18.22 | ) | | 7 | | | | | | 1.64 | | | (6 | ) | | 1.46 | | | (6 | ) | | 1.05 | | | (6 | ) |
| Class R-3: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2006 (5) | | | 35.35 | | | .24 | | | 2.81 | | | 3.05 | | | (.15 | ) | | - | | | (.15 | ) | | 38.25 | | | 8.62 | | | 341 | | | | | | 1.00 | | | (6 | ) | | .98 | | | (6 | ) | | 1.30 | | | (6 | ) |
| Year ended 12/31/2005 | | | 32.21 | | | .45 | | | 3.16 | | | 3.61 | | | (.47 | ) | | - | | | (.47 | ) | | 35.35 | | | 11.26 | | | 220 | | | | | | 1.01 | | | | | | .98 | | | | | | 1.35 | | | | |
| Year ended 12/31/2004 | | | 28.82 | | | .50 | | | 3.33 | | | 3.83 | | | (.44 | ) | | - | | | (.44 | ) | | 32.21 | | | 13.41 | | | 125 | | | | | | 1.05 | | | | | | 1.04 | | | | | | 1.69 | | | | |
| Year ended 12/31/2003 | | | 22.21 | | | .40 | | | 6.52 | | | 6.92 | | | (.31 | ) | | - | | | (.31 | ) | | 28.82 | | | 31.45 | | | 66 | | | | | | 1.10 | | | | | | 1.08 | | | | | | 1.60 | | | | |
| Period from 6/4/2002 to 12/31/2002 | | | 26.66 | | | .18 | | | (4.38 | ) | | (4.20 | ) | | (.25 | ) | | - | | | (.25 | ) | | 22.21 | | | (15.75 | ) | | 11 | | | | | | 1.13 | | | (6 | ) | | 1.08 | | | (6 | ) | | 1.41 | | | (6 | ) |
| Class R-4: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2006 (5) | | | 35.36 | | | .30 | | | 2.81 | | | 3.11 | | | (.21 | ) | | - | | | (.21 | ) | | 38.26 | | | 8.80 | | | 254 | | | | | | .68 | | | (6 | ) | | .66 | | | (6 | ) | | 1.61 | | | (6 | ) |
| Year ended 12/31/2005 | | | 32.22 | | | .55 | | | 3.16 | | | 3.71 | | | (.57 | ) | | - | | | (.57 | ) | | 35.36 | | | 11.61 | | | 205 | | | | | | .69 | | | | | | .66 | | | | | | 1.66 | | | | |
| Year ended 12/31/2004 | | | 28.83 | | | .60 | | | 3.33 | | | 3.93 | | | (.54 | ) | | - | | | (.54 | ) | | 32.22 | | | 13.85 | | | 80 | | | | | | .69 | | | | | | .69 | | | | | | 2.04 | | | | |
| Year ended 12/31/2003 | | | 22.21 | | | .48 | | | 6.53 | | | 7.01 | | | (.39 | ) | | - | | | (.39 | ) | | 28.83 | | | 31.91 | | | 48 | | | | | | .71 | | | | | | .71 | | | | | | 1.94 | | | | |
| Period from 7/25/2002 to 12/31/2002 | | | 21.75 | | | .22 | | | .55 | | | .77 | | | (.31 | ) | | - | | | (.31 | ) | | 22.21 | | | 3.51 | | | 7 | | | | | | .34 | | | | | | .32 | | | | | | .96 | | | | |
| Class R-5: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended 6/30/2006 (5) | | | 35.41 | | | .36 | | | 2.80 | | | 3.16 | | | (.26 | ) | | - | | | (.26 | ) | | 38.31 | | | 8.95 | | | 377 | | | | | | .39 | | | (6 | ) | | .36 | | | (6 | ) | | 1.91 | | | (6 | ) |
| Year ended 12/31/2005 | | | 32.26 | | | .65 | | | 3.17 | | | 3.82 | | | (.67 | ) | | - | | | (.67 | ) | | 35.41 | | | 11.94 | | | 265 | | | | | | .39 | | | | | | .36 | | | | | | 1.96 | | | | |
| Year ended 12/31/2004 | | | 28.86 | | | .68 | | | 3.35 | | | 4.03 | | | (.63 | ) | | - | | | (.63 | ) | | 32.26 | | | 14.19 | | | 141 | | | | | | .39 | | | | | | .39 | | | | | | 2.31 | | | | |
| Year ended 12/31/2003 | | | 22.23 | | | .56 | | | 6.53 | | | 7.09 | | | (.46 | ) | | - | | | (.46 | ) | | 28.86 | | | 32.24 | | | 112 | | | | | | .39 | | | | | | .39 | | | | | | 2.30 | | | | |
| Period from 5/15/2002 to 12/31/2002 | | | 27.62 | | | .28 | | | (5.34 | ) | | (5.06 | ) | | (.33 | ) | | - | | | (.33 | ) | | 22.23 | | | (18.34 | ) | | 53 | | | | | | .40 | | | (6 | ) | | .40 | | | (6 | ) | | 1.91 | | | (6 | ) |
| | | | | | | | | | | | | | |
| | | | | Year ended December 31 | |
| | | 2006(5) | | 2005 | | 2004 | | 2003 | | 2002 | | 2001 | |
| | | | | | | | | | | | | | |
| Portfolio turnover rate for all classes of shares | | | 11 | % | | 24 | % | | 30 | % | | 31 | % | | 38 | % | | 29 | % |
| | | | | | | | | | | | | | | | | | | | |
| (1) Based on operations for the periods shown (unless otherwise noted) and, accordingly, may not be representative of a full year. |
| (2) Based on average shares outstanding. |
| (3) Total returns exclude all sales charges, including contingent deferred sales charges. |
| (4) The ratios in this column reflect the impact, if any, of certain reimbursements/waivers from CRMC. During some of the periods shown, CRMC reduced fees for investment advisory services for all share classes. In addition, during the start-up period for the retirement plan share classes (except Class R-5), CRMC agreed to pay a portion of the fees related to transfer agent services. |
| (5) Unaudited. |
| (6) Annualized. |
| (7) Amount less than $1 million. |
| |
| |
| See Notes to Financial Statements |
Expense example unaudited
As a shareholder of the fund, you incur two types of costs: (1) transaction costs such as initial sales charges on purchase payments and contingent deferred sales charges on redemptions (loads); and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund so you can compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (January 1, 2006 through June 30, 2006).
Actual expenses:
The first line of each share class in the table on the next page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses paid during period" to estimate the expenses you paid on your account during this period. There are some account fees that are charged to certain types of accounts, such as Individual Retirement Accounts and CollegeAmerica accounts (generally, a $10 fee is charged to set up the account and an additional $10 fee is charged to the account annually) that would increase the amount of expenses paid on your account. In addition, retirement plan participants may be subject to certain fees charged by the plan sponsor, and Class F and 529-F shareholders may be subject to fees charged by financial intermediaries, typically ranging from 0.75% to 1.50% of assets annually depending on services offered. You can estimate the impact of these fees by adding the amount of the fees to the total estimated expenses you paid on your account during the period as calculated above. In addition, your ending account value would also be lower by the amount of these fees.
Hypothetical example for comparison purposes:
The second line of each share class in the table on the next page provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio for the share class and an assumed rate of return of 5.00% per year before expenses, which is not the actual return of the share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5.00% hypothetical example with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds. There are some account fees that are charged to certain types of accounts, such as Individual Retirement Accounts and CollegeAmerica accounts (generally, a $10 fee is charged to set up the account and an additional $10 fee is charged to the account annually) that would increase the amount of expenses paid on your account. In addition, retirement plan participants may be subject to certain fees charged by the plan sponsor, and Class F and 529-F shareholders may be subject to fees charged by financial intermediaries, typically ranging from 0.75% to 1.50% of assets annually depending on services offered. You can estimate the impact of these fees by adding the amount of the fees to the total estimated expenses you paid on your account during the period as calculated on the previous page. In addition, your ending account value would also be lower by the amount of these fees.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of each share class in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| | | Beginning account value 1/1/2006 | | Ending account value 6/30/2006 | | Expenses paid during period* | | Annualized expense ratio | |
| | | | | | | | | | |
| Class A -- actual return | | $ | 1,000.00 | | $ | 1,088.26 | | $ | 3.11 | | | .60 | % |
| Class A -- assumed 5% return | | | 1,000.00 | | | 1,021.82 | | | 3.01 | | | .60 | |
| Class B -- actual return | | | 1,000.00 | | | 1,084.28 | | | 7.03 | | | 1.36 | |
| Class B -- assumed 5% return | | | 1,000.00 | | | 1,018.05 | | | 6.80 | | | 1.36 | |
| Class C -- actual return | | | 1,000.00 | | | 1,083.68 | | | 7.34 | | | 1.42 | |
| Class C -- assumed 5% return | | | 1,000.00 | | | 1,017.75 | | | 7.10 | | | 1.42 | |
| Class F -- actual return | | | 1,000.00 | | | 1,088.28 | | | 3.05 | | | .59 | |
| Class F -- assumed 5% return | | | 1,000.00 | | | 1,021.87 | | | 2.96 | | | .59 | |
| Class 529-A -- actual return | | | 1,000.00 | | | 1,088.03 | | | 3.37 | | | .65 | |
| Class 529-A -- assumed 5% return | | | 1,000.00 | | | 1,021.57 | | | 3.26 | | | .65 | |
| Class 529-B -- actual return | | | 1,000.00 | | | 1,083.78 | | | 7.65 | | | 1.48 | |
| Class 529-B -- assumed 5% return | | | 1,000.00 | | | 1,017.46 | | | 7.40 | | | 1.48 | |
| Class 529-C -- actual return | | | 1,000.00 | | | 1,083.50 | | | 7.59 | | | 1.47 | |
| Class 529-C -- assumed 5% return | | | 1,000.00 | | | 1,017.50 | | | 7.35 | | | 1.47 | |
| Class 529-E -- actual return | | | 1,000.00 | | | 1,086.64 | | | 4.97 | | | .96 | |
| Class 529-E -- assumed 5% return | | | 1,000.00 | | | 1,020.03 | | | 4.81 | | | .96 | |
| Class 529-F -- actual return | | | 1,000.00 | | | 1,089.11 | | | 2.38 | | | .46 | |
| Class 529-F -- assumed 5% return | | | 1,000.00 | | | 1,022.51 | | | 2.31 | | | .46 | |
| Class R-1 -- actual return | | | 1,000.00 | | | 1,083.79 | | | 7.44 | | | 1.44 | |
| Class R-1 -- assumed 5% return | | | 1,000.00 | | | 1,017.65 | | | 7.20 | | | 1.44 | |
| Class R-2 -- actual return | | | 1,000.00 | | | 1,083.95 | | | 7.34 | | | 1.42 | |
| Class R-2 -- assumed 5% return | | | 1,000.00 | | | 1,017.75 | | | 7.10 | | | 1.42 | |
| Class R-3 -- actual return | | | 1,000.00 | | | 1,086.22 | | | 5.07 | | | .98 | |
| Class R-3 -- assumed 5% return | | | 1,000.00 | | | 1,019.93 | | | 4.91 | | | .98 | |
| Class R-4 -- actual return | | | 1,000.00 | | | 1,088.00 | | | 3.42 | | | .66 | |
| Class R-4 -- assumed 5% return | | | 1,000.00 | | | 1,021.52 | | | 3.31 | | | .66 | |
| Class R-5 -- actual return | | | 1,000.00 | | | 1,089.46 | | | 1.87 | | | .36 | |
| Class R-5 -- assumed 5% return | | | 1,000.00 | | | 1,023.01 | | | 1.81 | | | .36 | |
| | | | | | | | | | | | | | |
* Expenses are equal to the annualized expense ratio, multiplied by the average account value over the period, multiplied by the number of days in the period (181), and divided by 365 (to reflect the one-half year period).
Offices
Office of the fund
One Market
Steuart Tower, Suite 1800
Mailing address: P.O. Box 7650
San Francisco, CA 94120-7650
Investment adviser
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071-1406
135 South State College Boulevard
Brea, CA 92821-5823
Transfer agent for shareholder accounts
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 25065
Santa Ana, CA 92799-5065
P.O. Box 659522
San Antonio, TX 78265-9522
P.O. Box 6007
Indianapolis, IN 46206-6007
P.O. Box 2280
Norfolk, VA 23501-2280
Custodian of assets
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110-2804
Counsel
Paul, Hastings, Janofsky & Walker LLP
515 South Flower Street
Los Angeles, CA 90071-2228
Independent registered public
accounting firm
Deloitte & Touche LLP
Two California Plaza
350 South Grand Avenue
Los Angeles, CA 90071-3462
Principal underwriter
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, CA 90071-1406
There are several ways to invest in Fundamental Investors. Class A shares are subject to a 5.75% maximum up-front sales charge that declines for accounts (and aggregated investments) of $25,000 or more and is eliminated for purchases of $1 million or more. Other share classes, which are generally not available for certain employer-sponsored retirement plans, have no up-front sales charges but are subject to additional annual expenses and fees. Annualized expenses for Class B shares were 0.76 percentage points higher than for Class A shares; Class B shares convert to Class A shares after eight years of ownership. If redeemed within six years, Class B shares may also be subject to a contingent deferred sales charge (“CDSC”) of up to 5% that declines over time. Class C shares were subject to annualized expenses 0.82 percentage points higher than those for Class A shares and a 1% CDSC if redeemed within the first year after purchase. Class C shares convert to Class F shares after 10 years. Class F shares, which are available only through certain fee-based programs offered by broker-dealer firms and registered investment advisers, had lower annualized expenses (by 0.01 percentage points) than did Class A shares, and an annual asset-based fee charged by the sponsoring firm. Expenses are deducted from income earned by the fund. As a result, dividends and investment results will differ for each share class.
Investors should carefully consider the investment objectives, risks, charges and expenses of the American Funds. This and other important information is contained in the fund’s prospectus, which can be obtained from your financial adviser and should be read carefully before investing. You may also call American Funds Service Company (AFS) at 800/421-0180 or visit the American Funds website at americanfunds.com.
“American Funds Proxy Voting Guidelines” — which describes how we vote proxies relating to portfolio securities — is available free of charge on the U.S. Securities and Exchange Commission (SEC) website at sec.gov, on the American Funds website or upon request by calling AFS. The fund files its proxy voting record with the SEC for the 12 months ended June 30 by August 31. The report also is available on the SEC and American Funds websites.
A complete June 30, 2006, portfolio of Fundamental Investors’ investments is available free of charge by calling AFS or visiting the SEC website (where it is part of Form N-CSR).
Fundamental Investors files a complete list of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. This filing is available free of charge on the SEC website. You may also review or, for a fee, copy this filing at the SEC’s Public Reference Room in Washington, D.C. (800/SEC-0330). Additionally, the list of portfolio holdings also is available by calling AFS.
This report is for the information of shareholders of Fundamental Investors, but it may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details about charges, expenses, investment objectives and operating policies of the fund. If used as sales material after September 30, 2006, 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 75 years, we have followed a consistent philosophy that we firmly believe is in our investors’ best interests. The range of opportunities offered by our family of just 29 carefully conceived, broadly diversified funds has attracted over 35 million shareholder accounts.
Our unique combination of strengths includes these five factors:
• A long-term, value-oriented approach
We buy stocks and bonds of well-managed companies at reasonable prices and hold them for the long term.
• An extensive global research effort
American Funds investment professionals search the world to gain a comprehensive understanding of companies and markets.
• The multiple portfolio counselor system
Our unique method of portfolio management, developed nearly 50 years ago, blends teamwork with individual accountability and has provided American Funds with a sustainable method of achieving fund objectives.
• Experienced investment professionals
American Funds portfolio counselors have an average of 23 years of investment experience, providing a wealth of knowledge and experience that few organizations have.
• A commitment to low operating expenses
The American Funds provide exceptional value for shareholders, with operating expenses that are among the lowest in the mutual fund industry.
29 mutual funds, consistent philosophy, consistent results
• Growth funds
AMCAP Fund®
EuroPacific Growth Fund®
The Growth Fund of America®
The New Economy Fund®
New Perspective Fund®
New World FundSM
SMALLCAP World Fund®
• Growth-and-income funds
American Mutual Fund®
Capital World Growth and Income FundSM
Fundamental InvestorsSM
The Investment Company of America®
Washington Mutual Investors FundSM
• Equity-income funds
Capital Income Builder®
The Income Fund of America®
• Balanced fund
American Balanced Fund®
• Bond funds
American High-Income TrustSM
The Bond Fund of AmericaSM
Capital World Bond Fund®
Intermediate Bond Fund of America®
U.S. Government Securities FundSM
• Tax-exempt bond funds
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 funds
The Cash Management Trust of America®
The Tax-Exempt Money Fund of AmericaSM
The U.S. Treasury Money Fund of AmericaSM
The Capital Group Companies
American Funds Capital Research and Management Capital International Capital Guardian Capital Bank and Trust
Lit. No. MFGESR-910-0806P
Litho in USA KBDA/CG/8083-S7486
Printed on recycled paper
ITEM 2 - Code of Ethics
Not applicable for filing of semi-annual reports to shareholders.
ITEM 3 - Audit Committee Financial Expert
Not applicable for filing of semi-annual reports to shareholders.
ITEM 4 - Principal Accountant Fees and Services
Not applicable for filing of semi-annual reports to shareholders.
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
June 30, 2006
| | | unaudited |
| | | |
| | | Market value |
| Common stocks — 94.13% | Shares | (000) |
| | | |
ENERGY — 16.49% | | |
| Suncor Energy Inc. | 17,895,019 | $1,448,598 |
| Royal Dutch Shell PLC, Class A (ADR) | 6,370,000 | 426,663 |
| Baker Hughes Inc. | 4,828,000 | 395,172 |
| OAO LUKOIL (ADR) | 4,700,000 | 391,040 |
| Norsk Hydro ASA | 10,840,000 | 287,210 |
| Norsk Hydro ASA (ADR) | 3,500,000 | 93,485 |
CONSOL Energy Inc.1 | 7,400,000 | 345,728 |
| Chevron Corp. | 4,985,674 | 309,411 |
| Murphy Oil Corp. | 4,063,000 | 226,959 |
| Exxon Mobil Corp. | 3,000,000 | 184,050 |
| Devon Energy Corp. | 3,000,000 | 181,230 |
| Occidental Petroleum Corp. | 1,367,122 | 140,198 |
| Smith International, Inc. | 3,125,000 | 138,969 |
| Imperial Oil Ltd. | 3,608,739 | 131,868 |
| Schlumberger Ltd. | 2,000,000 | 130,220 |
| Marathon Oil Corp. | 1,375,000 | 114,537 |
| Halliburton Co. | 1,475,000 | 109,460 |
| Shell Canada Ltd. | 2,538,600 | 94,401 |
Quicksilver Resources Inc.2 | 2,555,000 | 94,050 |
| ConocoPhillips | 1,153,413 | 75,583 |
| Massey Energy Co. | 2,011,700 | 72,421 |
| Oil & Natural Gas Corp. Ltd. | 2,425,000 | 58,579 |
| Cameco Corp. | 1,000,000 | 39,848 |
CNX Gas Corp.1,2 | 287,500 | 8,625 |
| | | 5,498,305 |
| | | |
INDUSTRIALS — 11.97% | | |
| Deere & Co. | 5,660,000 | 472,553 |
| Caterpillar Inc. | 5,400,000 | 402,192 |
| Union Pacific Corp. | 4,200,000 | 390,432 |
| Boeing Co. | 3,400,000 | 278,494 |
| General Electric Co. | 8,250,000 | 271,920 |
| Deutsche Post AG | 8,945,000 | 239,534 |
| General Dynamics Corp. | 3,545,800 | 232,108 |
| Parker Hannifin Corp. | 2,800,000 | 217,280 |
| Raytheon Co. | 4,461,372 | 198,843 |
| Northrop Grumman Corp. | 2,914,483 | 186,702 |
| Emerson Electric Co. | 2,200,000 | 184,382 |
| Mitsubishi Corp. | 7,245,800 | 144,713 |
| Tyco International Ltd. | 4,500,000 | 123,750 |
| American Standard Inc. | 2,332,300 | 100,919 |
| United Technologies Corp. | 1,500,000 | 95,130 |
| Illinois Tool Works Inc. | 1,676,000 | 79,610 |
| United Parcel Service, Inc., Class B | 800,000 | 65,864 |
| Waste Management, Inc. | 1,800,000 | 64,584 |
| Avery Dennison Corp. | 966,400 | 56,109 |
| Kingspan Group PLC | 3,153,379 | 54,992 |
| Burlington Northern Santa Fe Corp. | 500,000 | 39,625 |
Allied Waste Industries, Inc.2 | 2,500,000 | 28,400 |
| Southwest Airlines Co. | 1,500,000 | 24,555 |
Bombardier Inc., Class B2 | 7,500,000 | 20,901 |
| Lockheed Martin Corp. | 248,200 | 17,806 |
| | | 3,991,398 |
| | | |
FINANCIALS — 11.16% | | |
| Washington Mutual, Inc. | 8,580,000 | 391,076 |
| Citigroup Inc. | 7,630,000 | 368,071 |
| Allied Irish Banks, PLC | 12,540,000 | 300,556 |
| Fannie Mae | 4,467,800 | 214,901 |
| Bank of Ireland | 11,765,000 | 209,682 |
| Freddie Mac | 3,325,000 | 189,558 |
| AMP Ltd. | 25,000,202 | 169,523 |
| Irish Life & Permanent PLC | 7,000,000 | 166,344 |
Berkshire Hathaway Inc., Class A2 | 1,650 | 151,237 |
| Equity Residential | 3,000,000 | 134,190 |
| Cullen/Frost Bankers, Inc. | 2,000,000 | 114,600 |
| Willis Group Holdings Ltd. | 3,100,000 | 99,510 |
| Wells Fargo & Co. | 1,470,000 | 98,608 |
| CapitalSource Inc. | 3,900,954 | 91,516 |
| Mitsubishi Estate Co., Ltd. | 3,750,000 | 79,648 |
| Bank of America Corp. | 1,436,800 | 69,110 |
| Marshall & Ilsley Corp. | 1,490,000 | 68,153 |
| Commerce Bancorp, Inc. | 1,900,000 | 67,773 |
| Bank of New York Co., Inc. | 2,085,000 | 67,137 |
| J.P. Morgan Chase & Co. | 1,550,000 | 65,100 |
| U.S. Bancorp | 2,000,000 | 61,760 |
| Aon Corp. | 1,767,400 | 61,541 |
| American International Group, Inc. | 950,000 | 56,098 |
| St. George Bank Ltd. | 2,450,279 | 53,375 |
| Zions Bancorporation | 650,000 | 50,661 |
| Marsh & McLennan Companies, Inc. | 1,770,000 | 47,595 |
| Suruga Bank Ltd. | 3,300,000 | 44,477 |
| State Street Corp. | 700,000 | 40,663 |
| City National Corp. | 600,000 | 39,054 |
| Cathay Financial Holding Co., Ltd. (GDR) | 1,752,500 | 37,679 |
| Mellon Financial Corp. | 1,000,000 | 34,430 |
| Old Republic International Corp. | 1,600,000 | 34,192 |
| Genworth Financial, Inc., Class A | 935,000 | 32,575 |
| National Bank of Canada | 230,000 | 11,747 |
| | | 3,722,140 |
| | | |
INFORMATION TECHNOLOGY — 10.50% | | |
| Microsoft Corp. | 30,150,000 | 702,495 |
Oracle Corp.2 | 35,000,000 | 507,150 |
| Texas Instruments Inc. | 11,383,024 | 344,792 |
| International Business Machines Corp. | 3,650,000 | 280,393 |
| Motorola, Inc. | 10,706,080 | 215,727 |
| Applied Materials, Inc. | 10,900,000 | 177,452 |
| Linear Technology Corp. | 5,000,000 | 167,450 |
| Hitachi, Ltd. | 20,000,000 | 132,156 |
| Intersil Corp., Class A | 5,475,000 | 127,294 |
Google Inc., Class A2 | 300,000 | 125,799 |
Agilent Technologies, Inc.2 | 3,500,000 | 110,460 |
Sun Microsystems, Inc.2 | 24,000,000 | 99,600 |
Yahoo! Inc.2 | 2,400,000 | 79,200 |
| Maxim Integrated Products, Inc. | 1,750,000 | 56,192 |
| Sabre Holdings Corp., Class A | 2,345,304 | 51,597 |
ASML Holding NV2 | 2,500,000 | 50,593 |
| Microchip Technology Inc. | 1,497,222 | 50,232 |
Ceridian Corp.2 | 1,900,000 | 46,436 |
Corning Inc.2 | 1,520,000 | 36,769 |
| Hewlett-Packard Co. | 1,000,000 | 31,680 |
| CDW Corp. | 545,000 | 29,784 |
Lam Research Corp.2 | 500,000 | 23,310 |
| Murata Manufacturing Co., Ltd. | 300,000 | 19,483 |
| Electronic Data Systems Corp. | 800,000 | 19,248 |
| Automatic Data Processing, Inc. | 400,000 | 18,140 |
| | | 3,503,432 |
| | | |
HEALTH CARE — 9.94% | | |
| Roche Holding AG | 3,535,000 | 583,346 |
| Eli Lilly and Co. | 7,370,000 | 407,340 |
| Merck & Co., Inc. | 8,800,000 | 320,584 |
| Abbott Laboratories | 6,310,000 | 275,179 |
| Bristol-Myers Squibb Co. | 9,550,000 | 246,963 |
| Sanofi-Aventis | 2,192,600 | 213,737 |
| Schering-Plough Corp. | 8,500,000 | 161,755 |
| AstraZeneca PLC (Sweden) | 1,500,000 | 90,502 |
| AstraZeneca PLC (ADR) | 890,600 | 53,276 |
WellPoint, Inc.2 | 1,690,000 | 122,981 |
Medco Health Solutions, Inc.2 | 2,063,000 | 118,169 |
Amgen Inc.2 | 1,700,000 | 110,891 |
| Wyeth | 2,200,000 | 97,702 |
Patterson Companies, Inc.2 | 2,250,000 | 78,592 |
| CIGNA Corp. | 725,000 | 71,420 |
| McKesson Corp. | 1,500,000 | 70,920 |
Forest Laboratories, Inc.2 | 1,700,000 | 65,773 |
| Aetna Inc. | 1,640,000 | 65,485 |
| Medtronic, Inc. | 1,300,000 | 60,996 |
| C. R. Bard, Inc. | 650,000 | 47,619 |
Boston Scientific Corp.2 | 1,679,900 | 28,290 |
Martek Biosciences Corp.2 | 850,000 | 24,607 |
| | | 3,316,127 |
| | | |
MATERIALS — 9.37% | | |
| BHP Billiton Ltd. | 17,995,030 | 387,582 |
| Alcoa Inc. | 9,173,800 | 296,864 |
| Rio Tinto PLC | 5,066,709 | 267,551 |
| Weyerhaeuser Co. | 3,383,000 | 210,592 |
| International Paper Co. | 6,316,000 | 204,007 |
| Freeport-McMoRan Copper & Gold Inc., Class B | 3,500,000 | 193,935 |
| Falconbridge Ltd. | 3,500,000 | 184,409 |
Mosaic Co.2 | 10,500,000 | 164,325 |
| Dow Chemical Co. | 4,000,000 | 156,120 |
| E.I. du Pont de Nemours and Co. | 3,500,000 | 145,600 |
| Sealed Air Corp. | 2,241,000 | 116,711 |
| Potash Corp. of Saskatchewan Inc. | 1,318,400 | 113,343 |
| Inco Ltd. | 1,632,300 | 107,568 |
| PPG Industries, Inc. | 1,500,000 | 99,000 |
| Rohm and Haas Co. | 1,800,000 | 90,216 |
| Temple-Inland Inc. | 1,500,000 | 64,305 |
| CRH PLC | 1,937,629 | 62,928 |
| USX-U.S. Steel Group | 650,000 | 45,578 |
| Barrick Gold Corp. | 1,401,495 | 41,484 |
| L’Air Liquide | 202,400 | 39,383 |
| Gold Fields Ltd. | 1,658,000 | 37,724 |
| Phelps Dodge Corp. | 400,000 | 32,864 |
| Lyondell Chemical Co. | 1,450,000 | 32,857 |
| UPM-Kymmene Corp. (ADR) | 1,400,000 | 30,086 |
| | | 3,125,032 |
| | | |
CONSUMER DISCRETIONARY — 7.31% | | |
| Lowe’s Companies, Inc. | 7,630,000 | 462,912 |
| Target Corp. | 7,090,000 | 346,488 |
| Limited Brands, Inc. | 10,815,980 | 276,781 |
| Best Buy Co., Inc. | 3,633,000 | 199,234 |
| Toyota Motor Corp. | 3,000,000 | 157,067 |
| Carnival Corp., units | 3,200,000 | 133,568 |
| Federated Department Stores, Inc. | 3,500,000 | 128,100 |
| Time Warner Inc. | 7,000,000 | 121,100 |
| Walt Disney Co. | 4,000,000 | 120,000 |
| Sony Corp. | 2,700,000 | 119,177 |
Starbucks Corp.2 | 3,090,000 | 116,678 |
| Magna International Inc., Class A | 1,199,300 | 86,313 |
| General Motors Corp. | 2,100,000 | 62,559 |
| Nikon Corp. | 3,557,000 | 62,118 |
| News Corp., Class A | 2,400,000 | 46,032 |
| | | 2,438,127 |
| | | |
CONSUMER STAPLES — 7.12% | | |
| Altria Group, Inc. | 9,974,800 | 732,450 |
| Coca-Cola Co. | 4,800,000 | 206,496 |
| Kirin Brewery Co., Ltd. | 13,087,000 | 205,782 |
| Diageo PLC | 11,239,200 | 188,801 |
| Diageo PLC (ADR) | 15,200 | 1,027 |
| PepsiCo, Inc. | 2,900,000 | 174,116 |
| Walgreen Co. | 2,785,700 | 124,911 |
| CVS Corp. | 4,000,000 | 122,800 |
| Procter & Gamble Co. | 2,029,000 | 112,812 |
| SYSCO Corp. | 3,100,000 | 94,736 |
| ConAgra Foods, Inc. | 4,000,000 | 88,440 |
| C&C Group PLC | 8,469,251 | 73,470 |
| Bunge Ltd. | 1,302,000 | 65,425 |
| Avon Products, Inc. | 1,740,000 | 53,940 |
Goodman Fielder Ltd.2 | 31,711,000 | 50,401 |
| General Mills, Inc. | 904,200 | 46,711 |
| SUPERVALU INC. | 1,026,500 | 31,514 |
| | | 2,373,832 |
| | | |
TELECOMMUNICATION SERVICES — 4.96% | | |
| KDDI Corp. | 61,000 | 374,818 |
| AT&T Inc. | 13,173,536 | 367,410 |
| Verizon Communications Inc. | 6,500,000 | 217,685 |
| BellSouth Corp. | 5,100,000 | 184,620 |
| Sprint Nextel Corp., Series 1 | 8,700,000 | 173,913 |
| Vodafone Group PLC | 61,500,000 | 130,913 |
Qwest Communications International Inc.2 | 13,000,000 | 105,170 |
| Telefónica, SA | 3,068,000 | 51,034 |
| Inmarsat PLC | 6,185,000 | 39,183 |
Embarq Corp.2 | 270,000 | 11,068 |
| | | 1,655,814 |
| | | |
UTILITIES — 3.80% | | |
| Dominion Resources, Inc. | 3,390,000 | 253,538 |
| Questar Corp. | 3,000,000 | 241,470 |
| Exelon Corp. | 2,965,000 | 168,501 |
| Veolia Environnement | 2,800,000 | 144,558 |
| E.ON AG | 800,000 | 92,008 |
| Electricité de France SA | 1,334,000 | 70,218 |
| Public Service Enterprise Group Inc. | 1,000,000 | 66,120 |
| DTE Energy Co. | 1,606,900 | 65,465 |
| PPL Corp. | 1,600,000 | 51,680 |
| FPL Group, Inc. | 1,050,000 | 43,449 |
| Duke Energy Corp. | 1,014,000 | 29,781 |
| Tokyo Gas Co., Ltd. | 6,025,000 | 28,385 |
| Entergy Corp. | 150,000 | 10,612 |
| | | 1,265,785 |
| | | |
MISCELLANEOUS — 1.51% | | |
| Other common stocks in initial period of acquisition | | 504,776 |
| | | |
| | | |
Total common stocks (cost: $22,962,949,000) | | 31,394,768 |
| | Shares or | |
| Convertible securities — 0.15% | principal amount | |
| | | |
MATERIALS — 0.12% | | |
| Freeport-McMoRan Copper & Gold Inc. 5.50% convertible preferred | 31,000 | 38,941 |
| | | |
| | | |
INFORMATION TECHNOLOGY — 0.03% | | |
| ASML Holding NV 5.50% convertible notes 2010 | €6,000,000 | 9,858 |
| | | |
| | | |
Total convertible securities (cost: $38,027,000) | | 48,799 |
| | | |
| | | |
| | Principal amount | Market value |
| Bonds & notes — 0.04% | (000) | (000) |
| | | |
INDUSTRIALS — 0.04% | | |
| Southwest Airlines Co. 5.25% 2014 | $ 15,000 | $ 14,143 |
| | | |
| | | |
Total bonds & notes (cost: $14,969,000) | | 14,143 |
| Short-term securities — 5.51% | | |
| | | |
| Federal Home Loan Bank 4.89%-5.255% due 7/26-9/22/2006 | 237,200 | 235,655 |
Clipper Receivables Co., LLC 4.96%-5.16% due 7/5-8/21/20061 | 233,800 | 233,265 |
| American General Finance Corp. 5.01%-5.15% due 7/11-8/25/2006 | 105,000 | 104,732 |
| International Lease Finance Corp. 5.235% due 7/31/2006 | 40,000 | 39,820 |
Park Avenue Receivables Co., LLC 5.15%-5.28% due 7/17-8/4/20061 | 105,000 | 104,542 |
Preferred Receivables Funding Corp. 5.13% due 7/28/20061 | 31,600 | 31,474 |
CAFCO, LLC 5.04%-5.35% due 7/21-9/6/20061 | 123,500 | 122,670 |
Three Pillars Funding, LLC 4.98%-5.23% due 7/3-7/19/20061 | 119,454 | 119,224 |
| Freddie Mac 4.81%-5.17% due 7/25-8/25/2006 | 101,022 | 100,513 |
Ranger Funding Co. LLC 5.03%-5.28% due 7/12-8/4/20061 | 49,900 | 49,813 |
| Bank of America Corp. 5.27% due 8/23/2006 | 40,300 | 39,993 |
Wal-Mart Stores Inc. 5.24% due 8/22/20061 | 55,700 | 55,270 |
Kimberly-Clark Worldwide Inc. 4.98% due 7/7/20061 | 53,000 | 52,949 |
BellSouth Corp. 5.18%-5.29% due 8/7-8/14/20061 | 51,500 | 51,197 |
Edison Asset Securitization LLC 5.27% due 8/22/20061 | 50,000 | 49,613 |
NetJets Inc. 4.90%-5.02% due 7/5-7/27/20061 | 45,000 | 44,912 |
Hewlett-Packard Co. 5.20%-5.21% due 7/31/20061 | 40,000 | 39,820 |
Variable Funding Capital Corp. 5.02%-5.06% due 7/6-7/18/20061 | 39,400 | 39,325 |
Atlantic Industries 5.16% due 7/28/20061 | 38,500 | 38,346 |
| Fannie Mae 4.82%-4.92% due 7/3-7/18/2006 | 37,200 | 37,149 |
| HSBC Finance Corp. 5.29% due 8/28/2006 | 29,400 | 29,145 |
Triple-A One Funding Corp. 5.06% due 7/5/20061 | 27,059 | 27,040 |
| International Bank for Reconstruction and Development 5.19%-5.25% due 9/15/2006 | 26,390 | 26,095 |
Concentrate Manufacturing Co. of Ireland 5.22% due 7/31/20061 | 26,200 | 26,082 |
Gannett Co. 5.18% due 7/27/20061 | 25,000 | 24,903 |
AT&T Inc. 5.12% due 7/10/20061 | 22,500 | 22,468 |
| Caterpillar Financial Services Corp. 5.00% due 7/24/2006 | 20,400 | 20,332 |
Scripps (E.W.) Co. 5.00% due 7/6/20061 | 19,000 | 18,984 |
IBM Capital Inc. 5.20% due 7/26/20061 | 17,400 | 17,335 |
Hershey Co. 4.99% due 7/12/20061 | 15,000 | 14,975 |
| Becton, Dickinson and Co. 5.18% due 8/4/2006 | 9,052 | 9,006 |
Anheuser-Busch Companies, Inc. 5.09% due 8/15/20061 | 8,800 | 8,742 |
| U.S. Treasury Bills 4.575% due 7/6/2006 | 3,000 | 2,998 |
| | | |
| | | |
Total short-term securities (cost: $1,838,385,000) | | $ 1,838,387 |
| | | |
Total investment securities (cost: $24,854,330,000) | | 33,296,097 |
Other assets less liabilities | | 55,150 |
| | | |
Net assets | | $33,351,247 |
“Miscellaneous” securities include holdings in their initial period of acquisition that have not previously been publicly disclosed.
1Purchased in a private placement transaction; resale may be limited to qualified institutional buyers; resale to the public may require registration. The total value of all such restricted securities was $1,547,302,000, which represented 4.64% of the net assets of the fund.
2Security did not produce income during the last 12 months.
ADR = American Depositary Receipts
GDR = Global Depositary Receipts
MFGEFP-910-0806-S6916
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 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 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 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) | Not applicable for filing of semi-annual reports to shareholders. |
| | |
| (a)(2) | The certifications required by Rule 30a-2 of the Investment Company Act of 1940, as amended, 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/ James F. Rothenberg |
| | James F. Rothenberg, Vice Chairman and PEO |
| | |
| | Date: September 7, 2006 |
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/ James F. Rothenberg |
James F. Rothenberg, Vice Chairman and PEO |
| |
| Date: September 7, 2006 |
By /s/ Jeffrey P. Regal |
Jeffrey P. Regal, Treasurer and PFO |
| |
| Date: September 7, 2006 |
