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: 811-32
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, 2004
Date of reporting period: June 30, 2004
Patrick F. Quan
Secretary
Fundamental Investors, Inc.
P.O. Box 7650, One Market, Steuart Tower
San Francisco, California 94120
(name and address of agent for service)
Copies to:
Michael Glazer, Esq.
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(R)]
The right choice for the long term(R)
FUNDAMENTAL INVESTORS
[photo of an apartment building in the reflection of a mirrored glass office
building]
Semi-annual report for the six months ended June 30, 2004
Fundamental Investors(SM) seeks long-term growth of capital and income primarily
through investments in common stocks.
This fund is one of the 29 American Funds, the nation's third-largest mutual
fund family. For more than seven decades, 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. FOR THE MOST 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, 2004:
Class A shares 1 year 5 years 10 years
Reflecting 5.75% maximum sales charge +16.82% +1.20% +11.85%
The fund's 30-day yield for Class A shares as of July 31, 2004, calculated in
accordance with the Securities and Exchange Commission formula, was 1.64%. The
fund's distribution rate for Class A shares as of that date was 1.31%. 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 4. Please see the inside
back cover for important information about other share classes.
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. Investing outside the United States is subject to additional risks, such
as currency fluctuations, political instability, differing securities
regulations and periods of illiquidity, which are detailed in the fund's
prospectus.
FELLOW SHAREHOLDERS:
[black and white photo of an apartment building in the reflection of a mirrored
glass office building]
A recovering world economy meant equity markets began 2004 with considerable
momentum, but a number of issues worried investors and ultimately restrained
results. For the six months ended June 30, 2004, Fundamental Investors gained
2.8% with distributions reinvested.
The fund's return was slightly ahead of the 2.2% gain in its category benchmark,
the Lipper Large-Cap Core Funds Index, which measures funds that allow a wide
range of companies in their portfolios. The fund trailed the 3.5% increase in
the Lipper Large-Cap Value Funds Index, which tracks funds that invest in
companies that are undervalued within their industries.
The unmanaged Standard & Poor's 500 Composite Index, a broad measure of U.S.
stocks, gained 3.4%.
While six-month returns were muted, a look at the table below offers
encouragement to long-term investors. For the 12 months ended June 30, the fund
significantly outpaced all three of its benchmarks, just as it has done over
longer, more meaningful periods.
[Begin Sidebar] Results at a glance
Returns for periods ended June 30, 2004, with all distributions reinvested.
6 months 1 year 5 years(1) 10 years(1) Lifetime(1)(2)
Fundamental Investors +2.79% +23.95% +2.41% +12.52% +14.00%
Lipper Large-Cap Core Funds Index +2.24 +15.84 -2.53 +9.99 --3
Lipper Large-Cap Value Funds Index +3.49 +19.61 -0.25 +10.79 +12.98
Standard & Poor's
500 Composite Index +3.44 +19.10 -2.20 +11.82 +13.35
(1) Average annual total return.
(2) Since Capital Research and Management Company began managing the fund on
August 1, 1978.
(3) Index began on December 29, 1978.
The market indexes are unmanaged.
Also encouraging is Fundamental Investors' continuing commitment to providing
shareholders with steady quarterly income. The fund's return includes
reinvestment of the 10-cents-a-share dividends paid in both February and May.
MARKETS COOL ON MIXED CONCERNS
Geopolitical unrest -- most visible in the Madrid train bombings and the
heightened violence in Iraq -- helped keep investors on the sidelines for much
of the six-month period. U.S. markets reflected the hesitancy, slipping from
mid-February highs and trading in a fairly narrow range for the remainder of the
period.
Market lethargy worsened when officials in China, worried that an overheated
economy could mean runaway inflation, took steps to moderate growth. Since
recent Chinese expansion has relied heavily on a variety of imported commodities
and manufactured goods, the prospect of a slowdown had a chilling effect
worldwide.
The United States had inflation concerns of its own, and investors became
cautious when the Federal Reserve began signaling that a period of rising rates
was in the offing. Rate-hike speculation was confirmed when, on the final day of
the fund's reporting period, the Fed raised the federal funds rate by a quarter
of a percentage point, to 1.25%, the first such increase in four years. The Fed
continued down this path after the close of the reporting period, when it
increased the rate to 1.50% on August 10.
RESILIENCE AMID UNCERTAINTY
Despite this uncertain and difficult environment, the fund's carefully chosen
portfolio pulled its returns into positive territory.
The fund's sizable oil and gas position benefited from both strong global demand
and oil prices that rose on threats to supplies. Gainers included Murphy Oil
(+12.9%), ConocoPhillips (+16.4%) and Norway's Norsk Hydro (+5.8%).
Aerospace and defense stocks also contributed positively to results. Boeing
(+21.2%) and Raytheon (+19.1%), both among the fund's top 10 holdings, each
recorded large gains. Shares of Northrop Grumman and General Dynamics rose 8.9%
and 9.9%, respectively -- though United Technologies (-3.5%) and Canada's
Bombardier (-28.8%) finished in negative territory.
The fund's metals and mining holdings declined for the period. Freeport-McMoRan
Copper & Gold (-21.3%), the United Kingdom's Rio Tinto (-12.6%) and Alcoa
(-13.1%) all lost value. In spite of these negative shorter term numbers, this
segment of the fund's portfolio appreciated considerably for the 12 months ended
June 30, 2004.
BUILDING THE PORTFOLIO
In assembling the fund's holdings, the investment professionals who manage
Fundamental Investors rely on a method of portfolio management known as the
multiple portfolio counselor system. This system divides fund assets into
portions, each of which is independently managed -- within the fund's guidelines
- -- by one of the fund's five portfolio counselors. Research analysts manage a
share as well. And though they all employ a research-driven, company-by-company
approach to stock selection, no two have the exact same investment perspective.
For Fundamental Investors, this approach has resulted in an actively managed
portfolio of holdings that looks different from that of the fund's unmanaged
benchmark, the S&P 500.
A sampling of industry concentrations underscores the distinction: Whereas
energy stocks comprise 6.6% of the S&P, they are 12.1% of the fund's portfolio;
financials account for 20.3% of the index, but only 10.6% of the fund's
holdings; information technology stocks make up 17.2% of the S&P, but only 11.0%
of Fundamental Investors; and while stocks of companies that manufacture
industrial goods add up to 11.5% of the index, they are 14.2% of the fund.
Thanks in part to active portfolio management, Fundamental Investors has had a
long-term advantage over all its benchmarks, as seen in the 5-year, 10-year and
lifetime results shown in this report.
CONCERNS MAY LINGER
Looking ahead, it's likely that the issues confronting investors during the
reporting period will carry into the second half of the fund's fiscal year.
Those concerns, taken together with uncertainty relating to November's
presidential election and the environment that might result from political
changes, call for a measured course.
In the coming months, we will continue to seek out opportunities for the fund,
mindful of possible pitfalls, but focused on potential benefits.
We thank you for your continuing commitment to long-term investing.
Cordially,
/s/ James F. Rothenberg /s/ Dina N. Perry
James F. Rothenberg Dina N. Perry
Chairman President
August 16, 2004
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 the most
current information and month-end results, visit americanfunds.com.
RETURNS FOR PERIODS ENDED JUNE 30, 2004
1 year Life of class
CLASS B SHARES
Reflecting applicable contingent deferred sales
charge (CDSC), maximum of 5%, payable only
if shares are sold within six years of purchase +18.00% +0.14%(1)
Not reflecting CDSC +23.00% +0.56%(1)
CLASS C SHARES
Reflecting CDSC, maximum of 1%, payable only
if shares are sold within one year of purchase +21.90% +1.74%(2)
Not reflecting CDSC +22.90% +1.74%(2)
CLASS F SHARES(3)
Not reflecting annual asset-based fee charged
by sponsoring firm +23.88% +2.56%(2)
CLASS 529-A SHARES
Reflecting 5.75% maximum sales charge +16.77% +3.48%(4)
Not reflecting maximum sales charge +23.90% +6.10%(4)
CLASS 529-B SHARES
Reflecting applicable CDSC, maximum of 5%, payable
only if shares are sold within six years of purchase +17.76% +4.35%(5)
Not reflecting CDSC +22.76% +5.93%(5)
CLASS 529-C SHARES
Reflecting CDSC, maximum of 1%, payable only if shares
are sold within one year of purchase +21.77% +5.18%(4)
Not reflecting CDSC +22.77% +5.18%(4)
CLASS 529-E SHARES(3) +23.45% +3.36%(6)
CLASS 529-F SHARES(3)
Not reflecting annual asset-based fee charged
by sponsoring firm +23.74% +22.40%(7)
(1) Average annual total return from March 15, 2000, when Class B shares were
first sold.
(2) Average annual total return from March 15, 2001, when Class C and Class F
shares were first sold.
(3) These shares are sold without any initial or contingent deferred sales
charge.
(4) Average annual total return from February 15, 2002, when Class 529-A and
Class 529-C shares were first sold.
(5) Average annual total return from February 19, 2002, when Class 529-B shares
were first sold.
(6) Average annual total return from March 7, 2002, when Class 529-E shares
were first sold.
(7) Average annual total return from September 23, 2002, when Class 529-F
shares were first sold.
INVESTMENT PORTFOLIO, June 30, 2004 unaudited
Percent of
INDUSTRY DIVERSIFICATION Net Assets
[begin pie chart]
Oil & gas 10.70
Aerospace & defense 5.31
Metals & mining 5.11
Pharmaceuticals 4.70
Diversified telecommunication services 4.69
Other industries 62.69
Bonds & notes 0.88
Cash & equivalents 5.92
100.00%
[end pie chart]
Percent
of net
LARGEST EQUITY HOLDINGS assets
Suncor Energy 2.14
Dow Chemical 2.04
Microsoft 2.01
Time Warner 1.91
Altria Group 1.85
Deere 1.76
Boeing 1.70
Royal Dutch Petroleum 1.64
Norsk Hydro 1.63
Raytheon 1.54
Shares or Market value
EQUITY SECURITIES - 93.20% principal amount (000)
(common and preferred stocks and convertible debentures)
OIL & GAS - 10.70%
Suncor Energy Inc. (Canada) 18,451,444 $469,500
Royal Dutch Petroleum Co., New York registered (Netherlands) 6,950,000 359,106
Norsk Hydro ASA (Norway) 2,934,600 190,479
Norsk Hydro ASA (ADR) 2,559,000 167,487
LUKoil Holding (ADR) (Russia) 2,025,000 211,612
Shell Canada Ltd. (Canada) 3,273,200 157,930
Murphy Oil Corp. 1,970,000 145,189
Exxon Mobil Corp. 3,000,000 133,230
Unocal Corp. 1,900,000 72,200
Unocal Capital Trust 6.25% convertible preferred 2026 450,000 23,175
ChevronTexaco Corp. 1,000,000 94,110
ConocoPhillips 1,200,000 91,548
Burlington Resources Inc. 2,000,000 72,360
Marathon Oil Corp. 1,525,000 57,706
Imperial Oil Ltd. (Canada) 1,189,266 55,681
Occidental Petroleum Corp. 1,000,000 48,410
AEROSPACE & DEFENSE - 5.31%
Boeing Co. 7,300,000 372,957
Raytheon Co. 9,440,612 337,691
Northrop Grumman Corp. 2,300,000 123,510
Northrop Grumman Corp. 7.25% convertible preferred 2004 572,690 units 60,888
General Dynamics Corp. 1,772,900 176,049
United Technologies Corp. 650,000 59,462
Bombardier Inc., Class B (Canada) 7,500,000 22,557
Lockheed Martin Corp. 248,200 12,926
METALS & MINING - 5.11%
Noranda Inc. (Canada) 10,512,100 180,419
Alcoa Inc. 5,373,800 177,497
BHP Billiton Ltd. (Australia) 17,995,030 156,572
Rio Tinto PLC (United Kingdom) 6,000,000 144,314
Freeport-McMoRan Copper & Gold Inc., Class B 3,500,000 116,025
Freeport-McMoRan Copper & Gold Inc. 5.50% convertible preferred (1) 31,000 27,838
CONSOL Energy Inc. (1) 3,700,000 133,200
Phelps Dodge Corp. (2) 800,000 62,008
Massey Energy Co. 2,011,700 56,750
Inco Ltd. (Canada) (2) 1,632,300 56,412
BlueScope Steel Ltd. (Australia) 2,113,020 9,889
PHARMACEUTICALS - 4.70%
AstraZeneca PLC (Sweden) 2,660,000 120,874
AstraZeneca PLC (United Kingdom) 2,000,000 89,752
AstraZeneca PLC (ADR) 1,676,266 76,505
Sanofi-Synthelabo (France) 3,350,000 212,339
Eli Lilly and Co. 2,850,000 199,243
Bristol-Myers Squibb Co. 4,350,000 106,575
Merck & Co., Inc. 1,700,000 80,750
Schering-Plough Corp. 3,900,000 72,072
Forest Laboratories, Inc. (2) 700,000 39,641
Pfizer Inc 1,000,000 34,280
DIVERSIFIED TELECOMMUNICATION SERVICES - 4.69%
SBC Communications Inc. 13,050,000 316,462
Verizon Communications Inc. 5,515,000 199,588
Telefonica, SA (ADR) (Spain) 2,750,000 122,732
Telefonica, SA 2,950,000 43,606
China Telecom Corp. Ltd., Class H (China) 400,000,000 139,758
Telecom Italia SpA, nonvoting (Italy) 34,200,000 75,518
Deutsche Telekom AG (Germany) (2) 2,300,000 40,406
Deutsche Telekom International Finance BV 6.50% convertible bonds 2006 Euro 12,000,000 16,771
Swisscom AG (Switzerland) 167,510 55,373
AT&T Corp. 800,000 11,704
Sprint Corp. - FON Group 400,000 7,040
MEDIA - 4.23%
Time Warner Inc. (2) 23,815,000 418,668
News Corp. Ltd., preferred (ADR) (Australia) 8,610,000 283,097
Comcast Corp., Class A (2) 3,855,000 108,056
Comcast Corp., Class A, special nonvoting stock (2) 500,000 13,805
Dow Jones & Co., Inc. 1,800,000 81,180
Interpublic Group of Companies, Inc. 1.87% convertible subordinated notes
2006 (1) $ 8,168,000 7,678
Interpublic Group of Companies, Inc., Series A, 5.375% convertible
preferred 2006 115,300 5,884
Liberty Media Corp., Class A (2) 915,000 8,226
Liberty Media International, Inc., Class A (2) 45,750 1,697
Antena 3 Television, SA (Spain) (2) 9,979 528
INSURANCE - 3.84%
American International Group, Inc. 3,800,000 270,864
XL Capital Ltd., Class A 1,825,000 137,714
Irish Life & Permanent PLC (Ireland) 7,000,000 107,730
Genworth Financial, Inc. 6.00% convertible preferred 2007 2,190,000 units 62,546
Genworth Financial, Inc., Class A 1,000,000 22,950
Allstate Corp. 1,500,000 69,825
Willis Group Holdings Ltd. 1,800,000 67,410
Chubb Corp. 7.00% convertible preferred 2005 1,200,000 units 33,240
Chubb Corp. 300,000 20,454
Aon Corp. 1,767,400 50,318
COMMERCIAL BANKS - 3.84%
Bank of America Corp. (acquired FleetBoston Financial Corp.) 2,658,400 224,954
Allied Irish Banks, PLC (Ireland) 12,519,483 193,436
Bank of Ireland (Ireland) 10,165,000 135,787
Cullen/Frost Bankers, Inc. 2,550,000 114,112
KeyCorp 1,700,000 50,813
National Bank of Canada (Canada) 1,405,000 45,201
St. George Bank Ltd. (Australia) 2,450,279 37,466
Banco Popolare di Verona e Novara Scrl (Italy) 2,000,000 34,357
Comerica Inc. 124,000 6,805
MACHINERY - 3.61%
Deere & Co. 5,500,000 385,770
Caterpillar Inc. 2,600,000 206,544
Parker Hannifin Corp. 2,800,000 166,488
Illinois Tool Works Inc. 357,200 34,252
CHEMICALS - 3.31%
Dow Chemical Co. 10,986,700 447,159
E.I. du Pont de Nemours and Co. 3,550,000 157,691
Air Products and Chemicals, Inc. 1,600,000 83,920
Lyondell Chemical Co. 1,450,000 25,215
Potash Corp. of Saskatchewan Inc. (Canada) 69,200 6,705
IMC Global Inc. 449,400 6,022
INDUSTRIAL CONGLOMERATES - 3.24%
General Electric Co. 9,500,000 307,800
3M Co. 2,600,000 234,026
Tyco International Ltd. 5,125,000 169,842
MULTI-UTILITIES & UNREGULATED POWER - 2.79%
Dominion Resources, Inc. 4,590,000 289,537
Duke Energy Corp. 7,275,000 147,610
Questar Corp. 3,000,000 115,920
Public Service Enterprise Group Inc. 1,480,000 59,244
SPECIALTY RETAIL - 2.45%
Lowe's Companies, Inc. 5,524,900 290,333
Limited Brands, Inc. 13,200,000 246,840
PAPER & FOREST PRODUCTS - 2.44%
International Paper Co. 5,275,000 235,793
Weyerhaeuser Co. 2,883,000 181,975
Oji Paper Co., Ltd. (Japan) 6,500,000 41,617
Bowater Inc. 700,000 29,113
Georgia-Pacific Corp., Georgia-Pacific Group 698,640 25,836
Norske Skogindustrier ASA, Class A (Norway) 1,140,000 20,285
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 2.42%
Texas Instruments Inc. 11,463,024 277,176
Intersil Corp., Class A 5,475,000 118,588
Advanced Micro Devices, Inc. 4.75% convertible debentures 2022 (3) $ 24,050,000 24,531
Advanced Micro Devices, Inc. (2) 1,500,000 23,850
Maxim Integrated Products, Inc. 900,939 47,227
Linear Technology Corp. 750,000 29,602
ASML Holding NV 5.50% convertible notes 2010 (Netherlands) Euro 6,000,000 9,508
FOOD PRODUCTS - 2.32%
Unilever NV, New York registered (Netherlands) 4,100,000 280,891
ConAgra Foods, Inc. 3,100,000 83,948
Sara Lee Corp. 3,375,000 77,591
General Mills, Inc. 1,404,200 66,742
SOFTWARE - 2.01%
Microsoft Corp. 15,465,000 441,680
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.89%
Agilent Technologies, Inc. (2) 4,000,000 117,120
Agilent Technologies, Inc. 3.00% convertible debentures 2021 (3) $ 15,074,000 15,941
Agilent Technologies, Inc. 3.00% convertible debentures 2021 (1) (3) $ 10,370,000 10,966
Hitachi, Ltd. (Japan) 20,000,000 137,382
Sanmina Corp. 0% convertible subordinated debentures 2020 $ 166,000,000 86,943
SCI Systems, Inc. 3.00% convertible subordinated debentures 2007 $ 7,500,000 7,050
Solectron Corp. (2) 3,529,040 22,833
Murata Manufacturing Co., Ltd. (Japan) 300,000 17,068
TOBACCO - 1.85%
Altria Group, Inc. 8,114,800 406,146
COMPUTERS & PERIPHERALS - 1.66%
International Business Machines Corp. 2,225,000 196,134
Sun Microsystems, Inc. (2) 24,000,000 104,160
Hewlett-Packard Co. 3,000,000 63,300
COMMUNICATIONS EQUIPMENT - 1.61%
Motorola, Inc. 7,000,000 127,750
Motorola, Inc. 7.00% convertible preferred 2004 800,000 units 39,504
Cisco Systems, Inc. (2) 7,000,000 165,900
Corning Inc. (2) 1,520,000 19,851
IT SERVICES - 1.44%
Automatic Data Processing, Inc. 4,400,000 184,272
Sabre Holdings Corp., Class A 2,645,304 73,301
Electronic Data Systems Corp. 1,635,702 31,324
Ceridian Corp. (2) 1,200,000 27,000
ENERGY EQUIPMENT & SERVICES - 1.42%
Halliburton Co. 5,600,000 169,456
Baker Hughes Inc. 3,800,000 143,070
MULTILINE RETAIL - 1.32%
Target Corp. 4,890,000 207,678
May Department Stores Co. 3,000,000 82,470
CAPITAL MARKETS - 1.26%
J.P. Morgan Chase & Co. 7,150,000 277,206
THRIFTS & MORTGAGE FINANCE - 1.19%
Fannie Mae 2,967,800 211,782
Independence Community Bank Corp. 1,366,000 49,722
BEVERAGES - 1.16%
Anheuser-Busch Companies, Inc. 2,900,000 156,600
PepsiCo, Inc. 1,800,000 96,984
ELECTRIC UTILITIES - 1.14%
DTE Energy Co. 1,606,900 65,144
American Electric Power Co., Inc. 1,902,100 60,867
Pinnacle West Capital Corp. 1,000,000 40,390
FPL Group, Inc. 525,000 33,574
E.ON AG (Germany) 300,000 21,643
FirstEnergy Corp. 569,200 21,294
Entergy Corp. 150,000 8,402
AUTOMOBILES - 0.93%
Toyota Motor Corp. (Japan) 3,000,000 121,284
General Motors Corp. 1,800,000 83,862
ROAD & RAIL - 0.88%
Union Pacific Corp. 2,000,000 118,900
Burlington Northern Santa Fe Corp. 2,100,000 73,647
CONTAINERS & PACKAGING - 0.87%
Temple-Inland Inc. 2,750,000 190,438
FOOD & STAPLES RETAILING - 0.73%
Walgreen Co. 3,845,000 139,227
SYSCO Corp. 600,000 21,522
ELECTRICAL EQUIPMENT - 0.64%
Emerson Electric Co. 2,200,000 139,810
AUTO COMPONENTS - 0.59%
Magna International Inc., Class A (Canada) 1,000,000 85,170
Dana Corp. 2,215,300 43,420
WIRELESS TELECOMMUNICATION SERVICES - 0.58%
KDDI Corp. (Japan) 20,000 114,150
Vodafone Group PLC (United Kingdom) 5,850,000 12,813
HEALTH CARE PROVIDERS & SERVICES - 0.49%
CIGNA Corp. 725,000 49,887
HCA Inc. 1,000,000 41,590
Aetna Inc. 196,000 16,660
REAL ESTATE - 0.47%
Equity Residential 3,000,000 89,190
MI Developments Inc., Class A (Canada) 500,000 13,500
GAS UTILITIES - 0.36%
KeySpan Corp. 1,584,000 58,133
Tokyo Gas Co., Ltd. (Japan) 6,025,000 21,327
HOUSEHOLD PRODUCTS - 0.30%
Procter & Gamble Co. 1,200,000 65,328
OTHER - 0.92%
Allied Waste Industries, Inc. (2) 2,000,000 26,360
Allied Waste Industries, Inc., Series C, 6.25% convertible preferred 2006 360,000 25,661
Amgen Inc. (2) 500,000 27,285
Continental Airlines, Inc., Class B (2) 2,300,000 26,151
Southwest Airlines Co. 1,500,000 25,155
Starbucks Corp. (2) 545,000 23,697
Fairmont Hotels & Resorts Inc. (Canada) 750,000 20,213
Avon Products, Inc. 340,000 15,688
InterActiveCorp (2) 456,000 13,744
MISCELLANEOUS - 2.49%
Other equity securities in initial period of acquisition 545,415
TOTAL EQUITY SECURITIES (cost: $17,382,529,000) 20,458,802
Principal amount Market value
BONDS & NOTES - 0.88% (000) (000)
AIRLINES - 0.64%
Northwest Airlines, Inc.:
8.875% 2006 $ 58,185 49,748
7.625% 2005 37,860 37,292
9.875% 2007 15,335 12,191
7.875% 2008 16,566 11,762
Continental Airlines, Inc. 8.00% 2005 28,600 25,383
Delta Air Lines, Inc., Series 1993-A2, 10.50% 2016 (4) 11,500 4,370
MEDIA - 0.24%
Charter Communications, Inc. 8.25% 2007 50,000 46,000
Time Warner Inc. 10.15% 2012 6,000 7,651
TOTAL BONDS & NOTES (cost: $201,739,000) 194,397
Principal amount Market value
SHORT-TERM SECURITIES - 5.78% (000) (000)
CORPORATE SHORT-TERM NOTES - 4.85%
Procter & Gamble Co. 1.05%-1.20% due 7/6-8/31/2004 (1) $ 100,000 99,890
Receivables Capital Co., LLC 1.08%-1.21% due 7/13-8/13/2004 (1) 73,400 73,350
Bank of America Corp. 1.08% due 8/6/2004 25,000 24,969
Clipper Receivables Company, LLC 1.07%-1.30% due 7/19-7/23/2004 (1) 94,500 94,437
CAFCO, LLC 1.10%-1.19% due 7/16-8/5/2004 (1) 84,800 84,730
Three Pillars Funding, LLC 1.06%-1.07% due 7/1/2004 (1) 80,000 79,998
IBM Credit Corp. 1.06%-1.07% due 7/26-8/2/2004 75,000 74,935
DuPont (E.I.) de Nemours & Co. 1.09%-1.25% due 7/22-8/18/2004 75,000 74,924
Pfizer Inc 1.05%-1.27% due 7/19-8/24/2004 (1) 73,500 73,402
Variable Funding Capital Corp. 1.07%-1.27% due 7/9-8/13/2004 (1) 66,500 66,429
Edison Asset Securitization LLC 1.06%-1.10% due 7/8-8/9/2004 (1) 63,602 63,549
Coca-Cola Co. 1.03%-1.24% due 7/6-8/17/2004 60,000 59,952
Park Avenue Receivables Corp., LLC 1.26% due 7/28/2004 (1) 50,000 49,951
Netjets Inc. 1.18%-1.25% due 8/20-8/25/2004 (1) 50,000 49,902
Private Export Funding Corp. 1.03% due 7/7/2004 (1) 35,000 34,993
Eli Lilly and Co. 1.32% due 10/1/2004 (1) 35,000 34,861
Harley-Davidson Funding Corp. 1.05%-1.16% due 7/16-7/29/2004 (1) 25,000 24,984
FEDERAL AGENCY DISCOUNT NOTES - 0.48%
Federal Farm Credit Banks 1.24% due 9/8/2004 50,000 49,861
International Bank for Reconstruction and Development 1.02% due 7/14/2004 30,000 29,988
Fannie Mae 1.37% due 9/8/2004 25,000 24,933
U.S. TREASURIES - 0.45%
U.S. Treasury Bills 0.915%-1.15% due 7/15-8/26/2004 99,200 99,073
TOTAL SHORT-TERM SECURITIES (cost: $1,269,187,000) 1,269,111
TOTAL INVESTMENT SECURITIES (cost: $18,853,455,000) 21,922,310
OTHER ASSETS LESS LIABILITIES 30,424
NET ASSETS $21,952,734
(1) Purchased in a private placement transaction; resale may be limited to
qualified institutional buyers; resale to the public may require
registration.
(2) Security did not produce income during the last 12 months.
(3) Coupon rate may change periodically.
(4) Pass-through security backed by a pool of mortgages or other loans on which
principal payments are periodically made. Therefore, the effective maturity
is shorter than the stated maturity.
ADR = American Depositary Receipts
See Notes to Financial Statements
EQUITY SECURITIES APPEARING IN THE PORTFOLIO SINCE DECEMBER 31, 2003:
Advanced Micro Devices
Aetna
Banco Popolare di Verona e Novara
ConAgra Foods
Fairmont Hotels & Resorts
FPL Group
Genworth Financial
IMC Global
Intersil
KDDI
Liberty Media International
Marathon Oil
Noranda
Occidental Petroleum
Pinnacle West Capital
Procter & Gamble
Starbucks
Tokyo Gas
Willis Group Holdings
EQUITY SECURITIES ELIMINATED FROM THE PORTFOLIO SINCE DECEMBER 31, 2003:
21st Century Insurance
Arch Coal
Coca-Cola
Colgate-Palmolive
Constellation Energy Group
Eaton
El Paso
H.J. Heinz
Honeywell International
Kraft Foods
NEC
NiSource
Shin-Etsu Chemical
St. Paul Companies
TXU
United Parcel Service
UnitedGlobalCom
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES unaudited
at June 30, 2004 (dollars and shares in thousands,
except per-share amounts)
ASSETS:
Investment securities at market (cost: $18,853,455) $21,922,310
Cash 2,877
Receivables for:
Sales of investments 18,828
Sales of fund's shares 21,153
Dividends and interest 41,349 81,330
22,006,517
LIABILITIES:
Payables for:
Purchases of investments 26,002
Repurchases of fund's shares 15,015
Investment advisory services 4,792
Services provided by affiliates 6,790
Deferred Directors' compensation 1,036
Other fees and expenses 148 53,783
NET ASSETS AT JUNE 30, 2004 $21,952,734
NET ASSETS CONSIST OF:
Capital paid in on shares of capital stock $19,617,089
Undistributed net investment income 118,114
Accumulated net realized loss (851,364)
Net unrealized appreciation 3,068,895
NET ASSETS AT JUNE 30, 2004 $21,952,734
TOTAL AUTHORIZED CAPITAL STOCK - 1,000,000 SHARES, $1.00 PAR VALUE
(745,509 TOTAL SHARES OUTSTANDING)
Shares Net asset value
Net assets outstanding value per share (1)
Class A $19,669,489 667,867 $29.45
Class B 875,190 29,770 29.40
Class C 472,807 16,096 29.37
Class F 401,743 13,646 29.44
Class 529-A 112,788 3,832 29.44
Class 529-B 23,218 789 29.43
Class 529-C 35,587 1,209 29.43
Class 529-E 5,700 194 29.43
Class 529-F 1,595 54 29.42
Class R-1 4,583 156 29.39
Class R-2 69,920 2,380 29.37
Class R-3 92,623 3,149 29.42
Class R-4 68,016 2,312 29.42
Class R-5 119,475 4,055 29.46
(1) Maximum offering price and redemption price per share were equal to the net
asset value per share for all share classes, except for classes A and
529-A, for which the maximum offering prices per share were $31.25 and
$31.24, respectively.
See Notes to Financial Statements
STATEMENT OF OPERATIONS unaudited
for the six months ended June 30, 2004 (dollars in thousands)
INVESTMENT INCOME:
Income:
Dividends (net of non-U.S. withholding
tax of $8,674) $240,380
Interest 30,296 $270,676
Fees and expenses:
Investment advisory services 28,999
Distribution services 31,878
Transfer agent services 9,908
Administrative services 1,340
Reports to shareholders 539
Registration statement and prospectus 362
Postage, stationery and supplies 1,158
Directors' compensation 168
Auditing and legal 63
Custodian 667
State and local taxes 1
Other 78
Total expenses before reimbursement 75,161
Reimbursement of expenses 95 75,066
Net investment income 195,610
NET REALIZED GAIN AND UNREALIZED
DEPRECIATION ON INVESTMENTS
AND NON-U.S. CURRENCY:
Net realized gain (loss) on:
Investments 579,064
Non-U.S. currency transactions (1,404) 577,660
Net unrealized depreciation on:
Investments (187,354)
Non-U.S. currency translations (250) (187,604)
Net realized gain and
unrealized depreciation
on investments and non-U.S. currency 390,056
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $585,666
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands)
Six months Year ended
ended June 30, December 31,
2004* 2003
OPERATIONS:
Net investment income $195,610 $358,360
Net realized gain (loss) on investments and
non-U.S. currency transactions 577,660 (603,496)
Net unrealized (depreciation) appreciation
on investments and non-U.S. currency translations (187,604) 5,356,683
Net increase in net assets
resulting from operations 585,666 5,111,547
DIVIDENDS PAID TO SHAREHOLDERS FROM NET INVESTMENT INCOME AND CURRENCY GAINS (142,496) (283,809)
CAPITAL SHARE TRANSACTIONS 325,527 (69,713)
TOTAL INCREASE IN NET ASSETS 768,697 4,758,025
NET ASSETS:
Beginning of period 21,184,037 16,426,012
End of period (including undistributed
net investment income: $118,114 and $65,000,
respectively) $21,952,734 $21,184,037
*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) are sponsored by the Commonwealth of Virginia and 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 Conversion feature
charge upon redemption
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes A and 529-A Up to 5.75% None (except 1% for None
certain redemptions
within one year of
purchase without an
initial sales charge)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes B and 529-B None Declines from 5% to zero Classes B and 529-B convert to
for redemptions within classes A and 529-A,
six years of purchase respectively, after eight years
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class C None 1% for redemptions within Class C converts to Class F
one year of purchase after 10 years
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class 529-C None 1% for redemptions within None
one year of purchase
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Class 529-E None None None
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes F and 529-F None None None
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Classes R-1, R-2, R-3, None None None
R-4 and R-5
- ---------------------------------------------------------------------------------------------------------
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 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 at prices
for securities of comparable maturity, quality and type. Short-term
securities maturing within 60 days are valued at amortized cost, which
approximates market value. 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 are fair valued as determined in good faith
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 at the
end of the reporting period. 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.
2. NON-U.S. INVESTMENTS
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.
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; capital
losses related to sales of securities within 30 days of purchase; deferred
expenses; cost of investments sold; and net capital losses. The fiscal year in
which amounts are distributed may differ from the year in which the net
investment income and net realized gains are recorded by the fund. As of June
30, 2004, the cost of investment securities for federal income tax purposes was
$18,865,729,000.
As of June 30, 2004, the components of distributable earnings on a tax basis
were as follows:
(dollars in thousands)
Undistributed net investment income and currency gains $ 119,290
Accumulated short-term capital losses (1,237,673)
Undistributed long-term capital gains 398,442
Gross unrealized appreciation on investment securities 3,892,140
Gross unrealized depreciation on investment securities (835,559)
At the beginning of the period, the fund had capital loss carryforwards of
$95,779,000, $577,387,000 and $740,962,000 expiring in 2009, 2010 and 2011,
respectively. The capital loss carryforwards will be used to offset any capital
gains realized by the fund in the current year or in future years through the
expiration dates. During the six months ended June 30, 2004, the fund realized,
on a tax basis, a net capital gain of $574,897,000. The fund will not make
distributions from capital gains while capital loss carryforwards remain.
Tax basis distributions paid to shareholders from net investment income and
currency gains were as follows (dollars in thousands):
Share class Six months ended June 30, 2004 Year ended December 31, 2003
Class A $ 133,502 $ 267,613
Class B 2,657 6,070
Class C 1,241 2,626
Class F 2,390 3,841
Class 529-A 656 962
Class 529-B 46 89
Class 529-C 72 127
Class 529-E 25 35
Class 529-F 9 8
Class R-1 8 7
Class R-2 174 213
Class R-3 380 477
Class R-4 388 415
Class R-5 948 1,326
Total $ 142,496 $ 283,809
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 ("AFS"), the fund's
transfer agent, and American Funds Distributors, Inc. ("AFD"), the principal
underwriter of the fund's shares.
INVESTMENT ADVISORY SERVICES - The Investment Advisory and Service Agreement
with CRMC provides for monthly fees accrued daily. At the beginning of the
period, these fees were based on a declining series of annual rates beginning
with 0.390% on the first $1 billion of daily net assets and decreasing to 0.246%
on such assets in excess of $27 billion. The Board of Directors approved an
amended agreement effective June 1, 2004, reducing the existing annual rates to
0.245% from 0.248% on daily net assets in excess of $21 billion but not
exceeding $27 billion and 0.240% from 0.246% on such assets in excess of $27
billion. For the six months ended June 30, 2004, the investment advisory
services fee was $28,999,000, which was equivalent to an annualized rate of
0.270% 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. The plans
provide for annual expenses, based on a percentage of average daily
net assets, ranging from 0.25% to 1.00% as noted on the following
page. In some cases, the Board of Directors has approved expense
amounts lower than plan limits. 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 for providing certain shareholder services. Expenses in
excess of these amounts, up to approved limits, may be used to
compensate dealers and wholesalers for shares sold.
For classes A and 529-A, the Board of Directors has also approved the
reimbursement of dealer and wholesaler commissions paid by AFD for
certain shares sold without a sales charge. Each class reimburses 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, 2004, there were no unreimbursed expenses subject to
reimbursement for classes A and 529-A.
------------------------------------------------ ----------------------------- -----------------------------
Share class Currently approved limits Plan limits
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Class A 0.25% 0.25%
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Class 529-A 0.25 0.50
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes B and 529-B 1.00 1.00
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes C, 529-C and R-1 1.00 1.00
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Class R-2 0.75 1.00
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes 529-E and R-3 0.50 0.75
------------------------------------------------ ----------------------------- -----------------------------
------------------------------------------------ ----------------------------- -----------------------------
Classes F, 529-F and R-4 0.25 0.50
------------------------------------------------ ----------------------------- -----------------------------
TRANSFER AGENT SERVICES - The fund has a transfer agent agreement with
AFS for classes A and B. Under this agreement, these share classes
compensate AFS for transfer agent services including shareholder
recordkeeping, communications and transaction processing. AFS is also
compensated for certain transfer agent services provided to all other
share classes from the administrative services fees paid to CRMC
described below.
ADMINISTRATIVE SERVICES - The fund has an administrative services
agreement with CRMC to provide transfer agent and other related
shareholder services for all classes of shares other than classes A
and B. Each relevant class pays CRMC annual fees of 0.15% (0.10% for
Class R-5) based on its respective average daily net assets. Each
relevant 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. During the six months ended
June 30, 2004, CRMC voluntarily agreed to pay a portion of these fees
for classes R-1 and R-2. 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 in the accompanying financial statements, the Commonwealth of
Virginia is not considered a related party. Administrative services
fees are presented gross of any payments made by CRMC.
Expenses under the agreements described on the previous page for the
six months ended June 30, 2004, were as follows (dollars in
thousands):
--------------------------------------------------------------------------------------------------------------
Share class Distribution Transfer agent Administrative services
services services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
CRMC Transfer agent Commonwealth of
administrative services Virginia
services administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class A $24,090 $9,459 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class B 4,259 449 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class C 2,213 Included $332 $63 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class F 445 Included 267 26 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-A 91 Included 75 8 $50
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-B 104 Included 16 5 10
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-C 156 Included 23 6 16
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-E 13 Included 4 -* 3
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-F 2 Included 1 -* 1
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-1 17 Included 2 2 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-2 218 Included 44 172 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-3 197 Included 59 52 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-4 73 Included 44 -* Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-5 Not applicable Included 58 1 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Total $31,878 $9,908 $925 $335 $80
--------------------------------------------------------------------------------------------------------------
* 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 in the accompanying financial statements
includes $93,000 in current fees (either paid in cash or deferred) and a net
increase of $75,000 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(1) Reinvestments of dividends
Amount Shares Amount Shares
SIX MONTHS ENDED JUNE 30, 2004
Class A $ 1,146,914 39,330 $ 125,906 4,381
Class B 61,560 2,112 2,564 89
Class C 77,585 2,667 1,190 42
Class F 119,635 4,104 2,102 73
Class 529-A 24,416 839 656 23
Class 529-B 4,376 150 46 2
Class 529-C 8,771 301 72 3
Class 529-E 1,182 41 25 1
Class 529-F 488 17 9 -*
Class R-1 2,919 101 8 -*
Class R-2 30,309 1,042 174 6
Class R-3 35,737 1,228 380 13
Class R-4 24,859 856 388 14
Class R-5 13,157 450 827 29
Total net increase
(decrease) $ 1,551,908 53,238 $ 134,347 4,676
YEAR ENDED DECEMBER 31, 2003
Class A $ 1,760,807 73,050 $ 252,281 10,556
Class B 106,466 4,450 5,861 248
Class C 103,912 4,277 2,524 106
Class F 105,565 4,359 3,347 139
Class 529-A 32,444 1,333 962 40
Class 529-B 7,209 297 89 4
Class 529-C 11,156 458 127 5
Class 529-E 2,001 83 35 1
Class 529-F 730 30 8 -*
Class R-1 2,361 97 7 -*
Class R-2 37,622 1,581 213 9
Class R-3 57,216 2,436 461 19
Class R-4 35,621 1,487 415 17
Class R-5 42,345 1,675 1,097 45
Total net increase
(decrease) $ 2,305,455 95,613 $ 267,427 11,189
Share class Repurchases(1) Net increase (decrease)
Amount Shares Amount Shares
SIX MONTHS ENDED JUNE 30, 2004
Class A $ (1,214,525) (41,734) $ 58,295 1,977
Class B (42,743) (1,470) 21,381 731
Class C (28,538) (984) 50,237 1,725
Class F (37,854) (1,302) 83,883 2,875
Class 529-A (2,429) (84) 22,643 778
Class 529-B (279) (10) 4,143 142
Class 529-C (690) (24) 8,153 280
Class 529-E (59) (2) 1,148 40
Class 529-F (47) (2) 450 15
Class R-1 (551) (19) 2,376 82
Class R-2 (6,806) (234) 23,677 814
Class R-3 (10,823) (372) 25,294 869
Class R-4 (6,012) (207) 19,235 663
Class R-5 (9,372) (323) 4,612 156
Total net increase
(decrease) $ (1,360,728) (46,767) $ 325,527 11,147
YEAR ENDED DECEMBER 31, 2003
Class A $ (2,408,135) (101,674) $ (395,047) (18,068)
Class B (82,223) (3,502) 30,104 1,196
Class C (46,686) (1,989) 59,750 2,394
Class F (68,012) (2,847) 40,900 1,651
Class 529-A (1,893) (78) 31,513 1,295
Class 529-B (373) (15) 6,925 286
Class 529-C (881) (35) 10,402 428
Class 529-E (81) (3) 1,955 81
Class 529-F (29) (1) 709 29
Class R-1 (760) (31) 1,608 66
Class R-2 (8,100) (342) 29,735 1,248
Class R-3 (15,665) (670) 42,012 1,785
Class R-4 (4,201) (174) 31,835 1,330
Class R-5 (5,556) (217) 37,886 1,503
Total net increase
(decrease) $ (2,642,595) (111,578) $ (69,713) (4,776)
* Amount less than one thousand.
(1) Includes exchanges between share classes of the fund.
6. RESTRICTED SECURITIES
The fund has invested in certain securities for which resale may be limited to
qualified buyers or which are otherwise restricted. These securities are
identified in the investment portfolio. As of June 30, 2004, the total value of
restricted securities was $1,010,158,000, which represented 4.60% of the net
assets of the fund.
7. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding short-term
securities, of $2,811,349,000 and $2,917,903,000, respectively, during the six
months ended June 30, 2004.
The fund receives a reduction in its custodian fee equal to the amount of
interest calculated on certain cash balances held at the custodian bank. For the
six months ended June 30, 2004, the custodian fee of $667,000 included $2,000
that was offset by this reduction, rather than paid in cash.
FINANCIAL HIGHLIGHTS (1)
Income (loss) from investment operations (2)
Net
Net asset gains (losses)
value, Net on securities Total from
beginning investment (both realized investment
of period income and unrealized) operations
CLASS A:
Six months ended 6/30/2004 (5) $28.85 $.27 $.53 $.80
Year ended 12/31/2003 22.23 .50 6.52 7.02
Year ended 12/31/2002 27.45 .42 (5.14) (4.72)
Year ended 12/31/2001 31.16 .40 (3.34) (2.94)
Year ended 12/31/2000 32.59 .42 .90 1.32
Year ended 12/31/1999 28.92 .41 6.45 6.86
CLASS B:
Six months ended 6/30/2004 (5) 28.80 .16 .53 .69
Year ended 12/31/2003 22.19 .31 6.51 6.82
Year ended 12/31/2002 27.40 .23 (5.14) (4.91)
Year ended 12/31/2001 31.12 .18 (3.34) (3.16)
Period from 3/15/2000 to 12/31/2000 31.93 .15 1.02 1.17
CLASS C:
Six months ended 6/30/2004 (5) 28.78 .15 .52 .67
Year ended 12/31/2003 22.17 .30 6.51 6.81
Year ended 12/31/2002 27.39 .21 (5.14) (4.93)
Period from 3/15/2001 to 12/31/2001 28.52 .11 (1.13) (1.02)
CLASS F:
Six months ended 6/30/2004 (5) 28.84 .27 .52 .79
Year ended 12/31/2003 22.22 .49 6.52 7.01
Year ended 12/31/2002 27.44 .40 (5.14) (4.74)
Period from 3/15/2001 to 12/31/2001 28.56 .28 (1.12) (.84)
CLASS 529-A:
Six months ended 6/30/2004 (5) 28.84 .26 .53 .79
Year ended 12/31/2003 22.22 .50 6.52 7.02
Period from 2/15/2002 to 12/31/2002 26.71 .33 (4.34) (4.01)
CLASS 529-B:
Six months ended 6/30/2004 (5) 28.83 .14 .52 .66
Year ended 12/31/2003 22.22 .27 6.52 6.79
Period from 2/19/2002 to 12/31/2002 26.27 .16 (3.91) (3.75)
CLASS 529-C:
Six months ended 6/30/2004 (5) 28.83 .14 .53 .67
Year ended 12/31/2003 22.22 .27 6.52 6.79
Period from 2/15/2002 to 12/31/2002 26.71 .16 (4.34) (4.18)
CLASS 529-E:
Six months ended 6/30/2004 (5) 28.83 .21 .53 .74
Year ended 12/31/2003 22.21 .40 6.52 6.92
Period from 3/7/2002 to 12/31/2002 28.13 .26 (5.85) (5.59)
CLASS 529-F:
Six months ended 6/30/2004 (5) 28.82 .25 .53 .78
Year ended 12/31/2003 22.22 .45 6.52 6.97
Period from 9/23/2002 to 12/31/2002 21.22 .12 1.08 1.20
FINANCIAL HIGHLIGHTS (1) (continued)
Income (loss) from investment operations (2)
Net
Net asset gains(losses)
value, Net on securities Total from
beginning investment (both realized investment
of period income and unrealized) operations
CLASS R-1:
Six months ended 6/30/2004 (5) $28.79 $.15 $.53 $.68
Year ended 12/31/2003 22.19 .27 6.54 6.81
Period from 6/19/2002 to 12/31/2002 26.04 .13 (3.75) (3.62)
CLASS R-2:
Six months ended 6/30/2004 (5) 28.77 .16 .53 .69
Year ended 12/31/2003 22.18 .30 6.51 6.81
Period from 5/21/2002 to 12/31/2002 27.39 .14 (5.13) (4.99)
CLASS R-3:
Six months ended 6/30/2004 (5) 28.82 .21 .53 .74
Year ended 12/31/2003 22.21 .40 6.52 6.92
Period from 6/4/2002 to 12/31/2002 26.66 .18 (4.38) (4.20)
CLASS R-4:
Six months ended 6/30/2004 (5) 28.83 .27 .51 .78
Year ended 12/31/2003 22.21 .48 6.53 7.01
Period from 7/25/2002 to 12/31/2002 21.75 .22 .55 .77
CLASS R-5:
Six months ended 6/30/2004 (5) 28.86 .31 .53 .84
Year ended 12/31/2003 22.23 .56 6.53 7.09
Period from 5/15/2002 to 12/31/2002 27.62 .28 (5.34) (5.06)
FINANCIAL HIGHLIGHTS (1)
Dividends and distributions
Dividends
(from net Distributions Total Net asset
investment (from capital dividends and value, end
income) gains) distributions of period
CLASS A:
Six months ended 6/30/2004 (5) $(.20) $ - $(.20) $29.45
Year ended 12/31/2003 (.40) - (.40) 28.85
Year ended 12/31/2002 (.50) - (.50) 22.23
Year ended 12/31/2001 (.40) (.37) (.77) 27.45
Year ended 12/31/2000 (.40) (2.35) (2.75) 31.16
Year ended 12/31/1999 (.40) (2.79) (3.19) 32.59
CLASS B:
Six months ended 6/30/2004 (5) (.09) - (.09) 29.40
Year ended 12/31/2003 (.21) - (.21) 28.80
Year ended 12/31/2002 (.30) - (.30) 22.19
Year ended 12/31/2001 (.19) (.37) (.56) 27.40
Period from 3/15/2000 to 12/31/2000 (.13) (1.85) (1.98) 31.12
CLASS C:
Six months ended 6/30/2004 (5) (.08) - (.08) 29.37
Year ended 12/31/2003 (.20) - (.20) 28.78
Year ended 12/31/2002 (.29) - (.29) 22.17
Period from 3/15/2001 to 12/31/2001 (.11) - (.11) 27.39
CLASS F:
Six months ended 6/30/2004 (5) (.19) - (.19) 29.44
Year ended 12/31/2003 (.39) - (.39) 28.84
Year ended 12/31/2002 (.48) - (.48) 22.22
Period from 3/15/2001 to 12/31/2001 (.28) - (.28) 27.44
CLASS 529-A:
Six months ended 6/30/2004 (5) (.19) - (.19) 29.44
Year ended 12/31/2003 (.40) - (.40) 28.84
Period from 2/15/2002 to 12/31/2002 (.48) - (.48) 22.22
CLASS 529-B:
Six months ended 6/30/2004 (5) (.06) - (.06) 29.43
Year ended 12/31/2003 (.18) - (.18) 28.83
Period from 2/19/2002 to 12/31/2002 (.30) - (.30) 22.22
CLASS 529-C:
Six months ended 6/30/2004 (5) (.07) - (.07) 29.43
Year ended 12/31/2003 (.18) - (.18) 28.83
Period from 2/15/2002 to 12/31/2002 (.31) - (.31) 22.22
CLASS 529-E:
Six months ended 6/30/2004 (5) (.14) - (.14) 29.43
Year ended 12/31/2003 (.30) - (.30) 28.83
Period from 3/7/2002 to 12/31/2002 (.33) - (.33) 22.21
CLASS 529-F:
Six months ended 6/30/2004 (5) (.18) - (.18) 29.42
Year ended 12/31/2003 (.37) - (.37) 28.82
Period from 9/23/2002 to 12/31/2002 (.20) - (.20) 22.22
FINANCIAL HIGHLIGHTS (1) (continued)
Dividends and distributions
Dividends
(from net Distributions Total Net asset
investment (from capital dividends and value, end
income) gains) distributions of period
CLASS R-1:
Six months ended 6/30/2004 (5) $(.08) $ - $(.08) $29.39
Year ended 12/31/2003 (.21) - (.21) 28.79
Period from 6/19/2002 to 12/31/2002 (.23) - (.23) 22.19
CLASS R-2:
Six months ended 6/30/2004 (5) (.09) - (.09) 29.37
Year ended 12/31/2003 (.22) - (.22) 28.77
Period from 5/21/2002 to 12/31/2002 (.22) - (.22) 22.18
CLASS R-3:
Six months ended 6/30/2004 (5) (.14) - (.14) 29.42
Year ended 12/31/2003 (.31) - (.31) 28.82
Period from 6/4/2002 to 12/31/2002 (.25) - (.25) 22.21
CLASS R-4:
Six months ended 6/30/2004 (5) (.19) - (.19) 29.42
Year ended 12/31/2003 (.39) - (.39) 28.83
Period from 7/25/2002 to 12/31/2002 (.31) - (.31) 22.21
CLASS R-5:
Six months ended 6/30/2004 (5) (.24) - (.24) 29.46
Year ended 12/31/2003 (.46) - (.46) 28.86
Period from 5/15/2002 to 12/31/2002 (.33) - (.33) 22.23
FINANCIAL HIGHLIGHTS (1)
Ratio of expenses Ratio of expenses Ratio of
Net assets, to average net to average net net income
Total end of period assets before assets after to average
return (3) (in millions) reimbursement reimbursement (4) net assets
CLASS A:
Six months ended 6/30/2004 (5) 2.79% $19,669 .65% (6) .65% (6) 1.87% (6)
Year ended 12/31/2003 31.96 19,212 .66 .66 2.08
Year ended 12/31/2002 (17.34) 15,201 .67 .67 1.68
Year ended 12/31/2001 (9.55) 19,331 .65 .65 1.41
Year ended 12/31/2000 4.27 19,872 .64 .64 1.28
Year ended 12/31/1999 24.58 16,603 .63 .63 1.33
CLASS B:
Six months ended 6/30/2004 (5) 2.41 875 1.40 (6) 1.40 (6) 1.12 (6)
Year ended 12/31/2003 30.97 836 1.44 1.44 1.30
Year ended 12/31/2002 (17.97) 618 1.45 1.45 .91
Year ended 12/31/2001 (10.24) 653 1.42 1.42 .64
Period from 3/15/2000 to 12/31/2000 3.73 299 1.39 (6) 1.39 (6) .53 (6)
CLASS C:
Six months ended 6/30/2004 (5) 2.33 473 1.48 (6) 1.48 (6) 1.06 (6)
Year ended 12/31/2003 30.93 413 1.50 1.50 1.23
Year ended 12/31/2002 (18.06) 266 1.50 1.50 .86
Period from 3/15/2001 to 12/31/2001 (3.60) 203 1.55 (6) 1.55 (6) .49 (6)
CLASS F:
Six months ended 6/30/2004 (5) 2.76 402 .71 (6) .71 (6) 1.85 (6)
Year ended 12/31/2003 31.92 311 .71 .71 2.02
Year ended 12/31/2002 (17.38) 203 .72 .72 1.65
Period from 3/15/2001 to 12/31/2001 (2.97) 153 .74 (6) .74 (6) 1.31 (6)
CLASS 529-A:
Six months ended 6/30/2004 (5) 2.75 113 .75 (6) .75 (6) 1.80 (6)
Year ended 12/31/2003 31.99 88 .68 .68 2.03
Period from 2/15/2002 to 12/31/2002 (15.16) 39 .76 (6) .76 (6) 1.64 (6)
CLASS 529-B:
Six months ended 6/30/2004 (5) 2.31 23 1.60 (6) 1.60 (6) .94 (6)
Year ended 12/31/2003 30.74 19 1.61 1.61 1.10
Period from 2/19/2002 to 12/31/2002 (14.35) 8 1.62 (6) 1.62 (6) .77 (6)
CLASS 529-C:
Six months ended 6/30/2004 (5) 2.31 35 1.59 (6) 1.59 (6) .97 (6)
Year ended 12/31/2003 30.75 27 1.60 1.60 1.11
Period from 2/15/2002 to 12/31/2002 (15.74) 11 1.60 (6) 1.60 (6) .79 (6)
CLASS 529-E:
Six months ended 6/30/2004 (5) 2.58 6 1.06 (6) 1.06 (6) 1.48 (6)
Year ended 12/31/2003 31.42 4 1.08 1.08 1.61
Period from 3/7/2002 to 12/31/2002 (19.92) 2 1.07 (6) 1.07 (6) 1.35 (6)
CLASS 529-F:
Six months ended 6/30/2004 (5) 2.71 2 .81 (6) .81 (6) 1.76 (6)
Year ended 12/31/2003 31.72 1 .82 .82 1.81
Period from 9/23/2002 to 12/31/2002 5.65 - (7) .22 .22 .51
FINANCIAL HIGHLIGHTS (1) (continued)
Ratio of expenses Ratio of expenses Ratio of
Net assets, to average net to average net net income
Total end of period assets before assets after to average
return (in millions) reimbursement reimbursement (4) net assets
CLASS R-1:
Six months ended 6/30/2004 (5) 2.35% $5 1.55% (6) 1.50% (6) 1.06% (6)
Year ended 12/31/2003 30.90 2 1.70 1.50 1.08
Period from 6/19/2002 to 12/31/2002 (13.91) - (7) 4.20 (6) 1.50 (6) 1.11 (6)
CLASS R-2:
Six months ended 6/30/2004 (5) 2.39 70 1.79 (6) 1.46 (6) 1.11 (6)
Year ended 12/31/2003 30.93 45 1.94 1.46 1.19
Period from 5/21/2002 to 12/31/2002 (18.22) 7 1.64 (6) 1.46 (6) 1.05 (6)
CLASS R-3:
Six months ended 6/30/2004 (5) 2.58 93 1.07 (6) 1.07 (6) 1.47 (6)
Year ended 12/31/2003 31.45 66 1.10 1.08 1.60
Period from 6/4/2002 to 12/31/2002 (15.75) 11 1.13 (6) 1.08 (6) 1.41 (6)
CLASS R-4:
Six months ended 6/30/2004 (5) 2.77 68 .69 (6) .69 (6) 1.86 (6)
Year ended 12/31/2003 31.91 48 .71 .71 1.94
Period from 7/25/2002 to 12/31/2002 3.51 7 .34 .32 .96
CLASS R-5:
Six months ended 6/30/2004 (5) 2.92 119 .39 (6) .39 (6) 2.13 (6)
Year ended 12/31/2003 32.34 112 .39 .39 2.30
Period from 5/15/2002 to 12/31/2002 (18.34) 53 .40 (6) .40 (6) 1.91 (6)
Six months ended
June 30, Year ended December 31
2004(5) 2003 2002 2001 2000 1999
Portfolio turnover rate for all classes of shares 14% 31% 38% 29% 43% 46%
(1) Based on operations for the period shown (unless otherwise noted) and,
accordingly, may not be representative of a full year.
(2) Year ended 1999 is based on shares outstanding on the last day of the year;
all other periods are 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 and payments from CRMC. During the start-up period for the
retirement plan share classes (except Class R-5), CRMC voluntarily 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
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 02105-1713
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
515 South Flower Street
Los Angeles, CA 90071-2228
INDEPENDENT AUDITORS
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. 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 0.75 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 0.83 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 higher
annualized expenses (by 0.06 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 AND COLLEGEAMERICA. 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 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 UPON REQUEST, FREE OF CHARGE,
BY CALLING AMERICAN FUNDS SERVICE COMPANY, VISITING THE AMERICAN FUNDS WEBSITE
OR ACCESSING THE U.S. SECURITIES AND EXCHANGE COMMISSION WEBSITE AT WWW.SEC.GOV.
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, 2004, this report must be accompanied by an American Funds
statistical update for the most recently completed calendar quarter.
[logo - American Funds(R)]
The right choice for the long term(R)
WHAT MAKES AMERICAN FUNDS DIFFERENT?
For more than 70 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 25 million shareholder accounts.
OUR UNIQUE COMBINATION OF STRENGTHS INCLUDES THESE FIVE FACTORS:
o A LONG-TERM, VALUE-ORIENTED APPROACH
Rather than follow fads, we pursue a consistent strategy, focusing on each
investment's long-term potential.
o AN UNPARALLELED GLOBAL RESEARCH EFFORT
American Funds draws on one of the industry's most globally integrated
research networks.
o THE MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Every American Fund is divided among a number of portfolio counselors. Each
takes responsibility for a portion independently, within each fund's
objectives; in most cases, research analysts manage a portion as well. Over
time this method has contributed to a consistency of results and continuity
of management.
o EXPERIENCED INVESTMENT PROFESSIONALS
The recent market decline was not the first for most of the portfolio
counselors who serve the American Funds. Nearly 70% of them were in the
investment business before the sharp market decline of 1987.
o A COMMITMENT TO LOW OPERATING EXPENSES
American Funds' operating expenses are among the lowest in the mutual fund
industry. Our portfolio turnover rates are low as well, keeping transaction
costs and tax consequences contained.
29 MUTUAL FUNDS, CONSISTENT PHILOSOPHY, CONSISTENT RESULTS
o GROWTH FUNDS
AMCAP Fund(R)
EuroPacific Growth Fund(R)
The Growth Fund of America(R)
The New Economy Fund(R)
New Perspective Fund(R)
New World Fund(SM)
SMALLCAP World Fund(R)
o GROWTH-AND-INCOME FUNDS
American Mutual Fund(R)
Capital World Growth and Income Fund(SM)
> FUNDAMENTAL INVESTORS(SM)
The Investment Company of America(R)
Washington Mutual Investors Fund(SM)
o EQUITY-INCOME FUNDs
Capital Income Builder(R)
The Income Fund of America(R)
o BALANCED FUND
American Balanced Fund(R)
o BOND FUNDS
American High-Income Trust(SM)
The Bond Fund of America(SM)
Capital World Bond Fund(R)
Intermediate Bond Fund of America(R)
U.S. Government Securities Fund(SM)
o TAX-EXEMPT BOND FUNDS
American High-Income Municipal Bond Fund(R)
Limited Term Tax-Exempt Bond Fund of America(SM)
The Tax-Exempt Bond Fund of America(R)
STATE-SPECIFIC TAX-EXEMPT FUNDS
The Tax-Exempt Fund of California(R)
The Tax-Exempt Fund of Maryland(R)
The Tax-Exempt Fund of Virginia(R)
o MONEY MARKET FUNDS
The Cash Management Trust of America(R)
The Tax-Exempt Money Fund of America(SM)
The U.S. Treasury Money Fund of America(SM)
THE CAPITAL GROUP COMPANIES
American Funds
Capital Research and Management
Capital International
Capital Guardian
Capital Bank and Trust
Lit. No. MFGESR-910-0804P
Litho in USA KBD/AL/8083-S1935
Printed on recycled paper
ITEM 2 - Code of Ethics
Not applicable for filing of Semiannual Reports to Shareholders.
ITEM 3 - Audit Committee Financial Expert
Not applicable for filing of Semiannual Reports to Shareholders.
ITEM 4 - Principal Accountant Fees and Services
Not applicable for filing of Semiannual Reports to Shareholders.
ITEM 5 - Audit Committee of Listed Registrants
Not applicable.
ITEM 6 - Reserved
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 - Reserved
ITEM 9 - 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. 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 10 - Controls and Procedures
(a) The officers providing the certifications in this report in accordance with
rule 30a-2 under the Investment Company Act of 1940 have concluded, based
on their evaluation of the Registrant's disclosure controls and procedures
(as such term is defined in such rule), 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 last fiscal half-year (the
Registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 11 - Exhibits
(a) The Code of Ethics - not applicable for filing of Semiannual Reports to
Shareholders.
(b) 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, Chairman and PEO
Date: September 7, 2004
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, Chairman and PEO
Date: September 7, 2004
By /s/ Sheryl F. Johnson
- --------------------------------
Sheryl F. Johnson, Treasurer
Date: September 7, 2004