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: December 31, 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
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
One by one:
Building the fund's portfolio
[abstract illustration of building blocks with picutres of various items on
each block: house, hard hat, screwdriver, crane, corn cob, leaf, factory.
Building blocks are being analyzed, pushed and measured by individuals.]
Annual report for the year ended December 31, 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.
Contents Page
Letter to shareholders; Results at a glance 1
The value of a long-term perspective 4
One by one: Building the fund's portfolio 6
Summary investment portfolio 12
Financial statements 16
Board of Directors 31
The American Funds family back cover
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 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.
Please see page 4 for Class A share results with relevant sales charges
deducted. Results for other share classes can be found on page 30. Please see
the inside back cover for important information about other share classes.
The fund's 30-day yield for Class A shares as of January 31, 2005, calculated in
accordance with the Securities and Exchange Commission formula, was 1.45%, which
reflects a fee waiver (1.44% without the fee waiver). The fund's distribution
rate for Class A shares as of that date was 1.68%. 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.
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:
[abstract illustration of a man holding a ruler larger than himself]
Rising oil prices, a weak dollar and increased demand for materials and
machinery strongly influenced world markets in 2004, and Fundamental Investors
was well-positioned to benefit from these trends.
For the year ended December 31, 2004, the fund recorded a gain of 13.9% for
shareholders who reinvested their dividends. This figure was ahead of the 12.0%
total return posted by its benchmark, the Lipper Large-Cap Value Funds Index,
which measures funds that invest in companies that are undervalued within their
industries. The fund's return also substantially outpaced the 10.9% total return
posted by the unmanaged Standard & Poor's 500 Composite Index, a broad measure
of U.S. stocks.
Quarterly income remains an important component of the fund's total return, and
Fundamental Investors made distributions totaling 56 cents a share during the
year, representing an income return of 1.95% for shareholders who reinvested
their dividends.
In last year's report, we spoke of our hopes for further improvement in the U.S.
dividend culture. This year's above-average payout is a partial realization of
those hopes, as it includes a one-time special dividend from Microsoft, the
fund's second-largest holding. While such events are, by definition, out of the
ordinary, they affirm our optimism and strong commitment to the fund's goal of
consistent quarterly income, a commitment we've maintained over the past decade,
even as dividend payouts have generally declined as a percentage of company
earnings.
[Begin Sidebar]
RESULTS AT A GLANCE
Returns for periods ended December 31, 2004, with all distributions reinvested.
1 year 5 years(1) 10 years(1) Lifetime(1),(2)
Fundamental Investors +13.91% +3.22% +13.27% +14.16%
Lipper Large-Cap Core Funds Index +8.29 -2.98 +10.26 --(3)
Lipper Large-Cap Value Funds Index +12.00 +1.42 +11.29 +13.06
Standard & Poor's 500 Composite Index(4) +10.87 -2.30 +12.07 +13.38
(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.
(4) Unmanaged.
[End Sidebar]
MARKETS AND THE DOLLAR
The fiscal year began with markets moving upward on the strength of global
expansion. But by early spring, the Iraqi insurgency and the specter of higher
interest rates rattled investors' nerves and put markets into a holding pattern,
where they stayed through the summer and into the fall. Markets showed new life
in late October as oil prices pulled back from their highs, and positive
employment and income data brightened the investment picture. Additionally, a
late-year strengthening of major currencies against the dollar provided an
additional boost to non-U.S. stock values.
The recent weakness in the dollar continued a two-year trend that has benefited
fund shareholders in two distinct ways: First, since a weak dollar makes U.S.
goods more affordable to non-U.S. purchasers, it has bolstered sales for many of
the U.S. companies held by Fundamental Investors; second, it has amplified the
value of the fund's non-U.S. holdings, which are worth more when converted from
their native currencies into greenbacks. While it's important to note that we
make investments in companies, not bets on movements in the dollar or euro or
yen, we know that currency fluctuations are an important consideration when
evaluating the global investment landscape. Remaining mindful of potential
movements in currencies, along with the ability to invest up to 30% of the
fund's assets in carefully chosen non-U.S. companies, often allows the fund to
benefit in the twofold manner described above.
RIGHT PLACE, RIGHT TIME
A look at the fund's portfolio reveals a number of industry concentrations that
helped us capitalize on several of the macroeconomic trends that figured
strongly during the year.
The oil and gas sector benefited from surging crude prices brought on by rising
consumption and fears about the security of the world's oil supply. The fund's
holdings in this sector acquitted themselves well, with all of them finishing in
positive territory. Canada's Suncor Energy (+40.8%), Shell Canada (+41.0%) and
Norway's Norsk Hydro (+27.6%) were particularly strong, while Royal Dutch
Petroleum (+9.5%), Fundamental Investors' fourth-largest position, slightly
trailed overall returns.
Developing nations like China and India continued to invest heavily in
infrastructure, creating demand for the materials and machinery that facilitate
such growth. Accordingly, the fund's metals and mining holdings strongly
contributed to results, with Australia's BHP Billiton (+30.7%), Phelps Dodge
(+30.0%) and CONSOL Energy (+76.1%) all turning in solid gains. And heavy demand
for the trucks and tractors used in mining, construction and agriculture fueled
significant increases in the share prices of Deere (+14.4%) and Caterpillar
(+17.5%).
Among top 10 holdings that lost value were Fannie Mae (-5.1%) and
telecommunications giant SBC Communications (-1.2%). Microsoft followed the
trend within the technology sector to finish down 3.0%. As with all individual
company returns cited in this report, the Microsoft figure does not include the
effect of dividends or distributions, including the aforementioned special
dividend paid in December 2004.
In terms of the portfolio's geographical distribution, 2004 saw a rise in
non-U.S. holdings, which now make up 24.7% of assets. Much of the increase came
from Europe, where we found telecommunications services companies that were
appealingly priced and had attractive yields. Our Canadian holdings rose too, in
part due to capital appreciation in a number of our raw materials and oil and
gas holdings there.
ONE COMPANY AT A TIME
Looking ahead, it's uncertain whether the economic conditions that contributed
to the fund's recent results will remain in place. Few doubt that growth in the
developing world will continue at a fairly rapid pace, but whether the U.S.
dollar will remain weak and energy prices will continue to trend upwards are
open questions.
As always, success will depend on the kind of careful stock selection that
results from the bottom-up, research-driven approach employed by Capital
Research and Management Company, investment adviser to Fundamental Investors and
all the American Funds. Capital's time-tested approach relies on the analysis,
insight and experience of the portfolio counselors and research analysts
entrusted to manage your fund. In outlook and opinion, no two are the same, yet
they share a common goal: building a portfolio that will benefit Fundamental
Investors' shareholders over the long term.
[Begin Sidebar]
FUNDAMENTAL INVESTORS' TOTAL RETURN YEAR BY YEAR (ending December 31)
Capital return Income return Total return
1995 +31.9% +2.3% +34.2%
1996 +18.2 +1.8 +20.0
1997 +25.0 +1.7 +26.7
1998 +15.2 +1.5 +16.7
1999 +23.2 +1.4 +24.6
2000 +3.1 +1.2 +4.3
2001 -10.9 +1.3 -9.6
2002 -19.1 +1.8 -17.3
2003 +30.2 +1.8 +32.0
2004 +11.9 +2.0 +13.9
10-year average annual total return +13.3%
10-year cumulative total return +247.6
Lifetime cumulative total return (since 8/1/78) +3,207.6
Total return measures both capital results (changes in net asset value) and
income return (from income dividends).
All returns assume reinvestment of all dividends and capital gain distributions.
[End Sidebar]
To learn more about four of the companies that have become important components
of that portfolio, we invite you to turn to the feature article, "One by one:
Building the fund's portfolio," which begins on page 6.
We believe the most meaningful validation of the fund's approach can be found in
its long-term results. As measured over the last 10 years, Fundamental
Investors' 13.3% average annual gain tops those of the Lipper Large-Cap Value
Funds Index (+11.3%) and Standard & Poor's 500 Composite Index (+12.1%).
We thank you for your continuing commitment to long-term investing.
Sincerely,
/s/ James F. Rothenberg
James F. Rothenberg
Chairman
/s/ Dina N. Perry
Dina N. Perry
President
February 11, 2005
For current information about the fund, visit americanfunds.com.
THE VALUE OF A LONG-TERM PERSPECTIVE
HOW A $10,000 INVESTMENT HAS GROWN
The chart and accompanying table illustrate how a $10,000 investment in the fund
grew between August 1, 1978 -- when Capital Research and Management Company
became Fundamental Investors' investment adviser -- and December 31, 2004. The
chart also shows how Standard & Poor's 500 Composite Index and the Lipper
Large-Cap Value Funds Index fared over this same period, and what happened to
inflation (as measured by the Consumer Price Index).
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 figures reflect deduction of the maximum sales charge of
5.75% on the $10,000 investment.(1) Thus, the net amount invested was $9,425.(2)
[Begin Sidebar]
AVERAGE ANNUAL TOTAL RETURNS
Based on a $1,000 investment for periods
ended December 31, 2004
Class A shares*
1 year +7.36%
5 years +2.01%
10 years +12.60%
Assumes reinvestment of all distributions and payment of the maximum 5.75% sales
charge.
The fund's investment adviser is waiving a portion of management fees. Results
shown reflect the waiver. Please see the Financial Highlights table on page 25
or in the fund's prospectus for details.
*Results for other share classes can be found on page 30.
[End Sidebar]
[begin mountain chart]
<table>
<s> <c> <c> <c> <c>
Fundamental Investors Fundamental Investors
with dividends not including
reinvested (1) (3) dividends (1) (4)
Initial Investment 7/31/1978 $ 9,425 $9,425
1978 High 11-Sep 10,000 9,919
Low 14-Nov 8,667 8,596
Close 29-Dec 9,155 8,947
1979 Low 27-Feb 9,086 8,880
High 5-Oct 10,823 10,310
Close 31-Dec 10,556 9,892
1980 Low 21-Apr 9,625 8,907
High 20-Nov 13,131 11,876
Close 31-Dec 12,807 11,390
1981 High 27-Apr 13,986 12,308
Low 25-Sep 11,906 10,243
Close 31-Dec 12,654 10,688
1982 Low 22-Jan 10,593 8,947
High 7-Dec 17,346 13,833
Close 31-Dec 16,957 13,522
1983 Low 3-Jan 16,636 13,266
High 10-Oct 21,599 16,721
Close 30-Dec 21,389 16,424
1984 High 9-Jan 22,004 16,896
Low 24-Jul 18,549 13,980
Close 31-Dec 22,621 16,759
1985 Low 1-May 22,882 16,819
High 16-Dec 29,736 21,355
Close 31-Dec 29,448 21,148
1986 Low 14-Feb 31,766 22,665
High 4-Sep 36,571 25,757
Close 31-Dec 35,941 25,151
1987 High 25-Aug 50,132 34,478
Low 4-Dec 33,691 23,002
Close 31-Dec 37,295 25,463
1988 Low 20-Jan 36,464 24,895
High 5-Jul 43,076 28,988
Close 30-Dec 43,246 28,561
1989 Low 3-Jan 43,068 28,443
High 9-Oct 58,786 38,138
Close 29-Dec 55,597 35,438
1990 High 4-Jun 60,265 37,947
Low 11-Oct 46,988 29,390
Close 31-Dec 52,130 32,180
1991 Low 9-Jan 50,201 30,989
High 31-Dec 67,947 40,940
Close 31-Dec 67,947 40,940
1992 Low 8-Apr 66,472 39,828
High 12-Nov 72,487 42,938
Close 31-Dec 74,871 44,059
1993 Low 8-Jan 74,615 43,908
High 2-Nov 88,379 51,169
Close 31-Dec 88,466 50,884
1994 High 2-Feb 91,634 52,706
Low 8-Dec 86,773 48,708
Close 30-Dec 89,641 50,319
1995 Low 3-Jan 89,539 50,261
High 29-Nov 119,498 66,056
Close 29-Dec 120,306 66,210
1996 Low 10-Jan 117,715 64,784
High 26-Nov 145,602 79,119
Close 31-Dec 144,352 78,143
1997 Low 11-Apr 144,443 77,891
High 7-Oct 189,427 101,423
Close 31-Dec 182,855 97,513
1998 High 17-Jul 212,584 112,606
Low 8-Oct 173,534 91,600
Close 31-Dec 213,421 112,292
1999 Low 14-Jan 211,060 111,050
High 10-Dec 258,554 134,742
Close 31-Dec 265,882 138,151
2000 High 1-Sep 293,957 151,363
Low 21-Dec 266,380 136,743
Close 29-Dec 277,235 142,315
2001 High 1-Feb 287,822 147,750
Low 21-Sep 211,970 107,718
Close 31-Dec 250,761 126,959
2002 High 19-Mar 260,698 131,491
Low 9-Oct 182,355 91,253
Close 31-Dec 207,271 102,816
2003 Low 12-Mar 186,058 91,854
High 31-Dec 273,523 133,434
Close 31-Dec 273,523 133,434
2004 Low 17-May 264,555 128,624
High 30-Dec 311,756 149,252
Close 31-Dec 311,563 149,159
S&P 500 Index with
dividends reinvested
Initial Investment 7/31/1978 $10,000
1978 High 12-Sep 10,670
Low 14-Nov 9,306
Close 29-Dec 9,762
1979 Low 27-Feb 9,807
High 5-Oct 11,769
Close 31-Dec 11,579
1980 Low 27-Mar 10,627
High 28-Nov 15,813
Close 31-Dec 15,336
1981 High 6-Jan 15,603
Low 25-Sep 13,172
Close 31-Dec 14,581
1982 Low 12-Aug 12,625
High 9-Nov 17,877
Close 31-Dec 17,723
1983 Low 3-Jan 17,433
High 10-Oct 22,491
Close 30-Dec 21,721
1984 Low 24-Jul 19,933
High 6-Nov 23,337
Close 31-Dec 23,083
1985 Low 4-Jan 22,592
High 16-Dec 30,417
Close 31-Dec 30,407
1986 Low 22-Jan 29,286
High 2-Dec 37,737
Close 31-Dec 36,082
1987 High 25-Aug 51,060
Low 4-Dec 34,314
Close 31-Dec 37,977
1988 Low 20-Jan 37,293
High 21-Oct 44,800
Close 30-Dec 44,267
1989 Low 3-Jan 43,883
High 9-Oct 58,837
Close 29-Dec 58,269
1990 High 16-Jul 61,897
Low 11-Oct 50,026
Close 31-Dec 56,457
1991 Low 9-Jan 53,255
High 31-Dec 73,620
Close 31-Dec 73,620
1992 Low 8-Apr 70,130
High 18-Dec 80,063
Close 31-Dec 79,222
1993 Low 8-Jan 78,011
High 28-Dec 87,854
Close 31-Dec 87,189
1994 High 2-Feb 90,223
Low 4-Apr 82,600
Close 30-Dec 88,336
1995 Low 3-Jan 88,305
High 13-Dec 122,408
Close 29-Dec 121,491
1996 Low 10-Jan 118,049
High 25-Nov 152,084
Close 31-Dec 149,367
1997 Low 2-Jan 148,615
High 5-Dec 201,641
Close 31-Dec 199,183
1998 Low 9-Jan 190,410
High 29-Dec 258,425
Close 31-Dec 256,100
1999 Low 14-Jan 252,550
High 31-Dec 309,980
Close 31-Dec 309,980
2000 High 24-Mar 322,882
Low 20-Dec 269,684
Close 29-Dec 281,766
2001 High 30-Jan 293,173
Low 21-Sep 207,919
Close 31-Dec 248,303
2002 High 19-Mar 253,587
Low 9-Oct 169,983
Close 31-Dec 193,447
2003 Low 12-Mar 176,642
High 31-Dec 248,903
Close 31-Dec 248,903
2004 Low 12-Aug 240,252
High 30-Dec 275,924
Close 31-Dec 275,970
Lipper Large-Cap Value
Funds Index with
dividends reinvested
Initial Investment 7/31/1978 $ 10,000
1978 High 31-Aug 10,377
Low 31-Oct 9,281
Close 29-Dec 9,669
1979 Low 28-Feb 9,757
High 30-Sep 11,676
Close 31-Dec 11,667
1980 Low 31-Mar 10,929
High 30-Nov 14,925
Close 31-Dec 14,658
1981 High 31-May 15,457
Low 30-Sep 13,965
Close 31-Dec 14,879
1982 Low 31-Jul 14,113
High 31-Dec 18,622
Close 31-Dec 18,622
1983 Low 31-Jan 19,113
High 30-Nov 23,082
Close 30-Dec 22,968
1984 Low 31-May 21,001
High 31-Dec 24,352
Close 31-Dec 24,352
1985 Low 31-Jan 25,997
High 31-Dec 31,784
Close 31-Dec 31,784
1986 Low 31-Jan 32,353
High 31-Aug 38,779
Close 31-Dec 37,754
1987 High 31-Aug 49,169
Low 30-Nov 36,275
Close 31-Dec 38,736
1988 Low 31-Jan 40,556
High 31-Oct 44,818
Close 30-Dec 44,776
1989 Low 28-Feb 46,751
High 29-Dec 56,851
Close 29-Dec 56,851
1990 High 31-May 58,357
Low 31-Oct 49,728
Close 31-Dec 54,547
1991 Low 31-Jan 57,401
High 31-Dec 71,251
Close 31-Dec 71,251
1992 Low 31-Mar 70,391
High 31-Dec 77,417
Close 31-Dec 77,417
1993 Low 31-Jan 78,305
High 31-Dec 87,686
Close 31-Dec 87,686
1994 Low 31-Mar 83,827
High 31-Aug 90,912
Close 30-Dec 87,848
1995 Low 31-Jan 87,982
High 29-Dec 117,523
Close 29-Dec 117,051
1996 Low 31-Jan 114,077
High 30-Nov 144,146
Close 31-Dec 141,708
1997 Low 31-Mar 140,864
High 31-Dec 185,194
Close 31-Dec 182,058
1998 Low 31-Aug 173,949
High 31-Dec 216,227
Close 31-Dec 215,266
1999 Low 28-Feb 211,538
High 30-Jun 245,265
Close 31-Dec 238,470
2000 Low 29-Feb 213,261
High 31-Aug 246,820
Close 29-Dec 243,131
2001 High 31-Jan 247,162
Low 30-Sep 190,741
Close 31-Dec 222,282
2002 High 31-Mar 230,125
Low 30-Sep 154,261
Close 31-Dec 178,544
2003 Low 31-Mar 161,368
High 31-Dec 228,532
Close 31-Dec 228,532
2004 Low 12-Aug 223,845
High 30-Dec 256,244
Close 31-Dec 255,944
Consumer Price Index
(inflation)(6)
Initial Investment 7/31/1978 $10,000
1978 Low 31-Jul 10,000
High 29-Dec 10,304
Close 29-Dec 10,304
1979 Low 31-Jan 10,396
High 31-Dec 11,674
Close 31-Dec 11,674
1980 Low 31-Jan 11,842
High 31-Dec 13,135
Close 31-Dec 13,135
1981 Low 31-Jan 13,242
High 31-Dec 14,307
Close 31-Dec 14,307
1982 Low 31-Jan 14,353
High 31-Oct 14,947
Close 31-Dec 14,855
1983 Low 31-Jan 14,886
High 30-Dec 15,419
Close 30-Dec 15,419
1984 Low 31-Jan 15,510
High 31-Oct 16,027
Close 31-Dec 16,027
1985 Low 31-Jan 16,058
High 31-Dec 16,636
Close 31-Dec 16,636
1986 Low 30-Apr 16,530
High 31-Dec 16,819
Close 31-Dec 16,819
1987 Low 31-Jan 16,925
High 30-Nov 17,565
Close 31-Dec 17,565
1988 Low 31-Jan 17,610
High 30-Dec 18,341
Close 30-Dec 18,341
1989 Low 31-Jan 18,432
High 29-Dec 19,193
Close 29-Dec 19,193
1990 Low 31-Jan 19,391
High 30-Nov 20,365
Close 31-Dec 20,365
1991 Low 31-Jan 20,487
High 31-Dec 20,989
Close 31-Dec 20,989
1992 Low 31-Jan 21,020
High 30-Nov 21,613
Close 31-Dec 21,598
1993 Low 31-Jan 21,705
High 30-Nov 22,192
Close 31-Dec 22,192
1994 Low 31-Jan 22,253
High 30-Nov 22,785
Close 30-Dec 22,785
1995 Low 31-Jan 22,877
High 31-Oct 23,394
Close 29-Dec 23,364
1996 Low 31-Jan 23,501
High 30-Nov 24,140
Close 31-Dec 24,140
1997 Low 31-Jan 24,216
High 31-Oct 24,597
Close 31-Dec 24,551
1998 Low 31-Jan 24,597
High 31-Oct 24,962
Close 31-Dec 24,947
1999 Low 31-Jan 25,008
High 30-Nov 25,616
Close 31-Dec 25,616
2000 Low 31-Jan 25,693
High 30-Nov 26,499
Close 29-Dec 26,484
2001 Low 31-Jan 26,651
High 30-Sep 27,139
Close 31-Dec 26,895
2002 Low 31-Jan 26,956
High 31-Oct 27,595
Close 31-Dec 27,534
2003 Low 31-Jan 27,656
High 30-Sep 28,189
Close 31-Dec 28,052
2004 Close 28,965
</table>
[end mountain chart]
(1) As outlined in the prospectus, the sales charge is reduced for accounts
(and aggregated investments) of $25,000 or more and is eliminated for
purchases of $1 million or more. There is no sales charge on dividends or
capital gain distributions that are reinvested in additional shares.
(2) The maximum initial sales charge was 8.5% prior to July 1, 1988.
(3) Includes reinvested dividends of $52,001 and reinvested capital gain
distributions of $130,729.
(4) Includes reinvested capital gain distributions of $73,002, but does not
reflect income dividends of $29,869 taken in cash.
(5) For the period August 1, 1978 (when Capital Research and Management Company
became investment adviser) through December 31, 1978.
(6) Computed from data supplied by the U.S. Department of Labor, Bureau of
Labor Statistics.
Past results are not predictive of future results. The results shown are before
taxes on fund distributions and sale of fund shares.
The market indexes are unmanaged, do not reflect sales charges, commissions or
expenses and cannot be invested in directly.
Year ended
December 31 1978(5) 1979 1980 1981 1982 1983
CAPITAL VALUE
Dividends in cash $216 405 553 580 634 594
Value at year-end $8,947 9,892 11,390 10,688 13,522 16,424
TOTAL VALUE
Dividends reinvested $217 421 603 665 768 755
Value at year-end $9,155 10,556 12,807 12,654 16,957 21,389
TOTAL RETURN -8.4% 15.3 21.3 -1.2 34.0 26.1
Year ended
December 31 1984 1985 1986 1987 1988 1989
CAPITAL VALUE
Dividends in cash 556 582 636 717 895 1,225
Value at year-end 16,759 21,148 25,151 25,463 28,561 35,438
TOTAL VALUE
Dividends reinvested 734 795 894 1,034 1,328 1,877
Value at year-end 22,621 29,448 35,941 37,295 43,246 55,597
TOTAL RETURN 5.8 30.2 22.0 3.8 16.0 28.6
Year ended
December 31 1990 1991 1992 1993 1994 1995
CAPITAL VALUE
Dividends in cash 1,058 904 988 1,084 1,238 1,160
Value at year-end 32,180 40,940 44,059 50,884 50,319 66,210
TOTAL VALUE
Dividends reinvested 1,679 1,478 1,655 1,858 2,171 2,082
Value at year-end 52,130 67,947 74,871 88,466 89,641 120,306
TOTAL RETURN -6.2 30.3 10.2 18.2 1.3 34.2
Year ended
December 31 1996 1997 1998 1999 2000 2001
CAPITAL VALUE
Dividends in cash 1,196 1,351 1,428 1,578 1,716 1,844
Value at year-end 78,143 97,513 112,292 138,151 142,315 126,959
TOTAL VALUE
Dividends reinvested 2,187 2,511 2,691 3,013 3,319 3,611
Value at year-end 144,352 182,855 213,421 265,882 277,235 250,761
TOTAL RETURN 20.0 26.7 16.7 24.6 4.3 -9.6
Year ended
December 31 2002 2003 2004
CAPITAL VALUE
Dividends in cash 2,289 1,850 2,590
Value at year-end 102,816 133,434 149,159(4)
TOTAL VALUE
Dividends reinvested 4,553 3,755 5,345
Value at year-end 207,271 273,523 311,563(3)
TOTAL RETURN -17.3 32.0 13.9
Average annual total return for 26-1/2 years 13.9%(1)
[abstract illustration of building blocks with picutres of various items on
each block: house, hard hat, screwdriver, crane, corn cob, leaf, factory.
Building blocks are being analyzed, pushed and measured by individuals.]
ONE BY ONE:
Building the fund's portfolio
The portfolio counselors and research analysts who manage Fundamental Investors
have considerable flexibility in pursuing the fund's growth-and-income mandate.
Rather than limiting their search to companies that each individually embody the
fund's goals, they assemble a portfolio that does so collectively. Some
contribute more to its growth objective, while others are appealing from an
income standpoint. Still others stand somewhere in the middle.
But to get to the heart of the fund's approach, one needs to look beyond
categories to the companies themselves -- because that's what the fund's
investment professionals do. Through intensive, bottom-up research they find
companies with the competitive advantages necessary to thrive in the global
economy and reward shareholders. Each company is its own unique investment story
- -- a particular combination of attributes that furthers the fund's overall
mission. And like an eclectic volume of short stories that somehow adds up to a
single satisfying read, the diverse mix of companies that constitutes the fund's
portfolio has historically met Fundamental Investors' goal of long-term growth
of capital and income.
In the following pages, we'll take a closer look at four of the fund's holdings,
and uncover the investment story behind each. In doing so, we'll encounter some
of the elements portfolio counselors and research analysts consider when
weighing investment decisions, and gain a clearer sense of their diverse
investment styles.
[abstract illustration of a factory with roads leading to another factory,
construction site and house]
[Begin Picture Caption]
A strong product roster, a diverse customer base and an understanding of market
cycles convinced Dina Perry that Emerson Electric was a solid choice for
Fundamental Investors.
[End Caption]
DOWN BUT NOT OUT
Investing in companies from out-of-favor sectors is a bit like buying Christmas
decorations on December 26: It's typically the most affordable opportunity to do
so, but it takes time to realize the full benefits of the purchase.
Consider the case of Emerson Electric. When Fundamental Investors' portfolio
counselor and president, Dina Perry, invested in the company nearly two years
ago, the share value of this St. Louis-based manufacturing conglomerate was
languishing, thanks, in part, to a global slowdown in industrial production.
Companies like Emerson, whose fortunes are, in many ways, linked to the ebb and
flow of the economic cycle, are known as cyclicals, and Fundamental Investors
has a long history of benefiting from investments in them.
"When sectors fall out of favor, the share values of strong and weak companies
both suffer," explains Dina. "This creates excellent buying opportunities, since
good companies can be purchased at reasonable valuations. The problem is that
it's not always clear which out-of-favor companies will prosper when the clouds
part. That's where fundamental research comes in."
Working with Capital Research and Management Company analyst Martin Jacobs, Dina
began looking closely at Emerson early in 2003. "I liked the fact that the
company had a roster of strong global businesses and was a leader in many of its
product categories," notes Dina. "I was also impressed by their diversity. As a
manufacturer of consumer, commercial and industrial goods, their overall success
didn't depend on a single product line or strong demand in any one market."
Moreover, Dina learned that management wasn't resting on its laurels, "In the
`90s, Emerson strengthened its presence in an area known as process controls,"
she adds. "Process controls are the devices that go on industrial and
manufacturing equipment and collect vital information -- things like
temperature, pressure and supply -- which they then transmit to a command and
control center. In an age of increasing automation, this is an important
business."
For investors in cyclical companies, waiting for the tailwinds that can bring
about a rise in share price becomes more bearable when a company's management is
committed to rewarding shareholders with income. This was the case with Emerson.
"The company has a long track record of not only delivering strong earnings
growth, but dividend growth as well," explains Dina. "Given Fundamental
Investors' income objective, that added to the appeal."
In the spring of 2003, a pick-up in global industrial output did, in fact,
materialize and Emerson has rebounded strongly. The weak dollar has also helped
considerably, making the company's products even more attractive to its non-U.S.
customers, who account for roughly half of sales.
It wasn't clairvoyance or the ability to see around corners that triggered
Dina's decision to invest, but intensive research, Emerson's appealing income
profile, and patience for a company in an out-of-favor sector that experience
told her would return to fair value and ultimately benefit shareholders.
[abstract illustration of a small shovel with a stalk of corn in it]
[Begin Picture Caption]
Focusing on the less obvious consequences of rising global living standards led
Gordon Crawford to Potash Corp.
[End Caption]
A TRUE GROWTH STORY
Rising global living standards. The phrase suggests greater numbers of people
gaining access to the creature comforts and technologies enjoyed by those in the
developed world. And while increased consumption of those things is certainly a
big part of the overall global growth story -- and an example of how companies
from the industrialized world are benefiting from it -- some effects of the
proverbial rising tide are less obvious. Look at fertilizer.
In most cases, the increase in disposable income that generally accompanies
improving living standards brings with it an increase in per-capita consumption
of meat. Raising the livestock necessary to satisfy that demand requires
considerable quantities of grain, and places additional burdens on a food supply
already strained by population growth and a diminishing supply of farmland. The
net result is that farmers are being asked to grow more food on less acreage.
Seed-engineering, herbicides and more efficient agricultural management can
boost output, but without fertilizer returning to the soil those nutrients that
growing crops leech from it, fields become unproductive and eventually lay
fallow.
Needless to say, global demand for fertilizer is on the rise.
Which brings us to potash -- both the chemical compound and the Canadian mining
company of the same name. Potash, the substance, is a plant nutrient
indispensable to manufactured fertilizer. As a mined commodity that cannot be
chemically synthesized, bringing it to the marketplace requires considerable
capital investment, and new operations cannot be brought on line quickly.
Saskatchewan-based Potash Corp. is the world's largest supplier of this vital
product. But to Gordon Crawford, a portfolio counselor for Fundamental
Investors, the company's size is less important than its strategic position.
"Potash Corp. is the only producer in the world that has meaningful excess
capacity," he explains. "So as global consumption grows, it's the only company
that can increase production without incurring sizable new costs. This is the
kind of competitive advantage that companies rarely enjoy, and it makes Potash
an extremely attractive investment."
Gordon invested in Potash in August of 2004, and since then, the company's stock
has risen more than 60%. "Earnings have been great, and estimates for them have
been rising," he notes. "But my investment wasn't about quick profits, it was
about relying on extensive research to gain a more complete understanding of the
consequences of global growth. And when that research turned up a strongly
positioned company with its growth tied to a fundamental -- and growing -- human
need, it made for a compelling story and, ultimately, an investment that stands
to benefit shareholders."
VALUE SPARKS INTEREST
Fundamental Investors portfolio counselor Jim Drasdo invested in Caterpillar
more than 15 years ago. At the time, the global manufacturer of the instantly
recognizable equipment that does much of the construction and mining industries'
heavy lifting was smack in the middle of an ugly labor dispute. Adding to its
troubles, a strong dollar and advancing Japanese technology had increased the
competitiveness of the global marketplace. CAT looked like it was in jeopardy of
becoming an also-ran.
But with the company's share price trading at a level he describes as "dirt
cheap," Jim decided to take a closer look. What he found beyond the labor
problems and competitive pressures was a great brand with an unrivalled global
dealer network -- one that afforded the company a competitive edge. "If you run
a mine in a remote location, and uninterrupted operation of it depends on
equipment that stays up and running, having quick access to parts and service is
invaluable. I felt that CAT's network provided a meaningful advantage that would
help see it through the troubles it was experiencing," explains Jim.
In addition, Jim took a favorable view of CAT's management team, and his faith
was bolstered by their performance during the tough times. "Management basically
ran the plant during a strike in the early `90s, which helped avert the
destructive effect that a lengthy interruption in production could have had," he
recalls. "And while several CEOs have led the company since I invested, they're
all cut from the same cloth. They've blocked and tackled very well, and been
good stewards of the company's cash."
These days, they're stewarding a good deal of it.
With the labor dispute long since resolved and renewed strength in a number of
business areas, CAT has experienced a resurgence. By broadening its
power-generation product line, the company picked up market share in this
growing sector, and CAT's innovative technologies have helped it meet the EPA's
tougher diesel emissions standards well ahead of schedule.
An impressive turnaround story has become exceptional thanks to the role that
CAT heavy equipment has played in meeting the skyrocketing demands of the
developing world. Whether mining for copper and aluminum, or reshaping the
construction sites to which many of those commodities are headed, CAT's products
have proved indispensable to global growth that seems destined to continue.
[abstract illustration of the earth with a tractor, dump-truck and back-hoe
circling on its surface]
[Begin Picture Caption]
Where others saw a company in trouble, Jim Drasdo saw in Caterpillar a powerful
global brand at an appealing valuation.
[End Caption]
Since Jim first invested, CAT's sales have more than doubled and the stock
reflects the company's fortunes, with the share price up nearly 600% since his
initial purchase in March of 1989.
Owning a cyclical company like CAT for well over a decade is somewhat unusual,
and during the course of the stock's considerable climb, many have suggested to
Jim that he take some chips off the table. But the same independent instincts
that sparked his initial interest in the company remain in place. His
explanation is not complicated, "I'm a buy-and-hold kind of guy. I firmly
believe that if you have a fairly valued company at which management is doing
the right thing, and you've got some tailwinds at your back, you stick with it."
[abstract illustration of an hour-glass with factories in the background]
[Begin Picture Caption]
Taking the time to understand an evolving but out-of-favor technology inspired
Mike Kerr's investment in Suncor Energy.
[End Caption]
AN IDEA WHOSE TIME ARRIVED
When it comes to research, sometimes it's necessary to dig deep to understand
the value of something that, quite literally, sits close to the surface.
This is a fact not lost on Mike Kerr who, before becoming a portfolio counselor
for Fundamental Investors, was an oil and gas analyst for the fund.
In the mid-90s, Mike, a geophysicist by training, became increasingly interested
in the fledgling oil sands business. Oil sands are petroleum deposits mixed with
sand that sit near the earth's surface. Unlike deep oil deposits, which are
extracted through drilling, oil sands are mined, with the crude-caked "ore" put
through a chemical process that removes the oil.
In the early '80s, oil sands were being hailed as a plentiful and potentially
profitable alternative to drilled oil. But early efforts at mass production were
hampered by technological obstacles, which made the end-product expensive
relative to its traditionally extracted counterpart.
"The business endured a full decade of technical problems -- some of them quite
severe -- and by the time the '90s rolled around, oil sands had a very bad name
with investors," recalls Mike. "But our research convinced us that the
technology was on the verge of significant improvement and that the productivity
and predictability of operations were going to get a whole lot better."
Mike and his colleagues demonstrated their conviction with investments in a
number of oil sands producers, notably Suncor Energy of Alberta, the Canadian
province that's home to the world's largest known oil sands reserves.
Their faith proved well-founded. Since making the initial investment in 1996,
manufacturing costs have declined, while overall production has more than
tripled and is expected to double again by 2012. Since that initial investment,
the company's share price has increased more than 800%. These days, Suncor
stands as the fund's largest holding, a position it has assumed largely as a
result of growth in its stock price. Not surprising, since Mike and his
colleagues have never trimmed their position.
Suncor's future looks even brighter when considered against the current backdrop
of the overall oil and gas industry. "Right about the time we made the
investment, big oil companies began having difficulty coming up with sufficient
projects to assure production growth over any defined period," notes Mike. "This
is not the case with Suncor."
Moreover, an investment that made sense in a world with a stable and secure oil
supply has become auspicious as global instability increasingly threatens the
safety of that supply. "We're now in a period when oil has a lot of political
risks attached to it," Mike observes. "And having a large holding in a stable
and secure producer with an outstanding growth component seems like a very good
idea for Fundamental Investors."
DIVERSITY BY DESIGN
The multiple portfolio counselor system
[photo of Gordon Crawford]
[photo of James Drasdo]
[photo of Dina Perry]
[photo of Mike Kerr]
Portfolio Years of Years with
counselors investment experience* American Funds*
Gordon Crawford 34 34
James Drasdo 33 28
Dina Perry 27 13
Mike Kerr 22 20
The investment stories in this report offer insight into the method of portfolio
management employed by Capital Research and Management Company, investment
adviser to Fundamental Investors and all the American Funds. Known as the
multiple portfolio counselor system, this approach divides the fund's assets
into portions, each of which is independently managed -- within the fund's
objectives -- by one of Fundamental Investors' portfolio counselors. Guided by
their unique backgrounds and outlooks, as well as their extensive investment
experience, they are free to invest according to their strongest-conviction
ideas. The fund's research analysts also manage a share of assets. Since no two
investment professionals share the same approach, the resulting portfolio
reflects a diversity of perspectives and spans a broad range of companies and
industries.
*All years as of March 2005.
SUMMARY INVESTMENT PORTFOLIO, December 31, 2004
Beginning with this report, a summary portfolio, approved under rules adopted by
the Securities and Exchange Commission this year, will replace the complete
listing of portfolio holdings used in previous shareholder reports. This summary
portfolio is designed to streamline the report and help investors better focus
on a fund's principal holdings. The schedule includes each of the fund's 50
largest holdings and investments of any issuer for which the total value of all
holdings in that issuer exceeds 1% of the fund's net assets. A complete schedule
of portfolio holdings is available upon request, free of charge, by calling
American Funds Service Company at 800/421-0180 or accessing the U.S. Securities
and Exchange Commission website at www.sec.gov.
[begin pie chart]
(percent of
Industry sector diversification net assets)
Equity securities 92.51 %
Energy 13.08
Industrials 12.38
Materials 12.09
Financials 11.66
Consumer discretionary 9.65
Other industries 33.65
Convertible securities 1.29
Bonds & notes 0.72
Cash & equivalents 5.48
[end pie chart]
Shares Market Percent
value of net
COMMON STOCKS - 92.51% (000) assets
ENERGY - 13.08%
Suncor Energy Inc. 18,490,501 $653,331 2.70%
Royal Dutch Petroleum Co. (New York registered) 8,425,000 483,427 2.00
Exxon Mobil Corp. 5,000,000 256,300 1.06
Norsk Hydro ASA 2,168,000 170,127
Norsk Hydro ASA (ADR) 700,000 55,104 .93
Shell Canada Ltd. 3,273,200 218,186 .90
LUKoil Holding (ADR) 1,750,000 214,375 .88
Halliburton Co. 4,600,000 180,504 .75
Baker Hughes Inc. 3,800,000 162,146 .67
Murphy Oil Corp. 1,970,000 158,487 .65
Other securities 615,232 2.54
3,167,219 13.08
INDUSTRIALS - 12.38%
Deere & Co. 5,500,000 409,200 1.69
Caterpillar Inc. 3,600,000 351,036 1.45
General Electric Co. 9,500,000 346,750 1.43
Northrop Grumman Corp. 4,316,333 234,636 .97
Parker Hannifin Corp. 2,800,000 212,072 .87
General Dynamics Corp. 1,772,900 185,445 .77
Tyco International Ltd. 5,125,000 183,168 .76
Raytheon Co. 4,461,372 173,235 .71
Emerson Electric Co. 2,200,000 154,220 .64
Other securities 749,489 3.09
2,999,251 12.38
MATERIALS - 12.09%
Dow Chemical Co. 9,752,700 482,856 1.99
Alcoa Inc. 7,973,800 250,537 1.03
International Paper Co. 5,500,000 231,000 .95
BHP Billiton Ltd. 17,995,030 215,535 .89
Phelps Dodge Corp. 2,000,000 197,840 .82
Weyerhaeuser Co. 2,883,000 193,795 .80
E.I. du Pont de Nemours and Co. 3,850,000 188,842 .78
Temple-Inland Inc. 2,750,000 188,100 .78
Rio Tinto PLC 6,000,000 176,261 .73
Other securities 803,262 3.32
2,928,028 12.09
FINANCIALS - 11.66%
Fannie Mae 5,117,800 364,439 1.50
Allied Irish Banks, PLC 12,724,382 264,540 1.09
Washington Mutual, Inc. 5,200,000 219,856 .91
Bank of America Corp. 4,096,800 192,509 .79
Bank of Ireland 10,165,000 168,652 .70
Other securities 1,613,088 6.67
2,823,084 11.66
CONSUMER DISCRETIONARY - 9.65%
Time Warner Inc. (1) 20,425,000 397,062 1.64
News Corp. Inc. 17,220,000 321,325 1.33
Lowe's Companies, Inc. 5,524,900 318,179 1.31
Target Corp. 4,890,000 253,938 1.05
Limited Brands, Inc. 10,815,980 248,984 1.03
Other securities 797,574 3.29
2,337,062 9.65
INFORMATION TECHNOLOGY - 9.54%
Microsoft Corp. 19,625,000 524,184 2.16
Texas Instruments Inc. 11,963,024 294,530 1.22
Automatic Data Processing, Inc. 4,400,000 195,140 .81
International Business Machines Corp. 1,900,000 187,302 .77
Other securities 1,108,191 4.58
2,309,347 9.54
TELECOMMUNICATION SERVICES - 7.42%
SBC Communications Inc. 17,250,000 444,532 1.84
Telefonica, SA (ADR) 2,750,000 155,375
Telefonica, SA 2,950,000 55,377 .87
Verizon Communications Inc. 4,815,000 195,056 .80
France Telecom, SA 5,800,000 191,361 .79
Other securities 755,828 3.12
1,797,529 7.42
CONSUMER STAPLES - 4.82%
Altria Group, Inc. 8,114,800 495,814 2.05
Other securities 671,556 2.77
1,167,370 4.82
UTILITIES - 3.81%
Dominion Resources, Inc. 3,390,000 229,639 .95
Questar Corp. 3,000,000 152,880 .63
Other securities 539,920 2.23
922,439 3.81
HEALTH CARE - 3.76%
Sanofi-Aventis 3,350,000 266,790 1.10
Eli Lilly and Co. 3,100,000 175,925 .73
Other securities 467,043 1.93
909,758 3.76
MISCELLANEOUS - 4.30%
Other common stocks in initial period of acquisition 1,041,913 4.30
TOTAL COMMON STOCKS (cost: $17,291,539,000) 22,403,000 92.51
Market Percent
value of net
RIGHTS & WARRANTS - 0.00% (000) assets
TOTAL RIGHTS & WARRANTS (cost: $572,000) 614 .00
Market Percent
value of net
CONVERTIBLE SECURITIES - 1.29% (000) assets
TOTAL CONVERTIBLE SECURITIES (cost: $283,272,000) 311,926 1.29
Principal Market Percent
amount value of net
BONDS & NOTES - 0.72% (000) (000) assets
CONSUMER DISCRETIONARY - 0.11%
Time Warner Inc. 10.15% 2012 $6,000 $7,882 .03%
Other securities 19,525 .08
27,407 .11
OTHER - 0.61% 146,974 .61
TOTAL BONDS & NOTES (cost: $168,604,000) 174,381 .72
Principal Market Percent
amount value of net
SHORT-TERM SECURITIES - 5.48% (000) (000) assets
Eli Lilly and Co. 2.03%-2.26% due 1/12-2/1/2005 (2) 75,000 74,915 .31
SBC Communications Inc. 2.26%-2.35% due 2/2-2/23/2005 (2) 59,800 59,630 .24
General Electric Capital Corp. 2.20%-2.27% due 1/3-1/18/2005 48,800 48,761 .20
Other securities 1,144,822 4.73
TOTAL SHORT-TERM SECURITIES (cost: $1,328,142,000) 1,328,128 5.48
TOTAL INVESTMENT SECURITIES (cost: $19,072,129,000) 24,218,049 100.00
OTHER ASSETS LESS LIABILITIES (627) (0.00)
NET ASSETS $24,217,422 100.00%
"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 required to be disclosed
in the summary investment portfolio.
INVESTMENTS IN AFFILIATES
A company is considered to be an affiliate of the fund under the Investment
Company Act of 1940 if the fund's holdings in that company represent 5% or more
of the outstanding voting shares of that company. The market value of the fund's
holdings in affiliated companies is included in "Other securities" under their
respective industry sectors in the preceding summary investment portfolio.
Further details on these holdings and related transactions during the year ended
December 31, 2004 appear below.
Dividend Market
Company Beginning Purchases Sales Ending income value
shares shares (000) (000)
Temple-Inland (3) 2,750,000 - - 2,750,000 $6,710 $0
(1) Security did not produce income during the last 12 months.
(2) Purchased in a private placement transaction; resale may be limited to
qualified institutional buyers; resale to the public may require
registration. The total value of all such restricted securities,
including those included in "Other securities" in the summary investment
portfolio, was $1,121,236,000, which represented 4.63% of the net assets
of the fund.
(3) Unaffiliated issuer at 12/31/2004.
ADR = American Depositary Receipts
See Notes to Financial Statements
FINANCIAL STATEMENTS
Statement of assets and liabilities
at December 31, 2004 (dollars and shares in thousands,
except per-share amounts)
ASSETS:
Investment securities at market (cost: $19,072,129) $24,218,049
Cash 460
Receivables for:
Sales of investments $48,667
Sales of fund's shares 29,480
Dividends and interest 47,109 125,256
24,343,765
LIABILITIES:
Payables for:
Purchases of investments 79,450
Repurchases of fund's shares 32,772
Investment advisory services 5,131
Services provided by affiliates 7,529
Deferred Directors' compensation 1,226
Other fees and expenses 235 126,343
NET ASSETS AT DECEMBER 31, 2004 $24,217,422
NET ASSETS CONSIST OF:
Capital paid in on shares of capital stock $19,789,301
Undistributed net investment income 100,738
Accumulated net realized loss (818,610)
Net unrealized appreciation 5,145,993
NET ASSETS AT DECEMBER 31, 2004 $24,217,422
Total authorized capital stock - 1,000,000 shares, $1.00 par value (750,997
total shares outstanding)
Net asset value
Net assets Shares outstanding per share (1)
Class A $21,542,689 667,940 $32.25
Class B 971,026 30,162 32.19
Class C 566,009 17,596 32.17
Class F 463,116 14,365 32.24
Class 529-A 145,912 4,526 32.24
Class 529-B 29,304 909 32.23
Class 529-C 45,237 1,404 32.23
Class 529-E 7,400 230 32.23
Class 529-F 2,392 74 32.22
Class R-1 6,129 190 32.18
Class R-2 93,312 2,901 32.17
Class R-3 124,433 3,863 32.21
Class R-4 79,969 2,482 32.22
Class R-5 140,494 4,355 32.26
(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 $34.22 and
$34.21, respectively.
See Notes to Financial Statements
STATEMENT OF OPERATIONS
for the year ended December 31, 2004 (dollars in thousands)
INVESTMENT INCOME:
Income:
Dividends (net of non-U.S. withholding tax of $11,199; $519,509
also includes $6,710 from affiliate)
Interest (net of non-U.S. withholding tax of $5) 69,422 $588,931
Fees and expenses:
Investment advisory services 59,209
Distribution services 64,204
Transfer agent services 19,796
Administrative services 2,925
Reports to shareholders 802
Registration statement and prospectus 462
Postage, stationery and supplies 1,952
Directors' compensation 392
Auditing and legal 142
Custodian 1,343
State and local taxes 1
Other 108
Total expenses before reimbursement/waiver 151,336
Reimbursement/waiver of expenses 1,233 150,103
Net investment income 438,828
NET REALIZED GAIN AND UNREALIZED APPRECIATION
ON INVESTMENTS AND NON-U.S. CURRENCY:
Net realized gain (loss) on:
Investments 613,354
Non-U.S. currency transactions (1,789) 611,565
Net unrealized appreciation (depreciation) on:
Investments 1,889,711
Non-U.S. currency translations (217) 1,889,494
Net realized gain and unrealized appreciation
on investments and non-U.S. currency 2,501,059
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $2,939,887
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands)
Year ended December 31
2004 2003
OPERATIONS:
Net investment income $438,828 $358,360
Net realized gain (loss) on investments and
non-U.S. currency transactions 611,565 (603,496)
Net unrealized appreciation
on investments and non-U.S. currency translations 1,889,494 5,356,683
Net increase in net assets
resulting from operations 2,939,887 5,111,547
DIVIDENDS PAID TO SHAREHOLDERS FROM NET INVESTMENT
INCOME AND CURRENCY GAINS (404,177) (283,809)
CAPITAL SHARE TRANSACTIONS 497,675 (69,713)
TOTAL INCREASE IN NET ASSETS 3,033,385 4,758,025
NET ASSETS:
Beginning of year 21,184,037 16,426,012
End of year (including undistributed
net investment income: $100,738 and $65,000, respectively) $24,217,422 $21,184,037
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Fundamental Investors, Inc. (the "fund") is registered under the
Investment Company Act of 1940 as an open-end, diversified management investment
company. The fund seeks long-term growth of capital and income primarily through
investments in common stocks.
The fund offers 14 share classes consisting of four retail share classes, five
CollegeAmerica(R) 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 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 purchased with greater than 60 days to
maturity with 60 days or less remaining to maturity is determined
based on the market value on the 61st day. 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 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.
CollegeAmerica is a registered trademark of the Virginia College
Savings Plan./SM/
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 certain securities within 30 days of purchase;
unrealized appreciation of certain investments in non-U.S. securities; 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
December 31, 2004, the cost of investment securities for federal income tax
purposes was $19,084,083,000.
During the year ended December 31, 2004, the fund reclassified $64,000 from
undistributed net investment income to additional paid-in capital and $1,151,000
from undistributed net realized gains to undistributed net investment income to
align financial reporting with tax reporting.
As of December 31, 2004, the components of distributable earnings on a tax basis
were as follows (dollars in thousands):
Undistributed net investment income and currency gains $102,750
Short-term capital loss deferrals (807,441)
Gross unrealized appreciation on investment securities 5,908,019
Gross unrealized depreciation on investment securities (774,053)
Net unrealized appreciation on investment securities 5,133,966
Undistributed net investment income and currency gains above include currency
losses of $93,000 that were realized during the period November 1, 2003 through
December 31, 2003. Short-term capital loss deferrals above include capital loss
carryforwards of $66,479,000 and $606,687,000 expiring in 2010 and 2011,
respectively. These numbers reflect the utilization of a capital loss
carryforward of $594,776,000. The remaining capital loss carryforwards will be
used to offset any capital gains realized by the fund in future years through
the expiration dates. The fund will not make distributions from capital gains
while capital loss carryforwards remain.
Ordinary income distributions paid to shareholders from net investment income
and currency gains were as follows (dollars in thousands):
Year ended December 31
Share class 2004 2003
Class A $ 372,550 $ 267,613
Class B 9,991 6,070
Class C 5,262 2,626
Class F 7,307 3,841
Class 529-A 2,122 962
Class 529-B 234 89
Class 529-C 363 127
Class 529-E 89 35
Class 529-F 30 8
Class R-1 51 7
Class R-2 831 213
Class R-3 1,486 477
Class R-4 1,232 415
Class R-5 2,629 1,326
Total $ 404,177 $ 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. During the year ended December 31, 2004, CRMC reduced investment
advisory services fees by $1,020,000. As a result, the fee shown on the
accompanying financial statements of $59,209,000, which was equivalent to an
annualized rate of 0.270%, was reduced to $58,189,000, or 0.265% 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 below. 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
December 31, 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 year ended December
31, 2004, CRMC agreed to pay a portion of these fees for classes R-1
and R-2. For the year ended December 31, 2004, the total fees paid by
CRMC were $2,000 and $211,000 for Class R-1 and Class 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 in the accompanying financial statements, the Commonwealth of
Virginia is not considered a related party.
Expenses under the agreements described above for the year ended
December 31, 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 $47,779 $18,904 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class B 8,743 892 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class C 4,719 Included $708 $120 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class F 971 Included 582 52 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-A 191 Included 169 17 $ 112
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-B 231 Included 35 11 23
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-C 350 Included 53 13 35
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-E 28 Included 8 1 6
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-F 4 Included 2 -* 2
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-1 43 Included 6 4 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-2 518 Included 104 395 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-3 460 Included 138 103 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-4 167 Included 100 2 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-5 Not applicable Included 121 3 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Total $64,204 $19,796 $2,026 $721 $178
--------------------------------------------------------------------------------------------------------------
* 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 $392,000, shown on the accompanying
financial statements, includes $203,000 in current fees (either paid in cash or
deferred) and a net increase of $189,000 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
Year ended December 31, 2004
Class A $ 2,128,875 71,901 $ 351,340 11,834
Class B 110,433 3,739 9,629 320
Class C 147,896 5,005 5,035 167
Class F 187,702 6,362 6,418 216
Class 529-A 46,582 1,571 2,122 71
Class 529-B 8,121 274 234 8
Class 529-C 15,730 531 363 12
Class 529-E 2,339 79 89 3
Class 529-F 1,251 42 31 1
Class R-1 4,263 146 51 1
Class R-2 52,680 1,793 831 28
Class R-3 68,710 2,325 1,481 49
Class R-4 44,674 1,514 1,233 42
Class R-5 27,580 928 2,298 78
Total net increase
(decrease) $ 2,846,836 96,210 $ 381,155 12,830
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
Year ended December 31, 2004
Class A $ (2,413,347) (81,685) $ 66,868 2,050
Class B (86,500) (2,936) 33,562 1,123
Class C (57,179) (1,947) 95,752 3,225
Class F (88,450) (2,984) 105,670 3,594
Class 529-A (5,035) (170) 43,669 1,472
Class 529-B (586) (20) 7,769 262
Class 529-C (2,040) (68) 14,053 475
Class 529-E (190) (6) 2,238 76
Class 529-F (222) (8) 1,060 35
Class R-1 (915) (31) 3,399 116
Class R-2 (14,324) (486) 39,187 1,335
Class R-3 (23,310) (791) 46,881 1,583
Class R-4 (22,061) (723) 23,846 833
Class R-5 (16,157) (550) 13,721 456
Total net increase
(decrease) $ (2,730,316) (92,405) $ 497,675 16,635
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. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding short-term
securities, of $6,226,467,000 and $6,216,912,000, respectively, during the year
ended December 31, 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
year ended December 31, 2004, the custodian fee of $1,343,000, shown on the
accompanying financial statements, included $9,000 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:
Year ended 12/31/2004 $28.85 $.61 $3.35 $3.96
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
Class B:
Year ended 12/31/2004 28.80 .38 3.35 3.73
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:
Year ended 12/31/2004 28.78 .37 3.34 3.71
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:
Year ended 12/31/2004 28.84 .59 3.35 3.94
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:
Year ended 12/31/2004 28.84 .59 3.34 3.93
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:
Year ended 12/31/2004 28.83 .33 3.35 3.68
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:
Year ended 12/31/2004 28.83 .34 3.34 3.68
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:
Year ended 12/31/2004 28.83 .49 3.35 3.84
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:
Year ended 12/31/2004 28.82 .58 3.33 3.91
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:
Year ended 12/31/2004 $28.79 $.37 $3.33 $3.70
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:
Year ended 12/31/2004 28.77 .38 3.34 3.72
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:
Year ended 12/31/2004 28.82 .50 3.33 3.83
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:
Year ended 12/31/2004 28.83 .60 3.33 3.93
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:
Year ended 12/31/2004 28.86 .68 3.35 4.03
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:
Year ended 12/31/2004 $(.56) $ - $(.56) $32.25
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
Class B:
Year ended 12/31/2004 (.34) - (.34) 32.19
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:
Year ended 12/31/2004 (.32) - (.32) 32.17
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:
Year ended 12/31/2004 (.54) - (.54) 32.24
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:
Year ended 12/31/2004 (.53) - (.53) 32.24
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:
Year ended 12/31/2004 (.28) - (.28) 32.23
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:
Year ended 12/31/2004 (.28) - (.28) 32.23
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:
Year ended 12/31/2004 (.44) - (.44) 32.23
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:
Year ended 12/31/2004 (.51) - (.51) 32.22
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:
Year ended 12/31/2004 $(.31) $ - $(.31) $32.18
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:
Year ended 12/31/2004 (.32) - (.32) 32.17
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:
Year ended 12/31/2004 (.44) - (.44) 32.21
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:
Year ended 12/31/2004 (.54) - (.54) 32.22
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:
Year ended 12/31/2004 (.63) - (.63) 32.26
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
to average net to average net Ratio of
Net assets, assets before assets after net income
Total end of period reimbursement/ reimbursement/ to average
return (3) (in millions) waiver waiver (4) net assets
Class A:
Year ended 12/31/2004 13.91% $21,543 .63% .63% 2.05%
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
Class B:
Year ended 12/31/2004 13.03 971 1.40 1.39 1.29
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 (5) 1.39 (5) .53 (5)
Class C:
Year ended 12/31/2004 12.96 566 1.47 1.46 1.24
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 (5) 1.55 (5) .49 (5)
Class F:
Year ended 12/31/2004 13.84 463 .70 .70 2.02
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 (5) .74 (5) 1.31 (5)
Class 529-A:
Year ended 12/31/2004 13.77 146 .73 .72 2.00
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 (5) .76 (5) 1.64 (5)
Class 529-B:
Year ended 12/31/2004 12.83 29 1.59 1.59 1.13
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 (5) 1.62 (5) .77 (5)
Class 529-C:
Year ended 12/31/2004 12.84 45 1.58 1.58 1.14
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 (5) 1.60 (5) .79 (5)
Class 529-E:
Year ended 12/31/2004 13.40 7 1.06 1.05 1.66
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 (5) 1.07 (5) 1.35 (5)
Class 529-F:
Year ended 12/31/2004 13.73 2 .81 .80 1.95
Year ended 12/31/2003 31.72 1 .82 .82 1.81
Period from 9/23/2002 to 12/31/2002 5.65 - (6) .22 .22 .51
FINANCIAL HIGHLIGHTS (1) (continued)
Ratio of expenses Ratio of expenses
to average net to average net Ratio of
Net assets, assets before assets after net income
Total end of period reimbursement/ reimbursement/ to average
return (in millions) waiver waiver (4) net assets
Class R-1:
Year ended 12/31/2004 12.92% $6 1.53% 1.49% 1.26%
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) - (6) 4.20 (5) 1.50 (5) 1.11 (5)
Class R-2:
Year ended 12/31/2004 13.02 93 1.76 1.45 1.29
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 (5) 1.46 (5) 1.05 (5)
Class R-3:
Year ended 12/31/2004 13.41 125 1.05 1.04 1.69
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 (5) 1.08 (5) 1.41 (5)
Class R-4:
Year ended 12/31/2004 13.85 80 .69 .69 2.04
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:
Year ended 12/31/2004 14.19 141 .39 .39 2.31
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 (5) .40 (5) 1.91 (5)
Year ended December 31
2004 2003 2002 2001 2000
Portfolio turnover rate for all classes of shares 30% 31% 38% 29% 43%
(1) Based on operations for the period 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 the year ended 12/31/2004, 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) Annualized.
(6) Amount less than $1 million.
See Notes to Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Fundamental Investors, Inc.:
We have audited the accompanying statement of assets and liabilities of
Fundamental Investors, Inc. (the "Fund"), including the summary investment
portfolio, as of December 31, 2004, and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Fund's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of December 31, 2004, by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Fundamental Investors, Inc. as of December 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Los Angeles, CA
February 11, 2005
TAX INFORMATION (unaudited)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of certain distributions received by
shareholders during such fiscal year. The information below is provided for the
fund's fiscal year ending December 31, 2004.
Individual shareholders are eligible for reduced tax rates on qualified dividend
income. The fund designates 100% of the dividends paid by the fund earned during
the fiscal year as qualified dividend income.
Corporate shareholders may exclude up to 70% of qualifying dividends. The fund
designates $382,186,000 of dividends received as qualified dividend income.
For state tax purposes, certain states may exempt from income taxation that
portion of the income dividends paid by the fund that were derived from direct
U.S. government obligations. The fund designates $1,333,000 as interest derived
on direct U.S. government obligations.
INDIVIDUAL SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX
INFORMATION WHICH WAS MAILED IN JANUARY 2005 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 2004 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
EXPENSE EXAMPLE (unaudited)
As a shareholder of the fund, you incur two types of costs: (1) transaction
costs such as initial sales charges on purchase payments and contingent deferred
sales charges on redemptions (loads); and (2) ongoing costs, including
management fees; distribution and service (12b-1) fees; and other expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the fund so you can compare these costs with the ongoing costs of
investing in other mutual funds. The example is based on an investment of $1,000
invested at the beginning of the period and held for the entire period (July 1,
2004 through December 31, 2004).
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 Class 529-F shareholders may be subject to fees charged by financial
intermediaries, typically ranging from 0.50% to 3.00% 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 shareholders, 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 Class 529-F shareholders may
be subject to fees charged by financial intermediaries, typically ranging from
0.50% to 3.00% of assets annually depending on services offered. You can
estimate the impact of these fees by adding the amount of the fees to the total
estimated expenses you paid on your account during the period as calculated
above. In addition, your ending account value would also be lower by the amount
of these fees.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of each share class in the table is
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these
transactional costs were included, your costs would have been higher.
Beginning account Ending account Expenses paid Annualized
value 7/1/2004 value 12/31/2004 during period(1) expense ratio
Class A -- actual return $ 1,000.00 $1,108.14 $3.23 .61%
Class A -- assumed 5% return 1,000.00 1,022.07 3.10 .61
Class B -- actual return 1,000.00 1,103.70 7.30 1.38
Class B -- assumed 5% return 1,000.00 1,018.20 7.00 1.38
Class C -- actual return 1,000.00 1,103.78 7.67 1.45
Class C -- assumed 5% return 1,000.00 1,017.85 7.35 1.45
Class F -- actual return 1,000.00 1,107.77 3.66 .69
Class F -- assumed 5% return 1,000.00 1,021.67 3.51 .69
Class 529-A -- actual return 1,000.00 1,107.26 3.71 .70
Class 529-A -- assumed 5% return 1,000.00 1,021.62 3.56 .70
Class 529-B -- actual return 1,000.00 1,102.88 8.35 1.58
Class 529-B -- assumed 5% return 1,000.00 1,017.19 8.01 1.58
Class 529-C -- actual return 1,000.00 1,102.91 8.30 1.57
Class 529-C -- assumed 5% return 1,000.00 1,017.24 7.96 1.57
Class 529-E -- actual return 1,000.00 1,105.47 5.50 1.04
Class 529-E -- assumed 5% return 1,000.00 1,019.91 5.28 1.04
Class 529-F -- actual return 1,000.00 1,107.24 4.18 .79
Class 529-F -- assumed 5% return 1,000.00 1,021.17 4.01 .79
Class R-1 -- actual return 1,000.00 1,103.26 7.82 1.48
Class R-1 -- assumed 5% return 1,000.00 1,017.70 7.51 1.48
Class R-2 -- actual return 1,000.00 1,103.85 7.62 1.44
Class R-2 -- assumed 5% return 1,000.00 1,017.90 7.30 1.44
Class R-3 -- actual return 1,000.00 1,105.64 5.40 1.02
Class R-3 -- assumed 5% return 1,000.00 1,020.01 5.18 1.02
Class R-4 -- actual return 1,000.00 1,107.79 3.60 .68
Class R-4 -- assumed 5% return 1,000.00 1,021.72 3.46 .68
Class R-5 -- actual return 1,000.00 1,109.42 2.01 .38
Class R-5 -- assumed 5% return 1,000.00 1,023.23 1.93 .38
(1) 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 (184), and divided by 366 (to reflect the one-half year period).
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 December 31, 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 +8.03% +2.21%(1)
Not reflecting CDSC +13.03% +2.59%(1)
Class C shares
Reflecting CDSC, maximum of 1%, payable only if shares
are sold within one year of purchase +11.96% +4.18%(2)
Not reflecting CDSC +12.96% +4.18%(2)
Class F shares(3)
Not reflecting annual asset-based fee charged by sponsoring firm +13.84% +5.01%(2)
Class 529-A shares
Reflecting 5.75% maximum sales charge +7.23% +6.57%(4)
Not reflecting maximum sales charge +13.77% +8.79%(4)
Class 529-B shares
Reflecting applicable CDSC, maximum of 5%, payable
only if shares are sold within six years of purchase +7.83% +7.30%(5)
Not reflecting CDSC +12.83% +8.51%(5)
Class 529-C shares
Reflecting CDSC, maximum of 1%, payable only if shares
are sold within one year of purchase +11.84% +7.87%(4)
Not reflecting CDSC +12.84% +7.87%(4)
Class 529-E shares(3) +13.40% +6.47%(6)
Class 529-F shares(3)
Not reflecting annual asset-based fee charged by sponsoring firm +13.73% +22.40%(7)
The fund's investment adviser is waiving a portion of management fees. Results
shown reflect the waiver. Please see the Financial Highlights table on page 25
or in the fund's prospectus for details.
(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.
BOARD OF DIRECTORS
"NON-INTERESTED" DIRECTORS
YEAR FIRST
ELECTED
A DIRECTOR
NAME AND AGE OF THE FUND(1) PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
Joseph C. Berenato, 58 2003 Chairman of the Board and CEO, Ducommun Incorporated (aerospace
components manufacturer)
Robert J. Denison, 63(4) 2005 Chair, First Security Management (private investments)
Robert A. Fox, 67 1998 Managing General Partner, Fox Investments LP; former Professor,
University of California; retired President and CEO, Foster Farms
(poultry producer)
Leonade D. Jones, 57 1998 Co-founder, VentureThink LLC (developed and managed e-commerce
businesses) and Versura Inc. (education loan exchange); former
Treasurer, The Washington Post Company
John G. McDonald, 67 1998 The Stanford Investors Professor, Graduate School of Business,
Stanford University
Gail L. Neale, 70 1985 President, The Lovejoy Consulting Group, Inc. (a pro bono consulting
group advising nonprofit organizations)
Henry E. Riggs, 70 1989 President Emeritus, Keck Graduate Institute of Applied Life Sciences
Patricia K. Woolf, Ph.D., 70 1998 Private investor; corporate director; former lecturer, Department of
Molecular Biology, Princeton University
"NON-INTERESTED" DIRECTORS
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX(2)
OVERSEEN BY
NAME AND AGE DIRECTOR OTHER DIRECTORSHIPS(3) HELD BY DIRECTOR
Joseph C. Berenato, 58 4 Ducommun Incorporated
Robert J. Denison, 63(4) 4 None
Robert A. Fox, 67 7 Crompton Corporation
Leonade D. Jones, 57 6 None
John G. McDonald, 67 8 iStar Financial, Inc.; Plum Creek Timber Co.; Scholastic Corporation;
Varian, Inc.
Gail L. Neale, 70 6 None
Henry E. Riggs, 70 4 None
Patricia K. Woolf, Ph.D., 70 6 Crompton Corporation; First Energy Corporation
"INTERESTED" DIRECTORS(5)
YEAR FIRST
ELECTED A
DIRECTOR OR PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND
NAME, AGE AND OFFICER OF POSITIONS HELD WITH AFFILIATED ENTITIES OR THE PRINCIPAL
POSITION WITH FUND THE FUND(1) UNDERWRITER OF THE FUND
James F. Rothenberg, 58 1998 President and Director, Capital Research and
Chairman of the Board Management Company; Director, American Funds Distributors, Inc.;(6)
Director, The Capital Group Companies, Inc.;(6) Director, Capital
Group Research, Inc.(6)
Dina N. Perry, 59 1994 Senior Vice President, Capital Research and
President Management Company; Director, Capital Research Company(6)
"INTERESTED" DIRECTORS(5)
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX(2)
NAME, AGE AND OVERSEEN BY
POSITION WITH FUND DIRECTOR OTHER DIRECTORSHIPS(3) HELD BY DIRECTOR
James F. Rothenberg, 58 3 None
Chairman of the Board
Dina N. Perry, 59 1 None
President
THE STATEMENT OF ADDITIONAL INFORMATION INCLUDES ADDITIONAL INFORMATION ABOUT
FUND DIRECTORS AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST BY CALLING AMERICAN
FUNDS SERVICE COMPANY AT 800/421-0180. THE ADDRESS FOR ALL DIRECTORS AND
OFFICERS OF THE FUND IS 333 SOUTH HOPE STREET, LOS ANGELES, CA 90071, ATTENTION:
FUND SECRETARY.
OTHER OFFICERS(7)
YEAR FIRST
ELECTED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
NAME, AGE AND AN OFFICER AND POSITIONS HELD WITH AFFILIATED ENTITIES OR
POSITION WITH FUND OF THE FUND(1) THE PRINCIPAL UNDERWRITER OF THE FUND
Gordon Crawford, 58 1994 Senior Vice President and Director, Capital
Senior Vice President Research and Management Company
Paul G. Haaga, Jr., 56 1994 Executive Vice President and Director, Capital
Senior Vice President Research and Management Company; Director, The Capital Group
Companies, Inc.(6)
Michael T. Kerr, 45 1995 Vice President, Capital Research and Management
Senior Vice President Company; Senior Vice President, Capital Research Company(6)
Martin Romo, 37 1999 Executive Vice President and Director, Capital
Senior Vice President Research Company(6)
Ronald B. Morrow, 59 2004 Senior Vice President, Capital Research Company(6)
Vice President
Patrick F. Quan, 46 1989-1998 Vice President -- Fund Business Management
Secretary 2000 Group, Capital Research and Management Company
Sheryl F. Johnson, 36 1998 Vice President -- Fund Business Management
Treasurer Group, Capital Research and Management Company
David A. Pritchett, 38 1999 Vice President -- Fund Business Management
Assistant Treasurer Group, Capital Research and Management Company
(1) Directors and officers of the fund serve until their resignation, removal
or retirement.
(2) Capital Research and Management Company manages the American Funds,
consisting of 29 funds. Capital Research and Management Company also
manages American Funds Insurance Series,(R) which serves as the underlying
investment vehicle for certain variable insurance contracts, and Endowments,
whose shareholders are limited to certain nonprofit organizations.
(3) This includes all directorships (other than those in the American Funds)
that are held by each Director as a director of a public company or a
registered investment company.
(4) Elected effective February 17, 2005.
(5) "Interested persons" within the meaning of the 1940 Act, on the basis of
their affiliation with the fund's investment adviser, Capital Research and
Management Company, or affiliated entities (including the fund's principal
underwriter).
(6) Company affiliated with Capital Research and Management Company.
(7) All of the officers listed, except Martin Romo and Ronald B. Morrow, are
officers and/or Directors/Trustees of one or more of the other funds for
which Capital Research and Management Company serves as investment adviser.
OFFICE OF THE FUND
One Market
Steuart Tower, Suite 1800
Mailing address: P.O. Box 7650
San Francisco, CA 94120-7650
INVESTMENT ADVISER
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071-1406
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 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. Annual 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 annual 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 annual expenses (by 0.07
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 AND THE COLLEGEAMERICA PROGRAM
DESCRIPTION, 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 WWW.SEC.GOV, ON THE AMERICAN
FUNDS WEBSITE OR UPON REQUEST BY CALLING AFS. THE FUND'S PROXY VOTING RECORD FOR
THE 12 MONTHS ENDED JUNE 30, 2004, IS ALSO AVAILABLE ON THE SEC AND AMERICAN
FUNDS WEBSITES.
A complete portfolio of Fundamental Investors' investments is available free of
charge on the SEC website or upon request by calling AFS.
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. Forms N-Q
are available free of charge on the SEC website or upon request by calling AFS.
You may also review or, for a fee, copy the forms at the SEC's Public Reference
Room in Washington, D.C. (800/SEC-0330).
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
March 31, 2005, 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 30 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. More than half 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
Emphasis on long-term growth through stocks
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
Emphasis on long-term growth and dividends through stocks
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
Emphasis on above-average income and growth through stocks and/or bonds
Capital Income Builder(R)
The Income Fund of America(R)
o BALANCED FUND
Emphasis on long-term growth and current income through stocks and bonds
American Balanced Fund(R)
o BOND FUNDS
Emphasis on current income through bonds
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
Emphasis on tax-free current income through municipal bonds
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. MFGEAR-910-0205P
Litho in USA KBDA/GRS/8056-S1908
Printed on recycled paper
ITEM 2 - Code of Ethics
The Registrant has adopted a Code of Ethics that applies to its Principal
Executive Officer and Principal Financial Officer. The Registrant undertakes to
provide to any person without charge, upon request, a copy of the Code of
Ethics. Such request can be made to American Funds Service Company at
800/421-0180 or to the Secretary of the Registrant, P.O. Box 7650, San
Francisco, California 94120.
ITEM 3 - Audit Committee Financial Expert
The Registrant's Board has determined that Leonade D. Jones, a member of the
Registrant's Audit Committee, is an "audit committee financial expert" and
"independent," as such terms are defined in this Item. This designation will not
increase the designee's duties, obligations or liability as compared to his
duties, obligations and liability as a member of the Audit Committee and of the
Board; nor will it reduce the responsibility of the other Audit Committee
members. There may be other individuals who, through education or experience,
would qualify as "audit committee financial experts" if the Board had designated
them as such. Most importantly, the Board believes each member of the Audit
Committee contributes significantly to the effective oversight of the
Registrant's financial statements and condition.
ITEM 4 - Principal Accountant Fees and Services
Registrant:
a) Audit Fees:
2003 $57,000
2004 $57,000
b) Audit- Related Fees:
2003 none
2004 $8,000
The audit-related fees consist of assurance
and related services relating to the
examination of the Registrant's investment
adviser conducted in accordance with
Statement on Auditing Standards Number 70
issued by the American Institute of
Certified Public Accountants.
c) Tax Fees:
2003 $5,000
2004 $6,000
The tax fees consist of professional
services relating to the preparation of the
Registrant's tax returns.
d) All Other Fees:
2003 none
2004 none
Adviser and affiliates (includes only fees for non-audit
services billed to the adviser and affiliates for engagements
that relate directly to the operations and financial reporting
of the Registrant and were subject to the pre-approval
policies described below):
a) Not Applicable
b) Audit- Related Fees:
2003 $305,000
2004 $323,000
The audit-related fees consist of assurance
and related services relating to the
examination of the Registrant's transfer
agency and investment adviser conducted in
accordance with Statement on Auditing
Standards Number 70 issued by the American
Institute of Certified Public Accountants.
c) Tax Fees:
2003 none
2004 none
d) All Other Fees:
2003 none
2004 none
The Registrant's Audit Committee will pre-approve all audit and permissible
non-audit services that the Committee considers compatible with maintaining the
auditors' independence. The pre-approval requirement will extend to all
non-audit services provided to the Registrant, the investment adviser, and any
entity controlling, controlled by, or under common control with the investment
adviser that provides ongoing services to the Registrant, if the engagement
relates directly to the operations and financial reporting of the registrant.
The Committee will not delegate its responsibility to pre-approve these services
to the investment adviser. The Committee may delegate to one or more Committee
members the authority to review and pre-approve audit and permissible non-audit
services. Actions taken under any such delegation will be reported to the full
Committee at its next meeting. The pre-approval requirement is waived with
respect to non-audit services if certain conditions are met. The pre-approval
requirement was not waived for any of the services listed above under paragraphs
b, c and d.
Aggregate non-audit fees paid to the Registrant's auditors, including fees for
all services billed to the Registrant and the adviser and affiliates that
provide ongoing services to the Registrant were $315,000 for fiscal year 2003
and $1,126,000 for fiscal year 2004. The non-audit services represented by these
amounts were brought to the attention of the Committee and considered to be
compatible with maintaining the auditors' independence.
ITEM 5 - Audit Committee of Listed Registrants
Not applicable.
ITEM 6 - Schedule of Investments
[logo - American Funds (r)]
FUNDAMENTAL INVESTORS
Investment portfolio
December 31, 2004
Market value
COMMON STOCKS -- 92.51% Shares (000)
ENERGY -- 13.08%
Suncor Energy Inc. 18,490,501 $ 653,331
Royal Dutch Petroleum Co. (New York registered) 8,425,000 483,427
Exxon Mobil Corp. 5,000,000 256,300
Norsk Hydro ASA 2,168,000 170,127
Norsk Hydro ASA (ADR) 700,000 55,104
Shell Canada Ltd. 3,273,200 218,186
LUKoil Holding (ADR) 1,750,000 214,375
Halliburton Co. 4,600,000 180,504
Baker Hughes Inc. 3,800,000 162,146
Murphy Oil Corp. 1,970,000 158,487
ConocoPhillips 1,650,000 143,269
ChevronTexaco Corp. 2,000,000 105,020
Unocal Corp. 2,164,332 93,586
Burlington Resources Inc. 2,000,000 87,000
Imperial Oil Ltd. 1,189,266 70,642
Occidental Petroleum Corp. 1,000,000 58,360
Marathon Oil Corp. 1,525,000 57,355
3,167,219
INDUSTRIALS -- 12.38%
Deere & Co. 5,500,000 409,200
Caterpillar Inc. 3,600,000 351,036
General Electric Co. 9,500,000 346,750
Northrop Grumman Corp. 4,316,333 234,636
Parker Hannifin Corp. 2,800,000 212,072
General Dynamics Corp. 1,772,900 185,445
Tyco International Ltd. 5,125,000 183,168
Raytheon Co. 4,461,372 173,235
Emerson Electric Co. 2,200,000 154,220
Union Pacific Corp. 2,200,000 147,950
3M Co. 1,600,000 131,312
Boeing Co. 2,400,000 124,248
United Technologies Corp. 750,000 77,513
Burlington Northern Santa Fe Corp. 1,500,000 70,965
Avery Dennison Corp. 950,000 56,971
Illinois Tool Works Inc. 357,200 33,105
Continental Airlines, Inc., Class B(1) 2,300,000 31,142
Southwest Airlines Co. 1,500,000 24,420
Allied Waste Industries, Inc.(1) 2,500,000 23,200
Bombardier Inc., Class B 7,500,000 14,875
Lockheed Martin Corp. 248,200 13,788
2,999,251
MATERIALS -- 12.09%
Dow Chemical Co. 9,752,700 482,856
Alcoa Inc. 7,973,800 250,537
International Paper Co. 5,500,000 231,000
BHP Billiton Ltd. 17,995,030 215,535
Phelps Dodge Corp. 2,000,000 197,840
Weyerhaeuser Co. 2,883,000 193,795
E.I. du Pont de Nemours and Co. 3,850,000 188,842
Temple-Inland Inc. 2,750,000 188,100
Rio Tinto PLC 6,000,000 176,261
CONSOL Energy Inc.(2) 3,700,000 151,885
Potash Corp. of Saskatchewan Inc. 1,638,400 136,086
Freeport-McMoRan Copper & Gold Inc., Class B 3,500,000 133,805
Noranda Inc. 5,174,100 90,805
Massey Energy Co. 2,011,700 70,309
Inco Ltd.(1) 1,632,300 60,036
Lyondell Chemical Co.(1) 1,450,000 41,934
Oji Paper Co., Ltd. 6,500,000 37,201
Georgia-Pacific Corp., Georgia-Pacific Group 698,640 26,185
CRH PLC 900,000 24,014
Air Products and Chemicals, Inc. 300,000 17,391
BlueScope Steel Ltd. 2,113,020 13,611
2,928,028
FINANCIALS -- 11.66%
Fannie Mae 5,117,800 364,439
Allied Irish Banks, PLC 12,724,382 264,540
Washington Mutual, Inc. 5,200,000 219,856
Bank of America Corp. 4,096,800 192,509
Bank of Ireland 10,165,000 168,652
Freddie Mac 2,025,000 149,243
AMP Ltd. 25,000,000 141,715
XL Capital Ltd., Class A 1,825,000 141,711
Irish Life & Permanent PLC 7,000,000 130,835
Willis Group Holdings Ltd. 3,150,000 129,686
Equity Residential 3,000,000 108,540
Cullen/Frost Bankers, Inc. 2,000,000 97,200
American International Group, Inc. 1,000,000 65,670
U.S. Bancorp 2,000,000 62,640
J.P. Morgan Chase & Co. 1,550,000 60,465
Independence Community Bank Corp. 1,366,000 58,164
National Bank of Canada 1,405,000 58,026
Wells Fargo & Co. 870,000 54,070
Allstate Corp. 1,000,000 51,720
St. George Bank Ltd. 2,450,279 48,308
KBC Bank and Insurance Holding Company NV 620,000 47,445
Aon Corp. 1,767,400 42,170
Banco Popolare di Verona e Novara Scr(l) 2,000,000 40,524
Bank Austria Creditanstalt 343,000 30,893
Citigroup Inc. 600,000 28,908
Genworth Financial, Inc., Class A 1,000,000 27,000
Chubb Corp. 300,000 23,070
MI Developments Inc., Class A 500,000 15,085
2,823,084
CONSUMER DISCRETIONARY -- 9.65%
Time Warner Inc.(1) 20,425,000 $ 397,062
News Corp. Inc. 17,220,000 321,325
Lowe's Companies, Inc. 5,524,900 318,179
Target Corp. 4,890,000 253,938
Limited Brands, Inc. 10,815,980 248,984
Comcast Corp., Class A(1) 3,600,000 119,808
Comcast Corp., Class A, special nonvoting stock(1) 500,000 16,420
Toyota Motor Corp. 3,000,000 121,764
May Department Stores Co. 3,000,000 88,200
Walt Disney Co. 3,000,000 83,400
Magna International Inc., Class A 1,000,000 82,550
General Motors Corp. 1,800,000 72,108
Best Buy Co., Inc. 1,100,000 65,362
Dana Corp. 2,215,300 38,391
Starbucks Corp.(1) 545,000 33,986
Fairmont Hotels & Resorts Inc. 750,000 25,980
Mattel, Inc. 750,000 14,617
IAC/InterActiveCorp(1) 456,000 12,595
Liberty Media Corp., Class A(1) 915,000 10,047
Dow Jones & Co., Inc. 210,857 9,080
Liberty Media International, Inc., Class A(1) 55,113 2,548
Antena 3 Television, SA(1) 9,979 718
2,337,062
INFORMATION TECHNOLOGY -- 9.54%
Microsoft Corp. 19,625,000 524,184
Texas Instruments Inc. 11,963,024 294,530
Automatic Data Processing, Inc. 4,400,000 195,140
International Business Machines Corp. 1,900,000 187,302
Hitachi, Ltd. 20,000,000 138,213
Sun Microsystems, Inc.(1) 24,000,000 129,120
Intersil Corp., Class A 7,475,000 125,131
Motorola, Inc. 7,156,080 123,085
Agilent Technologies, Inc.(1) 4,000,000 96,400
Alcatel Alsthom1 4,150,000 64,358
Hewlett-Packard Co. 3,000,000 62,910
Sabre Holdings Corp., Class A 2,645,304 58,620
Maxim Integrated Products, Inc. 1,250,000 52,987
ASML Holding NV(1) 2,500,000 39,989
Electronic Data Systems Corp. 1,700,000 39,270
Linear Technology Corp. 1,000,000 38,760
Advanced Micro Devices, Inc.(1) 1,500,000 33,030
Solectron Corp.(1) 5,029,040 26,805
Ceridian Corp.(1) 1,400,000 25,592
Cisco Systems, Inc.(1) 1,000,000 19,300
Corning Inc.(1) 1,520,000 17,890
Murata Manufacturing Co., Ltd. 300,000 16,731
2,309,347
TELECOMMUNICATION SERVICES -- 7.42%
SBC Communications Inc. 17,250,000 444,532
Telefonica, SA (ADR) 2,750,000 155,375
Telefonica, SA 2,950,000 55,377
Verizon Communications Inc. 4,815,000 195,056
France Telecom, SA 5,800,000 191,361
China Telecom Corp. Ltd., Class H 400,000,000 146,667
Vodafone Group PLC (ADR) 4,325,000 118,418
Vodafone Group PLC 5,850,000 15,835
Sprint Corp. - FON Group 5,400,000 134,190
Telecom Italia SpA, nonvoting 34,200,000 110,567
KDDI Corp. 20,000 107,456
BellSouth Corp. 2,000,000 55,580
Deutsche Telekom AG(1) 2,300,000 51,867
AT&T Corp. 800,000 15,248
1,797,529
CONSUMER STAPLES -- 4.82%
Altria Group, Inc. 8,114,800 495,814
Procter & Gamble Co. 1,800,000 99,144
Anheuser-Busch Companies, Inc. 1,900,000 96,387
PepsiCo, Inc. 1,800,000 93,960
Walgreen Co. 2,400,000 92,088
ConAgra Foods, Inc. 3,100,000 91,295
General Mills, Inc. 1,404,200 69,803
Coca-Cola Co. 1,300,000 54,119
Avon Products, Inc. 1,340,000 51,858
SYSCO Corp. 600,000 22,902
1,167,370
UTILITIES -- 3.81%
Dominion Resources, Inc. 3,390,000 229,639
Questar Corp. 3,000,000 152,880
Duke Energy Corp. 4,775,000 120,951
DTE Energy Co. 1,606,900 69,305
American Electric Power Co., Inc. 1,902,100 65,318
KeySpan Corp. 1,584,000 62,489
Public Service Enterprise Group Inc. 1,000,000 51,770
Pinnacle West Capital Corp. 1,000,000 44,410
FPL Group, Inc. 525,000 39,244
E.ON AG 300,000 27,248
Tokyo Gas Co., Ltd. 6,025,000 24,630
FirstEnergy Corp. 618,000 24,417
Entergy Corp. 150,000 10,138
922,439
HEALTH CARE -- 3.76%
Sanofi-Aventis 3,350,000 266,790
Eli Lilly and Co. 3,100,000 175,925
Bristol-Myers Squibb Co. 4,350,000 111,447
Schering-Plough Corp. 4,200,000 87,696
CIGNA Corp. 725,000 59,138
AstraZeneca PLC (Sweden) 836,800 30,363
AstraZeneca PLC (United Kingdom) 470,300 17,024
AstraZeneca PLC (ADR) 190,600 6,936
Aetna Inc. 430,000 53,642
Abbott Laboratories 800,000 37,320
Amgen Inc.(1) 500,000 32,075
Forest Laboratories, Inc.(1) 700,000 31,402
909,758
MISCELLANEOUS -- 4.30%
Other common stocks in initial period of acquisition $ 1,041,913
TOTAL COMMON STOCKS (cost: $17,291,539,000) 22,403,000
RIGHTS & WARRANTS -- 0.00%
INFORMATION TECHNOLOGY -- 0.00%
Lucent Technologies Inc., warrants, expire 20071 388,614 614
TOTAL RIGHTS & WARRANTS (cost: $572,000) 614
Shares or principal
CONVERTIBLE SECURITIES -- 1.29% amount
INFORMATION TECHNOLOGY -- 0.62%
Sanmina Corp. 0% convertible subordinated debentures 2020 $166,000,000 87,565
Advanced Micro Devices, Inc. 4.75% convertible debentures 2022(3) 24,050,000 27,748
Agilent Technologies, Inc. 3.00% convertible debentures 2021(2),(3) 10,370,000 10,513
Agilent Technologies, Inc. 3.00% convertible debentures 2021(3) 15,074,000 15,281
ASML Holding NV 5.50% convertible notes 2010 *6,000,000 9,976
151,083
FINANCIALS -- 0.47%
Genworth Financial, Inc. 6.00% convertible preferred 2007 2,400,000 units 77,784
Chubb Corp. 7.00% convertible preferred 2005 1,200,000 units 35,508
113,292
MATERIALS -- 0.13%
Freeport-McMoRan Copper & Gold Inc. 5.50% convertible preferred(2) 31,000 30,341
ENERGY -- 0.05%
Unocal Capital Trust 6.25% convertible preferred 2026 225,000 11,560
CONSUMER DISCRETIONARY -- 0.02%
Interpublic Group of Companies, Inc., Series A, 5.375% convertible preferred
2006 115,300 5,650
TOTAL CONVERTIBLE SECURITIES (cost: $283,272,000) 311,926
Principal amount Market value
BONDS & NOTES -- 0.72% (000) (000)
INDUSTRIALS -- 0.61%
Northwest Airlines, Inc. 7.625% 2005 $19,980 $ 20,105
Northwest Airlines, Inc. 8.875% 2006 50,670 48,897
Northwest Airlines, Inc. 9.875% 2007 15,335 13,916
Northwest Airlines, Inc. 7.875% 2008 16,566 13,584
Continental Airlines, Inc. 8.00% 2005 28,600 28,028
Southwest Airlines Co. 5.25% 2014 15,000 15,084
Delta Air Lines, Inc., Series 1993-A2, 10.50% 2016(4) 11,500 7,360
146,974
CONSUMER DISCRETIONARY -- 0.11%
Charter Communications, Inc. 8.25% 2007 20,000 19,525
Time Warner Inc. 10.15% 2012 6,000 7,882
27,407
TOTAL BONDS & NOTES (cost: $168,604,000) 174,381
SHORT-TERM SECURITIES -- 5.48%
CAFCO, LLC 2.08%-2.35% due 1/12-2/23/2005(2) 71,000 70,870
Citicorp 2.05% due 1/5/2005 30,000 29,991
Ciesco LLC 2.03% due 1/07/2005(2) 23,100 23,091
Preferred Receivables Funding Corp. 2.30% due 1/20/2005(2) 40,000 39,949
J.P. Morgan Chase & Co. 2.12% due 1/24/2005 30,000 29,955
Park Avenue Receivables Co., LLC 2.28% due 1/12/2005(2) 18,200 18,186
Procter & Gamble Co. 2.01%-2.15% due 1/10-2/4/2005(2) 80,000 79,855
Freddie Mac 2.04%-2.32% due 1/11-2/23/2005 75,800 75,645
Eli Lilly and Co. 2.03%-2.26% due 1/12-2/1/2005(2) 75,000 74,915
Three Pillars Funding, LLC 2.24%-2.34% due 1/7-1/14/2005(2) 68,300 68,243
Pfizer Inc 2.12%-2.31% due 2/2-2/8/2005(2) 62,600 62,459
Triple-A One Funding Corp. 2.33%-2.34% due 1/14-1/19/2005(2) 60,702 60,642
SBC Communications Inc. 2.26%-2.35% due 2/2-2/23/2005(2) 59,800 59,630
Federal Farm Credit Banks 2.18%-2.36% due 1/14-3/23/2005 59,100 58,929
Gannett Co. 2.05%-2.06% due 1/12-1/13/2005(2) 56,200 56,159
BellSouth Corp. 2.16%-2.28% due 1/18-1/25/2005(2) 52,400 52,333
Wal-Mart Stores Inc. 2.20% due 1/19/2005(2) 50,000 49,942
Federal Home Loan Bank 2.195%-2.21% due 1/28-2/4/2005 49,664 49,565
General Electric Capital Services, Inc. 2.27% due 1/18/2005 32,000 31,964
General Electric Capital Corp. 2.20% due 1/3/2005 16,800 16,797
Abbott Laboratories Inc. 2.07%-2.25% due 1/11-1/25/2005(2) 47,400 47,339
Coca-Cola Co. 2.09%-2.21% due 1/10-2/11/2005 44,600 44,500
FCAR Owner Trust I 2.17% due 1/26/2005 31,000 30,950
Variable Funding Capital Corp. 2.32% due 1/6-1/7/2005(2) 29,800 29,788
Anheuser-Busch Cos. Inc. 2.24% due 1/7/2005(2) 25,300 25,289
PepsiCo Inc. 2.20% due 1/10/2005(2) 25,100 25,085
Ranger Funding Co. LLC 2.27% due 1/6/2005(2) 25,000 24,991
IBM Credit Corp. 2.21% due 1/26/2005 23,100 23,063
Clipper Receivables Co., LLC 2.33% due 2/23/2005(2) 21,900 21,820
Hershey Foods Corp. 2.27% due 2/11/2005(2) 18,000 17,952
NetJets Inc. 2.15% due 1/27/2005(2) 10,000 9,983
Harley-Davidson Funding Corp. 2.20% due 2/7/20052 10,000 9,976
Tenessee Valley Authority 2.32% due 3/17/2005 6,000 5,973
Harvard University 2.10% due 1/3/2005 2,000 2,000
U.S. Treasury Bills 2.1225% due 3/17/2005 300 299
TOTAL SHORT-TERM SECURITIES (cost: $1,328,142,000) 1,328,128
TOTAL INVESTMENT SECURITIES (cost: $19,072,129,000) 24,218,049
Other assets less liabilities (627)
NET ASSETS $24,217,422
"Miscellaneous" securities include holdings in their initial period of
acquisition that have not previously been publicly disclosed.
(1) Security did not produce income during the last 12 months.
(2) Purchased in a private placement transaction; resale may be limited to
qualified institutional buyers; resale to the public may require
registration. The total value of all such restricted securities was
$1,121,236,000, which represented 4.63% of the net assets of the fund.
(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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SCHEDULE OF
INVESTMENTS
To the Shareholders and Board of Directors of Fundamental Investors, Inc.:
We have audited, in accordance with standards of the Public Company Accounting
Oversight Board (United States), the financial statements of Fundamental
Investors, Inc. (the "Fund") as of December 31, 2004, and for the years then
ended and have issued our report thereon dated February 11, 2005, which report
and financial statements are included in Item 1 of this Certified Shareholder
Report on Form N-CSR. Our audit also included the Fund's investment portfolio
(the "Schedule") as of December 31, 2004 appearing in Item 6 of this Form N-CSR.
This Schedule is the responsibility of the Fund's management. Our responsibility
is to express an opinion based on our audit. In our opinion, the Schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole of the Fund referred to above, presents fairly, in all material
respects, the information set forth therein.
DELOITTE & TOUCHE LLP
February 11, 2005
Los Angeles, California
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 - 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 10 - 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 11 - Exhibits
(a) The Code of Ethics that is the subject of the disclosure required by Item 2
is attached as an exhibit hereto.
(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: March 10, 2005
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: March 10, 2005
By /s/ Sheryl F. Johnson
Sheryl F. Johnson, Treasurer and PFO
Date: March 10, 2005