UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
FORM N-CSR
CERTFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-604
Washington Mutual Investors Fund, Inc.
1101 Vermont Avenue, NW
Washington, DC 20005
Registrant's telephone number, including area code: (202) 842-5665
Date of fiscal year end: April 30, 2003
Date of reporting period: April 30, 2003
Howard L. Kitzmiller
Washington Management Corporation
1101 Vermont Avenue, NW
Washington, DC 20005
Copies to:
JOHN JUDE O'DONNELL, Esq.
THOMPSON, O'DONNELL, MARKHAM, NORTON & HANNON
1212 New York Avenue, Suite 100, N.W.
Washington, D.C. 20005
(Counsel for the Registrant)
Item 1 - Report to Stockholders
(graphic American Funds Logo)
The right choice for the long term(R)
Washington Mutual Investors Fund
(graphic Cherry Blossoms/ Washinton Monument)
Annual report for the year ended April 30, 2003
Washington Mutual Investors Fund(SM)
Washington Mutual Investors 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.
Washington Mutual Investors Fund seeks to provide income and growth of principal
through investments in quality common stocks.
Contents
Letter to shareholders 1
Investment adviser's report 2
The value of a long-term perspective 3
Preparing for a healthy harvest:
Renewed interest in dividends 6
Investment portfolio 12
Financial statements 19
Fund Directors, Advisory Board and other officers 32
Fund results in this report were calculated for Class A shares at net asset
value (without a sales charge) unless otherwise indicated. Since this
shareholder report is for the Fund's fiscal year ended April 30, 2003, most
results in this report are measured as of that date. For example, for the
one-year period ended April 30, 2003, the Fund was down 13.36%. We also report
returns with all distributions reinvested for periods ended March 31, 2003 (the
most recent calendar quarter), with and without payment of the 5.75% maximum
sales charge at the beginning of the stated periods. Here are both sets of
results:
Class A shares, for periods ended March 31, 2003 1 year 5 years 10 years
Average annual compound return,
with maximum sales charge -26.37% -1.89% + 9.38%
Average annual compound return, at net asset value -21.88% -0.72% +10.02%
Results for other share classes can be found on page 31. For the most current
investment results, please refer to americanfunds.com. Please see page 34 for
important information about other share classes.
Figures shown are past results and are not predictive of future results. Share
price and return will vary, so you 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.
Fellow shareholders:
Your Fund's 2003 fiscal year, which ended on April 30, was one of the most
difficult for common stock investments in Washington Mutual's 51-year history.
Both the Fund and the stock market suffered from terrorism's adverse effects on
American business here and around the world.
As a result, during the fiscal period from April 30, 2002 to April 30, 2003, the
value of an investment in Washington Mutual declined by 13.4%, assuming
reinvestment of income dividends totaling 54 cents a share and a long-term
capital gain distribution of 4 cents a share. These results were almost exactly
in line with the unmanaged Standard & Poor's 500 Composite Index, which declined
by 13.3%, with dividends reinvested. On page 2, you will find more details in a
discussion by our investment adviser, Capital Research and Management Company.
Over longer periods, your Fund's adherence to strict investment standards,
coupled with experienced management, has produced above-average returns. Longer
term results reflect a stronger relative performance as follows:
Average annual compound returns
1 year 5 years 10 years Lifetime
Washington Mutual -13.4% +0.8% +10.9% +12.7%
S&P 500 -13.3% - 2.4% +9.7% +11.2%
The recent increased emphasis on dividends argues well for your Fund's
performance in both the near and long term. Over the years, Washington Mutual's
return has been helped by its focus on the dividend-paying abilities of the
companies in the Fund's portfolio. Reinvestment of income has always contributed
significantly to Washington Mutual's total return, and should continue to be
very important in future years.
Earlier this year, many of the companies in the Fund's portfolio urged support
for proposals in Congress to reduce or eliminate taxation of dividends. The
relief bill signed by President Bush on May 28, 2003 has already favorably
affected the share prices of many strong dividend-paying stocks. The new 15%
maximum tax rate on qualified dividend income to individuals is retroactive to
January 1, 2003. The maximum tax on long-term capital gains is now 15% and
applicable to gains realized on and after May 6, 2003.
Since our last report to you six months ago, eight new companies have appeared
in the portfolio: Automatic Data Processing, Carnival, CenturyTel, EOG
Resources, NiSource, Temple-Inland, Tyco International, and Unilever. Seven
securities have been eliminated: CSX, Eastman Kodak, Ford Motor, Goodyear Tire &
Rubber, Harris, MGIC Investment, and Royal Dutch Petroleum. Pharmacia no longer
appears because of its merger into Pfizer. At fiscal year-end, the number of
companies held totaled 161.
Since the conclusion of the war in Iraq - near the close of your Fund's fiscal
year - share prices have rebounded considerably and consumer confidence has
improved. With a continued low interest rate environment, your management is
hopeful that a steady improvement in business conditions will ensue.
We encourage you to work with your financial adviser and employer to review the
many improved options for tax deferred savings that have become available to you
over the past two years. This year you can contribute $12,000 to your 401(k),
403(b), or 457 account. This amount increases $1,000 each year through 2006.
Those of you 50 and older can add $2,000 to your company retirement plan beyond
the general contribution limit. If your employer offers a SIMPLE IRA, you can
defer up to $8,000 in 2003. This amount increases $1,000 for each of the next
two years. Contribution limits on IRAs have increased to $3,000 in 2002, $4,000
in 2005, and $5,000 in 2008. Individuals over 50 can add $500 more to their IRA
contribution and $1,000 more beginning in 2006. A powerful savings tool that
exists for educational savings is CollegeAmerica, a Section 529 plan that
provides a tax-advantaged way to help meet the increasing cost of higher
education.
We are pleased to welcome the many new shareholders who have joined us during
the turbulent investment environment over the past year. Questions and comments
from shareholders are always welcome.
Cordially,
(signature)
James H. Lemon, Jr.,
Chairman of the Board
(signature)
Harry J. Lister,
Vice Chairman of the Board
(signature)
Jeffrey L. Steele,
President of the Fund
June 11, 2003
(graphic Washington Monument)
Investment adviser's report
During fiscal 2003, share prices suffered from concerns about the impact of
turmoil in the Middle East, volatile oil prices, unusually harsh winter weather
and a sluggish U.S. economy. Continued media coverage of corporate malfeasance
and accounting scandals also dampened investors' enthusiasm for stocks. Even the
quality equities held by Washington Mutual Investors Fund were affected by these
events.
In this negative environment, the value of an investment in the Fund, with
dividends reinvested, fell 13.4%, about the same as the unmanaged Standard &
Poor's 500 Composite Index, which declined 13.3%, and the Lipper Growth and
Income Fund Index, which fell 13.3%. The Fund outpaced the Lipper Large-Cap
Value Fund Index, which slipped 15.1%. These results placed the Fund in the top
26% (308th of 1,191) of all growth-and-income funds for the year. Over long
periods, the Fund did even better; Washington Mutual ranked in the top 16%
(107th of 704) of all growth-and-income funds for the past five years, and in
the top 10% (22nd of 223) for the past 10 years.
It was the first time in the Fund's 51-year history that the broad stock market,
as represented by the S&P 500, showed a decline for three consecutive fiscal
years. For investors concerned with preserving their capital in a bear market,
the Fund's record over that period may be even more important than its one-year
results. A shareholder invested in the Fund for the three years ended April 30,
2003, for example, would have experienced a small decline of 2.4%, with
dividends reinvested. This is a sharp contrast with the 22.3% decline of the
average growth-and-income fund and the 16.5% loss of the average large-cap
value fund, according to Lipper. The S&P 500 fared even worse, showing a loss of
34.1%, and the technology-heavy Nasdaq Composite Index tumbled 62.1%. (These
returns are cumulative over the three-year period.)
The Fund's highly disciplined approach to investing, which focuses primarily on
companies with strong balance sheets and consistent records of paying dividends,
has served as a buffer against stock market declines. This approach again proved
its merit in difficult markets; the Fund has done better than the S&P 500 in
each of the 12 major stock market declines since the Fund's inception in 1952.
The economic picture
The U.S. economy completed its sixth quarter of recovery from recession as of
March 31, 2003, but its performance in the past two quarters has decelerated.
Growth in consumer spending slowed in the first quarter of this year and
corporations cut capital spending. The economy grew at a 1.9% annual rate in the
first quarter of 2003, barely up from a 1.4% pace in the fourth quarter of 2002.
For the full calendar year of 2002, the economy grew 2.4%. Concerns about the
war in Iraq and rising oil prices hurt. On the positive side, the housing market
remained healthy and interest rates hovered at their lowest levels in decades.
The Fund's investments
The fiscal year began with the stock market slipping to a new low in July; it
rallied in August and tumbled in September, bottoming on October 9. Stocks fell
in January, February and early March but rallied after the coalition forces'
success in the war in Iraq. As a result, April 2003 - the last month of the
fiscal year - turned out to be the best month of the period for Washington
Mutual, with a return of almost 8%.
The Fund's six largest industry positions at fiscal year-end as a percentage of
net assets were: Banks (10.8%), Pharmaceuticals (9.7%), Electric utilities
(8.0%), Oil & gas (7.6%), Diversified telecommunication services (6.8%), and
Diversified financial services (5.2%).
One positive note during the year was the renewed interest in dividends. More
than 80 companies in the S&P 500 increased their dividends in the first four
months of 2003, and five companies initiated dividend payments. Even the
software giant Microsoft began paying a small dividend. More dividend-paying
companies potentially means more investment opportunities for Washington
Mutual, as it increases the number of companies from which the Fund's managers
can select.
We will continue our strategy of seeking to invest in quality companies that
meet strict standards of financial soundness, including a consistent record of
paying dividends. This approach has served the Fund well in all kinds of
markets, and we believe it will continue to do so in the years ahead.
- - Capital Research and Management Company
The value of a long-term perspective
(graph showing growth of a $10,000 investment in Consumer Price Index, Average
Savings Institution, Washington Mutual with dividends taken in cash, S&P 500
with dividends reinvested, and Washington Mutual with dividends reinvested)
How a $10,000 investment in Washington Mutual Investors Fund grew
This chart shows how a $10,000 investment grew between July 31, 1952, when the
Fund began operations, and April 30, 2003.
As you can see, that $10,000 investment in Washington Mutual, with all
distributions reinvested, would have grown to $4,050,310. Over the same period,
that $10,000 would have grown to $2,138,513 in the unmanaged Standard & Poor's
500 Composite Index of U.S. common stocks. According to the Consumer Price
Index, it now requires $68,839 to purchase what $10,000 would have bought on
July 31, 1952. In the average savings institution, $10,000 with interest
compounded would have grown to $126,594.
The year-by-year progress of the $10,000 investment is summarized in the table
below the chart. You can use those figures to estimate how the value of your own
holdings has grown. Let's say, for example, that you have been reinvesting all
your distributions and want to know how your investment has done since April 30,
1993. At that time, according to the table, the value of the investment
illustrated here was $1,442,389. Since then it has gone up nearly threefold to
$4,050,310. Thus, in the same 10-year period, the value of your 1993 investment
- - regardless of its size - has increased nearly threefold.
Average annual compound returns
(based on a $1,000 investment with all distributions reinvested)
For periods ended April 30, 2003
Class A shares
reflecting 5.75% maximum sales charge/1/
1 year -18.34%
5 years -0.38%
10 years +10.22%
/1/ Sales charges are lower for investments of $25,000 or more.
Year CAPITAL VALUE/3/ TOTAL VALUE/2/
ended Dividends in Dividends TOTAL
April 30 Cash WMIF/1/,/3/ Reinvested WMIF/1/,/2 RETURN S&P500 CPI/5/
07/31/52 $9,425 $9,425 $10,000 $10,000
1953/6/ $170 9,161 $170 9,330 -6.7% 10,094 9,963
1954 434 10,773 449 11,494 23.2 12,282 10,037
1955 500 14,665 542 16,288 41.7 17,295 10,000
1956 580 17,851 654 20,565 26.3 22,938 10,075
1957 647 18,304 756 21,877 6.4 22,520 10,449
1958 680 16,928 825 21,055 -3.8 22,269 10,824
1959 701 24,125 885 31,071 47.6 30,569 10,861
1960 728 21,871 948 29,041 -6.5 29,850 11,049
1961 815 26,300 1,097 36,167 24.5 37,071 11,161
1962 824 26,592 1,146 37,654 4.1 38,158 11,311
1963 891 28,838 1,279 42,278 12.3 42,296 11,423
1964 923 31,149 1,369 47,109 11.4 49,698 11,573
1965 956 36,940 1,462 57,490 22.0 57,450 11,760
1966 1,048 38,487 1,648 61,603 7.2 60,563 12,097
1967 1,176 39,424 1,906 65,270 6.0 64,731 12,397
1968 1,331 42,481 2,231 72,692 11.4 69,365 12,884
1969 1,516 48,408 2,627 85,576 17.7 75,988 13,596
1970 1,605 39,049 2,874 71,603 -16.3 61,834 14,419
1971 1,711 48,769 3,193 93,387 30.4 81,718 15,019
1972 1,779 47,991 3,455 95,521 2.3 87,267 15,543
1973 1,818 43,290 3,671 89,522 -6.3 89,214 16,330
1974 1,858 40,682 3,907 87,956 -1.7 77,959 17,978
1975 2,185 42,855 4,828 98,315 11.8 79,061 19,813
1976 2,350 53,771 5,498 129,949 32.2 95,785 21,011
1977 2,510 55,449 6,171 140,348 8.0 96,702 22,472
1978 2,658 54,228 6,849 144,340 2.8 100,121 23,933
1979 2,870 58,180 7,785 163,075 13.0 110,959 26,442
1980 3,203 56,032 9,167 165,848 1.7 122,446 30,337
1981 4,784 72,410 14,603 230,424 38.9 160,796 33,371
1982 4,097 69,851 13,327 235,768 2.3 148,977 35,543
1983 4,497 101,855 15,517 362,293 53.7 221,825 36,929
1984 4,840 100,116 17,527 373,509 3.1 225,698 38,614
1985 5,465 115,473 20,783 452,498 21.1 265,541 40,037
1986 6,110 152,209 24,380 623,768 37.9 361,778 40,674
1987 6,781 180,960 28,228 771,949 23.8 457,672 42,210
1988 7,116 167,083 30,815 742,856 -3.8 427,911 43,858
1989 6,183 198,139 27,838 911,609 22.7 525,847 46,105
1990 8,920 202,429 41,689 971,051 6.5 581,168 48,277
1991 9,136 222,016 44,574 1,113,747 14.7 683,361 50,637
1992 8,319 244,607 42,315 1,272,372 14.2 779,015 52,247
1993 8,468 268,131 44,625 1,442,389 13.4 850,855 53,933
1994 8,583 266,513 46,719 1,479,112 2.5 896,027 55,206
1995 9,790 301,054 55,060 1,730,694 17.0 1,052,264 56,891
1996 10,008 381,514 58,187 2,256,894 30.4 1,369,880 58,539
1997 10,506 455,551 62,763 2,763,032 22.4 1,714,024 60,000
1998 11,033 628,864 67,443 3,890,253 40.8 2,417,442 60,861
1999 11,527 707,654 71,812 4,458,483 14.6 2,945,129 62,247
2000 11,935 646,507 75,684 4,148,130 -7.0 3,243,332 64,157
2001 13,153 719,687 85,030 4,709,580 13.5 2,822,817 66,255
2002 13,116 700,823 86,458 4,674,962 -0.7 2,466,687 67,341
2003 13,345 593,597 89,753 4,050,310 -13.4 2,138,513 68,839
/1/ These figures, unlike those shown elsewhere in this report, reflect payment
of the maximum sales charge of5.75% on the $10,000 investment. Thus, the net
amount invested was $9,425. As outlined in the prospectus, the sales charge is
reduced for larger investments of $25,000 or more. There is no sales charge on
dividends or capital gain distributions that are reinvested in additional
shares. The maximum sales charge was 8.5% prior to July 1, 1988. Results shown
do not take into account income or capital gain taxes.
/2/ Total value includes reinvested dividends of $1,142,522 and reinvested
capital gain distributions of $1,962,596.
/3/ Capital value includes reinvested capital gain distributions of $357,586 but
does not reflect income dividends of $236,178 taken in cash.
/4/ With all interest compounded. Based on figures supplied by the U.S. League
of Savings Institutions and the Federal Reserve Board, that reflect all kinds of
savings deposits, including longer term certificates. Unlike investments in the
Fund, such deposits are insured and, if held to maturity, offer a guaranteed
return of principal and a fixed rate of interest, but no opportunity for capital
growth. Maximum allowable interest rates were imposed by law until 1983.
/5/ Computed from data supplied by the U.S. Department of Labor, Bureau of Labor
Statistics.
/6/ Since the Fund's inception on July 31, 1952.
Fiscal year ended April 30 1953<F6> 1954 1955 1956 1957 1958 1959 1960 1961 1962
Capital value<F3>
Dividends in cash $ 170 434 500 580 647 680 701 728 815 824
Value at year-end<F1> $ 9,161 10,773 14,665 17,851 18,304 16,928 24,125 21,871 26,300 26,592
Total value<F2>
Dividends reinvested $ 170 449 542 654 756 825 885 948 1,097 1,146
Value at year-end<F1> $ 9,330 11,494 16,288 20,565 21,877 21,055 31,071 29,041 36,167 37,654
WMIF total return (6.7)% 23.2 41.7 26.3 6.4 (3.8) 47.6 (6.5) 24.5 4.1
Fiscal year ended April 30 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972
Capital value<F3>
Dividends in cash 891 923 956 1,048 1,176 1,331 1,516 1,605 1,711 1,779
Value at year-end<F1> 28,838 31,149 36,940 38,487 39,424 42,481 48,408 39,049 ,48,769 47,991
Total value<F2>
Dividends reinvested 1,279 1,369 1,462 1,648 1,906 2,231 2,627 2,874 3,193 3,455
Value at year-end<F1> 42,278 47,109 57,490 61,603 65,270 72,692 85,576 71,603 93,387 95,521
WMIF total return 12.3 11.4 22.0 7.2 6.0 11.4 17.7 (16.3) 30.4 2.3
Fiscal year ended April 30 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982
Capital value<F3>
Dividends in cash 1,818 1,858 2,185 2,350 2,510 2,658 2,870 3,203 4,784 4,097
Value at year-end<F1> 43,290 40,682 42,855 53,771 55,449 54,228 58,180 56,032 72,410 69,851
Total value<F2>
Dividends reinvested 3,671 3,907 4,828 5,498 6,171 6,849 7,785 9,167 14,603 13,327
Value at year-end<F1> 89,522 87,956 98,315 129,949 140,348 144,340 163,075 165,848 230,424 235,768
WMIF total return (6.3) (1.7) 11.8 32.2 8.0 2.8 13.0 1.7 38.9 2.3
Fiscal year ended April 30 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992
Capital value<F3>
Dividends in cash 4,497 4,840 5,465 6,110 6,781 7,116 6,183 8,920 9,136 8,319
Value at year-end<F1> 101,855 100,116 115,473 152,209 180,960 167,083 198,139 202,429 ,222,016 244,607
Total value<F2>
Dividends reinvested 15,517 17,527 20,783 24,380 28,228 30,815 27,838 41,689 44,574 42,315
Value at year-end<F1> 362,293 373,509 452,498 623,768 771,949 742,856 911,609 971,051 1,113,747 1,272,372
WMIF total return 53.7 3.1 21.1 37.9 23.8 (3.8) 22.7 6.5 14.7 14.2
Fiscal year ended April 30 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Capital value<F3>
Dividends in cash 8,468 8,583 9,790 10,008 10,506 11,033 11,527 11,935 13,153 13,116
Value at year-end<F1> 268,131 266,513 301,054 381,514 455,551 628,864 707,654 646,507 719,687 700,823
Total value<F2>
Dividends reinvested 44,625 46,719 55,060 58,187 62,763 67,443 71,812 75,684 85,030 86,458
Value at year-end<F1> 1,442,389 1,479,112 1,730,694 2,256,894 2,763,032 3,890,253 4,458,483 4,148,130 4,709,580 4,674,962
WMIF total return 13.4 2.5 17.0 30.4 22.4 40.8 14.6 (7.0) 13.5 (0.7)
Fiscal year ended April 30 2003
Capital value<F3>
Dividends in cash 13,345
Value at year-end<F1> 593,597
Total value<F2>
Dividends reinvested 89,753
Value at year-end<F1> 4,050,310
WMIF total return (13.4)
Fund's lifetime average annual compound return:
12.6%<F1>
During the period illustrated, stock prices fluctuated and were higher at the
end than at the beginning. These results should not be considered as a
representation of the results that may be realized from an investment made in
the Fund today. The indexes are unmanaged and do not reflect sales charges,
commissions or expenses.
Past results are not predictive of future results. The results shown are before
taxes on Fund distributions and sale of Fund shares.
<FN>
<F1> These figures, unlike those shown earlier in this report, reflect payment
of the maximum sales charge of 5.75% on the $10,000 investment. Thus, the net
amount invested was $9,425. As outlined in the prospectus, the sales charge is
reduced for larger investments of $25,000 or more. There is no sales charge on
dividends or capital gain distributions that are reinvested in additional
shares. The maximum initial sales charge was 8.5% prior to July 1, 1988. Results
shown do not take into account income or capital gain taxes.
<F2> Total value includes reinvested dividends of $1,142,522 and reinvested
capital gain distributions of $1,962,596.
<F3> Capital value includes reinvested capital gain distributions of $357,586
but does not reflect income dividends of $236,178 taken in cash.
<F4> With all interest compounded. Based on figures supplied by the U.S. League
of Savings Institutions and the Federal Reserve Board, that reflect all kinds of
savings deposits, including longer term certificates. Unlike investments in the
Fund, such deposits are insured and, if held to maturity, offer a guaranteed
return of principal and a fixed rate of interest, but no opportunity for capital
growth. Maximum allowable interest rates were imposed by law until 1983.
<F5> Computed from data supplied by the U.S. Department of Labor, Bureau of
Labor Statistics.
<F6>Since the Fund's inception on July 31, 1952.
</FN>
(graphic garden; caption from subsequent page follows)
The lower garden at Mount Vernon, Virginia, was established by George
Washington in 1761. Crops are still harvested today - a testament to
Washington's legacy.
Preparing for a healthy harvest:
Renewed interest in dividends
"Dividends are the ultimate proof that stocks are not just pieces of paper but
represent ownership in real businesses."
- - Bernard J. Nees, the Fund's founder
During the past two decades, the appeal of dividends faded as many investors -
and more than a few companies - focused solely on growth. Now the trend seems
to be reversing, and the market is rediscovering the important role of
dividends. In late May, Congress lowered the maximum Federal tax rate on
qualified dividend income to 15% from what had been 30% or higher for many
investors.
When a company pays a dividend, shareholders receive a reward they can put in
their pockets. If a company doesn't pay a dividend, shareholders are rewarded
only if the stock price has gone up and they sell the stock.
What's more, when the market is stagnant or declining, share prices of dividend
payers have tended to be more stable than those of non-payers. The reliable
return from dividend income can help to provide something like a "floor" - a
level where investors will tend to hold shares even if prospects for price
appreciation are murky.
These advantages add up. Over the past 50 calendar years, dividends have
accounted for roughly a third of the average annual compound return from an
investment in stocks, as measured by Standard & Poor's 500 Composite Index. Much
of that contribution reflects the advantage of compounding. Income from
dividends can earn more income, and that income can earn income, and so on.
Your Fund's tough standard for dividends
Washington Mutual Investors Fund has always emphasized companies that share
profits with shareholders. The Fund's rigorous standards require the vast
majority of its holdings to have strong histories of paying dividends - and
paying them from earnings, as opposed to using borrowed money.These standards
are based on rules originally established in the 1930s by the United States
District Court for the District of Columbia to protect trust funds from
investing in high-risk companies. The logic of the dividend standard clearly
remains sound: investing primarily in companies with established dividend
records helped the Fund avoid owning shares in seemingly fast-growing
companies that recently made headlines but proved to be built of straw.
Proof of a company's success
"If a company has a long record of paying dividends, it has usually been
well-managed," says Steve Bepler, one of the Fund's eight portfolio counselors.
"Furthermore, if the dividend has been increased regularly, you don't need a
balance sheet to know the company's finances are probably in good shape. On the
other hand, if a company cuts its dividend, it might be in serious financial
trouble. If it doesn't pay one at all, there had better be a compelling reason."
Research analyst Cathy Kehr agrees: "A good company tends to have money left
over after paying the bills. If there's nothing left, it's usually not a very
good business."
Dividend payouts vary. Mature companies in industries such as utilities and
banking, where research and development costs are relatively small, tend to pay
out a higher percentage of earnings. New companies that are still expanding
rapidly often don't pay dividends at all. Most companies fall somewhere in
between.
(Side Bar)
The Fund's holdings have long histories of paying dividends
At December 31, 2002, there were 169 companies in the Fund's portfolio:
131 had paid uninterrupted dividends for at least 25 years
103 had paid uninterrupted dividends for at least 50 years
56 had paid uninterrupted dividends for at least 75 years
24 had paid uninterrupted dividends for at least 100 years
24% increased their dividends during 2002
Two holdings were among the first corporations in the United States to pay
dividends and have done so for more than 200 years:
- - The Bank of New York (since 1785)
- - FleetBoston Financial (since 1791, by its predecessor company)
The Fund's portfolio, listed on pages 12-18, shows when each holding began
paying dividends.
(End of Side Bar)
The first dividends ever paid were clearly too high: They entailed distributing
not just the proceeds of voyages by British and Dutch ships in the 16th
century, but also the ships themselves. The inefficiency of having to build new
ships for every expedition was soon noted, and dividends became distributions of
profits alone.
Research analyst Will Robbins says it remains a good idea to be wary of
dividends that seem too high or that even occasionally exceed a company's
earnings. "They probably aren't sustainable and will be cut eventually," he
says." In the case of companies paying high dividends, the worry is that they
may be robbing Peter to pay Paul and may not be able to maintain their
competitive position or their credit rating."
A very small dividend can also be a danger sign, says lead portfolio counselor
Jim Dunton. "It can mean the company's management may be too aggressive with
expansion plans, and that the company thinks its own shareholders aren't clever
enough to reinvest the money wisely. Of course, the other extreme - paying out
nearly all profits - can mean that the company is saying its own managers
aren't clever enough to use the money wisely."
Putting the dividend standard to work
Companies that find the right balance between providing for income (dividends)
and for growth (share price appreciation) are ideal for Washington Mutual. The
Fund seeks both, which is one of the reasons why its returns have been
relatively stable over time. Regular income from dividends can serve as a
buffer against stock market declines, which helps explain why the Fund has
outpaced the S&P 500 during every one of the 12 major stock market declines
since the Fund's inception in 1952. At the same time, the long-term historical
trend toward higher stock market prices makes it possible to outpace inflation.
(Call Out)
"We want to know how the business generates earnings and if they've been
stable or cyclical." - Jim Lovelace
(End of Call Out)
The Fund's dividend requirement is a key discipline, Jim Dunton says. "There are
plenty of stocks that might be attractive for us short term. But our focus on
stocks with solid long-term dividend records makes it more likely the Fund can
keep on achieving its goals of providing a higher yield than the S&P 500
average and rewarding shareholders who reinvest their capital gains with more
cash income every year."
When evaluating an eligible company's future dividend prospects, the Fund's
managers study earnings, because a company can't pay out more than it takes in
- - at least not for long. Portfolio counselor Jim Lovelace says, "We want to
know how the business generates earnings and if they've been stable or
cyclical. Then we look at how much has been returned to investors each year as
dividends, with special attention paid to periods of stress for the company or
its industry."
Of course, a rising dividend is typically a plus. Portfolio counselor Tim Armour
notes, "If a company increases the dividend, it increases stability of the
return. If it cuts the dividend, it decreases the stability of the return."
(Side Bar)
Dividends from Washington Mutual: 51 increasingly rewarding years If you had
invested $10,000 in Washington Mutual Investors Fund when it got under way in
1952...
- - your income from the Fund would have risen every single year
- - by the end of 1965, you would have received total dividends exceeding $10,000
- - the amount of your original investment
- - by the end of 1996, your dividends each year would have exceeded $10,000
- - you would have received a total of $240,875 in dividends alone
These calendar-year figures are calculated with capital gains reinvested,
dividends taken in cash and special dividends excluded.
(End of Side Bar)
Percentage of S&P 500 stocks that paid dividends
(Bar Chart showing that the percentage of S&P 500 stocks that padi dividends
declined from 90.8 in 1983 to 70.2 in 2002)
Among the most attractive opportunities are companies where the dividend amounts
have grown while the percentage of earnings used to pay them has remained about
the same.
(Call Out)
"If a company increases the dividend, it increases the stability of the return."
- - Tim Armour
(End of Call Out)
Where did dividends go
Since the beginning of calendar 2003, more than 80 S&P 500 companies have
increased their dividends or started paying dividends for the first time. This
appears to be a welcome reversal of the trend over the past two decades, when
the percentage of dividend-paying companies included in that index had fallen
from around 90% to just 70%. The average dividend yield on the S&P 500 dipped
below 3% in 1991 and continued to decline throughout most of the 1990s. One key
reason is that the composition of the market index changed to include a number
of technology companies that had yet to pay dividends.
Tax law changes were also a factor. In 1987, Congress abolished an exemption
that had allowed individuals to earn up to $100 a year in dividends, tax-free
($200 for couples filing jointly). In 1998, the top tax rate paid on capital
gains was lowered to 20% versus 39.6% on dividends, which tended to discourage
paying dividends and encourage selling shares for profits rather than holding
them for income.
Another problem was the greatly increased use of stock option grants
(opportunities to buy shares at a fixed price) as executive compensation in the
1990s. As portfolio counselor Alan Berro notes, "The theory was that having
managers own shares would align their interests with the other shareholders. The
problem was that option holders only benefited if the stock price went up. So
the incentive was to reinvest earnings in hopes that the business would grow and
the options would be worth more. There was no incentive to pay dividends."
Stock buybacks contributed, too. By purchasing their own shares on the open
market - therefore reducing the supply - companies believed they could
increase per share earnings and, in turn, increase their share prices.
Shareholders would be rewarded with a capital gain instead of a dividend - and
be able to pay lower taxes on the "reward." In many cases, though, shares bought
back were used to fulfill options grants at lower prices than they cost the
company.
Low interest rates also played a role, in the latter half of the 1990s. Dividend
yields didn't have to be very high to compete with yields from bonds and other
competitive investments. And, of course, in the heady days when the market was
gaining 15% or 20% a year, the relatively small contribution made by dividends
didn't seem very important.
Perhaps the most important reason, however, was overconfidence on the part of
some corporate management teams, thinking they could provide higher rewards to
their shareholders by reinvesting most or all of their earnings instead of
paying them out as dividends. "Companies shouldn't pay dividends if they have a
better use for the cash than their shareholders do, but not many companies meet
that standard. Most companies don't have the growth prospects to justify keeping
all the cash," observes Alan Berro.
Such pressures to reinvest earnings rather than pay dividends led some companies
to make bad decisions, acquiring businesses they couldn't absorb and expanding
beyond their capabilities. The results were obvious only when the economy turned
downward and stock prices plummeted. "When the tide went out this time, we found
that there were a lot of naked swimmers," notes research analyst Greg Johnson.
A brighter future
The recent market downturn, a number of widely reported accounting scandals and
new Federal laws focused on corporate governance standards are causing
corporations to re-examine their business practices and decisions. Some are
rediscovering that paying dividends attracts long-term investors. Because
long-term investors are less concerned with short-term results,
the stock prices of dividend payers tend to fluctuate less.
In late May, Congress strengthened the role of dividends by cutting the maximum
Federal tax rate on qualified dividend income to 15%. The rate cut is expected
to make dividend income far more appealing to investors. It should also
encourage corporations to further examine their dividend-paying policies.
Notably, a number of stalwart non-payers - such as Microsoft - have changed
their tunes and begun to pay dividends, albeit tiny ones. "A lot of successful
technology companies are sitting on large cash balances," portfolio counselor
Dale Harvey points out.
Other industries may also be reaching the point in their life cycles where they
are more likely to pay dividends. Portfolio counselor Steve Bepler suggests that
cable television companies and wireless telephone companies, once they have
their networks in place, tend to generate a lot of cash but don't need much to
maintain their businesses.
(photo of harvest)
(photo garden)
Photos: Harvests from Mount Vernon include vegetables, herbs, seeds, and fruit.
(Side Bar)
How to make the most of your dividends from the Fund
Dividends paid by a mutual fund that invests in stocks represent dividends from
fund holdings, minus the fund's operating expenses. Washington Mutual Investors
Fund helps you by keeping its expenses low, only about half the average for
comparable funds (0.67% versus 1.25%, in calendar 2002).
By reinvesting your Fund dividends - as more than 90% of the Fund's
shareholders do - you can gain the additional advantage of compounding. That
can make a tremendous difference in long-term results.
If you had invested $10,000 ten years ago...
Dividends taken in cash Value of investment
$4,214 $22,138 Total value $26,352
Value of investment with dividends reinvested
Total value $28,081
If you had invested $10,000 when the Fund began on July 31, 1952...
Dividends taken in cash Value of investment
$250,585 $629,806 Total value $880,391
Value of investment with dividends reinvested
Total value $4,297,373
Expense ratio for comparable funds reflects Lipper "large-cap value" category.
Returns shown are for periods ended April 30, 2003 and reflect reinvestment of
capital gains. The bar chart is not drawn to scale.
(End of Side Bar)
When a company begins paying dividends, its days of innovation aren't over. Many
pharmaceutical companies, for example, spend significantly on developing new
drugs but still manage to pay strong dividends. Once a popular drug has been
introduced, manufacturing costs tend to be lower and profits tend to be larger.
Because the Fund's investment professionals have spent many years studying
companies, there are occasions when experience tells them that a company may not
be making the best use of excess cash. "If we feel a company can't reinvest
profits for high returns, we may encourage the company to increase its dividend
- - or to start paying one, if it doesn't already," says Greg Johnson.
More companies paying dividends potentially means more investment opportunities
for Washington Mutual over time, because it increases the number of companies
from which the Fund's managers can select.
"This is the beginning of a major change," says Cathy Kehr. "I believe more
companies will begin to pay dividends. More of those that already do pay them
are likely to increase them. We think the market's coming Washington Mutual's
way."
(Call Out)
"We think the market's coming Washington Mutual's way."
- - Cathy Kehr
(End of Call Out)
Investment portfolio April 30, 2003
Percent of Percent of
Five largest industries net assets Ten largest holdings net assets
Banks 10.83% J.P. Morgan Chase 3.91%
Pharmaceuticals 9.75 ChevronTexaco 3.32
Electric utilities 7.96 Bristol-Myers Squibb 2.80
Oil & gas 7.64 Eli Lilly 2.63
Diversified telecommuni- Pfizer 2.40
cation services 6.79 General Electric 2.34
Verizon Communications 2.00
Bank of America 1.95
General Motors 1.90
SBC Communications 1.65
Paid
Equity securities dividends Shares Market Percent
(common stocks and since/1/ or value of net
convertible securities) (unaudited) amount (000) assets
Energy 7.90%
Energy equipment & services .26%
Halliburton Co. 1947 3,100,000 $ 66,371 .14%
Schlumberger Ltd. 1957 1,400,000 58,702 .12
125,073 .26
Oil & gas 7.64%
Ashland Inc. 1936 3,680,000 109,112 .23
ChevronTexaco Corp. 1912 25,493,500 1,601,247 3.32
ConocoPhillips 1934 8,807,750 443,030 .92
EOG Resources, Inc. 1990 725,000 27,100 .05
Exxon Mobil Corp. 1882 22,013,000 774,858 1.61
Kerr-McGee Corp. 1941 2,600,000 109,486 .23
Marathon Oil Corp. 1991 11,700,000 266,409 .55
Sunoco, Inc. 1904 3,000,000 111,630 .23
Unocal Corp. 1916 8,696,500 240,893 .50
3,683,765 7.64
3,808,838 7.90
Materials 5.21%
Chemicals 1.57%
Air Products and Chemicals, Inc. 1954 3,212,300 138,354 .28
Crompton Corp. 1933 5,800,001 37,236 .08
Dow Chemical Co. 1911 15,226,600 496,996 1.03
PPG Industries, Inc. 1899 1,762,200 85,484 .18
758,070 1.57
Containers & packaging .09%
Temple-Inland Inc. 1984 900,000 40,770 .09
Metals & mining .66%
Alcoa Inc. 1939 6,500,000 149,045 .31
Newmont Mining Corp. 1934 6,250,000 168,875 .35
317,920 .66
Paper & forest products 2.89%
International Paper Co. 1946 19,700,000
704,275 1.46
MeadWestvaco Corp. 1892 7,749,806 182,818 .38
Weyerhaeuser Co. 1933 10,200,000 505,818 1.05
1,392,911 2.89
2,509,671 5.21
Capital goods 7.30%
Aerospace & defense 2.43%
Boeing Co. 1942 5,000,000 136,400 .28
Honeywell International Inc. 1887 11,950,000 282,020 .59
Lockheed Martin Corp. 1995 1,000,000 50,050 .10
Northrop Grumman Corp. 1951 2,488,300 218,846 \
Northrop Grumman Corp. > .48
7.25% convertible preferred 2004 140,000 units 14,315 /
Raytheon Co. 1964 6,400,000 191,552 .40
United Technologies Corp. 1936 4,492,100 277,657 .58
1,170,840 2.43
Construction & engineering .25%
Fluor Corp. 1974 3,536,500 122,257 .25
Electrical equipment .43%
Emerson Electric Co. 1947 3,700,000 187,590 .39
Rockwell Automation 1948 821,000 18,719 .04
206,309 .43
Industrial conglomerates 2.69%
General Electric Co. 1899 38,350,000 1,129,407 2.34
Tyco International Ltd. 1975 10,825,000 168,870 .35
1,298,277 2.69
Machinery 1.50%
Caterpillar Inc. 1914 3,525,000 185,415 .38
Deere & Co. 1937 3,800,000 167,314 .35
Dover Corp. 1947 2,000,000 57,480 .12
Eaton Corp. 1923 1,012,900 83,129 .17
Illinois Tool Works Inc. 1933 1,200,000 76,776 .16
Ingersoll-Rand Co. Ltd., Class A 1910 1,700,000 74,936 .16
Pall Corp. 1974 3,592,300 75,869 .16
720,919 1.50
3,518,602 7.30
Commercial services & supplies 1.71%
Commercial services & supplies 1.71%
Automatic Data Processing, Inc. 1974 9,350,000 314,440 .65
Deluxe Corp. 1921 2,200,000 96,822 .20
Pitney Bowes Inc. 1934 10,344,900 363,209 .76
ServiceMaster Co. 1962 5,500,000 49,775 .10
824,246 1.71
Transportation .61%
Airlines .25%
Southwest Airlines Co. 1976 7,500,000 119,700 .25
Road & rail .36%
Burlington Northern Santa Fe Corp. 1940 4,000,000 112,640 .24
Union Pacific Corp. 1900 1,000,000 59,520 .12
172,160 .36
291,860 .61
Automobiles & components 1.96%
Auto components .06%
Dana Corp. 1936 3,200,000 29,728 .06
Automobiles 1.90%
General Motors Corp. 1915 23,763,400 856,671 \
General Motors Corp., Series B, > 1.90
5.25% convertible debentures 2032 2,442,000 58,046 /
914,717 1.90
944,445 1.96
Consumer durables & apparel 1.22%
Household durables .44%
Newell Rubbermaid Inc. 1946 4,000,000 121,920 .25
Stanley Works 1877 3,828,500 91,999 .19
213,919 .44
Textiles, apparel & luxury goods .78%
NIKE, Inc., Class B 1984 4,414,900 236,330 .49
VF Corp. 1941 3,500,000 137,690 .29
374,020 .78
587,939 1.22
Hotels, restaurants & leisure 1.05%
Hotels, restaurants & leisure 1.05%
Carnival Corp., units 1988 9,000,000 248,310 .51
McDonald's Corp. 1976 15,200,000 259,920 .54
508,230 1.05
Media 1.12%
Media 1.12%
AOL Time Warner Inc./2/ - 14,600,000 199,728 .41
Dow Jones & Co., Inc. 1906 1,900,000 75,240 .16
Gannett Co., Inc. 1929 800,000 60,576 .12
Interpublic Group of Companies, Inc. 1971 11,681,000 133,163 .28
Knight-Ridder, Inc. 1941 1,100,000 71,005 .15
539,712 1.12
Retailing 5.06%
Distributors .43%
Genuine Parts Co. 1948 6,555,800 209,589 .43
Multiline retail 1.56%
Dollar General Corp. 1975 5,250,000 76,335 .16
May Department Stores Co. 1911 14,265,000 308,409 .64
Target Corp. 1965 10,900,000 364,496 .76
749,240 1.56
Specialty retail 3.07%
Gap, Inc. 1976 4,500,000 74,835 \
> .26
Gap, Inc. 5.75% convertible notes 2009 $40,000,000 52,600 /
Limited Brands, Inc. 1970 22,000,000 319,880 .66
Lowe's Companies, Inc. 1961 15,000,000 658,350 1.37
TJX Companies, Inc. 1980 19,500,000 375,375 .78
1,481,040 3.07
2,439,869 5.06
Food & drug retailing 1.31%
Food & drug retailing 1.31%
Albertson's, Inc. 1960 19,906,750 395,348 .82
Walgreen Co. 1933 7,690,400 237,326 .49
632,674 1.31
Food & beverage 4.97%
Beverages .94%
Coca-Cola Co. 1893 5,475,000 221,190 .46
PepsiCo, Inc. 1952 5,400,000 233,712 .48
454,902 .94
Food products 4.03%
ConAgra Foods, Inc. 1976 12,750,000 267,750 .56
General Mills, Inc. 1898 9,000,000 405,990 .84
H.J. Heinz Co. 1911 14,350,000 428,778 .89
Kellogg Co. 1923 7,200,000 235,728 .49
Sara Lee Corp. 1946 25,350,000 425,373 .88
Unilever NV (New York registered) 1955 2,800,000 176,316 .37
1,939,935 4.03
2,394,837 4.97
Household & personal products 2.27%
Household products 1.29%
Kimberly-Clark Corp. 1935 12,503,100 622,279 1.29
Personal products .98%
Avon Products, Inc. 1919 8,150,000 474,085 .98
1,096,364 2.27
Health care equipment & services 1.82%
Health care equipment & supplies .56%
Applera Corp.-Applied Biosystems Group 1971 8,733,000 153,089 .32
Becton, Dickinson and Co. 1926 3,250,000 115,050 .24
268,139 .56
Health care providers & services 1.26%
Aetna Inc. 2001 4,400,000 219,120 .45
Cardinal Health, Inc. 1983 3,900,000 215,592 .45
CIGNA Corp. 1867 3,325,000 173,897 .36
608,609 1.26
876,748 1.82
Pharmaceuticals & biotechnology 9.75%
Pharmaceuticals 9.75%
Abbott Laboratories 1926 4,700,000 190,961 .40
Bristol-Myers Squibb Co. 1900 52,925,000 1,351,705 2.80
Eli Lilly and Co. 1885 19,840,000 1,266,189 2.63
Johnson & Johnson 1944 1,750,000 98,630 .21
Merck & Co., Inc. 1935 7,650,000 445,077 .92
Pfizer Inc (acquired Pharmacia Corp.) 1901 37,709,000 1,159,552 2.40
Schering-Plough Corp. 1952 5,497,400 99,503 .21
Wyeth 1919 2,000,000 87,060 .18
4,698,677 9.75
Banks 10.83%
Banks 10.83%
Bank of America Corp. 1903 12,675,000 938,584 1.95
Bank of New York Co., Inc. 1785 9,500,000 251,275 .52
BANK ONE CORP. 1935 17,583,000 633,867 1.31
FleetBoston Financial Corp. 1791 21,600,000 572,832 1.19
HSBC Holdings PLC (ADR) (formerly
Household International, Inc.) 1926 10,272,000 561,776 1.16
KeyCorp 1963 3,000,000 72,330 .15
National City Corp. 1936 3,400,000 101,864 .21
PNC Financial Services Group, Inc. 1865 7,100,000 311,690 .65
SunTrust Banks, Inc. 1985 1,000,000 57,220 .12
Wachovia Corp. 1914 14,870,000 568,183 \
> 1.18
Wachovia Corp., DEPS 5,650,000 198 /
Washington Mutual, Inc. 1986 9,850,000 389,075 .81
Wells Fargo & Co. 1939 15,835,000 764,197 1.58
5,223,091 10.83
Diversified financials 5.22%
Diversified financials 5.22%
American Express Co. 1870 1,750,000 66,255 .14
Citigroup Inc. 1986 1,230,000 48,277 .10
Fannie Mae 1956 5,325,000 385,477 .80
Freddie Mac 1989 950,000 55,005 .11
J.P. Morgan Chase & Co. 1827 64,235,000 1,885,297 3.91
SLM Corp. 1983 700,000 78,400 .16
2,518,711 5.22
Insurance 5.21%
Insurance 5.21%
Allstate Corp. 1993 18,750,000 708,563 1.47
American International Group, Inc. 1969 11,000,000 637,450 1.32
Aon Corp. 1950 9,850,000 218,276 .45
Hartford Financial Services Group, Inc. 1996 2,000,000 81,520 .17
Jefferson-Pilot Corp. 1913 4,675,000 187,421 .39
Lincoln National Corp. 1920 9,154,800 292,587 .61
Marsh & McLennan Companies, Inc. 1923 2,400,000 114,432 .24
St. Paul Companies, Inc. 1872 7,950,000 273,003 .56
2,513,252 5.21
Software & services 1.26%
IT consulting & services .57%
Electronic Data Systems Corp. 1984 11,700,000 212,355 \
Electronic Data Systems Corp. > .57
7.625% FELINE PRIDES 2004 3,220,000 units 63,756 /
276,111 .57
Software .69%
Microsoft Corp. 2003 8,740,000 223,482 .47
Oracle Corp./2/ - 9,000,000 106,920 .22
330,402 .69
606,513 1.26
Communications equipment .34%
Cisco Systems, Inc./2/ - 4,568,600 68,712 .14
Motorola, Inc. 1942 12,100,000 95,711 .20
164,423 .34
Computers & peripherals 2.36%
Dell Computer Corp./2/ - 2,150,000 62,157 .13
EMC Corp./2/ - 15,501,000 140,904 .29
Hewlett-Packard Co. 1965 26,950,000 439,285 .91
International Business Machines Corp. 1916 4,775,000 405,398 .84
Sun Microsystems, Inc./2/ - 27,000,000 89,100 .19
1,136,844 2.36
Electronic equipment & instruments .10%
Sanmina-SCI Corp./2/ - 10,225,000 49,080 .10
Office electronics .11%
IKON Office Solutions, Inc. 1965 7,000,000 54,320 .11
Semiconductor equipment & products .90%
Applied Materials, Inc./2/ - 10,900,000 159,140 .33
Intel Corp. 1992 3,800,000 69,920 .14
Linear Technology Corp. 1992 700,000 24,129 .05
Texas Instruments Inc. 1962 8,335,300 154,120 .32
Xilinx, Inc./2/ - 1,000,000 27,070 .06
434,379 .90
1,839,046 3.81
Telecommunication services 6.79%
Diversified telecommunication services 6.79%
ALLTEL Corp. 1961 8,100,000 379,566 \
> .94
ALLTEL Corp. 7.75% 2005 1,500,000 units 72,450 /
AT&T Corp. 1881 31,724,999 540,911 1.12
CenturyTel, Inc. 6.875% ACES 2005 575,000 units 14,691 .03
SBC Communications Inc. 1984 34,100,000 796,576 1.65
Sprint Corp. - FON Group, Series 1 1939 43,858,400 504,810 1.05
Verizon Communications Inc. 1984 25,800,000 964,404 2.00
3,273,408 6.79
Utilities 9.01%
Electric utilities 7.96%
Ameren Corp. 1906 2,300,000 94,254 \
Ameren Corp. 9.75% ACES > .23
convertible preferred 2005 550,000 units 15,048 /
American Electric Power Co., Inc. 1909 16,841,300 444,273 .92
Consolidated Edison, Inc. 1885 3,271,700 127,171 .26
Constellation Energy Group, Inc. 1910 7,250,000 212,280 .44
Dominion Resources, Inc. 1925 8,870,000 524,927 1.09
DTE Energy Co. 1909 3,550,000 143,136 .30
Exelon Corp. 1902 6,250,000 331,500 .69
FirstEnergy Corp. 1930 2,288,741 77,199 .16
FPL Group, Inc. 1944 3,550,000 216,089 .45
PPL Corp. 1946 2,000,000 72,400 .15
Progress Energy, Inc. 1937 11,125,418 464,820 .96
Public Service Enterprise Group Inc. 1907 6,620,000 254,671 .53
Puget Sound Energy, Inc. 1943 3,800,000 80,256 .17
Southern Co. 1948 13,000,000 378,170 .78
TECO Energy, Inc. 1900 1,000,000 10,790 .02
TXU Corp. 1946 9,500,000 189,240 \
> .44
TXU Corp. 8.125% FELINE PRIDES 2006 800,000 units 25,088 /
Xcel Energy Inc. 1910 13,000,000 175,760 .37
3,837,072 7.96
Gas utilities .17%
NiSource Inc. 1987 4,400,000 83,160 .17
Multi-utilities & unregulated power .88%
Duke Energy Corp. 1926 21,039,100 370,078 .77
Williams Companies, Inc. 1974 7,500,000 52,125 .11
422,203 .88
4,342,435 9.01
Miscellaneous .87%
Miscellaneous .87%
Other equity securities in
initial period of acquisition 420,757 .87
Total equity securities
(cost: $44,985,350,000) 46,409,925 96.26
Principal Markeet Percent
amount Value of net
Short-term securities (000) (000) assets
U.S. Treasuries and other
federal agencies 3.78%
U.S. Treasuries and other
federal agencies 3.78%
Federal Home Loan Bank 1.09% - 1.90%
due 5/2 - 7/28/2003 $902,920 901,444 1.87
United States Treasury Bills 1.08% - 1.16%
due 5/8 - 7/24/2003 921,671 920,266 1.91
Total short-term securities
(cost: $1,821,693,000) 1,821,710 3.78
Total investment securities
(cost: $46,807,043,000) 48,231,635 100.04
Other assets less liabilities (17,018) (.04)
Net assets $48,214,617 100.00%
/1/Source: Standard & Poor's Stock Guide, with adjustments for purchases and
acquisitions.
/2/Security did not produce income during the last 12 months.
ADR = American Depositary Receipts
See Notes to Financial Statements
Financial statements
Statement of assets and liabilities at April 30, 2003
(dollars and shares in thousands, except per share amounts)
Assets:
Investment securities at market (cost $46,807,043) $48,231,635
Cash 231
Receivables for:
Sales of investments $ 76,484
Sales of Fund's shares 87,878
Dividends and interest 113,928 278,290
Other assets 6
48,510,162
Liabilities:
Payables for:
Purchases of investments 218,055
Repurchases of Fund's shares 39,154
Management services 11,059
Services provided by affiliates 26,259
Deferred Directors' and Advisory Board compensation 867
Other fees and expenses 151 295,545
Net assets at April 30, 2003 $48,214,617
Net assets consist of:
Capital paid in on shares of capital stock $47,248,378
Undistributed net investment income 111,130
Accumulated net realized loss (569,483)
Net unrealized appreciation 1,424,592
Net assets at April 30, 2003 $48,214,617
Total authorized capital stock - 4,000,000 shares, $.001 par value
Shares Net Asset Value
Net assets outstanding per share /1/
Class A $43,700,776 1,821,724 $23.99
Class B 1,538,535 64,439 23.88
Class C 1,213,732 50,902 23.84
Class F 898,653 37,522 23.95
Class 529-A 198,728 8,289 23.97
Class 529-B 52,670 2,203 23.91
Class 529-C 69,184 2,893 23.91
Class 529-E 9,576 400 23.92
Class 529-F 2,829 118 23.96
Class R-1 7,870 329 23.92
Class R-2 95,878 4,015 23.88
Class R-3 124,912 5,219 23.93
Class R-4 70,883 2,960 23.95
Class R-5 230,391 9,605 23.99
/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 $25.45 and $25.43,
respectively.
See Notes to Financial Statements
Statement of operations for the year ended April 30, 2003
(dollars in thousands)
Investment income:
Income:
Dividends (net of non-U.S. withholding
tax of $873) $1,353,874
Interest 27,261 $1,381,135
Fees and expenses:
Investment advisory services 92,867
Business management services 42,754
Distribution services 130,360
Transfer agent services 49,406
Administrative services 4,071
Reports to shareholders 1,927
Registration statement and prospectus 2,415
Postage, stationery and supplies 6,135
Directors' and Advisory Board compensation 565
Auditing and legal 177
Custodian 379
Other 176
Total expenses before reimbursement 331,232
Reimbursement of expenses 99 331,133
Net investment income 1,050,002
Net realized gain and unrealized depreciation
on investments:
Net realized gain on investments 38,361
Net unrealized depreciation on investments (8,316,036)
Net realized gain and unrealized depreciation
on investments (8,277,675)
Net decrease in net assets resulting from operations $(7,227,673)
See Notes to Financial Statements
Statement of changes in net assets
(dollars in thousands)
Year ended April 30
2003 2002
Operations:
Net investment income $ 1,050,002 $ 846,677
Net realized gain (loss) on investments 38,361 (525,938)
Net unrealized depreciation on investments (8,316,036) (669,533)
Net decrease in net assets resulting
from operations (7,227,673) (348,794)
Dividends and distributions paid to shareholders:
Dividends from net investment income (1,028,729) (924,457)
Distributions from net realized gain
on investments (75,983) (1,103,304)
Total dividends and distributions paid
to shareholders (1,104,712) (2,027,761)
Capital share transactions 3,583,085 6,299,190
Total (decrease) increase in net assets (4,749,300) 3,922,635
Net assets:
Beginning of year 52,963,917 49,041,282
End of year (including undistributed net
investment income:
$111,130 and $90,401, respectively) $48,214,617 $52,963,917
See Notes to Financial Statements
Notes to financial statements
1. Organization and significant accounting policies
Organization - Washington Mutual Investors Fund (the "Fund") is registered
under the Investment Company Act of 1940 as an open-end, diversified management
investment company. The Fund's investment objective is to produce current income
and to provide an opportunity for growth of principal consistent with sound
common stock investing.
The Fund offers 14 share classes consisting of four retail share classes, five
CollegeAmerica savings plan share classes and five retirement plan share
classes. The CollegeAmerica savings plan share classes (529-A, 529-B, 529-C,
529-E and 529-F) are sponsored by the Commonwealth of Virginia and can be
utilized to save for college education. The five retirement plan share classes
(R-1, R-2, R-3, R-4 and R-5) are sold without any sales charges and do not carry
any conversion rights. The Fund's share classes are described below:
Initial Contingent deferred
Share class sales charge sales charge upon redemption Conversion feature
Classes A and 529-A Up to 5.75% None (except 1% for certain None
redemptions within one year
of purchase within an
initial sales charge)
Classes B and 529-B None Declines from 5% to zero for Classes B and 529-B convert to
redemptions within six classes A and 529-A, respectively,
years of purchase 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, R-4 and R-5 None None None
Holders of all share classes have equal pro rata rights to assets, dividends and
liquidation. 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 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 a pricing
service. However, where the investment adviser deems it appropriate, they
will be valued at the mean quoted bid and asked prices or at prices for
securities of comparable maturity, quality and type. Short-term securities
maturing within 60 days are valued at amortized cost, which approximates
market value. The ability of the issuers of the debt securities held by the
Fund to meet their obligations may be affected by economic developments in
a specific industry, state or region. Securities and other assets for which
representative market quotations are not readily available are valued at
fair value as determined in good faith by authority of the Fund's Board of
Directors.
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.
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 certain 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.
2. 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
capital losses related to sales of securities within 30 days of purchase;
expenses deferred for tax purposes; 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 April 30, 2003, the cost of investment securities for Federal
income tax purposes was $46,819,873,000.
During the year ended April 30, 2003, the Fund reclassified $3,000 from
additional paid-in capital and $544,000 from undistributed net investment income
to accumulated net realized loss to align financial reporting with tax
reporting.
As of April 30, 2003, the components of distributable earnings on a tax basis
were as follows:
(dollars in thousands)
Undistributed net investment income $ 111,997
Short-term and long-term capital loss deferrals (556,652)
Gross unrealized appreciation on investment securities 6,552,748
Gross unrealized depreciation on investment securities (5,140,986)
Short-term and long-term capital loss deferrals above include capital losses of
$556,652,000, that were realized during the period November 1, 2002 through
April 30, 2003.
The tax character of distributions paid to shareholders was as follows (dollars
in thousands):
Year ended April 30, 2003
Distributions from
ordinary income
Distributions Total
Net invest- Short-term from long-term distribu-
Share class/1/ ment income capital gains capital gains tions paid
Class A $ 969,924 - $70,108 $1,040,032
Class B 19,443 - 2,187 21,630
Class C 13,864 - 1,631 15,495
Class F 14,299 - 1,159 15,458
Class 529-A 2,929 - 238 3,167
Class 529-B 496 - 62 558
Class 529-C 655 - 81 736
Class 529-E 103 - 10 113
Class 529-F 18 - 1 19
Class R-1 34 - 3 37
Class R-2 547 - 56 603
Class R-3 800 - 72 872
Class R-4 288 - 28 316
Class R-5 5,329 - 347 5,676
Total $1,028,729 - $75,983 $1,104,712
/1/ Class 529-F shares were offered beginning February 15, 2002. Class R-1,
R-2, R-3, R-4 and R-5 shares were offered beginning May 15, 2002.
The tax character of distributions paid to shareholders was as follows (dollars
in thousands):
Year ended April 30, 2002
Distributions from
ordinary income
Distributions Total
Net invest- Short-term from long-term distribu-
Share class/1/ ment income capital gains capital gains tions paid
Class A $909,181 - $1,075,003 $1,984,184
Class B 7,815 - 15,419 23,234
Class C 3,566 - 7,377 10,943
Class F 3,773 - 5,505 9,278
Class 529-A 86 - - 86
Class 529-B 16 - - 16
Class 529-C 19 - - 19
Class 529-E 1 - - 1
Total $924,457 - $1,103,304 $2,027,761
/1/ Class 529-A, 529-B, 529-C and 529-E shares were offered beginning February
15, 2002.
3. Fees and transactions with related parties
Business management services - The Fund has a business management agreement
with Washington Management Corporation (WMC). Under this agreement, WMC provides
services necessary to carry on the Fund's general administrative and corporate
affairs. These services include all executive personnel, clerical staff, office
space and equipment, certain accounting and recordkeeping facilities,
arrangements for and supervision of shareholder services, and Federal and state
regulatory compliance. Under the agreement, all expenses chargeable to the Class
A shares of the Fund, including compensation to the business manager, shall not
exceed 1% of the average net assets of the Fund on an annual basis. The
agreement provides for monthly fees, accrued daily, based on a declining series
of annual rates beginning with 0.175% on the first $3 billion of daily net
assets and decreasing to 0.040% of such assets in excess of $55 billion. For the
year ended April 30, 2003, the business management services fee was equivalent
to an annualized rate of 0.091% of average daily net assets. Johnston, Lemon &
Co. Incorporated (JLC), a wholly owned subsidiary of The Johnston-Lemon Group,
Incorporated (JLG), earned $601,000 on its retail sales of shares and
distribution plan of the Fund and received no brokerage commissions resulting
from the purchases and sales of securities for the investment account of the
Fund.
Investment advisory services - 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. The Investment Advisory
Agreement with CRMC provides for monthly fees accrued daily. These fees are
based on a declining series of annual rates beginning with 0.225% on the first
$3 billion of daily net assets and decreasing to 0.185% on such assets in excess
of $55 billion. For the year ended April 30, 2003, the investment advisory
services fee was equivalent to an annualized rate of 0.199% 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 for 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.
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
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 April 30, 2003, there
were no unreimbursed expenses subject to reimbursement for classes A or
529-A.
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
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 start-up period for classes R-1, R-2, R-3 and R-4,
CRMC has voluntarily agreed to pay a portion of these fees. Each 529 share
class is subject to an additional annual administrative services fee of
0.10% of its respective average daily net assets; this fee is payable to
the Commonwealth of Virginia for the maintenance of the CollegeAmerica
plan. Although these amounts are included with administrative services fees
in the accompanying financial statements, the Commonwealth of Virginia is
not considered a related party. Administrative services fees are presented
gross of any payments made by CRMC.
Expenses under the agreements described above for the year ended April 30,
2003, were as follows (dollars in thousands):
Administrative services
Commonwealth of
Distribution Transfer agent CRMC administrative Transfer agent Virginia administrative
Share class services services services services services
Class A $105,879 $47,769 Not applicable Not applicable Not applicable
Class B 12,503 1,637 Not applicable Not applicable Not applicable
Class C 9,033 | $1,354 $426 Not applicable
Class F 1,582 | 949 217 Not applicable
Class 529-A 147 | 188 20 $125
Class 529-B 320 | 48 20 32
Class 529-C 424 Included in 64 20 42
Class 529-E 25 administrative 7 1 5
Class 529-F 2 services 1 -<F1> 1
Class R-1 22 | 3 6 Not applicable
Class R-2 205 | 41 157 Not applicable
Class R-3 180 | 54 58 Not applicable
Class R-4 38 | 23 6 Not applicable
Class R-5 Not applicable | 198 5 Not applicable
Total $130,360 $49,406 $2,930 $936 $205
<FN>
<F1> Amount less than one thousand.
</FN>
Deferred Directors' and Advisory Board compensation - Since the adoption of the
deferred compensation plan in 1994, Independent Directors and Advisory Board
members 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' and Advisory Board fees
in the accompanying financial statements include the current fees (either paid
in cash or deferred) and the net increase or decrease in the value of the
deferred amounts.
Affiliated officers and Directors - WMC and JLC are both wholly owned
subsidiaries of JLG. All the officers of the Fund and four of its Directors are
affiliated with JLG and receive no compensation directly from the Fund in such
capacities.
4. Capital share transactions
Capital share transactions in the Fund were as follows (dollars and shares in
thousands):
Year ended April 30, 2003
Reinvestments of
Sales<F2> dividends and distributions Repurchases<F2> Net increase
Share class<F1> Amount Shares Amount Shares Amount Shares Amount Shares
Class A $ 7,060,551 291,493 $ 973,429 40,929 $(7,098,673) (296,696) $ 935,307 35,726
Class B 792,895 32,647 20,726 880 (184,797) (7,910) 628,824 25,617
Class C 809,481 33,465 14,733 629 (168,702) (7,234) 655,512 26,860
Class F 696,571 28,917 14,070 599 (180,470) (7,670) 530,171 21,846
Class 529-A 163,103 6,654 3,167 135 (5,308) (228) 160,962 6,561
Class 529-B 45,053 1,846 559 24 (1,178) (50) 44,434 1,820
Class 529-C 59,484 2,427 736 31 (2,082) (90) 58,138 2,368
Class 529-E 9,228 379 113 5 (256) (11) 9,085 373
Class 529-F 2,749 118 19 1 (27) (1) 2,741 118
Class R-1 8,234 354 37 1 (598) (26) 7,673 329
Class R-2 106,862 4,638 603 26 (14,832) (649) 92,633 4,015
Class R-3 139,939 6,051 867 38 (19,854) (870) 120,952 5,219
Class R-4 74,628 3,294 316 14 (7,707) (348) 67,237 2,960
Class R-5 313,165 11,520 5,529 233 (49,278) (2,148) 269,416 9,605
Total net increase
(decrease) $10,281,943 423,803 $1,034,904 43,545 $(7,733,762) (323,931) $3,583,085 143,417
Year ended April 30, 2002
Reinvestments of
Sales<F2> dividends and distributions Repurchases<F2> Net increase
Share class<F1> Amount Shares Amount Shares Amount Shares Amount Shares
Class A $7,676,711 267,697 $1,863,712 66,650 $(5,235,510) (182,734) $4,304,913 151,613
Class B 855,010 29,918 22,290 798 (45,604) (1,612) 831,696 29,104
Class C 663,148 23,250 10,503 376 (22,510) (797) 651,141 22,829
Class F 463,606 16,165 8,634 309 (37,824) (1,332) 434,416 15,142
Class 529-A 50,134 1,733 86 3 (236) (8) 49,984 1,728
Class 529-B 11,111 384 16 -<F3> (34) (1) 11,093 383
Class 529-C 15,180 525 19 1 (32) (1) 15,167 525
Class 529-E 782 27 1 -<F3> (3) -<F3> 780 27
Total net increase
(decrease) $9,735,682 339,699 $1,905,261 68,137 $(5,341,753) (186,485) $6,299,190 221,351
<FN>
<F1>Class 529-A, 529-B, 529-C, 529-E and 529-F shares were offered beginning
February 15, 2002. Class R-1, R-2, R-3, R-4 and R-5 shares were offered
beginning May 15, 2002.
<F2>Includes exchanges between share classes of the Fund.
<F3>Amount less than one thousand.
</FN>
5. Investment transactions and other disclosures
The Fund made purchases and sales of investment securities, excluding short-term
securities, of $13,218,608,000 and $9,490,490,000, respectively, during the year
ended April 30, 2003.
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 April 30, 2003, the custodian fee of $379,000 includes $14,000 that
was offset by this reduction, rather than paid in cash.
6. Investments in affiliates
The Fund owns 5.39%, 5.16% and 5.08% of the outstanding voting securities of
Ashland, Lincoln National and Crompton, respectively, and therefore, each is
considered an "affiliated company" of the Fund under the Investment Company Act
of 1940.
Financial highlights<F1>
(Loss) income from
investment operations<F2> Dividends and distributions
Net gains
Net (losses) Total Net
Asset Net securities from Dividends Distri- Total Net assets Ratio of Ratio of
value invest- (both invest- (from net butions dividends asset end of expenses net income
begin- ment realized ment invest- (from and value, <F3> period to avg. (loss) to
ning of income and un- opera- ment capital distri- end of Total (in net avg. net
period (loss) realized) tions income) gains) butions period return millions) assets net assets
Class A:
Year ended 4/30/2003 $28.37 $.55 $(4.35) $(3.80) $(.54) $ (.04) $ (.58) $23.99 (13.36)%$43,701 .67% 2.28%
Year ended 4/30/2002 29.80 .50 (.75) (.25) (.54) (.64) (1.18) 28.37 (.73) 50,669 .65 1.72
Year ended 4/30/2001 29.14 .57 3.17 3.74 (.58) (2.50) (3.08) 29.80 13.54 48,700 .65 1.95
Year ended 4/30/2000 35.31 .61 (3.09) (2.48) (.58) (3.11) (3.69) 29.14 (6.96) 47,319 .63 1.91
Year ended 4/30/1999 33.92 .60 3.99 4.59 (.61) (2.59) (3.20) 35.31 14.61 57,018 .61 1.84
Class B:
Year ended 4/30/2003 28.25 .36 (4.32) (3.96) (.37) (.04) (.41) 23.88 (14.01) 1,538 1.45 1.52
Year ended 4/30/2002 29.71 .25 (.72) (.47) (.35) (.64) (.99) 28.25 (1.50) 1,097 1.41 .88
Year ended 4/30/2001 29.11 .29 3.22 3.51 (.41) (2.50) (2.91) 29.71 12.67 289 1.42 .99
Period from 3/15/2000
to 4/30/2000 26.93 .02 2.16 2.18 - - - 29.11 8.09 34 .17 .08
Class C:
Year ended 4/30/2003 28.22 .35 (4.33) (3.98) (.36) (.04) (.40) 23.84 (14.10) 1,214 1.51 1.46
Year ended 4/30/2002 29.70 .21 (.73) (.52) (.32) (.64) (.96) 28.22 (1.68) 678 1.51 .72
Period from 3/15/2001
to 4/30/2001 28.32 (.02) 1.40 1.38 - - - 29.70 4.87 36 .23 (.07)
Class F:
Year ended 4/30/2003 28.33 .53 (4.34) (3.81) (.53) (.04) (.57) 23.95 (13.42) 899 .74 2.24
Year ended 4/30/2002 29.79 .42 (.72) (.30) (.52) (.64) (1.16) 28.33 (.89) 444 .78 1.46
Period from 3/15/2001
to 4/30/2001 28.37 .01 1.41 1.42 - - - 29.79 5.01 16 .12 .04
Class 529-A:
Year ended 4/30/2003 28.36 .54 (4.35) (3.81) (.54) (.04) (.58) 23.97 (13.38) 199 .70 2.29
Period from 2/15/2002
to 4/30/2002 27.71 .04 .75 .79 (.14) - (.14) 28.36 2.82 49 .16 .14
Class 529-B:
Year ended 4/30/2003 28.34 .32 (4.35) (4.03) (.36) (.04) (.40) 23.91 (14.18) 53 1.62 1.36
Period from 2/19/2002
to 4/30/2002 27.25 (.01) 1.22 1.21 (.12) - (.12) 28.34 4.38 11 .30 (.02)
Class 529-C:
Year ended 4/30/2003 28.33 .32 (4.34) (4.02) (.36) (.04) (.40) 23.91 (14.18) 69 1.61 1.38
Period from 2/15/2002
to 4/30/2002 27.71 (.01) .75 .74 (.12) - (.12) 28.33 2.65 15 .32 (.03)
Class 529-E:
Year ended 4/30/2003 28.34 .45 (4.35) (3.90) (.48) (.04) (.52) 23.92 (13.73) 9 1.08 1.92
Period from 3/1/2002
to 4/30/2002 28.59 .01 (.13) (.12) (.13) - (.13) 28.34 (.44) 1 .17 .04
Class 529-F:
Period from 9/16/2002
to 4/30/2003 23.98 .32 .10 .42 (.40) (.04) (.44) 23.96 1.85 3 <F4>.82 <F4>2.25
Class R-1:
Period from 5/29/2002
to 4/30/2003 28.52 .32 (4.46) (4.14) (.42) (.04) (.46) 23.92 (14.50) 8
<F4><F5>1.51 <F4>1.50
Class R-2:
Period from 5/31/2002
to 4/30/2003 28.46 .33 (4.40) (4.07) (.47) (.04) (.51) 23.88 (14.29) 96
<F4><F5>1.47 <F4>1.58
Class R-3:
Period from 6/4/2002
to 4/30/2003 27.81 .41 (3.74) (3.33) (.51) (.04) (.55) 23.93 (11.94) 125
<F4><F5>1.09 <F4>1.95
Class R-4:
Period from 5/20/2002
to 4/30/2003 28.78 .51 (4.74) (4.23) (.56) (.04) (.60) 23.95 (14.66) 71
<F4><F5>.73 <F4>2.32
Class R-5:
Period from 5/15/2002
to 4/30/2003 28.84 .57 (4.78) (4.21) (.60) (.04) (.64) 23.99 (14.57) 230 <F4>.41 <F4>2.51
<FN>
<F1> Based on operations for the period shown (unless otherwise noted) and,
accordingly, may not be representative of a full year.
<F2> Year ended 1999 is based on shares outstanding on the last day of the year;
all other periods are based on average shares outstanding.
<F3> Total returns exclude all sales charges, including contingent deferred
sales charges.
<F4> Annualized.
<F5> During the start-up period for this class, CRMC voluntarily agreed to pay a
portion of the fees relating to transfer agent services. Had CRMC not paid such
fees, expense ratios would have been 1.71%, 1.78%, 1.11% and .74% for classes
R-1, R-2, R-3 and R-4, respectively.
</FN>
Year ended April 30
2003 2002 2001 2000 1999
Portfolio turnover rate for all classes of shares 21% 22% 25% 26% 28%
Report of independent accountants
To the Board of Directors and Shareholders of Washington Mutual Investors Fund,
Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of Washington Mutual Investors Fund, Inc. (the
"Fund") at April 30, 2003, and the results of its operations, the changes in its
net assets and its financial highlights for each of the periods presented in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit 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, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at April 30, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
(signature PricewaterhouseCooper)
Los Angeles, California May 30, 2003
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.
During the fiscal year ended April 30, 2003, the Fund paid a long-term capital
gain distribution of $75,983,000.
As a result of recent tax legislation, individual shareholders are now eligible
for reduced tax rates on qualified dividend income received during 2003. For
purposes of computing the dividends eligible for reduced tax rates, all of the
dividends paid by the Fund from net investment income from January 1 through the
end of the Fund's fiscal year are considered qualified dividend income.
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, all of the dividends
paid by the Fund from net investment income represent qualifying dividends.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 1% of the dividends paid
by the Fund from net investment income were derived from interest on direct U.S.
Treasury obligations.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans and 403(b) plans need not be reported as taxable income.
However, many retirement plan trusts may need this information for their annual
information reporting.
Since the information above is reported for the Fund's fiscal year and not the
calendar year, shareholders should refer to their Form 1099-DIV or other tax
information which will be mailed in January 2004 to determine the calendar year
amounts to be included on their 2003 tax returns. Shareholders should consult
their tax advisers.
Other share class results (unaudited)
Class B, Class C, Class F and Class 529
Returns for periods ended March 31, 2003 (the most recent calendar quarter):
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 -26.29% <F1>-2.31%
Not reflecting CDSC -22.48% <F1>-1.47%
Class C shares
Reflecting CDSC, maximum of 1%, payable only if
shares are sold within one year of purchase -23.30% <F2>-9.19%
Not reflecting CDSC -22.54% <F2>-9.19%
Class F shares3
Not reflecting annual asset-based fee charged
by sponsoring firm -21.93% <F2>-8.45%
Class 529-A shares
Reflecting 5.75% maximum sales charge -26.39% <F4>-20.12%
Not reflecting maximum sales charge -21.89% <F4>-15.79%
Class 529-B shares
Reflecting applicable CDSC, maximum of 5%, payable
only if shares are sold within six years of purchase -26.41% <F5>-18.40%
Not reflecting CDSC -22.61% <F5>-15.40%
Class 529-C shares
Reflecting CDSC, maximum of 1%, payable only if shares
are sold within one year of purchase -23.34% <F4>-16.51%
Not reflecting CDSC -22.58% <F4>-16.51%
Class 529-E shares<F3> -22.21% <F6>-19.00%
Class 529-F shares<F3>
Not reflecting annual asset-based fee charged by
sponsoring firm - <F7>-5.63%
<FN>
<F1> Average annual compound return from March 15, 2000, when Class B shares
were first sold.
<F2> Average annual compound return from March 15, 2001, when Class C and Class
F shares were first sold.
<F3> These shares are sold without any initial or contingent deferred sales
charge.
<F4> Average annual compound return from February 15, 2002, when Class 529-A and
Class 529-C shares were first sold.
<F5> Average annual compound return from February 19, 2002, when Class 529-B
shares were first sold.
<F6> Average annual compound return from March 1, 2002, when Class 529-E shares
were first sold.
<F7> From September 16, 2002, when Class 529-F shares were first sold.
</FN>
Board of Directors and Directors Emeritus
Independent Directors
Number
of port-
Year folios
first within
elected the Fund
a complex<F2>
Director on which
of the Principal occupation(s) Director
Name and age Fund<F1> during past five years serves Other directorships<F3> held
Cyrus A. Ansary, 69 1983 President, Investment Services 3 JPMorgan Value Opportunities Fund
International Co. LLC (holding company
for various operating entities)
Charles A. Bowsher, 71 2001 Retired Comptroller General of the 1 DeVry Inc.; SI International, Inc.
United States
Daniel J. Callahan III, 70 1997 Vice Chairman and Treasurer, The 3 JPMorgan Value Opportunities Fund;
Morris & Gwendolyn Cafritz Foundation WGL Holdings, Inc.
Edward W. Kelley, Jr., 71 2002 Retired Governor, Federal Reserve Board 1 Security Capital Corp.
James C. Miller III, 60 1992 Chairman, The CapAnalysis Group, LLC 3 Atlantic Coast Airlines Holdings, Inc.;
(economic, financial and regulatory JPMorgan Value Opportunities Fund
consulting); Former Counselor,
Citizens for a Sound Economy
Katherine D. Ortega, 68 2002 Former Treasurer of the United States 3 JPMorgan Value Opportunities Fund;
The Kroger Co.; Rayonier Inc.
J. Knox Singleton, 54 2001 President and Chief Executive Officer, 1 Healthcare Realty Trust, Inc.
INOVA Health System
T. Eugene smith, 72 1987 President, T. Eugene smith, Inc. 3 JPMorgan Value Opportunities Fund
(real estate consulting,
planning, and development)
Leonard P. Steuart, II, 68 1997 Vice President, Steuart Investment 3 JPMorgan Value Opportunities Fund
Company (real estate investment
and operation)
Interested Directors<F4>
Number
Year of port-
first folios
elected within
Director the Fund
of complex<F2>
officer on which
Name, age, and of the Principal occupation(s) Director
position with Fund Fund<F1> during past five years serves Other directorships3 held
Fred J. Brinkman, 74 1997 Senior Financial Consultant, Washington 1 None
Director Management Corporation
James H. Lemon, Jr., 67 1971 Chairman of the Board and Chief 3 JPMorgan Value Opportunities Fund
Chairman of the Board Executive Officer, The Johnston-Lemon
Group, Incorporated (financial
services holding company)
Harry J. Lister, 67 1972 President and Director, Washington 3 JPMorgan Value Opportunities Fund
Vice Chairman of the Board Management Corporation
Jeffrey L. Steele, 57 2000 Executive Vice President and 3 JPMorgan Value Opportunities Fund
President Director, Washington Management
Corporation; Former Partner, Dechert
Price and Rhoads
Directors Emeritus
Stephen Hartwell, Chairman Emeritus John A. Beck Stephen G. Yeonas
We are sad to report that Charles T. Akre passed away on December 26, 2002 and
Dr. Nathan A. Baily passed away on March 29, 2003. Mr. Akre had been a member of
the Fund's Board of Directors from February 15, 1960 until July 15, 1982 and
thereafter served as Director Emeritus. Dr. Baily served on the Board from July
15, 1959 until March 18, 1993 and thereafter served as Director Emeritus. Their
wise counsel and friendship will be greatly missed.
Advisory Board and other officers
Advisory Board members
Number
of port-
folios
within
the Fund
Year complex
first on which
elected Advisory
to Board
Advisory Principal occupation member
Name and age Board<F1> during past five years serves Other directorships3 held
Mary K. Bush, 55 1995 President, Bush & Company (international 1 Brady Corporation; Millennium
financial advisory services) Chemicals, Inc.; Mortgage
Guaranty Insurance Corporation;
Pioneer Funds; R.J. Reynolds
Tobacco Holdings, Inc.
Louise M. Cromwell, 58 2001 Senior Counsel, Shaw Pittman 1 None
C. Richard Pogue, 66 2001 Retired Executive Vice President, 1 FAM Equity-Income Fund; FAM
Investment Company Institute Value Fund
Linda D. Rabbitt, 54 2001 President, Rand Construction Corporation 1 None
William J. Shaw, 57 2001 President and Chief Operating Officer, 1 Marriott International, Inc.
Marriott International, Inc.
Other officers
Year
first
elected
an
officer
Name, age and of the
position with Fund Fund<F1> Principal occupation(s) during past five years
Howard L. Kitzmiller, 72 1983 Director, Senior Vice President, Secretary, and Assistant Treasurer, Washington Management
Senior Vice President, Corporation
Secretary, and Treasurer
Ralph S. Richard, 84 1953 Director, Vice President, and Treasurer, Washington Management Corporation
Vice President
Lois A. Erhard, 50 1983 Vice President, Washington Management Corporation
Vice President
Michael W. Stockton, 36 1995 Vice President, Assistant Secretary, and Assistant Treasurer, Washington Management
Corporation
Assistant Vice President,
Assistant Secretary, and
Assistant Treasurer
J. Lanier Frank, 42 1997 Assistant Vice President, Washington Management Corporation
Assistant Vice President
Ashley L Shaw, 345 2000 Assistant Secretary, Washington Management Corporation; Former Attorney/Law Clerk
Assistant Secretary
The Statement of Additional Information includes additional information about
the Fund's Directors and is available without charge upon request by calling
American Funds Service Company at 800/421-0280. The address for all Directors,
Advisory Board members, and officers of the Fund is 1101 Vermont Avenue, NW,
Washington, DC 20005, attention: Fund Secretary.
<FN>
<F1> Directors, Advisory Board members, and officers of the Fund serve until
their resignation, removal, or retirement.
<F2> In each instance where a Director of the Fund serves on other Funds
affiliated with The American Funds Group, such service is as a Trustee of The
Tax-Exempt Fund of Maryland and The Tax-Exempt Fund of Virginia; both are
portfolios of The American Funds Tax-Exempt Series I.
<F3> This includes all directorships other than those in The American Funds
Group that are held by each Director or Advisory Board member as a director of a
public company or a registered inves(tm)ent company.
<F4> "Interested persons" within the meaning of the 1940 Act on the basis of
their affiliation with the Fund's Business Manager, Washington Management
Corporation.
<F5> Ashley L. Shaw is the daughter of James H. Lemon, Jr.
</FN>
Offices
Offices of the Fund and
of the business manager
Washington Management Corporation
1101 Vermont Avenue, NW Washington, DC 20005-3585
202/842-5665
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
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
JPMorgan Chase Bank
270 Park Avenue New York, NY 10017-2070
Counsel
Thompson, O'Donnell, Markham,
Norton & Hannon
1212 New York Avenue, NW
Washington, DC 20005-3987
Independent auditors
PricewaterhouseCoopers LLP
350 South Grand Avenue
Los Angeles, CA 90071-3405
Principal underwriter
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, CA 90071-1406
There are several ways to invest in Washington Mutual Investors Fund. Class A
shares are subject to a 5.75% maximum up-front sales charge that declines for
accounts of $25,000 or more. Other share classes, which are generally not
available for certain employer-sponsored retirement plans, have no up-front
sales charges but are subject to additional annual expenses and fees. Annual
expenses for Class B shares were 0.78% 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 0.84% 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%) 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.
This report is for the information of shareholders of Washington Mutual
Investors Fund, Inc., 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 June 30, 2003, this report must be accompanied by an
American Funds statistical update for the most recently completed calendar
quarter.
For information about your account or any of the Fund's services, or for a
prospectus for any of the American Funds, please contact your financial adviser.
You may also call American Funds Service Company at 800/421-0180 or visit us at
americanfunds.com. Please read the prospectus carefully before you invest or
send money.
(logo Americn Funds)
The right choice for the long term(R)
(Washington Mutual Investors Fund Logo)
Washington Mutual Investors Fund, Inc.
1101 Vermont Avenue, NW
Washington, DC 20005
202/842-5665
The Capital Group Companies
American Funds
Capital Research and Management
Capital International
Capital Guardian
Capital Bank and Trust
WMIF-011-0603W (recycle logo) Printed on recycled paper
Item 2 - Code of Ethics
Disclosure of Item 2 not yet effective
Item 3 - Audit Committee Financial Expert
Disclosure of Item 3 not yet effective
Item 4 - Principal Accountant Fees and Services
Disclosure of Item 4 not yet effective
Item 5 - Audit Committee Disclosure for Listed Companies
Not applicable
Item 6 - Reserved
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable to this Registrant
Item 8 - Reserved
Item 9 - Controls and Procedures
(a) The officers providing the certifications in this report in accordance
with rule 30a-2 under the Investment Company Act of 1940 have concluded,
based on their evaluation of the registrant's disclosure controls and
procedures (as such term is defined in such rule), that such controls and
procedures are adequate and reasonably designed to achieve the purposes
described in paragraph (c) of such rule.
(b) There were no significant changes in the Registrant's internal controls
or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Item 10 - Exhibits
(a) Disclosure of Item 10(a) not yet effective
(b) The certifications required by Rule 30a-2 of the Investment Company Act of
1940, as amended, and Section 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 it behalf by the undersigned, thereunto duly authorized.
(Registrant) Washington Mutual Investors Fund, Inc.
By (Signature and Title)
/s/ Harry J. Lister
Harry J. Lister, Vice Chairman and Principal Executive Officer
Date: July 8, 2003
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 (Signature and Title)
/S/ Howard L. Kitzmiller
Howard L. Kitzmiller, Senior Vice President, Secretary and Treasurer
Date: July 8, 2003
By (Signature and Title)
/s/ Harry J. Lister
Harry J. Lister, Vice Chairman and Principal Executive Officer
Date: July 8, 2003