N-30D 1 fisr.txt [THE AMERICAN FUNDS GROUP/R/] FUNDAMENTAL INVESTORS [Two drawings of a high-rise building, each with person standing in front of the buildings] Semi-Annual Report for the six months ended June 30, 2001 Fundamental Investors/SM/ is one of the 29 American Funds, the nation's third-largest mutual fund family. For seven decades, Capital Research and Management Company, the American Funds adviser, has invested with a long-term focus based on thorough research and attention to risk. Fundamental Investors seeks long-term growth of capital and income primarily through investments in common stocks. RESULTS AT A GLANCE Average Annual Return Six Months One Year Five Years 10 Years through 6/30/01 with all distributions reinvested Fundamental Investors -4.25% - 5.71% +15.53% +16.04% S&P 500 -6.67 -14.79 +14.45 +15.07 Lipper Fund Indexes Multi-Cap Value +4.22 +15.14 +12.79 +13.99 Multi-Cap Core -5.13 -11.83 +12.79 +14.02 Fund results in this report were calculated for Class A shares at net asset value (without a sales charge) unless otherwise indicated. Here are the average annual compound returns on a $1,000 investment with all distributions reinvested for periods ended June 30, 2001: CLASS A SHARES One Year Five Years 10 Years Reflecting 5.75% maximum sales charge -11.13% +14.17% +15.35% SHARE RESULTS: CLASS B, CLASS C AND CLASS F Average Annual Compound Returns One Year Life Of for periods ended 6/30/01 Class* Class B shares Reflecting applicable contingent deferred sales charge (CDSC), maximum of 5%, payable only if shares are sold -10.77% -3.67% Not reflecting CDSC - 6.44% -0.82% Class C and Class F shares Results for these are not shown because of the brief time between their introduction on March 15, 2001, and the end of the period. *From March 15, 2000, when B shares first became available. The fund's 30-day yield as of July 31, 2001, calculated in accordance with the Securities and Exchange Commission formula, was 1.28%. Please see the back cover 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. INVESTING OUTSIDE THE UNITED STATES IS SUBJECT TO ADDITIONAL RISKS, SUCH AS CURRENCY FLUCTUATIONS AND POLITICAL INSTABILITY, WHICH ARE DETAILED IN THE FUND'S PROSPECTUS. FELLOW SHAREHOLDERS Sometimes in a weak stock market it takes extra determination to stick to your long-term investment goals. Like many of our shareholders, you may have been attracted to Fundamental Investors to provide that long-term discipline for you. In the past, this approach has allowed us to produce competitive results in favorable markets, but more importantly, to resist the worst of declining stock prices in tough markets. We are pleased that our current results illustrate that approach. In the six months ended June 30, 2001, Fundamental Investors shares decreased 4.3% - ahead of Standard & Poor's 500 Composite Index. The unmanaged S&P 500, which tracks large-company U.S. stocks, was down 6.7% for the period. In addition to the S&P 500, the fund's adviser looks to two other indexes to provide further context for its short- and long-term results. Since we don't fit neatly into one peer-group category, we look at Lipper's Multi-Cap Value Fund Index, which tracks funds that invest in companies that are undervalued within their industries, and Multi-Cap Core Fund Index, which tracks funds that allow a wide latitude of companies in their portfolios. (Lipper compares the fund to the Multi-Cap Value index.) As you can see at left, the fund trailed Multi-Cap Value in recent periods but has outpaced both Lipper indexes as well as the S&P 500 over the long term. This six-month period brings us to 80 consecutive quarters of paying at least 10-cent quarterly dividends. We know you look to the fund for that income, so we search for securities that can help us earn it. The income return for the period was 0.7% (1.4% annualized). A long-term capital gain distribution of 38 cents a share was paid in February. The bubble has burst The market didn't really believe it was floating in a bubble, or understand its magnitude, until it burst. Now that one of the biggest stock market bubbles in history has collapsed, investors are reminded that annual double-digit returns aren't the norm, that companies need to make money to stay in business and that experience matters when it comes to selecting lasting investments. Bubbles or not, at American Funds we have always invested your money in companies with sound fundamentals. We are attracted to strong management with visionary leadership, compelling products or services, and underappreciated strength and value. It's important to see how companies like these handle a difficult environment. Though many prospered, you can see by our results that many companies succumbed to the short-term impact of high energy costs, overexpansion and the technology bust. While the consumer economy has held its own during this period, corporate America is clearly in retrenchment. The Federal Reserve Board's six short-term interest-rate reductions since January have helped consumers. Lower rates, however, aren't enough to help businesses recover from overexpansion or to accommodate overly optimistic demand projections. It will take time to reduce inventories, utilize excess capacity and reset profitability expectations to more reasonable levels. We are optimistic that reductions in interest rates, taxes and inventories (plus recent reductions in energy costs) will eventually lead to recovery. Broad holdings You will see a strategic increase in the diversity of industries represented in Fundamental Investors' portfolio. The 10 largest holdings represent that diversity. Together, these companies comprise more than 20% of the fund's assets. Our continuing commitment to media and entertainment companies (11.6% of the fund's assets) helped results this period. AOL Time Warner (+52.3%), our largest holding, completed its merger in January, bringing together America Online, CNN, HBO, Warner Brothers and Time Inc. into a global media company. In late January, management presented aggressive goals that generated investor enthusiasm for the new company. Like AOL Time Warner, Viacom (+11.3%) and News Corp. (+12.8%) also overcame the predicted advertising slump, with strong returns relative to the market. While we can't expect results to continue at this pace, we appreciate these companies' continued value as growing global businesses with strong brands and effective management. The other largest holdings represent various industries. Investors await AstraZeneca's (-7.8%) 2001 launch of Crestor, an important cholesterol drug that slows the LDL-producing enzyme that creates "bad" cholesterol. Crestor's expected success should override the loss of patent protection on the company's ulcer drug, Prilosec. Bank of America (+30.9%) and Canadian Pacific (+35.7%) have been solid "anti-technology" companies to own. Bank of America has benefited from low interest rates and its merger with NationsBank. We expect that Canadian Pacific's plan to spin off its rail, shipping, petroleum, coal and hotel units into separate entities will make the sum of its parts greater than its whole. Dow Chemical's (-9.2%) merger with Union Carbide makes it the world's second-largest chemical company. It has done better than expected in this environment and has provided the fund with a strong yield. What about technology? Two of the 10 largest holdings were technology-related: Texas Instruments (-33.5%) and Microsoft (+68.3%). Though we spent most of 2000 reducing our holdings in technology, we've recently added significantly in this area. We recognize that it may be early, but we have confidence that this is a solid strategy. We don't believe the Internet concept is a false premise, just that too much was promised too soon. It will be an important contributor to our future - and, we believe, a profitable one. When you've lived through one of the greatest collapses in financial history, you witness big mistakes in valuations of companies. Just as businesses got misvalued on the upside, the same thing can happen on the downside. For unknown reasons, solid companies may find their way to the bargain basement. It's our job to ferret out the bargains on your behalf. It's your job to hold on long enough to give these bargains an opportunity to prosper. We appreciate your support. Sincerely, /s/James F. Rothenberg James F. Rothenberg Chairman /s/James E. Drasdo James E. Drasdo President August 14, 2001 Investment Portfolio, June 30, 2001 PERCENT OF LARGEST INDUSTRY HOLDINGS NET ASSETS Media 11.62% Pharmaceuticals 7.10% Semiconductor Equipment & Products 4.82% Insurance 4.54% Oil & Gas 4.43% PERCENT OF PERCENT LARGEST EQUITY HOLDINGS NET ASSETS CHANGE /1/ AOL Time Warner Inc. 2.93% 52.3% /2/ AstraZeneca 2.64% -7.83% Bank of America 2.55% 30.86% Viacom Inc. 2.42% 11.26% AT&T 2.09% 27.08% Canadian Pacific 1.91% 35.67% Dow Chemical 1.90% -9.22% Texas Instruments/Burr-Brown 1.72% -33.51% Microsoft 1.57% 68.30% News Corp. 1.52% 12.82% /1/ Reflects change in market price for the six months ended 6/30/01. (Excludes dividends.) /2/ Adjusted for mergers.
Shares or Market Percent Equity Securities (Common and Preferred Stocks Principal Value of Net and Convertible Debentures) Value (000) Assets MEDIA - 11.62% AOL Time Warner Inc. (merger of America Online, 11,566,000 $612,998 2.93% Inc. and Time Warner Inc.) /1/ Viacom Inc., Class B /1/ 7,394,500 382,665 Viacom Inc., Class A /1/ 2,351,200 124,708 2.42 News Corp. Ltd., preferred (ADR) (Australia) 6,200,000 200,880 News Corp. Ltd. (ADR) 3,150,000 117,022 1.52 Walt Disney Co. 10,155,100 293,381 1.40 Fox Entertainment Group, Inc., Class A /1/ 3,650,000 101,835 .48 Clear Channel Communications, Inc. /1/ 1,498,100 93,931 .45 United Pan-Europe Communications NV, convertible 1,120 83,884 preferred (Netherlands) /1/ /2/ /3/ United Pan-Europe Communications NV, warrants, 543,826 0 .40 expire 2007 /1/ /3/ Dow Jones & Co., Inc. 1,385,000 82,698 .39 Adelphia Communications Corp. 6.00% convertible $75,000,000 72,840 .35 subordinated notes 2006 E.W. Scripps Co., Class A 700,000 48,300 .23 NTL Communications Corp. 6.75% convertible $40,000,000 24,650 subordinated notes 2008 /2/ NTL Inc. 5.75% convertible subordinated $65,000,000 20,963 .22 notes 2009 Comcast Corp., Class A, special stock /1/ 1,000,000 43,400 .21 Interpublic Group of Companies, Inc. 1,184,800 34,774 Interpublic Group of Companies, Inc. 1.87% $8,168,000 6,528 .20 convertible notes 2006 /2/ Gannett Co., Inc. 500,000 32,950 .16 Tribune Co. 718,400 28,743 .14 Knight-Ridder, Inc. 441,200 26,163 .12 PHARMACEUTICALS - 7.10% AstraZeneca PLC (United Kingdom) 8,590,000 398,609 AstraZeneca PLC (ADR) 3,300,766 154,311 2.64 Pharmacia Corp. 4,439,500 203,995 Pharmacia Corp. 6.50% ACES convertible 100,000 4,040 .99 preferred 2001, units Eli Lilly and Co. 2,250,000 166,500 .80 American Home Products Corp. 2,750,000 160,710 .77 Bristol-Myers Squibb Co. 2,900,000 151,670 .72 Pfizer Inc 3,500,000 140,175 .67 Elan Corp., PLC (ADR) (Ireland) /1/ 1,400,000 85,400 .41 Forest Laboratories, Inc. /1/ 300,000 21,300 .10 SEMICONDUCTOR EQUIPMENT & PRODUCTS - 4.82% Texas Instruments Inc. 10,564,324 332,776 Burr-Brown Corp. 4.25% convertible subordinated $25,000,000 28,075 1.72 notes 2007 PMC-Sierra, Inc. /1/ 4,081,200 126,803 .60 Intel Corp. 4,200,000 122,850 .59 Applied Materials, Inc. /1/ 2,500,000 122,750 .59 Maxim Integrated Products, Inc. /1/ 2,350,000 103,893 .50 National Semiconductor Corp. /1/ 1,750,000 50,960 .24 Cypress Semiconductor Corp. /1/ 2,100,000 50,085 .24 LSI Logic Corp. /1/ 1,900,000 35,720 .17 ON Semiconductor Corp. /1/ 5,347,800 24,332 .11 Semtech Corp. 4.50% convertible subordinated $8,000,000 7,899 notes 2007 /2/ Semtech Corp. 4.50% convertible subordinated $2,000,000 1,975 .05 notes 2007 Infineon Technologies AG (Germany) 75,500 1,774 .01 INSURANCE - 4.54% Marsh & McLennan Companies, Inc. 2,440,600 246,501 1.18 Chubb Corp. 2,925,000 226,483 1.08 Allstate Corp. 4,000,000 175,960 .84 Berkshire Hathaway Inc., Class A /1/ 1,750 121,450 .58 21st Century Insurance Group 2,892,300 53,797 .25 American International Group, Inc. 600,000 51,600 .25 XL Capital Ltd., Class A (Bermuda) 472,000 38,751 .18 AMP Ltd. (Australia) 3,300,000 36,992 .18 OIL & GAS - 4.43% Suncor Energy Inc. (Canada) 8,862,417 225,951 1.08 Murphy Oil Corp. 2,194,900 161,545 .77 Unocal Corp. 2,500,000 85,375 Unocal Capital Trust $3.125 convertible preferred 450,000 21,431 .51 Shell Canada Ltd., Class A (Canada) 3,254,700 92,869 .44 Texaco Inc. 1,323,100 88,118 .42 Phillips Petroleum Co. 1,138,400 64,889 .31 ENI SpA (Italy) 5,120,000 62,597 .30 Imperial Oil Ltd. (Canada) 2,261,900 58,244 .28 Sunoco, Inc. 1,000,000 36,630 .18 Royal Dutch Petroleum Co. (New York registered) 500,000 29,135 .14 (Netherlands) BANKS - 4.40% Bank of America Corp. 8,900,000 534,267 2.55 First Union Corp. 2,600,000 90,844 .43 BANK ONE CORP. 2,500,000 89,500 .43 KeyCorp 2,500,000 65,125 .31 Wells Fargo & Co. 1,400,000 65,002 .31 FleetBoston Financial Corp. 1,250,000 49,312 .24 Royal Bank of Canada (Canada) 850,000 27,268 .13 DIVERSIFIED TELECOMMUNICATION SERVICES - 3.80% AT&T Corp. 19,900,000 437,800 2.09 SBC Communications Inc. 5,800,000 232,348 1.11 Qwest Communications International Inc. 2,161,650 68,892 .33 Sprint FON Group 2,643,700 56,469 .27 INDUSTRIAL CONGLOMERATES - 3.76% Norsk Hydro AS (ADR) (Norway) 3,559,000 151,969 Norsk Hydro AS 2,701,000 114,535 1.27 Minnesota Mining and Manufacturing Co. 1,900,000 216,790 1.04 General Electric Co. 4,000,000 195,000 .93 Siemens AG (Germany) 1,800,000 109,163 .52 COMPUTERS & PERIPHERALS - 3.25% International Business Machines Corp. 2,000,000 226,000 1.08 Lexmark International, Inc., Class A /1/ 3,000,000 201,750 .96 Hewlett-Packard Co. 3,755,200 107,399 .51 Compaq Computer Corp. 6,000,000 92,940 .44 EMC Corp. /1/ 1,200,000 34,860 .17 Dell Computer Corp. /1/ 709,100 18,543 .09 ROAD & RAIL - 2.76% Canadian Pacific Ltd. (Canada) 10,318,000 399,823 1.91 Union Pacific Corp. 1,700,000 93,347 Union Pacific Capital Trust 6.25% TIDES 160,000 7,530 .48 convertible preferred 2028 /2/ Burlington Northern Santa Fe Corp. 2,547,600 76,861 .37 COMMUNICATIONS EQUIPMENT - 2.73% Cisco Systems, Inc. /1/ 8,600,000 156,520 .75 Motorola, Inc. 9,261,100 153,364 .73 Corning Inc. 8,950,000 149,554 .71 Telefonaktiebolaget LM Ericsson, Class B 6,000,000 32,520 .15 (ADR) (Sweden) JDS Uniphase Corp. /1/ 2,200,000 27,500 .13 Lucent Technologies Inc. 4,000,000 24,800 .12 Crown Castle International Corp. /1/ 1,500,000 24,600 .12 Nortel Networks Corp. (Canada) 400,000 3,636 .02 ELECTRIC UTILITIES - 2.72% TXU Corp. 3,981,600 191,873 .92 Dominion Resources, Inc. 1,050,000 63,137 .30 DTE Energy Co. 1,300,000 60,372 .29 American Electric Power Co., Inc. 1,152,100 53,192 .25 Xcel Energy Inc. 1,800,000 51,210 .24 CMS Energy Corp. 1,800,000 50,130 .24 Constellation Energy Group, Inc. 1,090,800 46,468 .22 Duke Energy Corp. 300,000 11,703 Duke Energy Corp. 8.25% units 2004 338,000 8,670 .10 FPL Group, Inc. 297,500 17,912 .09 Southern Co. 400,000 9,300 .04 Entergy Corp. 150,000 5,759 .03 SOFTWARE - 2.46% Microsoft Corp. /1/ 4,500,000 328,500 1.57 Computer Associates International, Inc. 2,750,000 99,000 .47 Intuit Inc. /1/ 2,200,000 87,978 .42 ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.34% Jabil Circuit, Inc. /1/ 6,500,000 200,590 .96 Sanmina Corp. /1/ 3,500,000 81,935 Sanmina Corp. 0% convertible subordinated $166,000,000 59,146 .67 debentures 2020 SCI Systems, Inc. /1/ 3,000,000 76,500 SCI Systems, Inc. 3.00% convertible $10,000,000 7,911 .40 subordinated debentures 2007 Agilent Technologies, Inc. /1/ 2,000,000 65,000 .31 FOOD PRODUCTS - 2.33% Unilever NV (New York Registered) (Netherlands) 1,600,000 95,312 .46 H.J. Heinz Co. 2,000,000 81,780 .39 Wm. Wrigley Jr. Co. 1,690,800 79,214 .38 Sara Lee Corp. 3,900,000 73,866 .35 Kellogg Co. 2,400,000 69,600 .33 General Mills, Inc. 1,404,200 61,476 .29 Dole Food Co., Inc. 1,363,800 25,980 .13 CHEMICALS - 2.24% Dow Chemical Co. 11,975,000 398,169 1.90 Air Products and Chemicals, Inc. 1,400,000 64,050 .31 Syngenta AG (Switzerland) /1/ 98,414 5,180 Syngenta AG (ADR) /1/ 133,740 1,444 .03 DIVERSIFIED FINANCIALS - 1.95% Fannie Mae 1,917,800 163,301 .78 Household International, Inc. 1,700,000 113,390 .54 Investor AB, Class B (Sweden) 5,000,000 63,719 .31 USA Education Inc. 550,000 40,150 .19 Capital One Financial Corp. 450,000 27,000 .13 METALS & MINING - 1.93% Alcoa Inc. 5,480,100 215,916 1.03 Phelps Dodge Corp. 1,915,620 79,498 .38 BHP Billiton Ltd., (formerly BHP Ltd.) 5,645,029 30,643 deferred shares (Australia) /1/ BHP Billiton Ltd. 5,300,000 28,068 .28 Massey Energy Co. 2,011,700 39,751 .19 Freeport-McMoRan Copper & Gold Inc., 845,000 9,337 .05 Class B /1/ AIRLINES - 1.61% Continental Airlines, Inc., Class B /1/ 2,675,000 131,744 .63 Delta Air Lines, Inc. 2,400,000 105,792 .51 AMR Corp. /1/ 2,000,000 72,260 .34 Southwest Airlines Co. 1,500,000 27,735 .13 AEROSPACE & DEFENSE - 1.50% Honeywell International Inc. 3,100,000 108,469 .52 Lockheed Martin Corp. 2,911,900 107,886 .52 Boeing Co. 1,750,000 97,300 .46 PAPER & FOREST PRODUCTS - 1.50% Weyerhaeuser Co. 1,925,000 105,817 .51 International Paper Co. 2,200,000 78,540 .37 Norske Skogindustrier ASA, Class A (Norway) 3,938,100 59,746 .29 Georgia-Pacific Corp., Georgia-Pacific Group 958,640 32,450 Georgia-Pacific Corp., Timber Group 150,000 5,363 .18 Bowater Inc. 700,000 31,318 .15 MACHINERY - 1.46% Deere & Co. 3,200,000 121,120 .58 Parker Hannifin Corp. 2,551,500 108,286 .52 Caterpillar Inc. 1,000,000 50,050 .24 Illinois Tool Works Inc. 400,000 25,320 .12 BEVERAGES - 1.43% Coca-Cola Co. 3,500,000 157,500 .75 Anheuser-Busch Companies, Inc. 1,500,000 61,800 .30 Adolph Coors Co., Class B 875,000 43,907 .21 PepsiCo, Inc. 800,000 35,360 .17 SPECIALTY RETAIL - 1.42% Lowe's Companies, Inc. 2,100,000 152,355 .73 Limited Inc. 8,768,578 144,857 .69 AUTOMOBILES - 1.03% General Motors Corp. 2,000,000 128,700 .62 Honda Motor Co., Ltd. (Japan) 1,954,000 85,911 .41 AIR FREIGHT & COURIERS - 0.92% FedEx Corp. /1/ 2,600,000 104,520 .50 United Parcel Service, Inc., Class B 1,509,600 87,255 .42 COMMERCIAL SERVICES & SUPPLIES - 0.88% Sabre Holdings Corp., Class A /1/ 2,045,304 102,265 .49 Avery Dennison Corp. 500,000 25,525 .12 Ceridian Corp. /1/ 1,122,100 21,511 .10 Cendant Corp. 3.00% convertible debentures $7,900,000 7,756 2002 /2/ Cendant Corp. /1/ 293,388 5,721 .07 Equifax Inc. 300,000 11,004 .05 Waste Management, Inc. 4.00% convertible $11,000,000 10,839 .05 debentures 2002 HOUSEHOLD PRODUCTS - 0.85% Colgate-Palmolive Co. 3,000,000 176,970 .85 INTERNET SOFTWARE & SERVICES - 0.74% Yahoo Inc. /1/ 7,500,000 149,925 .72 CNET Networks, Inc. 5.00% convertible $8,000,000 5,420 .02 subordinated notes 2006 IT CONSULTING & SERVICES - 0.71% Electronic Data Systems Corp. 2,100,000 131,250 Electronic Data Systems 7.625% convertible 279,600 14,735 .70 preferred, FELINE PRIDES, 2004 /1/ Arbitron Inc. /1/ 109,400 2,637 .01 ENERGY EQUIPMENT & SERVICES - 0.69% Baker Hughes Inc. 4,300,000 144,050 .69 MULTILINE RETAIL - 0.57% Federated Department Stores, Inc. /1/ 2,800,000 119,000 .57 MULTI-UTILITIES - 0.51% Questar Corp. 3,000,000 74,280 .35 Williams Companies, Inc. 1,000,000 32,950 .16 CONSTRUCTION & ENGINEERING - 0.49% Fluor Corp. 2,011,700 90,828 .43 Foster Wheeler Ltd. 6.50% convertible $15,000,000 12,262 .06 subordinated notes 2007 /2/ PERSONAL PRODUCTS - 0.37% Gillette Co. 2,700,000 78,273 .37 GAS UTILITIES - 0.28% KeySpan Corp. 1,584,000 57,784 .28 HEALTH CARE PROVIDERS & SERVICES - 0.25% Cardinal Health, Inc. 750,000 51,750 .25 OTHER INDUSTRIES - 1.23% Applera Corp. - Applied Biosystems Group 1,330,200 35,583 Applera Corp. - Celera Genomics Group /1/ 528,800 20,972 .27 Delphi Automotive Systems Corp. 2,814,518 44,835 .21 AT&T Broadband 6.25% PIES convertible 750,000 42,893 .21 preferred 2001 Nippon Sheet Glass Co., Ltd. (Japan) 5,183,000 30,190 .14 Albertson's, Inc. 998,550 29,947 .14 Chesapeake Corp. /4/ 859,100 21,263 .10 Walgreen Co. 500,000 17,075 .08 Tupperware Corp. 500,000 11,715 .06 Royal Caribbean Cruises Ltd. 0% convertible $10,750,000 3,915 .02 debenture 2021 MISCELLANEOUS - 4.34% Other equity securities in initial period 908,775 4.34 of acquisition TOTAL EQUITY SECURITIES (cost: $16,986,479,000) 19,252,453 91.96 Principal Market Percent Amount Value of Net Bonds & Notes (000) (000) Assets MEDIA - 1.06% NTL Communications Corp.: 11.50% 2008 41,500 27,390 Series B, 11.875% 2010 28,125 18,703 NTL Inc.: 0%/12.75% 2005 /5/ 33,000 24,420 11.50% 2006 14,375 9,991 .39 United Pan-Europe Communications NV: 10.875% 2009 85,925 30,933 11.25% 2010 25,175 9,566 11.50% 2010 20,050 7,669 0%/13.75% 2010 /5/ 33,950 5,432 .26 Charter Communications Holdings, LLC 8.25% 2007 50,000 46,750 .22 Comcast UK Cable Partners Ltd. 0%/11.20% 19,570 13,112 .06 2007 /5/ Cablevision Industries Corp. 9.875% 2013 10,000 10,500 .05 Diamond Cable Communications PLC 11.75% 13,000 8,905 .04 2005 /5/ Time Warner Inc. 10.15% 2012 6,000 7,289 .04 AIRLINES - 0.06% Delta Air Lines, Inc., Series 1993-A2, 11,500 12,286 .06 10.50% 2016 /6/ TOTAL BONDS & NOTES (cost: $306,847,000) 232,946 1.12 Principal Market Percent Amount Value of Net Short-Term Securities (000) (000) Assets Federal Agency Discount Notes - 3.51% Federal Home Loan Banks 3.55%-4.48% due 280,000 278,731 1.33 7/5-9/26/2001 Fannie Mae 3.55%-4.47% due 7/12-11/8/2001 275,000 272,977 1.30 Freddie Mac 3.56%-4.59% due 7/3-9/27/2001 185,000 184,093 .88 Corporate Short-Term Notes - 2.93% American Express Credit Corp. 3.83%-4.00% 60,000 59,788 .29 due 7/16-8/31/2001 Park Avenue Receivables Corp. 3.80%-3.99% due 50,000 49,918 .24 7/10-7/26/2001 /2/ General Electric Capital Services Inc. 3.93% 50,000 49,907 .24 due 7/17/2001 Equilon Enterprises LLC 3.86%-3.92% due 45,000 44,895 .21 7/19-7/23/2001 Target Corp. 3.75%-3.88% due 7/13-7/20/2001 40,000 39,934 .19 Three Rivers Funding Corp. 3.84%-3.85% due 40,000 39,918 .19 7/16-7/23/2001 /2/ Marsh USA Inc. 3.70% due 8/14/2001 /2/ 40,000 39,811 .19 Colgate-Palmolive Co. 3.72%-3.75% due 39,000 38,839 .19 8/7-8/8/2001 /2/ Corporate Asset Funding Co. Inc. 3.70%-3.73% 31,500 31,328 .15 due 8/14-8/24/2001 /2/ Wal-Mart Stores, Inc. 3.76%-3.82% due 28,000 27,929 .13 7/24/2001 /2/ Anheuser-Busch Companies Inc. 3.71%-4.64% 26,000 25,827 .12 due 7/6-9/6/2001 /2/ Bank of America Corp. 4.58% due 7/9/2001 25,500 25,471 .12 Preferred Receivables Funding Corp. 3.90%-3.93% 25,000 24,960 .12 due 7/10-7/19/2001 /2/ Alcoa Inc. 3.75%-4.65% due 7/6-8/14/2001 25,000 24,942 .12 Walt Disney Co. 3.82% due 11/9/2001 25,000 24,658 .12 Private Export Funding Corp. 4.15% due 23,000 22,920 .11 7/30/2001 /2/ Schering Corp. 3.95% due 7/16/2001 22,469 22,430 .11 Minnesota Mining & Manufacturing Co. 20,000 19,876 .09 3.69%-4.15% due 7/19-10/10/2001 U.S. Treasury Securities - 0.31% U.S. Treasury Bills 3.50%-3.56% due 65,000 64,278 .31 9/27-11/8/2001 TOTAL SHORT-TERM SECURITIES: 1,413,430 6.75 (cost: $1,413,348,000) TOTAL INVESTMENT SECURITIES: 20,898,829 99.83 (cost: $18,706,674,000) Excess of cash and receivables over payables 36,308 .17 NET ASSETS $20,935,137 100.00% /1/ Non-income-producing security. /2/ Purchased in a private placement transaction; resale may be limited to qualified institutional buyers; resale to public may require registration. /3/ Valued under procedures established by the Board of Directors. /4/ The fund owns 5.68% of the outstanding voting securities of Chesapeake Corp. and thus is considered an affiliate as defined under the Investment Company Act of 1940. /5/ Step bond; coupon rate will increase at a later date. /6/ Pass-through security backed by a pool of mortgages or other loans on which principal payments are periodically made. Therefore, the effective maturity is shorter than the stated maturity. ADR = American Depositary Receipts See Notes to Financial Statements
Equity securities added since December 31, 2000 Adelphia Communications Anheuser-Busch Applied Materials Arbitron Avery Dennison Burr-Brown Ceridian Cisco Systems Clear Channel Communications Continental Airlines Cypress Semiconductor Dell Computer EMC Foster Wheeler Freeport-McMoRan Copper & Gold General Electric Jabil Circuit JDS Uniphase KeyCorp Maxim Integrated Products National Semiconductor NTL Norske Skogindustrier PMC-Sierra Royal Caribbean Cruises Sanmina Syngenta AG Equity securities eliminated since December 31, 2000 A. H. Belo Aon Avaya Bayer Becton, Dickinson and Co. Bell Atlantic Financial Services Budget Group Cincinnati Financial Dana Diamond Offshore Drilling Imperial Chemical Industries IVAX Mizuho Holdings Newell Northrop Grumman Progress Energy Raytheon Schlumberger "Shell" Transport and Trading St. Paul Companies Sumitomo Bank Verizon Communications Willamette Industries FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES Unaudited at June 30, 2001 (dollars in thousands) Assets: Investment securities at market (cost: $18,706,674) $20,898,829 Cash 1,280 Receivables for - Sales of investments $60,847 Sales of fund's shares 51,375 Dividends and interest 35,537 147,759 21,047,868 Liabilities: Payables for - Purchases of investments 76,235 Repurchases of fund's shares 24,180 Management services 4,692 Other expenses 7,624 112,731 Net Assets at June 30, 2001 $20,935,137 Total authorized capital stock - 1,000,000,000 shares, $1.00 par value Class A shares: Net assets $20,210,997 Shares outstanding 690,610,107 Net asset value per share $29.27 Class B shares: Net assets $552,295 Shares outstanding 18,898,574 Net asset value per share $29.22 Class C shares: Net assets $104,346 Shares outstanding 3,572,585 Net asset value per share $29.21 Class F shares: Net assets $67,499 Shares outstanding 2,306,836 Net asset value per share $29.26 See Notes to Financial Statements STATEMENT OF OPERATIONS Unaudited for the six months ended June 30, 2001 (dollars in thousands) Investment Income: Income: Dividends $133,309 Interest 80,699 $214,008 Expenses: Management services fee 27,651 Distribution expenses - Class A 24,840 Distribution expenses - Class B 2,107 Distribution expenses - Class C 157 Distribution expenses - Class F 24 Transfer agent fee - Class A 9,906 Transfer agent fee - Class B 251 Administrative service fees - Class C 75 Administrative service fees - Class F 25 Reports to shareholders 359 Registration statement and prospectus 1,755 Postage, stationery and supplies 1,598 Directors' fees 59 Auditing and legal fees 59 Custodian fee 450 Taxes other than federal income tax 2 Other expenses 38 69,356 Net investment income 144,652 Realized Gain and Unrealized Depreciation on Investments: Net realized gain 149,280 Net unrealized depreciation on investments (1,196,046) Net realized gain and unrealized depreciation on investments (1,046,766) Net Decrease in Net Assets Resulting from Operations $(902,114) See Notes to Financial Statements STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands) Six Months Year Ended Ended June 30, December 31, 2001* 2000 Operations: Net investment income $144,652 $238,341 Net realized gain on investments 149,280 1,436,000 Net unrealized depreciation on investments (1,196,046) (981,026) Net(decrease) increase in net assets resulting from operations (902,114) 693,315 Dividends and Distributions Paid to Shareholders: Dividends from net investment income: Class A (133,455) (223,880) Class B (1,303) (587) Class C (51) - Class F (116) - Distributions from net realized gain on investments: Class A (245,197) (1,367,983) Class B (4,538) (15,496) Total dividends and distributions (384,660) (1,607,946) Capital Share Transactions: Proceeds from shares sold 2,942,850 5,434,428 Proceeds from shares issued in reinvestment of net investment income dividends and distributions of net realized gain on investments 365,000 1,527,294 Cost of shares repurchased (1,256,622) (2,479,505) Net increase in net assets resulting from capital share transactions 2,051,228 4,482,217 Total Increase in Net Assets 764,454 3,567,586 Net Assets: Beginning of period 20,170,683 16,603,097 End of period (including undistributed net investment income: $50,574 and $40,847, $20,935,137 $20,170,683 respectively) *Unaudited. See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION - Fundamental Investors, Inc. (the "fund") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company. The fund seeks long-term growth of capital and income primarily through investments in common stocks. The fund offers four classes of shares as described below: Class A shares are sold with an initial sales charge of up to 5.75%. Class B shares are sold without an initial sales charge but are subject to a contingent deferred sales charge ("CDSC") paid upon redemption. This charge declines from 5% to zero over a period of six years. Class B shares automatically convert to Class A shares after eight years. Class C shares are sold without an initial sales charge but are subject to a CDSC of 1% for redemptions within one year of purchase. Class C shares automatically convert to Class F shares after ten years. Class F shares, which are sold exclusively through fee-based programs, are sold without an initial sales charge or CDSC. Holders of all classes of shares have equal pro rata rights to assets, dividends, liquidation and other rights. Each class has identical voting rights, except for exclusive rights to vote on matters affecting only its class. Each class of shares may have different distribution, administrative services and transfer agent fees and expenses. Differences in class-specific expenses will result in the payment of different per share dividends by each class. SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. These principles require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of the significant accounting policies consistently followed by the fund in the preparation of its financial statements: SECURITY VALUATION - Equity securities, including depositary receipts, are valued at the last reported sale price on the exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. In cases where equity securities are traded on more than one exchange, the securities are valued on the exchange or market determined by the investment adviser to be the broadest and most representative market, which may be either a securities exchange or the over-the-counter market. Fixed-income securities are valued at prices obtained from a pricing service, when such prices are available; however, in circumstances where the investment adviser deems it appropriate to do so, such securities will be valued at the mean quoted bid and asked prices or at prices for securities of comparable maturity, quality and type. Short-term securities maturing within 60 days are valued at amortized cost, which approximates market value. The ability of the issuers of the debt securities held by the fund to meet their obligations may be affected by economic developments in a specific industry, state or region. Securities and assets for which representative market quotations are not readily available are valued at fair value as determined in good faith by a committee appointed by the fund's Board of Directors. NON-U.S. CURRENCY TRANSLATION - Assets and liabilities initially expressed in terms of non-U.S. currencies are translated into U.S. dollars at the prevailing market rates at the end of the reporting period. Purchases and sales of securities and income and expenses are translated into U.S. dollars at the prevailing market rates on the dates of such transactions. The effects of changes in non-U.S. currency exchange rates on investment securities and other assets and liabilities are combined with the net realized and unrealized gain or loss on investment securities for financial reporting purposes. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions are accounted for as of the trade date. Realized gains and losses from securities transactions are determined based on specific identified cost. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. Market discounts, premiums and original issue discounts on fixed-income securities are amortized daily over the expected life of the security. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions paid to shareholders are recorded on the ex-dividend date. CLASS ALLOCATIONS - Income, expenses (other than class-specific expenses) and realized and unrealized gains and losses are allocated daily among the various share classes based on their relative net asset values. Distribution expenses, administrative services fees, certain transfer agent fees and other applicable class-specific expenses are accrued daily and charged to the respective share class. 2. NON-U.S. INVESTMENTS INVESTMENT RISK - Investments in securities of non-U.S. issuers in certain countries involve special investment risks. These risks may include, but are not limited to, investment and repatriation restrictions, revaluation of currencies, adverse political, social and economic developments, government involvement in the private sector, limited and less reliable investor information, lack of liquidity, certain local tax law considerations, and limited regulation of the securities markets. TAXATION - Dividend and interest income is recorded net of non-U.S. taxes paid. For the six months ended June 30, 2001, non-U.S. taxes paid were $4,251,000. CURRENCY GAINS AND LOSSES - Net realized currency losses on dividends, interest and other receivables and payables, on a book basis, were $598,000 for the six months ended June 30, 2001. 3. FEDERAL INCOME TAXATION The fund complies with the requirements of the Internal Revenue Code applicable to regulated investment companies and intends to distribute all of its net taxable income and net capital gains for the fiscal year. As a regulated investment company, the fund is not subject to income taxes if such distributions are made. Required distributions are based on net investment income and net realized gains determined on a tax basis and may differ from such amounts for financial reporting purposes. In addition, the year in which amounts are distributed may differ from the year in which the net investment income is earned and the net gains are realized by the fund. As of June 30, 2001, the cost of investment securities for federal income tax reporting purposes was $18,710,046,000. Net unrealized appreciation on investments aggregated $2,188,783,000; $3,892,783,000,000 related to appreciated securities and $1,704,000,000 related to depreciated securities. For the six months ended June 30, 2001, the fund realized on a tax basis net capital gains of $148,992,000. In addition, the fund has recognized, for tax purposes, losses relating to non-U.S. currency transactions totaling $4,398,000 which were realized during the period November 1, 2000 through December 31, 2000. Net losses related to non-U.S. currency transactions of $4,996,000 were treated as an adjustment to ordinary income for federal income tax purposes. 4. FEES AND TRANSACTIONS WITH RELATED PARTIES INVESTMENT ADVISORY FEE - The fee of $27,651,000 for management services was incurred pursuant to an agreement with Capital Research and Management Company ("CRMC") with which certain officers and Directors of the fund are affiliated. The Investment Advisory and Service Agreement provides for monthly fees accrued daily, based on a series of rates beginning with 0.390% per annum of the first $1 billion of daily net assets decreasing to 0.246% of such assets in excess of $27 billion. For the six months ended June 30, 2001, the management services fee was equivalent to an annualized rate of 0.271% of average daily net assets. DISTRIBUTION EXPENSES - The fund has adopted plans of distribution under which it may finance activities primarily intended to sell fund shares, provided the categories of expenses are approved in advance by the fund's Board of Directors. The plans provide for annual expenses, based on average daily net assets, of up to 0.25% for Class A shares, 1.00% for Class B and Class C shares, and up to 0.50% for Class F shares. All share classes may use up to 0.25% of these expenses to pay service fees, or to compensate American Funds Distributors, Inc.("AFD"), the principal underwriter of the fund's shares, for paying service fees to firms that have entered into agreements with AFD for providing certain shareholder services. The balance may be used for approved distribution expenses as follows: CLASS A SHARES - Approved categories of expense include reimbursements to AFD for commissions paid to dealers and wholesalers in respect of certain shares sold without a sales charge. Those reimbursements are permitted for amounts billed to the fund within the prior 15 months but only to the extent that the overall 0.25% annual expense limit for Class A shares is not exceeded. For the six months ended June 30, 2001, aggregate distribution expenses were limited to $24,840,000, or 0.25% of average daily net assets attributable to Class A shares. As of June 30, 2001, unreimbursed expenses which remain subject to reimbursement totaled $2,804,000. CLASS B SHARES - In addition to service fees of 0.25%, approved categories of expense include fees of 0.75% per annum of average daily net assets attributable to Class B shares payable to AFD. AFD sells the rights to receive such payments (as well as any contingent deferred sales charges payable in respect of shares sold during the period) in order to finance the payment of dealer commissions. For the six months ended June 30, 2001, aggregate distribution expenses were $2,107,000, or 1.00% of average daily net assets attributable to Class B shares. CLASS C SHARES - In addition to service fees of 0.25%, the Board of Directors has approved the payment of 0.75% per annum of average daily net assets attributable to Class C shares to AFD to compensate firms selling Class C shares of the fund. For the period ended June 30, 2001, aggregate distribution expenses were $157,000, or 1.00% of average daily net assets attributable to Class C shares. CLASS F SHARES - The plan has an expense limit of 0.50%. However, the Board of Directors has presently approved expenses under the plan of 0.25% per annum of average daily net assets attributable to Class F shares. For the period ended June 30, 2001, aggregate distribution expenses were $24,000, or 0.25% of average daily net assets attributable to Class F shares. As of June 30, 2001, aggregate distribution expenses payable to AFD for all share classes were $4,857,000. AFD received $8,107,000 (after allowances to dealers) as its portion of the sales charges paid by purchasers of the fund's Class A shares for the six months ended June 30, 2001. Such sales charges are not an expense of the fund and, hence, are not reflected in the accompanying Statement of Operations. TRANSFER AGENT FEE - A fee of $10,157,000 was incurred during the six months ended June 30, 2001, pursuant to an agreement with American Funds Service Company ("AFS"), the transfer agent for the fund. As of June 30, 2001, aggregate transfer agent fees payable to AFS for Class A and Class B shares were $1,743,000. ADMINISTRATIVE SERVICES FEES - The fund has an administrative services agreement with CRMC for Class C and Class F shares. Pursuant to this agreement, CRMC provides transfer agency and other related shareholder services. CRMC may contract with third parties to perform these services. Under the agreement, the fund pays CRMC a fee equal to 0.15% per annum of average daily net assets of Class C and Class F shares, plus amounts payable for certain transfer agency services according to a specified schedule. For the six months ended June 30, 2001, total fees under the agreement were $100,000. As of June 30, 2001, aggregate administrative services fees payable to CRMC for Class C and Class F shares were $38,000. DEFERRED DIRECTORS' FEES - Since the adoption of the deferred compensation plan in 1993, Directors who are unaffiliated with CRMC may elect to defer the receipt of part or all of their compensation. Deferred compensation amounts, which remain in 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. As of June 30, 2001, the cumulative amount of these liabilities was $813,000. Directors' fees during the six months ended June 30, 2001, were $59,000, comprised of $100,000 in current fees (either paid in cash or deferred), and $41,000, representing the net decrease in the value of deferred compensation. AFFILIATED DIRECTORS AND OFFICERS - CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both wholly owned subsidiaries of CRMC. Officers of the fund and certain Directors are or may be considered to be affiliated with CRMC, AFS and AFD. No such persons received any remuneration directly from the fund. 5. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES The fund made purchases and sales of investment securities, excluding short-term securities, of $4,965,074,000 and $2,353,547,000, respectively, during the six months ended June 30, 2001. Pursuant to the custodian agreement, the fund receives credits against its custodian fee for imputed interest on certain balances with the custodian bank. For the six months ended June 30, 2001, the custodian fee of $450,000 includes $73,000 that was paid by these credits rather than in cash. As of June 30, 2001, net assets consisted of the following: (dollars in thousands) Capital paid in on shares of capital stock $18,548,979 Undistributed net investment income 50,574 Undistributed net realized gain 143,389 Net unrealized appreciation 2,192,195 Net assets $20,935,137
Capital share transactions in the fund were as follows: Six months Six months ended ended June 30, June 30, 2001 2001 Amount (000) Shares Class A Shares: Sold $2,480,350 82,269,356 Reinvestment of dividends and distributions 359,170 12,026,231 Repurchased (1,241,020) (41,483,910) Net increase in Class A 1,598,500 52,811,677 Class B Shares: /1/ Sold $ 286,851 9,560,696 Reinvestment of dividends and distributions 5,675 190,893 Repurchased (13,550) (459,060) Net increase in Class B 278,976 9,292,529 Class C Shares: /2/ Sold 106,047 3,598,693 Reinvestment of dividends and distributions 49 1,561 Repurchased (814) (27,669) Net increase in Class C 105,282 3,572,585 Class F Shares: /2/ Sold 69,602 2,344,262 Reinvestment of dividends and distributions 106 3,400 Repurchased (1,238) (40,826) Net increase in Class F 68,470 2,306,836 Total net increase in fund $2,051,228 67,983,627 Year ended Year ended December 31, December 31, 2000 2000 Amount (000) Shares Class A Shares: Sold $5,121,869 154,249,355 Reinvestment of dividends and distributions 1,511,665 48,749,136 Repurchased (2,471,417) (74,675,780) Net increase in Class A 4,162,117 128,322,711 Class B Shares: /1/ Sold 312,559 9,345,451 Reinvestment of dividends and distributions 15,629 507,965 Repurchased (8,088) (247,371) Net increase in Class B 320,100 9,606,045 Class C Shares: /2/ Sold - - Reinvestment of dividends and distributions - - Repurchased - - Net increase in Class C - - Class F Shares: /2/ Sold - - Reinvestment of dividends and distributions - - Repurchased - - Net increase in Class F - - Total net increase in fund $4,482,217 137,928,756 /1/ Class B shares were not offered before March 15, 2000. /2/ Class C and Class F shares were not offered before March 15, 2001.
Per-Share Data and Ratios Class A Class A Class A Six months Year Year ended ended ended June 30, December 31, December 31, 2001 /1/,/2/ 2000 1999 Net Asset Value, Beginning of Period $31.16 $32.59 $28.92 Income from Investment Operations : Net investment income .22 /3/ .42 /3/ .41 Net (losses) gains on securities (both (1.53)/3/ .90 /3/ 6.45 realized and unrealized) Total from investment operations (1.31) 1.32 6.86 Less Distributions : Dividends (from net investment income) (.20) (.40) (.40) Distributions (from capital gains) (.38) (2.35) (2.79) Total distributions (.58) (2.75) (3.19) Net Asset Value, End of Period $29.27 $31.16 $32.59 Total Return /4/ (4.25)% 4.27% 24.58% Ratios/Supplemental Data: Net assets, end of period (in millions) $20,211 $19,872 $16,603 Ratio of expenses to average net assets .66%/5/ .64% .63% Ratio of net income to average net assets 1.44%/5/ 1.28% 1.33% Class A Class A Class A Year Year Year ended ended ended December 31, December 31, December 31, 1998 1997 1996 Net Asset Value, Beginning of Period $27.40 $24.54 $22.29 Income from Investment Operations : Net investment income .42 .41 .41 Net (losses) gains on securities (both 4.09 6.00 4.00 realized and unrealized) Total from investment operations 4.51 6.41 4.41 Less Distributions : Dividends (from net investment income) (.40) (.42) (.40) Distributions (from capital gains) (2.59) (3.13) (1.76) Total distributions (2.99) (3.55) (2.16) Net Asset Value, End of Period $28.92 $27.40 $24.54 Total Return /4/ 16.72% 26.67% 19.99% Ratios/Supplemental Data: Net assets, end of period (in millions) $12,713 $10,465 $7,165 Ratio of expenses to average net assets .63% .63% .66% Ratio of net income to average net assets 1.47% 1.54% 1.78% Class B Class B Class C Six months ended March 15 to March 15 to June 30, December 31, June 30, 2001 /1/,/2/ 2000 /1/ 2001 /1/,/2/ Net Asset Value, Beginning of Period $31.12 $31.93 $28.52 Income from Investment Operations : Net investment income /3/ .10 .15 .02 Net (losses) gains on securities (both (1.53) 1.02 .69 realizedand unrealized) /3/ Total from investment operations (1.43) 1.17 .71 Less Distributions : Dividends (from net investment income) (.09) (.13) (.02) Distributions (from capital gains) (.38) (1.85) .00 Total distributions (.47) (1.98) (.02) Net Asset Value, End of Period $29.22 $31.12 $29.21 Total Return /4/ (4.62)% 3.73% 2.50% Ratios/Supplemental Data: Net assets, end of period (in millions) $552 $299 $104 Ratio of expenses to average net assets 1.43%/5/ 1.39%/5/ .52% Ratio of net income to average net assets .66%/5/ .53%/5/ .07% Class F March 15 to June 30, 2001 /1/,/2/ Net Asset Value, Beginning of Period $28.56 Income from Investment Operations : Net investment income /3/ .10 Net (losses) gains on securities (both .69 realized and unrealized) /3/ Total from investment operations .79 Less Distributions : Dividends (from net investment income) (.09) Distributions (from capital gains) .00 Total distributions (.09) Net Asset Value, End of Period $29.26 Total Return /4/ 2.76% Ratios/Supplemental Data: Net assets, end of period (in millions) $68 Ratio of expenses to average net assets .24% Ratio of net income to average net assets .35% Supplemental Data - All Classes Six months ended Year ended Year ended June 30, December 31, December 31, 2001 /1/,/2/ 2000 1999 Portfolio turnover rate 12.66% 43.43% 45.50% Year ended Year ended Year ended December 31, December 31, December 31, 1998 1997 1996 Portfolio turnover rate 52.57% 45.09% 39.07% /1/ Based on operations for the period shown and, accordingly, not representative of a full year. /2/ Unaudited. /3/ Based on average shares outstanding. /4/ Total returns exclude all sales charges, including contingent deferred sales charges. /5/ Annualized.
DIRECTORS Guilford C. Babcock San Marino, California Associate Professor of Finance, Marshall School of Business, University of Southern California James E. Drasdo Los Angeles, California President of the fund Senior Vice President, Capital Research and Management Company Robert A. Fox Livingston, California Managing General Partner, Fox Investments, LP; Professor and Executive in Residence, University of California, Davis; former President and Chief Executive Officer, Foster Farms Inc. Roberta L. Hazard McLean, Virginia Consultant; Rear Admiral, U.S. Navy (retired) Leonade D. Jones Burlingame, California Co-founder and adviser, VentureThink, LLC and Versura Inc.; former Treasurer, The Washington Post Company John G. McDonald Stanford, California The IBJ Professor of Finance, Graduate School of Business, Stanford University Gail L. Neale Burlington, Vermont President, The Lovejoy Consulting Group, Inc.; former Executive Vice President of the Salzburg Seminar Henry E. Riggs Claremont, California President, Keck Graduate Institute of Applied Life Sciences James F. Rothenberg Los Angeles, California Chairman of the Board of the fund President and Director, Capital Research and Management Company Patricia K. Woolf, Ph.D. Princeton, New Jersey Private investor; corporate director; lecturer, Department of Molecular Biology, Princeton University OTHER OFFICERS Gordon Crawford Los Angeles, California Senior Vice President of the fund Senior Vice President and Director, Capital Research and Management Company Paul G. Haaga, Jr. Los Angeles, California Senior Vice President of the fund Executive Vice President and Director, Capital Research and Management Company Michael T. Kerr Los Angeles, California Senior Vice President of the fund Senior Vice President, Capital Research Company Dina N. Perry Washington, D.C. Senior Vice President of the fund Senior Vice President, Capital Research and Management Company Martin Romo San Francisco, California Vice President of the fund Vice President and Director, Capital Research Company Patrick F. Quan San Francisco, California Secretary of the fund Vice President - Fund Business Management Group, Capital Research and Management Company Sheryl F. Johnson Norfolk, Virginia Treasurer of the fund Vice President Fund Business Management Group, Capital Research and Management Company David A. Pritchett Norfolk, Virginia Assistant Treasurer of the fund Vice President - Fund Business Management Group, Capital Research and Management Company [The American Funds Group/r/] OFFICES OF THE FUND One Market, Steuart Tower Suite 1800 San Francisco, California 94105-1409 INVESTMENT ADVISER Capital Research and Management Company 333 South Hope Street Los Angeles, California 90071-1443 135 South State College Boulevard Brea, California 92821-5823 TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS American Funds Service Company (Please write to the address nearest you.) P.O. Box 2205 Brea, California 92822-2205 P.O. Box 659522 San Antonio, Texas 78265-9522 P.O. Box 6007 Indianapolis, Indiana 46206-6007 P.O. Box 2280 Norfolk, Virginia 23501-2280 CUSTODIAN OF ASSETS State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02105-1713 COUNSEL Paul, Hastings, Janofsky & Walker LLP 555 South Flower Street Los Angeles, California 90071-2371 PRINCIPAL UNDERWRITER American Funds Distributors, Inc. 333 South Hope Street Los Angeles, California 90071-1462 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, TOLL-FREE, AT 800/421-0180 OR VISIT US AT AMERICANFUNDS.COM ON THE WORLD WIDE WEB. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY. This report is for the information of shareholders of Fundamental Investors, but it may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details about charges, expenses, investment objectives and operating policies of the fund. If used as sales material after September 30, 2001, this report must be accompanied by an American Funds Group Statistical Update for the most recently completed calendar quarter. There are several ways to invest in Fundamental Investors. Class A shares are subject to a 5.75% maximum up-front sales charge that declines for accounts 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 0.77% 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 are subject to annual expenses about 0.82% 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, have higher expenses (about 0.06% a year) than do Class A shares, and an annual asset-based fee charged by the sponsoring firm. Because expenses are first deducted from income, dividends for each share class will vary. Printed on recycled paper Litho in USA KBD/CG/5184 Lit. No. FI-013-0801