Fundamental Investors
The value of multiple perspectives
1994 annual report for the year ended December 31
[THE AMERICAN FUNDS GROUP](R)
Fundamental Investors
seeks long-term growth of capital and income through investments in common
stocks.
FUNDAMENTAL INVESTORS'
TOTAL RETURN YEAR BY YEAR
<TABLE>
<CAPTION>
CAPITAL INCOME TOTAL
RESULTS RETURN RETURN
<S> <C> <C> <C>
1985 +26.7% +3.5% +30.2%
1986 +19.0 +3.0 +22.0
1987 +0.9 +2.9 +3.8
1988 +12.4 +3.6 +16.0
1989 +24.1 +4.5 +28.6
1990 -9.2 +3.0 -6.2
1991 +27.5 +2.8 +30.3
1992 +7.8 +2.4 +10.2
1993 +15.7 +2.5 +18.2
1994 -1.2 +2.5 +1.3
</TABLE>
10-YEAR AVERAGE ANNUAL
COMPOUND RATE OF RETURN +14.8%
10-YEAR TOTAL RETURN +296.3%
Total return measures both capital results (changes in net asset value) and
income return (from income dividends), assuming
reinvestment of all dividends and capital gain distributions.
10 MOST PROFITABLE HOLDINGS
FOR THE TWELVE MONTHS ENDED 12/31/94
<TABLE>
<CAPTION>
Tandem Computers +57.5%
<S> <C>
Archer Daniels Midland +42.8
Capital Cities/ABC +37.6
Litton Industries +34.4
Apple Computer +32.5
Alumax +32.0
International Business Machines +30.1
Phelps Dodge +26.9
Motorola +25.3
Aluminum Co. of America +24.9
</TABLE>
10 LEAST PROFITABLE HOLDINGS
FOR THE TWELVE MONTHS ENDED 12/31/94
<TABLE>
<CAPTION>
CITIC Pacific -27.0%
<S> <C>
Union Pacific -27.2
PNC Bank -27.2
Tele-Communications -27.8
Banc One -28.7
Pacific Gas and Electric -30.6
Cooper Industries -30.7
MCI Communications -34.7
Long Island Lighting -36.9
Entergy -39.2
</TABLE>
Fund results in this report were computed without a sales charge unless
otherwise indicated. The maximum sales charge is 5.75%; sales charges are lower
for accounts of $50,000 or more. The fund's 30-day yield as of January 31,
1995, calculated in accordance with the Securities and Exchange Commission
formula, was 2.39%. Fund results through August 1988 do not reflect service and
distribution expenses now paid under its Plan of Distribution. Such expenses
may not exceed 0.25% of the fund's average net assets per year, and currently
amount to approximately 0.23%.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS. SHARE PRICE AND RETURN WILL
VARY, SO YOU MAY HAVE A GAIN OR LOSS OF PRINCIPAL WHEN YOU SELL YOUR SHARES.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR GUARANTEED BY,
THE U.S. GOVERNMENT, ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER AGENCY, ENTITY OR PERSON. All investments are subject
to certain risks. For example, those which include common stocks are affected
by fluctuating stock prices. Accordingly, investors should maintain a long-term
perspective.
FELLOW SHAREHOLDERS:
A year ago, we were pleased to report to you that the value of your investment
had increased 18.2% during 1993. This year, though our increase was
dramatically lower, it was achieved in a much more challenging environment.
Fundamental Investors gained 1.33% in 1994 if you reinvested all dividends and
capital gain distributions. If you took your dividends in cash, your investment
fell by 1.11%. In keeping with the fund's goal of providing income, Fundamental
Investors paid quarterly dividends totaling 44 cents, representing an income
return of 2.5%. Capital gain distributions totaled 45 cents per share - 8 cents
paid in February and 37 cents in November.
Over the same period, the fund narrowly beat the unmanaged Standard & Poor's
500 Composite Index, which rose 1.29% with dividends reinvested and fell 1.54%
with dividends taken in cash. The S&P 500 is used frequently to measure U.S.
stock market performance.
The S&P 500's return for 1994 belies the roller coaster ride experienced by the
majority of U.S. stocks this year. Over 65% of all common stocks on the New
York Stock Exchange showed net losses, and the Dow Jones Transportation and
Utilities Averages each fell more than 20% from their 1993 and early-1994
peaks. If this weren't enough, long-term government bonds had their worst year
since 1967, the dollar declined sharply and the Federal Reserve Board pushed up
interest rates six times to keep inflation at bay.
Needless to say, it was a difficult year in which to make - or even avoid
losing - money.
Fundamental Investors' best and worst holdings tell the story. Our list of 10
least profitable holdings, shown at left, is dominated by utilities and banks.
Their inherent sensitivity to interest rates put them at a strong disadvantage
this year. Utilities were also hard hit by adverse legislation. We tend to own
these stocks for their income component more than for their growth potential.
Nonetheless, we believe most of the damage has been done and that these stocks
should improve over the coming year.
Although they do not show up to the same extent on the list of least profitable
holdings, we feel it is important to note that our heavy weighting in media and
entertainment stocks also hurt the fund this year. Over the long haul, these
stocks have provided substantial appreciation for Fundamental Investors'
shareholders. This year the highly publicized information superhighway took a
detour as a number of negative regulatory developments affected cable TV
companies and companies that produce cable programming. The situation is
already improving, and we continue to be impressed by the fundamental growth
prospects these companies offer.
It is with this same level of confidence that we have approached our technology
holdings over the years. Although our long-term convictions often affected the
fund negatively in the short-term, this year our patience was rewarded. Two of
1993's worst holdings, Tandem Computers and Apple Computer, found their way to
the list of 10 most profitable holdings for 1994. Two other companies on the
top-10 list are also representative of the computer industry - IBM and
Motorola. We are pleased that we held on.
Three other companies on the most profitable list - Alumax, Phelps Dodge and
Aluminum Company of America (ALCOA) - are metals companies. Based on our belief
that developing countries will require the materials produced by these
companies, we have been willing to wait for the demand to accelerate. This
year, it did. Metals prices rose as demand grew along with concern about
long-term availability.
Though we realize that Fundamental Investors' results this year showed only a
small increase, we are pleased that we stayed ahead of most of our growth and
income fund competitors during this difficult period. According to Lipper
Analytical Services, Fundamental Investors ranked 79th of 347 growth-and-income
funds this year (in the top 23%); 32nd of 182 for the past five years (top
18%); and 9th of 109 for the past 10 years (top 9%).
As with the underlying stocks in our fund, we believe that it is important to
view Fundamental Investors'
[Side Bar]
Successful fundamental investors require an abundance of data, insight,
discipline and patience.
[End Side Bar]
short-term results in a long-term context. Three of the last 10 years were
disappointing. One was negative and in two others, including 1994, you would
have been better off in a money market fund. But we trust that you invested in
this fund because you have long-term goals. The very nature of our stock
selection process - seeking stocks that are undervalued today with prospects
for growth in the future - is designed to help meet such goals. And although
the past is no guarantee of the future, over the last 10 years the fund has
produced a compound annual return of nearly 15% - ahead of the stock market,
the vast majority of growth and income funds and the ongoing rate of inflation.
As for the future, we are encouraged by what we see. The dramatic rise of free
trade, the opening of new world markets and the opportunites for U.S. companies
to assist in building infrastructure around the world are important trends. In
the U.S., the economy is growing and, so far, inflation is not a threat.
Unemployment rates are low, and the dollar and long-term bond prices show signs
of bottoming out. All of that should benefit U.S. companies of interest to
Fundamental Investors.
The three portfolio counselors who manage your fund are all optimistic about
these opportunities but have distinct ideas on how to reap the rewards. We
believe their multiple perspectives add extra value to your fund. We'll
introduce you to the three portfolio counselors in our feature on pages 4-13 so
you can examine their different styles in action.
We are always appreciative of your support and of your long-term partnership
with us in Fundamental Investors. We will continue to work hard for you in
helping you to realize your objectives.
Sincerely,
Walter P. Stern
Chairman of the Board
James E. Drasdo
President
February 14, 1995
WHAT IS A FUNDAMENTAL INVESTOR?
We believe multiple perspectives are better than one. Over the next few pages
we'll introduce you to Fundamental Investors' three portfolio counselors and
their distinct approaches. But first, what is fundamental investing?
[Side Bar]
A fundamental investor buys straw hats in the winter.
A fundamental investor runs marathons, not sprints.
A fundamental investor uses a telescope - and a microscope.
FUNDAMENTAL INVESTORS
[End Side Bar]
Deep down, fundamental investors are professional bargain hunters. They know
how to spot a good company at an advantageous price. Fundamental investors get
down to basics and do their legwork - read reports, kick the tires, ask tough
questions and seek conflicting opinions. Successful fundamental investors
require an abundance of data, insight, discipline and patience. They often
recognize opportunities others discard or disdain. They are on the lookout for
assets not reflected on a balance sheet - a visionary leader, a creative
strategy, a shift in consumer demand. Fundamental investors don't need instant
gratification. They're willing to wait.
HOW DO WE FIND GOOD COMPANIES AT A REASONABLE PRICE?
The role of your fund's adviser, Capital Research and Management Company
(CRMC), is to uncover investments that will meet the objectives of Fundamental
Investors. The best way we know to do that is to visit every company whose
stock is a candidate for purchase and study each company's basic fundamentals.
A thorough understanding of a company's management, employees, strategies,
motivation, products, financial strength, earnings and dividends provides a
platform for this in-depth analysis.
With this information, we can explore the company's relative position in its
industry and its market on a global basis. We can determine opportunities or
challenges it may encounter and assess its ability to meet them. We can look
beneath the surface in hopes of finding value other investors have yet to
discover. Only after thorough research and reflection can we make an investment
decision with conviction.
While we keep economic and market trends in mind as we search for investments,
ultimately it's the individual companies themselves and their managements that
matter most. Regardless of current market cycles, managers in companies across
the U.S. must still go to work each day and strive to make a profit.
That's what we always keep in mind. And that's why Fundamental Investors'
record wasn't built on economic trends. It was built on the success of
individual stocks.
HOW DO WE MANAGE THE INVESTMENTS?
Fundamental Investors employs an unusual style of portfolio management we call
the multiple portfolio counselor system. Three portfolio counselors - Dina
Perry, Gordon Crawford and Jim Drasdo - are each responsible for managing one
of the fund's segments. Dina, Gordon and Jim work independently to assemble
their notions of the ideal portfolio for Fundamental Investors. Each manages
his or her portion as if it were an entire fund. (Their investment selections
are monitored for consistency with the fund's objectives by CRMC's investment
committee.)
Altogether, the fund owns more than 100 stocks. Unable to closely follow all of
those companies, Dina, Gordon and Jim look to an extensive team of research
analysts for industry overviews, as well as specific buy and sell
recommendations. In 1994 alone, the 180 investment professionals who work for
CRMC and its affiliates visited more than 9,000 companies in 58 countries.
This knowledge is put to direct use in the fourth segment of the fund. This
segment, referred to as the Research Portfolio, represents the best stock picks
of a group of 20 research analysts who cover companies well-suited to meet
Fundamental Investors' objectives.
MULTIPLE PERSPECTIVES ADD EXTRA VALUE.
The multiple portfolio counselor system is a good example of a whole that is
worth more than the sum of its parts. We believe that combining the different
perspectives of our three portfolio counselors and numerous analysts gives you
significant advantages.
Each of your fund's portfolio counselors arrives at solutions to the
Fundamental Investors challenge in distinct ways. On the next few pages, we'll
introduce you to the three seasoned professionals, each of whom personifies the
concept of a fundamental investor. As proof that there's more than one way to
select successful investments, you'll see the different ways in which each
portfolio counselor pursues the challenge of finding good companies at
advantageous prices. At the end of our feature, we bring the three together to
discuss the benefits of their multiple perspectives.
Let's meet them.
DINA PERRY
A fundamental investor buys straw hats in the winter
[Pull Quote]
"You can always find fundamentally sound companies, but they're not always
priced attractively. When good companies fall out of favor, that's usually an
opportunity."
[End Pull Quote]
Dina Perry is a contrarian. When a company's stock price drops and other
investors lose interest, her curiosity is immediately piqued.
"You can always find fundamentally sound companies, but they're not always
priced attractively," says Dina. "When good companies fall out of favor, that's
usually an opportunity."
How does Dina find good, inexpensive companies for her segment of the fund?
Over the past 28 years she has worked as an economist, research analyst and
portfolio counselor, and in that time she's become intimately familiar with
hundreds of companies in dozens of industries.
"Because I know the companies so well," says Dina, "I can spot the bargains
more easily than someone just starting out. When a stock is depressed, I'm
instantly interested in discovering whether it's depressed for the right or
wrong reasons. I listen to as many presentations as I can and visit dozens of
companies. When I hear management starting to emphasize a theme that is
different from the usual ones, I sit up and take notice."
She also tries to stay on top of economic trends and industry developments.
"If, for instance, the market is tired of cyclicals or an industry is in a
temporary slump," she says, "I like to go in and choose the best of them at a
low price. If they are well-run companies, I believe ultimately they'll resume
their day in the sun."
Dina employs specific criteria to satisfy herself that she's getting a good
deal. When selecting a stock for her segment of Fundamental Investors'
portfolio, Dina's key questions are:
IS IT OUT OF FAVOR? "If Wall Street doesn't have much confidence that a company
will produce great growth in the next couple of years, and I have
reason to disagree, I know I can get a bargain."
DO INVESTORS HAVE AN ACCURATE VIEW OF HOW MUCH A COMPANY IS WORTH? "If someone
wanted to buy the company outright and would have to pay more for the assets
than the current stock price reflects, I start to pay attention."
IS THERE A HIGH DIVIDEND YIELD? "It may take time before the stock turns
around. A strong dividend can tide us over and reward our patience."
DOES THE MARKET UNDERSTAND THE COMPANY? "Sometimes a stock is depressed for a
reason that can be easily rectified. Investors with short-term outlooks often
miss the significance of changes being made to address current problems."
Kodak is a good example. Dina believed the stock became depressed primarily
because the company was mismanaged. Fundamentally, however, it continued to be
a strong company with good prospects. The company's products were still very
much in demand, could benefit from a growing market and had valuable brand
recognition.
"A company will stay mismanaged for only so long because a board of directors
sooner or later will act on its obligation to make a change," says Dina. "The
stock was depressed for a reason that could be readily fixed. For a fundamental
investor with patience, that can be a solid, low-risk purchase."
[Photo Caption]
Dina looks to a variety of resources to find good values. "Everyone's
definition of value is different. When I'm buying, someone else is selling."
[End Photo Caption]
DINA PERRY
Background:
28 years' investment experience
3 years with Capital Research and Management Company (and its affiliates)
Research expertise in conglomerates and cyclicals
GORDON CRAWFORD
A fundamental investor runs marathons, not sprints
[Pull Quote]
"I like companies whose leaders have great ideas and vision. People like that
add value that doesn't show up on a balance sheet."
[End Pull Quote]
Gordon Crawford's brand of fundamental investing is this: Count on individuals
with vision to be the wealth builders at great companies.
He may start out being attracted to a company for its compelling product -
especially one that appeals to a global marketplace. But what gives him the
greatest confidence is finding a company that's run by outstanding leaders.
"I like to invest in a company where there's a John Malone (at
Tele-Communications), a Rupert Murdoch (at News Corp.) or a Michael Eisner (at
Disney), who's coming to work every morning with great ideas and vision," says
Gordon. "People like that add fundamental value that just doesn't show up on a
balance sheet."
Gordon believes Rupert Murdoch exemplifies that philosophy. "This year Rupert
outbid CBS for the rights to air National Football League games on News Corp.'s
Fox Broadcasting Network," says Gordon. "When it first happened, people were
aghast because he paid a huge price for it. A couple of months later, the
largest group of CBS affiliates switched allegiance to Fox, in part because of
the NFL deal. Others soon followed, enhancing Fox's distribution dramatically.
A year later, people look back on Rupert's play as a brilliant maneuver.
"The day before Fox made that move, there was no value attributed to the NFL
idea on the News Corp. balance sheet. That's why I want to be invested in
companies like News Corp. where the people running it are creating assets that
never existed before."
Many of the companies Gordon has selected for his segment of the portfolio are
priced more expensively than those in Jim's and Dina's segments of the fund.
"I don't mind paying up for a great company," he says. "You've heard the adage
'buy low, sell high.' My attitude is, it's okay to buy high if you can sell
higher. The power of compounding is awesome. I'm looking for companies with
great global franchises that can compound at decent rates without having to pay
an outrageous price."
Gordon's greatest strength is in entertainment and media companies, which he
has followed as a research analyst for the Capital organization for more than
20 years. He continues to do so in addition to his portfolio management
responsibilities. As a result, his segment of Fundamental Investors includes a
large number of media and entertainment companies as well as other consumer
products companies.
His extensive experience following these industries provides special insights
into companies that portfolio managers at other organizations may miss.
At many mutual fund firms, young analysts aim to move in to portfolio
management as soon as they can, working as analysts for only a few years. "At
Capital we encourage people to do what they enjoy and do well," says Gordon.
"There's no extra status or compensation in being a portfolio counselor.
The organization values research and portfolio management as equally important
to our shareholders. That's given me the freedom to stay tuned in on an
industry I really like and understand. And over time, it's helped me spot and
get to know individual wealth builders at those companies. Their strategies,
long-term outlooks and vision provide invaluable insights into their companies
and industries."
[Photo Caption]
Gordon often finds that individuals make a difference. "I study a company from
every angle and then factor in the extra value of its leaders."
[End Photo Caption]
GORDON CRAWFORD
Background:
24 years' investment experience
24 years with Capital Research and Management Company (and its affiliates)
Research expertise in media and entertainment, insurance, and technology
JIM DRASDO
A fundamental investor uses a telescope- and a microscope
[Pull Quote]
"I'm looking for good companies that are underappreciated by Wall Street and
will benefit from the changes that are occurring all around us."
[End Pull Quote]
When Jim Drasdo considers the cataclysmic shifts of the free-trade agreement,
the developing world's modernization and the mass conversion of communism to
capitalism, he knows with certainty that he wants to invest in companies intent
on riding those waves of change.
"I'm looking for good companies that are underappreciated by Wall Street and
will benefit from the changes that are occurring all around us," says Jim.
Caterpillar, Inc., the world's leading manufacturer of earthmoving equipment
and one of Fundamental Investors' largest holdings, provides a window into
Jim's style of managing his segment of the fund.
"Many investors look at Caterpillar and see labor problems, poor cash flows and
losses," says Jim. He seizes on the low stock price that has resulted from that
short-term thinking. "I'm aware of Caterpillar's current difficulties, but I'm
looking at them over the longer term and with a bigger picture," Jim says. "I
see a company poised to help build the new infrastructure of the developing
world."
Where others focus on negative numbers, Jim focuses on what's behind them.
"This company makes reliable equipment and maintains the top spot in almost
every important marketplace in the world," he points out. "A forward-thinking
company, it's been willing to suffer cash flow problems and take losses while
it has developed its 'plant of the future.' "
Already, Caterpillar's new plants have reduced manufacturing time by 75%,
enough to help it win market share from Komatsu in highly competitive Japan.
The strike at Caterpillar is troublesome for the short term, says Jim. "I
understand the workers' concerns, but today's competitive environment is
brutal. The company's tough response shows its resolve in ensuring its ability
to compete anywhere in the world.
"We are convinced that this situation will work itself out over time. We don't
jump in and out of stocks," says Jim. "I believe the fundamentals are right and
the company's future is bright. I can be patient."
Jim's 20 years of experience analyzing companies has taught him the importance
of looking beneath the numbers for hidden value. "I do like getting something
for nothing," he admits.
Houston Industries, the fund's largest utility holding, is an example of that.
On the surface, it's just a relatively high-yielding utility, not unlike many
others. But Jim sees a difference - a hidden asset.
The company owns a cable TV subsidiary that, like most cable companies, is
losing money for now.
The natural inclination of a utility analyst would be to count that against the
perceived value of the stock. Jim looks at it differently.
"Right now, I can get a good utility at a discounted price, plus a bonus.
Sooner or later, the value of their cable company will be revealed," argues
Jim. "Houston Industries may sell it, do a joint venture or it might start to
make money. When that happens, the stock will reflect it. I consider that
something for nothing." (Indeed, shortly after this interview Time Warner
agreed to acquire the company's cable TV subsidiary.)
Hidden assets also come in the form of creative ideas like outsourcing, as
illustrated by Federal Express, another Fundamental Investors holding. FedEx
saw an opportunity to offer its expert logistics capabilities to other
companies. It has taken over storage, sorting and shipping activities for
companies like Laura Ashley and National Semiconductor, allowing them to stick
to their core businesses and leave the logistics to Federal Express.
"Ideas like that are hard to find on a balance sheet," smiles Jim, "until they
show up as a profit."
[Photo Caption]
As the world gets smaller, a company's potential gets bigger. "I look for
companies that can survive and prosper in the expanded global marketplace."
[End Photo Caption]
JIM DRASDO
Background:
23 years' investment experience
18 years with Capital Research and Management Company (and its affiliates)
Research expertise in chemical, transportation and heavy-equipment industries
MULTIPLE PERSPECTIVES
The whole is worth more than the sum of its parts
[Pull Quote]
"No single portfolio manager could have all this knowledge and such different
perspectives in one body."
[End Pull Quote]
As you've seen, each of Fundamental Investors' portfolio counselors has a
different perspective in finding fundamentally sound companies at a reasonable
price.
"You know, in spite of our very separate methods of managing our portfolios, we
have many similar strengths," says Jim, who also serves as the fund's
president. "We're all in our forties and plan to be working on this fund for a
long time to come. We're young enough to remain open-minded to new ideas, yet
experienced enough to have some perspective. We've all spent our entire careers
in the investment business. And we've each been analyzing companies or managing
money for 20 to 25 years."
"It's an advantage to have been in the business for a long time," says Gordon.
"You can read all you want about what happens to companies in certain types of
economic cycles, but until you've lived it and it's become part of your genetic
coding, the information isn't a very effective barometer."
The three counselors often start from the same premise but use their own areas
of expertise to guide them to different solutions. Take China, for example. All
three are excited about the prospects for companies doing business there. Jim
thinks of all those roads to be built and computers to help the Chinese
leapfrog into the 21st century. Dina is dreaming about all the consumer
products they'll need to buy. And Gordon imagines a billion people who haven't
yet seen Gone With the Wind.
All agree that we've entered the largest middle-class expansion the world has
ever seen. They believe it provides one of the greatest backdrops in history
for creating wealth for U.S. companies that do business around the globe. Yet
because of their different backgrounds, experiences and attitudes, the three
sift information through different filters and come up with a different set of
stocks.
"I think our separate perspectives give our shareholders great
diversification," says Dina. "Our common denominator is that we are all seeking
that hidden asset, that wealth creator Wall Street doesn't see. We all want to
maximize our assets. And I think our backgrounds as analysts and our ability to
call on one of the most extensive research staffs in the business gives us an
extra edge."
"Let's face it," says Gordon. "Lots of stocks go up every day. No one
individual has the corner on good ideas. Isn't it better to spread investment
responsibility among a number of people so that those who are most
knowledgeable and have the strongest convictions about Colgate-Palmolive or
Federal Express are the ones who buy it for you?
"The beauty of the multiple portfolio counselor system is that I'll recognize
some winners, Dina and Jim will catch others and the analysts buying stocks for
the Research Portfolio can buy the stocks they know inside and out. No single
portfolio manager could have all this knowledge and such different perspectives
in one body."
Experience and maturity in portfolio counselors means the people at the helm of
your fund have perspective when they go through a year like 1994. Because of
their long-term approach and deep understanding of the companies whose stocks
they own for the fund, they remain calm and on course.
They act like fundamental investors.
[Photo Caption]
Dina, Gordon and Jim round out the fund by relying heavily on the research and
recommendations of The Capital Group Companies' analysts.
[End Photo Caption]
FUNDAMENTAL INVESTORS, INC.
INVESTMENT PORTFOLIO - December 31, 1994
<TABLE>
<CAPTION>
Percent
Of
LARGEST INDIVIDUAL HOLDINGS Net Assets
<S> <C> <C> <C>
Time Warner 2.45%
Capital Cities/ABC 2.29
International Business Machines 2.27
Phillips Petroleum 1.93
News Corp. 1.90
Amoco 1.87
Caterpillar 1.69
Intel 1.64
Federal Express 1.50
Houston Industries 1.33
LARGEST INVESTMENT CATEGORIES
Services 23.89%
Capital Equipment 16.19
Consumer Goods 13.20
LARGEST INDUSTRY HOLDINGS
Broadcasting & Publishing 9.92%
Energy Sources 8.03
Business & Public Services 6.21
Banking 6.30
Data Processing & Reproduction 5.07
Shares Market Percent
or
EQUITY-TYPE SECURITIES Value Of
Principal
(common and preferred stocks and Amount (000) Net Assets
convertible debentures)
- ---------------------------------------------------- ---------- ---------- ----------
ENERGY
ENERGY SOURCES- 8.03%
Amoco Corp. 825,000 $48,778 1.87%
Atlantic Richfield Co. 325,000 33,069 1.27
British Petroleum Co. PLC (American Depositary
Receipts) (United Kingdom) 141,298 11,286 0.43
Cyprus Amax Minerals Co., convertible preferred,
Series A 100,000 5,800 0.22
Exxon Corp. 120,000 7,290 0.28
Norsk Hydro AS (American Depositary Receipts)(Norway) 375,000 14,672 0.56
Phillips Petroleum Co. 1,540,000 50,435 1.93
Royal Dutch Petroleum Co. (New York Registered
Shares) (Netherlands) 130,000 13,975 0.54
"Shell" Transport and Trading Co., PLC (United 50,000 3,269 0.13
Kingdom)
Sun Co., Inc. 194,500 5,592 0.21
Texaco Inc. 220,000 13,172 0.5
TOTAL, Class B (American Depositary Receipts)
(France) 80,000 2,360 0.09
UTILITIES: ELECTRIC & GAS- 3.93%
Detroit Edison Co. 700,000 18,288 0.7
Eastern Utilities Associates 640,000 14,080 0.54
Entergy Corp. 250,000 5,469 0.21
General Public Utilities Corp. 180,000 4,725 0.18
Houston Industries Inc. 975,000 34,734 1.33
Long Island Lighting Co. 350,000 5,381 0.2
Pacific Gas and Electric Co. 430,000 10,481 0.4
Texas Utilities Co. 306,970 9,823 0.37
----------- -----------
312,679 11.96
----------- -----------
MATERIALS
BUILDING MATERIALS & COMPONENTS- 0.46%
Cemex, SA, Class A (Mexico) 900,000 4,518
Cemex, SA, Class B 4.25% convertible debentures 1997 $9,210,000 7,368 0.46
CHEMICALS- 2.62%
Betz Laboratories, Inc. 200,000 8,850 0.34
Eastman Chemical Co. 600,000 30,300 1.16
BFGoodrich Co. 165,000 7,157 0.27
Imperial Chemical Industries PLC (American Depositary
Receipts) (United Kingdom) 200,000 9,300 0.36
Nalco Chemical Co. 220,000 7,370 0.28
PPG Industries, Inc. 150,000 5,569 0.21
FOREST PRODUCTS & PAPER- 0.91%
ITT Rayonier Inc. 300,000 9,150 0.35
Union Camp Corp. 310,000 14,609 0.56
METALS: NONFERROUS- 3.31%
Alumax Inc./1/ 300,000 8,512
Alumax Inc., convertible preferred, Series A 23,333 2,806 0.44
Aluminum Co. of America 335,000 29,019 1.11
Freeport-McMoRan Copper & Gold Inc., Class A 3,750 80 0
Inco Ltd.(Canada) 600,000 17,175 0.66
Phelps Dodge Corp. 465,900 28,828 1.1
METALS: STEEL- 0.44%
Armco Inc./1/ 600,000 3,975
Armco Inc., cumulative convertible preferred 150,000 7,500 0.44
MISCELLANEOUS MATERIALS & COMMODITIES- 1.24%
Freeport-McMoRan Inc. 100,000 1,775 0.07
Potash Corp. of Saskatchewan Inc. (Canada) 100,000 6,800 0.26
TRINOVA Corp. 800,000 23,500 0.91
----------- -----------
234,161 8.98
----------- -----------
CAPITAL EQUIPMENT
AEROSPACE & MILITARY TECHNOLOGY- 1.88%
Boeing Co. 385,000 17,999 0.69
E-Systems, Inc. 250,000 10,406 0.4
Litton Industries, Inc./1/ 255,900 9,468 0.36
United Technologies Corp. 180,000 11,318 0.43
DATA PROCESSING & REPRODUCTION- 5.07%
Adobe Systems Inc. 625,000 18,594 0.71
Apple Computer, Inc. 554,000 21,467 0.82
Compaq Computer Corp./1/ 110,000 4,345 0.17
Dell Computer Corp., convertible preferred,
Series A/2/ 27,600 4,699 0.18
Digital Equipment Corp./1/ 284,000 9,443 0.36
International Business Machines Corp. 805,000 59,167 2.27
Tandem Computers Inc./1/ 850,000 14,556 0.56
ELECTRICAL & ELECTRONICS- 0.71%
General Electric Co. 360,000 18,360 0.71
Hubbell Inc., Class B 500 27 0
ELECTRONIC COMPONENTS- 3.27%
Intel Corp. 675,000 42,947 1.64
Motorola, Inc. 370,000 21,414 0.82
Texas Instruments Inc. 279,564 20,932 0.81
ENERGY EQUIPMENT- 0.72%
Cooper Industries, Inc. 300,000 10,238 0.39
Western Atlas Inc./1/ 230,300 8,665 0.33
INDUSTRIAL COMPONENTS- 1.39%
Dana Corp. 300,000 7,012 0.27
Goodyear Tire & Rubber Co. 550,000 18,494 0.71
Rockwell International Corp. 300,000 10,725 0.41
MACHINERY & ENGINEERING- 3.15%
Case Corp. 500,000 10,750 0.41
Caterpillar Inc. 800,000 44,100 1.69
Deere & Co. 100,000 6,625 0.25
Parker Hannifin Corp. 260,000 11,830 0.45
Sundstrand Corp. 200,000 9,100 0.35
----------- -----------
422,681 16.19
----------- -----------
CONSUMER GOODS
AUTOMOBILES- 2.61%
Chrysler Corp., convertible preferred, Series A/2/ 100,000 13,687 0.52
Ford Motor Co., Class A 460,000 12,880
Ford Motor Co., cumulative convertible
preferred, Series A 108,000 9,936 0.87
General Motors Corp. 750,000 31,688 1.22
BEVERAGES & TOBACCO- 1.35%
PepsiCo, Inc. 160,000 5,800 0.22
Seagram Co. Ltd. (Canada) 1,000,000 29,500 1.13
FOOD & HOUSEHOLD PRODUCTS- 3.88%
Archer Daniels Midland Co. 537,862 11,093 0.42
Colgate-Palmolive Co. 300,000 19,013 0.73
CPC International Inc. 400,000 21,300 0.82
General Mills, Inc. 335,000 19,095 0.73
H.J. Heinz Co. 300,000 11,025 0.42
Procter & Gamble Co. 280,000 17,360 0.66
Sara Lee Corp. 100,000 2,525 0.1
HEALTH & PERSONAL CARE- 4.92%
Baxter International Inc. 450,000 12,713 0.49
Bristol-Myers Squibb Co. 240,000 13,890 0.53
Johnson & Johnson 370,000 20,257 0.78
Eli Lilly and Co. 200,000 13,125 0.5
Mckesson Corp. 125,000 4,078 0.16
Merck & Co., Inc. 625,000 23,828 0.91
Pfizer Inc. 425,000 32,831 1.26
Upjohn Co. 250,000 7,688 0.29
RECREATION & OTHER CONSUMER PRODUCTS- 0.44%
Eastman Kodak Co. 240,000 11,460 0.44
----------- -----------
344,772 13.2
----------- -----------
SERVICES
BROADCASTING & PUBLISHING- 9.92%
CBS Inc. 396,925 21,980 0.84
Capital Cities/ABC, Inc. 700,000 59,675 2.29
Multimedia, Inc./1/ 27,000 769 0.03
News Corp. Ltd. (American Depositary Receipts)
(Australia) 2,200,000 34,375
News Corp. Ltd., preferred shares (American Depositary
Receipts)/1/ 1,100,000 15,263 1.9
E.W. Scripps Co., Class A 500,000 15,125 0.58
Tele-Communications, Inc., Class A/1/ 1,004,015 21,837 0.84
Time Warner Inc. 1,824,000 64,068 2.45
Tribune Co. 475,000 26,006 0.99
BUSINESS & PUBLIC SERVICES- 6.30%
Avery Dennison Corp. 500,000 17,750 0.68
Dun & Bradstreet Corp. 575,000 31,625 1.21
Federal Express Corp./1/ 650,000 39,162 1.5
Humana Inc./1/ 1,000,000 22,625 0.87
Interpublic Group of Companies, Inc. 575,000 18,472 0.71
Omnicom Group Inc. 250,000 12,938 0.5
True North Communications, Inc.
(formerly Foote, Cone & Belding Communications, Inc.) 250,000 10,750 0.41
WMX Technlogies, Inc. 425,000 11,156 0.42
LEISURE & TOURISM- 1.22%
Circus Circus Enterprises/1/ 220,400 5,124 0.2
Walt Disney Co. 450,000 20,756 0.79
McDonald's Corp. 200,000 5,850 0.23
MERCHANDISING- 1.56%
Limited Inc. 600,000 10,875 0.42
May Department Stores Co. 300,000 10,125 0.39
Melville Corp. 200,000 6,175 0.24
Tandy Corp., preferred equity redemption
cumulative stock 350,000 13,213 0.51
TELECOMMUNICATIONS- 2.04%
Ameritech Corp. 106,500 4,300 0.16
AT&T Corp. 300,000 15,075 0.58
Bell Atlantic Corp. 125,000 6,219 0.24
MCI Communications Corp. 506,200 9,301 0.36
NYNEX Corp. 200,000 7,350 0.28
Sprint Corp. 400,000 11,050 0.42
TRANSPORTATION: AIRLINES- 1.37%
AMR Corp./1/ 350,000 18,638
AMR Corp., 6.125% convertible debentures 2024 $5,500,000 4,373 0.88
Delta Air Lines, Inc. 250,000 12,625 0.49
TRANSPORTATION: RAIL & ROAD- 1.48%
Chicago and North Western Holdings Corp./1/ 700,000 13,475 0.52
Conrail Inc. 320,000 16,160 0.62
Union Pacific Corp. 200,000 9,125 0.34
----------- -----------
623,385 23.89
----------- -----------
FINANCE
BANKING- 6.21%
AmSouth Bancorporation 630,000 16,223 0.62
Bank One Corp. 667,125 16,928 0.65
Citicorp 700,000 28,963
Citicorp, convertible preferred, Series 13 27,000 3,085 1.23
CoreStates Financial Corp 500,000 13,000 0.5
First Fidelity Bancorporation 550,000 24,681 0.95
First Interstate Bancorp 430,000 29,079 1.11
NBD Bancorp, Inc. 202,800 5,552 0.21
Norwest Corp. 900,000 21,037 0.81
PNC Bank Corp 160,000 3,380 0.13
FINANCIAL SERVICES- 0.92%
American Express Co. 280,000 8,260 0.32
Federal National Mortgage Assn. 215,000 15,668 0.6
INSURANCE- 1.10%
Allstate Corp. 330,000 7,796 0.3
American International Group, Inc. 72,500 7,105 0.27
SAFECO Corp. 230,000 11,960 0.46
TIG Holdings, Inc. 100,000 1,875 0.07
----------- -----------
214,592 8.23
----------- -----------
MULTI-INDUSTRY
MULTI-INDUSTRY- 2.36%
CITIC Pacific Ltd. (Hong Kong) 7,000,000 16,873 0.65
Hanson PLC (American Depositary
Receipts) (United Kingdom) 400,000 7,200 0.28
Harsco Corp. 75,000 3,066 0.12
Tenneco Inc. 200,000 8,500 0.32
Textron Inc. 525,000 26,447 0.99
----------- -----------
62,086 2.36
----------- -----------
MISCELLANEOUS
Other equity-type securities in initial period
of acquisition 130,830 5.01
----------- -----------
TOTAL EQUITY-TYPE SECURITIES (cost: $2,047,609,000) 2,345,186 89.82
----------- -----------
Principal
Amount
Bonds & Notes (000)
- ----------------------------------------------------- ---------- ---------- -----------
INDUSTRIALS - 2.42%
Adelphia Communications Corp. 12.50% 2002 $19,000 17,765 0.68
Cablevision System Corp. 9.875% 2013 10,000 9,000
Cablevision System Corp. 9.875% 2023 21,850 19,228 1.08
News America Holdings Inc. 12.00% 2001 10,000 11,111 0.43
Time Warner Inc. 10.15% 2012 6,000 6,038 0.23
---------- ----------
63,142 2.42
---------- ----------
U.S. TREASURY OBLIGATIONS- 2.07%
7.00% 1996 20,000 19,800 0.76
6.375% 1997 15,000 14,538 0.56
6.875% 1997 20,000 19,638 0.75
---------- ----------
53,976 2.07
---------- ----------
TOTAL BONDS & NOTES (cost: $125,482,000) 117,118 4.49
---------- ----------
SHORT-TERM SECURITIES
- ----------------------------------------------------
CORPORATE SHORT-TERM NOTES-5.33%
AT&T Corp. 5.43%-5.48% due 1/4-1/5/95 5,300 5,296 0.21
Anheuser-Busch Companies, Inc. 5.98% due 1/18/95 5,000 4,985 0.19
Associates Corp. of North America 5.90% due 1/3/95 11,100 11,095 0.42
Chevron Transport Corp. 5.64% due 1/20/95 3,500 3,489 0.13
Duke Power Co. 5.95% due 1/12/95 13,500 13,473 0.52
Ford Motor Credit Co. 5.82%-6.05% due 1/9-1/23/95 28,300 28,207 1.07
H.J. Heinz Co. 5.70%-6.05% due 1/19-2/1/95 37,800 37,603 1.44
National Rural Utilities Cooperative Finance Corp.
5.85%-6.05% due 1/13-1/23/95 25,000 24,930 0.95
J.C. Penney Funding Corp. 5.92% due 1/17/95 10,000 9,972 0.4
---------- ----------
TOTAL SHORT-TERM SECURITIES (cost: $139,050,000) 139,050 5.33
---------- ----------
TOTAL INVESTMENT SECURITIES (cost: $2,312,141,000) 2,601,354 99.64
Excess of cash and receivables over payables 9,716 0.36
---------- ----------
NET ASSETS $2,611,070 100%
========== ==========
1 Non-income-producing securities
2 Purchased in a private placement transaction;
resale potential extends to qualified institutional
buyers.
See Notes to Financial Statements
EQUITY-TYPE SECURITIES APPEARING IN
THE PORTFOLIO SINCE JUNE 30, 1994
Adobe Systems
Atlantic Richfield
Case
Cemex
Circus Circus Enterprises
E-Systems
Exxon
General Mills
Goodyear Tire & Rubber
Harsco
H.J. Heinz
Hubbell
Humana
Imperial Chemical Industries
Interpublic Group
McDonald's
McKesson
Norsk Hydro
Norwest
Pfizer
Potash Corp. of Saskatchewan
E.W. Scripps
"Shell" Transport and Trading
TOTAL
TRINOVA
EQUITY-TYPE SECURITIES ELIMINATED FROM
THE PORTFOLIO SINCE JUNE 30, 1994
American Cyanamid
ITT
Kmart
Mobil
Tektronix
UNUM
</TABLE>
Fundamental Investors, Inc.
Financial Statements
<TABLE>
<CAPTION>
<S> <C> <C>
Statement of Assets and Liabilities (dollars in thousands)
at December 31, 1994
- ---------------------------------------- ------------ ------------
Assets:
Investment securities at market
(cost: $2,312,141) $2,601,354
Cash 109
Receivables for--
Sales of investments $7,645
Sales of fund's shares 9,404
Dividends and accrued interest 8,058 25,107
------------ ------------
2,626,570
Liabilities:
Payables for--
Purchases of investments 6,864
Repurchases of fund's shares 7,482
Management services 742
Accrued expenses 412 15,500
------------ ------------
Net Assets at December 31, 1994-
Equivalent to $17.50 per share on
149,243,612 shares of $1 par value
capital stock outstanding (authorized
capital stock--150,000,000 shares) $2,611,070
=============
Statement of Operations
for the year ended December 31, 1994 (dollars in thousands)
------------ ------------
Investment Income:
Income:
Dividends $52,031
Interest 19,959 $71,990
------------
Expenses:
Management services fee 7,967
Distribution expenses 4,509
Transfer agent fee 1,662
Reports to shareholders 262
Registration statement and prospectus 309
Postage, stationery and supplies 468
Directors' fees 84
Auditing and legal fees 44
Custodian fee 246
Taxes other than federal income tax 1
Other expenses 36 15,588
------------ ------------
Net investment income 56,402
------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 82,430
Net change in unrealized
appreciation on investments:
Beginning of year 399,479
End of year 289,213
Net unrealized depreciation ------------
on investments (110,266)
Net realized gain and unrealized ------------
depreciation on investments: (27,836)
Net Increase in Net Assets Resulting ------------
from Operations $28,566
============
Statement of Changes in Net
Assets (dollars in thousands)
- ---------------------------------------- ------------- -------------
Year ended Year ended
December 31, December 31,
1994 1993
Operations: ------------- -------------
Net investment income $56,402 $41,515
Net realized gain on investments 82,430 199,868
Net unrealized appreciation
(depreciation) on investments (110,266) 40,449
------------- -------------
Net increase in net assets
resulting from operations 28,566 281,832
------------- -------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (56,692) (38,995)
Distributions from net realized
gain on investments (61,479) (194,776)
------------- -------------
Total dividends and distributions (118,171) (233,771)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
51,307,623 and 28,082,944
shares, respectively 922,115 523,560
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
5,849,294 and 11,380,691 shares,
respectively 103,581 202,508
Cost of shares repurchased:
16,975,145 and 12,596,570
shares, respectively (304,324) (234,571)
Net increase in net assets resulting ------------- -------------
from capital share transactions 721,372 491,497
------------- -------------
Total Increase in Net Assets 631,767 539,558
Net Assets:
Beginning of year 1,979,303 1,439,745
End of year (including undistributed ------------- -------------
net investment income: $5,226 and
$5,516, respectively $2,611,070 $1,979,303
============= =============
</TABLE>
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
FUNDAMENTAL INVESTORS, INC.
1. Fundamental Investors, Inc. (the "fund") is registered under the Investment
Company Act of 1940 as an open-end, diversified management investment company.
The following paragraphs summarize the significant accounting policies
consistently followed by the fund in the preparation of its financial
statements:
Equity-type are stated at market value based upon closing sales prices
reported on recognized securities exchanges on the last business day of the
year or, for listed securities having no sales reported and for unlisted
securities, upon last-reported bid prices on that date. Bonds and notes are
valued at prices obtained from a bond-pricing service provided by a major
dealer in bonds, 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 of their representative quoted bid and asked prices
or, if such prices are not available, at the mean of such prices for securities
of comparable maturity, quality, and type. Short-term securities with original
or remaining maturities in excess of 60 days are valued at the mean of their
quoted bid and asked prices. Short-term securities with 60 days or less to
maturity are valued at amortized cost. Securities for which market quotations
are not readily available are valued at fair value as determined in good faith
by the Valuation Committee of the Board of Directors.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Dividend and interest income is reported on the accrual basis.
Discounts on securities purchased are amortized over the life of the respective
securities. The fund does not amortize premiums on securities purchased.
Dividends and distributions paid to shareholders are recorded on the
ex-dividend date.
Investment securities and other assets and liabilities denominated in
non-U.S. currencies are recorded in the financial statements after translation
into U.S. dollars utilizing rates of exchange on the last business day of the
year. Purchases and sales of investment securities, income and expenses are
calculated using the prevailing exchange rate as accrued. The fund does not
identify the portion of each amount shown in the fund's Statement of Operations
under the caption "Realized Gain and Unrealized Appreciation on Investments"
that arises from changes in non-U.S. currency exchange rates.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $246,000 includes $11,000 that was paid by these credits
rather than in cash.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision
is required.
As of December 31, 1994, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $289,213,000, of which $367,262,000
related to appreciated securities and $78,049,000 related to depreciated
securities. There was no difference between book and tax realized gains on
securities transactions for the year ended December 31, 1994. The cost of
portfolio securities for book and federal income tax purposes was
$2,312,141,000 at December 31, 1994.
3. The fee of $7,967,000 for management services was paid 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 an annual rate of 0.39% of the first $800 million of average net assets;
0.336% of such assets in excess of $800 million but not exceeding $1.8 billion;
0.30% of such assets in excess of $1.8
billion but not exceeding $3.0 billion; and 0.276% of such assets in excess of
$3.0 billion.
Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Directors. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the period ended December 31,
1994, distribution expenses under the Plan were $4,509,000. As of December 31,
1994, accrued and unpaid distribution expenses were $311,000.
American Funds Service Company (AFS), the transfer agent for the fund, was paid
a fee of $1,662,000. American Funds Distributors, Inc.(AFD), the principal
underwriter of the fund's shares, received $3,299,000 (after allowances to
dealers) as its portion of the sales charges paid by purchasers of the fund's
shares. Such sales charges are not an expense of the fund and, hence, are not
reflected in the accompanying statement of operations.
Directors of the fund who are unaffiliated with CRMC may elect to defer part or
all of the fees earned for services as members of the board. Amounts deferred
are not funded and are general unsecured liabilities of the fund. As of
December 31, 1994, aggregate amounts deferred were $58,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both wholly
owned subsidiaries of CRMC. Certain Directors and officers of the fund are or
may be considered to be affiliated with CRMC, AFS, and AFD. No affiliated
officers, Director's or employees of CRMC received any remuneration directly
from the fund.
4. As of December 31, 1994, accumulated undistributed net realized gain on
investments was $29,878,000 and additional paid-in capital was $2,137,509,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $1,090,690,000 and $484,974,000, respectively, during
the year ended December
31, 1994.
PER-SHARE DATA AND RATIOS
<TABLE>
<CAPTION>
Year ended December 31
-------- -------- -------- -------- ---------
- -
1994 1993 1992 1991 1990
-------- -------- -------- -------- ---------
- -
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year $18.15 $17.52 $17.47 $14.32 $16.43
-------- -------- -------- -------- ---------
- -
Income from Investment
Operations:
Net investment income 0.42 0.44 0.44 0.41 0.48
Net realized and unrealized
gain (loss) on investments (0.18) 2.65 1.27 3.82 (1.52)
Total income from investment -------- -------- -------- -------- ---------
- -
operations 0.24 3.09 1.71 4.23 (1.04)
-------- -------- -------- -------- ---------
- -
Less Distributions:
Dividends from net investment
income (0.44) (0.43) (0.42) (0.4) (0.49)
Distributions from net realized
gains (0.45) (2.03) (1.24) (0.68) (0.58)
-------- -------- -------- -------- ---------
- -
Total distributions (0.89) (2.46) (1.66) (1.08) (1.07)
-------- -------- -------- -------- ---------
- -
Net Asset Value, End of Year $17.50 $18.15 $17.52 $17.47 $14.32
======== ======== ======== ======== =========
= =
Total Return* 18.16% 10.19% 30.34% (6.24)%
1.33%
Ratios/Supplemental Data:
Net assets, end of period
(in millions) $2,611 $1,979 $1,440 $1,156 $823
Ratio of expenses to average
net assets .68% .65% .65% .69% .70%
Ratio of net income to
average net assets 2.45% 2.43% 2.56% 2.50% 3.15%
Portfolio turnover rate 23.02% 29.22% 23.98% 17.07% 11.92%
</TABLE>
*This was calculated without deducting a sales charge. The maximum sales
charge is 5.75% of the fund's offering price.
Independent Auditors' Report
To the Board of Directors and Shareholders of
Fundamental Investors, Inc.
We have audited the accompanying statement of
liabilities, including the investment portfolio, of
Fundamental Investors, Inc. ("the fund") as of December 31, 1994,
the related statements of operations for the year
then ended and of changes in net assets for the years
ended December 31, 1994 and 1993, and the per-share
data and ratios for each of the five years in the period
ended December 31, 1994. These financial statements and the
per-share data and ratios are the responsibility of the
fund's management. Our responsibility is to express an
opinion on these financial statements and the per-share
data and ratios based on our audits. The per-share data and
ratios for the year ended December 31, 1990 were audited by
other auditors whose report dated January 25, 1991 expressed
an unqualified opinion on the per-share data and ratios.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the
per-share data and ratios are free of material
misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included
confirmation of securities owned at December 31, 1994 by
correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other procedures.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above and the
per-share data and ratios for each of the four years in the period ended
December 31, 1994 present fairly, in all material respects, the financial
position of Fundamental Investors, Inc. at December 31, 1994, and the
results of its operations, the changes in its net assets
and the per-share data and ratios for the respective
stated years, in conformity with generally accepted
accounting principles.
Los Angeles, California
January 27, 1995
Tax Information (unaudited)
- ------------------------------------------------------------------------------
uring the fiscal year ended December 31, 1994, 78% of the dividends
paid by the fund from investment income earned qualified for
the corporate dividends-received deduction. Of those dividends paid,
4% were derived from interest on direct U.S. Treasury
obligations.
Fundamental investors
DIRECTORS
GUILFORD C. BABCOCK, San Marino, California
Associate Professor of Finance,
School of Business Administration,
University of Southern California
CHARLES H. BLACK, Pacific Palisades, California
Private investor and consultant; former Executive Vice
President and Director, KaiserSteel Corporation
MARTIN FENTON, JR., San Diego, California
Chairman of the Board, Senior Resource Group, Inc.
(senior living centers management)
HERBERT HOOVER III, Pasadena, California
Private investor
GAIL L. NEALE, Middlebury, Vermont
Executive Vice President of the Salzburg Seminar;
former Director of Development and of
the Capital Campaign, Hampshire College
KIRK P. PENDLETON, Southampton, Pennsylvania
President, Cairnwood, Inc.
(venture capital investment)
JAMES W. RATZLAFF, San Francisco, California
Vice Chairman of the Board,
Capital Research and Management Company
HENRY E. RIGGS, Claremont, California
President and Professor of Engineering,
Harvey Mudd College
R. MICHAEL SHANAHAN, Los Angeles, California
Chairman of the Board,
Capital Research and Management Company
WALTER P. STERN, New York, New York
Principal Executive Officer and
Chairman of the Board of the fund
Chairman of the Board,
Capital Group International, Inc.
DR. CHARLES WOLF, JR., Santa Monica, California
Dean, The RAND Graduate School;
Director, International Economic Studies,
The RAND Corporation
OTHER OFFICERS
JAMES E. DRASDO, Los Angeles, California
President of the fund
Senior Vice President and Director,
Capital Research and Management Company
GORDON CRAWFORD, Los Angeles, California
Senior Vice President of the fund
Senior Vice President and Director,
Capital Research Company
PAUL G. HAAGA, JR., Los Angeles, California
Senior Vice President of the fund
Senior Vice President and Director,
Capital Research and Management Company
DINA N. PERRY, Washington, D.C.
Senior Vice President of the fund
Vice President,
Capital Research and Management Company
JULIE F. WILLIAMS, Los Angeles, California
Secretary of the fund
Vice President-Fund Business Management Group,
Capital Research and Management Company
STEVEN N. KEARSLEY, Los Angeles, California
Treasurer of the fund
Vice President and Treasurer,
Capital Research and Management Company
DAVID E. CARTER, Los Angeles, California
Assistant Secretary of the fund
Associate, Capital Research and Management Company
PATRICK F. QUAN, San Francisco, California
Assistant Secretary of the fund
Vice President-Fund Business Management Group,
Capital Research and Management Company
MARY C. CREMIN, Los Angeles, California
Assistant Treasurer of the fund
Senior Vice President-Fund Business Management Group,
Capital Research and Management Company
ROBERT P. SIMMER, Los Angeles, California
Assistant Treasurer of the fund
Vice President-Fund Business Management Group,
Capital Research and Management Company
OFFICES OF THE FUND
Four Embarcadero Center, Suite 1800
Mailing Address: P.O. Box 7650
San Francisco, California 94120-7650
INVESTMENT ADVISER
Capital Research and
Management Company
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92621-5804
TRANSFER AGENT FOR
SHAREHOLDER ACCOUNTS
American Funds Service Company
P.O. Box 2205
Brea, California 92622-2205
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
Morrison & Foerster
345 California Street
San Francisco, California 94104-2675
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
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. Summary investment results are
documented in the current Statement of Additional Information. If used as sales
material after March 31, 1995, this report must be accompanied by an American
Funds Group Statistical Update for the most recently completed calendar
quarter.
The American Funds Group(R)
A PORTFOLIO FOR EVERY INVESTOR
FUNDAMENTAL INVESTORS IS A MEMBER OF THE AMERICAN FUNDS GROUP - 28 FUNDS WITH A
WIDE RANGE OF INVESTMENT OBJECTIVES AND WITH ASSETS TOTALING MORE THAN $90
BILLION. THESE FUNDS SERVE MORE THAN SEVEN MILLION SHAREHOLDERS THROUGHOUT THE
WORLD, INCLUDING HUNDREDS OF LEADING CORPORATIONS AND INSTITUTIONS.
GROWTH FUNDS
AMCAP FUND
Seeks long-term growth of capital by investing in growing, profitable
companies.
EUROPACIFIC GROWTH FUND
Seeks long-term capital appreciation by investing in companies based outside
the U.S.
THE GROWTH FUND OF AMERICA
Invests in a wide range of companies that appear to offer superior
opportunities for growth of capital.
THE NEW ECONOMY FUND
Seeks long-term growth of capital through investments in companies operating in
services and information industries in the U.S. and around the world. (Can
invest up to 40% of its assets outside the U.S.)
NEW PERSPECTIVE FUND
Seeks long-term growth of capital through investments all over the world,
including the United States.
SMALLCAP WORLD FUND
Seeks long-term growth of capital by investing in the stocks of smaller
companies in the U.S. and around the world
GROWTH AND INCOME FUNDS
AMERICAN MUTUAL FUND
Strives for the balanced accomplishment of three objectives - current income,
capital growth and conservation of principal - through investments in companies
that participate in the growth of the American economy.
CAPITAL WORLD GROWTH AND INCOME FUND
Seeks growth and income over the long term through a global portfolio
emphasizing "blue chip" stocks.
FUNDAMENTAL INVESTORS
Seeks long-term growth of capital and income through investments in common
stocks.
THE INVESTMENT COMPANY OF AMERICA
Seeks long-term growth of capital and income, placing greater emphasis on
future dividends than on current income. Now in its 62nd year, ICA is one of
the nation's oldest and largest mutual funds.
WASHINGTON MUTUAL INVESTORS FUND
Seeks current income and an opportunity for capital growth through high-quality
common stocks considered eligible for the investment of trust funds in the
District of Columbia.
EQUITY-INCOME FUNDS
CAPITAL INCOME BUILDER
Seeks to provide a growing dividend - with higher income distributions every
quarter as far as possible - together with a current yield which exceeds that
paid by U.S. stocks generally. Concentrates on U.S. equity securities, but may
also invest in stocks and bonds all over the world.
THE INCOME FUND OF AMERICA
Seeks current income while secondarily striving for capital growth through
investments in stocks and fixed-income securities.
BALANCED FUND
AMERICAN BALANCED FUND
Seeks conservation of capital, current income and long-term growth of both
capital and income by investing in stocks and fixed-income securities.
The fund is managed as if it constituted the complete investment program of a
prudent investor.
INCOME FUNDS
AMERICAN HIGH-INCOME TRUST
Seeks a high level of current income and, secondarily, capital appreciation
through a diversified, carefully supervised portfolio consisting primarily of
lower rated, higher risk corporate bonds.
THE BOND FUND OF AMERICA
Seeks as high a level of current income as is consistent with preservation of
capital through a diversified portfolio of bonds and other fixed-income
obligations.
CAPITAL WORLD BOND FUND
Seeks high long-term total return, consistent with prudent management, by
investing in quality fixed-income securities issued by major governments and
corporations all over the world, including the U.S.
INTERMEDIATE BOND FUND OF AMERICA
Seeks current income, consistent with preservation of capital, through a
diversified portfolio of government and high-quality corporate debt obligations
with effective maturities between three and 10 years.
U.S. GOVERNMENT SECURITIES FUND
Seeks high income, consistent with prudent risk and preservation of capital, by
investing primarily in securities for which the timely payment of principal and
interest is guaranteed by the U.S. government.
TAX-EXEMPT INCOME FUNDS
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND
Seeks a high level of current income exempt from regular federal income taxes
through a diversified, carefully researched portfolio of municipal bonds,
including higher yielding, lower rated, higher risk issues. (May invest up to
100% of its assets in bonds subject to the alternative minimum tax.)
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA
Seeks current income exempt from federal income taxes, while preserving
capital, through a quality-oriented municipal bond portfolio with an average
effective maturity between three and 10 years.
THE TAX-EXEMPT BOND FUND OF AMERICA
Seeks a high level of federally tax-free income, consistent with preservation
of capital, through a diversified portfolio consisting primarily of municipal
bonds.
THE TAX-EXEMPT FUND OF CALIFORNIA
Seeks a high level of current income free from federal and California income
taxes primarily through investments in California municipal bonds.
THE TAX-EXEMPT FUND OF MARYLAND
Seeks a high level of current income free from federal, Maryland state and
local income taxes primarily through investments in Maryland municipal bonds.
THE TAX-EXEMPT FUND OF VIRGINIA
Seeks a high level of current income free from federal and Virginia income
taxes primarily through investments in Virginia municipal bonds.
MONEY MARKET FUNDS
THE CASH MANAGEMENT TRUST OF AMERICA
Seeks to provide income on cash reserves, while preserving capital and
maintaining liquidity, through high-quality money market instruments.
THE TAX-EXEMPT MONEY FUND OF AMERICA
Seeks to provide income free from federal taxes, while preserving capital and
maintaining liquidity, through investments in high-quality municipal securities
maturing in one year or less.
THE U.S. TREASURY MONEY FUND OF AMERICA
Seeks to provide income on cash reserves, while preserving capital and
maintaining liquidity, through investments in U.S. Treasury securities maturing
in one year or less.
Investments in the funds are neither insured nor guaranteed by the U.S.
government or any other entity. There can be no assurance that the money market
funds will maintain a constant net asset value of $1.00 per share.
FOR MORE COMPLETE INFORMATION ABOUT ANY OF THE FUNDS, INCLUDING CHARGES AND
EXPENSES, PLEASE OBTAIN A PROSPECTUS FROM YOUR SECURITIES DEALER OR FINANCIAL
PLANNER, OR PHONE THE FUND'S TRANSFER AGENT, AMERICAN FUNDS SERVICE COMPANY, AT
800/421-0180. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND
MONEY.
Remember, as a shareholder of Fundamental Investors, whenever your objectives
change you can transfer some or all of your holdings to another fund in The
American Funds Group free of charge. Exchange privileges are subject to change
or termination.
Litho in USA CD/L
Lit. No. Fl-011-0295
