FUNDAMENTAL INVESTORS
SEMI-ANNUAL REPORT
FOR THE SIX MONTHS ENDED JUNE 30, 1997
THE AMERICAN FUNDS GROUP (R)
[Cover: Abstract illustration of ideas and concepts]
FUNDAMENTAL INVESTORS(SM) SEEKS LONG-TERM GROWTH OF CAPITAL AND INCOME THROUGH
INVESTMENTS IN COMMON STOCKS.
RESULTS AT A GLANCE
Total return through 6/30/97 Six Twelve Ten
with all distributions reinvested Months Months Years
Fundamental Investors +16.8% +30.6% +269.6%
Standard & Poor's 500 Composite Index +20.6 +34.6 +291.4
Average Savings Institution* +2.1 +4.2 +65.0
*With interest compounded. Based on figures supplied by the U.S. League of
Savings Institutions and the Federal Reserve Board, which reflect all kinds of
savings deposits, including longer term certificates. Unlike investments in the
fund, such deposits are insured, and, if held to maturity, offer a guaranteed
return of principal and a fixed rate of interest, but no opportunity for
capital growth.
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are the total returns and average annual compound
returns with all distributions reinvested for periods ended June 30, 1997,
assuming payment of the 5.75% maximum sales charge at the beginning of the
stated periods:
<TABLE>
<CAPTION>
Average Annual
Total Return Compound Return
<S> <C> <C>
10 years +248.32% +13.29%
Five years +131.93 +18.32
One year +23.15 -
</TABLE>
Sales charges are lower for accounts of $50,000 or more. The fund's 30-day
yield as of July 31, 1997, calculated in accordance with the Securities and
Exchange Commission formula, was 1.28%.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS AND ARE NOT PREDICTIVE OF
FUTURE RESULTS. SHARE PRICE AND RETURN WILL VARY, SO YOU MAY LOSE MONEY BY
INVESTING IN THE FUND. THE SHORTER THE TIME PERIOD OF YOUR INVESTMENT, THE
GREATER THE POSSIBILITY OF LOSS. 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. KEEP IN MIND THAT THE FUND MAY ALSO INVEST IN INTERNATIONAL
SECURITIES, WHICH CAN BE MORE VOLATILE SINCE THEIR PRICES ARE INFLUENCED BY
CURRENCY FLUCTUATIONS AS WELL AS TYPICAL ECONOMIC AND BUSINESS FACTORS.
FELLOW SHAREHOLDERS:
Fundamental Investors' results for the first half of 1997 were excellent. With
a total return of 16.8% (dividends and capital gains reinvested), the fund
earned in six months what it has earned on average in 12-month calendar periods
since we began managing the fund 19 years ago.
Your fund's six-month income return was 0.8%, resulting from two 10-cent
dividends paid in February and May. A capital gain distribution paid in
February totaled 35 cents per share.
We find ourselves at an almost ideal moment in investing history. Unemployment
is at its lowest level in two decades. Corporate profits continue to surpass
expectations. Economic growth is the highest in a decade yet inflation remains
low. Investors have benefited from these conditions with a double-digit advance
in the first half of 1997, following market returns of 23% in 1996 and 38% in
1995.
In this environment, though Fundamental Investors' six-month return was high in
absolute terms, at 16.8% it lagged the unmanaged Standard & Poor's 500
Composite Index's gain of 20.6%. This reflects the uncommon demand for a
handful of the biggest stocks that have led the market run-up. During this
period the 50 largest stocks in the S&P 500 climbed an average of 23% vs. 15%
for the remaining 450. Investors are gravitating to the largest stocks for a
number of reasons, including their highly liquid nature. For some, a quick
escape hatch is of more concern than long-term fundamental values.
That's not Fundamental Investors' style. Research is our hallmark, not buying a
designated list of companies. We search for underappreciated, valuable
companies with unrecognized potential for growth of capital and income. We
invest not only in S&P 500 companies, but also in midsize companies that have
historically offered greater opportunity for long-term gains. And recently, we
have added diversity to the portfolio with more non-U.S. companies.
This has been a prudent and successful strategy. We have consistently beaten
the average growth and income fund. In the current six-month period, our 16.8%
return topped the Lipper Growth & Income Average's 15.5%. The comparison is
almost identical for the average annual results over Fundamental Investors'
lifetime under CRMC management: 16.5% vs. 15.1%, respectively.
Of our ten largest holdings, eight gained 15% or more, and better than half
significantly beat the market. Atlantic Richfield (one of two of our 10 largest
holdings not to show an outsized gain at +6.4%) and Royal Dutch
Petroleum/"Shell" (+27.2%) give us access to long-term growth opportunities in
the energy field and dependable, hard-to-find yield. Schlumberger (+25.2%), the
world's premier energy equipment company, is benefiting from demand for its
technologically advanced full-service drilling programs.
Texas Instruments (+31.9%) illustrates our buy-value-early approach. We first
bought the company almost 15 years ago and added significantly to our holdings
in the past two years as new management trimmed back on defense and computer
businesses and began refocusing on the company's key strength as a
semiconductor manufacturer.
LARGEST INDIVIDUAL HOLDINGS
Percent
Percent of change
net assets 1/1-6/30/97*
Atlantic Richfield 2.8% +6.4%
Texas Instruments 2.3 +31.9
Time Warner 2.2 +27.8
Royal Dutch Petroleum/
"Shell" Transport and Trading 1.8 +27.2
Pfizer 1.7 +44.2
Warner-Lambert 1.5 +55.1/+/
General Re 1.4 +15.4
Schlumberger 1.3 +25.2
U S WEST 1.3 +16.9
Astra 1.2 +3.4
*Percentage change reflects increase in market price, including stock splits
and dividends.
/+/Reflects the period from 2/3/97-6/30/97.
Our patience with Time Warner (+27.8%) finally paid off. We have always
appreciated its portfolio of entertainment assets but have been eager to see a
focus on shareholders. This year the company cut costs and tightened budget
policies, instituting major changes in corporate governance. Cash flow is up
and business is strong.
World-class drug companies Pfizer (+44.2%) and Warner-Lambert (+55.1% since its
purchase in February) are on both our ten-largest and ten-most-successful
lists. We believe each company has a strong pipeline of new products. The two
have teamed up to distribute the blockbuster cholesterol reducer, Lipitor. It
and Warner-Lambert's Rezulin, a diabetes drug, are each expected to produce
annual sales of $1 billion.
Other notable successes include Eli Lilly (+49.7%), Philips Electronics
(+79.7%), and the machinery/engineering companies Parker Hannifin (+56.6%),
Cummins Engine Co. (+53.4%) and Caterpillar (+42.7%). Of the 157 securities
held by the fund throughout the six months, only 27 had negative returns. The
least successful included Texas Utilities (-15.5%), Northeast Utilities
(-27.8%) and Union Pacific Resources (-15.0%), as well as AT&T (-16.0%), which
started out the period as one of the ten largest holdings.
During this period we took full advantage of our ability to look for value
abroad. The greatest change was an increase in Japanese holdings from 0.4% to
3.1% of fund assets. Given the improvement in the Japanese economy and markets,
we invested in potential bargains such as commercial lender Shohkoh Fund and
world leaders Kyocera (an electronic components manufacturer) and Sony.
We remain optimistic about the long term. Our biggest surprise of late has been
the lack of negative surprises. They will come, eventually. We have prepared as
best we can, with many stocks that haven't participated in the big run-ups and
may have less room to fall. We have diversified our holdings outside our
borders and kept 6% cash (and equivalents) on hand. Most importantly, we will
continue to make decisions based on the search for long-term value.
Thank you for your continued support.
Sincerely,
[/s/ Walter P. Stern]
Walter P. Stern
Chairman
[/s/ James E. Drasdo]
James E. Drasdo
President
August 14, 1997
<TABLE>
<S> <C> <C> <C>
FUNDAMENTAL INVESTORS, INC.
INVESTMENT PORTFOLIO - June 30, 1997
Unaudited
Percent
Of net
Largest Industry Holdings Assets
Energy Sources & Equipment 14.40%
Health & Personal Care 7.45
Electronic Components 4.95
Food & Household Products 4.49
Business & Public Services 4.39
Shares or Market Percent
EQUITY-TYPE SECURITIES Principal Value of Net
(Common and Preferred Stocks and Amount (000) Assets
Convertible Debentures)
- ---------------------------------------------------- ---------- ---------- ----------
Energy Sources & Equipment- 11.67%
Atlantic Richfield Co. 3550000 $250,275 2.76%
Royal Dutch Petroleum Co. (New York Registered Shares) (Netherlands) 2851600 155056
"Shell" Transport and Trading Co., PLC (New York Registered Shares) 1.78
(United Kingdom) 50000 6287
Schlumberger Ltd. (Netherlands Antilles) 916700 114588 1.27
Suncor Energy Inc. (formerly Suncor Inc.) (Canada) 3890000 104274 1.15
Chevron Corp. 1200000 88725 .98
Halliburton Co. 1075000 85194 .94
Elf Aquitaine (American Depositary Receipts) (formerly Societe
Nationale Elf Aquitaine) (France) 1400000 76213 .84
Murphy Oil Corp. 1535000 74831 .83
Western Atlas Inc./1/ 700000 51275 .57
Phillips Petroleum Co. 900000 39375 .43
Enterprise Oil PLC (United Kingdom) 3000000 33732 .37
Texaco Inc. 300000 32625 .36
Union Pacific Resources Group, Inc. 1300000 32337 .36
Baker Hughes Inc. 800000 30950 .34
British Petroleum Co. PLC (American Depositary
Receipts) (United Kingdom) 393860 29490 .33
Shell Canada Ltd., Class A (Canada) 1919900 29210 .32
Mobil Corp. 300000 20963 .23
TOTAL, Class B (American Depositary Receipts)
(France) 407013 20605 .23
Cyprus Amax Minerals Co., convertible preferred,
Series A 230000 12593 .14
Diamond Offshore Drilling, Inc./1/ 120000 9345 .10
Sun Co., Inc., Series A 146314 4444
Sun Co., Inc. 48186 1494 .07
Health & Personal Care- 7.45%
Pfizer Inc 1250000 149375 1.65
Warner-Lambert Co. 1054900 131071 1.45
AB Astra, Class A (American Depositary Receipts)
(Sweden) 5864200 111420 1.23
Gillette Co. 900000 85275 .94
Johnson & Johnson 915400 58929 .65
Pharmacia & Upjohn, Inc. 1200000 41700 .46
American Home Products Corp. 500000 38250 .42
Eli Lilly and Co. 300000 32794 .36
Merck & Co., Inc. 150000 15525 .17
Chiron Corp./1/ 500000 10437 .12
Electronic Components- 4.95%
Texas Instruments Inc. 2509128 210924 2.33
AMP Inc. 2500000 104375 1.15
Intel Corp. 600000 85087 .94
Kyocera Corp. (Japan) 600000 47727 .53
Food & Household Products- 4.49%
Unilever NV (New York Registered Shares) (Netherlands) 405000 88290 .97
Kellogg Co. 1020700 87398 .97
Colgate-Palmolive Co. 1300000 84825 .94
Archer Daniels Midland Co. 2200000 51700 .57
General Mills, Inc. 775000 50472 .56
McCormick & Co. 1165200 29421 .32
CPC International Inc. 156100 14410 .16
Business & Public Services- 4.39%
Federal Express Corp./1/ 1300000 75075 .83
Shared Medical Systems Corp. 1030000 55620 .61
Waste Management, Inc. 1600000 51400 .57
Browning-Ferris Industries, Inc. 1300000 43225 .48
Humana Inc./1/ 1800000 41625 .46
Avery Dennison Corp. 1000000 40125 .44
Columbia/HCA Healthcare Corp. 690000 27126 .30
Ecolab Inc. 300000 14325 .16
USA Waste Services, Inc., Class B, 4.00% convertible debentures
2002 $11,000,000 11825 .13
First Data Corp. 230000 10106 .11
Deluxe Corp. 280000 9555 .11
Electronic Data Systems Corp. 213000 8733 .10
CUC International Inc. 3.00% convertible
debentures 2002/2/ $7,900,000 8334 .09
Broadcasting & Publishing- 4.28%
Time Warner Inc. 4022000 194062
Time Warner Inc., Series M, 10.25% cumulative exchangeable 3309 3656 2.18
preferred
News Corp. Ltd. (American Depositary Receipts) (Australia) 2200000 42350
News Corp. Ltd., preferred shares (American Depositary Receipts) 1100000 17187 .66
Tribune Co. 800000 38450 .43
E.W. Scripps Co., Class A 700000 29138 .32
Tele-Communications, Inc., Series A, TCI Group/1/ 1408100 20945 .23
Comcast Corp., Class A, special stock 810784 17331 .19
Viacom Inc., Class B/1/ 500000 15000 .17
Tele-Communications, Inc., Series A, Liberty Media Group/1/ 376504 8942 .10
Banking- 3.76%
Norwest Corp. 1000000 56250 .62
CoreStates Financial Corp 1021100 54884 .60
PNC Bank Corp. 971100 40422 .45
Fleet Financial Group, Inc. 600000 37950 .42
First Chicago NBD Corp. 550000 33275 .37
KeyCorp 450000 25144 .28
Citicorp 200000 24112 .27
J.P. Morgan & Co. Inc. 185000 19309 .21
Old Kent Financial Corp. 296310 16001 .18
Toronto-Dominion Bank (Canada) 500000 14816 .16
Banc One Corp. 190000 9203 .10
Chase Manhattan Corp. 90000 8736 .10
Machinery & Engineering- 3.54%
Caterpillar Inc. 1000000 107375 1.18
Deere & Co. 1400000 76825 .85
Parker Hannifin Corp. 1100000 66756 .74
Cummins Engine Co., Inc./2/ 500000 35281 .39
Case Corp. 300000 20663 .23
New Holland NV (Netherlands) 500000 13688 .15
Telecommunications- 3.34%
U S WEST Communications Group 3000000 113062 1.26
AT&T Corp. 2300000 80644 .89
NYNEX Corp. 400000 23050 .25
MCI Communications Corp. 600000 22969 .25
Bell Atlantic Corp. 300000 22762 .25
Ameritech Corp. 259600 17637 .19
AirTouch Communications/1/ 500000 13688 .15
Ascend Communications, Inc./1/ 220000 8662 .10
Leisure & Tourism- 2.95%
ITT Corp./1/ 1600000 97700 1.08
Walt Disney Co. 1085153 87084 .96
McDonald's Corp. 1700000 82131 .91
Forest Products & Paper- 2.68%
Union Camp Corp. 1000000 50000 .55
Weyerhaeuser Co. 900000 46800 .52
International Paper Co. 800000 38850 .43
Georgia-Pacific Corp. 400000 34150 .38
James River Corp. of Virginia 850000 31450 .35
Bowater Inc. 350000 16187 .18
Rayonier Inc. 365000 15353 .17
Deltic Timber Corp. 320000 9380 .10
Insurance- 2.60%
General Re Corp. 710000 129220 1.43
Aetna Inc. 450000 46069
Aetna Inc., Class C, 6.25% convertible preferred 50000 4687 .56
CNA Financial Corp./1/ 320000 33740 .37
American International Group, Inc. 108750 16245 .18
PMI Group, Inc. 90000 5614 .06
Appliances & Household Durables- 2.60%
Sony Corp. (Japan) 900000 78593 .87
Newell Co. 1550000 61419 .68
Philips Electronics NV (New York Registered Shares)
(Netherlands) 700000 50312 .56
Rubbermaid Inc. 1500000 44625 .49
Data Processing & Reproduction- 2.50%
International Business Machines Corp. 1195000 107774 1.19
Oracle Corp./1/ 1200000 60450 .67
Silicon Graphics, Inc./1/ 1385500 20783 .23
Computer Associates International, Inc. 360000 20048 .22
Tandem Computers Inc./1/ 850000 17212 .19
Merchandising- 2.42%
Mercantile Stores Co., Inc. 800000 50350 .56
May Department Stores Co. 1000000 47250 .52
Woolworth Corp./1/ 1816900 43605 .48
Limited Inc. 1800000 36450 .40
Intimate Brands, Inc., Class A 700000 14700 .16
Albertson's, Inc. 250000 9125 .10
Lowe's Companies, Inc. 240000 8910 .10
J.C. Penney Co., Inc. 170000 8872 .10
Chemicals- 2.41%
Air Products and Chemicals, Inc. 775000 62969 .70
Engelhard Corp. 1900000 39781 .44
Imperial Chemical Industries PLC (American Depositary
Receipts) (United Kingdom) 500000 28437 .31
Mallinckrodt Inc. 561600 21341 .24
Witco Corp. 500000 18969 .21
E.I. du Pont de Nemours and Co. 300000 18862 .21
Hoechst AG (Germany) 400000 16977 .19
BOC Group PLC (United Kingdom) 600000 10445 .11
Aerospace & Military Technology- 2.22%
General Motors Corp., Class H 1329100 76756 .85
Raytheon Co. 925000 47175 .52
McDonnell Douglas Corp. 550000 37675 .41
Sundstrand Corp. 500000 27000 .30
Boeing Co. 241340 12806 .14
Multi-Industry- 2.10%
AlliedSignal Inc. 900000 75600 .83
Textron Inc. 1127000 74805 .83
Tenneco Inc. 675000 30501 .34
Whitman Corp. 400000 9600 .10
Utilities: Electric & Gas- 1.75%
Long Island Lighting Co. 1800000 41400 .46
Houston Industries Inc. 1350000 28940 .32
DTE Energy Co. 1000000 27625 .30
Duke Energy Corp. 314820 15092 .17
Eastern Utilities Associates 640000 11680 .13
Edison International 450000 11194 .12
Florida Progress Corp. 300000 9394 .10
Northeast Utilities 500000 4781 .05
Texas Utilities Co. 120800 4160 .05
Entergy Corp. 150000 4106 .05
Financial Services- 1.73%
Federal Home Loan Mortgage Corp. 1650000 56719 .63
Capital One Financial Corp. 1080000 40770 .45
Shohkoh Fund & Co., Ltd. (Japan) 90000 27299 .30
Federal National Mortgage Assn. 600000 26175 .29
Household International, Inc. 46000 5402 .06
Miscellaneous Materials & Commodities- 1.62%
Pioneer Hi-Bred International, Inc. 1200000 96000 1.06
Potash Corp. of Saskatchewan Inc. (Canada) 675000 50667 .56
Industrial Components- 1.54%
Goodyear Tire & Rubber Co. 700000 44319 .49
Dana Corp. 1100000 41800 .46
Rockwell International Corp. 600000 35400 .39
Genuine Parts Co. 525000 17784 .20
Beverages & Tobacco- 1.30%
Seagram Co. Ltd. (Canada) 2400000 96600 1.07
PepsiCo, Inc. 550000 20659 .23
Metals: Nonferrous- 1.07%
Aluminum Co. of America 1250000 94219 1.04
Inco Ltd. (Canada) 100000 3006 .03
Transportation: Airlines- 1.06%
Delta Air Lines, Inc. 610000 50020 .55
AMR Corp./1/ 500000 46250 .51
Electronic Instruments- 1.02%
Tektronix, Inc. 825000 49500 .55
Imation Corp./1/ 1627215 42918 .47
Electrical & Electronics- 1.01%
Siemens AG (Germany) 900000 53465 .59
Lucent Technologies Inc. 400000 28825 .31
Nokia Corp., Class A (American Depositary Receipts)
(Finland) 130000 9588 .11
Automobiles- 1.01%
General Motors Corp. 1250000 69609 .77
Honda Motor Co., Ltd. (American Depositary Receipts) (Japan) 350000 21066
Honda Motor Co., Ltd. 27000 814 .24
Metals: Steel- 0.87%
Allegheny Teledyne Inc. 2750000 74250 .82
Armco Inc., cumulative convertible preferred 99000 4220 .05
Transportation: Rail & Road- 0.72%
Union Pacific Corp. 929419 65524 .72
Recreation & Other Consumer Products- 0.53%
Eastman Kodak Co. 450000 34537 .38
Nintendo Co., Ltd. (Japan) 160000 13427 .15
Textiles & Apparel - 0.20%
Nine West Group Inc./1/ 250000 9547 .10
Fruit of the Loom, Inc./1/ 280000 8680 .10
Miscellaneous
Other equity-type securities in initial period
of acquisition 441968 4.88
----------- -----------
TOTAL EQUITY-TYPE SECURITIES (cost: $6,238,213,000) 8454821 93.39
----------- -----------
PRINCIPAL
AMOUNT
Bonds & Notes (OOO)
- -------------------------------------------------------- ---------- -----------
Industrials - 0.42%
Cablevision Systems Corp. 9.875% 2013 $14,000 $14,490 0.16%
Time Warner Inc. 10.15% 2012 6000 7280 .08
PriCellular Wireless Corp. 0%/12.25% 2003 /3/ 5000 4700 .05
Falcon Drilling Co., Inc.:
Series B, 8.875% 2003 2500 2531 .05
Series B, 9.75% 2001 1500 1560
J. Ray McDermott, SA 9.375% 2006 4000 4060 .05
Ocean Energy, Inc. 8.875% 2007/2/ 4000 3985 .04
Orion Network Systems, Inc. Units 11.25% 2007 3000 3075 .03
Forcenergy Inc. 9.50% 2006 2750 2819 .03
Bell Cablemedia PLC 0%/11.95% 2004 /3/ 2500 2256 .03
Abraxas Petroleum Corp. 11.50% 2004/2/ 2000 2190 .02
Texas Petrochemicals Corp. 11.125% 2006 1500 1620 .02
Cliffs Drilling Co., Series B, 10.25% 2003 1500 1598 .02
Transportation- 0.15%
Delta Air Lines, Inc., Series 1993-A2, 10.50% 2016 /4/ 11500 14024 .15
---------- ----------
TOTAL BONDS & NOTES (cost: $60,702,000) 66188 .73
---------- ----------
Short-Term Securities
- ----------------------------------------------------
CORPORATE SHORT-TERM NOTES-4.36%
Xerox Corp. 5.53%-5.55% due 7/23-9/8/97 $72,000 $ 71,433 0.79%
Ameritech Corp. 5.50%-5.55% due 7/18-8/19/97 52600 52288 .58
Monsanto Co. 5.57%-5.60% due 7/15-7/17/97 31300 31221
Monsanto Co. 5.55%-5.58% due 7/2-8/7/97/2/ 17900 17840 .54
PepsiCo, Inc. 5.47%-5.52% due 7/2-8/22/97 46700 46503 .51
International Lease Finance Corp. 5.50%-5.54% due 7/21-8/4/97 36000 35846 .40
National Rural Utilities Cooperative Finance Corp. 5.54%-5.57%
due 7/1-8/28/97 35325 35140 .39
A. I. Credit Corp. 5.50%-5.55% due 7/22-8/20/97 30100 29931 .33
Gillette Co. 5.48%-5.57% due 7/10-7/25/97/2/ 29600 29522 .33
Weyerhaeuser Co. 5.55%-5.57% due 7/11-8/1/97 26300 26185 .29
SAFECO Credit Co., Inc. 5.53% due 7/2-8/18/97 25400 25292 .28
John Deere Capital Corp. 5.54%-5.55% due 7/22-8/13/97 25000 24881 .27
H.J. Heinz Co. 5.50%-5.57% due 7/2-7/22/97 20500 20453 .22
CIT Group Holdings, Inc. 5.56% due 7/15/97 10200 10177 .11
General Electric Capital Corp. 5.55%-6.15% due 7/1-8/25/97 8800 8766 .10
FEDERAL AGENCY DISCOUNT NOTES-0.87%
Federal Home Loan Mortgage Corp. 5.43%-5.525%
due 7/18-9/5/97 47900 47577 .53
Federal National Mortgage Assn. 5.40%-5.53%
due 7/21-8/26/97 30866 30600 .34
---------- ----------
TOTAL SHORT-TERM SECURITIES (cost: $543,663,000) 543655 6.01
---------- ----------
TOTAL INVESTMENT SECURITIES (cost: $6,842,578,000) 9064664 100.13
Excess of payables over cash and receivables 11630 .13
---------- ----------
NET ASSETS $9,053,034 100.00%
========== ========
/1/ Non-income-producing securities.
/2/ Purchased in a private placement transaction;
resale to the public may require registration or sale
only to qualified institutional buyers.
/3/ Step bond; coupon rate will increase at a later date.
/4/ Pass-through securities backed by a pool of mortgages
or other loans on which principal payments are
periodically made. Therefore, the effective maturity of these
securities is shorter than the stated maturity.
See Notes to Financial Statements
EQUITY-TYPE SECURITIES APPEARING IN
THE PORTFOLIO SINCE DECEMBER 31, 1996
Albertson's
AMP
Ascend Communications
Banc One
BOC
Capital One Financial
Chase Manhattan
Chiron
Columbia/HCA Healthcare
Computer Associates International
CUC International
Deluxe
Diamond Offshore Drilling
Duke Energy
Electronic Data Systems
First Data
Fruit of the Loom
Genuine Parts
Honda Motor
Household International
Imation
Intimate Brands
Kyocera
Lowe's
Mobil
J.P. Morgan
New Holland
Newell
Nine West
Nintendo
Northeast Utilities
Old Kent Financial
J.C. Penney
Pharmacia & Upjohn
Pioneer Hi-Bred International
PMI
Rubbermaid
Shell Canada
Shohkoh Fund
Siemens
Silicon Graphics
Sony
Toronto-Dominion Bank
Tribune
USA Waste Services
Warner-Lambert
Waste Management
Woolworth
EQUITY-TYPE SECURITIES ELIMINATED FROM THE
PORTFOLIO SINCE DECEMBER 31, 1996
Adobe Systems
Allstate
Alumax
Anheuser-Busch
Associates First Capital
Canadian National Railway System
Cirrus Logic
CITIC Pacific
Conrail
Dell Computer
Duracell International
Eastman Chemical
El Paso Natural Gas
Exxon
First Union
Ford Motor
Georgia Gulf
Harsco
H.J. Heinz
Hewlett-Packard
IMC Global
Kimberly-Clark
Litton Industries
Motorola
NCR
Newport News Shipbuilding
Omnicom
Pacific Telesis
PanEnergy
SAFECO
Sears, Roebuck
Toys "R" Us
TRINOVA
U.S. Industries
United HealthCare
Unocal
Wal-Mart Stores
Wells Fargo
</TABLE>
<TABLE>
<S> <C> <C>
Fundamental Investors, Inc.
Financial Statements Unaudited
Statement of Assets and Liabilities (dollars in thousands)
at June 30, 1997
- ---------------------------------------- ------------ ------------
Assets:
Investment securities at market
(cost: $6,842,578) $9,064,664
Cash 308
Receivables for-
Sales of investments $ 11,099
Sales of fund's shares 17,529
Dividends and accrued interest 13,498 42,126
------------ ------------
9,107,098
Liabilities:
Payables for-
Purchases of investments 42,728
Repurchases of fund's shares 7,431
Management services 2,163
Accrued expenses 1,742 54,064
------------ ------------
Net Assets at June 30, 1997-
Equivalent to $28.05 per share on
322,803,599 shares of $1 par value
capital stock outstanding (authorized
capital stock-500,000,000 shares) $9,053,034
============
Statement of Operations Unaudited
for the six months ended June 30, 1997 (dollars in thousands)
------------ ------------
Investment Income:
Income:
Dividends $ 75,304
Interest 19,115 $ 94,419
------------
Expenses:
Management services fee 11,832
Distribution expenses 9,528
Transfer agent fee 3,115
Reports to shareholders 252
Registration statement and prospectus 680
Postage, stationery and supplies 744
Directors' fees 60
Auditing and legal fees 44
Custodian fee 132
Taxes other than federal income tax 1
Other expenses 68 26,456
------------ ------------
Net investment income 67,963
------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 549,857
Net increase in unrealized
appreciation on investments:
Beginning of period 1,580,787
End of period 2,222,102
Net unrealized appreciation ------------
on investments 641,315
Net realized gain and unrealized ------------
appreciation on investments 1,191,172
Net Increase in Net Assets Resulting ------------
from Operations $1,259,135
============
Unaudited
Statement of Changes in Net Assets (dollars in thousands)
- ---------------------------------------- ------------- -------------
Six Months Year
ended ended
06/30/97* 12/31/96
Operations: ------------- -------------
Net investment income $ 67,963 $ 105,755
Net realized gain on investments 549,857 528,775
Net unrealized appreciation
on investments 641,315 476,321
------------- -------------
Net increase in net assets
resulting from operations 1,259,135 1,110,851
------------- -------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (61,798) (100,250)
Distributions from net realized
gain on investments (105,212) (470,174)
------------- -------------
Total dividends and distributions (167,010) (570,424)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
43,837,781 and 90,269,651
shares, respectively 1,130,370 2,123,860
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
6,060,601 and 21,801,000 shares,
respectively 156,155 534,260
Cost of shares repurchased:
19,072,254 and 33,388,411
shares, respectively (490,989) (787,668)
Net increase in net assets resulting ------------- -------------
from capital share transactions 795,536 1,870,452
------------- -------------
Total Increase in Net Assets 1,887,661 2,410,879
Net Assets:
Beginning of period 7,165,373 4,754,494
End of period (including undistributed ------------- -------------
net investment income: $21,293 and
$15,128, respectively) $9,053,034 $7,165,373
============= ============
*Unaudited
See Notes to Financial Statements
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. 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 through investments in
common stocks. The following paragraphs summarize the significant accounting
policies consistently followed by the fund in the preparation of its financial
statements:
Equity-type securities traded on a national securities exchange (or reported
on the Nasdaq national market) and securities traded in the over-the-counter
market are stated at the last reported sales price on the day of valuation;
other securities, and securities for which no sale was reported on that date,
are stated at the last quoted bid price. 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 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, which
approximates market value. Securities for which market quotations are not
readily available are valued at fair value by the Board of Directors or a
committee thereof.
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
period. Purchases and sales of investment securities, income and expenses are
calculated using the prevailing exchange rate as accrued. The effects of
changes in foreign currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
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 $132,000 includes $37,000 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 June 30, 1997, net unrealized appreciation on investments for book and
federal income tax purposes aggregated $2,222,086,000, of which $2,259,370,000
related to appreciated securities and $37,284,000 related to depreciated
securities. There was no difference between book and tax realized gains on
securities transactions for the six months ended June 30, 1997. The cost of
portfolio securities for book and federal income tax purposes was
$6,842,578,000 at June 30, 1997.
3. The fee of $11,832,000 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 six months ended June 30,1997,
distribution expenses under the Plan were $9,528,000. As of June 30, 1997,
accrued and unpaid distribution expenses were $1,371,000.
American Funds Service Company (AFS), the transfer agent for the fund, was paid
a fee of $3,115,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $3,949,000 (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 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 June 30, 1997,
aggregate amounts deferred and earnings thereon were $316,000.
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 such persons
received any remuneration directly from the fund.
4. As of June 30, 1997, accumulated undistributed net realized gain on
investments was $550,013,000 and additional paid-in capital was $5,936,822,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $2,262,656,000 and $1,714,817,000, respectively,
during the six months ended June 30, 1997.
Dividend and interest income is recorded net of non-U.S. taxes paid. For the
six months ended June 30, 1997, such non-U.S. taxes were $2,303,000. Net
realized currency losses on dividends, interest, and withholding taxes
reclaimable were $106,000 for the six months ended June 30, 1997.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA AND RATIOS
Six Months Year ended December 31
Ended --------- --------- -------- -------- --------
6/30/97/1/ 1996 1995 1994 1993 1992
--------- --------- --------- --------- -------- --------
Net Asset Value, Beginning
of Period 24.54 22.29 17.5 18.15 17.52 17.47
--------- --------- --------- --------- -------- --------
Income from Investment
Operations:
Net investment income .21 .41 .41 .42 .44 .44
Net realized and unrealized
gain (loss) on investments 3.85 4.00 5.46 (.18) 2.65 1.27
Total income from --------- --------- --------- --------- -------- --------
investment operations 4.06 4.41 5.87 .24 3.09 1.71
--------- --------- --------- --------- -------- --------
Less Distributions:
Dividends from net investment
income (.20) (.40) (.40) (.44) (.43) (.42)
Distributions from net realized
gains (.35) (1.76) (.68) (.45) (2.03) (1.24)
--------- --------- --------- --------- -------- --------
Total distributions (.55) (2.16) (1.08) (.89) (2.46) (1.66)
--------- --------- --------- --------- -------- --------
Net Asset Value, End of Period 28.05 24.54 22.29 17.5 18.15 17.52
========= ========= ========= ========= ======== ========
Total Return/2/ 16.75%/3/ 19.99% 34.21% 1.33% 18.16% 10.19%
Ratios/Supplemental Data:
Net assets, end of period
(in millions) $9,053 $7,165 $4,754 $2,611 $1,979 $1,440
Ratio of expenses to average
net assets .33% /3/ .66% .70% .68% .65% .65%
Ratio of net income to
average net assets .85% /3/ 1.78% 2.08% 2.45% 2.43% 2.56%
Average commissions paid
per share /4/ 4.57c 5.69c 5.95c 6.02c 6.14c 7.53c
Portfolio turnover rate 23.01% /3/ 39.07% 25.47% 23.02% 29.22% 23.98%
/1/ Unaudited
/2/ Calculated without deducting a
sales charge. The maximum sales charge
is 5.75% of the fund's offering price.
/3/ Based on operations for the period
shown and, accordingly, not
representative of a full year's
operations.
/4/ Brokerage commissions paid on
portfolio transactions increase the
cost of securities purchased or reduce
the proceeds of securities sold and
are not separately reflected in the
fund's statement of operations. Shares
traded on a principal basis (without
commissions), such as most over-the-
counter and fixed-income transactions,
are excluded. Generally, non-U.S.
commissions are lower than U.S.
commissions when expressed as cents
per share but higher when expressed as
a percentage of transactions because
of the lower per-share prices of many
non-U.S. securities.
</TABLE>
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180, OR VISIT WWW.AMERICANFUNDS.COM ON THE
WORLD WIDE WEB.
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, 1997, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
OFFICE OF THE FUND
One Market
Steuart Tower, 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 92821-5804
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
THE AMERICAN FUNDS GROUP (R)
Printed on recycled paper
Litho in USA SG/GRS/3464
Lit. No. FI-013-0897
