[THE AMERICAN FUNDS GROUP(R)]
FUNDAMENTAL INVESTORS
SEMI-ANNUAL REPORT
FOR THE SIX MONTHS ENDED JUNE 30, 1998
[cover: coat/hat rack with one brown hat hung.]
FUNDAMENTAL INVESTORS(SM) SEEKS LONG-TERM GROWTH OF CAPITAL AND INCOME
PRIMARILY THROUGH INVESTMENTS IN COMMON STOCKS.
FUNDAMENTAL INVESTORS IS ONE OF THE 28 MUTUAL FUNDS IN THE AMERICAN FUNDS
GROUP(R), MANAGED BY CAPITAL RESEARCH AND MANAGEMENT COMPANY. SINCE 1931,
CAPITAL HAS INVESTED WITH A LONG-TERM FOCUS BASED ON THOROUGH RESEARCH AND
ATTENTION TO RISK.
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RESULTS AT A GLANCE six months twelve months ten years
Total return through 6/30/98
with all distributions reinvested
Fundamental Investors +12.8% +22.4% +382.1%
Standard & Poor's 500 Composite Index +17.7 +30.1 +446.8
Average Savings Institution* +2.1 +4.2 + 61.6
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*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, 1998,
assuming payment of the 5.75% maximum sales charge at the beginning of the
stated periods:
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Total return Average annual
compound return
10 years +354.45% +16.35%
Five years +138.54 +18.99
One year +15.38 -
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Sales charges are lower for accounts of $50,000 or more. The fund's 30-day
yield as of July 31, 1998, calculated in accordance with the Securities and
Exchange Commission formula, was 1.35%.
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:
For the first half of 1998, an investment in Fundamental Investors increased a
strong 12.8% (with reinvestment of dividends and capital gains). The fund's
peers, represented by the Lipper Growth & Income Fund Index (30 of the largest
U.S. growth-and-income funds), returned 11.6%.
Despite higher stock prices and annual capital gain distributions, the fund has
been able to maintain a consistent 10-cent-per-quarter dividend for more than
15 years. Fundamental Investors' income return of 0.74% for the six-month
period (1.48% annualized) was achieved with a 10-cent dividend paid in both
February and May. A long-term capital gain distribution of 11 cents per share
was paid in February.
We continue to operate in an unusual economic environment. Despite a robust
economy on the home front - rising employment, almost nonexistent inflation,
low interest rates, strong home sales and high corporate earnings - we do not
live in an American vacuum. Asian troubles continue to influence the fates of
many domestic companies. A steep decline in global commodity prices along with
surging debt and interest rates in Russia and Latin America add further
uncertainty to companies doing business worldwide.
The result? Nervous investors sought shelter in the largest stocks, counting on
them to provide a port in the storm with reliable escape routes. The numbers
tell the story. On the surface, we see that the unmanaged Standard & Poor's 500
Composite Index returned 17.7% for the first six months of 1998. However, if
you look deeper at the stocks comprising the index, you see that the 50 largest
capitalization stocks, as of June 30, powered the rise with an average 28%
return. The remaining 450 rose an average of only 10% (less than Fundamental
Investors' 12.8% return for the period).
Our tradition has been to avoid the largest capitalization stocks and
concentrate on somewhat smaller companies in search of undiscovered value. That
approach has paid off over the years and continued to pay off this period,
especially in the fund's 10 largest holdings. Representing almost 20% of the
fund's portfolio, these stocks had returns that ranged from +19.6% (General Re)
to +67.8% (Warner-Lambert). The list includes businesses somewhat insulated
from the Asian situation: entertainment and media companies - Time Warner
(+37.8%), Tele-Communications, TCI Group (+37.6%) and News Corp. (+43.3%); a
financial services company - Marsh & McLennan (+21.6%); and companies with
promising pharmaceutical products - Pfizer (+45.8%), Warner-Lambert and
Monsanto (+33.0%).
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LARGEST EQUITY HOLDINGS
As of 6/30/98 Percent of Percent
net assets change*
Time Warner 2.8% +37.8%
Texas Instruments 2.2 +29.6
Monsanto 2.2 +33.0
Tele-Communications, 2.0 +37.6
TCI Group
Warner-Lambert 1.7 +67.8
News Corp. 1.6 +43.3
General Re 1.5 +19.6
Pfizer 1.3 +45.8
Marsh & McLennan 1.2 +21.6
McDonald's 1.2 +44.5
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*Reflects the increase in market price for the six months ended June 30, 1998.
Fundamental Investors, like the other funds in The American Funds Group, is
managed in a unique way. Three portfolio counselors each manage a piece of the
portfolio as if it were a separate fund, while another segment is managed
jointly by the research analysts who seek out investment ideas for the fund.
Unlike their peers at most other mutual funds, our analysts actually invest in
the ideas they've researched and recommended. During the first half of 1998,
their segment of the portfolio was especially successful, with investments in
all of the fund's 10 highest-returning stocks. These included companies such as
credit card issuer Capital One Financial (+129.2%); cellular phone manufacturer
Nokia (+107.3%); and airline reservation system provider Galileo International
(+63.1%).
The fund's least successful holdings this period included the hard-hit oil and
energy-service businesses. Reduced Asian demand for oil contributed to lower
prices and less incentive to drill. In particular, Imperial Oil (-18.2%),
Schlumberger (-15.1%) and Halliburton (-14.2%) were affected. Chemical
companies BOC Group (-18.8%) and Witco (-28.3%) were also at the bottom of the
list this period.
Mergers and acquisitions were announced for many of the fund's large holdings
in the first half of '98: Monsanto plans to merge with American Home Products;
General Re agreed to be acquired by Berkshire Hathaway; and Chrysler (+34.4%
since purchased by the fund in March) by Germany's Daimler-Benz. AT&T's return
(-6.7%) reflected investor concern that AT&T may have paid too much for its
acquisition of TCI Group. From our perspective, however, given the importance
of cable television, we believe this will prove to be an advantageous
partnership.
Though short-term uncertainties concern us, we stay focused on providing you
with a good return on your investment dollars while trying to limit risk. As
we go forward, our search continues for undiscovered investment opportunities,
laying the groundwork for the long-term returns you seek. We appreciate your
support.
Sincerely,
/S/ JAMES F. ROTHENBERG
James F. Rothenberg
Chairman of the Board
/S/ JAMES E. DRASDO
James E. Drasdo
President
August 14, 1998
[The American Funds Group(R)]
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FUNDAMENTAL INVESTORS, INC.
INVESTMENT PORTFOLIO - June 30, 1998 - Unaudited
Percent
Of Net
Largest Industry Holdings Assets
Broadcasting & Publishing 8.72%
Energy Sources & Equipment 6.93
Health & Personal Care 6.75
Telecommunications 5.70
Insurance 5.25
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FUNDAMENTAL INVESTORS, INC.
INVESTMENT PORTFOLIO - June 30, 1998 - Unaudited
Shares or Market Percent
EQUITY SECURITIES Principal Value of Net
(Common and Preferred Stocks and Amount (000) Assets
Convertible Debentures)
- ---------------------------------------------------- --------- --------- ---------
Broadcasting & Publishing- 8.72%
Time Warner Inc. 4,022,000 343,630 2.78
Tele-Communications, Inc., Series A, TCI Group (1) 6,300,000 242,156 1.96
News Corp. Ltd. (ADR) (Australia) 3,150,000 101,194
News Corp. Ltd., preferred shares (ADR) 3,200,000 90,400 1.55
Viacom Inc., Class B (1) 1,130,000 65,822
Viacom Inc., Class A (1) 575,600 33,673 .81
Dow Jones & Co., Inc. 1,500,000 83,625 .68
Comcast Corp., Class A, special stock 1,310,784 53,210 .43
E.W. Scripps Co., Class A 700,000 38,369 .31
Tele-Communications, Inc., Series A, Liberty Media Group (1) 564,756 21,919 .18
MediaOne Group Inc. convertible preferred Series D 27,000 2,428 .02
Energy Sources & Equipment- 6.93%
Suncor Energy Inc. (Canada) 3,890,000 132,448 1.07
Western Atlas Inc. (1) 1,557,900 132,227 1.07
Murphy Oil Corp. 1,535,000 77,805 .63
Atlantic Richfield Co. 700,000 54,688 .44
Unocal Corp. 700,000 25,025
Unocal Capital Trust, convertible preferred 450,000 24,244 .40
Phillips Petroleum Co. 1,000,000 48,188 .39
Texaco Inc. 800,000 47,750 .39
Royal Dutch Petroleum Co. (New York Registered Shares) (Netherlands) 751,600 41,197
"Shell" Transport and Trading Co., PLC (New York Registered Shares)
(United Kingdom) 150,000 6,356 .38
Schlumberger Ltd. (Netherlands Antilles) 688,300 47,019 .38
Shell Canada Ltd., Class A (Canada) 2,649,900 46,556 .38
Imperial Oil Ltd. (Canada) 2,661,900 46,417 .38
Elf Aquitaine (ADR) (France) 500,000 35,500 .29
TOTAL, Class B (ADR) (France) 407,013 26,608 .22
Mobil Corp. 300,000 22,988 .19
Halliburton Co. 386,800 17,237 .14
Diamond Offshore Drilling, Inc. 390,000 15,600 .13
Loews Corp. 3.125% convertible debentures 2007 $7,500,000 6,787 .05
Health & Personal Care- 6.76%
Warner-Lambert Co. 3,064,700 212,614 1.72
Pfizer Inc 1,500,000 163,031 1.32
AB Astra, Class A (ADR) (Sweden) 6,983,333 143,158 1.16
Zeneca Group PLC (United Kingdom) 2,000,000 85,894 .71
Pharmacia & Upjohn, Inc. 1,400,000 64,575 .52
Amgen Inc. (1) 700,000 45,762 .37
Eli Lilly and Co. 600,000 39,638 .32
Boston Scientific Corp. (1) 350,000 25,069 .20
Johnson & Johnson 240,000 17,700 .14
Bristol-Myers Squibb Co. 125,000 14,367 .12
Merck & Co., Inc. 86,900 11,623 .09
Dura Pharmaceuticals, Inc. 3.50% convertible debentures 2002 $12,500,000 10,375 .09
Telecommunications- 5.70%
U S WEST Communications Group 3,000,000 141,000 1.14
AT&T Corp. 2,150,000 122,819 1.00
Sprint Corp. 1,400,000 98,700 .80
Frontier Corp. 3,100,000 97,650 .79
British Telecommunications PLC (United Kingdom) 5,300,000 66,463 .54
MCI Communications Corp. 900,000 52,312 .42
Bell Atlantic Corp. 1,000,000 45,625 .37
Tele-Communications, Inc., Series A, TCI Ventures Group (1) 2,100,000 42,131 .34
Ameritech Corp. 819,200 36,762 .30
Insurance- 5.25%
General Re Corp. 725,000 183,788 1.49
Marsh & McLennan Companies, Inc. 2,550,000 154,116 1.25
American International Group, Inc. 831,025 121,330 .98
Lincoln National Corp. 900,000 82,237 .67
Aetna Inc. 450,000 34,256
Aetna Inc., Class C, 6.25% convertible preferred 200,000 15,025 .40
20th Century Industries 1,600,000 45,900 .37
PMI Group, Inc. 160,000 11,740 .09
Electronic Components- 4.97%
Texas Instruments Inc. 4,718,256 275,133 2.23
Intel Corp. 1,500,000 111,188 .90
Motorola, Inc. 1,300,000 68,331 .56
Corning Inc. 1,500,000 52,125 .42
Bay Networks, Inc. (1) 1,022,400 32,972 .27
AMP Inc. 800,000 27,500 .22
Micron Technology, Inc. (1) 1,000,000 24,813 .20
SCI Systems, Inc. (1) 400,000 15,050 .12
Western Digital Corp, 0% convertible debentures 2018 (2) $22,500,000 5,991 .05
Business & Public Services- 4.73%
FDX Corp. (1) 1,300,000 81,575 .66
Shared Medical Systems Corp. 1,030,000 75,641 .61
Reuters Group PLC (ADR) (United Kingdom) 1,000,000 68,500 .56
Columbia/HCA Healthcare Corp. 2,011,300 58,579 .47
WMX Technologies, Inc. 1,600,000 56,000 .45
Avery Dennison Corp. 1,000,000 53,750 .44
Electronic Data Systems Corp. 1,300,000 52,000 .42
Cendant Corp. 7.50% convertible preferred 817,100 30,590
Cenant Corp. 3.00% convertible debentures 2002 (2) $7,900,000 7,683 .31
Ecolab Inc. 600,000 18,600 .15
Budget Group, Inc. 6.25% convertible preferred 2005 (1,2) 300,000 17,475 .14
First Data Corp. 500,000 16,656 .13
FIRST HEALTH Group Corp. (1) 500,000 14,250 .12
USA Waste Services, Inc., 4.00% convertible debentures
2002 $11,000,000 13,489 .11
Deluxe Corp. 280,000 10,027 .08
IKON Office Solutions, Inc. 650,000 9,466 .08
Chemicals- 4.15%
Monsanto Co. 4,785,000 267,362 2.17
Dow Chemical Co. 1,125,000 108,773 .88
Air Products and Chemicals, Inc. 1,550,000 62,000 .50
Imperial Chemical Industries PLC (ADR) (United Kingdom) 500,000 32,250 .26
Praxair, Inc. 394,700 18,477 .15
Witco Corp. 500,000 14,625 .12
BOC Group PLC (United Kingdom) 600,000 8,180 .07
Merchandising- 3.87%
Nordstrom, Inc. 1,200,000 92,700 .75
May Department Stores Co. 1,300,000 85,150 .69
Limited Inc. 2,225,000 73,703 .60
Mercantile Stores Co., Inc. 800,000 63,150 .51
American Stores Co. 2,417,000 58,461 .47
Venator Group Inc. (1) (formerly Woolworth Corp.) 1,839,600 35,183 .29
J.C. Penney Co., Inc. 333,300 24,102 .20
Lowe's Companies, Inc. 480,000 19,470 .16
Cardinal Health, Inc., Class A 200,000 18,750 .15
Thorn PLC (United Kingdom) 1,600,001 6,679 .05
Banking- 3.43%
First Union Corp. (formerly CoreStates Financial Corp.) 1,554,504 90,550 .73
Mellon Bank Corp. 800,000 55,700 .45
Marshall & Ilsley Corp. 1,026,500 52,416 .43
PNC Bank Corp. 971,100 52,257 .42
KeyCorp 1,200,000 42,750 .35
Norwest Corp. 900,000 33,638 .27
J.P. Morgan & Co. Inc. 250,000 29,281 .24
Toronto-Dominion Bank (Canada) 500,000 22,642 .18
Wells Fargo & Co. 50,000 18,450 .15
Chase Manhattan Corp. 180,000 13,590 .11
Banc One Corp. 209,000 11,665 .10
Utilities: Electric & Gas- 3.30%
Enron Corp. 1,357,400 73,384 .60
Baltimore Gas and Electric Co. 2,000,000 62,125 .50
Western Resources, Inc. 1,599,900 62,096 .50
MarketSpan Corp. 1,584,000 47,421 .38
DTE Energy Co. 1,050,000 42,394 .35
Williams Companies, Inc. 1,000,000 33,750 .27
Southern Co. 1,000,000 27,688 .22
Duke Energy Corp. 325,000 19,256 .16
Eastern Utilities Associates 640,000 16,800 .14
Florida Progress Corp. 300,000 12,338 .10
Texas Energy Industries, Inc. 120,800 5,028 .04
Entergy Corp. 150,000 4,312 .04
Leisure & Tourism- 2.91%
McDonald's Corp. 2,148,100 148,219 1.20
Walt Disney Co. 1,085,153 114,009 .93
Hilton Hotels Corp. 2,000,000 57,000 .46
Galileo International, Inc. 872,900 39,335 .32
Data Processing & Reproduction- 2.50%
International Business Machines Corp. 700,000 80,369 .65
Microsoft Corp. (1) 500,000 54,187 .44
Hewlett-Packard Co. 900,000 53,887 .43
Oracle Corp. (1) 2,000,000 49,125 .40
Data General Corp. (1) 1,800,000 26,888 .22
Lexmark International Group, Inc., Class A (1) 340,000 20,740 .17
Computer Associates International, Inc. 240,000 13,335 .11
Silicon Graphics, Inc. (1) 885,500 10,737 .08
Machinery & Engineering- 2.30%
Caterpillar Inc. 2,000,000 105,750 .86
Deere & Co. 1,400,000 74,025 .60
Parker Hannifin Corp. 1,650,000 62,906 .51
Cummins Engine Co., Inc. (2) 500,000 25,625 .21
UNOVA Inc. (1) 700,000 15,050 .12
Financial Services- 2.18%
Capital One Financial Corp. 750,000 93,141 .75
Freddie Mac 1,650,000 77,653 .63
Household International, Inc. 1,200,000 59,700 .48
Fannie Mae 600,000 36,450 .30
Shohkoh Fund & Co., Ltd. (Japan) 10,600 2,617 .02
Aerospace & Military Technology- 2.13%
Raytheon Co., Class B 662,500 39,170
Raytheon Co., Class A 670,232 38,622 .63
Boeing Co. 1,241,340 55,317 .45
Northrop Grumman Corp. 500,000 51,563 .42
General Motors Corp., Class H 1,050,000 49,481 .40
Sundstrand Corp. 500,000 28,625 .23
Forest Products & Paper- 2.05%
Union Camp Corp. 1,100,000 54,588 .44
International Paper Co. 1,100,000 47,300 .38
Weyerhaeuser Co. 1,000,000 46,187 .37
Georgia-Pacific Corp. 400,000 23,575
Georgia-Pacific Corp., Timber Group 400,000 9,225 .27
Fort James Corp. 600,000 26,700 .22
Chesapeake Energy Corp. 559,100 21,770 .18
Bowater Inc. 350,000 16,538 .13
Deltic Timber Corp. 297,300 7,451 .06
Transportation: Airlines- 1.87%
Delta Air Lines, Inc. 1,140,000 147,345 1.20
AMR Corp. (1) 1,000,000 83,250 .67
Automobiles- 1.75%
Chrysler Corp. 2,000,000 112,750 .92
General Motors Corp. 850,000 56,791 .46
Nissan Motor Co., Ltd. (Japan) 9,000,000 28,479 .23
Ford Motor Co. 295,000 17,405 .14
Industrial Components- 1.70%
Rockwell International Corp. 2,485,000 119,435 .97
Dana Corp. 1,100,000 58,850 .48
Genuine Parts Co. 525,000 18,145 .15
Goodyear Tire & Rubber Co. 200,000 12,888 .10
Appliances & Household Durables- 1.33%
Newell Co. 1,806,700 89,996
Newell Co. 5.25% convertible preferred 2027 (1) 254,000 14,732 .85
Philips Electronics NV (New York Registered Shares) (Netherlands) 700,000 59,500 .48
Beverages & Tobacco- 1.18%
Seagram Co. Ltd. (Canada) 3,000,000 122,813 1.00
PepsiCo, Inc. 550,000 22,653 .18
Multi-Industry- 1.17%
AlliedSignal Inc. 2,000,000 88,750 .72
Textron Inc. 777,000 55,701 .45
Metals: Nonferrous- 0.84%
Aluminum Co. of America 900,000 59,344 .48
Phelps Dodge Corp. 600,000 34,312 .28
Cyprus Amax Minerals Co., convertible preferred,
Series A 230,000 10,293 .08
Electrical & Electronics- 0.84%
Siemens AG (Germany) 1,200,000 73,271 .59
Nokia Corp., Class A (ADR) 420,000 30,476 .25
Food & Household Products- 0.83%
Unilever NV (New York Registered Shares) (Netherlands) 738,100 58,264 .47
Archer Daniels Midland Co. 2,310,000 44,756 .36
Electronic Instruments- 0.72%
Perkin-Elmer Corp. 1,228,800 76,416 .62
Tektronix, Inc. 359,000 12,700 .10
Recreation & Other Consumer Products- 0.65%
Eastman Kodak Co. 900,000 65,756 .53
Nintendo Co., Ltd. (Japan) 160,000 14,888 .12
Textiles & Apparel - 0.62%
NIKE, Inc. Class B 1,200,000 58,425 .47
Fruit of the Loom, Inc. (1) 280,000 9,292 .08
Nine West Group Inc. (1) 300,000 8,044 .07
Real Estate - 0.57%
Meditrust 1,450,000 40,509 .33
AMB Property Corp. 720,000 17,640 .14
CCA Prison Realty Trust 400,000 12,250 .10
Metals: Steel- 0.53%
Allegheny Teledyne Inc. 2,850,000 65,194 .53
Miscellaneous Materials & Commodities- 0.18%
Potash Corp. of Saskatchewan Inc. (Canada) 300,000 22,669 .18
Transportation: Rail & Road- 0.10%
Union Pacific Corp. 6.25% convertible preferred 2028 (2) 260,000 12,155 .10
Wholesale & International Trade- 0.03%
Tech Data Corp.(1) 75,000 3,216 .03
Miscellaneous- 3.69%
Other equity securities in initial period
of acquisition 454,940 3.69
--------- -------
TOTAL EQUITY SECURITIES (cost: $8,005,267,000) 11,163,809 90.48
--------- -------
PRINCIPAL
AMOUNT
Bonds & Notes (OOO)
- -------------------------------------------------------- --------- --------- ---------
Industrials - 1.25%
Adelphia Communications Corp.
10.50% 2004 $ 25,000 27,313
9.875% 2007 10,000 10,825 .39
9.25% 2002 10,000 10,350
Ziff-Davis Inc. 8.50% 2008 35,000 35,350 .29
Falcon Holding Group, L.P. 8.375% 2010 (2) 20,000 19,800 .16
Fox Family Worldwide, Inc. 9.25% 2007 (formerly Fox Kids Worldwide) 17,500 17,587 .14
Cablevision Systems Corp. 9.875% 2013 14,000 15,470 .13
Fox/Liberty Networks, LLC 8.875% 2007 10,000 10,200 .08
Time Warner Inc. 10.15% 2012 6,000 7,660 .06
Transportation- 0.12%
Delta Air Lines, Inc., Series 1993-A2, 10.50% 2016 (3) 11,500 14,745 .12
U.S. Treasury Obligations- 2.54%
6.125% 2027 292,000 312,896 2.54
------- ------
TOTAL BONDS & NOTES (cost: $466,333,000) 482,196 3.91
------- ------
Short-Term Securities
- ----------------------------------------------------
CORPORATE SHORT-TERM NOTES-5.54%
Procter & Gamble Co. 5.47%-5.50% due 7/30-8/7/98 $ 78,600 78,185 .63
Xerox Corp. 5.48%-5.49% due 7/8-8/10/98 74,200 73,880 .60
Lucent Technologies Inc. 5.48%-5.50% due 8/3-8/14/98 74,300 73,847 .60
American Express Credit Corp. 5.50%-5.52% due 7/9-8/12/98 68,300 67,976 .55
General Electric Capital Corp. 5.52%-6.25% due 7/1-7/20/98 61,200 61,113 .50
Ford Motor Credit Co. 5.49%-5.52% due 7/10-8/18/98 61,200 60,959 .49
E.I. du Pont de Nemours and Co. 5.48%-5.50% due 7/13-7/15/98 57,800 57,680 .47
Bell Atlantic Financial Services, Inc. 5.50% due 7/16/98 50,000 49,878 .40
Atlantic Richfield Co. 5.52% due 8/7-8/11/98 (2) 47,300 47,003 .38
General Motors Acceptance Corp. 5.52% due 7/9/98 40,000 39,945 .32
Duke Energy Corp. 5.48% due 7/6-8/27/98 36,900 36,721 .30
IBM Credit Corp. 5.48%-5.52% due 7/21-7/24/98 36,000 35,873 .29
------ ------
TOTAL SHORT-TERM SECURITIES (cost: $683,064,000) 683,060 5.53
------ ------
TOTAL INVESTMENT SECURITIES (cost: $9,154,664,000) 12,329,065 99.92
Excess of cash and receivables over payables 9,804 .08
--------- ---------
NET ASSETS $12,338,869 100.00%
========= ========
/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/ Pass-through security 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
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FUNDAMENTAL INVESTORS, INC.
INVESTMENT PORTFOLIO - June 30, 1998 - Unaudited
EQUITY SECURITIES APPEARING IN
THE PORTFOLIO SINCE DECEMBER 31, 1997
AMB Property
Amgen
Bay Networks
Boston Scientifcic
British Telecommunications
Budget Group
Cardinal Health
CCA Prison Realty Trust
Chesapeake Energy
Chrysler
Corning
Electronic Data Systems
Enron
Frontier
Hewlett-Packard
Imperial Oil
MarketSpan
Meditrust
Microsoft
Motorola
Nissan Motor
Norstrom
Northrop Grumman
Perkin-Elmer
Praxair
Reuters Group
SCI Sysstems
Tech Data
Thorn
UNOVA
Western Digital
Williams Companies
Waste Management
Wells Fargo
EQUITY SECURITIES ELIMINATED FROM THE
PORTFOLIO SINCE DECEMBER 31, 1997
AirTouch Communications
Albertson's
Bestfoods
British Petroleum
Ceridian
Chevron
Digital Equipment
Dupont
Edison
Engelhard
Enterprise Oil
First Chicago NBD
France Telecom
General Mills
Hoechst
Honda Motor
Humana
Intimate Brands
Kellogg
Loewen Group
Lucent Technologies
Mallinckrodt
McCormick
New Holland
Nichiei
Rayonier
Sony
Tenneco
Whitman
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Fundamental Investors, Inc.
Financial Statements Unaudited
Statement of Assets and Liabilities (dollars in thousands)
at June 30, 1998
- -------------------------------- --------- ---------
Assets:
Investment securities at market
(cost: $9,154,664) $12,329,065
Cash 3,923
Receivables for-
Sales of investments $ 69,350
Sales of fund's shares 14,286
Dividends and accrued interest 20,177 103,813
--------- ---------
12,436,801
Liabilities:
Payables for-
Purchases of investments 84,801
Repurchases of fund's shares 7,813
Management services 2,824
Other expenses 2,494 97,932
--------- ---------
Net Assets at June 30, 1998-
Equivalent to $30.59 per share on
403,327,783 shares of $1 par value
capital stock outstanding (authorized
capital stock-500,000,000 shares) $12,338,869
=========
Statement of Operations Unaudited
for the six months ended June 30, 1998 (dollars in thousands)
--------- ---------
Investment Income:
Income:
Dividends $ 91,117
Interest 27,567 $ 118,684
---------
Expenses:
Management services fee 16,758
Distribution expenses 13,902
Transfer agent fee 4,198
Reports to shareholders 209
Registration statement and prospectus 1,016
Postage, stationery and supplies 1,623
Directors' fees 70
Auditing and legal fees 48
Custodian fee 229
Taxes other than federal income tax 1
Other expenses 93 38,147
--------- ---------
Net investment income 80,537
---------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 599,645
Net increase in unrealized
appreciation on investments:
Beginning of period 2,486,223
End of period 3,174,382
Net unrealized appreciation ---------
on investments 688,159
Net realized gain and unrealized ---------
appreciation on investments 1,287,804
Net Increase in Net Assets Resulting ---------
from Operations $1,368,341
=========
Statement of Changes in Net Assets (dollars in * thousands)
- -------------------------------- --------- ---------
Six Months Year
ended ended
06/30/98* 12/31/97
Operations: --------- ---------
Net investment income $ 80,537 $ 138,079
Net realized gain on investments 599,645 994,082
Net unrealized appreciation
on investments 688,159 905,436
--------- ---------
Net increase in net assets
resulting from operations 1,368,341 2,037,597
--------- ---------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (78,733) (135,717)
Distributions from net realized
gain on investments (42,605) (1,056,767)
--------- ---------
Total dividends and distributions (121,338) (1,192,484)
--------- ---------
Capital Share Transactions:
Proceeds from shares sold:
41,861,242 and 85,048,442
shares, respectively 1,230,659 2,340,020
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
3,867,368 and 41,671,055 shares,
respectively 113,164 1,123,929
Cost of shares repurchased:
24,311,058 and 36,786,737
shares, respectively (716,517) (1,009,875)
Net increase in net assets resulting --------- ---------
from capital share transactions 627,306 2,454,074
--------- ---------
Total Increase in Net Assets 1,874,309 3,299,187
Net Assets:
Beginning of period 10,464,560 7,165,373
End of period (including undistributed --------- ---------
net investment income: $19,034 and
$17,230, respectively) $12,338,869 $10,464,560
========= =========
*Unaudited
See Notes to Financial Statements
</TABLE>
NOTES TO FINANCIAL STATEMENTS
FUNDAMENTAL INVESTORS UNAUDITED
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 primarily 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 securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the investment adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the investment adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type. Securities with
original maturities of one year or less having 60 days or less to maturity are
amortized to maturity based on their cost if acquired within 60 days of
maturity or, if already held on the 60th day, based on the value determined on
the 61st day. Assets or liabilities initially expressed in terms of non-U.S.
foreign currencies are translated into U.S. dollars at the prevailing market
rates at the end of the reporting period. Purchases and sales of securities
and income and expenses are translated into U.S. dollars at the prevailing
market rates on the dates of such transactions. The effects of changes in
non-U.S. currency exchange rates on investment securities are included with the
net realized and unrealized gain or loss on investment securities. Securities
and assets for which representative market quotations are not readily available
are valued at fair value as determined in good faith by a committee appointed
by the 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. In the event
the fund purchases securities on a delayed delivery or "when-issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in these transactions. 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. The fund does not amortize premiums on securities
purchased. Dividends and distributions paid to shareholders are recorded on the
ex-dividend date.
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, 1998 net unrealized appreciation on investments for book and
federal income tax purposes aggregated $3,174,401,000, of which $3,334,907,000
related to appreciated securities and $160,506,000 related to depreciated
securities. There was no difference between book and tax realized gains on
securities transactions for the six months ended June 30, 1998. Net losses
related to non-U.S. currency transactions of $22,000 were treated as ordinary
income for federal income tax purposes. The cost of portfolio securities for
book and federal income tax purposes was $9,154,664,000 at June 30, 1998.
3. The fee of $16,758,000 for management services was incurred pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on 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. The Board of Directors
has approved a new Investment Advisory and Service Agreement, effective
September 1, 1998, under which the Investment Adviser receives the lower of the
current Agreement or the new Agreement which provides for monthly fees, accrued
daily, based on an annual rate of 0.39% of the first $1 billion of the fund's
average net assets; 0.336% of such assets in excess of $1 billion but not
exceeding $2 billion; 0.30% of such assets in excess of $2 billion but not
exceeding $3 billion; 0.276% of such assets in excess of $3 billion but not
exceeding $5 billion; 0.27% of such assets in excess of $5 billion but not
exceeding $8 billion, 0.258% of such assets in excess of $8 billion but not
exceeding $13 billion; and 0.252% of such assets exceeding $13 billion. The
latter fee provides for lower fees when net assets exceed $8 billion. Beginning
June 1, 1998, CRMC has voluntarily agreed to waive its management fees in
excess of those provided by the amended agreement.
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
selling and servicing efforts. During the six months ended June 30. 1998,
distribution expenses under the Plan were $13,902,000. As of June 30, 1998,
accrued and unpaid distribution expenses were $1,945,000.
American Funds Service Company (AFS), the transfer agent for the fund, was paid
a fee of $4,198,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $4,678,000 (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, 1998,
aggregate amounts deferred and earnings thereon were $479,000.
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, 1998, accumulated undistributed net realized gain on
investments was $599,983,000 and additional paid-in capital was $8,142,142,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $3,221,241,000 and $2,554,777,000, respectively,
during the six months ended June 30, 1998.
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 $229,000 includes $9,000 that was paid by these credits
rather than in cash.
Dividend and interest income is recorded net of non-U.S. taxes paid. For the
six months ended June 30, 1998, such non-U.S. taxes were $3,423,000. Net
realized currency losses on dividends, interest, and withholding taxes
reclaimable were $22,000 for the six months ended June 30, 1998.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA AND RATIOS
Six Months Year ended December 31
Ended ------ ------ ------ ------ ------
6/30/98(1) 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------
Net Asset Value, Beginning
of Period $27.40 $24.54 $22.29 $17.50 $18.15 $17.52
------ ------ ------ ------ ------ ------
Income from Investment
Operations:
Net investment income .20 .41 .41 .41 .42 .44
Net realized and unrealized
gain (loss) on investments 3.30 6.00 4.00 5.46 (.18) 2.65
Total income from ------ ------ ------ ------ ------ ------
investment operations 3.50 6.41 4.41 5.87 .24 3.09
------ ------ ------ ------ ------ ------
Less Distributions:
Dividends from net investment
income (.20) (.42) (.40) (.40) (.44) (.43)
Distributions from net realized
gains (.11) (3.13) (1.76) (.68) (.45) (2.03)
------ ------ ------ ------ ------ ------
Total distributions (.31) (3.55) (2.16) (1.08) (.89) (2.46)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period $30.59 $27.40 $24.54 $22.29 $17.50 $18.15
====== ====== ====== ====== ====== ======
Total Return(2) 12.83%(3) 26.67% 19.99% 34.21% 1.33% 18.16%
Ratios/Supplemental Data:
Net assets, end of period
(in millions) $12,339 $10,465 $7,165 $4,754 $2,611 $1,979
Ratio of expenses to average
net assets .33% .63% .66% .70% .68% .65%
Ratio of net income to
average net assets .69% 1.54% 1.78% 2.08% 2.45% 2.43%
Average commissions paid
per share4 4.25c 4.51c 5.69c 5.95c 6.02c 6.14c
Portfolio turnover rate 23.37% 45.09% 39.07% 25.47% 23.02% 29.22%
(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 transaction
amount because of the lower per-share
prices of many non-U.S. securities.
</TABLE>
Results of Annual Meeting of Shareholders held February 26, 1998
<TABLE>
<CAPTION>
<S> <C>
Shares Outstanding on January 5, 1998 (record date) 381,933,198
Shares Voting on February 26, 1998 240,061,055 (62.9%)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Election of Directors
Director Votes For Percent of Votes Percent of
Shares Withheld Shares
Voting for Withheld
Guilford C. Babcock 229,514,110 96% 10,546,945 4%
Charles H. Black 229,493,290 96% 10,567,765 4%
James E. Drasdo 229,524,117 96% 10,536,938 4%
Robert A. Fox 229,522,953 96% 10,538,102 4%
Roberta L. Hazard 229,556,121 96% 10,504,934 4%
Leonade D. Jones 229,495,305 96% 10,565,750 4%
John G. McDonald 229,475,204 96% 10,585,851 4%
Gail L. Neale 229,501,824 96% 10,559,231 4%
James W. Ratzlaff 229,507,455 96% 10,553,600 4%
Henry E. Riggs 229,513,299 96% 10,347,756 4%
James F. Rothenberg 229,521,497 96% 10,539,558 4%
Patricia K. Woolf 229,482,434 96% 10,578,621 4%
</TABLE>
RATIFICATION OF AUDITORS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Director Votes For Percent of Votes Against Percent of Abstentions Percent
Shares Voting Shares Voting of Shares
For Against Abstaining
Deloitte & Touche LLP 231,345,622 96% 1,547,431 1% 7,167,989 3%
</TABLE>
Fundamental Investors' board of directors welcomes Guilford C. Babcock, Charles
H. Black, James E. Drasdo, Robert A. Fox, Roberta L. Hazard, Leonade D. Jones,
John G. McDonald, Gail L. Neale, James W. Ratzlaff, Henry E. Riggs, James F.
Rothenberg and Patricia K. Woolf as Directors of the fund. They were elected
at the February shareholders meeting.
We also wish to thank Martin Fenton, Jr., Herbert Hoover III, Kirk P.
Pendleton, R. Michael Shanahan and Walter P. Stern for their past service to
the fund. They did not stand for reelection as directors of Fundamental
Investors, but they will continue to serve as directors for other American
Funds as per the realignment of the board clusters described in the proxy
material.
OFFICES OF THE FUND
One Market, Steuart Tower
Suite 1800
San Francisco, California 94105-1409
INVESTMENT ADVISER
Capital Research and
Management Company
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5804
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
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, 1998, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
Printed on recycled paper
Litho in USA SG/AL/3979
Lit. No. FI-013-0898
45048/15046
